CITY OF OSAGE BEACH, Appellant v. DUENKE REAL ESTATE HOLDINGS, LLC; TAN-TAR-A ESTATES, LLC, and TAN-TAR-A ESTATES COMMUNITY ASSOCIATION, INC., Respondents

CITY OF OSAGE BEACH, Appellant, v. DUENKE REAL ESTATE HOLDINGS, LLC; TAN-TAR-A ESTATES, LLC, and TAN-TAR-A ESTATES COMMUNITY ASSOCIATION, INC., Respondents.

No. SD39033

APPEAL FROM THE CIRCUIT COURT OF CAMDEN COUNTY Honorable Andrew J. Hardwick, Judge AFFIRMED The City of Osage Beach ("the City") filed a petition against Duenke Real Estate Holdings, LLC, and Tan-Tar-A Estates, LLC, (collectively "the LLCs") seeking a declaration that a contract between the aforementioned parties, titled the 2008 Extension and Amendments to the Tan-Tar-A Estates Sewer Services Agreement ("the 2008 Extension"), is terminated due to the LLCs' breach thereof. The LLCs thereafter failed to timely respond, and the circuit court entered a default judgment in the City's favor.

In Division

2 The LLCs filed a Rule 74.05(d) motion to set aside the default judgment, and the Tan-Tar-A Estates Community Association, Inc. ("the Association") moved to intervene in the lawsuit. See Rule 74.05(d), Missouri Court Rules (2024). Following an evidentiary hearing, the circuit court sustained both motions and entered a judgment setting aside the earlier default judgment. The City appeals, claiming in three points relied on that the circuit court erred in setting aside the default judgment against the LLCs. Because the City's first and second points (challenging the circuit court's "meritorious defense" and "good cause" findings, respectively) lack merit and the City's third point is moot, we affirm. Applicable Principles of Review A Rule 74.05(d) motion to set aside a default judgment is an independent action, which must be concluded by the entry of a final judgment ruling on the motion. Id.; see Steele v. Johnson Controls, Inc., 688 S.W.3d 192, 200 (Mo. banc 2024) ("[T]his Court's 2007 amendment to Rule 74.05(d) provides a motion to set aside a default judgment is an independent action resulting in an independent judgment[.]"); Mukanjiri v. Blue Cross Blue Shield of Kansas City, 718 S.W.3d 155, 160 (Mo.App. 2025). The circuit court's judgment here is final and appealable, even though the underlying action remains pending. 4021 Iowa, LLC v. K&A Delmar Prop., LLC, 681 S.W.3d 309, 314 n.3 (Mo.App. 2023) (a judgment granting or denying a Rule 74.05(d) motion to set aside a default judgment is a final judgment eligible for immediate appellate review); see also Saturn of Tiffany Springs v. McDaris, 331 S.W.3d 704, 708-09 (Mo.App. 2011) (same holding).

3 A circuit court may set aside a default judgment upon motion stating facts constituting a meritorious defense and for good cause shown. Rule 74.05(d). "Failure to establish either the 'meritorious defense' element or the 'good cause' element of a motion pursuant to Rule 74.05(d) is fatal to the motion." Agnello v. Walker, 306 S.W.3d 666, 673 (Mo.App. 2010). "A motion to set aside a default judgment does not prove itself and must be supported by affidavits or sworn testimony." Steele, 688 S.W.3d at 197 (internal quotation marks omitted). "Missouri appellate courts have traditionally afforded significant deference to the circuit court's decision to set aside a default judgment because of the public policy favoring the resolution of cases on the merits and the distaste our system holds for default judgments." Brungard v. Risky's Inc., 240 S.W.3d 685, 686 (Mo. banc 2007) (internal quotation marks omitted). We, therefore, review for an abuse of circuit court discretion, which occurs when the ruling "is clearly against the logic of the circumstances" then before the circuit court "and is so unreasonable and arbitrary that the ruling shocks the sense of justice and indicates a lack of careful deliberate consideration." Independence School Dist. No. 30 v. County of Jackson, 666 S.W.3d 279, 284 (Mo.App. 2023). If reasonable persons can differ as to the propriety of the circuit court's decision, then it cannot be said that the circuit court abused its discretion. Coble v. NCI Bldg. Sys., Inc., 378 S.W.3d 443, 451 (Mo.App. 2012). Background Summary of the Petition and Default Judgment The City alleged it entered into the 2008 Extension with the LLCs, which

4 continued and modified an earlier 1988 agreement to provide sewer services to the Tan- Tar-A Estates subdivision ("the Estates"). At the time of the 2008 Extension's execution, the City owned the sewer collection system within the Estates (exclusive of service- connection lines), and the LLCs owned nearly all of the lots in the Estates and the common areas. One of the specifically-enumerated conditions of the City's duty to provide sewer services under the 2008 Extension was that the LLCs had to provide "prompt cooperation including facilitating easy access to the sanitary sewer system particularly the lift and grinder stations upon request of any City personnel for the purpose of maintenance, replacement, improvement or any other repair to the sanitary sewer system." Thereafter, from 2013 to the present, the LLCs, either together or separately, deeded all or nearly all of the approximately 300 lots in the Estates to individual lot owners and deeded the Estates' common areas to the Association. Consequently, the Association and its lot owners (none of whom were parties to the 2008 Extension) now own all or nearly all of the lots in the Estates under which the City's sewer system lies. In May of 2024, the City contacted the LLCs requesting prompt and easy access to the Estates' sewer system. The LLCs, through their attorney, responded that because all ownership and control of the areas at issue had been transferred to the Association and current lot owners, the requested access was not something the LLCs could provide. The City alleged that as a result of the LLCs failure to provide prompt and easy access, "the City would have to negotiate individually with hundreds of lot owners and the Association to obtain blanket sewer easements" and that this would be "so commercially

5 impracticable to achieve as to relieve the City of any legal duty to attempt it." Ultimately, the City requested that the circuit court declare the 2008 Extension terminated on account of a material breach by the LLCs and that the City, therefore, is excused from its performance thereunder. The LLCs failed to timely answer the City's petition. Following a hearing where the City presented evidence, the circuit court entered a default judgment declaring the 2008 Extension terminated. Summary of the Post-Default Judgment Proceedings Motions by the LLCs and the Association to set aside the default judgment and to intervene in the lawsuit followed. In the LLCs' Rule 74.05(d) motion to set aside, filed approximately two weeks after entry of the default judgment, the LLCs alleged that they had good cause in failing to respond to the City's petition because their counsel mistakenly failed to calendar the deadline for a responsive pleading. The LLCs further alleged that they have a meritorious defense in that the 2008 Extension binds each parties' successors and assigns, and the Association, as the LLCs' successor, could provide the prompt and easy access requested by the City; that the City has been made aware that the Association was the LLCs' successor; and that the Association and its approximately 300 lot owners receiving sewer service under the 2008 Extension are affected by this suit and, therefore, are necessary parties. At a hearing on the LLCs' and the Association's motions, the circuit court took judicial notice of its case file, including the City's petition, and received testimony from an attorney representing the LLCs ("defense counsel"). Defense counsel testified that he

6 sought to obtain local counsel to defend against the City's lawsuit and initially retained such counsel. However, in response to the City's assertion that the retained counsel was unable to represent the LLCs due to a conflict of interest, said retained counsel decided not to assist with the case. Defense counsel informed the City's attorney that further discussions regarding the 2008 Extension needed to include the Association. In the final written communication between defense counsel and the City's attorney prior to default, defense counsel expressed that he was continuing to seek local counsel but that, if necessary, he would enter his appearance and move ahead with the case. In this communication, defense counsel also invited the City's attorney to amend the petition to name the Association as a party. Defense counsel failed, however, to docket the answer date on his calendar, leading to the eventual default. Defense counsel admitted, "it was negligence on my part." During defense counsel's testimony, the circuit court admitted into evidence a document titled the Tan-Tar-A Estates Subdivision Development Memorandum ("the Development Memorandum"), which was executed by Tan-Tar-A Estates, LLC (referred to in the Development Memorandum as "the Developer") and recorded by the Camden County Recorder of Deeds in 2014. Among other things, the Development Memorandum provides that a fee simple conveyance by the Developer to a lot owner shall be subject to the 2008 Extension and that the Developer may convey title and delegate its duty to manage the Estates' common areas to the Association. Following the evidentiary hearing, the circuit court issued a judgment that set aside the default judgment against the LLCs and allowed the Association to intervene in

7 the lawsuit. The City timely appeals, claiming the circuit court's judgment was erroneous on three grounds. As we discuss those claims, additional relevant background is provided infra. Discussion Point 1 Among the circuit court's reasons for setting aside the default judgment was its finding that the LLCs presented facts constituting meritorious defenses. "There is no universal standard establishing the components of a meritorious defense, but it has been interpreted to mean any factor likely to materially affect the substantive result of the case." Hanlon v. Legends Hospitality, LLC, 568 S.W.3d 528, 533 (Mo.App. 2019) (internal quotation marks omitted). "This concept is not intended to impose a high hurdle, but is meant to allow the case to be decided on its merits where there are legitimate issues to be considered." Pyle v. FirstLine Transp. Sec., Inc., 230 S.W.3d 52, 60 (Mo.App. 2007). "The movant need only make some showing of at least an arguable theory of defense." Independence, 666 S.W.3d at 284 (internal quotation marks omitted). Here, the circuit court concluded that at least two defenses met this standard and specified those defenses. Specifically, the circuit court stated, "facts exist that could co nstitute a meritorious defense including successors and assignment of interest to contract and/or contractual rights and joinder of necessary parties." (Emphasis added.) Each of these two purported meritorious defenses are legally distinct from one another. The former defense is premised on and requires the application of successor-in-interest contract law principles to certain agreements, including the 2008 Extension and the

8 Development Memorandum, to determine the status of the contractual rights and duties of the parties thereunder. See generally R ESTATEMENT (SECOND) OF CONTRACTS ch. 15 (A M. L. INST. 1981) (addressing "Assignment and Delegation"). The latter defense is premised on and requires an evaluation of the extent to which this suit would affect (and potentially could be affected by) the interests of the Association, one of the purported successors in interest to the 2008 Extension, which was not listed as a party by the petition and, therefore, absent at the suit's inception. See generally Rule, 52.04, Missouri Court Rules (2024) (setting out the general criteria for joinder in all civil suits); State ex rel. Woodco, Inc. v. Phillips, 603 S.W.3d 873, 876 (Mo. banc 2020) (setting out the defendants required specifically in contract actions). In its first point relied on, the City appears to attack only the "joinder of necessary parties" defense. The City specifically contends that the circuit court erred in setting aside the default judgment, because the LLCs "did not establish a meritorious defense, in that the Association's absence from the case was not a meritorious defense to the City's claim for declaratory judgment." (Emphasis added.) The City's point contains no additional challenge. As such, the City's point fails to include and wholly ignores the "successors and assignment of interest to contract and/or contractual rights" defense. Said defense is not encompassed by the City's point as it is based not on whether the Association's "absence from the case" is a meritorious defense but is based, instead, on whether the LLCs' attempt to assign and delegate its rights and duties in the 2008 Extension to the Association, among others, is a meritorious defense.

9 To reverse the circuit court's judgment on a lack-of-meritorious-defense basis, the City needs to demonstrate that neither the "successors" defense, nor the "joinder" defense, rise to the level of being "meritorious" as that term is understood in the context of setting aside a default judgment. See City of Peculiar v. Hunt Martin Materials, LLC, 274 S.W.3d 588, 591 (Mo.App. 2009) (stating that to reverse the circuit court's judgment, the appellants "would necessarily have to establish that all of the reasons that the circuit court articulated in its judgment were wrong"). Thus, even if we assume, without deciding, that the City's point is well founded, that the circuit court erred in finding that the "joinder" defense met the requisite meritorious-defense standard, "we would have no choice but to presume," id., that the circuit court did not err in additionally finding that the "successors" defense met said standard. We acknowledge that the City goes on to address issues relating to both the "successors" and "joinder" defenses in the argument section of its brief following its aforementioned point relied on, as well as in greater detail in its reply brief. Nevertheless, arguments in a brief are limited to the alleged errors contained within the point relied on. Rule 84.04(e), Missouri Court Rules (2024). As such, claims "raised in the argument portion of a brief that are not raised in the point relied on are not preserved for our review." 1 Davis v. Wieland, 557 S.W.3d 340, 352 n.10 (Mo.App. 2018) (internal quotation marks omitted).

1 Ex gratia, we observe that the City's arguments would fail because they misunderstand the standard by which we review an order setting aside a default judgment. The City asserts that though we review for an abuse of discretion, "reversal is required because the trial court erred as a matter of law in finding a meritorious defense under Rule 74.05(d)."

10 For all of the foregoing reasons, the City has failed to demonstrate that the circuit court abused its discretion in finding that the LLCs satisfied the criteria for a meritorious defense. Accordingly, point 1 is denied. Point 2 The circuit court's finding that "good cause exists based upon the interactions of counsel prior to and after the filing of the petition" is the focus of the City's second point. "'Good cause' includes a mistake or conduct that is not intentionally or recklessly designed to impede the judicial process." Rule 74.05(d). "Courts should interpret 'good cause' liberally to include good-faith mistakes, and even negligence, in failing to timely answer." Jones v. Riley, 560 S.W.3d 540, 544 (Mo.App. 2018). A person is negligent when that person's inadvertence, incompetence, unskillfulness, or failure to take precautions precludes that person from adequately coping with a possible or probable

Similarly, in the Independence case, cited supra, a school district opposing the setting aside of a default judgment argued "that if the defense asserted rests on a question of law, the party seeking to set aside a default judgment must not simply raise an arguable theory of defense but must prove that the defense would be successful." 666 S.W.3d at 286. The western district of this Court rejected this approach, stating that it "would require the circuit court to resolve all disputes about the ultimate legal question in the case at this preliminary stage of the legal process." Id. The western district observed that a frivolous legal argument may not raise an arguable theory of defense, but that the legal argument before it, which involved statutory construction, was not frivolous, in that the school district cited no case, and the court could find none, interpreting the statute at issue in a manner consistent with the context of the parties' dispute. Id. at 286-87. Likewise, here, a legal dispute (one grounded in contract) forms the basis of one of the LLCs' asserted theories of defense. Although the City cites many legal authorities in its briefs, the instant case involves unique contractual provisions and circumstances that are not exactly reflected in every way by those cited authorities. As was the case in Independence, the City "is not entitled to a judgment on the merits regarding a substantive issue that, once raised in a motion to set aside a default judgment, should be resolved on the merits." Id. at 287.

11 future emergency. In re Marriage of Callahan, 277 S.W.3d 643, 645 (Mo. banc 2009). On the other hand, a person is reckless when that person makes a conscious choice, either with knowledge of the serious danger involved or with knowledge of the facts that would disclose the danger to a reasonable person. Id. "Where a reasonable doubt exists as to whether the conduct was intentionally designed or irresponsibly calculated to impede the work of courts, it should be resolved in favor of good faith." Myer v. Pitney Bowes, Inc., 914 S.W.2d 835, 839 (Mo.App. 1996). The City argues that the circuit court erred in setting aside the default judgment because several cases "show the 'interactions of counsel in the record prove recklessness, not negligence.'" All of the relied-upon cases, however, involve the denial of a motion to set aside a default judgment. See Steele v. Johnson Controls, Inc., 688 S.W.3d 192, 197- 98 (Mo. banc 2024); McCroskey v. Singh, 683 S.W.3d 690, 698-701 (Mo.App. 2023); Solomon v. St. Louis Circuit Atty., 640 S.W.3d 462, 476-79 (Mo.App. 2022); and First Community Bank v. Hubbell Power Systems, Inc., 298 S.W.3d 534, 538-41 (Mo.App. 2009). Therefore, given the significant deference we afford circuit courts in determining whether good cause exists to set aside a default judgment, these cases provide little guidance where, as here, a motion to set aside was granted. Here, the record demonstrates that defense counsel did not ignore the City's petition. Rather, defense counsel wanted to secure local counsel, but had difficulty in doing so after the City objected to the attorney initially retained. Defense counsel engaged in regular communications with the City's attorney about the parties' dispute and expressed his willingness to enter an appearance and file an answer if and when it

12 became necessary. Defense counsel admitted that while these communications were ongoing, he negligently failed to calendar the response date for the petition, ultimately leading to the default. In light of this course of conduct, the circuit court could reasonably conclude that defense counsel's failure to timely respond to the City's petition was not intentionally or recklessly designed to impede the judicial process. Cf. Jones, 560 S.W.3d at 544-45 (reversing the denial of a motion to set aside a default judgment where the defense attorney failed to read the summons issued by an associate circuit division, which set a hearing date sooner than thirty days from the petition filing but had not otherwise ignored the case and ultimately acknowledged and took full responsibility for filing his client's answer late). The City's contention otherwise, which ignores our standard of review, is unavailing. Accordingly, point 2 is denied. Point 3 For the City's third and final point, the City challenges an additional ruling by the circuit court in which it stated that it was setting aside the default judgment "on its own motion" based upon a finding that the joinder of the Association is necessary. The City argues that this ruling initially appeared in a docket entry, prompting the City to seek a peremptory writ from our high court in State ex rel. City of Osage Beach v. Hon. Andrew Hardwick, No. SC101030 (Mo. banc May 27, 2025). The City further argues that our high court granted the writ sought, that the circuit court nevertheless issued a written judgment thereafter containing the same language as its earlier docket entry, and that the peremptory writ precludes the circuit court from setting aside the default

13 judgment on its own motion. However, because of this Court's disposition that the circuit court did not abuse its discretion in granting the LLCs' motion to set aside the default judgment under Rule 74.05(d), the resolution of point 3 is moot and need not be addressed further. Decision The circuit court's judgment is affirmed. BECKY J. WEST, J. – OPINION AUTHOR

JEFFREY W. BATES, J. – CONCURS

JACK A. L. GOODMAN, J. – CONCURS