American Business Forms, Inc., d/b/a American Solutions for Business, Respondent, vs. Rass Trading Corp., et al., Appellants.

American Business Forms, Inc., d/b/a American Solutions for Business, Respondent, vs. Rass Trading Corp., et al., Appellants. A06-249, Court of Appeals Unpublished, December 5, 2006.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A06-249

 

American Business Forms, Inc.,

d/b/a American Solutions for Business,

Respondent,

 

vs.

 

Rass Trading Corp., et al.,

Appellants.

 

Filed ­­­December 5, 2006

Affirmed in part, reversed in part, and remanded

Dietzen, Judge

 

Pope County District Court

File No. 61-C2-05-303

 

Joseph A. Nilan, Mark J. Johnson, Gregerson, Rosow, Johnson & Nilan, Ltd., 1600 Park Building, 650 third Avenue South, Minneapolis, MN 55402 (for respondent)

 

Galen E. Watje, Steven C. Moore, Watje & Moore, Ltd., 7900 Xerxes Avenue South, Suite 2000, Bloomington, MN 55431 (for appellants)

 

            Considered and decided by Kalitowski, Presiding Judge; Dietzen, Judge; and Huspeni, Judge.*

 

U N P U B L I S H E D   O P I N I O N

 

DIETZEN, Judge

 

            Appellants challenge the district court's default judgment against them and a subsequent order vacating the default judgment on the condition that appellants post a bond, arguing that the district court (1) erred by not requiring respondent to post a bond to obtain a default judgment as required by Minn. R. Civ. P. 55.01(d), and (2) abused its discretion in its second order by requiring appellants to post a bond as a condition of vacating the default judgment.  We affirm in part, reverse in part, and remand to the district court to make additional findings regarding the amount of bond required to vacate the default judgment.

FACTS

            Appellants Rass Trading Corp. (Rass) and its vice-president, Raj Dhameja, are residents of Massachusetts.  Rass is engaged in the business of importing special-order goods, including promotional tote bags, T-shirts, and clothing.  Respondent American Business Forms (ABF) and American Minority Business Forms (AMBF) are Minnesota corporations located in Glenwood.  In September 2003, Rass entered a written contract with respondent ABF as a "Partner for Progress."  Rass also received orders from AMBF. 

            ABF and AMBF brought two lawsuits (the ABF lawsuit and the AMBF lawsuit)  against Rass and Dhameja, alleging that Rass breached its contracts by failing to timely ship goods that were ordered and paid for and by providing poor quality goods.  The same attorney signed both complaints.

In July 2005, appellants were served with both lawsuits in Massachusetts and they forwarded them to a Massachusetts attorney for representation.  But appellants' attorney mistakenly believed that appellants had been served with one AMBF complaint and that the other complaint was a duplicate copy, rather than a separate complaint.  Thus, appellants' attorney only sought an extension to answer the AMBF complaint. 

In August 2005, respondent moved for default judgment on both lawsuits.  When the Massachusetts attorney secured local counsel to represent appellants, he sent only the AMBF complaint.  Appellants' local counsel then sought and received an extension in the AMBF lawsuit, extending the deadline to September 12, 2005.  Respondent's attorneys did not mention the ABF lawsuit or the pending motions for default judgment.  On Friday, September 9, appellants' attorney learned of the ABF lawsuit.  He prepared an answer to the ABF complaint and served it on Monday, September 12, the next business day, which was also the extended deadline for the AMBF answer.

The following day, September 13, the district court considered AMBF and ABF's motions for default judgment.  After being contacted that morning by the court clerk, appellants' attorney participated in the motion by telephone.  Appellants' attorney asserted that neither he nor his clients had been notified of the default motions or hearing.  Respondent then withdrew the AMBF motion for default judgment but requested that default judgment be entered on the ABF lawsuit on the basis that appellants were in default.  Following the hearing, the district court granted default judgment on the ABF lawsuit concluding that "[d]efendants have failed to appear, answer, or defend the action in any way."  Judgment was entered against appellants in the amount $379,265.20. 

In October 2005, appellants moved to vacate the default judgment.  Respondents opposed the motion and argued that they would suffer substantial prejudice if the motion was granted.  Respondents relied on the affidavit of ABF Chief Operating Officer Craig McLain, who stated that appellants had become "increasingly slow in responding to orders, failed to meet delivery dates promised, had excessive overruns on some products, and provided poor quality and non-conforming products when delivered," and that appellants were "increasingly hard to communicate with, and appeared to be avoiding contact."  The affidavit documented 13 separate transactions that McClain alleged cost ABF a loss of $377,491.45.  Additionally, ABF argued that it had incurred attorney fees and costs of approximately $50,000.

Following the hearing, the district court granted the motion to vacate on the condition that appellants post bond for $402,000, which was the amount of the default judgment, plus half of the anticipated attorney fees requested by plaintiff.  The district court found that the appellants had a colorable defense on the merits, had a reasonable excuse for failing to act, had acted with due diligence after notice of entry of default judgment, and "[t]he award of a bond would alleviate any undue prejudice vacating the default judgment might impose upon the plaintiff." 

Subsequently, appellants requested permission to bring a motion to reconsider, arguing that the district court erred in not requiring respondent to post a bond as a condition to the entry of default judgment pursuant to Minn. R. Civ. P. 55.01(d), and that the amount of bond was unjust as applied to the circumstances of the case.  The district court denied appellants' request on February 1, 2006.  This appeal followed.

D E C I S I O N

I.

Appellants allege that the district court erred by not requiring respondent to post a bond as part of its order of default judgment.  Minnesota Rule of Civil Procedure 55.01 (d), which applies when service of the summons has been made outside the state, provides that "[N]o judgment shall be entered on default until the plaintiff shall have filed a bond."  Minn. R. Civ. P. 55.01(d).  Questions of civil procedure are issues of law, which we review de novo.  Sullivan v. Spot Weld, Inc., 560 N.W.2d 712, 715 (Minn. App. 1997), review denied (Minn. Apr. 24, 1997).

            Because appellants were served in Massachusetts, they argue that the district court's failure to require a bond is reversible error.  Respondents argue that appellants did not raise the issue in the district court, and therefore waived the issue.

            Generally, a reviewing court must consider "only those issues that the record shows were presented and considered by the trial court in deciding the matter before it."  Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (quoting Thayer v. Am. Fin. Advisers, Inc., 322 N.W.2d 599, 604 (Minn. 1982)).  When appealing a default judgment, "a party in default may not raise procedural irregularities on appeal that were not raised below, provided that adequate and expeditious relief is available by motion in the trial court."  Thorp Loan & Thrift Co. v. Morse, 451 N.W.2d 361, 363 (Minn. App. 1990), review denied (Minn. Apr. 15, 1990) (citing Whipple v. Mahler, 215 Minn. 578, 581-582, 10 N.W.2d 771, 774 (1943)).  

Appellants argue that they raised the issue to the district court in a footnote to their memorandum accompanying their motion to vacate judgment.  Respondent argues that it was an obscure reference in a lengthy footnote. 

Here, the district court did not consider the argument.  Based on our review of the footnote, we conclude that the issue was not adequately raised.  See Thiele, 425 N.W.2d at 582 (permitting review of issues if both raised and considered).  Appellants also argue that they raised the issue in their request for permission to bring a motion to reconsider.  But a motion for reconsideration does not expand or supplement the record on appeal.  Sullivan,560 N.W.2d at 716. 

But even if we were to consider appellants' claim, we conclude that it lacks merit.  By denying appellants' motion to reconsider, the district court effectively denied appellants' argument that a bond should have been required.  Thus, we affirm the entry of default judgment.

II.

Appellants argue that the district court abused its discretion by conditioning vacation of the default judgment against them upon the posting of a bond for $402,000.  A decision to reopen a default judgment is within the district court's discretion.  Lyon Dev. Corp. v. Ricke's Inc., 296 Minn. 75, 84, 207 N.W.2d 273, 278 (1973); Imperial Premium Fin., Inc. v. GK Cab Co., 603 N.W.2d 853, 856-857 (Minn. App. 2000).              Under Minnesota law, courts may vacate a judgment "upon such terms as are just."  Minn. R. Civ. P. 60.02.  Generally, to justify vacating a default judgment, the moving party must show: (1) a reasonable defense on the merits; (2) a reasonable excuse for failure or neglect to act; (3) that they acted with due diligence after notice of entry of default judgment; and (4) that no substantial prejudice will result to the opposing party.  Finden v. Klaas, 268 Minn. 268, 271, 128 N.W.2d 748, 750 (1964); Hinz v. Northland Milk & Ice Cream Co., 237 Minn. 28, 30, 53 N.W.2d 454, 456 (1952).  On appeal, appellants challenge is directed to the fourth factor. 

Here, the district court found that requiring a bond "would alleviate any undue prejudice."  Whether to require a bond as a condition of vacating a judgment and the amount of such a bond lie within the discretion of the district court.  Banque Internationale Luxembourg v. Dacotah Cos., 413 N.W.2d 850, 853-854 (Minn. App. 1987).  Under Minnesota law, the terms of any condition to reopening must be just.  Minn. R. Civ. P. 60.02 (permitting vacation "upon such terms as are just").[1] 

The district court found that appellants satisfied the first three prongs of the Finden test and that a bond would "alleviate any undue prejudice vacating the default judgment might have on the plaintiff."  See, e.g., Finden, 268 Minn. at 272, 128 N.W.2d at 751 ("conceding that prejudice is always inherent when the trial of a case is delayed, we are persuaded that plaintiffs would not have suffered substantial prejudice had the court vacated the judgment.").

            Some prejudice is inherent in every delay.  Sand v. Sch. Serv. Employees, Local 284, 402 N.W.2d 183, 186 (Minn. App. 1987), review denied (Minn. Apr. 29, 1987).  Where the only prejudice is added expense and delay, substantial prejudice of the kind necessary to keep a judgment from being reopened does not exist.  See, e.g., Finden, 268 Minn. at 272, 128 N.W.2d at 751.  In such cases, courts may award the non-moving party attorney fees and costs associated with the motion.  See, e.g., Tousley v. Howe, 263 Minn. 366, 370, 116 N.W.2d 590, 593 (1962) (reversing a $1,000 condition and awarding plaintiff $100 for attorney fees and $50 for costs as a substitute condition).

Where prejudice to the non-moving party is greater, reopening the judgment may be conditional on posting a bond.  Banque Internationale, 413 N.W.2d at 853.  In Banque Internationale, the court found that a $400,000 bond was not an abuse of discretion, given the facts of the case. Id. (total judgment entered against defendant in Banque Internationale was $446,763.92; defendant attempted to hide assets and had difficulty obtaining bond).  In Johnson, the court ordered garnishment of $5,598.44 from the defendant's bank account as a condition to vacate a $2,799.22 judgment.  Johnson v. Nelson, 265 Minn. 71, 74, 120 N.W.2d 333, 336 (1963).

Here, there was no evidence or finding that appellants secreted assets in an attempt to avoid judgment.  However, there are allegations[2] that appellants "have been increasingly late delivering goods, providing poor quality goods when the company did deliver, and increasingly ignored communications from ABF."  Respondent asserts that it has paid $377,491.45 for goods it has not received.  Respondent alleges that appellants' financial situation is deteriorating, and appellants have admitted on appeal that they are unable to post the bond.  Such an inability may support an inference that they would have difficulty satisfying the judgment.  Cf. Banque Internationale, 413 N.W.2d at 853. 

We affirm the district court's determination that appellants had a reasonable defense on the merits, a reasonable excuse for their failure to act, that appellants acted with due diligence after the entry of judgment, and its decision to conditionally vacate the default judgment.  Because the court made no express findings on how respondent would be prejudiced by reopening the judgment or on how the potential prejudice bears on the amount of the conditional bond, we remand to the district court to make findings and determine a bond amount that is consistent with the level of prejudice found.

            Affirmed in part, reversed in part, and remanded.     

* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.

[1]Appellant argues that Brown v. Brown, 37 Minn. 128, 33 N.W. 546 (1887), requires the amount of the bond be reasonable and just.  Brown, however, does not address the amount of the bond.  Rather, it found that where the defendants had demonstrated a good defense upon the merits, shown a reasonable excuse for their delay, and shown that "no substantial prejudice appears to have arisen from such temporary delay," the bond required by the trial court in that particular case was unjust.  Id. at 129, 33 N.W. at 547 (emphasis added).  In contrast, where the court seeks to ameliorate the prejudice to the non-moving party, a bond is just.  See, e.g., Nielsen Stock & Blackburn, Ltd. v. Fin. Acceptance Corp. of Minnesota, 299 Minn. 81, 84-85, 216 N.W.2d 693, 696 (1974) (affirming garnishment to secure bond where non-moving party would otherwise be prejudiced).  

[2] Appellant also argues that the alleged prejudice was shown by "unsworn testimony" of respondent's attorney.  But, it appears that the arguments made by respondent's attorney were based on the affidavit of respondent's COO, Craig McLain.  Prejudice (or any of the other four prongs) may be shown by affidavit.  Hinz, 237 Minn. at 30, 53 N.W.2d at 456.