2014 VT 92


Stroup v. Doran & Doran
Landscape Design (2013-420)
 
2014 VT 92
 
[Filed 01-Aug-2014]
 
NOTICE:  This opinion is subject
to motions for reargument under V.R.A.P. 40 as well as formal revision before
publication in the Vermont Reports.  Readers are requested to notify the
Reporter of Decisions by email at: JUD.Reporter@state.vt.us or by mail at: Vermont
Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors
in order that corrections may be made before this opinion goes to press.
 
 

2014 VT 92

 

No. 2013-420

 

Stanley S. Stroup and Sylvia
  Stroup


Supreme Court


 


 


 


On Appeal from


     v.


Superior Court, Bennington Unit,


 


Civil Division


 


 


Peter Doran & Peter Doran
  Landscape Design, LLC


May Term, 2014


 


 


 


 


John
  P. Wesley, J.


 

Robert E. Woolmington and Merrill E. Bent of Witten,
Woolmington, Campbell & Bernal, P.C.,
  Manchester Center, for Plaintiffs-Appellants.
 
Lawrin P. Crispe of Crispe & Crispe, and Mark L. Zwicker
of Mark L. Zwicker, P.C., Brattleboro, 
  for Trustee-Appellee Brattleboro Savings and Loan
Association.
 
 
PRESENT:  Reiber, C.J., Dooley, Skoglund, Robinson and
Crawford, JJ.
 
 
¶ 1.            
CRAWFORD, J.   Plaintiffs Sylvia and Stanley Stroup appeal from
an order of the superior court, civil division, denying their motion for
default judgment against trustee Brattleboro Savings and Loan Association
(BSL).  We affirm. 
¶ 2.            
In 2007, plaintiffs sued defendants Peter Doran and Peter Doran
Landscape Design, LLC for breach of contract, fraud, and consumer fraud after
defendants failed to perform landscaping for plaintiffs.  Plaintiffs obtained a
judgment against defendants in Bennington Superior Court.  Defendants failed to
pay the judgment.  Plaintiffs obtained a writ of execution, and the court
approved plaintiffs’ motion for trustee process to attach funds owned by
defendants and held by BSL.  
¶ 3.            
BSL disclosed to plaintiffs that it held a balance of $2,853.05 in a
checking account titled in the name of one of the defendants.  A few days
later, the parties stipulated that BSL would release $750 to plaintiffs, and
that BSL would then be discharged as a trustee and defendant’s account would be
free of any lien or charge benefitting plaintiffs.  Defendants further agreed
to pay $3,500 to plaintiffs before January 31, 2008.  BSL paid plaintiffs
$750.  Plaintiffs claim that defendants never paid the remainder of their
debt.  
¶ 4.            
On July 22, 2013, plaintiffs served BSL with another trustee summons. 
BSL did not reply within thirty days, and on August 27 plaintiffs moved for
default against BSL and entry of judgment against it as trustee for $24,155.12,
the balance due under the judgment.  On September 12, the court ordered the
clerk to schedule a hearing on plaintiffs’ motion, and directed that a copy of
plaintiffs’ motion and the notice of hearing be served on BSL. 
¶ 5.            
On September 16, BSL filed a trustee disclosure indicating that it did
not have any of defendants’ property in its possession.  The court subsequently
entered an order denying plaintiffs’ motion for default judgment against BSL. 
The court stated that “[a]lthough Trustee failed to make a timely disclosure,
its disclosure now made in response to Plaintiff[s’] motion for default shows
that it holds no assets for the benefit of Defendant[s].  Default judgment
under these circumstances would be inequitable.”  Plaintiffs appealed. 
¶ 6.            
Plaintiffs argue that the trial court erred in denying their motion for
default because applicable Vermont law makes default mandatory when a trustee
fails to serve a disclosure within thirty days.  Plaintiffs did not contest the
information contained in the trustee’s disclosure form or request an
evidentiary hearing below.  See V.R.C.P. 4.2(g) (stating that party who intends
to contest information contained in trustee’s disclosure is entitled to
evidentiary hearing upon written request).  Nor do they contest the information
on appeal.  Their sole argument before this Court is that default was mandatory
under 12 V.S.A. § 3062 and V.R.C.P. 4.2(f).
¶ 7.            
Vermont’s trustee process statute provides that “[w]hen a person
summoned as trustee does not serve his disclosure within such time as the
supreme court may by rule provide, he shall be defaulted, and adjudged a
trustee.”  12 V.S.A. § 3062.  Civil Rule 4.2(f) requires a trustee to
serve a disclosure “within 30 days after the service of the trustee summons
upon the trustee, unless the court otherwise directs.”  A person who is
adjudged trustee by default is liable “for the amount of damages and costs
recovered by the plaintiff in the action, and payable in money at the time the
judgment is rendered against the principal defendant.”  12 V.S.A. § 3063.
¶ 8.            
Thus, “[o]nce process has been served, heavy responsibilities rest on
the trustee.”  First Wisconsin Mortg. Trust v. Wyman’s, Inc., 139 Vt.
350, 355, 428 A.2d 1119, 1123 (1981).   We explained in First Wisconsin
that:
  If a trustee fails to disclose as the
statutes require, it may be defaulted.  In such case, the goods, chattels and
estate of the trustee itself are chargeable for the amount of the judgment
recovered by plaintiff.  Thus, the trustee has . . . a very
direct interest in proper disclosure for the protection of its own assets from
assessment.  This result may follow not only from a total failure to disclose,
but also if the disclosure is incomplete or negligently inadequate.
Id. at 356, 428 A.2d at
1123 (citations omitted). 
¶ 9.            
However, under the plain language of Rule 4.2(f), the court has
discretion to extend the thirty-day deadline for service of a trustee
disclosure.  See V.R.C.P. 4.2(f) (requiring service within thirty days “unless
the court otherwise directs”).  Here, the trial court effectively extended the
deadline in Rule 4.2(f) by ordering that BSL be notified of plaintiffs’ motion
for default and accepting BSL’s late disclosure, which BSL filed prior to the
date of the hearing on the motion.  This was not an abuse of discretion.  As we
noted in a recent case:
Because “a judgment by default
effectively deprives a defendant of an opportunity to have the
merits . . . determined through the normal adversary
judicial process,” we have held that “the rules relating to default judgments
should be liberally construed in favor of defendants, and of the desirability
of resolving litigation on the merits, to the end that fairness and justice are
served.”
Ying Ji v. Heide, 2013 VT
81, ¶ 12, ___ Vt. ___, 82 A.3d 1160 (quoting Desjarlais v. Gilman,
143 Vt. 154, 157, 158–59, 463 A.2d 234, 236, 237 (1983)).  
¶ 10.        
The trial court acted within its discretion to extend the deadline and
accept the late disclosure in order to avoid a default judgment against BSL,
which held no funds belonging to defendants.  Although the trial court was not
obligated to extend the deadline, its decision to accept the late filing did
not violate the statutory scheme.  The statute imposes no fixed deadline for
service of a trustee disclosure.  12 V.S.A. § 3062.  The only deadline is
contained in the associated rule, V.R.C.P. 4.2(f), which the trial court
appropriately applied in a liberal fashion in order to avoid an unjust result. 
¶ 11.        
The dissent holds up the experience of the Maine courts as a proposed
model for Vermont based on the view that “identical regulatory standard[s]” are
present in both states.  Post, ¶ 22.  In fact, the current
legislation in Maine is now quite different.  In addition, Levine v. Keybank
National Ass’n, 2004 ME 131, ¶ 19, 861 A.2d 678, and the other decisions
cited by the dissent are cases in which default was actually entered by the
court clerk and Rule 55 of the Maine Rules of Civil Procedure applied. 
¶ 12.        
We first consider the legislative differences.  It is true that both the
applicable statutory provisions and the civil rules are generally similar in
the two states.  Compare 12 V.S.A. § 3062, with 14 Me. Rev. Stat. § 2614;
V.R.C.P. 4.2, with Me.R.C.P. 4B.  However, following the events which gave rise
to the decision in Levine and the forfeiture of $264,422 by the trustee
in that case, the Maine legislature amended its trustee process statute to
limit any default to amounts actually held by the trustee.  Levine, 2004
ME 131, ¶ 9; 14 Me. Rev. Stat. § 2614.  Under the law of Maine currently in
effect, the recovery against BSL in this case would be zero. 
¶ 13.        
This case is also procedurally different from the Maine cases cited by
the dissent.  In this case, neither an entry of default nor a default judgment
against the trustee ever issued.  For this reason, the remedy proposed by the
dissent of a motion under Civil Rules 55 or 60 would be premature.  Instead,
the trial court exercised its separate authority under Rule 4.2(f) to extend
the time for the trustee’s response prior to entry of judgment.   
¶ 14.        
In contrast, the Maine cases concern the post-judgment remedies
available under Rule 55 and Rule 60.   The Levine decision
explicitly declined to consider remedies arising under Maine Civil Rule 4B(j)
on the ground that these are barred by the clerk’s entry of default.  See Levine,
2004 ME 131, ¶ 9 (“Rule 4B(j) is designed to afford a trustee an immediate
opportunity to be heard following its receipt of an ex parte trustee summons,
and it is not an alternative avenue for challenging a default.”).  By shifting
the analysis into the realm of post-judgment remedies, the dissent effectively
removes the trial court’s additional authority under Rule 4.2(f) to extend the
time for the trustee to respond.    
Affirmed.
 

 


 


FOR THE COURT:


 


 


 


 


 


 


 


 


 


 


 


Associate
  Justice

 
 
¶ 15.        
DOOLEY, J., dissenting.   I fully endorse the desirability of
resolving litigation on the merits and of avoiding default judgments.  But the
discretion we grant to the trial court to give relief from a default judgment
must have some limits and be governed by some standards; otherwise, we simply create
injustice under the guise of preventing it.  I cannot go along with the
standardless, unlimited discretion the majority creates, and therefore dissent.
¶ 16.        
The defendant in this appeal is a bank, which is in the business of
holding money for customers.  In this business, it is routinely subject to
attempts by creditors to find funds that can be used to pay a judgment of a
bank customer.  It is undisputed in this case that plaintiff, a creditor of a
bank customer, properly invoked the trustee process statute, gave proper notice
to the bank, and required the bank to disclose what funds it had belonging to
the judgment debtor.  The bank’s obligation was routine and should have been
very familiar.  
¶ 17.        
The governing statute, 12 V.S.A. § 3062, provides that the alleged
trustee must disclose within the time limit this Court provides by rule or “he shall
be defaulted, and adjudged a trustee.”  (Emphasis added); see also id. §
3063 (determining amount of judgment and execution).   Vermont Rule of Civil
Procedure 4.2(f) requires the bank to “serve a disclosure under oath within 30
days after the service of the trustee summons” but adds “unless the court
otherwise directs”—language the majority relies upon to allow late disclosure
here.  In this case, the bank finally made its disclosure almost a month after
the thirty-day time limit.
¶ 18.        
For three reasons, I conclude that the bank’s failure to either disclose
or seek an extension of time in which to disclose within thirty days made it a
trustee under § 3602.  Section 3062 provides that the bank “shall be
defaulted” unless it discloses during the time period established by rule,
which is thirty days unless otherwise ordered.  The thirty days expired with no
order of a different time period.  At that time, the mandatory consequence of §
3602 went into effect.
¶ 19.        
The majority’s construction of Rule 4.2(f), that the trial court can
extend the time period at any time and for any duration retroactively, is not
consistent with the statute.  Under that theory, there is no time limit and no
mandatory default because the trial court can always retroactively correct the
default.  In my judgment, the majority’s construction reads the “shall be
defaulted” language out of the statute.
¶ 20.        
The second reason is that the majority’s theory gives standardless
discretion to the trial judge where such blanket authority is unnecessary.  In
reaching its conclusion, the majority quotes and relies upon Ying Ji v.
Heide, 2013 VT 81, ___ Vt. ___, 82 A.3d 1160, a decision I joined, which
finds excusable neglect for the failure of plaintiff’s lawyer to attend a
status conference and grants relief under Civil Rule 60(b).  In this case, the
bank provided no explanation for why it failed to make a disclosure within the
deadline; therefore, we have no indication of whether it could meet the Rule
60(b) standard of “mistake, inadvertence, surprise, or excusable neglect,” or
the directly controlling “good cause” standard applicable to setting aside
default entries in Rule 55(c).  See Ying Ji, 2013 VT 81, ¶ 10.  The
trial court decision is based solely on the fact that the bank defaulted,
putting it in the same position as any defendant who has defaulted and is
required to pay a judgment it may not owe.  
¶ 21.        
If we reverse the trial court’s decision in this case, the bank is put
in a position comparable to that of the plaintiff in Ying Ji, 2013 VT
81.  The bank can file a Rule 55(c) motion to set aside the default and seek
discretionary relief based on the cause of the failure to make a timely
disclosure.  It is not a just result that some defendants have to show
excusable neglect or comparable grounds while some defendants do not have to
explain or justify their default in any way.  Nor is it a just system where a
trial judge has total decisionmaking power over whether to relieve an alleged
trustee from any liability for any reason.
¶ 22.        
The decisions from the Maine courts under the identical regulatory
standard demonstrate how the system should properly be implemented.  Despite
language in Maine Rule of Civil Procedure 4B(e) that was formerly identical to
that in our statute, no Maine decision authorized the trial judge to
retroactively change the disclosure deadline, as the majority endorses here. 
Instead, the Maine courts have held that a trustee seeking relief from an entry
of default must meet the “good cause” standard contained in Maine Civil Rule
55(c).  See Levine v. KeyBank Nat’l Ass’n, 2004 ME 131, ¶ 20, 861
A.2d 678.  
¶ 23.        
Four Maine decisions apply this standard to a financial institution.  In
Levine, the facts were as follows:
  KeyBank presented proof that it maintains a judgment
processing system that has a low rate of error.  The system is based in the
bank’s Cleveland office and has eleven employee positions dedicated to
processing attachments, including trustee summons, served on KeyBank throughout
the United States.  The office handles 300 to 1600 attachments per day.  At the
time of the bank’s receipt of the trustee summons in this case, there were
eight employees processing attachments because the office had three vacant
positions.
 
  An officer at KeyBank’s Auburn office was served with
Levine’s trustee summons on October 24, 2001.  He signed the acknowledgment
form and faxed the summons to the bank’s Cleveland processing facility.  KeyBank’s
phone log indicates that a fax was sent from Auburn to the Cleveland processing
facility’s fax line on October 25, 2001. The officer also sent the original
summons via KeyBank’s internal mail to the processing facility in Cleveland,
where it was apparently lost.  Michele Dauer, KeyBank’s supervisor of judgment
processing, stated in her affidavit, “I do not know what happened with this
particular Trustee Summons.”
 
Id. ¶¶ 17-18.  The Maine
Supreme Judicial Court upheld the trial court’s decision that KeyBank had not
established good cause to set aside the default:
  An efficient
judgment processing system, without more, does not amount to a good excuse.  The
foundation of a good excuse is a reasonable explanation, which KeyBank failed
to provide.  For example, the bank
offered no explanation for its failure to fill the vacancies in its judgment
processing department; nor did it offer an explanation for the disappearance of
the summons.  Moreover, the bank failed to explain why its Auburn office could
not simply answer the trustee process rather than send it to Ohio.  The
affidavits of the bank’s employees offer no explanation whatsoever for KeyBank’s
failure to respond to the notice of default.  The officer in the Auburn office
merely stated, “KeyBank has no other information of receiving anything else
from the Court or plaintiff regarding this matter between October 24, 2001 and
the entry of the order of default on January 2, 2002.”  In other
words, KeyBank offers no reasonable explanation for the lost fax, the lost
internal mail, or any other failures of the judgment processing system.
 
Id. ¶ 21 (footnote
omitted); see also Butler v. D/Wave Seafood, 2002 ME 41, ¶ 18, 791
A.2d 928 (affirming trial court conclusion that KeyBank had not shown good
cause to reopen trustee default on grounds that KeyBank gave no reasonable
explanation for cause of default, failed to timely respond to two summons, and
failed to appear at default hearing despite personal notice from clerk).
¶ 24.        
A similar fact situation arose in R.C. Moore, Inc. v. Les-Care
Kitchens, Inc., 2007 ME 138, 931 A.2d 1081, in which the trial court also
found no good cause for providing relief from the default.  The institution
involved was also a large national bank, and its position was that it had a
good system in place to respond to trustee summons.  Relying on Levine,
the Court held that the system alone was not enough.  Id. ¶¶ 28-29. 
The Court went on to hold:
  The record
supports the court’s finding that Wachovia failed to offer a reasonable excuse
as to why the Wachovia Bank summons was mislaid.  A system requiring a trustee
summons to pass through four offices in four states over several days before it
can be effective to attach an account provides many opportunities for an item
to be lost or mislaid.  Consequently, the court did not abuse its discretion in
denying Wachovia’s motion to set aside entry of default.
Id. ¶ 29.
¶ 25.        
On the other hand, a Maine trial court exercised its discretion to set
aside a default trustee judgment where it found more grounds than present in Levine
and Butler.  Spruce v. Jackson, No. CV-01-128, 2004 WL 844180
(Me. Super. Ct. Mar. 22, 2004).  It relied in part on KeyBank’s high rate of
compliance:
  KeyBank’s
processing system successfully processed the vast majority of the 149,910
documents received in 2001, 12,259 of which were received in July, 2001, the
month the trustee summons was apparently served on KeyBank.  The error rate of
KeyBank’s system in 2001 was .006%.
 
Id. at *2.  The court noted
that the plaintiff had not moved for default against KeyBank for over two years
and, by that time, KeyBank was unable to determine why it had failed to file
its disclosure in time.  Id.  Under these circumstances, the court
granted relief.
¶ 26.        
The majority responds that the Maine cases arise in situations that are
“procedurally different” and, therefore, irrelevant to this case.  Ante,
¶ 13.  This is a quibble.  As I state above, I agree that this case should
be decided under circumstances similar to those in Ying Ji, 2013 VT 81, the
main case relied upon by the majority.  Ying Ji involved a motion to
reopen an involuntary dismissal, a form of default judgment, under the standard
in Vermont Civil Rule 60(b)(1).  The Maine cases arise in the comparable
situation, where the clerk has entered a default and the trustee seeks to
reopen it under Maine Civil Rule 55(c).  The difference is particularly a
quibble because the presiding judge in this case could have directed the clerk
to enter a default judgment pursuant to Vermont Civil Rule 55(b)(2), as
apparently the trial judges did in Maine, requiring the trustee to move to set
aside the default.  Nothing in the majority decision suggests that if there had
been a clerk entry of default as authorized by the Rule, the judge would have
lost the discretionary power to retroactively declare that the trustee’s
response was timely.  Indeed, such a limitation would be inconsistent with the
“at any time and for any reason” rationale of the majority decision.
¶ 27.        
Nor is my position affected by the fact that the Maine Legislature
changed the Maine statute so it is no longer the same as the Vermont statute. 
To the extent the statutory modification is relevant, it shows the right way
for financial institutions to get relief from a collection procedure they find
inconvenient to their operations 
¶ 28.        
My point is that I agree that the bank should have the opportunity to
seek relief from the default trustee judgment, but the opportunity should occur
through a motion to set aside the judgment under Rule 55(c), and the bank
should have to demonstrate good cause or compliance with Rule 60.
¶ 29.        
My third and final reason is related to the second.  This decision sends
out exactly the wrong message to financial institutions.  Trustee process will
work only if banks and other financial institutions adopt systems to respond
promptly, accurately, and transparently to trustee process summons.  By letting
this bank off with no demonstrated showing that it has a system to respond in
the future, we are sending the signal that compliance is unimportant.  The
amount the bank might have to pay, $24,000, is small compared to the savings to
creditors that results from compliance.  In my judgment, it is the missed
opportunity to induce compliance, and not the possibility of one relatively
small sanction, that creates inequity.
¶ 30.        
I am authorized to state that Justice Skoglund joins this dissent.
 

 


 


 


 


 


Associate Justice

 

