In the last two years, the Wisconsin Supreme Court has decided two cases that have affected Wisconsin's default judgment law. Miller v. Hanover Insurance clarified the role of the "interests of justice" as grounds for relief from default judgments.¹Casper v. American International made clear that courts must evaluate the reasons offered for a defendant's late answer together with traditional interests-of-justice considerations.²

In March 2012, the Wisconsin Lawyer published attorney Monte Weiss's article about Casper. That article dealt with all the issues in Casper, including the default judgment issue.

This article focuses on a specific aspect of Casper and demonstrates how Casper and Miller represent a return to long-standing principles that had, to some extent, been lost in recent years. These cases have not created new law, but they approach default judgments in a more mainstream fashion, consistent with Wisconsin's traditional disfavor of default judgments.

Procedure on Default Judgment Motions

Circuit courts often are faced with two competing motions in default situations. First, the plaintiff may move for default judgment when a defendant fails to serve a timely answer. Second, the defendant may file a motion for leave to file a late answer.

Wisconsin Statutes section 806.02(1) provides that a default judgment "may be rendered" when the defendant has not joined issue.³ The word "may" indicates that the circuit court is not required to enter a default judgment whenever an answer is late.⁴ However, under Wis. Stat. section 801.15(2), a motion to allow a late answer should not be granted unless the court finds "excusable neglect."⁵ The critical issue is whether a circuit court, in its discretion, will make the conclusory finding of excusable neglect.

In situations in which a default judgment has already been ordered or entered, the defendant may invoke Wis. Stat. section 806.07(1)(a), which permits relief if the defendant's behavior or action that underlay the judgment was the result of "mistake, inadvertence, surprise, or excusable neglect."⁶ In addition, section 806.07(1)(h) allows relief from a default judgment for "any other reasons justifying relief from the operation of the judgment."⁷ Motions under this catch-all provision "invoke [] the pure equity power" of the court.⁸

By its terms, section 806.07 applies to orders and judgments after they have been entered. However, the catch-all provision in section 806.07(1)(h) is frequently involved when competing motions for default judgment and an extension of time for answering are pending. A court may deny a default judgment motion if the resulting judgment would later be reopened under section 806.07(1)(h).⁹ Such "preemptive use" of section 806.07(1)(h) in denying a motion for default judgment avoids a "useless waste" and promotes judicial economy by preserving judicial time and resources.¹⁰

To grant relief under section 806.07(1)(h), a court must find "extraordinary circumstances" justifying relief in the interests of justice.¹¹ To make this determination the court must consider a wide range of factors – the totality of the circumstances – including all factors bearing on the equities of the case.¹² When considering such motions, courts should balance the competing values of finality and fairness.¹³

A circuit court's decision to grant or deny a default judgment or to grant relief from a previously imposed default judgment is "highly discretionary."¹⁴ Circuit courts are directed to keep three long-standing principles in mind when exercising their discretion on default judgment motions. First, the statutes providing relief from default judgments are remedial in nature and should be liberally construed, that is, relief from default judgments should be granted if possible. Second, the law favors giving litigants an opportunity to try the issues. Third, default judgments are particularly disfavored.¹⁵ Cases should be decided on their merits "whenever reasonably possible," and "default judgments are regarded with particular disfavor."¹⁶ These principles broadly dictate against default judgments.

Excusable Neglect

The circuit court may extend the time for serving an answer if it finds that the party's failure to serve the answer on time "was the result of excusable neglect."¹⁷ Excusable neglect is "that neglect which might have been the act of a reasonably prudent person under the circumstances."¹⁸ This is not a precise definition. By way of explanation, courts have stated that excusable neglect is not synonymous with carelessness or inattentiveness, and relief will not be granted simply because a late answer was caused by unintentional conduct.¹⁹ A finding of excusable neglect and an accompanying grant of an enlargement of time is not a favor to be granted as a matter of grace.²⁰

Whether conduct is "excusable" is determined on a case-by-case basis. Even when cases involve similar dilatory conduct, their outcomes may vary because of other considerations such as the presence or lack of prejudice to the plaintiff, prompt conduct to remedy the default situation, or the defendant's good-faith conduct. These considerations – the interests-of-justice factors – play a significant role in determining whether particular conduct will be found excusable.

The Interests of Justice

Wisconsin appellate courts have identified various factors that bear on the interests of justice in the context of default judgments. These factors include whether:

• the defendant seeking an enlargement of time has acted in good faith;

• the plaintiff has been prejudiced by the defendant's delay;

• the defendant has promptly sought to remedy the situation caused by the failure to answer timely;

• the failure to answer timely was the result of a conscientious, deliberate, and well-informed choice by the defendant;

• the defendant received the effective assistance of counsel;

• the judgment was based on a consideration of the merits;

• the interest in deciding the case on the merits outweighs finality-of-judgment considerations; and

• the defendant has a meritorious defense to the claim.²¹

Williams Corner and Confusion About Hedtcke

Hedtcke v. Sentry Insurance Co., decided in 1982, has long been considered the "principal" Wisconsin default judgment case.²² However, key passages in Hedtcke are confusing and contradictory. These passages led to a lack of consensus about whether an excusable-neglect analysis should – or even could – include consideration of the interests of justice.

Hedtcke states that "the first step is to determine if there are reasonable grounds for noncompliance with the statutory time period (excusable neglect)." If there was no excusable neglect, the motion for relief "must be denied."²³ This passage led to the argument that the statutory term excusable neglect refers only to the reasons why the pleading was late and that other factors – such as the interests of justice – could not be considered if there was no initial finding of excusable neglect.

This interpretation is contradicted by a later passage in Hedtcke, which states that the circuit court "must go further than considering the causes" for the late answer, because the "interests of justice require the circuit court to be aware of the effects of an order denying or granting relief."²⁴ If that is true, the interests of justice need to be considered in every case, and courts should engage in a single comprehensive analysis considering the reasons for the late answer and the interests of justice. The outcome of that analysis is the legal conclusion of excusable or inexcusable neglect, that is, the defendant will either be granted relief or not.

The concept that excusable neglect includes an interests-of-justice analysis is supported by Wisconsin appellate opinions dating to 1861.²⁵Hedtcke itself cites three cases that clearly state that prompt remedial action – one of the classic interests-of-justice considerations – "is a material factor to be considered when determining whether [the defendant's] neglect is ‘excusable.'"²⁶

This principle was followed in Rutan v. Miller, decided 15 years after Hedtcke. There the court of appeals held that the court "must also look beyond the causes for neglect to the interests of justice...."²⁷ The Rutan court held that prompt remedial action "is a factor properly considered in determining whether the failure to answer was the result of excusable neglect."²⁸ The Rutan court also cited other interests-of-justice factors – the defendant's good faith and the lack of prejudice to the plaintiff – as factors supporting the motion to extend the time for answering.²⁹

In more recent cases, the Wisconsin Supreme Court has "instructed" and "directed" the circuit courts that they "must" keep interests-of-justice factors in mind on default judgment motions.³⁰

Nonetheless, in 2004, confusion about the interplay between excusable neglect and the interests of justice bubbled to the surface in Williams Corner Investors LLC v. Areawide Cellular LLC.³¹ Williams Corner cited the Hedtcke court's statement that without a finding of excusable neglect a motion to enlarge time must be denied but noted the "seeming inconsistency" in Hedtcke that suggested that the circuit court must also consider the interests of justice.

Williams Corner mentioned a lack of consensus among court of appeals decisions "regarding whether excusable neglect is a threshold determination or whether the trial court must consider both excusable neglect and the interest of justice." The court of appeals asked the supreme court to provide guidance, but the supreme court denied the petition for review.

Subsequent cases added to the confusion. In 2008, in Estate of Otto, the supreme court characterized the "Hedtcke analysis" as a two-step process in which the first step consists of asking whether there were good reasons for the late answer.³² This discussion in Estate of Otto was dicta. The defendant in that case did not argue either excusable neglect or, broadly speaking, the interests of justice.

Rather, the defendant maintained that as a matter of law the court could not order default judgment when the plaintiff had not shown prejudice arising out of the late answer. Apparently the defendant did not appeal to the court's discretion at all. Nonetheless, the comment describing a two-step process caused additional confusion. Although neither excusable neglect nor the interests of justice were really at issue in Estate of Otto, the plaintiff in Miller relied on the Estate of Otto dicta in his argument before the supreme court.

Against this backdrop, the Wisconsin Supreme Court decided first Miller and then Casper.

Miller v. Hanover Insurance

The Wisconsin Supreme Court issued its opinion in Miller v. Hanover Insurance in July 2010. Miller has been aptly characterized as a "game changer" because it so emphatically reiterates the importance of the interests of justice in default judgment proceedings,³³ but the court's ultimate ruling providing relief in the interests of justice rests on long-standing precedent.

The facts in Miller were "lengthy and complicated."³⁴ The plaintiff, Vearl Miller, was injured in an automobile accident while driving in the course of his employment for General Parts. He made an underinsured motorist (UIM) claim against General Parts' automobile insurer, Zurich American Insurance Co. Zurich was late in answering an amended complaint. Miller moved for default judgment, and Zurich moved for an extension of time to answer the amended complaint.

Zurich requested relief on the grounds of excusable neglect and the interests of justice. The circuit court found no excusable neglect and ordered a default judgment. The court did not address the interests of justice, even when Zurich moved for relief under Wis. Stat. section 807.06(1)(h) and relied only on the interests of justice.³⁵ The circuit court entered a $2 million default judgment against Zurich, and the court of appeals affirmed.³⁶

The Wisconsin Supreme Court reversed, relying on the "catch-all" provision in Wis. Stat. section 806.07(1)(h), which allows relief when there are "any other reasons justifying relief from the operation of the judgment." The supreme court did not address "excusable neglect" because it is not a factor under the catch-all provision in section 806.07(1)(h).

A major factor dictating against default judgment was Zurich's meritorious defense: its policy did not provide UIM coverage for Wisconsin. In fact, General Parts admitted it did not purchase UIM coverage for Wisconsin and had advised the plaintiff's attorney of that fact "before the amended complaint was filed."³⁷ Another interest-of-justice consideration was that the late answer was caused not solely by Zurich's inaction but also by the "many irregularities, procedural and otherwise, generated in part by plaintiff's counsel and circuit court personnel."³⁸

Miller argued that the interests of justice would often dictate in favor of granting relief and should not be considered if the circuit court did not find excusable neglect. The supreme court agreed that the interests of justice may often lead to relief but stated that this result is consistent with the policy that default judgments are the "ultimate sanction" and are viewed "with particular disfavor."³⁹ The interests-of-justice factors are designed to lead to a decision on the merits whenever reasonably possible.

Miller demonstrates that a default judgment motion should be denied, irrespective of a finding of excusable neglect, if the equitable considerations rise to the level of extraordinary circumstances and the interests of justice justify relief.

Casper v. American International

In Casper, the defendant insurance company, National Union, did not answer on time because the summons and complaint had been lost in the mail. National Union claimed excusable neglect and moved for an enlargement of time to answer. The circuit court granted National Union's motion under Wis. Stat. section 801.15(2).

The supreme court reviewed the excusable neglect issue and referred to the requirement to consider the interests of justice. Citing Hedtcke, the court stated that the "determination of excusable neglect does not rest solely on the existence of reasonable grounds for the party's delay.... A court also must consider the interests of justice implicated by" the default judgment motions.⁴⁰

The circuit court in Casper found excusable neglect based on the defendant's conduct, including its good faith and its prompt efforts to rectify the oversight, both classic interests-of-justice factors. The supreme court affirmed, stating that the circuit court had "applied the proper standard and appropriately considered both the law's disfavor of default judgments and the lack of prejudice" to the plaintiffs.⁴¹ The Casper court cited its 2001 decision in Meier v. Champ's Sport Bar, in which it held that the "proper standard" for determining excusable neglect included consideration of the lack of prejudice to the plaintiff, one of the interests-of-justice factors.⁴²

Casper makes it clear that the determination of excusable neglect is not divorced from the interests of justice. Rather, the interests of justice are to be considered by the circuit court when evaluating whether excusable neglect is present. Excusable neglect is a discretionary legal conclusion based on an evaluation of the totality of the circumstances, including the interests of justice.

An example may help demonstrate why the court must consider the interests of justice when deciding whether to find excusable neglect. Two (hypothetical) defendants offer exactly the same reason for answering 15 days' late. The reason for the delay – whether illness, misplacing the papers, or "lost in the mail" as in Casper – makes no difference. But for purposes of the example, assume each defendant lost track of the suit because the summons and complaint had been mistakenly stapled to some other papers.

If the court only considers the mistake of stapling the papers together and ignores all interests-of-justice considerations, then both defendants have to be treated the same. If the court only examines the reason for the delay, there would appear to be no information on which the court could exercise any discretion at all, much less a high degree of discretion.

But assume the two defendants are in entirely different circumstances when it comes to the interests of justice. Defendant A is faced with a claim for $1,000 and has no meritorious defense. He thinks he has no defense, but he consulted an attorney anyway. The attorney confirmed he has no defense, so Defendant A decided not to answer. He viewed the suit papers as unimportant and treated them carelessly. He mistakenly stapled them to something else. Then on the day the answer was due, he changed his mind. He made a half-hearted attempt to find the papers and discovered them a few days later. Then he procrastinated and finally answered, 15 days late. He did not bother to move for an extension of time until two months later. He delayed so long the plaintiff was prejudiced, because witnesses have died or moved away.

Defendant B, on the other hand, has an absolutely meritorious defense. She fully intended to answer and assert her defense, because the claim against her is for $1 million. However, her assistant had inadvertently stapled the suit papers to some unrelated papers, so they had not been sent out to counsel for defense. No one noticed the error until 15 days after the answer was due. When this was discovered, Defendant B immediately did a thorough search and found the papers. That same day, her attorney filed an answer, along with a motion for an extension of time, which explained the error. Further, in Defendant B's case, the plaintiff was not prejudiced by the delay because no witnesses have died or left the area.

If excusable neglect is only the first step in the analysis, and if the only thing considered in the first step is the reason for the late answer – inadvertently stapling the suit papers to unrelated papers – then Defendants A and B will be treated the same. If the court finds the stapling was not excusable neglect, then neither case will be decided on the merits: Defendant A will have a $1,000 default judgment against him, and Defendant B will have a $1 million default judgment against her. On the other hand, if the stapling is found to be excusable neglect, then neither defendant will have a default judgment and both cases will be decided on the merits. Neither result would be consistent with the idea that default judgments are disfavored and the court actually has discretion.

However, if the interests-of-justice factors are considered, and if the court exercises its discretion based on the totality of the circumstances, then there is room in the law for treating Defendants A and B differently. That is the correct result under Wisconsin law. In light of the policy that disfavors default judgments, Defendant B is entitled to relief from the default or an extension of time for answering when the totality of the circumstances – including the interests of justice – are considered.

Conclusion

There is no bright-line test for determining when neglect will be found excusable so that relief will be granted. But it is clear that the analysis involves more than simply looking at the reason why an answer was late. In each case, whether to find excusable neglect is a discretionary legal conclusion reached after the court considers the totality of the circumstances – the reason for missing the deadline and all the interests-of-justice factors.

The attorney involved in a default situation should ask the circuit court to address the interests-of-justice considerations in connection with the excusable neglect analysis under Wis. Stat. section 801.15(2). Defense counsel should also invoke the catch-all provision in Wis. Stat. section 806.07(1)(h). It is important for the attorney to make clear that while excusable neglect analysis does include consideration of the interests of justice, relief under section 806.07(1)(h) does not require an analysis of excusable neglect. And, of course, at every stage of the proceedings involving default judgments, courts should keep in mind the well-established policy that default judgments are disfavored and litigants should be allowed their day in court.⁴³

Endnotes

¹Miller v. Hanover Ins. Co., 2010 WI 75, 326 Wis. 2d 640, 785 N.W.2d 493.

²Casper v. American Int'l S. Ins. Co., 2011 WI 81, 336 Wis. 2d 267, 800 N.W.2d 880.

³Riggs Marine Serv. Inc. v. McCann, 160 Wis. 2d 846, 850, 467 N.W.2d 155 (Ct. App. 1991); Hansher v. Kaishian, 79 Wis. 2d 374, 387, 255 N.W.2d 564 (1977).

⁴Shirk v. Bowling Inc., 2001 WI 36, ¶ 15, 242 Wis. 2d 153, 624 N.W.2d 375.

⁵ Wis. Stat. § 801.15(2)(a)s.

⁶ Wis. Stat. § 806.07(1)(a).

⁷ Wis. Stat. § 806.07(1)(h).

⁸Miller, 2010 WI 75, ¶ 33, 326 Wis. 2d 640.

⁹Shirk, 2001 WI 36, ¶ 17, 242 Wis. 2d 153.

¹⁰Id. See also Johns v. County of Oneida, 201 Wis. 2d 600, 605-06, 549 N.W.2d 269 (Ct. App. 1996).

¹¹Miller, 2010 WI 75, ¶ 35, 326 Wis. 2d 640.

¹²Id.

¹³Id.

¹⁴See Hedtcke v. Sentry Ins. Co., 109 Wis. 2d 461, 467, 326 N.W.2d 727 (1982).

¹⁵Maier Constr. Inc. v. Ryan, 81 Wis. 2d 463, 472, 260 N.W.2d 700 (1978) (citing Dugenske v. Dugenske, 80 Wis. 2d 64, 68, 257 N.W.2d 865 (1977)).

¹⁶Split Rock Hardwoods Inc. v. Lumber Liquidators Inc., 2002 WI 66, ¶ 64, 253 Wis. 2d 238, 646 N.W.2d 19.

¹⁷ Wis. Stat. § 801.15(2).

¹⁸Baird Contracting Inc. v. Mid-Wisconsin Bank of Medford, 189 Wis. 2d 321, 324, 525 N.W.2d 376 (Ct. App. 1994).

¹⁹Mohns Inc. v. TCF Nat'l Bank, 2006 WI App 65, ¶ 9, 292 Wis. 2d 243, 714 N.W.2d 245.

²⁰Hedtcke, 109 Wis. 2d at 468; Giese v. Giese, 43 Wis. 2d 456, 461, 168 N.W.2d 832 (1969).

²¹See, e.g., Hedtcke, 109 Wis. 2d at 468, 475; Rutan v. Miller, 213 Wis. 2d 94, 101-02, 570 N.W.2d 54 (Ct. App. 1997); State Ex. Rel. M.L.B. v. D.G.H., 122 Wis. 2d 536, 552-53, 363 N.W.2d 419 (1985).

²²Hedtcke, 109 Wis. 2d 461.

²³Id. at 468.

²⁴Id. at 469.

²⁵See, e.g., Johnson v. Eldred, 13 Wis. 539, 541 (1861) ("In the first place it cannot be denied that this application to set aside the default was made at the earliest possible moment. No time was lost; no delay intervened in preparing affidavits explaining and excusing the default, and bringing the matter before the court. So it cannot be said that all due and proper diligence was not used by the appellant to repair his mistake, when he ascertained that the time to answer had expired.")

²⁶Hedtcke, 109 Wis. 2d at 475 (citing Cruis Along Boats Inc. v. Standard Steel Prods. Mfg. Co., 22 Wis. 2d 403, 411, 126 N.W.2d 85 (1964) (holding that prompt action by the defaulting party, highly excessive damages imposed on a default, and preventing miscarriage of justice are factors in determining excusable neglect); Valentine v. Patrick Warren Constr. Co., 263 Wis. 143, 170, 56 N.W.2d 860 (1953) (holding that promptness in asking for relief can be a factor in determination of excusable neglect); Millis v. Rae, 16 Wis. 2d 79, 83-84, 113 N.W.2d 820 (1962) (same)).

²⁷Rutan, 213 Wis. 2d at 101 (emphasis added).

²⁸Id. at 106.

²⁹Id.

³⁰Shirk, 2001 WI 36, ¶ 16, 242 Wis. 2d 153; Meier v. Champ's Sport Bar & Grill Inc., 2001 WI 20, ¶ 41, 241 Wis. 2d 605, 623 N.W.2d 94; Connor v. Connor, 2001 WI 49, ¶ 17, 243 Wis. 2d 279, 627 N.W.2d 182.

³¹Williams Corner Investors LLC v. Areawide Cellular LLC, 2004 WI App 27, ¶ 19 n.4, 269 Wis. 2d 682, 676 N.W.2d 168.

³²Estate of Otto v. Physicians Ins. Co. of Wis., 2008 WI 78, 311 Wis. 2d 84, 751 N.W.2d 805.

³³See Catherine M. Rottier, Punitive Damages, Frivolous Claims and Default Judgments: The Times They Are A'Changing; CLE presentation on Civil Procedure at 34th Annual Torts Update, State Bar of Wisconsin, Pinnacle Seminars, Sept. 8-9, 2011.

³⁴Miller, 2010 WI 75, ¶ 3, 326 Wis. 2d 640.

³⁵Id. ¶¶ 20-24, 37-38.

³⁶Miller v. Hanover Ins. Co., No. 2008AP194, 2009 WL 2308803 (Wis. Ct. App. July 30, 2009) (unpublished slip op.).

³⁷Miller, 2010 WI 75, ¶ 56, 326 Wis. 2d 640.

³⁸Id. ¶ 59.

³⁹Id. ¶ 46.

⁴⁰Casper, 2011 WI 81, ¶ 38, 336 Wis. 2d 267 (citing Hedtcke, 109 Wis. 2d at 469).

⁴¹Id. ¶ 48.

⁴²Id. ¶ 43.

⁴³Baird Contracting, 189 Wis. 2d at 325; Split Rock Hardwoods, 2002 WI 66, ¶ 64, 253 Wis. 2d 238.