Opinion
No. C8-02-711.
Filed April 15, 2003.
Appeal from the Hennepin County District Court, File No. CT0012629.
Daniel S. McGrath, Steingart, McGrath Moore, P.A., (for respondent John Micketts)
Gretchen R. Severin, Stephen H. Munstenteiger Law Offices, P.A., (for respondent Ella Sander)
David J. McGee, Mark A. Horton, Thomsen Nybeck, P.A., Edinborough Corporate Center East, (for respondent Professional Property Inspections, Inc.)
Robert M. Gardner, (for appellants)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
On appeal from a default judgment, Richard and Frances Johans contend the district court erred in granting a default judgment against them and in denying their motions to (1) amend their answer, (2) join third parties, (3) vacate the default judgment, and (4) remove the judge as a matter of right or based on bias. The Johanses also contend the court erred when it granted summary judgment to Ella Sander and Professional Property Inspections, Inc. We affirm in part, reverse in part, and remand in part.
FACTS
On April 11, 1999, respondents Stephanie and John Micketts, as buyers, entered into a written agreement with appellants Richard and Frances Johans, as sellers, for the purchase of an 11-year-old home in Champlin, Minnesota. Prior to the signing of the purchase agreement, the Johanses provided the buyers with a standard residential property disclosure statement, disclosing leakage/seepage corrected by a sump pump and foundation problems along the west wall. The Johanses did not disclose any problems with the windows or the siding.
The sale was contingent upon an inspection of the property by a professional inspection company. The Mickettses hired Professional Property Inspections, Inc. (PPI), and PPI conducted a three-hour inspection of the home. PPI discovered no substantial defects in the property. The Johanses were home at the time of the inspection, but they did not specifically point out any defects to the inspector.
Approximately one year later, the Mickettses discovered defects and damage to the siding material and substantial rot around the majority of the windows. The Mickettses contracted with Northside Siding for seven vinyl windows, entered into another contract with Northside Siding for additional maintenance-free vinyl windows, and contracted with Minnesota Exteriors to re-side the entire house with maintenance-free vinyl siding and aluminum trim. At the same time, the Mickettses submitted a claim under their homeowner's insurance policy with State Farm insurance for reimbursement of the costs for window and siding replacement. On June 30, 2000, State Farm sent the Mickettses a letter denying their claim.
On July 21, 2000, the Mickettses commenced a lawsuit against the Johanses. The case was assigned to Judge Diana S. Eagon. On October 20, 2000, the Johanses asked for a stipulation to implead Mickettses' realtor, Ella Sander, and the housing inspection company, PPI, as third-party defendants. The Mickettses refused to stipulate. Thereupon the Johanses moved to amend their answer to assert a counterclaim against the Micketts for abuse of process and to add Sander and PPI as third-party defendants. Their motion was denied on March 5, 2001.
Earlier, on December 28, 2000, the court ordered an arbitration hearing. On March 25, 2001, the arbitrator awarded the Mickettses $10,000 plus taxable costs, but no attorney fees. On April 16, 2001, the Mickettses filed a request for "Trial De Novo After Arbitration." On May 7, 2001, Judge Eagon set a pretrial conference for June 13, 2001, for the Mickettses and Johanses. The court required that each party file a statement of the case no later than June 8 and required that the parties exchange written settlement proposals.
Meanwhile, in late March 2001, the Johanses started a separate lawsuit alleging abuse of process against the Micketts and seeking contribution and/or indemnity against Sander and PPI. These are the same causes of action that the Johanses had sought to bring in the motion denied by the court in its March 5, 2001, order. The Johanses' suit was assigned to Judge Catherine Anderson on April 17, 2001.
On May 14, 2001, the Chief Judge of the Fourth Judicial District heard the Mickettses' motion to consolidate the Mickettses' original suit and the Johanses' second suit. All parties were present at the hearing except PPI. Although the hearing was scheduled to determine consolidation, the hearing also addressed the removal of Judge Eagon, which the Johanses had informally requested. According to the Johanses, at the hearing the Chief Judge stated an order would be issued consolidating the two cases in front of Judge Anderson and joining the two additional parties, Sander and PPI. No order was issued at that time. Although the Johanses believed a consolidation and reassignment of judges was forthcoming, Judge Eagon and the Mickettses believed the pretrial conference previously set for June 13 was to go forward. Both sides agreed there were phone calls between Judge Eagon's chambers and the Johanses' counsel regarding the June 13 conference, but the nature of the calls was disputed.
Judge Eagon presided over the pretrial hearing on June 13, 2001. There was no record made of the hearing, and the only parties attending were the Mickettses. On June 22, 2001, Judge Eagon issued an order with the following pertinent findings of fact: (1) the parties had been ordered to appear for a pretrial hearing on June 13, 2001, at 1:30 p.m.; (2) the court's law clerk heard from the Johanses' counsel by telephone the day prior to the hearing inquiring if his presence was necessary at the hearing; (3) the court's clerk immediately called the Johanses' counsel back and left a message that his presence was necessary; (4) the court's clerk left the same message the day of the hearing; (5) the pretrial order specifically provided for sanctions or dismissals if parties failed to appear; (6) at the hearing the Mickettses moved the court to grant judgment against the Johanses and to strike any answer of the Johanses; (7) the court found $500 in sanctions were appropriate. The court then ordered Johanses' answer stricken and a default hearing scheduled for July 9, 2001 at 9:00 a.m.
On June 23, 2001, the Johanses received the Chief Judge's order signed June 13, 2001. The order consolidated the cases before Judge Eagon, not Judge Anderson. The Johanses have a made a showing that the order was mailed on June 20, 2001. The Johanses filed a formal notice to remove Judge Eagon on June 26, 2001.
On July 9, 2001, the scheduled date for the default hearing before Judge Eagon, the Chief Judge held a hearing concerning the removal of Judge Eagon. At the end of the hearing, the Chief Judge canceled the default hearing before Judge Eagon and promised the parties a written order.
By September 24, 2001, no order had been issued, and the Johanses' counsel sent a letter to the Chief Judge reminding the judge of his statement at the hearing that a written order would be forthcoming. On September 24, the Chief Judge issued an order denying the Johanses' notice seeking to remove Judge Eagon. The Johanses' counsel received the order on September 26, 2001.
Before the Chief Judge's order was issued, the Mickettses' counsel had rescheduled the default hearing with Judge Eagon for September 12, 2001; the hearing was moved to September 25 and was held by Judge Eagon. Neither the Johanses nor their counsel appeared. On September 28, 2001, Judge Eagon issued a default judgment awarding the Mickettses $35,430.26, plus interest as allowed by law, and plaintiff's costs and disbursements. The Johanses appeal the order.
DECISION
I. The district court abused its discretion in granting a default judgment against the Johanses at the June 13, 2001, hearing.
The timing of the procedural actions in this case is relevant. The Mickettses brought their suit against the Johanses on July 21, 2000. On September 6, 2000, the case was assigned to Judge Eagon. On March 15, 2001, the Johanses brought a separate lawsuit against the Mickettses alleging abuse of legal process and demanding contribution and indemnity against Professional Property Inspectors, Inc. (PPI) and the Mickettses' realtor, Ella Sander. This lawsuit was assigned to Judge Anderson on April 17, 2001. Meanwhile, on April 9, 2001, the Mickettses brought a motion to consolidate the lawsuits. Originally, the hearing for consolidation was scheduled for May 15, 2001, but on April 23, that hearing was moved to May 14, 2001.
On May 14, 2001, the Chief Judge heard the Mickettses' motion to consolidate. The Johanses contend that the parties stipulated to consolidation and the Mickettses did not object to that assertion. The question of which judge was to hear the case was not settled, but the Johanses contend that Judge Anderson was to be assigned. The Chief Judge's order assigning the case to Judge Eagon was not issued until June 19, 2001.
Thus, at the time of the June 13 hearing, although it appears that the cases were to be consolidated, it was not clear which judge was going to hear the consolidated cases. Judge Eagon's order had required both parties to exchange statements of the case and settlement proposals by June 8 in anticipation of the June 13 hearing, but neither party had complied with those requirements. It was on this procedural posture that the Johanses and their attorney failed to attend the June 13 hearing.
The district court's authority to grant sanctions against a party who is disobedient in connection with a pretrial conference is found in Minn.R.Civ.P. 16.06. That rule explicitly refers to Minn.R.Civ.P. 37.02(b)(2)-(4), which set out the sanctions for failing to comply with discovery procedures. In general, the sanction should be commensurate with the seriousness of the act giving rise to it. Cf. 1A David F. Herr Roger S. Haydock, Minnesota Practice § 37.9 (2002) ("In determining whether a severe sanction will be imposed, the courts will look to the extent of the disobedience, the motivation for it, and whether it was intentional or negligent. The courts will also consider whether the disobedience caused any prejudice to the [opposing] party." Courts are generally reluctant to impose the severe sanctions of default and dismissal, "but will do so if the conduct of the of the disobedient party is flagrant."). The Johanses may well be subject to a sanction for failure to appear. But given the confused state of the record, we conclude that it was an abuse of discretion for the district court to impose the severe sanction that it imposed, which, simply stated, meant the Johanses would lose the suit without the opportunity to be heard. While it would have been better practice for the Johanses' attorney to insure that he and his clients attended the conference, it can also be said that it would have been good judicial practice for the June 13 pretrial conference to have been continued until after the court ruled on the Mickettses' motion to consolidate and the parties knew which judge would be assigned to the cases. Accordingly, we reverse the district court's order of June 22, 2001, insofar as it strikes the Johanses' answer, and we order the case to be set for pretrial hearing.
In this connection, we note that the arbitrator, in an adversary proceeding, awarded the Mickettses $10,000; the district court, in an ex parte proceeding, awarded the Mickettses more than $35,000.
II.The district court erred in entertaining and granting Mickettses' motion for default judgment.
As noted, we have concluded that the Johanses should not have been declared in default for failing to attend the June 13 hearing. From this conclusion, it follows that there was no legal basis for conducting the default hearing, which was first scheduled for July 9 but was ultimately heard on September 25. Moreover, even if there were such a basis, at this point in the proceeding, the Johanses and their attorney had a sufficient reason not to attend the default hearing on September 25, 2001, based on the events occurring between June 16 and September 25.
On June 13, 2001, the Chief Judge consolidated the cases as requested by the Mickettses' motion and assigned Judge Eagon to the consolidated cases. On June 26, the Johanses filed notice to remove Judge Eagon. The default hearing had previously been set for July 9, but on that day the Chief Judge heard the Johanses' motion to remove Judge Eagon. At the end of the hearing, the Chief Judge stated,
I'm canceling Judge Eagon's hearing until further order of the Court. I will issue an order hopefully later in the week, but you're not required to appear before Judge Eagon. She's aware of that. I went down to tell her personally. I'll issue a written order shortly.
At that point, the Chief Judge took the Johanses' motion to remove under advisement.
On August 22, 2001, while the Johanses' motion was still under advisement, the Mickettses scheduled a default hearing for September 25 before Judge Eagon. On September 24, the Chief Judge issued an order denying the Johanses' motion to remove Judge Eagon. The Johanses did not receive the order until September 26, the day after the default hearing. The Johanses did not appear at the hearing. The Mickettses did appear, and Judge Eagon ordered default judgment for the Mickettses in the amount of $35,430.26.
Thus, at the time of the default hearing on September 25, the Johanses had been told by the Chief Judge that the default hearing was cancelled until further order of the court and that they were not required to appear before Judge Eagon. Although, as the district court found, by the time of the hearing on September 25 the Johanses had notice of the default hearing, there is no indication that they had received either a court order, or even informal notice, that the Chief Judge had denied their motion to remove Judge Eagon. We conclude that on the unusual procedural posture of the case, including the Chief Judge's oral statement that the hearing before Judge Eagon was cancelled until further order of the court, the Johanses had a reasonable excuse for not attending the default hearing on September 25. Accordingly, we reverse the district court's order of September 28, 2001, granting default judgment in favor of the Mickettses.
III. The district court erred in not granting the Johanses' motion to vacate the default judgment.
The Johanses brought a motion to vacate the September 28, 2001, default judgment. In general, on a motion to vacate a default judgment, the court should conduct the four-part analysis set out in Finden v. Klass, 268 Minn. 268, 271, 128 N.W.2d 748, 750 (1964). Cf. Minn.R.Civ.P. 60.02. The Finden analysis, however, applies to cases in which the default judgment was validly entered in the first instance. Finden, 268 Minn. at 268-70, 128 N.W.2d at 749-51. Here, we have concluded that the district court erred (1) in finding the Johanses in default and (2) in entering a default judgment against them. Thus, it is not necessary to conduct the four-part analysis set out in Finden. Based on the conclusions in issues one and two above, it follows as a matter of law that the district court should have granted the Johanses' motion to set aside the default judgment.
A party seeking relief from a default judgment must demonstrate that the party (1) has a reasonable defense on the merits, (2) has a reasonable excuse for the failure to act, (3) has acted with due diligence after notice of the entry of judgment, and (4) establishes that there would be no substantial prejudice to the opposing party if the motion to vacate is granted. Finden, 268 Minn. at 271, 128 N.W.2d at 750; Reid v. Strodtman, 631 N.W.2d 414, 419 (Minn.App. 2001); Imperial Premium Fin., Inc. v. GK Cab Co., 603 N.W.2d 853, 857 (Minn.App. 2000).
IV. The district court did not err (1) when it denied the Johanses' motions to amend their answer and join Sander and PPI, (2) when it granted Sander's and PPI's motions for summary judgment, and (3) when it sua sponte dismissed the Johanses' claims for abuse of process.
These rulings may all fairly be considered together, as the reason supporting the district court's ruling in each case is the same: The Johanses did not plead a valid cause of action.
A party may amend a pleading once as a matter of course at any time before a responsive pleading is served. Minn.R.Civ.P. 15.01. If a party wishes to amend more than once or wishes to amend after a responsive pleading, the party must obtain written consent of the adverse party or must obtain permission of the court. Id. If the party does not obtain the consent of the adverse party, then the court will grant permission if the party shows that justice requires an amendment. Bastianson v. Forschen, 293 Minn. 31, 35, 196 N.W.2d 451, 455 (1972). The court must only grant an amendment when the adverse party will not be prejudiced by the court doing so. Smith v. Woodwind Homes, Inc., 605 N.W.2d 418, 424 (Minn.App. 2000). The issue of whether to grant leave to amend a complaint rests in the discretion of the trial court. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993) (holding that the district court has broad discretion to grant or deny leave to amend a complaint, and its ruling will not be reversed absent a clear abuse of discretion).
To implead a third-party defendant without leave of court, a defendant must act within 90 days after the service of a summons. Minn.R.Civ.P. 14.01. After the 90 days have expired, additional parties can be joined in the action only by written consent of all parties to the action or by permission of the court. Id. The court will only give permission outside the 90-day free period in exceptional circumstances. Minn.R.Civ.P. 14.01 1959 advisory comm. note. The court can dismiss a third party claim "or make other orders to prevent delay or prejudice." Minn.R.Civ.P. 14.03. The decision to permit a third-party complaint rests in the sound discretion of the district court. Grothe v. Shaffer, 305 Minn. 17, 25, 232 N.W.2d 227, 233 (1975) (stating the decision whether to permit a third-party complaint is within the discretion of the court).
As to the Johanses' abuse-of-process claim against the Mickettses, the Johanses must show two elements: (1) the existence of an ulterior purpose on the part of the plaintiffs, and (2) the act of using the legal process to accomplish a result not within the scope of the proceedings in which it was issued, whether such result might otherwise be lawfully obtained or not. Hoppe v. Klapperich, 224 Minn. 224, 231, 28 N.W.2d 780, 786 (1947). We agree with the district court that the Mickettses' sole purpose in bringing their suit was to recover damages incurred by reason of the Johanses' alleged misrepresentation. The Johanses, in support of their position, refer to the following actions by the Mickettses: (1) filing a claim against their own insurer, (2) initiating an administrative claim against their realtor, and (3) attempting to settle their claim against the Johanses without resorting to a suit. We find it difficult to grasp the Johanses' argument on this point. If anything, the actions of which the Johanses complain support the idea that the Mickettses at all times have acted in good faith; certainly those actions do not support the conclusion that the Mickettses brought the suit for any ulterior purpose or that they brought the suit to achieve a result not within the proper scope of an action for misrepresentation.
As to the Johanses' attempts to implead Sanders and PPI as third-party defendants, we agree with the district court's conclusion that the Johanses failed to state any legal theory under which Sanders and PPI could be liable. The Mickettses retained Sanders to act as their realtor and PPI to inspect the property. The Johanses had no contractual relationship with either of the proposed third parties, and we have not been pointed to any other theory under which liability could be imposed.
Finally, there remains the issue of whether the district court acted properly in Johans v. Micketts (sometimes here referred to as "the second action") when the court (1) granted Sander's and PPI's respective motions for summary judgment, and (2) granted summary judgment sua sponte in favor of the Mickettses on the Johanses' claim of abuse of process. The claims asserted by the Johanses in the second action are identical to claims they unsuccessfully attempted to assert in Micketts v. Johans when they brought their motions to amend and join, which we have considered above.
We agree with the district court that the Johanses' act in bringing the second action was nothing more than a blatant attempt to make an end run around the court's earlier rulings. We have already concluded that the district court acted properly in Micketts v. Johans when it denied the Johanses' motions to amend and join. The same reasoning that supports those rulings supports the court's rulings in the second action granting Sander's and PPI's motions for summary judgment and sua sponte granting summary judgment in favor of the Mickettses. Thus, we affirm the district court's (1) denial of the Johanses' motions to amend and to join Sander and PPI, (2) grant of summary judgment to Sander and PPI, and (3) dismissal of the Johanses' claim against the Mickettses for abuse of process.
V. The district court did not err in refusing to honor Johanses' notice to remove as of right, nor did it err when it denied their motion for removal based on bias.
After the two cases were consolidated, the Johanses sought to remove Judge Eagon, asserting that they could do so (1) as a matter of right, and (2) by making a showing of bias. The Chief Judge heard the matter and refused to remove Judge Eagon. We affirm the district court on this issue.
We turn first to the question of whether the Johanses could remove Judge Eagon as a matter of right. On June 13, 2001, the Chief Judge entered an order consolidating the two cases and assigning them to Judge Eagon. For purposes of considering this issue, we accept the Johanses's claim that this order was mailed on June 20. The Johanses filed their motion to remove Judge Eagon on June 26. The Johanses argue that they acted within the ten days allowed by Rule 63.03 for removal as a matter of right and thus effected a valid removal of Judge Eagon.
We reject this argument. First, as the district court noted, the parties and the issues in Micketts v. Johans are the same as those in Johans v. Micketts. When the Johanses brought Johans v. Micketts, they were merely attempting to continue litigating their claims in Micketts v. Johans, only by other means. Thus, we reject the Johanses' argument that the consolidated cases were a "new case," thus giving rise to a right to remove Judge Eagon.
Second, a party who abuses the right to remove may forfeit that right. As we have already noted, the Johanses's initiation of the second action was nothing more or less than an end run around the court's ruling in Micketts v. Johans. We view the Johanses' attempt to remove Judge Eagon from the consolidated cases as an abuse of the removal procedure. State v. Erickson, 589 N.W.2d 481, 485 (Minn. 1999) (prosecutor's use of removal procedure under Minn.R.Crim.P. 26.03, subd.13(4), analogous to Minn.R.Civ.P. 63.03, found to be an abuse; removal notices nullified and judge reinstated). We do not believe that such sharp practices should be rewarded. Consequently, we affirm the district court's ruling denying the Johanses' demand that Judge Eagon be removed as a matter of right.
As to the Johanses' motion to remove Judge Eagon based on a showing of bias, the matter rests in the discretion of the district court. Durell v. Mayo Found., 429 N.W.2d 704, 705 (Minn.App. 1988), review denied (Minn. Nov. 16, 1988). In their brief in this court, the Johanses refer to the arguments they made to the district court at the hearing on their motion to remove. At that hearing, their only argument was a complaint by their attorney that Judge Eagon had sanctioned him and had stricken his clients' answer. Thus, the best the Johanses can show is that Judge Eagon ruled against them. The mere fact that a judge has ruled against a party does not constitute a showing of bias. State v. Kramer, 441 N.W.2d 502, 505 (Minn.App. 1998), review denied (Minn. Aug. 9, 1989). Thus, we affirm the district court's decision to not remove Judge Eagon as a matter of right or because of prejudice.
VI. Damages
As the case is remanded for further proceedings in district court, it is not necessary to address the Johanses' argument concerning the measure of damages, which should first be addressed in district court in an adversary hearing.