Thought Leadership

What a Minnesota Business Must do if a Default Judgement is Entered Against It

Maybe your mail carrier has a penchant for rifling through your company’s mail and took the plaintiff’s complaint, or it fell through the cracks to the center of the earth, or the whole situation is a tragic misunderstanding. But one way or another, somehow or another, you didn’t respond to the complaint, and a default judgment is entered against you or company.

And so, one day you open the mail to find you or your company cc’d on a summons to your bank like the one below—perhaps to the tune of several hundred thousand dollars:

Receiving this summons will bring two questions immediately to mind:

  1. What happened?
  2. What can I do about it?

What Happened?—Default Judgment

What happened is that someone obtained a default judgment against you, your business, or both—and is now acting as a creditor and commanding your bank to give the creditor your company’s (or your) money. This is bad.

If a defendant is served with a complaint, but fails to answer the complaint within the 21-day period to respond, a default judgment can be entered against the defendant.

A default judgment is “equivalent to an admission by the defaulting party to properly pleaded claims and allegations.”[1] Accordingly, once the court determines that a party is in default, the complaint’s factual allegations, except those related to damages, will be taken as true. Cole v. Metro. Council HRA, 686 N.W.2d 334, 337 (Minn. Ct. App. 2004).

In most cases where the claim is for a specific, the court administrator will enter the default judgment without any need for a hearing or the presentation of evidence.[2] In some instances, primarily where the rendering of services are involved or damages are not based upon a contract, default judgment can be entered only upon motion to the court at a special hearing. Testimony of witnesses will provide the court with the basis for a finding of fact and conclusions of law.

In the case of the garnishment summons above, we are already past all this. Absent a court order telling your bank it doesn’t have to fork over hundreds of thousands of your hard-earned dollars, that money will end up in the coffers of your opponent.

What can I do about it?—Relief from Default

A party seeking relief from a final judgment may move a district court to vacate that judgment under Minnesota Rule of Civil Procedure 60.02. The district court may grant relief because of “[m]istake, inadvertence, surprise, or excusable neglect,” because “[t]he judgment is void,” or for “[a]ny other reason justifying relief from the operation of the judgment.”[3]

Is the Judgment Default Void?

If a court lacks personal jurisdiction over a party in a case, or over the subject matter of the case, any judgment the court enters is necessarily void.[4]

A judgment is void if the district court lacks “personal jurisdiction over the parties through a failure of service that has not been waived…”[5] Failure of service remains the classic ground for the finding of voidness as to a default judgment[6] because courts may not decide the merits of other issues before confirming that service is proper.[7] If you are lucky, your opponent unsuccessfully attempted to effectuate service through the Minnesota Secretary of State[8] or flubbed up service of process in some other way. If you can convince the court of this, the default will be set aside.

Would Relief From Default Promote Resolution of Case on the Merits?

Even if you can’t convince the court that the underlying judgment is void per se, all is not lost: “[d]efault judgments are to be liberally reopened to promote resolution of cases on the merits.”[9] In Finden v. Klaas, the Minnesota Supreme Court set forth the four-part test district courts consider when deciding whether to grant a party’s motion to vacate judgment: (1) whether the party has a reasonable defense on the merits; (2) whether the party has a reasonable excuse for not answering; (3) whether the party has acted with due diligence after notice of the entry of judgment, and (4) whether no substantial prejudice will result to the other party.[10]

Would Allowing the Default Lead to Unconscionable Result?

The four-part Finden test does not apply to requests to vacate under Rule 60.02(f), because paragraph (f) is a residual clause covering “[a]ny other reason justifying relief from the operation of the judgment…”[11] Relief under this residual clause is appropriate when the “equities weigh heavily in favor of the party seeking relief and relief is required to avoid an unconscionable result.”[12]

Application of Finden Test

When it comes to the Finden test, the first prong is the easy part. A reasonable defense on the merits is one that, if established, provides a defense to the plaintiff’s claim.[13] Specific information that clearly demonstrates the existence of a debatably meritorious defense satisfies the reasonable-defense factor to be considered on a motion to vacate a default judgment.[14]

Under the second prong, courts must consider whether the party had timely notice that it needed to respond.[15]

The third prong is based entirely on what the party moving to vacate a judgment did after they became aware of the underlying suit.[16]

And for the fourth prong, “[w]hen the only prejudicial effect of vacating a judgment is delay and added expense of litigation, substantial prejudice of the kind sufficient to prevent reopening a judgment is not established.”[17]  A plaintiff is not prejudiced by having to fully litigate its claims. Id. Courts should be liberal in opening default judgments, especially “where no substantial prejudice will result to plaintiff if judgment is vacated.”[18]

The Last Gasp—Rule 60.02(f)

Rule 60.02(f) is your last hope. As “a residual clause to cover unforeseen contingencies, Rule 60.02(f) is “intended to be a means for accomplishing justice in, what may be termed generally, exceptional situations…”[19] Largely, these unforeseen contingencies involve the plaintiff seeking to obtain a large verdict without offering much in the way of proof—because even for default judgment, the plaintiff has the burden of proving every essential element by a fair preponderance of the evidence.[20]

In short, if all else fails, argue that it would be fundamentally unjust to allow your opponent to take your money without affording your company even the most meagre opportunity to defend itself.[21]

Final Thoughts

None of us want to enter a lawsuit facing a potentially business-destroying judgment. So please, if you find yourself in a default situation, don’t try to handle it yourself: hire a good lawyer. (It doesn’t even have to be me.) If you have any questions regarding negligence per se, or any other litigation-related questions or issues, please feel free to contact Brendan Kenny at bkenny@hjlawfirm.com or 952-746-2139.

 

[1] State v. Ri–Mel, 417 N.W.2d 102, 110 (Minn. Ct. App. 1988). [2] Minn. R. Civ. P. 55.01. [3] Minn. R. Civ. P.  60.02(a), (d), & (f). [4] Matson v. Matson, 310 N.W.2d 502, 506 (Minn. 1981) (“A void judgment is one rendered in the absence of jurisdiction over the subject matter or the parties.”). [5] Bode v. Minn. Dep’t of Natural Res., 594 N.W.2d 257, 261 (Minn. Ct. App. 1999), aff’d 612 N.W.2d 862 (Minn. 2000). [6] I was unable to find any cases that provided relief from a default judgment on the ground that the court lacked subject-matter jurisdiction. [7] See, e.g., River Fun Kelbro Co. v. Vinny’s on the River, LLC, No. A18-1382, 2019 WL 2416005, at *7 (Minn. Ct. App. June 10, 2019) (“Because service of process is fundamental to the court’s exercise of jurisdiction over [the defendant], we do not decide the merits of the other issues raised by [the defendant].”). [8] I dealt with this circumstance in What Every Business Should Know About Service of Process Through the Secretary of State. [9] Lyon Fin. Serv., Inc. v. Waddill, 625 N.W. 2d 155, 160 (Minn. Ct. App. 2001) (quotation omitted), review denied (Minn. June 19, 2001). [10] 128 N.W.2d 748, 750 (Minn. 1964). [11] Buck Blacktop, Inc. v. Gary Contracting & Trucking Co., LLC, 929 N.W.2d 12, 19 (Minn. Ct. App. 2019) (quoting Minn. R. Civ. P. 60.02(f) (emphasis added in opinion) (reversing district court’s application of four-part Finden test to motion to vacate under 60.02(f).) [12] Hovelson v. U.S. Swim & Fitness, Inc., 450 N.W.2d 137, 142–43 (Minn. Ct. App. 1990), review denied. [13] Finden, 128 N.W.2d at 750. [14] Northland Temporaries, Inc. v. Turpin, 744 N.W.2d 398, 403 (Minn. Ct. App. 2008). [15] Northland Temporaries, Inc. v. Turpin, 744 N.W.2d 398, 405 (Minn. Ct. App. 2008) (reversing district court’s denial of motion to vacate default when record did not indicate whether proper notice of filing was received or whether any failure to respond was intentional). [16] Cornell v. Ripka, 897 N.W.2d 801, 809 (Minn. Ct. App. 2017) (“[t]he diligence factor assesses whether the movant acts promptly after learning of the need to act”) (emphasis in original)[17] Palladium Holdings, LLC v. Zuni Mortg. Loan Trust 2006–OA1, 775 N.W.2d 168, 177 (Minn. Ct. App. 2009), review denied (Minn. Jan. 27, 2010). [18] Taylor, 203 N.W.2d at 860. [19] Newman v. Fjelstad, 271 Minn. 137 N.W.2d 181, 186 (1965) (citation omitted). [20] See Hill v. Tischer, 385 N.W.2d 329, 332 (Minn. Ct. App. 1986) (“Not only did Hill fail to show liability, but she admittedly failed to explain how she arrived at damages in the amount of $20,000.”); Wiethoff v. Williams, 413 N.W.2d 533, 536–37 (Minn. Ct. App. 1987) (vacating default judgment of $20,000 where district court heard no evidence of damages other than plaintiff’s claims and where district court’s findings were primarily taken directly from complaint); Hill, 385 N.W.2d at 332 (concluding default judgment should be vacated where plaintiff failed to show liability or explain how she arrived at damages amount); Haider v. Kari, No. A15-1910, 2016 WL 3659271, at *7–9 (Minn. Ct. App. July 11, 2016) (reducing default judgment because plaintiff failed to support damages under one cause of action). [21] See Johnson v. USL Prod., Inc., No. A13-0525, 2013 WL 6839747, at *9 (Minn. Ct. App. Dec. 30, 2013) (allowing plaintiffs to obtain a large default judgment “against [the defendant]—one that was never proved up on the record—would be inconsistent with our policy of promoting the resolution of cases on the merits.”).

ABOUT THE AUTHOR

Brendan M. Kenny
Phone: 952-746-2139
bkenny@hjlawfirm.com

VIEW BIOGRAPHY

RELATED PROFESSIONALS

VIEW MORE POSTS BY AUTHOR