With Friends Like These Who Needs Enemies? Getting Out of Default is Never Easy, 13 SCBJ, SC Lawyer, November 2013, #4

Author:Bruce Wallace
 
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With Friends Like These Who Needs Enemies? Getting Out of Default is Never Easy

Vol. 25 Issue 3 Pg. 20

South Carolina Bar Journal

November, 2013

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 Bruce Wallace

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Yournew client is in a sweat: he received a complaint by process server and desperately needs a lawyer to defend him in a state lawsuit. You review the complaint and realize your new client is in default. However, he has an explanation for the default. His best friend and business associate promised to defend him and file an answer on his behalf. Unfortunately, the business associate failed to file a timely answer on your client’s behalf. Setting aside entry of default will be tricky under Rule 55 and the cases interpreting it.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Rule 55(c) governs setting aside entry of default.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Rule 55(c) provides that “for good cause shown the court may set aside an entry of default and, if a judgment by default has been entered, may likewise set it aside in accordance with Rule 60(b).”1 “[A] plain reading of Rule 55(a) allows entry of default when a pleading or defense is asserted in a manner noncompliant with the Rules of Civil Procedure.”2 The controlling issue in setting aside entry of default is what constitutes “good cause, ” and under what circumstances the courts will set aside default.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Regions v. Owens

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The latest court to address setting aside entry of default is the S.C. Court of Appeals in Regions Bank v. Owens, 3 whereby the court affirmed a default judgment against a borrower who failed to answer a foreclosure complaint. Rejecting the borrower’s claims that he relied on his co-defendant and friend to file an answer on the borrower’s behalf, the court affirmed the trial court’s finding that the borrower did not show good cause to set aside entry of default.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0“Good cause” is not shown by relying on your co-defendant.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Appellant raised three arguments to show good cause. First, Appellant argued a co-defendant misled him into believing the co-defendant had hired an attorney to answer the complaint on Appellant’s behalf. Second, Appellant argued that, as a 79-year-old with a limited education, he was unaware he was signing loan documents and had complete trust in his co-defendant. Unfortunately, Appellant presented no evidence he took steps to protect himself by contacting either his co-defendant or the co-defendant’s attorney to confirm an answer would be filed on his behalf. The Court of Appeals viewed this lack of evidence as critical, because a litigant has the duty to monitor the progress of his own case. The Court of Appeals quoted an older case to say “lack of familiarity with legal proceedings is unacceptable and the court will not hold a layman to any lesser standard than is applied to an attorney.”4 Finally, the Court of Appeals affirmed the trial court’s finding that “if reliance on one’s own attorney is insufficient to show ‘good cause, ’ then reliance on another defendant and his attorney is equally insufficient.”5 This holding reaffirmed South Carolina’s age-old rule that an attorney’s or insurance company’s misconduct is imputable to the client.6

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0So, relying on your friend and co-defendant to defend you, without more, does not constitute “good cause” to set aside entry of default under Rule 55 of the S.C. Rules of Civil Procedure. If you cannot rely on your friends, on whom can you rely?

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Employers probably won’t employ a good defense for you.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0In Roberts v. Peterson, 7 the Court of Appeals reversed the trial court’s refusal to set aside an entry of default against a teacher who was sued by her student for a chemistry experiment gone awry. Upon being served, the teacher gave the suit papers to her employer, the school district. The school district did not hire an attorney to file an answer. The trial court refused to set aside default and entered judgment against the teacher.8 The Roberts court found three reasons to set aside the default. First, the teacher had a meritorious defense, although the court did not describe or discuss the defense. Second, the court held that the school district was negligent, although “not necessarily inexcusably negligent.”9 However, because the action arose before the abolition of tort immunity, the court recognized the teacher would have no recourse against the school district or its negligent failure to forward the suit papers.10 Furthermore, the court, while recognizing the negligence of an attorney or insurance company is imputable to a defaulting litigant, noted that the school district’s “business is education not litigation, ” such that the school district’s “negligence in the failure to act was more excusable ... than the cases involving attorneys or insurance companies.”11 As a third consideration, the Roberts court cited a 1950 Oregon decision for the proposition that “the courts grant relief to the defaulting defendant in the interest of trying cases on their merits.”12

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0It is unlikely the Roberts case will be repeated, even for school districts. As noted by the Roberts court, “State and County employees now have, or should have, detailed instructions and procedures to follow when served with suit papers; this was not the situation in the case before us which was instituted in early 1985.”13 While these procedures were absent for Roberts, the court telegraphed its belief that failure to forward suit papers after 1987 would not excuse school districts, and probably, any state governmental entity.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Relying on your lawyers and insurance companies has never worked.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0In Sundown Operating Co., Inc. v. Intedge Industries, Inc., 14 the S.C. Supreme Court affirmed a default judgment against the defendants despite the fact their insurance agent failed to timely retain counsel. The Court rejected defendant’s...

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