Court Opinion

ID: 4653562
Source: CourtListenerOpinion
Date Created: 2021-01-22 15:03:41.365183+00
Date Added: 2024-06-11T07:52:51.614300
License: Public Domain

IN THE SUPREME COURT OF IOWA
                                 No. 19–0431

         Submitted December 16, 2020—Filed January 22, 2021

NO BOUNDRY, LLC,

      Appellee,

vs.

CORNELL HOOSMAN,

      Appellant.

      On review from the Iowa Court of Appeals.

      Appeal from the Iowa District Court for Black Hawk County,

Andrea J. Dryer, Judge.

      On further review from the court of appeals, applicant contends the

court of appeals erred in affirming the district court’s denial of his motion

to set aside default judgment.      DECISION OF COURT OF APPEALS

VACATED; DISTRICT COURT ORDER REVERSED AND REMANDED.

      McDonald, J., delivered the opinion of the court, in which all

participating justices joined.     McDermott, J., took no part in the

consideration or decision of the case.

      Todd Schmidt (argued) of Iowa Legal Aid, Dubuque, Nathan Peters

of Iowa Legal Aid, Waterloo, and Alexander Vincent Kornya of Iowa Legal

Aid, Des Moines, for appellant.
                                     2

      Charles P. Augustine (argued) of Klatt, Augustine, Treinen &

Rastede, P.C., Waterloo, for appellee.
                                    3

McDONALD, Justice.

      Cornell Hoosman stands to lose his home for $220 in delinquent but

disputed property taxes. Hoosman claims he is legally disabled and is

exempt from paying property taxes. Hoosman alleges he has been trying

to resolve the property tax issue with Black Hawk County for some time.

Plaintiff No Boundry, LLC, obtained title to Hoosman’s home by way of a

tax sale deed. No Boundry filed its petition for recovery of real property

and obtained a default judgment awarding it immediate and exclusive

possession of Hoosman’s home.       The district court denied Hoosman’s
motion to set aside the default judgment. The court of appeals affirmed

the district court, and we granted Hoosman’s application for further

review.   The question presented is whether the district court erred in

denying Hoosman’s motion to set aside the default judgment.

      The record reflects the following.   No Boundry obtained title to

Hoosman’s home by way of a tax sale deed issued by the Treasurer of Black

Hawk County dated November 30, 2018, and filed December 11.             No

Boundry filed a petition for recovery of real property on January 14, 2019,

in which it sought immediate and exclusive possession of Hoosman’s

home. No Boundry personally served the petition and original notice on

Hoosman two days later. Hoosman did not timely file an answer. No

Boundry served on Hoosman its ten-day notice of intent to file an

application for default and default judgment. See Iowa R. Civ. P. 1.972(2).

After waiting the required time, No Boundry sought the entry of default

and default judgment. The district court entered default judgment on

February 21 and issued a writ of removal on February 25.

      Hoosman took action approximately two weeks after the district
court issued the writ of removal.       On March 13, Hoosman filed an

application in which he sought to enjoin his removal from the property. In
                                     4

the application, Hoosman averred that he has been legally disabled since

June 2013 and that, because of his legal disability, he is exempt from

paying property taxes.     The application further averred that Hoosman

received a letter of exemption from the Iowa Department of Human

Services and that Hoosman presented the letter of exemption to the Black

Hawk County Supervisors Office, which took no action.

      The day after Hoosman filed his application, Hoosman filed his

motion to set aside the default judgment. In the motion, Hoosman stated

he is legally disabled as evidenced by medical records. The motion stated
Hoosman was found to be incompetent in two criminal matters. Hoosman

asserted he had a statutory basis for defending against the claim.

Specifically, he asserted he had a statutory right of redemption afforded

persons with a legal disability under Iowa Code section 447.7(2).

      Hoosman and his counsel appeared before the district court at order

hour the following day. Order hour is a time set aside for the court to hear

motions and address other miscellaneous matters brought to the court’s

attention. Order hour typically is unscheduled and informal. A court

reporter was not available during this particular order hour. Following a

hearing on Hoosman’s motion, the district court entered an order denying

the motion to set aside.    The district court’s order did not make any

findings or provide any reason for denying Hoosman’s motion. The order

stated: “The court heard the arguments of counsel and finds that the

application for injunction and the motion to set aside default and stay writ

should be denied.”

      Hoosman filed a motion to enlarge and amend the district court’s

denial of his motion to set aside. In the motion, Hoosman alleged the
district court did not allow him to submit medical evidence in support of

his motion to set aside. Hoosman alleged that he is legally disabled and
                                     5

not competent to defend himself. He alleged he needs a guardian ad litem.

Attached to the motion to enlarge and amend was a psychologist’s report

prepared for the purposes of evaluating Hoosman’s competency to stand

trial in an unrelated criminal matter.     In the report, the psychologist

opined Hoosman was not competent to stand trial.         The district court

declined to rule on the motion to enlarge and amend because the writ

already had been executed by the sheriff and because Hoosman already

had filed his notice of appeal.

      This brings us to the question presented. We begin our answer to
the question by noting there is a longstanding policy in our state favoring

the resolution of legal disputes on the merits. See Wharff v. Iowa Methodist

Hosp., 219 N.W.2d 18, 21 (Iowa 1974) (“The general policy in this

jurisdiction has been to allow trial on the merits.”); Hobbs v. Martin

Marietta Co., 257 Iowa 124, 129, 131 N.W.2d 772, 775 (1964) (“[C]ourts

prefer a trial on the merits.”); Newell v. Tweed, 241 Iowa 90, 95, 40 N.W.2d

20, 23 (1949) (“Courts look with favor upon trials and the rights of a

litigant should not be denied proper hearing by strict application of legal

formalities.”). Pursuant to this longstanding policy, default judgments are

disfavored. This court will resolve all doubt on whether a default judgment

should be set aside in favor of setting aside the default judgment. See

Brandenburg v. Feterl Mfg. Co., 603 N.W.2d 580, 584 (Iowa 1999). “We are

more reluctant to interfere with a court’s grant of a motion to set aside a

default and a default judgment than with its denial.” Id. We are not alone

in this regard. “Courts almost universally favor a trial on the merits, and,

when there has been a reasonable excuse shown for the default, there

should be no objection to such a trial to those who are reasonably diligent.”
Barto v. Sioux City Elec. Co., 119 Iowa 179, 186, 93 N.W. 268, 271 (1903).
                                      6

      With that principle in mind, we turn to the text of the relevant rule.

Iowa Rule of Civil Procedure 1.977 provides “[o]n motion and for good

cause . . . the court may set aside a default or the judgment thereon, for

mistake, inadvertence, surprise, excusable neglect or unavoidable

casualty.”   Rule 1.977 further provides “[s]uch motion must be filed

promptly after the discovery of the grounds thereof, but not more than 60

days after entry of the judgment. Its filing shall not affect the finality of

the judgment or impair its operation.” “The burden is on the movant to

plead and prove good cause.” Cent. Nat’l Ins. Co. of Omaha v. Ins. Co. of N.
Am., 513 N.W.2d 750, 754 (Iowa 1994). “Good cause is a sound, effective,

and truthful reason. It is something more than an excuse, a plea, apology,

extenuation, or some justification, for the resulting effect.” Id.; see also

Hansman v. Gute, 215 N.W.2d 339, 342 (Iowa 1974).

      Although the movant bears the burden to plead and prove good

cause, our case law requires a liberal construction of the rule to afford an

opportunity for adjudication on the merits. See Brandenburg, 603 N.W.2d

at 584 (stating disfavor of denials of motions to set aside default judgment

is consistent with the purpose of the rule); Whitehorn v. Lovik, 398 N.W.2d

851, 853–54 (Iowa 1987) (en banc) (holding the purpose of the rule is “to

allow determination of controversies on their merits rather than on the

basis of nonprejudicial inadvertence or mistake” given the weight of

“justice inherent in a trial on the merits”); First Nat’l Bank in Lenox v.

Claiser, 308 N.W.2d 1, 3 (Iowa 1981) (en banc) (“Because trial on the merits

is favored, a liberal approach is to be taken in granting relief from

defaults.”); Handy v. Handy, 250 Iowa 879, 885, 96 N.W.2d 922, 926

(1959) (“[T]he liberality of Rule 236 [now rule 1.977] and its construction
is aimed to assure, if possible, that all litigants have a fair opportunity to

have their cases decided by the courts on the merits.”).
                                      7

      Hoosman argues default judgment should be set aside on the

ground of excusable neglect. See Cent. Nat’l Ins. Co. of Omaha, 513 N.W.2d

at 753, 755–56 (identifying excusable neglect as a ground for setting aside

default and default judgment). In determining whether the movant has

established excusable neglect we look at the particular facts and

circumstances of each case.       No single fact is dispositive.     Relevant

considerations include the cause for the movant’s failure to timely answer,

whether the movant intended to defend, whether the movant asserted a

meritorious defense in good faith, and whether the movant ignored or
willfully defied the rules of procedure. See id. at 756. We address each of

these considerations in turn.

      It appears the cause for Hoosman’s failure to timely answer was his

alleged legal disability. In his motion papers, Hoosman asserted that he

is legally disabled, that he receives disability income, that his disability is

recognized by the Iowa Department of Human Services, and that he may

have been adjudged incompetent in at least two criminal matters.            He

further alleged that he needed the assistance of a guardian ad litem to

assist him in defending against this claim.

      Hoosman’s claimed disability was supported by the competency

evaluation attached to his motion to enlarge and amend. The twelve-page

competency evaluation was prepared by a psychologist for the purposes of

evaluating Hoosman’s competency to stand trial in a criminal matter. The

report shows Hoosman suffered from a severe mental impairment of a

permanent nature. Hoosman had intracranial surgery in June of 2012

that left him with headaches.      The psychologist concluded Hoosman’s

cognitive abilities likely declined as a result of the intracranial surgery.
Hoosman tested at a seventh grade level in spelling and a sixth grade level

in math.
                                     8

      Throughout the report, the psychologist noted Hoosman had

impaired memory. Hoosman could not remember simple things: the last

time he had a checkup, the spelling of his children’s names, the length of

his marriage, the names and birth order of his siblings, and the last date

of his employment. During the evaluation, Hoosman used the restroom

“on multiple occasions” yet “repeatedly required directions to the

bathroom.” The psychologist notes that “[m]emory was problematic for

remote events, intact for recent events and impaired for immediate

retention and recall.” The report further stated that Hoosman was “unable
to remember any of 3 unrelated words following a five minute delay,” which

“suggest[ed] that [he] would have difficulty retaining information presented

during a trial.”

      The report also indicated Hoosman had lapses in concentration and

suffered confusion.   The psychologist noted that Hoosman’s “response

latency was lengthy” and that Hoosman “had lapses in concentration and

staring episodes lasting several seconds during which time he was

unresponsive to verbal stimulation.”       The psychologist also noted,

“Attention span was short and concentration was impaired [possibly

because of seizures]. At times, he appeared to drift off and had to have his

attention redirected to the tasks at hand.” (Brackets in original.) Although

the report noted Hoosman lived alone, the psychologist cited limitations in

Hoosman’s ability to independently function: Hoosman “rarely drives

because of suspected seizures,” shops with the assistance of his friend,

and prepares “very simple meals.” The psychologist reported Hoosman’s

“scores strongly suggest[ed] organic confusion as supported by records

from the University of Iowa Hospitals and Clinics.”
      The psychologist concluded Hoosman suffered from “Delirium vs.

Dementia” due to a cerebral aneurysm without rupture. The psychologist
                                     9

concluded Hoosman’s low cognitive functioning would detrimentally

impact Hoosman’s “ability to follow trial proceedings.” The psychologist

concluded Hoosman’s “capacity to plan legal strategy was impaired.” The

psychologist ultimately opined Hoosman’s impairments would make him

incompetent to stand trial, unable to understand trial proceedings, and

unable to contribute to his own defense.

      Although not dispositive, Hoosman’s apparent cognitive impairment

weighs in favor of setting aside the default judgment. This State has a

long history of protecting the property rights of wards deemed unable to
protect their own economic interests without assistance:

      It is unquestionably true, however, that from very early times
      the property rights of children and lunatics have been favored
      in law, and the courts have regarded such persons as their
      wards, whose interest should not be sacrificed to mere
      technicalities . . . . Keeping that just and humane purpose in
      view, the legislature has attempted to provide certain definite
      laws by which the rights of such wards may be preserved.

Hawley v. Griffin, 121 Iowa 667, 676, 92 N.W. 113, 116 (1903); see also

Nels v. Rider, 185 Iowa 781, 785, 171 N.W. 150, 152 (1919) (“No guardian

appeared; no defense was interposed; no guardian ad litem was appointed.

The default judgment, therefore, was irregular.”).
      We next consider whether Hoosman established an intent defend

against the claim. Whether Hoosman “moved promptly to set aside the

default is significant on this point.” Cent. Nat’l Ins. Co. of Omaha, 513

N.W.2d at 756; see also Paige v. City of Chariton, 252 N.W.2d 433, 437

(Iowa 1977) (“It is significant defendants moved promptly to set aside the

default.”). Hoosman disputed the legality of the property tax assessment

with Black Hawk County but to no avail.         After entry of the default

judgment, Hoosman obtained counsel.        Counsel immediately filed the
application for injunction and motion to set aside. The motion to set aside
                                    10

was filed only twenty-one days after default judgment was entered, well

within the sixty days allowed by Iowa Rule of Civil Procedure 1.977. Cf.

Brandenburg, 603 N.W.2d at 583 (reversing a denial of a motion to set

aside where the party filed the motion one month and nine days after the

entry of default). At the hearing on the motion to set aside, Hoosman

appeared personally with his counsel with evidence to substantiate his

legal disability. After the district court denied his motion to set aside,

Hoosman filed a motion to enlarge and amend and pursued this appeal.

This record reflects Hoosman intended to defend against the petition for
removal, and this factor favors setting aside the default judgment.

      The next factor we consider is whether Hoosman asserted a

meritorious defense in good faith. “[W]hether a meritorious defense has

been shown ‘must be determined on a case by case basis and with an

awareness of the policies behind default judgments and the circumstances

under which they should be set aside.’ ” Flexsteel Indus. Inc. v. Morbern

Indus. Ltd., 239 N.W.2d 593, 600 (Iowa 1976) (quoting 10 Charles Alan

Wright & Arthur R. Miller, Federal Practice and Procedure § 2697).

      Hoosman asserts he has a statutory defense to No Boundry’s

removal proceeding pursuant to Iowa Code section 447.7. It provides, in

relevant part:

            2. a. If a parcel of a person with a legal disability is
      sold at tax sale and the county treasurer has delivered the
      treasurer’s deed, the person with the legal disability or the
      person’s legal representative may redeem the parcel at any
      time prior to one year after the legal disability is removed by
      bringing an equitable action for redemption in the district
      court of the county where the parcel is located, unless the
      action is required to be brought sooner in time by operation of
      subsection 3 or 4.

            ....

           3. If a person with a legal disability remains in
      possession of the parcel after the recording of the treasurer’s
                                    11
      deed, and if the person claiming under the tax title properly
      commences an action to remove the person from possession,
      the person with a legal disability shall forfeit any rights of
      redemption that the person may have under this section,
      unless either of the following actions is timely filed by or on
      behalf of the person:

             a. A counterclaim in the removal action asserting the
      redemption rights under subsection 2 of the person with a
      legal disability.

            b. A separate action under subsection 2. Such action
      shall be filed within thirty days after the person with a legal
      disability and the person’s legal representative were served
      with original notice in the removal action.

Iowa Code § 447.7.

      The court of appeals concluded Hoosman failed to establish a

meritorious defense. The court of appeals reasoned as follows:

      Hoosman’s right of redemption was forfeited unless he
      “timely” responded to No Boundry’s action by (a) filing a
      “counterclaim in the removal action asserting his redemption
      rights,” or (b) filing a “separate action” to assert his
      redemption rights “within thirty days” after being served “with
      original notice in the removal action.” Hoosman did neither.
      So it appears Hoosman’s redemption rights are forfeited.

      We respectfully disagree. The overarching question presented in

this appeal is whether the district court should have set aside the default

judgment to allow Hoosman to file an answer and defend on the merits.

To conclude, as the court of appeals did, that the district court should not
have set aside the default because Hoosman failed to file an answer and

defend on the merits strikes us as circular. The court of appeals framed

the question too broadly with respect to its analysis of this factor. The

specific question presented is whether the movant would have a

meritorious defense if the motion to set aside the default were granted. We

ask that question because there would be no reason to set aside the default
judgment if it were simply a fait accompli that the district court would

eventually reenter the same judgment. See Brandenburg, 603 N.W.2d at
                                    12

584 (stating the underlying purpose of rule 1.977 is “to allow a

determination of controversies on their merits rather than on the basis of

nonprejudicial inadvertence or mistake” (quoting Whitehorn, 398 N.W.2d

at 853)). In this case, if the motion to set aside default judgment were

granted, the case would proceed and Hoosman would be entitled to timely

file a responsive pleading, including his statutory counterclaim. See Iowa

R. Civ. P. 1.241 (discussing compulsory counterclaims); Iowa R. Civ. P.

1.401 (defining allowable pleadings); Iowa R. Civ. P. 1.405 (discussing the

answer). The court of appeals erred in concluding otherwise.
      The court of appeals also concluded Hoosman had not asserted a

meritorious defense because there was insufficient evidence to establish

Hoosman was a person with a “legal disability” within the meaning of

section 447.7.   Again, we respectfully disagree.     For the purposes of

establishing good cause to set aside a default judgment, the movant is not

required to prove up the defense to the claim. Instead, the movant need

only make a prima facie showing the movant has a meritorious defense.

See Flexsteel Indus., Inc., 239 N.W.2d at 599 (holding that the movant

must present evidence of a prima facie showing of a defense upon the

merits); Handy, 250 Iowa at 884, 96 N.W.2d at 925 (“The court’s duty in

this proceeding is to ascertain from the evidence whether any facts existed

which . . . would prima facie constitute a defense.”); Hastings v. Espinosa,

340 N.W.2d 603, 609 (Iowa Ct. App. 1983) (finding that assertion of

statutory defense “is a meritorious defense allowing the trial court to set

aside the default judgment”).

      We express no opinion on whether Hoosman could ultimately prove

he has a legal disability within the meaning of the statute, but he has at
least made a prima facie showing he has a meritorious defense to the

petition for writ of removal. A legally disabled person under chapter 447
                                    13

“means a minor or a person of unsound mind.” Iowa Code § 445.1(6). A

person of unsound mind is someone who is “not . . . capable of exercising

the judgment necessarily required in the management of his ordinary

affairs.” Garretson v. Hubbard, 110 Iowa 7, 9, 81 N.W. 174, 174 (1899).

“A person of unsound mind is one who is incapable of transacting the

particular business [at] hand.” Id. (quoting Seerley v. Sater, 68 Iowa 375,

376, 27 N.W. 262, 263 (1886)).     “[I]t is evidently the purpose of these

statutes to protect those who . . . are incapable of understanding their

rights and obligations, and of caring for their own interests.” Hawley v.
Griffin, 82 N.W. 905, 906 (Iowa 1900). The competency evaluation showed

Hoosman suffered from a cognitive impairment of a permanent nature that

may render him of “unsound mind” within the meaning of the statute. The

competency evaluation showed Hoosman suffered from significant

cognitive impairments to his memory and ability to comprehend matters.

The evaluation referred to a payee who managed Hoosman’s finances.

From this we can infer Hoosman was not competent to manage his own

finances. In short, Hoosman made a prima facie showing he has a defense

to the claim, and this factor favors setting aside the default judgment.

      Finally, we assess whether Hoosman willfully ignored or defied the

rules of civil procedure. Willful defiance contemplates conduct that “goes

beyond negligent or careless conduct.” Brandenburg, 603 N.W.2d at 585.

Willful defiance means “conduct on the part of the defaulting party

showing a deliberate intention to ignore, and resist any adherence to, the

rules of procedure[,] . . . [e]xcusable neglect warranting relief from a

default excludes conduct amounting to no care, no attention and

approaching gross neglect or willful procrastination.” Id. Here, there is
no evidence Hoosman willfully ignored or defied the rules of procedure.

Instead, this record shows a man with an apparently significant cognitive
                                     14

impairment that limits his ability to remember, plan, and prepare,

particularly with respect to legal matters. This factor, too, favors setting

aside the default judgment.

      “The determination of whether a movant has established good cause

is not a factual finding; rather, it is a legal conclusion and is not binding

on us.” Sheeder v. Boyette, 764 N.W.2d 778, 780 (Iowa Ct. App. 2009). In

light of the strong policy preference favoring the adjudication of claims on

the merits, we find Hoosman has established good cause to set aside the

default judgment. We thus conclude the district court erred in denying
Hoosman’s motion to set aside the default judgment.         We reverse and

remand for an order granting the motion to set aside the default and

default judgment and for further proceedings consistent with this opinion.

      DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT

ORDER REVERSED AND REMANDED.

      All justices concur except McDermott, J., who takes no part.