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1 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
2 FLAGSTAR BANK, FSB,
3 Plaintiff-Appellee,
4 v. NO. 30,909
5 KEITH M. GILES
6 Defendant-Appellant,
7 and
8 JANE DOE GILES (true name unknown), 9 FIRST STATE BANK N.M., 10 JC CONSTRUCTORS, INC., 11 JOHN DOE AND JANE DOE (true names unknown), Tenants
12 Defendants.
13 APPEAL FROM THE DISTRICT COURT OF TAOS COUNTY 14 Sam B. Sanchez, District Judge
15 The Hopp Law Firm, LLC 16 Karen H. Weaver 17 Albuquerque, NM
18 for Appellee
19 The Walcott Law Firm, P.C. 20 Donald A. Walcott 21 Santa Fe, NM 1 for Appellant
2 MEMORANDUM OPINION
3 GARCIA, Judge.
4 This case involves the foreclosure of a first mortgage lien on a home owned by
5 Defendant Keith M. Giles (Giles). Giles appeals the district court’s denial of his Rule
6 1-060(B)(1) NMRA motion to set aside the default judgment entered against him.
7 Giles asserts that it was an abuse of discretion for the district court to conclude that
8 (1) he failed to prove the existence of excusable neglect based on his ongoing
9 negotiations with Plaintiff Flagstar Bank (Flagstar) and (2) his allegations regarding
10 Flagstar’s standing and fraud in the perfection of the mortgage were insufficient to
11 present a meritorious defense. We conclude that Giles did not sufficiently establish
12 excusable neglect and affirm the district court on that basis.
13 FACTS
14 Giles is a principal of a commercial real estate development company. In
15 March 2007, Giles executed and delivered a promissory note (the Note) payable to
16 Chicago Funding, Inc. To secure payment on the Note, Giles executed and delivered
17 a real estate mortgage (the Mortgage) to Mortgage Electronic Registration Systems,
18 Inc. (MERS). The property securing the Note was a Taos Ski Valley condominium
2 1 unit used by Giles as a second home. Ultimately, the Note and Mortgage were both
2 assigned to Flagstar.
3 In August 2008, Giles failed to timely pay on the Note pursuant to its terms.
4 Since that time, Giles has made no further payments on the Note, and Flagstar has
5 been advancing the taxes and insurance on the property. As a result, Flagstar filed a
6 complaint to foreclose on its Mortgage on December 17, 2008. It is undisputed that
7 Giles was personally served with Flagstar’s foreclosure complaint and summons on
8 January 8, 2009. The summons specifically stated that if Giles failed “to file a timely
9 answer or motion, default judgment may be entered against [him] for the relief
10 demanded in the [c]omplaint.” Giles did not file an appearance, an answer, or
11 otherwise respond to the foreclosure complaint until after the default judgment was
12 entered in favor of Flagstar on April 12, 2010.
13 Giles did contact Flagstar via email to attempt to structure a deed in lieu of
14 foreclosure as a solution to the mortgage foreclosure lawsuit. For a period of
15 approximately eighteen months, the parties discussed the possibility of structuring a
16 deed in lieu of foreclosure. During that time period, Flagstar suspended moving
17 forward on its foreclosure complaint. Throughout the course of their discussions,
18 however, Flagstar repeatedly indicated that it would not consider Giles’ request for
19 a deed in lieu of foreclosure until he removed the existing liens against the property
20 and the unit was repaired. Flagstar specifically stated that Giles needed to clear up all
3 1 the title encumbrances by March 1, 2010. In response, Giles spent weeks indicating
2 that he had resolved all the issues on the unit and that the title would be cleared up
3 within days. On February 23, 2010, having received no status update, Flagstar
4 emailed Giles to remind him of the imminent March 1, 2010 deadline and to request
5 another update on his efforts to clear title to the property. Giles responded that he
6 could not meet the March 1, 2010 deadline and predicted that he was likely clear up
7 title to the property by March 15. On March 16, however, Flagstar had received no
8 indication from Giles that the liens on the property were removed. Giles had also
9 made no attempt to contact Flagstar and explain his failure to satisfy the requirements
10 for a deed in lieu. As a result, on April 12, 2010, Flagstar filed its motion for default
11 judgment.
12 The district court entered the default judgment in favor of Flagstar on April 12,
13 2010. A sale of the property was scheduled for May 26, 2010, and a notice of sale
14 was filed on April 28, 2010. Upon being informed by Flagstar’s representative, Mr.
15 Hammond, that the property was to be sold, Giles sent another email on April 27,
16 2010. At that time, only two of the liens had been removed, but Giles anticipated that
17 the release of the third lien was imminent. Giles specifically stated that he was
18 “anxious to reinstate the [deed in lieu] approvals for this unit[,]” and was hoping to
19 hear from Flagstar “to discuss how to make that happen.”
20 On May 13, 2010, Giles’ counsel filed his entry of appearance in the
4 1 foreclosure lawsuit. On May 18, 2010, Giles filed a motion to set aside default
2 judgment. In support of his motion, Giles cited Rule 1-060(B)(1) and argued that his
3 failure to timely respond to Flagstar’s complaint constituted excusable neglect. Giles
4 stated that “[f]rom the time this case was filed, Flagstar and Giles were negotiating a
5 settlement of Giles’ debt to Flagstar, which resulted in an agreement [for a deed in lieu
6 of foreclosure] between the parties in April 2009.” Giles attached the above
7 mentioned email discussions as proof of this alleged agreement. In his motion, Giles
8 did not contest Flagstar’s standing to foreclose the Mortgage or raise any issue
9 regarding the perfection of the Note or the Mortgage. These defenses were raised for
10 the first time in his reply.
11 Flagstar agreed to postpone the May 26, 2010 foreclosure sale until after the
12 hearing on Giles’ motion to set aside the default judgment. The hearing, however,
13 was postponed several times. As a result, Flagstar proceeded with the sale of the
14 property to avoid further postponement of fees, but agreed not to confirm the sale until
15 after the hearing. Flagstar also agreed to re-review Giles’ request for a deed in lieu
16 of foreclosure as the three liens on the property had finally been removed. In July
17 2010, however, Flagstar learned that the condominium unit had been gutted, and its
18 value had decreased considerably as a result of this damage. At that time, Flagstar
19 informed Giles that it would only consider a deed in lieu if Giles repaired the property
20 to its original condition by September 15, 2010. When Giles had not completed the
5 1 repairs by this date, Flagstar denied his latest request for deed in lieu and proceeded
2 to address the motion to set aside the default judgment.
3 The district court denied Giles’ motion to set aside the default judgment on
4 October 21, 2010. At the hearing, the court explained that Rule 1-060(B) required
5 Giles to demonstrate both excusable neglect and the existence of a meritorious
6 defense. The district court reasoned that Giles had not demonstrated excusable
7 neglect because the summons was very clear that default judgment could be entered
8 if Giles did not file an answer to Flagstar’s complaint. The court further found that
9 there was no agreement between the parties, particularly in light of the fact that their
10 ongoing discussions lasted for a year and a half. Although unnecessary in the absence
11 of excusable neglect, the district court also addressed the meritorious defense prong
12 of the Rule 1-060(B)(1) requirements. The court concluded that Giles had not raised
13 a meritorious defense. Giles filed a timely appeal to this Court.
14 DISCUSSION
15 Giles contends that his failure to answer Flagstar’s complaint was excusable
16 neglect and that he raised a meritorious defense in light of his argument that Flagstar
17 lacked standing to bring the complaint or, alternatively, based on his challenge to the
18 validity of the assignment of the Mortgage and the Note to Plaintiff through MERS.
19 As such, he asks this Court to reverse the district court’s order denying his motion to
20 set aside the default judgment and to remand for further proceedings.
6 1 Standard of Review
2 Default judgments are not favored and a case should be heard on its merits
3 whenever possible. N. M. Educators Fed. Credit Union v. Woods, 102 N.M. 16, 17,
4 690 P.2d 1010, 1011 (1984). However, it is within the district court’s discretion to
5 grant a default judgment. Id. As such, it is also within the district court’s discretion
6 to set aside a default judgment, and we will reverse a district court’s ruling on a
7 motion to set aside a default judgment only for an abuse of discretion. Id.
8 “An abuse of discretion occurs when the ruling is clearly against the logic and effect
9 of the facts and circumstances of the case.” Kinder Morgan CO2 Co. v. State
10 Taxation & Revenue Dep’t, 2009-NMCA-019, ¶ 9, 145 N.M. 579, 203 P.3d 110
11 (internal quotation marks and citation omitted). There is no abuse of discretion when
12 reasons exist that both support and detract from a district court decision. Id.
13 Rule 1-060(B)(1) requires the party seeking relief to demonstrate the existence
14 of both excusable neglect and a meritorious defense. See Rodriguez v. Conant, 105
15 N.M. 746, 749, 737 P.2d 527, 530 (1987) (“A party seeking relief from a default
16 judgment must show the existence of grounds for opening or vacating the judgment
17 and a meritorious defense or cause of action.”). If these two elements are found and
18 there are no intervening equities in favor of the non-moving party, a court may set
19 aside the default judgment. N. M. Educators Fed. Credit Union, 102 N.M. at 17, 690
20 P.2d at 1011; see also Kinder Morgan CO2 Co., 2009-NMCA-019, ¶ 14 (holding that
7 1 Rule 1-060(B) “empowers the [district] court with the discretion, in the rare occasions
2 when appropriate, to grant relief from its own judgments”).
3 Excusable Neglect
4 Giles argues that he did not timely file an answer or otherwise participate in the
5 litigation because he was engaged in settlement negotiations with Flagstar and,
6 therefore, he was not on notice that a default judgment might be entered against him.
7 He contends that under those circumstances his failure to prevent a default judgment
8 by timely filing an answer constitutes excusable neglect.
9 Whether a party’s failure constitutes excusable neglect is an equitable
10 determination that requires consideration of all of the relevant circumstances
11 surrounding the omission. Kinder Morgan CO2 Co., 2009-NMCA-019, ¶ 13; see also
12 Sunwest Bank v. Roderiguez, 108 N.M. 211, 214, 770 P.2d 533, 536 (1989) (holding
13 that courts should analyze claims of excusable neglect pursuant to Rule 1-060(B)(1)
14 based on the facts and circumstances of each case). The relevant circumstances
15 “include the danger of prejudice to the non-moving party, the length of the delay and
16 its potential impact on judicial proceedings, the reason for the delay, including
17 whether it was within the reasonable control of the movant, and whether the movant
18 acted in good faith.” Kinder Morgan CO2 Co., 2009-NMCA-019, ¶ 12 (alterations,
19 internal quotation marks, and citation omitted). In analyzing the totality of the
20 circumstances, the district court is in the best position to “decide and act in accordance
8 1 with what is fair and equitable.” Mendoza v. Mendoza 103 N.M. 327, 332, 706 P.2d
2 869, 874 (Ct. App. 1985); see also Kinder Morgan CO2 Co., 2009-NMCA-019, ¶ 13
3 (“[T]he district court’s intimate familiarity with [the] circumstances puts it in a better
4 position than an appellate court to determine whether a party [has] truly failed to
5 actively pursue a claim.”).
6 On appeal, Giles focuses his argument on the reason for his delay in filing an
7 answer or otherwise participating in the litigation. He asserts that he was not on
8 notice that his participation in the litigation was necessary to prevent the entry of a
9 default judgment because he believed that the parties had negotiated a settlement of
10 the foreclosure lawsuit through a deed in lieu of foreclosure. Alternatively, Giles
11 argues that regardless of his failure to appear in the lawsuit, it was inequitable for
12 Flagstar to seek default judgment without notice to Giles under the specific
13 circumstances of this case. See, e.g., Dean Witter Reynolds, Inc. v. Roven, 94 N.M.
14 273, 274, 609 P.2d 720, 721 (1980) (requiring notice before default judgment against
15 the defendants who did not enter an appearance or file pleadings because plaintiffs had
16 represented to the defendants that they would not seek default during settlement
17 negotiations). We are unpersuaded by these arguments because substantial evidence
18 in the record supports the district court’s finding that Giles was aware of the
19 likelihood that a default judgment might be entered against him even though he was
20 informally attempting to structure a resolution of the lawsuit through a deed in lieu.
9 1 The record is clear that Giles was aware of Flagstar’s complaint for foreclosure
2 and was personally served with the summons and complaint. Despite the express
3 language of the summons requiring a response and stating that the failure to timely
4 answer or submit a motion may result in a default judgment, Giles chose not to enter
5 an appearance or otherwise address the complaint for approximately eighteen months.
6 As the principal of a commercial real estate company, the district court can presume
7 that Giles has experience in real estate litigation and is fully aware of his duty to
8 respond to a complaint filed against him. See In re Gaines, 113 N.M. 652, 658, 830
9 P.2d 569, 575 (Ct. App. 1992) (“[A] party, served with an initial summons and thus
10 having actual notice of the litigation, [cannot] claim ‘excusable neglect’ under Rule
11 [1-0]60(B) for not being aware of subsequent proceedings in the matter.” (citation
12 omitted)). Giles chose from the outset to address the foreclosure lawsuit informally
13 and to do nothing in the court proceedings until after he learned that default judgment
14 was entered against him. See Rule 1-055(B) NMRA (recognizing that a party is only
15 entitled to three days’ written notice and a hearing before the entry of a default
16 judgment when the party or the party’s representative “has appeared in the action”);
17 Rodriguez, 105 N.M. at 748, 737 P.2d at 529 (requiring notice only when a party has
18 appeared in the action). As such, Giles had no entitlement to notice and he was not
19 excused from filing a response or motion to Flagstar’s complaint. See Kinder Morgan
20 CO2 Co., 2009-NMCA-019, ¶ 18 (“[C]arelessness by a litigant . . . does not afford a
10 1 basis for relief under Rule [1-060(B)(1).]” (alteration, internal quotation marks, and
2 citation omitted)).
3 We are likewise unpersuaded by Giles’ argument that his conduct is excusable
4 in part because he reacted quickly to the default judgment by obtaining legal
5 representation and moving to set aside the default judgment. The fact remains that for
6 an extremely long period of time Giles neglected to file a response to the complaint
7 in this case. See Magnolia Mountain Ltd. P'ship v. Ski Rio Partners, Ltd., 2006-
8 NMCA-027, ¶ 37, 139 N.M. 288, 131 P.3d 675 ( “[E]quity aids the vigilant, not those
9 who slumber on their rights.” (internal quotation marks and citation omitted)). We
10 will not excuse Giles’ failure to timely acknowledge the case or defend himself based
11 on his quick response to the entry of default judgment. See Adams v. Para-Chem So.,
12 Inc., 1998-NMCA-161, ¶ 21, 126 N.M. 189, 967 P.2d 864 (holding that a defendant’s
13 failure to react to a complaint for over two years was not excusable neglect even in a
14 situation where the plaintiff caused the delay between the filing of the complaint and
15 entering of default judgment and where the defendant acted very quickly to set aside
16 the default judgment).
17 Finally, substantial evidence supports the district court’s finding that the parties
18 had not entered into a settlement agreement that would justify Giles’ failure to respond
19 to the complaint. Giles even conceded that there was no such agreement when he
20 stated in the April 27, 2010, email that he was “anxious to reinstate the [deed in lieu]
11 1 approvals for this unit[,]” and was hoping to “discuss how to make that happen.” In
2 addition, Flagstar never represented that an agreement had been reached for a deed in
3 lieu or that it would not seek default judgment against Giles. See Dean Witter
4 Reynolds, Inc., 94 N.M. at 274, 609 P.2d at 721 (finding the defendants’ failure to
5 timely answer was excusable neglect where the parties were engaged in settlement
6 negotiations and the plaintiff had told the defendants that it would not seek entry of
7 default judgment during the negotiations). In fact, Flagstar stated the opposite: that
8 it would consider his deed in lieu request only if he cleared title to the property and
9 made the necessary repairs by certain specified dates.
10 We recognize that settlement negotiations are relevant to a determination of
11 excusable neglect. See, e.g., Kinder Morgan CO2 Co., 2009-NMCA-019, ¶¶ 7, 21
12 (considering the fact that the parties were engaged in ongoing settlement negotiations
13 and had informed that court that a settlement “in principle” had been reached as a
14 relevant factor in determining excusable neglect). But, the district court did not abuse
15 its discretion when the evidence established that Giles was neither diligent or
16 compliant with his informal efforts to pursue a deed in lieu of foreclosure and avoid
17 a judgment being entered against him. To the contrary, the record indicates that Giles
18 failed to meet any of the extended deadlines provided by Flagstar or offer any
19 explanations for his delay in fulfilling these conditions. Similarly, he failed to seek
20 any assurances from Flagstar that these failures would not affect the status of his
12 1 informal request for a deed in lieu of the pending foreclosure complaint against him.
2 See Adams, 1998-NMCA-161, ¶ 23 (“A defendant cannot assert a justifiable belief
3 that his interests were being protected, if he fails to inquire concerning possible
4 problems of which he should have been aware under the circumstances.” (internal
5 quotation marks and citation omitted)). In light of Giles’ repeated failures to fulfill
6 the extra-judicial accommodations being extended to him in order to reach a non-
7 judicial resolution to the foreclosure lawsuit, we conclude that no abuse of discretion
8 occurred when the district court found that Giles had not established excusable neglect
9 in order to set aside the default judgment in this case. See Benavidez v. Benavidez, 99
10 N.M. 535, 539, 660 P.2d 1017, 1021 (1983) (holding that Rule 1-060(B)(1) relief is
11 not to be invoked where the party has consciously engaged in behaviors that later
12 appear to be detrimental).
13 Meritorious Defense
14 Because Rule 1-060(B)(1) requires that the moving party establish both
15 excusable neglect and a meritorious defense, it is not necessary to address Giles
16 arguments regarding whether he sufficiently established a meritorious defense to the
17 foreclosure complaint that would have justified setting aside the default judgment.
18 Cf. Rodriguez, 105 N.M. at 749, 737 P.2d at 530 (recognizing that a party seeking
19 relief from default judgment must show both (1) grounds for opening or vacating
20 judgment and (2) a meritorious defense). As a result, we will not address this
13 1 argument further.
2 Good Cause
3 In his brief, Giles also raises a cursory argument that “the conduct of Flagstar
4 is suspicious,” and this Court should set aside the default judgment for good cause
5 pursuant to Rule 1-060(B)(6). However, Giles has not supported any of his assertions
6 regarding Flagstar’s suspicious conduct with citations to the record or to authority.
7 See Ross v. City of Las Cruces, 2010-NMCA-015, ¶ 18, 148 N.M. 81, 229 P.3d 1253
8 (“Where a party fails to cite any portion of the record to support its factual allegations,
9 the Court need not consider its argument on appeal.”); Aspen Landscaping, Inc., v.
10 Longford Homes of N.M., Inc., 2004-NMCA-063, ¶ 29, 135 N.M. 607, 92 P.3d 53
11 (“Failure to provide citations and challenge findings affect this Court’s ability to
12 decide the issues.”); State v. Clifford, 117 N.M. 508, 513, 873 P.2d 254, 259 (1994)
13 (“Mere reference in a conclusory statement will not suffice and is in violation of our
14 rules of appellate procedure.”). In addition, excusable neglect was the singular basis
15 for relief raised by Giles to the district court. As such, Giles failed to preserve this
16 Rule 1-060(B)(6) argument for review by this Court and we will not address it any
17 further. See Rule 12-216(A) NMRA (“To preserve a question for review it must
18 appear that a ruling or decision by the district court was fairly invoked[.]”); State v.
19 Lucero, 104 N.M. 587, 590, 725 P.2d 266, 269 (Ct. App. 1986) (“The [district] court
20 had no opportunity to consider the merits of, or to rule intelligently on, the argument
14 1 [the] defendant now puts before us.”).
2 CONCLUSION
3 For the reasons stated herein, we affirm the district court’s denial of Giles’
4 motion to set aside the default judgment.
5 IT IS SO ORDERED.
6 __________________________________ 7 TIMOTHY L. GARCIA, Judge
8 WE CONCUR:
9 _________________________________ 10 RODERICK T. KENNEDY, Judge
11 _________________________________ 12 J. MILES HANISEE, Judge