Shawl v. Spence Bros., Inc.

760 N.W.2d 674

280 Mich. App. 213

SHAWL v. SPENCE BROTHERS, INC.

Docket No. 275271.

Court of Appeals of Michigan.

Submitted May 7, 2008, at Lansing.

Decided August 19, 2008, at 9:00 a.m.

Hurlburt, Tsiros & Allweil, PC, Saginaw (by Lawrence A. Hurlburt), for the plaintiffs.

Cardelli, Lanfear & Buikema, PC, Grand Rapids (by Anthony F. Caffrey III), for the defendant.

Before: WILDER, P.J., and O'CONNELL and WHITBECK, JJ.

Opinion of the Court

PER CURIAM.

Defendant Spence Brothers, Inc., appeals by leave granted the trial court's order denying its motion to set aside a default in favor of plaintiffs James Shawl (Shawl) and Mary Shawl. On appeal, Spence Brothers argues that the trial court erred as a matter of law by applying the wrong standard in denying its motion to set aside the default. In addition, Spence Brothers argues that the trial court abused its discretion in refusing to set aside the default. We reverse and remand.

I. BASIC FACTS AND PROCEDURAL HISTORY

Boice Bird and Sons, Inc., employed Shawl as a journeyman painter. Spence Brothers hired Boice as a subcontractor to perform painting work on the Saginaw County Event Center, and in late June 2003, Boice assigned Shawl to work at the Event Center. While painting the lobby area of the Event Center, Shawl was injured. Specifically, according to Shawl, while he was painting a wall in the lobby, a temporary electrical panel fell toward him and struck him in the back. As a result, according to Shawl, three screws projecting from the rear of the panel punctured his "lumbar spine."

After the accident, Shawl sued Spence Brothers and J. Ranck Electric, Inc. Shawl's suit alleged that Ranck Electric was negligent by failing to brace safely or attach the electrical panel to the wall and that Spence Brothers, as the general contractor, was negligent for failing to ensure that reasonable steps were taken to guard against the danger that Ranck Electric created.

After being served with Shawl's complaint, Spence Brothers forwarded the complaint to its insurer, Amerisure. Amerisure began processing the complaint, but while examining coverage issues as part of the process, Amerisure determined that it needed more time to answer the complaint. Accordingly, in early July 2006, Annette Rigdins, an Amerisure senior claims representative, contacted Shawl's attorney and asked for a 30-day extension. Shawl's attorney agreed to the extension and asked Rigdins to "put it in writing." Rigdins then wrote a letter to Shawl's attorney that stated that the new due date for answering the complaint was August 8, 2006.

Spence Brothers failed to answer Shawl's complaint by August 8, 2006. As a result, the trial court entered a default against Spence Brothers on August 16, 2006, pursuant to MCR 2.603(A)(1).

Spence Brothers moved to set aside the default under MCR 2.603(D)(1). Spence Brothers argued that the 30-day extension was from the original due date of the answer, July 14, 2006, which, according to Spence Brothers, would have allowed it to answer through the end of the day on August 14, 2006. However, no answer was filed on that date either. Therefore, the trial court denied the motion. Spence Brothers moved for reconsideration, but the trial court also denied that motion. Spence Brothers now appeals.

II. "GOOD FAITH" VERSUS "GOOD CAUSE"

A. STANDARD OF REVIEW

Spence Brothers argues that the trial court did not apply the MCR 2.603(D)(1) criteria when it considered whether to set aside the default. More specifically, Spence Brothers argues that the trial court erroneously refused to analyze the matter to determine whether there was good cause and a meritorious defense as MCR 2.603(D)(1) requires.

With respect to our review of this argument, Spence Brothers relies on Colista v. Thomas¹ to support its assertion that we should apply a de novo standard of review to determine whether the trial court used the appropriate standard under MCR 2.603(D)(1). In Colista, this Court stated that the "interpretation and application of the court rules, like the interpretation of statutes, is a question of law that is reviewed de novo on appeal."² However, because the trial court here ultimately explained its use of MCR 2.603(D)(1) and, thus, applied the proper standard, the interpretation and application of the rule are not truly at issue in this case. Therefore, the proper standard of review is the abuse of discretion standard, which applies to review of a trial court's decision on a motion to set aside a default.³ We also review a trial court's decision to deny a motion for reconsideration for an abuse of discretion.⁴

B. THE WORDING OF THE COURT RULE

MCR 2.603(D)(1), which governs motions to set aside a default, provides: "A motion to set aside a default or a default judgment, except when grounded on lack of jurisdiction over the defendant, shall be granted only if good cause is shown and an affidavit of facts showing a meritorious defense is filed." (emphasis added.)

C. THE TRIAL COURT'S DECISION

Spence Brothers argues that the trial court applied the wrong legal standard under MCR 2.603(D)(1) because the trial court never spoke explicitly about "good cause" or a "meritorious defense" at the original hearing on the motion to set aside the default. However, the trial court later provided a fuller explanation in considering Spence Brothers' motion to reconsider the motion to set aside the default.

In response to Spence Brothers' concern that the wrong standard was used, the trial court stated:

Going back to [MCR] 2.603(D)(1), I was not very artful in saying that I thought that because of this exchange of letters there was not good cause shown. That's what I meant to—I think that's the proper standard and not whether they acted in good faith.

In addition, the trial court stated:

[I]t's important to the rights of your clients that they have a full hearing, and certainly my words were not as required by the court rules and they were entitled to get a little more definitive response I think as to why I ruled to deny the motion.

The trial court then went on to deny Spence Brothers' motion to reconsider and stated:

I'll deny the motion for reconsideration under MCR 2.603(D)(1) on the basis that the good cause has not been shown. That's primarily why I think this case is—is easy, and I think plaintiffs' authorities correctly cite that the public policy of the state is in favor of not setting aside defaults indeed without not only good cause but a meritorious defense.

In this regard, the trial court essentially sought to remedy any ambiguity in its prior ruling to deny the motion to set aside default. In addition, the trial court explained that the reference to "good faith" from the original hearing was merely to say that Shawl did not act in bad faith. In this regard, the trial court stated:

In this case, quite the contrary. [Shawl] requested the letter [from the insurance adjuster] to foreclose any possibility of confusion or mistake [in regard to the 30-day extension].

Thus, the trial court was simply stating that Shawl acted in good faith and that Spence Brothers did not show good cause to set aside the default.

Even though the trial court may have originally referred to a good faith standard, ultimately the trial court used the correct standard under MCR 2.603(D)(1). Accordingly, Spence Brothers has not shown an abuse of discretion with regard to this issue because the trial court, in fact, used the proper standard.

III. APPLYING MCR 2.603(D)(1)

A. STANDARD OF REVIEW

Spence Brothers argues that it demonstrated good cause based on procedural irregularities and genuine confusion in the proceedings below. Spence Brothers further argues that it has a meritorious defense that will extinguish liability and that a lesser showing of good cause will suffice where a meritorious defense is strong.

As noted, we review a trial court's decision on a motion to set aside a default for an abuse of discretion.⁵ Indeed, a trial court's decision in this regard should only be reversed on appeal when there is a clear abuse of that discretion.⁶ "An abuse of discretion involves far more than a difference in judicial opinion."⁷ "Rather, an abuse of discretion occurs only when the trial court's decision is outside the range of reasonable and principled outcomes."⁸ "Moreover, although the law favors the determination of claims on the merits, it has also been said that the policy of this state is generally against setting aside defaults and default judgments that have been properly entered."⁹

B. GOOD CAUSE

"Good cause" can be shown by: "`"(1) a substantial defect or irregularity in the proceedings upon which the default was based, (2) a reasonable excuse for failure to comply with the requirements which created the default, or (3) some other reason showing that manifest injustice would result from permitting the default to stand."'"¹⁰ Spence Brothers argues that the complex nature of this matter ultimately led to the confusion between it and Amerisure that caused the answer to be late, which constituted good cause. We disagree.

(1) PROCEDURAL DEFECT OR IRREGULARITY

There was, and is, considerable dispute about the exact date the answer to the complaint was due. Under MCR 2.108(A)(1), Spence Brothers had 21 days to answer after being served with the complaint on June 23, 2006. However, as noted earlier, Shawl's attorney and Amerisure agreed on a 30-day extension, which Shawl contends ran from the date on which Amerisure asked for the extension. Shawl points to the written confirmation stating that the new deadline was August 8, 2006. Despite the letter, Spence Brothers contends that the new deadline was intended to be 30 days from the original deadline to answer, which was July 14, 2006.

We conclude that the letter stating the August 8, 2006, date unequivocally set forth the intended expiration of the agreed-upon extension. However, even assuming that the 30-day extension ran from the original...