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Losing papers during office move inexcusable

What the court held

Case: Mohns, Inc., v. TCF National Bank, No. 2005AP705

Issue: Was it an erroneous exercise of discretion to find excusable neglect where the defendant lost papers while moving from one office to another, and did not file a timely answer?

Holding: Yes. Confusion in forwarding papers from one office to another is not excusable neglect.

Counsel: Ratzel, James C., Brookfield; Gaynor, Sean M., Brookfield, for appellant; Lund, Michael J., Milwaukee, for respondent.

Even if a corporation lost a summons and complaint while moving its legal-processing department from one office to another, the corporation failed to show excusable neglect.

Accordingly, the Wisconsin Court of Appeals held on Mar. 28 that it was an erroneous exercise of discretion to vacate a default judgment and allow the defendant to file an answer after the deadline had passed.

Mohns, Inc., had a business checking account with TCF National Bank. In May 2001, checks were stolen from Mohns. TCF cashed the checks and gave the money to an unknown party.

In July, Mohns told TCF about the stolen checks, and sought reimbursement. When TCF refused, Mohns brought suit, alleging that TCF’s negligence resulted in the unauthorized withdrawal of funds from the account.

TCF did not file an answer to the complaint, and Mohns moved for, and was granted summary judgment.

Judgment was entered on June 5, 2003. On June 26, 2003, Mohns’ lawyer sent a letter to TCF’s loss prevention department in Illinois, telling it that a default judgment had been entered and that punitive damages and additional damages were still open, but that Mohns would settle the case for $21,738.

TCF did not respond. On July 17, 2003, Mohns’ lawyer sent a letter to TCF’s national headquarters in Minnesota, again telling TCF that a default judgment had been entered, outlining TCF’s debt to Mohns, and indicating that Mohns would seek punitive damages.

On Aug. 6, 2003, TCF moved to vacate the default judgment, alleging that its failure to file an answer was the result of “excusable neglect.” TCF claimed that it did not answer Mohns’ complaint because it had moved its legal-processing department from Franklin Park, Illinois, to Willow-brook, Illinois, on Jan. 20, 2003, the day before service of the summons and complaint on the branch manager in Milwaukee.

TCF asserted that the branch manager mistakenly mailed the summons and complaint to the old address, and “the legal documents were … presum[ably] … lost in transit when they were mistakenly sent to the former address.”

Milwaukee County Circuit Court Judge Thomas Cooper granted TCF’s motion to vacate the default judgment, finding excusable neglect: “It’s troubling, outrageous, and it is amazing how big organizations can say, ‘Oh, it just got lost between our departments,’ but they don’t give the same courtesy when it works the other way. But that is neither here nor there and it is nothing against the individual. It’s excusable neglect. There is [sic] meritorious defenses. The basis for my finding on excusable neglect is that it was very prompt — promptly brought before the court when counsel got involved.”

On the merits, Judge Joseph Donald granted summary judgment to TCF. Mohns appealed, and the court of appeals reversed in a decision by Judge Ralph Adam Fine.

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Case Analysis

The court acknowledged that a circuit court has wide discretion in determining whether to vacate a judgment based on excusable neglect, but held that, on these facts, it was an erroneous exercise of discretion to do so.

The court reasoned, “Mohns claims that the circuit court erroneously exercised its discretion because it did not apply the ‘reasonably prudent person’ standard to the facts of this case. We agree. As we have seen, the circuit court relied solely on the fact that TCF acted promptly once its lawyers ‘got involved’ … But what the lawyers did after TCF’s default is, in the context of this case, largely immaterial.”

Rejecting TCF’s claims that the loss of the summons and complaint in transit during the change of offices was excusable, the court concluded, “TCF is a substantial, sophisticated bank with … ‘well-established procedures to ensure the orderly and timely handling of legal process.’ It has not demonstrated either why those procedures, if as efficacious as it implies, did not alert TCF that a suit was potentially imminent (as it was told by Mohns’s many letters, which TCF does not deny receiving).”

The court also cited Dugenske v. Dugenske, 80 Wis. 2d 64, 257 N.W.2d 865 (1977), in which the Supreme Court held that a lawyer’s misplacement of client’s f
iles while relocating law offices was not excusable neglect, and Hollingsworth v. American Fin. Corp., 86 Wis.2d 172, 271 N.W.2d 872 (1978), in which the court held that confusion in forwarding papers from one office to another due to a business reorganization was not excusable neglect.

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David Ziemer can be reached by email.

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