Opinion ID: 2013434
Heading Depth: 2
Heading Rank: 5

Heading: Sound Judicial Discretion

Text: [28] ¶ 61. We now apply these principles to the present case. The circuit court entered default judgment against Lumber Liquidators under Wis. Stat. § 806.02. ¶ 62. This default judgment rule does not instruct the circuit court how to exercise its discretion in deciding motions to strike an answer and enter default judgment. A long history of court decisions has attempted to provide guidance. However, the policy considerations at play in interpreting this default rule often conflict, so that the reported decisions appear inconsistent. ¶ 63. Entry of default judgment is not mandatory. Wis. Stat. § 806.02(1). The use of the word `may' indicates that the circuit court `is not required to enter a default judgment.' Shirk, 2001 WI 36, ¶ 15 (quoting Hansher, 79 Wis. 2d at 387). Granting or denying a motion for default judgment requires an exercise of sound discretion. [29, 30] ¶ 64. An appellate court will not reverse a circuit court's discretionary decision unless the circuit court erroneously exercised its discretion. See, e.g., Shirk, 2001 WI 36, ¶ 9; Hedtcke, 109 Wis. 2d at 470. At the same time, we note that default judgment is the ultimate sanction. The law prefers, whenever reasonably possible, to afford litigants a day in court and a trial on the issues. As a corollary to this preference, default judgments are regarded with particular disfavor. Shirk, 2001 WI 36, ¶ 9 (citing Dugenske v. Dugenske, 80 Wis. 2d 64, 68, 257 N.W.2d 865 (1977)). Consequently, default judgments are bound to attract close scrutiny in appellate review. [31-34] ¶ 65. A circuit court's exercise of discretion is not the equivalent of unfettered decision-making. Hartung v. Hartung, 102 Wis. 2d 58, 66, 306 N.W.2d 16 (1981). A discretionary determination, to be sustained, must demonstrably be made and based upon the facts appearing in the record and in reliance on the appropriate and applicable law. Id. In Howard v. Duersten , the court stated: The trial court must undertake a reasonable inquiry and examination of the facts as the basis of its decision. The exercise of discretion must depend on facts that are of record or that are reasonably derived by inference from the record and the basis for the exercise of discretion should be set forth. Howard v. Duersten 81 Wis. 2d 301, 305, 260 N.W.2d 274 (1977) (emphasis added). As the Hartung court put it, [A] discretionary determination must be the product of a rational mental process by which the facts of record and law relied upon are stated and are considered together for the purpose of achieving a reasoned and reasonable determination. Hartung, 102 Wis. 2d at 66 (emphasis added). In reviewing these discretionary determinations, an appellate court should not be expected to read the mind of the trial judge. When the circuit court imposes the ultimate sanction of default judgment in a contested hearing, the court must set forth the basis for its exercise of discretion. ¶ 66. In this case, Split Rock moved to strike the answer and enter default judgment. Lumber Liquidators responded with an attempt to persuade the court that its answer was filed within a reasonable time after service. This argument was properly rejected. In addition, however, Lumber Liquidators contended, both in its written submission and in its oral presentation to the circuit court, that even if its answer were not timely filed, default judgment was not an appropriate sanction. ¶ 67. Admittedly, Lumber Liquidators did not move to enlarge time, as it should have, and it made no argument to the court denying prejudice or showing excusable neglect. Nonetheless, it opposed the motion for default judgment as an erroneous exercise of the court's discretion. ¶ 68. The circuit court struck the answer and entered default judgment. The court determined that Lumber Liquidators' filing was late and that issue had not been joined by timely service of the answer. Then it stopped. The court did not examine why the filing was late, or whether there was prejudice to either the moving party or the court. It did not ask if there was excusable neglect or whether alternative sanctions would serve the interests of promoting prompt adjudication and encouraging quality legal representation. See Connor, 2001 WI 49, ¶ 16. It did not discuss the qualitative differences between late service of an answer and late filing of the answer, [19] or the preference of giving litigants their day in court. It did not attempt to justify the harsh result of default judgment on any basis except that issue had not been joined. As noted above, failure to join issue does not automatically entitle a party to default judgment. Hansher, 79 Wis. 2d at 387. ¶ 69. We reluctantly conclude that the circuit court did not set forth the basis for its exercise of discretion. It did not state the law it relied upon or articulate any analysis of prejudice or the policy factors supporting the issuance of the ultimate sanction. It erroneously exercised its discretion. As a result, the default judgment cannot stand. We vacate the order to strike the defendant's answer, vacate the default judgment, and remand the case to the circuit court for further proceedings consistent with this opinion. By the Court. The judgment of the circuit court is reversed and the cause is remanded. ¶ 70. JON P. WILCOX, J. (dissenting). The majority acts reluctantly because, even though it recognizes that the circuit court correctly held that Lumber Liquidators did not file its answer within a reasonable time, and it recognizes that the circuit court has the discretion to grant default judgment, the majority still manages to come to the conclusion that the circuit court reached the wrong result. While I agree that the remedy of default judgment is generally disfavored, it is a remedy that, according to the plain language of the statutes, still falls squarely within the discretion of the circuit court. In this case, I cannot find that the circuit court erroneously exercised its discretion, and for that reason I dissent. ¶ 71. When interpreting a statute, we first look to its plain language. Landis v. Physicians Ins. Co., 2001 WI 86, ¶ 14, 245 Wis. 2d 1, 628 N.W.2d 893. If the language of the statute is clear and unambiguous, we do not look beyond the statutory language to ascertain its meaning. Id. ¶ 72. Wisconsin Stat. § 801.14 (1999-2000) [1] is clear in its requirements. Subsection (1) requires that Every . . . pleading . . . shall be served upon each of the parties. Subsection (4) adds that: All papers after the summons required to be served upon a party . . . shall be filed with the court within a reasonable time after service. The filing of any paper required to be served constitutes a certification by the party or attorney effecting the filing that a copy of such paper has been timely served on all parties required to be served, except as the person effecting the filing may otherwise stipulate in writing. ¶ 73. These statutory subsections, read together, make it apparent that two steps are required for the effective service of a pleading: (1) the pleading must be served on every party; and (2) the document must then be filed with the circuit court within a reasonable time, thereby certifying that all parties required to be served have been timely served with the document. Ness v. Digital Dial Communications, 227 Wis. 2d 592, 601, 596 N.W.2d 365 (1999). These steps are mandatory, as indicated by the use of the word shall in each subsection. Cmty. Credit Plan, Inc. v. Johnson, 228 Wis. 2d 30, 41, 596 N.W.2d 799 (1999). The language of the statute is unambiguous in these respects. ¶ 74. In this case, the parties do not dispute that the answer was served on Split Rock in a timely manner. Thus, the only questions that remain pertain to the filing of the answer and the remedy for failure to file the answer in a timely manner. Specifically, this court must decide (1) whether the filing was made in a reasonable time, (2) whether the circuit court had the discretion to strike the answer and grant default judgment, and (3) if so, whether the circuit court erroneously exercised that discretion. ¶ 75. The majority correctly decides that the circuit court did not erroneously exercise its discretion when it found that the defendant failed to file its answer within a reasonable time. Majority op. at ¶ 34. Having already received a courtesy extension from Split Rock, Lumber Liquidators was well aware that its answer had to be served by December 22, 1999. Lumber Liquidators actually served the answer a day earlier. Lumber Liquidators should have been equally aware that the answer had to be filed with the court within a reasonable time after the service was made, and yet it failed to do so for 45 days. This was after Split Rock had filed its motion to strike the answer. Additionally, Lumber Liquidators never made a motion to extend time to file under Wis. Stat. § 801.15(2)(a). [2] Under such circumstances, the circuit court did not err when it held that Lumber Liquidators' answer was not filed within a reasonable time. [3] As a consequence, Lumber Liquidators failed to meet the requirements of § 801.14. ¶ 76. Our next questions are whether the circuit court had the discretion to strike the pleading and grant default judgment as a remedy for the failure, and, if the circuit court had such discretion, whether the circuit court erroneously exercised it. ¶ 77. The first question is easily answered. We have long held that the decision of whether or not to enter a default judgment is a matter that is within the sound discretion of the circuit court. See, e.g., Evelyn C.R. v. Tykila S., 2001 WI 110, ¶ 18, 246 Wis. 2d 1, 629 N.W.2d 768; Oostburg State Bank v. United Sav. & Loan Ass'n, 130 Wis. 2d 4, 11, 386 N.W.2d 53 (1986); Hollingsworth v. Am. Fin. Corp., 86 Wis. 2d 172, 181, 271 N.W.2d 872 (1978); Willing v. Porter, 266 Wis. 428, 430, 63 N.W.2d 729 (1954). We will only reverse a circuit court's grant of default judgment in a situation where the circuit court erroneously exercises that discretion, such as when circuit court applies an incorrect legal standard in deciding whether to enter judgment. Oostburg, 130 Wis. 2d 4, 11-12. ¶ 78. The question of erroneous exercise thus turns on the underlying question of whether the circuit court properly struck Labor Liquidators' answer when it was not filed within a reasonable time. I am unable to find any statutory provision that would have forbidden it from doing so. Quite the opposite, in fact, Wis. Stat. § 805.03 states that: For failure . . . of any party to comply with the statutes governing procedure in civil actions . . . the court in which the action is pending may make such orders in regard to the failure as are just, including but not limited to orders authorized under s. 804.12(2)(a). Among the orders in Wis. Stat. § 804.12(2)(a) is: 3. An order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed, or dismissing the action or proceeding or any part thereof, or rendering a judgment by default against the disobedient party. Taken together, these statutes plainly give the circuit court the discretionary authority to strike a pleading or to grant default judgment if, in the court's discretion, such a remedy is appropriate for a party's violation of the rules of civil procedure. In the present case, Lumber Liquidators violated the rules of civil procedure and the court imposed a sanction it was authorized by statute to impose. Thus, the circuit court did not apply an incorrect legal standard. ¶ 79. The only way the majority is able to find that the circuit court erroneously exercised its discretion here is by grafting a prerequisite finding of prejudice onto the court's discretion. By requiring that the circuit court find that the failure to file within a reasonable time was prejudicial before it may strike the pleading, majority op. at ¶ 58, the court adds a mandatory element that is plainly not mandatory under the statute. While I agree that the factors cited by the majorityincluding prejudiceshould influence the circuit court's reasoning in exercising its discretion, there is no statutory requirement for a finding of prejudice. ¶ 80. There are also practical reasons for not requiring a showing of prejudice in a situation such as this. The failure to file a pleading, as opposed to the mere failure to serve a pleading, has a significant impact on the judicial process and on the administration of justice as a whole. That is, the failure to file a pleading within a reasonable time greatly affects the court's ability to manage its own calendar and to conduct efficient proceedings. Thus, the failure to file a pleading within a reasonable time may actually prejudice the court more than it prejudices the opposing party, and could have an impact not only on the parties involved, but on parties in other cases currently being heard by the same court. Furthermore, under the majority's reasoning, a pleading that is timely served but not filed with the court until months or even years later would still require the non-dilatory party to go in front of the court and demonstrate prejudice, a situation that strikes me as unreasonable. These practical concerns reinforce my conclusion that the remedy for a failure to fileincluding a grant of default judgment belongs with the discretion of the circuit court. ¶ 81. Again, I recognize that default judgment is an extreme remedy, and one that is generally not favored. Rhodes v. Terry, 91 Wis. 2d 165, 177, 280 N.W.2d 248 (1979) (citing Dugenske v. Dugenske, 80 Wis. 2d 64, 68, 257 N.W.2d 865 (1977)). But despite its disfavored status, default judgment is not a prohibited remedy under the circumstances of this case. The discretion to grant default judgment lies clearly with the circuit court, and the circuit court applied the correct legal standard here. Thus, I am unable to conclude that the circuit court erroneously exercised its discretion in this case. For that reason, I disagree with the holding of the majority, and I would uphold the judgment of the circuit court. ¶ 82. For the foregoing reasons, I dissent. ¶ 83. I am authorized to state that Justice N. PATRICK CROOKS joins this opinion.