Minn. Stat. § 480A.08, subd. 3 (1996).
STATE OF MINNESOTA
IN COURT OF APPEALS
Daniel Straub, et al.,
Miriam Collins - Palm Beach Laboratories Co.,
File No. DJ974702
Jonathan R. Fay, Stein, Moore & Fay, P.A., 1010 Minnesota Bldg., 46 E. Fourth St., St. Paul, MN 55101 (for appellants)
Thomas E. Glennon, Thomas E. Glennon & Associates, P.A., 4700 Norwest Center, 90 S. Seventh St., Minneapolis, MN 55402 (for respondent)
Considered and decided by Huspeni, Presiding Judge, Short, Judge, and Willis, Judge.
Appellants, debtors in a commercial transaction, challenge the trial court's denial of their motion for relief from default judgment in the amount of the debt. Because we see no abuse of discretion, we affirm.
Respondent Miriam Collins - Palm Beach Laboratories Co., d/b/a Palm Beach Beauty Products (Palm Beach), entered into an agreement with appellants Daniel and Kim Straub, located in Colorado and d/b/a Alante International Inc. (Alante), whereby respondent would manufacture, package, and sell various hair care products bearing the Alante name to Alante, which distributed the products to its customers. Respondent provided products and sent invoices, but the invoices were not paid, and debt accrued in the amount of $68,364. Respondent brought an action for this amount against the Straubs and Alante, which it believed to be a corporate entity. Alante was not incorporated, however, until December 31, 1996, 20 days after service of the complaint.
After receiving the complaint, Daniel Straub wrote to respondent's president stating that Alante did not have the funds to hire an attorney and was attempting to secure financial backing. Straub also asked respondent to sell Alante products directly to two Alante customers at Alante's normal resale price and to apply the difference between that and the wholesale price to reducing Alante's debt to respondent. Finally, Straub asked for time "to sell Alante or bolster its financial position" and said Alante could not meet its commitments without "the time to solidify [its] future." The following day, Straub sent a letter to respondent's attorney reiterating his proposal for having respondent sell directly to Alante's customers.
On December 18, 1996, respondent's attorney sent the following "letter agreement" to Straub:
Please be informed that Palm Beach's willingness to accommodate Alante [and its customers] as described herein does not constitute, create or modify any agreement or business relationship by and between Palm Beach and Alante. Moreover, Palm Beach's willingness to accom-modate Alante as requested in Alante's letter to Palm Beach dated December 16, 1996 and your letter to me dated December 17, 1996 is a separate, distinct and stand-alone business transaction which does not affect any of Palm Beach's past, present and/or future rights and relations with Alante, including Palm Beach's rights with respect to the matters asserted in its Summons and Complaint dated November 27, 1996 against Alante, Kim Straub and yourself.
Straub signed that he read and understood the terms in this letter. The next day, December 19, 1996, Straub faxed a letter to respondent's attorney "requesting an extension period of 60 days for formally responding to [the] complaint" and stating that he lacked resources "to retain legal counsel at this time."
On January 2, 1997, respondent's attorney received a letter from Gordon Dihle, a member of a firm of "attorneys and business consultants," stating that the firm "represent[ed appellants] in the state of Colorado" and confirming a phone conversation in which respondent's attorney "granted an extension of time until 1-17-97 for [appellants] to respond to the complaint of your client * * *."
During subsequent phone calls, Dihle informed respondent's attorney of the status of appellants' efforts to secure financial assistance, said he was not representing appellants in connection with respondent's lawsuit, and advised respondent's attorney to get in touch with Straub directly concerning respondent's intent to pursue a default judgment if no payment plan was arranged. Respondent's attorney left voice mail messages for Straub but received no response. Respondent's attorney then left a voice mail message for Dihle informing him that Straub did not respond to messages. There was no response from Dihle.
No one ever discussed an extension of the time to file an answer beyond January 17, 1997. Four months after that date, respondent moved for a default judgment. Respondent's attorney did not send notice of the motion for a default judgment to the Straubs; nor did he send notice to Dihle because Dihle had stated repeatedly that he did not represent the Straubs in regard to this action. Judgment was entered against the Straubs and Alante for $59,070, the amount then owed to respondent, plus costs and interest.
The Straubs and Alante moved for relief from judgment. The trial court dismissed the judgment against Alante because Alante had not been a corporate entity at the time of the transaction, but upheld the judgment against the Straubs. They appeal, arguing that the court both abused its discretion and erred as a matter of law in denying their motion for relief from judgment.
Appellants argue that they are entitled to relief from the default judgment pursuant to four of the criteria set out in Minn. R. Civ. P. 60.02:
(a) Mistake, inadvertence, surprise, or excusable neglect;
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(c) Fraud * * *, misrepresentation, or other misconduct of an adverse party;
(d) The judgment is void;
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(f) Any other reason justifying relief from the operation of judgment.
Appellants claim first that they and Dihle were simply mistaken in their belief that discussions and letters, in particular the December 18, 1996, letter of agreement, meant that no other response to the lawsuit was required and that respondent would not proceed to judgment. The letter agreement clearly states, however, that respondent's proposed sales to appellants' customers were a separate transaction that did not affect respondent's "rights with respect to the matters asserted in its Summons and Complaint dated November 27, 1996 * * *." The letter agreement would not support a belief that respondent had waived the right to have appellants answer the claim.
Appellants then argue that respondent was guilty of making misrepresentations to the court regarding the corporate name and identity of the entity it had sued. However, respondent provided the court with documents showing why it assumed that Alante existed as a corporation at the time it sued. Also, because Alante was dismissed from the action, any misrepresentation as to its identity is irrelevant to the action against appellants. No harm would have accrued to Alante if the misrepresentations had been made.
Appellants allege that the judgment is void for two reasons: defective process and respondent's failure to file a bond. Neither allegation is persuasive. Even if appellants are correct in asserting that Alante was not properly served, the judgment entered against Alante was vacated; the lack of proper service on another defendant does not void the judgment entered against appellants.
Minn. R. Civ. P. 55.01(d) provides that:
When service of the summons has been made * * * by delivery of a copy outside the state, no judgment shall be entered on default until the plaintiff shall have filed a bond, approved by the court, conditioned to abide such order as the court may make concerning restitution of any property collected or obtained by virtue of the judgment in case a defense is thereafter permitted and sustained * * *.
Here, it is undisputed that appellants owe respondent money. Appellants put forth no defense that could result in respondent being compelled to make restitution and do not argue that restitution would ever be required. Absent any possibility of restitution of the proceeds of the judgment, the trial court did not err in failing to require a bond.
Appellants raise another procedural argument, contending that they appeared in the action and were therefore entitled to notice of an impending default judgment. See Minn. R. Civ. P. 55.01(b) ("If a party against whom judgment is sought has appeared in the action, that party shall be served with written notice of the application for judgment at least three days prior to the hearing on such application"); Minn. R. Civ. P. 5.01 ("A party appears when that party serves or files any paper in the proceeding."). Appellants rely on Howard v. Frondell, 387 N.W.2d 205 (Minn. App. 1986), review denied (Minn. July 31, 1986), to argue that the trial court erred in finding that they had not made an appearance and were not entitled to notice. This reliance is misplaced; Howard supports the court's finding.
Appellants claim that [their attorney's] letter to [their opponent's attorney] requesting an extension constitutes an appearance. Under the rules, however, a party is deemed to have made an appearance when it "serves or files any paper in the proceeding." Minn. R. Civ. P. 5.01. Because appellants had not filed or served any paper at the time of the application for default, they were not entitled to notice. We conclude that the trial court did not abuse its discretion in refusing to vacate the default judgment.
Id. at 208-09. Communications between the parties' attorneys do not constitute an appearance in an action. Even if Dihle had been representing appellants in this action, contrary to his own claims, his requests for additional time and communications as to the sales transaction were not an "appearance." Appellants were not entitled to notice of the default judgment.
Appellants also advance as an "other reason" for relief from judgment that they meet the standards for vacating a default judgment. Hovelson v. U.S. Swim & Fitness, Inc., 450 N.W.2d 137 (Minn. App. 1990), review denied (Minn. Mar. 16, 1990), sets out these standards:
[T]he party in default must demonstrate that (1) he has a reasonable defense on the merits, (2) he has a reasonable excuse for his failure to answer, (3) he has acted with due diligence after notice of the entry of judgment, and (4) no substantial prejudice will result to the other party. A weak showing on one factor may be overcome by a strong showing on the other three factors.
Id. at 140 (citations omitted). The trial court found that appellants did not meet the first and second criteria. Appellants argue that the December 18 letter of agreement was their "reasonable excuse" for failure to answer, again ignoring the statement in the letter that the letter had no effect on the lawsuit. They also argue that a January 14 letter from Dihle to respondent's attorney extended the time for responding to the lawsuit. But that letter does not refer to the lawsuit. The court did not abuse its discretion in finding no reasonable excuse for not answering the complaint.
As to appellants' defense on the merits, the evidence they cite in support of their position shows only that Alante was not properly sued. Straub's statement in his affidavit that respondent did not supply products according to their agreement conflicts directly with his letter of December 16 saying that "Alante has and will continue to make payments" and acknowledging that "[t]he frequency and size of the payments may not have met [respondent's] expectations * * *." Having found that appellants could not make a showing on two of the four criteria for vacating a default judgment, the court properly denied the motion to vacate.
Finally, appellants claim that the court erred "as a matter of law" in denying their motion because they are not individually liable for the debt to respondent. In support, they cite Haas v. Harris, 347 N.W.2d 838 (Minn. App. 1984), but Haas supports the opposite conclusion.
[Appellant] never told respondents they were working for a corporation at the time the agreements were made. In fact, the corporation did not even come into formal existence until after some of the bids were made and accepted. * * * The documentary evidence * * * shows the bids were sent to [appellant] personally and that the respondents treated the transactions as personal with [appellant].
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[Appellant] is personally liable for the contracts he executed with the respondents.
Id. at 840. Appellants argue that they were actually incorporated as Avanti International at the time they did business with respondent, but as the court noted, there is no evidence that products were sold only to that particular corporate entity. The invoices and other correspondence between the parties prior to the lawsuit indicate that respondent was doing business with the Straubs and/or Alante, but not Avanti. Straub's letter says that the correct name of the corporation is Avanti, not Alante, but refers to Alante's obligation to pay the debt. It was not an error of law for the trial court to hold that appellants, not Avanti, Inc., did business with respondent and were individually liable.
The trial court did not abuse its discretion in refusing to deny appellants' motion: none of the Minn. R. Civ. P. 60.02 criteria provides a basis for relief from judgment.
 Appellants also argue that they should not be made to suffer for their attorney's neglect. This argument has no merit: appellant wrote respondent that he was not retaining an attorney to handle the lawsuit and Dihle informed respondent's attorney that Dihle did not represent appellants in regard to the lawsuit. Absent an attorney, there could have been no attorney neglect.
 Appellants also denominate as "errors of law" their arguments that they were entitled to notice, that judgment could not be entered when one of the parties sued was not an entity, and that respondent was obliged to file a bond and contend that these "errors of law" are subject to de novo review. Appellants cite no authority showing that a party on appeal may obtain de novo review of any trial court decision simply by labeling that decision as an "error of law."