Eric Krugh and Joseph Krugh, Appellants v. Don Hannah and Lake Ozark Construction Industries, Defendants, and Millstone Marina Service, L.L.C., Respondent.

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court. Opinion

Case Style: Eric Krugh and Joseph Krugh, Appellants v. Don Hannah and Lake Ozark Construction Industries, Defendants, and Millstone Marina Service, L.L.C., Respondent. Case Number: SC85392 Handdown Date: 01/27/2004 Appeal From: Circuit Court of Jackson County, Hon. Peggy Stevens McGraw Counsel for Appellant: Christopher P. Sweeney and John E. Turner Counsel for Respondent: Julie J. Gibson and Michael D. Matteuzzi Opinion Summary: In May 1998, Eric Krugh and his son were injured severely when a fuel leak caused their boat to explode. They sued Millstone Marina Service, L.L.C., alleging the marina negligently dewinterized the boat because it failed to check the fuel system and hoses for leaks, failed to check the ventilation ducts, and failed to follow the manufacturer's procedures for recommissioning the boat. The marina's owner and registered agent, Carla Blazier, was served with the Krughs' petition in May 2000. Because the marina failed to file an answer within 30 days as required by Rule 55.25, the Krughs filed a motion for a default judgment in August 2000. Nine days later, the Krughs' attorney faxed a copy of the petition and return of service to Blazier, who subsequently faxed the papers to her insurance agent. The papers were transmitted to the general managing insurance agency and then to the wholesale insurance broker, but they apparently ended up with the wrong insurer. The court granted the Krughs' motion for a default judgment and, in April 2001, entered a judgment of nearly $583,600 against the marina. Four months later, after the petition finally was forwarded to the proper insurer, Millstone filed a motion to set aside the default judgment. Following a hearing, the court set aside the default judgment, and the Krughs appeal. REVERSED AND REMANDED. Court en banc holds: Under Rule 74.05(d), a default judgment can be set aside upon a motion stating facts constituting a meritorious defense and for good cause shown. Here, Millstone did not show good cause for not filing an

answer within 30 days after it received service of the Krughs' petition. In fact, Millstone took no action at all in its defense within that 30-day period. Millstone concedes that Blazier, its registered agent, was served on May 23, 2000. Although this Court must defer to the trial court's finding that Blazier failed to act because she simply forgot having been served, that finding must be considered in conjunction with the uncontradicted evidence that Blazier previously had allowed default judgments to be taken and presumably was well aware of the consequence of her inattention. Even after the Krughs' lawyer gratuitously notified Blazier on August 10, 2000, that Millstone was several weeks in default, she still waited another 13 days to contact her insurer. Blazier's failure to file, therefore, is more egregious than excusable. Citation: Opinion Author: Stephen N. Limbaugh, Jr., Judge Opinion Vote: REVERSED AND REMANDED. All concur. Opinion: Eric and Joseph Krugh appeal an order of the circuit court setting aside their default judgment against Millstone Marina, L.L.C. (Millstone). The circuit court set aside the default judgment because: 1) Millstone made a sufficient showing of good cause for failure to file a timely answer; and 2) Millstone made a sufficient showing that it had a meritorious defense to the cause of action. After appeal to the Court of Appeals, Western District, this Court granted transfer. MO. CONST. art. V, sec. 10. The order setting aside the default judgment is reversed, and the case is remanded. I. On May 25, 1998, Eric Krugh and his son Joseph were severely injured when their boat exploded due to a fuel leak. The Krughs then filed an action against Millstone Marina alleging that Millstone negligently de-winterized the boat because it failed to check the fuel system and hoses for leaks, failed to check the ventilation ducts, and failed to follow the manufacturer's procedures for re-commissioning the boat. Millstone's registered agent, Carla Blazier, who owned the Marina with her husband, John, was served on May 23,

1. However, Millstone failed to file an answer within 30 days of the Krughs' petition, as required by Rule 55.25. As a

result, the Krughs filed a motion for default judgment under Rule 74.05(a), a hearing was then held, and on April 4, 2001, judgment was entered in the amount of $583,596.43. On August 1, 2001, Millstone filed a motion to set aside the default judgment pursuant to Rule 74.05(d), which allows

a default judgment to be set aside if the movant states facts constituting a meritorious defense and shows good cause. The motion alleged that: 1) Millstone could present a meritorious defense by disputing its responsibility for de-winterizing the boat and offering alternative explanations for the explosion; and 2) Millstone had good cause for failure to file a timely answer because Blazier had no recollection of being served. At a hearing on the motion, the court heard evidence on both issues, but the good cause issue is dispositive, and only the evidence pertaining to that issue need be recounted. In that regard, the process server, Deputy Nicole Olmstead testified that she served Blazier on May 23, 2000, that she recognized Blazier because she had previously served her "about six times," and that there was no question that she served her on that date. Evidence also was introduced that in the three-year period before May 23, at least four other default judgments had been taken against Millstone or Blazier, personally. In response, Blazier did not contest the earlier default judgments, but she disputed that, in this case, Deputy Olmstead personally served her and testified that she did not recall Deputy Olmstead ever being on the premises. She added that she did not know and had never met Deputy Olmstead and that she had no explanation why Deputy Olmstead completed a return of service stating that service had been made. Nonetheless, Millstone now concedes that Blazier was served in this case on May 23, explaining that Blazier's earlier denials were based on her lack of memory of the events. The trial court also heard evidence on Millstone's post-default conduct. On August 10, 2000, nine days after the motion for default judgment was filed, the Krughs' attorney, apparently out of courtesy, faxed a copy of the first amended petition and return of service to Blazier at Millstone, requesting that she forward these papers to her insurer. Thirteen days later, on August 23, 2000, Blazier faxed the petition and the return of service to her insurance agency, which forwarded the papers to its general managing agency, which, in turn, forwarded the papers to its wholesale insurance broker. At that point, the claim was to be transmitted to the appointed adjuster, but instead, it was mistakenly sent to a prior insurer. It was not until July of 2001, more than three months after the default judgment was entered, that the mistake was discovered and the claim was forwarded to the proper entity. Only then did a defense of the case begin. On the basis of this evidence, the court found that Millstone made a sufficient showing of good cause for failure to file a timely answer. Having also found that Millstone had a meritorious defense to the cause of action, the court set aside the default judgment. II. Rule 74.05(d) provides that a default judgment can be set aside "[u]pon motion stating facts constituting a meritorious defense and for good cause shown . . . ." The rule specifies that "[g]ood cause includes a mistake or conduct that is not intentionally or recklessly designed to impede the judicial process." Id. The Krughs contend that Millstone has not shown

good cause for failing to file an answer within 30 days after service as required by Rule 55.25. This Court agrees. Though Millstone concedes that service was made on May 23, fully three months elapsed -- from May 23 to August 23 -- before Millstone finally sent the petition to its insurers, much less filed an answer. In determining the presence or absence of "good cause," this Court is deferential to the trial court's finding that Blazier failed to act because she simply forgot having been served. But that finding must be considered in conjunction with the uncontradicted evidence that in the three-year period before service in this case, four other default judgments had been taken against Millstone, or Blazier, personally. This leads to the conclusion that she was well aware of the consequences of her inattention and makes her failure to file more egregious than excusable. Indeed, her disregard for the system is all the more evident given the fact that even after the plaintiff's lawyer gratuitously notified her on August 10 that Millstone was already several weeks in default, she still waited another 13 days to contact the insurer. On this proof, Blazier's failure to file is reckless conduct at the least, more than just the negligent mishandling of the paperwork as Millstone contends. To be sure, the insurers, themselves, later mishandled the paperwork and compounded the problem, but the relative responsibility of Millstone and its insurers is not an issue that has been raised by the parties. Even in the absence of the particularized evidence regarding Blazier's conduct, Millstone is hard-pressed to claim good cause. In fact, the only cases in which defendants have been held to have established good cause for failure to file are those, unlike the case at hand, in which the defendants had taken at least some action in their defense within the 30- day period before default. Great Southern Savings & Loan Ass'n v. Wilburn, 887 S.W.2d 581 (Mo. banc 1994), is particularly instructive. In that case, the two defendants were both in default, but one had hired an attorney who attempted to contact opposing counsel within 30 days of service, while the other neglected even to hire an attorney within the 30 days. Id. at 584. This Court held that the first defendant established good cause and did not intentionally or recklessly impede the judicial process, but the second defendant did not establish good cause. Id. See also Klaus v. Shelby, 42 S.W.3d 829, 832 (Mo. App. 2001). Millstone relies on Keltner v. Lawson, 931 S.W.2d 477, 481 (Mo. App. 1996), and Gibson v. Elley, 778 S.W.2d 851, 852-53 (Mo. App. 1989), both of which involved defendants whose default was excused because it was due to negligent mishandling of paperwork. However, reliance upon Keltner and Gibson is misplaced because the defendants in both cases took action prior to default. In Keltner, the defendant had "promptly forwarded the summons and a copy of the petition to his automobile insurance carrier." Keltner, 931 S.W.2d at 478. Likewise, in Gibson, the defendant, within seven days of being served, contacted another company that had agreed to defend and indemnify the defendant. Gibson, 778 S.W.2d at 851.

III. Because Millstone did not establish good cause for failing to file a timely answer, the order setting aside the default judgment is reversed, and the case is remanded.

All concur. Separate Opinion: None This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.