Friday, February 3, 2012

O Just but Severe Law!

Pierce v. Vaughn, 2012 VT 5 (mem.).

One the more shocking parts of practicing law in Vermont is simply watching how many individuals represent themselves.  Some statistics, for example, suggest that up to 80% of litigants in family court are pro se.  For anyone concerned about fair play and justice that is a figure that should give pause.

Here is the problem.  No matter how straightforward and user friendly the courts and lawyers try to make it, the law is filled with complicated and difficult situations where parties, diametrically opposed in interests are left to struggle in an open and ill-defined field.  In a lawsuit, no one sends you prompts or hints about what to do next.  It is up to the lawyer or party to analyze the situation, pick the proper response, and file it in a timely manner.  This is hard enough to do with three years of academic training and a dozen years of practice.  It is difficult to imagine what it would be like to do it blind.

Actually, it would look a lot like today’s case.

Let’s take it from the top.  Defendants purchased a business from Plaintiffs in 2006 for $175,000.  Plaintiffs lent Defendants $30,000 of this through a note that called for repayment in three, annual installments of $10,000.  Shortly after the sale, the parties allegedly made a second, verbal agreement for one of the Plaintiffs to sell additional hardware to the Defendants and to pay him for any work he performed after the closing.

In February of 2007, two months before the first installment payment was due, Plaintiffs filed suit against Defendants for failing to pay for the additional hardware, which totaled to $20,000, and Plaintiff’s wages, which totaled to approximately $5,000.

On April 1, 2007, Defendants failed to make their first installment payment on the original purchase agreement.  Two days later, Plaintiffs’ attorney filed for default judgment on the February claims.  A few days later, Defendants sent Plaintiffs’ attorney a letter, disputing the agreement to purchase additional hardware, admitting the obligation for the back wages, and raising a counterclaim for $5,000 based on inventory discrepancies.  Defendants added that they were willing to settle this claim and the missing installment payment.  To that end, they proffered a check to Plaintiff for his wages.

Plaintiff’s attorney comes in for some soft, but unmistakable, criticism from the SCOV for what he does next.  Despite the receipt of the letter, the Attorney continues to file for default judgment and makes no mention to the trial court of Defendant’s letter.  In May 2007, the trial court grants Plaintiffs’ motion for default judgment.

Plaintiffs’ attorney gets away with this somewhat questionable repression for two major reasons.  

First, as the attorney for the Plaintiffs, he was under no duty to Defendants and had no legal obligation to forward their letter to the court or to raise issues that they had brought to him but did not bring to the court’s attention.  While this may be legal, the SCOV is not particularly happy with it and suggests that the attorney's behavior is just this side of the ethical boundary line.  At the same time, the SCOV finds it is not in a posture to review the issue and finds no particular fault.  

The second basis fairs no better.  Plaintiffs’ attorney claims that he understood Defendants’ letter to be a settlement offer that would not have been proper to bring to the court.  Again, the SCOV looks askew at this but concludes that it is in no position to review the issue.

Back in 2007 following the default judgment, Plaintiffs filed a second lawsuit seeking full payment on the outstanding $30,000 loan.  Six months later, the parties resolved this dispute at mediation where Defendants agreed to pay the full $30,000 in three new installments along with additional interest and costs. 

As part of their settlement agreement, the parties included a term that allowed Defendants to maintain any defenses to claims Plaintiffs might have in other cases. 

Flash forward to May 2010.  Plaintiffs, through their Attorney, elect to file a motion for trustee process to collect on the 2007 default judgment for the hardware and wages.  Defendants, in response, file a Rule 60(b) motion to set aside the default judgment and revive the claims that they made three years ago, but this time directing them to the trial court.

The best way to think about Rule 60(b) is to consider it the Rick Perry of the Civil Rules.  It is the Oops desk that covers mistakes, inadvertence, new evidence, fraud, and other screw-ups both minor and major that happen in the course of entering a judgment.  It is the clean-up the rule that gives the trial court a way of fixing an error or problem short of an expensive appeal. 

Rule 60(b) actually covers six different categories.  The first three (1. mistake, 2. newly discovered evidence, and 3. fraud) can only be raised up to one year after the judgment was entered.  The remaining three (4. judgment is void, 5. judgment has already been satisfied, and 6. other reasons justifying relief) have no time limit.  

The last basis seems particularly promising for Defendants in this case as it is arguably broad enough to cover the unique situation they face trying to fight an old judgment that was apparently forgotten by both sides, and to which they have consistently, albeit not competently, sought to oppose.

Defendants apparently went in this direction making a broad argument that the judgment was not just, particularly because the earlier settlement agreement had given them the right to attack the default.  To the Defendants’ credit, the trial court accepted this reasoning and granted them relief by re-opening the underlying judgment based on Rule 60(b)(6).

Unfortunately, for Defendants, the SCOV disagrees.  The SCOV has long ruled that if you are eligible for relief under any of the first three categories, you cannot apply for relief under category 6 simply because the one-year deadline has expired on the first three categories.  In this case, the SCOV rules, the facts fall squarely into category 1 (mistake and inadvertence).  Therefore, the Defendants had a year to set aside the default judgment, and their failure closed the door, which cannot be pried open three years later under the guise of the catch-all category of Rule 60(b)(6). 

All this is to say that Defendants are out of luck in trying to turn back the clock on the default judgment.  Their chance to revisit the issue collapsed after the spring of 2008, and nothing they can argue now will revive it.  So now, in addition to their loan repayment obligations, they will soon have to answer for the $25,000 default judgment that Plaintiffs have begun moving to secure. 

Even more tragic is the fact that Defendants’ situation is largely self-induced.  A motion to set aside the default filed in early 2008 would have taken care of the situation.  A proper response filed with the trial court in 2007 would have removed the problem entirely. 

Instead, Defendants have effectively waived their claims and must accept this second judgment for what it is—final.  This is not to criticize Defendants entirely.  They were hoisted on two technical petards that have caused heartaches for many an experienced attorney.  Still, it is not the outcome that Defendants would have likely had with competent legal counsel.  And who knows, but I expect such attorney's fees would have been less than what Defendants will soon be paying. 

"This issue is too technical for you" is not what most litigants want to hear.  It is not a side of the legal process that we promote when we strive for simpler decisions and cleaner process, but it is a reality that there is no good or simple way to litigate through difficult procedural issues without some experience or training.  That’s what people pay lawyers to do.  

Presuming, of course, that they pick up the phone for that free initial consultation.  

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