Shelton v. Diamond International Corp.

703 P.2d 699, 108 Idaho 935, 1985 Ida. LEXIS 519

Opinions

BAKES, Justice.

This is an appeal from an order granting relief from a default judgment on the basis of inadvertence and excusable neglect under I.R.C.P. 60(b)(1). We affirm.

Harold Shelton was killed on August 20, 1980, when the car he was driving went off a road and down a steep embankment. On August 19, 1982, one day before the statute of limitations was to expire, Shelton’s heirs filed a complaint alleging that the road was within the control of and negligently maintained by defendant Diamond International Corporation (“Diamond”). The defendant Diamond is a Delaware corporation with its principal place of business in New York City. The summons and complaint were not served upon Diamond’s registered agent in Idaho, the C.T. Corporation, until August 18, 1983, approximately one year after the complaint was filed. Twenty-one days after service, on September 9, 1983, the plaintiffs took a default judgment against Diamond which had not filed an answer or made an appearance. The default judgment awarded Mrs. Shelton $1.8 million in damages in her individual capacity for the wrongful death of her husband.

On September 20, 1983, Diamond filed a motion to vacate the default judgment. The motion was accompanied by several affidavits of Diamond’s employees, officers, insurance carrier and attorney. The affidavits stated that from the date of service it took seven days for the summons to be transferred by C.T. Corporation, the registered agent, from its Boise office to the agent’s New York office, and then another five days to be transferred by C.T. Corporation to Diamond’s New York office. At that point, Diamond’s executive secretary’s usual course of action was to forward the summons to Diamond’s insurance manager, but he had recently resigned with no replacement hired. The executive secretary inquired within the company and was advised that the assistant treasurer was now handling all service of process; however, she was on vacation at the time so that the summons was not given to her until twelve days after arriving in Diamond’s New York office. The summons was then transferred to Diamond’s insurance broker two days later, and another five days elapsed before the insurance carrier responsible to defend the claim received the notice. On that day the insurance carrier immediately telephoned and retained Idaho counsel who filed the motion to set aside the judgment on the following day, September 20.

The affidavit of Diamond’s vice president and general counsel further stated that the corporation was acquired by merger in December, 1982, and since that time had been selling off most of its operating divisions and assets, resulting in many employees resigning without replacements being hired, with the remaining staff working under pressure and long hours. Particularly, during August and September, they were distracted from other matters because of the consummation of a sale of assets of one of its divisions. The affidavits also stated that Diamond maintained an office in Coeur d’Alene, Idaho, which had not been notified in any form of the pending complaint, although two years earlier, in August, 1981, an attorney for the Sheltons had contacted the office to ascertain Diamond’s potential liability. The office was never contacted either when the complaint was filed or before the default was taken.

Diamond also filed a proposed answer setting out the defense that the road on which the accident occurred was owned by the federal government which controlled the use of the road by parties other than Diamond, and that Diamond merely had an easement to use the road. The answer also alleged contributory negligence based upon allegations of inattentive driving, excess speed and drinking.

The trial court found that the circumstances of this case adequately showed excusable neglect and inadvertence on behalf of Diamond. The trial court noted the policy in Idaho to resolve doubtful cases by setting aside the judgment in favor of proceeding to the merits of the case, and further found that Diamond’s proposed answer presented a meritorious defense. The court then found that Diamond was attempting to diligently act on the summons even though it was not efficient in moving the summons through the various channels. The trial court further considered factors, such as the distance to New York and the 12-day delay caused by the registered agent, which factors, when combined with the other problems within the corporation, amounted to excusable neglect and inadvertence. Based upon its finding of inadvertence and excusable neglect, the trial court set aside the default judgment.

The right to relief from a default judgment is provided by I.R.C.P. 55(c) which adopts by reference the standard from I.R.C.P. 60(b)(1), which provides, “On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect____” In Newbold v. Arvidson, 105 Idaho 663, 664, 672 P.2d 231, 232 (1983), the Court stated that “[a] motion to set aside default judgment is addressed to the sound legal discretion of the trial court, whose decision will not be reversed in the absence of abuse of that discretion. Hearst v. Keller, 100 Idaho 10, 592 P.2d 66 (1979).” After reviewing the record, we conclude that the trial court did not abuse its discretion and accordingly we affirm.

In its findings and conclusions the trial court analyzed the particular circumstances presented in this case and carefully applied the legal principles set out in our previous cases concerning the trial court’s standard to evaluate motions to set aside default judgments. We find no abuse of discretion on the part of the trial court. Appellants, however, cite to us a parallel but conflicting line of Idaho cases which hold that, regardless of whether or not the trial court abused its discretion, this Court may undertake its own independent review, where the record is wholly documentary as it is here, and make its own discretionary decision as to whether the judgment should be set aside. See Hearst Corp. v. Keller, supra; Wood v. Wood, 100 Idaho 387, 597 P.2d 1077 (1979); Fisher v. Bunker Hill Co., 96 Idaho 341, 528 P.2d 903 (1974); Parsons v. Wrble, 19 Idaho 619, 115 P. 8 (1911). The Idaho Court of Appeals recently attempted to amalgamate these two seemingly inconsistent appellate standards of review, noting that with the advent of the Federal Rules of Civil Procedure, and particularly Rule 52(a), the federal courts have held that, even where matters are submitted to a trial court on wholly documentary evidence, nevertheless the “clearly erroneous” standard of review under I.R.C.P. 52(a) applies to those findings based wholly on documentary evidence. E.g., United States v. Singer Mfg. Co., 374 U.S. 174, 194-95, n. 9, 83 S.Ct. 1773, 1784, n. 9, 10 L.Ed.2d 823 (1963); 5A J. Moore, Moore’s Federal Practice para. 52.01(7) (2d ed. 1985). The Court of Appeals, in Avondale on Hayden, Inc. v. Hall, 104 Idaho 321, 658 P.2d 992 (Ct.App.1983), stated:

“A motion for relief from a default judgment invokes both the fact-finding and law-applying functions of the trial court. It requires the court to determine the facts concerning the circumstances of the default, and to apply the criteria of I.R.C.P. 60(b) to the facts found. Appellate restraint, in review of such factual determinations, is consistent with the principles embodied in Rule 52(a) and with the traditional principle of deference to trial court discretion in deciding whether to grant relief from default judgments. We believe these important principles are unduly damaged by the broad suggestion in Parsons and its progeny, that where the evidence in proceedings to set aside a default judgment is wholly documentary, an appellate court may displace both the fact-finding and law-applying functions of the trial court. In our view, the rule of Parsons should be narrowed to mean that, although an appellate court may draw its own impressions from evidence entirely in writing, it will not substitute those impressions for findings of fact by the trial court unless the findings below are deemed to be clearly erroneous. This formulation brings the rule of Parsons into greater accord with the basic principles of trial court discretion in default cases and of deference to trial court findings of fact which are not clearly erroneous.

“Accordingly, we hold that a trial court decision on a motion for relief from a default judgment will not be disturbed on appeal unless it represents an abuse of discretion. Where oral testimony has been received, we will give due regard to the trial judge’s special opportunity to evaluate the credibility of the witnesses. Where the evidence is entirely in writing, we may draw our own impressions from the record, but we will not substitute our impressions for findings of fact by the trial judge unless we are convinced that those findings are clearly erroneous.” 104 Idaho at 325, 658 P.2d at 996.

While the foregoing standards set out by the Court of Appeals do not entirely solve the dilemma, we conclude that the Avondale approach is preferable to the two conflicting lines of authority presently reflected in our decisions which state on the one hand that the sole issue on appeal is whether or not the trial court abused its discretion, Newbold v. Arvidson, supra, and the line of cases, of which Hearst Corp. v. Keller, supra, is the most recent example, which hold that where the motion to set aside a default judgment is submitted wholly on written documents this Court may undertake its own independent review and make its own discretionary decision as to whether the judgment should be set aside.

Accordingly, we agree with the conclusion of the Court of Appeals in the Avon-dale case that:

“When we review, on appeal, the trial court’s application of law to the facts found, we will consider whether appropriate criteria were applied and whether the result is one that logically follows. Thus, if (a) the trial court makes findings of fact which are not clearly erroneous, (b) the court applies to those facts the proper criteria under Rule 60(b)(1) (tempered by the policy favoring relief in doubtful cases), and (c) the trial court’s decision follows logically from application of such criteria to the facts found, then the court will be deemed to have acted within its sound discretion. Its decision will not be overturned on appeal.” 104 Idaho at 326, 658 P.2d at 997.

Applying the foregoing standard to the facts of this case, we conclude that the trial court’s findings of fact are “not clearly erroneous” under I.R.C.P. 52(b); that the trial court properly applied the criteria of I.R.C.P. 60(b)(1) to those facts (tempered by the policy favoring relief in doubtful cases); and the trial court’s decision follows logically from application of such criteria to the facts found. Accordingly, the decision of the district court is affirmed.

Costs to respondent, no attorney fees on appeal.

DONALDSON, C.J., and SHEPARD and HUNTLEY, JJ., concur.