Cass v. Composite Industries of America, Inc. , 311 Mont. 406 ( 2002 )

DELORES A CASS, indi\lduallq and as named
lepresentati\ c o f l o d d Tllomnsoii, Thotnas Thomoson.
COMPOSITE INDUSTRIES OF AMERICA? INC.,
CS&S ENTERPRISES, MERLE A. FERGCSON,
and AFFORDABLE HOMES OF AMERICA, INC.
APPEAL. FROM: District Court of thc Thirteenth Judicial District,
111 and for the County of Yellowstone,
The Honorable G. Todd Baugh, Judge presiding
CObhSEL OF RECORD
For Appellants:
Steven N Eschcnhacher, Attor~~cy Lax, tlamllton. hlontarra
at
For Respondents:
Renee L. Coppock, Crow-ley,fiaughey, FIanson, Toole & Dietrich, P.L.L.P.,
Billings, Montaua
Subnrittcd on Briefs: July 18, 2002
Decrded: October 10. 2002
Justice Jim Regnicr delivered the Opinion of the Court.
71 Rcsponacnt Delores A. Cass filed a Complaint in t l ~ c
Thincent11 Judicial District
Court, UeI?o\vstoiie County, against Appellants Conlposite Industries of America, II:~.,
CS&S Enterprises, Merle '4. Ferguson, and Affordable Homes of America, Inc., (collectively
"Ferguson"), which alleged Ferguson defrauded her out of nearly one million dollars. After
a default was entered against Ferguson, the District Court denied a motion to set it aside.
The District Court ultiniately entered judgment against Ferguson in tlie amount of
S1.736,547.20 from which Ferguson appeals. We affirm.
72 The sole issue on appeal is whether the District Court erred when it refused to set
aside the default against Ferguson.
BACKGROUND
173 On October 30, 1998, Cass filed a Complaint against Ferguson which alleged that
Ferguson defrauded her out of nearly one million dollars. Cass properly served Ferguson
with the Summons and Complaint. In January of 1999, Cass served Ferguson with Plaintiff s
First Discovery Requests. Ferguson failed to answer the Complaint. On April 30, 1999?
Cass applied for, and the Clerk of Court entered, a default against Ferguson.
74 Since Ferguson failed to respond to Cass's discovery requests, Cass filed a Motion to
Con~peldiscovery responses on May 26, 199% Prior to a hearing on Cass's discovery
motion, Ferguson filed a Motion to Set Aside thc Default. On June 16>1999, wl~ilethe
Motion to Set Aside the Default was pending, Cass filed her First Amended and
Supplemental Complaint.
2
On June 25, 1099; following a hearing, the District C;ou13 granted Cass's Motion to
C:ornpcl, ordering Ferguson to prucide ccrtairr responses by July I , liif)(i?and the remaining
responses by July 16, 1909. Thc court further ordered Ferguson to make a showing that the
defendants l ~ a d meritorious defense to Cass's claims before the court would set aside the
a
default. Ferguson ignored the June 25,1099, order and still failed to respond to the requested
discovery. On July 6 , 1 9 " ) homevcr, Ferguson filed an Answer and Counterclaim.
76 On August 30,1099, the court conducted a hearing on Ferguson's Motron to Set As~de
the Default. Ferguson st111 had not responded to discovery. The Dtstrict Court denied the
motion but in doing so made it clear it was not denying the motion because of Ferguson's
tardy appearance, but rather because Ferguson refused to comply with the District Court's
order of June 25, 1999, compelling discovery.
117 On September 15? 1999, Ferguson filed a motion for "Relief from Judgment,"
contending that the Amended and Supplen~ental
Complaint relic5ed Ferguson of the Clerk's
April 30, 1999, entry of default. Cass responded by reininding the court that the basis of the
August 30, 199") order was Ferguson's complete disregard of the court's discokery order.
Cass then tiled a Motion for the Entry of a Default Judgment.
':8 Another heanng mas then held on December 17, 1990, during which Cass req~~ested
interim relief requiring Fcrguson to post a bond. The District Court ordered Ferguson to post
S1.200,000 bond to protect Cass from dissipation of Ferguson's assets. The court granted
Ferguson thirty days to post the bond and stayed consideration of Cass's pending Motion for
E n t y of a Default Judgment. The District Corirt warncd Ferguson, however, that Failure to
3
post the bond mould result in entry of judgment agatnst ferguson. Despite the marntng,
Fcrguson failed so post bond or provide discovcry. rherehre, on Fcbruar-y 22, 20001 thc
District Court cntcred m order holding all defendants iointly and severally liable.
'19 After a hearing on damages, the District Court entered judgment in favor of Cass for
$1.736.547.20. Ferguson novv appeals.
STANDARD OF REVIEW
'110 Lire review a district court's denial of a motion to set aside a default for slight abuse
of discretion. Lords ib. (1984), 212 Mont. 359,688 P.2d 290. The Court set forth
~Vewmnn
the standard as follows:
in thcse instances the reviewing court weighs the conflicting concerns of
respecting the trial court's sound discretion while recognizing the policy
favoring trial on the merits. The resulting standard of review is that no great
abuse of discretion need be shown to warrant reversal . . . . An alte~l~ative
expression of this "no great abuse" standard is that only "slight abuse" is
sufficient to reverse an order refking to set aside a default.
Lords, 212 Mont. at 364, 688 P.2d at 293 (citations omitted).
1 I
'1 This matter, however, implicates the District Court's imposition of sanctions for
discovery abuse. When considering w~hether district court imposed proper sanctions for
a
discovery abuse, we determine whether the district court abused its discretion. Owen v. F A .
Burrrey Ch. (1981), 192 Mont. 274,276,627 P.2d 1233, 1234. "[Wlhen it is not possible for
this Court to make a rcady, co~~fident, accurate determination of a party's good faith in
and
the discovcry proccss, me presume the correctness of the District Court's action under Rule
7 O~ver~. Mont. at 280-61, 627 P.2d at 1237.
192
DISCC'SSI0N
! 12
, Did the District Court err when it refused to set aside the default against Ferguson?
"iai Ferguson argues that tile default should have been set aside when Cass filed her First
Supplemental and Amended Complaint on June 16,2001 Ferguson contends that the filing
of an amended pleading In effect snpercedcs the or~ginal
pleading, thereb? koidlng any prior
enhy of default.
7 14 Ferguson's contention mould bc correct ifthe District Court ultimately entereddefault
pursuant to Rule 55, M.R.Civ.P., for fa~lure appear. Rule 55(a), M.R.Civ.P., prokldes that
to
the clerk of court may enter a party's default if the party fails to plead or othe~uise
defend
as provided in the Montana Rules of Civil Procedure.
715 A default under Rule 55, M.R.Civ.P., is set aside when a plaintiff files an amcnded
or supplemental pleading. "lt is elementary . . . that when an anlcnded pleading is filed it
supersedes the original and the latter at once becomes functus officio. and that the party is
not bound by the admissions it1 the pleading which has thus been superseded." Benle v.
Stevens (l923), 67 Mont. 254, 255,215 P. 803, 804 (citations omitted).
7116 Here, the Clerk of the District Court did indeed enter a Rule 55, M.R.Civ.P., default
against Ferguson. A s Fergusctn contends, the filing of a First Amended and Supplemental
rendered the Rule 55, M.R.Civ.P., default void. See B e m e , 67 Mont, at 254,215
C:on~plaint
P.2d at 804. However, the Montana Rules of Civil Procedure provide another mecha~lism
bq wluch a court may enter a default: default may be entered as a sanction for discokery
abuses pursuant to Rule 37, M.R.Cik.P.
5
117 Under Rule 37, 44.K.Civ.P.; a party's dilatory tactics in responding to discovery
requests may result in sanctions. Pursuant to Rule 37(b)(2), .hd.R.Civ.P., faiiurc to comply
.
i; ith itn ordcr may result in:
(A) An ordcr that the matters regarding which the order mas made or any
other designated facts shall be taken to be established for the purposes of the
act~on accordance with the claim of the party obta~ning order,
in the
(B) An order refus~ngto allow the disobedient party to support or oppose
designated clairris or defenses, or prohibiting that party from introduc~ng
des~gnated matters in e\ idence; and
(C) An order striking out pleadings or parts thereof, or staying further
proceedtngs 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.
f / lS The record clearly shows the District Court entered default pursuant to Rule 37,
M.R.Ci\.P., not Rule 55, M.R.Civ.P. During the December 17, 1999, hearing, the District
Court discctsscd cntcring a default for Ferguson's failure to comply \% ~ t discovery reqtrests
h
and a court order to answer discovery:
[I] am not talking about a default for failure to answer tliat Amended
Complaint. . . . The judgment that 1 would be inclined to enter would be one
based on failure to comply with discovery. 1 mean-it's been almost a year
since they asked for stuff. and. . . y'alf haven't produced anything, you haven't
answered question one or production one.
The District Court agreed with Ferguson that the filing of the Amended and Supplemental
Complaint may have set aside the default entercd pursuant to Rule 55, M.R.C:iv.P.:
1 tend to agree with thc plaintiff in this case . . . I think there is a technical
argument with regard to the defaults, but 1 think that the plaintiff is entitled to
judgmcnt . . . for defendants' failure to comply with the discovery ordcr. . . .
Thus, although the District Court acltnowledged that there may be merit to Fergusoii's
argument to set as!de the Rule 55, M.R.Civ.P,, default for hilore to defend, tile Dis:rirtGcsiir%
expressly stated entry of default as a sanction for discovery abuses was warranted.
9 On sevcral occasions this Court has stated that dilatory abuse of discovery must no
longer be dealt %ith leniently and that the transgressors of discohcry abuses should be
punished rather than encouraged repeatedly to cooperate. Stiiltl~ Butte-Silver Bow County
v.
(1996). 276 Mont. 320,332,916 P.2d 9I,92-93. Furthermore, "The trial judge is in the best
positton to know. . . which parties callously disregard the rights of their opponents and othcr
litigants seeking their day in court, The trial judge is also in the best position to determine
which sanction is the most appropriate." Dassori v. Roy Szafzley Chevi-olei Co. (1986), 224
Mont. 178, 180, 728 P.2d 430,431.
1\20 This Cot~rt a consistent history of deferring to the district court regarding the
has
imposition of sanctions. The record indicates a flagrant disregard by Ferguson of the District
Court's order of June 25, 1999, compelling discovery. When the District Court finally
entered a default judgment on liability, over one year had elapsed since the original discovery
had been scned. The District C o u ~ t
conducted three hearings on the matter and gaxe
Ferguson ever?; opportrrnity to produce the discovery. It is obvious from this record that the
District Court faced a litigant who simply was not going to respond to properly served
discovery. Thcreforc, entry of the default was appropriate pursuant to Rule 37, M.R.Civ.P.
We conclude the District Court did not abuse its discretion when it entered a default against
Fcrguson.
7
"3
11 Affirmed.
MTeConcur: