This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1994).
STATE OF MINNESOTA
IN COURT OF APPEALS
Victor Osfar d/b/a Energy Efficient Exteriors,
Old Republic Surety Company,
Filed May 21, 1996
Hennepin County District Court
File No. 9514438
James K. Sander, Wagner, Falconer & Judd, Ltd., 2650 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for Respondent)
David H. Gregerson, Todd A. Sattler, Lang, Pauly & Gregerson, Ltd., First Bank Place, 1600 IBM Park Building, 650 Third Avenue South, Minneapolis, MN 55402-4337 (for Appellant)
Considered and decided by Lansing, Presiding Judge, Schumacher, Judge, and Short, Judge.
U N P U B L I S H E D O P I N I O N
This surety action arises out of the provision of labor on a sound insulation construction project near the Minneapolis/St. Paul airport. Victor Osfar, d/b/a Energy Efficient Exteriors (subcontractor) alleges it was not paid by the general contractor for labor performed, so it made claims against the payment bond issued by Old Republic Surety Company (surety). On August 15, 1995, the surety received the subcontractor's summons and complaint by mail. The general contractor was not named in the lawsuit. On September 13, the subcontractor filed an affidavit of default and judgment was entered in its favor. When the surety learned of the judgment in October, it immediately filed a motion to vacate, which the trial court denied. On appeal, the surety argues the trial court abused its discretion by refusing to vacate the default judgment when it (1) possessed reasonable defenses, and (2) had a justifiable excuse for its failure to answer. The subcontractor seeks fees on appeal. We affirm.
D E C I S I O N
A party may be relieved from a default judgment for "mistake, inadvertence, surprise, or excusable neglect." Minn. R. Civ. P. 60.02(a). Under rule 60.02(a) and pursuant to the liberal policy favoring decisions on the merits, a trial court should relieve the defendant from a default judgment when it shows: (1) a reasonable defense on the merits; (2) a reasonable excuse for its failure or neglect to answer; (3) due diligence after notice of the entry of judgment; and (4) no substantial prejudice will result to the other party. Hinz v. Northland Milk & Ice Cream Co., 237 Minn. 28, 30, 53 N.W.2d 454, 455-56 (1952). We will not reverse a trial court's decision on a motion to vacate absent an abuse of discretion. Foerster v. Folland, 498 N.W.2d 459, 460 (Minn. 1993).
The surety argues its affidavits demonstrate three reasonable defenses. We disagree. First, affidavits supporting the opening of a default judgment must be executed by an affiant with personal knowledge of the facts stated therein. See Hinz, 237 Minn. at 30, 53 N.W.2d at 456 (requiring an affidavit executed by the defendant or some other person possessing personal knowledge of the facts); see also Frankoviz v. Smith, 35 Minn. 278, 279, 28 N.W. 508, 508 (1886) (finding an affidavit sufficient because it was not made merely upon second-hand information and belief, but appeared to be based on the attorney's personal knowledge); Black's Law Dictionary 873 (6th ed. 1990) (defining personal knowledge as that which does not depend on information or hearsay). The surety bases its defenses on letters from third parties. This unverified information does not constitute the personal knowledge required to establish a reasonable defense on the merits. Cf. Murphy v. Country House, Inc., 307 Minn. 344, 349, 240 N.W.2d 507, 511 (1976) (indicating hearsay contained in an affidavit must be disregarded on a motion for summary judgment because it would not be admissible at trial); cf. also Minn. R. Civ. P. 56.05 (requiring affidavits supporting or opposing a summary judgment motion to be made on personal knowledge).
Second, the surety failed to state with particularity the facts regarding the subcontractor's alleged indebtedness to the general contractor and the subcontractor's allegedly untimely bond claims. See Minn. R. Gen. Pract. 109.02 (dictating affiant must state with particularity the facts relied upon as a defense); Charson v. Temple Israel, 419 N.W.2d 488, 491 (Minn. 1988) (requiring more than conclusory allegations to demonstrate a meritorious claim). In addition, the surety asserts the subcontractor owes money to the general contractor in excess of the amount it claims under the bond. However, the surety's attack on the subcontractor's claims is immaterial to establishment of a meritorious defense. Cf. Peterson v. Skutt Ceramic Prods., Inc., 417 N.W.2d 648, 651 (Minn. App. 1987) (applying Hinz in the context of a dismissal and indicating a plaintiff requesting relief from a judgment cannot establish its meritorious claim by showing weaknesses in the defendant's case), review denied (Minn. Mar. 18, 1988).
And third, the surety argues the subcontractor's failure to name the general contractor as a defendant is fatal because a surety is not liable absent the established liability of the principal. See Posch v. Lion Bonding & Sur. Co., 137 Minn. 169, 171, 163 N.W. 131, 132 (1917) (stating a "surety is not liable unless the principal is"). However, a party requesting compensation under a surety bond may proceed directly against the bonding company, without joining the principal in the action. United States v. American Druggists' Ins. Co., 627 F. Supp. 315, 317 (D. Md. 1985); see also Bartles-Scott Oil Co. v. Western Sur. Co., 161 Minn. 169, 171, 200 N.W. 937, 938 (1924) (noting a bond is a joint and several obligation); Posch, 137 Minn. at 171, 163 N.W. at 132 (holding a surety may be sued alone if its obligation is joint and several). Under these circumstances, we cannot say the trial court abused its discretion in concluding the surety failed to establish a reasonable defense on the merits.
The surety also argues it established a reasonable excuse for failing to answer the subcontractor's complaint. When the neglect of a party itself results in failure to answer a complaint, that neglect is not excusable and a court may properly refuse to open a default judgment. Thayer v. American Fin. Advisers, Inc., 322 N.W.2d 599, 602 (Minn. 1982); Howard v. Frondell, 387 N.W.2d 205, 208 (Minn. App. 1986), review denied (Minn. July 31, 1986). The record establishes: (1) the surety relied on its own determination that the general contractor agreed to answer the complaint; (2) there was no affirmative action indicating the general contractor accepted the surety's tender of defense; and (3) the surety received, but failed to answer the complaint. Under these facts, we cannot say the trial court abused its discretion in concluding the surety is responsible for its unreasonable belief regarding its obligations.
The surety further argues the trial court neglected to consider that it acted with due diligence after receiving notice of the entry of default judgment, and the subcontractor would suffer no substantial prejudice if the judgment was opened. See Riemer v. Zahn, 420 N.W.2d 659, 662 (Minn. App. 1988) (balancing the strong showings on three Hinz factors against a weak showing on the fourth, and reversing the denial of a motion to open a default judgment). However, due diligence and a lack of substantial prejudice do not compensate for weak showings on the other, more significant factors. See Wiethoff v. Williams, 413 N.W.2d 533, 536 (Minn. App. 1987) (finding it unnecessary to consider the remaining factors when the movant had neither a reasonable defense nor a reasonable excuse for its neglect).
The subcontractor seeks attorney fees on appeal. Because the subcontractor is statutorily entitled to fees on appeal, we grant its request. See Minn. Stat. § 574.26, subd. 2 (1994) (allowing a court to award attorney fees for any claim successfully appealed or maintained under the Public Contractors' Performance and Payment Bond Act). Within two weeks from receipt of this opinion, its attorney shall submit a petition pursuant to Minn. R. Civ. App. 127 with specification of fees, costs, and disbursements, along with supporting documentation. Rule 127 will govern any response or reply to the fee petition.