Lead Opinion
¶ 1. Defendant appeals the trial court’s refusal to vacate a default judgment against defendant. We hold that the trial court improperly declined to consider the strength of defendant’s proffered defenses to the underlying action in reviewing defendant’s motion to vacate the default judgment, but that defendant’s Rule 60(b) motion did not establish a prima facie case to support a meritorious defense. We therefore affirm the trial court.
¶ 2. This dispute arose from a 2009 contract between plaintiff LaFrance Architect, d/b/a Lake Architectural, and defendant Point Five Development South Burlington, LLC. Under this contract, plaintiff was to provide defendant architectural services for the construction of a Walgreens in South Burlington. On January 31, 2011, plaintiff sent an invoice to defendant for services rendered under the contract. On March 4, two days after the invoice was payable and three days after the store opened, defendant sent plaintiff a letter indicating that defendant was terminating plaintiff’s services due to an unspecified failure to fulfill the contract and unspecified “significant design errors that caused addition.1 costs.” Plaintiff responded by filing notice of a mechanic’s lien against defendant in the South Burlington Land Records. On March 30, defendant secured a bond to discharge the mechanic’s lien, but failed to send a copy of the bond to plaintiff.
¶ 3. On June 16, plaintiff commenced action to perfect its mechanic’s lien by filing in superior court a verified complaint with a request for attachment as well as a claim for damages. Because the parties’ contract contained mandatory mediation and arbitration provisions, plaintiff also filed a motion for stay, requesting that the court consider its motion for attachment but then stay proceedings pending mediation and arbitration as required by the contract.
¶ 4. On June 27, the Chittenden County sheriff’s office personally served defendant corporation’s registered agent with the summons, complaint, motion for writ of attachment and related filings, the order setting an attachment hearing on August 10, and a motion for stay. Defendant’s registered agent was away, but his law partner accepted service.
¶ 6. On August 9 — the day before the scheduled attachment hearing — plaintiff moved for default judgment, continuance of the attachment hearing, and consolidation of the attachment hearing with the damages hearing. Plaintiff did not at that time request that the court respond to its motion for a stay.
¶ 7. Because defendant never answered or entered an appearance in the case, defendant received no notice of plaintiff’s request for default judgment, the trial court’s August 10 order entering default, or the hearing scheduled to take evidence on damages. After a hearing on the attachment and damages on September 22, 2011, the trial court issued an order of approval for an attachment in the amount of $69,024.90. On September 30, the court issued a fin.1 judgment order awarding plaintiff a judgment of $69,024.90 against defendant, in addition to interest and costs. Defendant did not participate in the hearing or receive notice of the attachment and judgment order.
¶ 8. Only after plaintiff commenced an action in New York to domesticate the Vermont judgment did defendant respond by filing a motion in the trial court here. On March 9, 2012, defendant moved for relief from judgment pursuant to Vermont Rules of Civil Procedure 55 and 60. Defendant requested relief “on the grounds of mistake, inadvertence, excusable neglect and the Plaintiffs failure to follow the compulsory Mediation and Arbitration provisions of the contract.” The court denied this motion, con.1uding that this type of “law office error” does not qualify as an excusable “mistake” under Rule 60(b), and explicitly refused to consider any of the defenses on the merits offered by defendant. Defendant appeals.
I.
¶ 9. “A motion for relief from judgment brought under [Rule] 60(b)(2) is addressed to the sound discretion of the trial court, and its ruling will not ordinarily be disturbed unless it clearly appears from the record that such discretion was withheld or abused.” Desjarlais v. Gilman,
¶ 10. Beyond preserving efficiency and finality, Rule 60(b) respects the discretion of the trial court and the need for flexibility to manage its own docket. See Silivanch v. Celebrity Cruises, Inc.,
¶ 11. In Desjarlais, we urged the trial court to consider the following factors when conducting the Rule 60(b) analysis: “whether the failure to answer was the result of mistake or inadvertence, whether the neglect was excusable under the circumstances, and whether the defendant has demonstrated any good or meritorious defense to the plaintiffs claims.”
¶ 12. In Courtyard Partners, we reversed the trial court’s denial of a tenant’s motion to set aside a default-like judgment in favor of a landlord because “defendants’ defenses, as presented to this Court, appear to be strong, defendants’ negligence was not culpable, defendants were unrepresented, and the motion was made promptly, within the appeal period.” Id.
¶ 13. In this case, defendant asserted in its motion for relief from judgment that it “has good and meritorious defenses to the Plaintiff’s claim,” arising from a notice issue and the mediation clause. Defendant also referenced its proposed answer, affirmative defenses, and verified counterclaim, which in.1uded failure to state a claim upon which relief can be granted, set off, and plaintiff’s noncompliance with the arbitration and mediation provisions of the contract as affirmative defenses.
¶ 14. In light of its con.1usion that an intern.1 law office failure like that claimed here did not amount to excusable neglect, the trial court declined to exercise its discretion to consider defendant’s claimed defenses, stating: “Defendant may well have had defenses, in.1uding contract provisions requiring mediation, to the suit. These are lost when default is entered.” The court relied on a decision in which we con.1uded that an intern.1 law office breakdown did not constitute “excusable neglect” warranting extension of a hard and fast appeal deadline. See Town of Killington, 2003 VT 87A, ¶ 19. However, our opinion in Town of Killington, and the four-factor test articulated in that decision for evaluating a claim of excusable neglect in the context of a failure to timely appeal, did not address the specific circumstances of a default judgment. As noted above, we have held that our Rule 60(b) analysis in the context of a Rule 55(c) motion to set aside a default judgment requires consideration of a different set of factors than the ordinary Rule 60(b) analysis. Supra, ¶¶ 11-12. By expressly disregarding whether defendant had meritorious defenses, the trial court departed from the proper framework for evaluating motions to set aside default judgments and declined to consider a critical factor in the overall an.1ysis.
¶ 15. We take no issue with the trial court’s conclusion that the neglect alleged here does not rise to the level of “excusable neglect” that would ordinarily warrant setting aside a nondefault judgment. See Town of Killington, 2003 VT 87A, ¶¶ 16-17. The failure to open a critical email, whether by counsel or the client, is not the kind of neglect we have ever characterized as “excusable.” However, because the judgment in question here was a default judgment, the trial court should also have considered: (1) the degree of prejudice suffered by the plaintiff as a result of defendant’s delay in answering; (2) the presence of material issues of fact and prima facie evidence of meritorious defenses; (3) the significance of the interests at stake; and (4) the degree of defendant’s culpability. See, e.g., Courtyard Partners,
II.
¶ 16. Although we con.1ude that the trial court erroneously failed to' consider potential meritorious defenses to plaintiffs claims, we need not remand this case for further proceedings if we con.1ude as a matter of law that defendant’s Rule 60 motion did not raise any meritorious defenses. Accordin.1y, we consider the two “meritorious defenses” urged by defendant.
A.
¶ 17. One of the “meritorious defenses” defendant raised in its verified counterclaim and again on appeal is based on alleged deficiencies in the services provided by plaintiff. We have not decided whether a counterclaim or set off constitutes a “meritorious defense” for the purpose of a motion to set aside a default judgment.
¶ 18. We previously considered the res judicata effect of a default judgment where the defaulting party did not raise a compulsory counterclaim. We held that “courts have given default judgments full effect and ... a compulsory counterclaim omitted from an action that terminates in a default judgment will be barred from any subsequent suits.” Pomfret Farms Ltd. P’ship v. Pomfret Assocs.,
¶ 19. The question, then, is whether defendant’s verified counterclaim was compulsory. Rule 13(a) provides:
A pleading in an action . . . shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim . . . .4
In this case, defendant’s counterclaim — for deficiencies in performance of the contract — is logically related to plaintiff’s claim for nonpayment. See Stratton v. Steele,
¶20. The next question is whether defendant’s pleadings support its “meritorious defense” claim on this point. “It is incumbent upon a party seeking relief from a judgment not only to meet the requirements of [Rule] 60(b), but also to show, plead or present evidence of facts which, if established, would constitute a meritorious defense to the action. This policy recognizes that it would be an idle exercise and a waste of judicial resources for a court to set aside a judgment if, in fact, there is no genuine justiciable controversy.” Maynard v. Nguyen,
¶ 21. In this case, defendant’s Rule 60(b) motion does not include detailed allegations to support its general assertion of meritorious defenses and counterclaims based on plaintiff’s performance; instead, defendant cites to its contemporaneously filed answer and verified counterclaim in support of its “meritorious defenses” argument. That answer and counterclaim, in turn, assert without any specificity that plaintiff had made design errors and errors related to the demolition, site, roof and building for the project, causing defendant to incur significant addition.1 costs and expense. Defendant’s motion does not identify any specific errors, and does not recite any specific facts supporting its ultimate allegation that plaintiff made errors. Defendant’s counterclaim may be sufficien.1y specific to satisfy the broad requirements of notice pleading under Rule 8(a), but is not detailed enough to satisfy the more exacting standards of a motion to set aside a judgment under Rule 60(b). See V.R.C.R 8, Reporter’s Notes (“[T]he rules do not require a specific and detailed statement of the facts which constitute a cause of action, but simply a statement clear enough to give the defendant fair notice of what the plaintiff’s claim is and the grounds on which it rests.” (quotation and citations omitted)). Accordingly, we conclude that defendant’s Rule 60(b) motion did not plead a prima facie case of a meritorious defense arising from plaintiffs allegedly deficient performance with sufficient particularity to warrant remand for the trial court’s consideration.
B.
¶ 22. Defendant also points to the mandatory mediation and arbitration clauses in the contract between the parties as a defense to the trial court’s judgment. Given defendant’s delay in asserting its arbitration rights, however, we hold that defendant’s conduct amounted to an implicit waiver and thus does not constitute a meritorious defense for purposes of Rule 60(b). Therefore, it is unnecessary to remand the case to the trial court, since defendant has no meritorious defenses and cannot prevail under Rule 60(b) as a matter of law.
¶ 23. The competing interests underlying Rule 60, supra, ¶¶ 9-10, are further complicated in this case by the general policy favoring arbitration, as articulated in the Vermont Arbitration Act, see 12 V.S.A. § 5652(a) (providing that a written
¶ 24. Other courts have stringen.1y enforced the doctrine of waiver using reasoning similar to Wiley — to prevent parties from asserting arbitration as a cover for their own mistakes or tactical errors. See, e.g., Gen. Star Nat’l Ins. Co. v. Administratia Asigurarilor de Stat,
¶ 25. Given the policy considerations behind Rule 60(b) and alternative dispute resolution, we hold that defendant has waived its right to arbitrate and thus cannot assert any meritorious defenses as a matter of law. For purposes of Rule 60(b), “[i]t is incumbent upon a party ... to show, plead or present evidence of facts” to show the meritorious defense, in this case, that defendant was entitled to arbitration. Maynard,
¶ 26. In determining whether there was waiver, several factors should be considered, including: the timing of the request, the extent that the party seeking arbitration has participated in litigation, and “whether the party opposing arbitration has suffered prejudice through the incursion of litigation time, costs, and expenses.” Lamell,
¶ 27. Defendant argues that because its delay was inadvertent, it has not waived its arbitration rights. Although this inadvertence conclusively demonstrates that there was no explicit waiver, which requires that
¶ 28. Here, there was both delay and prejudice. Defendant was given ample notice of plaintiffs interests and intent to sue in this case. Plaintiff filed a mechanic’s lien in the South Burlington Land Records on March 8, 2011, and a superseding Notice of Mechanic’s Lien on June 11, 2011. Defendant, in fact, secured a bond to discharge the mechanic’s lien, but never sent a copy of the bond to plaintiff.' In order to perfect its lien, plaintiff commenced the current action on June 16, 2011 in superior court. Defendant’s registered agent was person.1ly served with the summons, complaint, motion for writ of attachment and related filings, the order setting an attachment hearing on August 10, and a motion for stay. Because the registered agent was out of town, his law partner accepted service and promptly forwarded a copy of the pleadings to defendant’s New York attorney, who then forwarded the message and attachment to the Point Five attorney. The email had the subject line “Point Five law suit,” and stated the following: “[A]ttached is a copy of the pleadings served this afternoon. [Defendant’s registered agent] is away until next Wed so I took service. A hearing is set for August 2010. Let me know if your client needs assistance so we can plan accordingly.”
¶29. Defendant does not contest that it was properly served with the summons and complaint in this case. Yet, inexplicably, defendant did not open the attachment or respond in any way. Defendant continued to do nothing while the superior court held an evidentiary hearing on September 22, 2011 and issued a writ of attachment and fin.1 judgment on September 30, 2011. In fact, defendant did not respond at all until March 9, 2012, after plaintiff commenced an action to domesticate the judgment in New York. Despite the ongoing litigation, defendant waited more than nine months after being properly served before participating. Unlike in Courtyard Partners, where this Court found the rationale behind Rule 60(b) to be less compelling because the defendant was unrepresented,
¶ 30. As a result of this delay, plaintiff suffered prejudice in the form of “litigation time, costs, and expenses.” Lamell,
II31. Given these considerations, we hold that defendant implicitly waived its right to arbitrate, and thus the arbitration clause does not constitute a meritorious defense.
Affirmed.
Notes
Defendant does not contest the effectiveness of service upon its registered agent’s law partner.
For the purposes of this appeal, we accept defendant’s representations as to the actions and understandings of counsel and of client’s agent.
Defendant relied on Rules 55(c) and 60(b) in its motion to set aside the default judgment. Rule 55(c) provides: “If a judgment by default has been entered, the court may set it aside in accordance with Rule 60(b) and not otherwise.” Accordingly, we analyze defendant’s motion pursuant to Rule 60(b).
Counterclaims are not compulsory under the rule if “the opposing party brought suit upon the claim by attachment or other process by which the court did not acquire jurisdiction to render a personal judgment on that claim.” V.R.C.P. 13(a). Although plaintiffs complaint in this case was accompanied by a motion for a writ of attachment, the complaint itself sought a judgment against defendant for failure to pay on the contract, and the trial court awarded plaintiff judgment on this basis. See Pomfret Farms,
Concurrence in Part
¶ 32. concurring in part, dissenting in part. I have no particular objection to an ultimate outcome that keeps the trial court’s default judgment in place, but I believe the path the majority takes to that result widens a narrow exception to the enforceability of mandatory arbitration clauses, undermining this Court’s express preference for enforcing arbitration clauses; strays from our general approach to waiver; undoes the requirement that a court at least consider the merits of a defendant’s defenses as one of a number of factors to be considered in connection with a motion to set aside a default judgment; and extends the concept of waiver to a factual setting where it does not readily apply. For these reasons, I respectfully dissent from section II.B. of the majority’s opinion, relating to the question of whether we should remand this case to the trial court for consideration of the requisite factors, in.1uding the prejudice to plaintiff of setting aside the default judgment, the nature of defendant’s neglect, and the strength of defendant’s defense based on the mandatory mediation and arbitration clauses in the contract between the parties.
¶ 33. I note at the outset that the majority’s opinion cannot be described in terms of deference to the trial court’s wide discretion in connection with motions to set aside judgments. See ante, ¶ 23. As the majority rightly concludes as a matter of law, the trial court applied the wrong test in this case, using the general standard we have applied in most Rule 60(b) cases, and failing to consider the various specific factors applicable when a party seeks to set aside a default judgment. See ante, ¶ 14. The trial court decided this case, understandably but incorrectly, on the narrow ground that failure to open a critical email by counsel is not the sort of conduct that ordinarily amounts to “excusable neglect.” It did not purport to analyze the prejudice to plaintiff that would arise from setting aside its judgment, and did not con.1ude that defendant had waived its defenses of mandatory mediation or arbitration by virtue of the passage of time since it was served, or since the default judgment. The majority’s ration.1e for affirming the trial court’s ultimate decision on defendant’s motion originated in this Court, and does not reflect any deference at all to a particular finding of fact or exercise of discretion by the trial court.
¶ 34. This Court has previously emphasized that “Vermont law and public policy strongly favor arbitration as an alternative to litigation for the efficient resolution of disputes.” Lamell Lumber Corp. v. Newstress Int’l, Inc.,
The waiver issue is generally held to be a question of fact to be resolved under the circumstances of each case, considering such factors as the timing of the request for arbitration, the extent to which the party seeking arbitration has participated in the judicial process, and whether the party opposing arbitration has suffered prejudice through the incursion of litigation time, costs, and expenses.
Id. ¶ 11. Although the Court did not consider whether the trial court abused its discretion in making the waiver determination, as the issue had not been raised, the above factors all supported the trial court’s waiver determination. The defendant had actively participated in the judicial process for over two years, the parties had conducted extensive discovery including depositions, and the defendant had invoked the arbitration agreement at the eleventh hour, on the eve of trial. In Lamell, the factfinder concluded that the defendant had waived the agreement after two years of active participation in the judicial process.
¶ 35. Two significant factors distinguish this case from Lamell and the others relied upon by the majority in support of its waiver argument. First, as in Lamell, in the cases cited by the majority, the party deemed to have waived an arbitration agreement undertook some choice or act or course of conduct that reflected a rejection of arbitration or acquiescence to and acceptance of litigation in court as the means to resolve their dispute. For example, in Menorah Insurance Co. v. INX Reinsurance Corp.,
¶ 36. Likewise, in Austin Energy, LLC v. Ecolumens, LLC, a defendant demanded arbitration and then, after appearing before the American Arbitration Association, did not participate in further arbitration proceedings. No. CV 11-5749,
¶ 37. The second major difference between this case and those cited by the majority is that this is the only case in which an appeals court seeks to make a finding of prejudice and a conclusion of waiver in the first instance. See, e.g., Menorah,
¶ 38. Not only is the majority’s opinion out of step with case law concerning waivers of arbitration agreements, but it is not consistent with our case law concerning waiver more generally. We have held that waiver of a contract right is “‘the intentional relinquishment or abandonment of a known right,’ ” and have recognized that “ ‘the act of waiver may be evidenced by express words as well as by conduct.’ ” Toys, Inc. v. F.M. Burlington Co.,
¶ 39. The majority’s invocation of waiver here is particularly puzzling because the majority explicitly holds that in reviewing a motion to set aside a default judgment, a trial court should consider, among other things, whether a party has meritorious defenses. See ante, ¶ 14. By definition, a party who has been subjected to a default judgment has not raised his or her defenses; that is the essence of a default judgment. But if the failure to enter an appearance and raise one’s defenses, including mandatory arbitration and mediation, amounts to a waiver of
¶ 40. Moreover, in this particular case, even if there had been evidence that defendant had knowin.1y and intention.1ly avoided the trial court’s proceedings after plaintiff served defendant, it would be difficult to infer waiver of the mediation and arbitration agreements as a matter of law. The documents served upon defendant, though not read by it due to neglect, in.1uded a motion to stay in which the plaintiff expressly acknowledged the existence of the mediation and arbitration agreements and requested a stay to allow the parties to mediate or arbitrate. The plaintiff explained that the court was authorized to take only the limited action of approving an attachment to secure a potential judgment in plaintiffs favor, but recognized that the court’s authority to act in the case was limited to the attachment. On the eve of the attachment hearing, without any acknowledgment to the court of its prior motion for a stay, without any acknowledgment to the court of the mediation and arbitration agreements, and without notice to defendant, which had no legally-protected right to notice because it had not entered an appearance, plaintiff asked the court to go ahead and enter a judgment for damages. On these facts, an appellate finding of waiver as a matter of law is especially troubling. The notice provided to defendant made it clear that the only relief plaintiff was seeking was an attachment, and that plaintiff itself recognized the limits of the court’s authority to act beyond that on account of the mediation and arbitration agreements. Even a conscious decision not to participate in the litigation so defined would be a difficult foundation upon which to rest a con.1usion that defendant waived the mediation and arbitration agreements.
¶ 41. The majority’s real concern here — and it is a legitimate one — is the potential prejudice to plaintiff that would result if the trial court set aside the default judgment in this case. Given its concerns, the majority essentially makes findings about the prejudice to plaintiff without any evidence of the extent of the fees and costs plaintiff incurred, of a change in plaintiffs position in reliance on the court’s default judgment, of potential collateral consequences to the plaintiff of setting aside the judgment, or of the impact of the passage of five months between the default judgment and defendant’s motion to reopen. The majority’s concerns about fin.1ity and prejudice are well-founded, but for all the reasons noted above, its undertaking a waiver an.1ysis not grounded in any trial court findings or exercise of discretion is not the best way to address its concerns. As the majority recognized in section I., in considering defendant’s motion to set aside the default judgment, the trial court should have considered not only the nature of the defendant’s neglect, but also the degree of prejudice suffered by the plaintiff, the presence of factual issues and evidence of meritorious defenses, the significance of the interests at stake, and the degree of defendant’s culpability. Ante, ¶ 14. The degree of prejudice to the plaintiff is the first factor on this list.
¶42. On remand, the trial court could well conclude, based on competent evidence, that setting aside the default judgment
¶ 43. But the trial court could also con.1ude that the prejudice to plaintiff has been quite modest, or that it can be mitigated by sanctions against defendant in the form of fees; that defendant itself, rather than its counsel, has not been “culpably negligent” as we have described that concept in our cases; that the interests at stake are substantial; that having requested a stay on account of the mediation and arbitration agreements, plaintiff was estopped from abrogating its position on that point without addition.1 notice to defendant; and that defendant’s defenses are, in fact, meritorious. If those con.1usions, or some combination of them, and a decision to set aside the default judgment were based on competent evidence and thoughtful an.1ysis, I would affirm that ruling. My concern is that in an effort to save the trial court time and effort in the face of a record that the majority believes will necessarily lead to a decision to deny defendant’s motion, the majority has muddled our law concerning waiver, enforcement of arbitration agreements, and the standards for setting aside a default judgment. Because I do not believe that the outcome of a full an.1ysis of the relevant factors, and the evidence supporting them, is a foregone con.1usion on the basis of the record — or lack thereof — before us, and because I believe that the factors set forth by the majority in ¶ 14 of its opinion are sufficien.1y sensitive to guard against an unjust and inequitably prejudicial decision to set aside a default judgment, I would remand this case to the trial court for a decision on defendant’s motion to set aside the default judgment that takes into account defendant’s claimed defenses based on the mediation and arbitration agreement, the prejudice to plaintiff, and the various other factors identified in the majority’s opinion.
I concur in the majority’s analysis in sections I. and II.A.
The periods during which the parties seeking to set aside default judgments failed to invoke arbitration clauses in the eases cited by the majority were longer than the eight-and-one-half-month period in question here. See Lamell,