Opinion ID: 884920
Heading Depth: 1
Heading Rank: 4

Heading: Admissions by Default

Text: ¶ 20 Lane argues that any deemed admission by her husband, Brad, pursuant to the default judgment entered against him, are not binding on her. Our review of this issue is accordingly narrowed to whether in this instance the allegations relevant to summary judgment in Farmers third-party complaint were deemed admitted as a matter of law by Brad Lane. ¶ 21 As a general rule, under Rule 55, M.R.Civ.P., a default judgment based on one party's failure to answer under Rule 8, M.R.Civ.P., permits the non-defaulting party to assert that all factual allegations in the pleadings are deemed admitted in ascertaining liability. See Wheat v. Safeway Stores, Inc. (1965), 146 Mont. 105, 110, 404 P.2d 317, 319 (quoting from 2 Moore's Federal Practice, that all averments of the complaint, other than those as to the amount of damage, will stand admitted unless the defendant answers...). This general rule, in turn, is an exception to an overriding principle that cases are to be tried on the merits and judgments by default are not favored. See Maulding v. Hardman (1993), 257 Mont. 18, 23, 847 P.2d 292, 296. ¶ 22 Accordingly, Farmers argues that its assertions  that Brad Lane intentionally set fire to the Lane home, and committed fraud, concealment, misrepresentation and false swearing  have been procedurally transformed from pled allegations into legally proven facts pursuant to a valid default judgment. Consequently, the default judgment order serves as a proper basis for resolving all issues of material fact under the summary judgment standard of review. Indeed, pursuant to this Court's holding in Woodhouse, if it can be shown that as a matter of law Brad Lane, as a named insured, intentionally set the fire, or provided false or misleading information on the policy application, then Farmers should rightfully be able to deny Nancy Lane's claim. See Woodhouse, 241 Mont. at 72, 785 P.2d at 194. ¶ 23 Although we have not squarely addressed an identical set of procedural circumstances, we have in the past formulated guiding principles sufficient to address this issue. We have held that the deemed admissions resulting from one party's failure to respond to an amended counterclaim, due to a technicality, could not sustain a claim for fraud in a subsequent motion for summary judgment. See Aldrich & Co. v. Donovan (1989), 238 Mont. 431, 778 P.2d 397. ¶ 24 Aldrich involved a dispute between a contractor, Donovan, and a building supplies retailer, Aldrich. Similar to Lane here, Aldrich initiated the action. Donovan, similar to Farmers, filed an answer which included a counterclaim alleging fraud. On appeal, Donovan argued that the allegations in his counterclaims [should be] deemed admitted, thereby proving his case [for the purpose of summary judgment]. Aldrich, 238 Mont. at 436, 778 P.2d at 400. We affirmed the District Court's granting summary judgment for Aldrich, and agreed that Donovan's claim was: [I]nsufficient, because the facts alleged by Donovan ... were mere conclusory statements rather than evidence. The [district] court held that Donovan had presented virtually no evidence to support his claim, which therefore failed as a matter of law. On appeal Donovan again relies on allegations supposedly deemed admitted by the procedural rules ... to prove his case. We have held that these allegations were not deemed admitted, so this argument fails. Aldrich, 238 Mont. at 436, 778 P.2d at 400. See also Maulding v. Hardman (1993), 257 Mont. 18, 26-27, 847 P.2d 292, 298 (holding that allegations in the plaintiff's complaint based upon information and belief, which were deemed admitted following the defendant's failure to answer, were unsubstantiated, and could not support an award of punitive damages). ¶ 25 Additionally, in construing Rule 8, M.R.Civ.P., in conjunction with default judgments pursuant to Rule 55, M.R.Civ.P., we have often turned to Moore's Federal Practice for guidance. See, e.g., McClurg v. Flathead County Commrs. (1978), 179 Mont. 518, 519-20, 587 P.2d 415, 416 (holding that a Rule 8 default is not appealable until a final judgment is entered, and citing 6 Moore's Federal Practice § 55.10 (2d ed.1966) as authority). Accordingly, we adopt the general rule here that although [a]t the time of entry of default, the facts alleged by the plaintiff in the complaint are deemed admitted.... plaintiff's conclusions of law are not deemed established. 10 Moore's Federal Practice § 55.12(1) (3d ed.1999). See also 10A Charles Alan Wright, Arthur. R. Miller & Mary Kay Kane, Federal Practice and Procedure, Civil 3d § 2688 at 63 (1998) (stating a party in default does not admit mere conclusions of law). ¶ 26 A review of case law following Moore's rule on this issue reveals that the argument that legal conclusions may be deemed admitted pursuant to a default judgment runs contrary not only to the foregoing principles espoused by this Court, but to the spirit and intent of the Rules of Civil Procedure employed by the courts in this country dating back to at least 1885. See Nishimatsu Constr. Co., Ltd. v. Houston Natl. Bank (5th Cir.1975), 515 F.2d 1200, 1206 (referring to Thomson v. Wooster (1885) 114 U.S. 104, 5 S.Ct. 788, 29 L.Ed. 105, as the venerable but still definitive case and relying on the same for the proposition that a party against whom a default judgment is entered is not held to admit facts that are not well-pleaded or to admit conclusions of law). See also Skanchy v. Calcados Ortope Sa (Utah 1998) 952 P.2d 1071, 1076 (stating that a default judgment is valid only if the well-pleaded facts show that the plaintiff is entitled to judgment as a matter of law); Moran v. Moran (App.1996), 188 Ariz. 139, 933 P.2d 1207, 1214 (concluding that a defaulting defendant is not held to have admitted conclusions of law); Danning v. Lavine (9th Cir.1978), 572 F.2d 1386, 1388 (following Nishimatsu and citing Thomson ); Trans World Airlines, Inc. v. Hughes (D.C.N.Y.1969), 308 F.Supp. 679, 683 rev'd on other grounds (stating rule derived from Thomson that allegations which are not well-pleaded include allegations ... which are not susceptible of proof by legitimate evidence). ¶ 27 Based on the foregoing, we hold that the determination of whether a person has committed any one of the acts of arson, fraud, concealment, misrepresentation or false swearing  each subject to criminal or civil liability  is a conclusion of law that can only be reached after applying particular rules of law to specific findings of fact. These acts cannot, as a matter of law, be deemed admitted pursuant to an otherwise valid default judgment, merely because a party failed to answer or otherwise appear. ¶ 28 Having reached this holding, we now turn to the record, pursuant to our de novo review, to determine whether any legal conclusions were deemed admitted, and if so, whether they were supported by any legitimate evidence. ¶ 29 While it is uncontested that police investigated Brad Lane following the February 17, 1995 fire, the allegation that he intentionally set the fire is not only fervently contested by Lane, but Farmers has not provided any evidence to substantiate this claim. ¶ 30 Normally, the intent to commit an act is a question of fact. See, e.g., State v. Kestner (1986), 220 Mont. 41, 45, 713 P.2d 537, 540 (stating that intent may be inferred from substantial evidence of defendant's acts). Thus, the District Court might have concluded that the evidence of Brad Lane's activities prior to the fire created the inference that he intentionally set the fire, satisfying Farmers' no-intentional-act policy provision. In other words, if the uncontested substantial evidence showed that Brad Lane set the fire, then factual allegations of his state of mind may not necessarily be legal conclusions, and, subsequently, could be held as deemed admitted by a default judgment. Here, however, the default and summary judgments were not based on any evidence that Brad committed the act of setting the fire, let alone raise an inference as to his state of mind. ¶ 31 Furthermore, although Farmers did not allege in its complaint or in its summary judgment brief that Brad Lane committed the criminal act of arson, which would have been on its face a legal conclusion, Farmers has nevertheless claimed in its brief to this Court that the fire was declared an arson,  and an arson fire [was] caused by [Lane's] husband, and the fire was a classic arson fire. In either respect, whether Brad Lane committed arson, as defined under § 45-6-103, MCA, or intentionally set the fire, we conclude that the record in its entirety simply does not provide sufficient, legitimate evidence to support either allegation, both of which, in the absence of any factual underpinning, are nothing more than conclusions of law. We therefore hold it was incorrect to find that as a matter of law Brad Lane admitted to setting fire to the Lanes' home based solely on the legal conclusions alleged in Farmers' pleadings and subsequently decreed in the default judgment order. ¶ 32 We reach the same conclusion in our analysis of the allegations stemming from Brad Lane's response to requested information on Farmers' policy application. The exhibits within the record, offered by Farmers, show that Trinity Universal of Kansas, which had previously insured Lane's home, canceled its policy due to an adverse credit report. The exhibits further show that Farmers was aware of this fact in accepting the Lanes' application because Brad Lane provided this information. When requested to name the Lanes' prior home insurance carrier, Brad provided the name Trinity Universal of Kansas. Under the following request  loss history for the past five years  he listed none. Elsewhere on the application, Brad was similarly requested to provide information pertaining to loss due to fire, theft or vandalism ... within the past 5 years. Again, he responded by circling no. It is not clear whether these requests pertained to the prior carrier, Trinity, or to all insurance carriers  home, auto, etc.  on which both he and Nancy Lane may have made claims. ¶ 33 Even taking all of Farmers' allegations of the Lanes' past insurance claims as true  however irrelevant such allegations may be to this particular fire loss claim  the record offers no indication that Brad Lane's responses in this instance were not truthful, or intentionally withheld information, or, for that matter, that other carriers had ever denied coverage or canceled a policy due to misrepresentations of any kind. Surely, Farmers need not be reminded of the reasonable consumer standard for construing insurance documents. See Stutzman v. Safeco Ins. Co. of America (1997), 284 Mont. 372, 379-80, 945 P.2d 32, 36 (concluding that the average consumer of insurance would interpret the term relative to include his or her spouse). Or, that ambiguities in the language of the contracts will be construed against the insurer. See Wendell v. State Farm Mut. Auto. Ins. Co. (1999), 1999 MT 17, ¶ 14, 293 Mont. 140, ¶ 14, 974 P.2d 623, ¶ 14. See also Nishimatsu Constr. Co. v. Houston Nat'l Bank (5th Cir.1975), 515 F.2d 1200, 1206-07 (stating that where there is a disparity between a written instrument annexed to a pleading and an allegation in the pleading based thereon, the written instrument will control). Accordingly, we hold that in this instance the allegations of fraud, concealment, misrepresentation and false swearing are conclusory statements of law unsupported by any legitimate evidence in the record, and therefore were not deemed admitted by Brad Lane pursuant to the default judgment. ¶ 34 In sum, we hold that under the foregoing analysis, the relevant averments in Farmers third-party complaint were conclusions of law that cannot, as a matter of law, be held against Brad Lane, or any other party, as an admission of any of the alleged acts relevant to Farmers' motion for summary judgment. We conclude that the District Court relied exclusively on these averments in issuing its default decree, and then in finding no genuine issues of material fact remained in dispute. We hold, therefore, that summary judgment was improper in that material facts remain in dispute, and judgment in favor of Farmers was incorrect as a matter of law.