'I thought YOU were taking care of it': Setting aside a default judgment

A business that fails to respond promptly to a summons and complaint can find itself liable for a default judgment.  An opinion issued last week by the Oregon Court of Appeals shows how important it is for companies to adopt internal procedures for handling and responding to a complaint in a timely fashion.

Rule 71 of the Oregon Rules of Civil Procedure allows a court to set aside a default judgment if the default resulted from "mistake, inadvertence, surprise, or excusable neglect."  The Court of Appeals  refused to undo a $250,000 default judgment despite the corporate defendant's claim that its failure to defend itself was a result of excusable neglect.

In Knox v. GenX Clothing, Inc., a customer sued defendant clothing store over defendant's handling of an alleged shoplifting incident.  Corporate executives never hired a lawyer to defend the case, and the court entered a default judgment.  Defendant asked the Court of Appeals to set aside the judgment due to a miscommunication within the company and the executives' lack of understanding of the legal system.  The court agreed with plaintiff that the testimony regarding a miscommunication was not credible, and that ignorance of legal process does not excuse a failure to act. 

Judge Robert Wollheim, writing for the court, noted that if a corporate defendant has in place a procedure for handling a summons and complaint, and if that internal procedure goes awry, then the judgment may be set aside based on excusable neglect.  But having no internal procedure in place leaves a business unlikely to succeed in avoiding a default judgment.