Joseph Molesky v. John L. Trebesch, Sheila P. Sabas ( 2016 )

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2014).
STATE OF MINNESOTA
IN COURT OF APPEALS
A15-0889
Joseph Molesky, et al.,
Respondents,
vs.
John L. Trebesch, et al.,
Defendants,
Sheila P. Sabas, et al.,
Appellants.
Filed February 1, 2016
Affirmed
Stauber, Judge
Wright County District Court
File No. 86CV131980
Anthony Gabor, Richard L. Morris, Morris Law Group, P.A., Edina, Minnesota (for
respondents)
Jeffrey W. Lambert, Jeffrey W. Lambert, P.A., Wayzata, Minnesota (for appellants)
Considered and decided by Stauber, Presiding Judge; Cleary, Chief Judge; and
Randall, Judge.*
*
Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to
Minn. Const. art. VI, § 10.
UNPUBLISHED OPINION
STAUBER, Judge
Appellants argue that the district court abused its discretion by entering the default
judgment and by denying their motion to vacate the default judgment based on mistake
and excusable neglect. Because appellants are unable to establish a reasonable excuse for
their failure to act, we affirm.
FACTS
This action arises from a dispute related to respondents Joseph and Angela
Moleskys’ purchase and construction of a residential home. In October 2012, Joseph
Molesky and defendant John Trebesch, acting as Chief Executive Officer of defendant
Design Builders, LLC (Design Builders), entered into a purchase agreement for the
construction of a home on property located at 713 Overlook Drive in Buffalo. The
property was owned by defendant Local Holdings, LLC (Local Holdings), which is also
owned by Trebesch. The listing agent for the property was appellant Sheila Sabas of
appellant AAA-RIT, Inc. (AAA-RIT).
In April 2013, respondents brought suit against several defendants, including
Trebesch, Design Builders, and AAA-RIT. Respondents later filed a second amended
complaint joining Sabas and Local Holdings as defendants. The second amended
complaint included allegations of fraud, deceptive trade practices, breach of contract, and
civil conspiracy.
After receiving the second amended complaint, Sabas contacted attorney Timothy
Netzell about representing her and AAA-RIT. Netzell then sent a conflict-of-interest
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letter to Local Holdings, Design Builders, Trebesch, Sabas, and AAA-RIT stating that
(1) he had represented Local Holdings in a variety of matters, including the real-estate
transaction with respondents; (2) the purpose of the letter was to discuss the possibility of
Netzell simultaneously representing them in the lawsuit against respondents; (3) a
conflict of interest could arise if he represented all of them; (4) he recommended that the
defendants retain separate counsel; and (5) despite his recommendations, he could
represent all of them if each defendant consented to simultaneous representation. Sabas
was the only defendant to sign and return the acknowledgement and consent form.
On June 27, 2013, Netzell submitted an answer on behalf of Trebesch, Design
Builders, and Local Holdings. A few days later, Netzell withdrew as counsel for those
defendants. Sabas and AAA-RIT failed to submit an answer to respondents’ complaint.
On January 9, 2014, respondents moved for default judgment. At the hearing on
respondents’ motion, Sabas appeared pro se and requested a continuance, alleging that
she needed more time to prepare for the hearing because she was out of town for a long
period of time and that she believed Netzell represented her and was handling her
defense. She also alleged that Netzell withdrew from representation without informing
her. The district court denied Sabas’s request.
In April 2014, the district court granted respondents’ motion and entered default
judgment against several defendants, including Sabas and AAA-RIT.1 Shortly thereafter,
appellants moved to vacate the default judgment. To support the motion, appellants
1
Sabas and AAA-RIT will hereinafter be collectively referred to as “appellants.”
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claimed that two email communications involving Sabas and Netzell between September
and December 2013 demonstrate that Netzell represented appellants in the lawsuit.
Appellants argued that because they reasonably believed that Netzell represented them,
the default judgment against them should be vacated on the grounds of their reasonable
mistake or excusable neglect.
The district court found that the emails referenced by appellants “do not mention
the lawsuit or provide any information related to the lawsuit other than the address of the
property at issue. Instead, the emails appear related to [appellants’] role as real estate
broker.” Thus, the district court found that “[n]either email indicates an attorney client
relationship between [appellants] and Netzell.” The district court also found that
appellants “did not pay a retainer fee, sign a retainer agreement, or receive bills or
invoices from Netzell describing legal work performed and demanding payment.” And
the district court found that appellants failed to contact Netzell to “explicitly confirm that
he represented them.” Therefore, the district court denied the motion to vacate the
default judgment because appellants failed to show that their mistake was reasonable.
This appeal followed.
DECISION
Appellants challenge the district court’s denial of their motion to vacate the default
judgment. A district court’s ruling on a motion to vacate a judgment is reviewed for an
abuse of discretion. Charson v. Temple Israel, 419 N.W.2d 488, 490 (Minn. 1988). “A
district court abuses its discretion if its findings are unsupported by the evidence or its
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decision is based on an erroneous view of the law.” Kern v. Janson, 800 N.W.2d 126,
133 (Minn. 2011).
A district court may grant relief from a final judgment for “[m]istake,
inadvertence, surprise, or excusable neglect” or for “[a]ny other reason justifying relief
from the operation of the judgment.” Minn. R. Civ. P. 60.02(a), (f). A party seeking
relief from a default judgment under rule 60.02 must establish four requirements: (1) a
reasonable excuse for the failure to act; (2) a reasonable defense on the merits; (3) a
showing of due diligence after notice of entry of the default judgment; and (4) a showing
of no substantial prejudice to the opposing party resulting from the vacation of the
judgment. Coller v. Guardian Angels Roman Catholic Church, 294 N.W.2d 712, 715
(Minn. 1980). To obtain relief under rule 60.02, all four of the factors must be present.
Charson, 419 N.W.2d at 491. The burden of proof rests on the party seeking relief. City
of Barnum v. Sabri, 657 N.W.2d 201, 205 (Minn. App. 2003).
We begin our analysis by discussing the first factor, a reasonable excuse for the
failure to act. Generally, “[i]t is for the [district] court to determine whether the excuse
offered by a defaulting party is reasonable.” Howard v. Frondell, 387 N.W.2d 205, 208
(Minn. App. 1986), review denied (Minn. July 31, 1986). Neglect of a party which leads
to entry of a default judgment is inexcusable and is a proper ground for refusal to reopen
a judgment. Id. But if neglect has been purely that of counsel, courts are reluctant to
punish an innocent client. Charson, 419 N.W.2d at 491.
Appellants argue that because they believed that Netzell was representing them
and had relied on him to submit an answer on their behalf, they are reasonably excused
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for failing to act. To support their claim, appellants cite Finden v. Klaas, 268 Minn. 268,
128 N.W.2d 748 (1964). In that case, an attorney had reassured his client that he would
answer the complaint and tender a defense, and the client relied upon the attorney’s
assurances that the answer had indeed been filed. Id. at 269, 128 N.W.2d at 749.
Plaintiff’s attorney then advised both the client and his attorney that the matter was
scheduled for a default hearing because no answer had been filed. Id. Neither made an
appearance, and default judgment was entered. Id. at 269-70, 128 N.W.2d at 750. In
reversing the default judgment, the Supreme Court stated:
[client] entrusted the matter entirely to his attorney and relied
upon assurances that he was being protected in resisting
plaintiffs’ claims. . . . Under these circumstances, it would be
difficult indeed to charge [client] himself with such
indifference to the proceedings as would amount to
inexcusable neglect within the contemplation of the rule.
Id. at 271-72, 128 N.W.2d at 750-51.
Unlike in Finden, Netzell never represented appellants or assured appellants that
he was representing them. Netzell also did not communicate with appellants about the
merits of the case, nor did he bill appellants for legal services. In fact, appellants never
paid Netzell for any services. Although Sabas signed Netzell’s conflict-of-interest form,
she did nothing to confirm that Netzell was acting on her behalf or representing her.
And, the record reflects that no other party signed the conflict-of-interest form.
Moreover, when Netzell withdrew from representing Trebesch, Design Builders, and
Local Holdings, appellants did not receive notice of Netzell’s withdrawal. Finally, Sabas
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admitted at the January 13, 2014 default-judgment hearing that she did not sign a retainer
agreement.
Appellants argue that a retainer agreement was unnecessary and that the email
exchanges between Sabas and Netzell demonstrate a reasonable belief that Netzell was
representing them. We disagree. A review of the email exchanges indicates that they
were completely unrelated to the lawsuit. In the first email, dated September 9, 2013,
Sabas wrote: “Looking for updates on 106 Lookout Pt (John never sent me a signed copy
of the cancellation) 713 Outlook Dr and 709 Overlook Dr.” Netzell responded: “I know
nothing new at this point.” Sabas then emailed Netzell again on December 10, 2013.
With “713 and 709 Overlook Dr” in the subject line, Sabas simply asked Netzell: “Any
update on these?” Netzell replied: “I have not heard a thing on either property. If
anything comes up, I’ll let you know right away.” As the district court found, these
emails do not mention the lawsuit, do not provide any information related to the lawsuit,
and do not otherwise indicate an attorney-client relationship. Although the emails recite
the address of the property involved in this lawsuit, the emails also reference other
addresses and appear to be related to appellants’ status as the real0-estate broker for the
properties.
Finally, we acknowledge that while the lack of a retainer agreement may not
definitively demonstrate a lack of an attorney-client relationship, it is a compelling factor
that, when taken together with the other facts and circumstances, supports the district
court’s conclusion that appellants’ mistake was not reasonable. Sabas is a seasoned
realtor who knew or should have known that she was required to respond to a lawsuit.
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Therefore, the district court did not abuse its discretion in determining that appellants did
not have a reasonable excuse for failing to act.
Because appellants are unable to establish a reasonable excuse for their failure to
act, they cannot establish all of the factors that are necessary for relief under rule 60.02.
See Imperial Premium Fin., Inc. v. GK Cab Co., 603 N.W.2d 853, 857 (Minn. App.
2000). Thus, we need not discuss the other three factors necessary for relief from a
default judgment. Moreover, appellants make no claim that there is insufficient evidence
to support an award of damages. See Wiethoff v. Williams, 413 N.W.2d 533, 537 (Minn.
App. 1987) (stating that a default judgment may be vacated under rule 60.02 where there
is not sufficient evidence to support an award of damages). Accordingly, the district
court did not abuse its discretion by denying appellants’ motion to vacate the default
judgment.
Appellants also challenge the district court’s decision to grant respondents’ motion
for default judgment. A district court should deny a motion for default judgment when
the defendant has established the following four factors: (1) a reasonable excuse for the
failure to act; (2) a reasonable defense on the merits; (3) lack of prejudice to the opposing
party; and (4) action with due diligence after the entry of judgment. Coller, 294 N.W.2d
at 715. These are essentially the same factors a district court must consider when
deciding whether to vacate a judgment under Minn. R. Civ. P. 60.02. Black v. Rimmer,
700 N.W.2d 521, 526 (Minn. App. 2005). As discussed above, appellants are unable to
establish a reasonable excuse for their failure to act. Because appellants are unable to
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establish all four factors, the district court did not abuse its discretion by granting
respondents’ motion for default judgment.
Affirmed.
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