Filed June 14, 2005

Reversed and remanded

Toussaint, Chief Judge

Ramsey County District Court

File No. C4-04-3685

David Michael Aafedt, Winthrop & Weinstine, 225 South Sixth Street, Suite 3500, Minneapolis, MN 55402-4629 (for respondent)

Mark R. Anfinson, Lake Calhoun Professional Building, 3109 Hennepin Avenue South, Minneapolis, MN 55408 (for appellant)

Considered and decided by Dietzen, Presiding Judge; Toussaint, Chief Judge; and Shumaker, Judge.

U N P U B L I S H E D O P I N I O N

TOUSSAINT, Chief Judge

Appellant challenges the default judgment entered against him because of his failure to answer respondent’s defamation complaint and the order denying his motion to vacate the default judgment. Although the default judgment was properly entered, because appellant made a strong showing to reopen the judgment based on a reasonable defense on the merits, we reverse and remand.

FACTS

Appellant David J. Hoch is a lobbyist registered with the Minnesota Campaign Finance and Public Disclosure Board (the Board). In 2003, he was examining reports submitted to the Board by and on behalf of the Mille Lacs Band of Ojibwe Indians (the Band). He concluded that respondent Woodlands National Bank, N.A., a corporation, was making political contributions to a fund established by the Band, in violation of Minnesota law. Hoch approached specific members of the Board who conveyed to him that, if this were accurate, it would be a criminal matter outside of the Board’s jurisdiction. According to Hoch, they also suggested that he pursue the issue with the appropriate county attorneys.

In letters dated October 16, 2003, and addressed to the Mille Lacs and Hennepin County Attorneys, Hoch requested “a criminal investigation into the activities of Woodlands National Bank . . . and this bank’s political contributions to the Mah Mah Wi No Min I political committee. . . .” About the same time, Hoch apparently contacted the Mille Lacs Messenger newspaper, which published an article on November 5, 2003, quoting from Hoch’s letter to the Mille Lacs County Attorney. In letters dated April 2 and May 17, 2004, respectively, both counties declined to pursue the matter.

Shortly after the Hennepin County Attorney’s decision not to pursue a criminal investigation, Woodlands served Hoch with a complaint alleging defamation based on the statements made to the county attorneys and newspaper. The complaint alleged that Hoch’s statement that Woodlands had made an illegal political contribution was false and made maliciously. It also alleges that the political-fund reports on file with the Board specifically state that the campaign contributions were made by the Band only, not any other individual or entity. Woodlands alleged damages in an amount to be determined at trial.

It is undisputed that Woodlands served Hoch with the defamation complaint on April 19, 2004. Letters written by Woodlands’ counsel, David Aafedt, to attorney Joe Friedberg confirm that Friedberg obtained two extensions for his “client” Hoch to file an answer. When Aafedt agreed to the second extension to June 7, he noted that Friedberg had “informed [him] that Mr. Hoch planned on tendering his defense to his insurance carrier and that it was unlikely that he would be representing Mr. Hoch.” Friedberg alleges in his affidavit that “Mr. Hoch was absolutely aware that I would not represent him when I referred him to his insurer and handed him his file back.”

In a letter dated June 4, 2004, the insurance company notified Hoch that the company was “now investigating this loss under a reservation of rights.” The letter stated that the company would notify him immediately when it determined the coverage issue. The same day, Aafedt received a message from the insurance company regarding an additional extension of the time to answer, but was unable to reach the caller. Aafedt received no other communication regarding this matter and proceeded to serve Hoch with discovery on June 11 and with a motion for a default judgment on June 24.

About the time he received the motion for a default judgment, Hoch forwarded his documents to attorney Randy Thompson. In a letter to Hoch dated July 7, Thompson noted that he had met with Hoch “several weeks ago.” Thompson also clarified that the insurance company had declined to defend Hoch, that Hoch’s inability to raise a retainer was a problem, and that Thompson had “not agreed to represent [Hoch].” Similarly, Hoch’s present counsel, Mark Anfinson, stated that Hoch approached him on July 1, but did not have the retainer required to hire him.

Hoch appeared without counsel at the July 22, 2004, hearing on the motion for default judgment. He argued in his defense that he had thought Friedberg was representing him. Hoch told the court that he had been trying to reach Friedberg since the insurance company’s decision not to defend, but had been unsuccessful. He told the court that he was “in a position where until I contact [Friedberg] I can’t really proceed. I’m willing to, I just can’t because I don’t . . . know what’s been done to this point.”

The district court accepted Aafedt’s affidavits in support of default judgment, including an affidavit indicating that his requests for admissions were deemed admitted by Hoch when Hoch failed to respond. An affidavit from Woodlands’ President, Lewis Anderson, set forth damages suffered by Woodlands. Additionally, an affidavit from a public-relations firm confirmed the costs of services rendered to date and the minimum estimated “public relations campaign” required to put Woodlands back in the position it would have been in had there been no defamatory statement. Aafedt requested “general reputational harm damages in the amount of $105,000 . . . in addition to those quantified damage amounts set forth in the various affidavits submitted to you.” The court issued an order for a default judgment in the amount of $45,000 plus costs and disbursements, which was entered on August 5, 2004.

On September 15, 2004, Hoch moved to vacate the default judgment, under Minn. R. Civ. P. 60.02. On October 1, 2004, before the hearing on the motion to vacate, Hoch also filed a notice of appeal from the judgment and moved to stay the appeal until the district court subsequently denied the motion to vacate, finding that Hoch had made deceptive statements regarding his representation by Friedberg. Because these statements rendered Hoch unbelievable, the court concluded that Hoch’s defense on the merits, too, lacked credibility.

Woodlands moved this court to strike Hoch’s brief for focusing on issues outside the scope of the appeal. This court denied the motion and referred to the panel the issue of whether to review the order denying the motion to vacate.

D E C I S I O N

Discretionary Review of Order Denying Motion to Vacate Default Judgment

As stated in this court’s January 10, 2005 order, although the district court order denying the motion to vacate the default judgment was not independently appealable, it falls within this court’s scope of review, which extends to “review [of] any order involving the merits or affecting the judgment” and “any other matter as the interest of justice may require.” Minn. R. Civ. App. P. 103.04. “Because a motion to vacate by its nature asks the trial court to reassess its final judgment, an order denying the motion will, thus, involve the merits or affect the judgment entered.” Bush Terrace Homeowners, Assoc., Inc., v. Ridgeway, 437 N.W.2d 765, 770 (Minn. App. 1989), review denied (Minn. June 9, 1989).

Although we may decline to consider the order denying the motion to vacate, such a decision would render the district court’s decision unreviewable. Because both parties have briefed the issue and the trial court record on this appeal contains the moving papers, the transcript, and the post-appeal order involving the merits of the judgment, we will exercise our discretion to review it.

Default Judgment

When a party fails to plead or otherwise defend within the time allowed by law, default judgment may be entered against it. Minn. R. Civ. P. 55.01. “A party appears when that party serves or files any paper in the proceeding.” Minn. R. Civ. P. 5.01. Although Hoch was present for the motion for a default judgment, he had already failed to file an answer and to respond to discovery. On direct appeal from a default judgment, this court may consider whether the plaintiff’s complaint stated a cause of action and whether the relief granted was justified by the complaint. Mesenbourg v. Mesenbourg, 538 N.W.2d 489, 493 (Minn. App. 1995).

There is little dispute that Woodlands’ complaint stated a cause of action. The elements of defamation are: (1) a false statement; (2) communication of the statement to a third party; and (3) resulting harm to the plaintiff’s reputation and standing in the community. Stuempges v. Parke, Davis & Co., 297 N.W.2d 252, 255 (Minn. 1980). Here the complaint alleges that Hoch made statements (that Woodlands had committed “felonious actions”), the statements were false (Woodlands did not make political contributions to the fund), Hoch communicated them to someone other than the bank (the newspaper and the county attorneys), and these actions were injurious to the bank. Woodlands also alleged that “[b]ased upon [Hoch’s] past pattern and practice of targeting tribes[,] . . . [his] statements to the Mille Lacs County Attorney, Hennepin County Attorney, and Mille Lacs Messenger were made with actual malice.” Thus, the complaint stated a cause of action against Hoch for defamation.

Damages awarded on a default judgment must be “limited in kind and degree to what is specifically demanded in the complaint even if the proof would justify greater relief.” Thorp Loan & Thrift Co. v. Morse, 451 N.W.2d 361, 363 (Minn. App. 1990), review denied (Minn. Apr. 13, 1990). Here, Woodlands’ complaint sought “damages in an amount to be determined at trial,” and the affidavits alleged damages in excess of $200,000. The district court awarded only $45,000, specifically stating that employee time and lost profits were noncompensable. Therefore, the court’s award was proper.

Because Woodlands stated a claim for defamation and supported it with proof of damages and Hoch failed to timely respond, the district court properly awarded Woodlands’ motion for a default judgment.

Motion to Vacate Default Judgment

In the district court, Woodlands challenged Hoch’s motion to vacate the default judgment on procedural and substantive grounds. The court did not address the procedural challenge and instead disposed of the motion on the substantive ground. On appeal, Woodlands again argues that Hoch failed to follow the rules because he brought the motion to vacate without filing the requisite copy of an answer. See Minn. R. Gen. Pract. 109.01. Enforcement of local rules of civil procedure is left to the discretion of the district court. Hopkins by LaFontaine v. Empire Fire & Marine Ins., 474 N.W.2d 209, 212 (Minn. App. 1991).

The record reflects that Hoch initially did not comply with the requirement that he file an answer, but did file one on October 4, prior to the time of the rescheduled motion hearing. Even without Hoch’s answer, however, his defense was apparent from his moving papers. Under these circumstances, it was within the district court’s discretion to decide the motion on the merits and this court, too, will review the order on the merits.

In reviewing the denial of a motion to vacate a default judgment, we determine whether the district court abused its discretion. Foerster v. Folland, 498 N.W.2d 459, 460 (Minn. 1993). For relief, the movant must show “(1) a reasonable defense on the merits; (2) that there exists a reasonable excuse for failure or neglect to act; (3) that the party acted with due diligence after notice of the entry of judgment; and (4) that no substantial prejudice will result if the action is reopened.” Id. Reopening of default judgments is to be liberally undertaken so that disputes can be resolved on their merits. Petrich v. Dyke, 419 N.W.2d 833, 835 (Minn. App. 1988).

The district court stated that Hoch is lacking on at least two of the four factors. It found Hoch had made deceptive statements and “played dumb” at the default hearing on the issue of whether he was represented by Friedberg or not. On the ground that Hoch lacked credibility due to his representations at the default hearing, the court found Hoch was weak on two factors—reasonable excuse and reasonable defense on the merits. The court did not specifically address prejudice or due diligence.

The record indicates that Hoch’s reliance on Friedberg was justified to a point. Friedberg himself confirmed that he acted in Hoch’s interests until early July. Once it was clear that neither Friedberg nor Hoch’s insurance company was going to represent him, which was even later in July, Hoch needed to, and did, proceed to seek other counsel. Although the record does not explain Hoch’s failure to advise Woodlands’ counsel or the court at the default hearing that he had proceeded to seek other counsel, the record contains evidence that Hoch was not ignoring the complaint or his obligation to defend. His pro se representations regarding his relationship with Friedberg were countered by his serious efforts to obtain counsel when that relationship ended. Under these circumstances, on the motion to vacate, Hoch made an adequate showing of a reasonable excuse on the merits.

The existence of a “debatably” meritorious defense must be demonstrated by more than conclusory allegations in the moving papers. Charson v. Temple Israel, 419 N.W.2d 488, 492 (Minn. 1988); see Imperial Premium Fin., Inc. v. GK Cab Co., 603 N.W.2d 853, 857 (Minn. App. 2000) (stating that specific denial of alleged false representation constituted reasonable defense). Here, the district court did not reach the merits of the defense, but instead determined that Hoch’s “lack of candor with the Court casts serious doubt on his general claims of a meritorious defense.”

Hoch’s stated defenses include that (1) Woodlands is a public figure; (2) the statements were privileged; (3) the statements were “at least in part statements of opinion”; and (4) he did not act with actual malice. He asserted that he had no knowledge that the statements were false, he did not act with reckless disregard for their truth, he did not act with improper motive, he was not negligent, and he acted in good faith. He specifically stated that he thought that his interpretation of the reports was sound and that he had received some acknowledgement of this possibility from specific Board members. He also countered Woodlands’ claim that he has a history of making baseless claims, asserting that he has made successful complaints to the Board in the past.

Woodlands argues[1] that Hoch’s generalized denials were inadequate to raise a reasonable defense. The record, however, reflects specific denials and facts and allegations supporting the defenses. The record indicates that Woodlands is a federally chartered banking institution, which is a sufficient basis to argue that Woodlands is a “public figure” for purposes of defamation law. See Jadwin v. Minneapolis Star & Tribune, Co., 367 N.W.2d 476, 487 (Minn. 1985) (citing authority for proposition that “companies engaged in highly regulated businesses reflecting a special magnitude of public dependence and involvement in the activity” may be public figures); see also Northwest Airlines, Inc. v. Astraea Aviation Servs. Inc., 111 F.3d 1386, 1393 (8th Cir. 1997) (“Minnesota law considers a corporation a public figure and requires it to show that a statement was made with actual malice to establish a defamation claim.”). The facts alleged by Hoch also contradict Woodlands’ claim that he acted with actual malice. See Chafoulias v. Peterson, 668 N.W.2d 642, 655 (Minn. 2003) (requiring, for actual malice, “sufficient evidence to permit the conclusion that the defendant in fact entertained serious

doubts as to the truth of his publication”) (quotation omitted). Hoch also asserted that he believed he had discovered a violation of the law, he brought it to the Board initially, and based on the Board’s reaction, he went to the county attorneys. This, again, meets the standard of raising an arguable defense on the merits for purposes of a motion to vacate.

The district court did not express an opinion on due diligence or prejudice. Due diligence looks at diligence “after notice of the entry of judgment.” Guillaume & Assocs. Inc., v. Don-John Co., 371 N.W.2d 15, 18 (Minn. App. 1985) (quotation omitted). It is well established that prejudice beyond delay and increased costs associated with the proceedings must be shown to warrant a default judgment. Galatovich v. Watson, 412 N.W.2d 758, 761 (Minn. App. 1987). “[P]articular” prejudice must be shown. Housing & Redev. Auth. v. Kotlar, 352 N.W.2d 497, 499 (Minn. App. 1984).

The record indicates that Hoch exercised due diligence to vacate the default judgment and that doing so will not cause actual prejudice to Woodlands. Hoch retained an attorney about one month after the default hearing and promptly took appropriate steps to appeal the judgment and to move to vacate the judgment. Any damage due to the alleged defamatory statements was done in late 2003 at the time of the statements, is not ongoing, and Woodlands promptly took steps to repair any damage, including a state-wide public relations campaign. Woodlands primarily argues that this matter has taken up too much time and that it is Hoch’s fault for blatantly and “intentionally ignoring the process.” As the record shows, however, Hoch was not ignoring the process.

In conclusion, the district court did not err in its decision to enter a default judgment against Hoch. On the motion to vacate, however, Hoch made a strong showing of a reasonable defense, due diligence, and no actual prejudice, which warrant reopening the judgment.

Reversed and remanded.

[1] Woodlands also argues that Hoch does not raise a reasonable defense because all allegations against him are taken as true due to his failure to timely respond to discovery. This argument is based on cases in which a default judgment was entered due to a party’s willful and unexcused failures to comply with discovery orders “with an intent to delay trial and continu[ing] . . . refus[al] to cooperate.” See State by Humphrey v. Ri-Mel, Inc., 417 N.W.2d 102, 108-09 (Minn. App. 1987) (citing Breza v. Schmitz, 311 Minn. 236, 237, 248 N.W.2d 921, 922 (1976)), review denied (Minn. Feb. 17, 1988). Here, there are no such findings or evidence showing willful failure to comply with court orders or an intent to delay trial.