Undoing Default Judgments in Wisconsin

Halling & Cayo S.C. recently obtained relief for a client from a default judgment, convincing the court to reopen the case and allow it to proceed on the merits. While it is best to obtain counsel right away if your business is sued, even if you make a mistake and fail to answer on time, there is still a potential for relief if you act quickly in retaining counsel to fix the issue.

Default judgment is an important tool in litigation to close cases and keep the court dockets clear of cases that are not being defended. However, default judgments are generally disfavored in the law if a party has meritorious defenses because courts prefer to give people their “day in court.” What this means for defendants is that there may be ways to restore litigation which is lost by default judgment.

What is the Standard for Reopening a Default Judgment?

In Wisconsin, a defendant may move for relief from default judgment pursuant to Wis. Stat. § 806.07(1), and the decision to grant relief is committed to the discretion of the trial court. The statute provides:

(1) On motion and upon such terms as are just, the court, subject to subs. (2) and (3), may relieve a party or legal representative from a judgment, order or stipulation for the following reasons:

(a) Mistake, inadvertence, surprise, or excusable neglect;

(b) Newly-discovered evidence which entitles a party to a new trial under s. 805.15 (3);

(c) Fraud, misrepresentation, or other misconduct of an adverse party;

(d) The judgment is void;

(e) The judgment has been satisfied, released or discharged;

(f) A prior judgment upon which the judgment is based has been reversed or otherwise vacated;

(g) It is no longer equitable that the judgment should have prospective application; or

(h) Any other reasons justifying relief from the operation of the judgment.

A brief review of these subsections shows a number of different ways a defendant might obtain relief. However, the three most widely used sections are subsections a, d. and h.

Subsection (a) is likely the most common justification for relief with defendants arguing that their failure to timely answer a complaint is due to “excusable neglect.” In order for a defendant to prevail under an excusable neglect argument, the defendant just show that its conduct in failing to timely respond “is conduct that ‘might have been the act of a reasonably prudent person under the same circumstances.’” Rutan v. Miller, 213 Wis. 2d 94, 101 (Ct. App. 1997) (quoting Hedtcke v. Sentry Ins. Co., 109 Wis. 2d 461, 468 (1982). Additionally, the defendant must demonstrate that it has a “meritorious defense to the action” Baird Contracting v. Mid Wis. Bank, 189 Wis. 2d 321, 324, (Ct. App. 1994). In other words, a defendant must be able to present “a defense good at law which requires no more and no less than that which is needed in a timely-filed answer to survive a motion for judgment on the pleadings.” J.L. Phillips & Assocs. v. E & H Plastic Corp., 217 Wis. 2d 348, 351 (1998).

Subsection (d) is another way out of the default judgment. This section really protects defendants from situations where the court did not have the power to enter judgment against them in the first place. There are myriad of different reasons why a judgment might be void, and an attorney will often be required to analyze these issues. However, one of the most common reasons a judgment is void is due to a failure of the Plaintiff to properly serve the lawsuit. Service can be complicated, especially in situations where a plaintiff decides to serve by publication or other means. If service is defective, then the judgment can be attacked as void. Similarly, the court may lack jurisdiction over the defendant, and that may be a reason why the judgment is void.

Finally, Wisconsin has long held that trial courts have broad equitable power to grant relief from default judgment, and subsection h is simply a codification of the court’s general power. Miller v. Hanover Ins. Co., 2010 WI 75, 33, 326 Wis. 2d 640 . Indeed, courts are commanded to broadly and liberally construe Paragraph (h) “to provide relief from a judgment whenever appropriate to accomplish justice.” Id. Under this section, there is no need for the court to find excusable neglect or other reasons. Instead, the court must analyze 5 factors:

“[1] whether the judgment was the result of the conscientious, deliberate and well-informed choice of the claimant; [2] whether the claimant received the effective assistance of counsel; [3] whether relief is sought from a judgment in which there has been no judicial consideration of the merits and the interest of deciding the particular case on the merits outweighs the finality of judgments; [4] whether there is a meritorious defense to the claim; and [5] whether there are intervening circumstances making it inequitable to grant relief.”

Id. at 36 (quoting Sukala v. Heritage Mut. Ins. Co., 2005 WI 83, 11, 282 Wis. 2d 46).

What should you do if your business is facing a default judgment?

Defendants should look to contact an attorney immediately upon learning of a default judgment. The sooner a defendant acts to remedy the default judgment, the more likely the Court is to grant relief. Gather the information about service, your interactions with the Court and opposing counsel, and the underlying dispute.