Opinion
Docket No. 71681.
Decided June 19, 1984.
Law Offices of Lawrence J. Stockler, P.C. (by Lawrence J. Stockler), for plaintiff.
Bell Hudson, P.C. (by Cynthia K. Yott), for defendant.
Defendant appeals as of right from an order entered in the Oakland County Circuit Court which denied his motion to set aside a default and default judgment entered against him.
On August 23, 1982, plaintiff filed a complaint seeking quantum meruit recovery for legal services rendered on behalf of defendant. In Count I of the complaint, plaintiff alleged that it had a contingency fee arrangement with defendant providing that if plaintiff saved defendant any money in a $94,652.28 bankruptcy counterclaim action against him defendant would pay plaintiff 1/3 of such savings. The counterclaim against defendant was dismissed by the bankruptcy court on June 11, 1981.
In Count II of the complaint, plaintiff alleged that defendant had retained plaintiff in January, 1979, to settle a dispute defendant had with his landlord. Plaintiff claims that defendant promised to pay plaintiff "the reasonable value of [plaintiff's] services in so representing and advising [defendant]". The dispute with the landlord was settled by plaintiff, and plaintiff asserted in its complaint that the reasonable value of its services was $18,000. This sum was reduced to $17,684.49 in the application for default judgment.
Defendant terminated plaintiff's services on or about August 4, 1982. Thereafter, on September 7, 1982, Judge George E. Woods of the bankruptcy court set aside his earlier order dismissing the counterclaim against defendant. In so doing, Judge Woods permitted Allied Supermarkets, Inc., the countercomplainant in the bankruptcy action, to recover $94,652.28 from defendant, plus interest.
On September 13, 1982, a default was entered against defendant for the reason that defendant had not taken any action allowed him by law within the time prescribed by the court rules. Defendant had been served with a summons and complaint on August 23, 1982. Defendant was not notified of the entry of default.
On September 15, 1982, plaintiff filed an application for entry of default judgment against defendant, claiming damages of $49,235.25. No notice of this motion was sent to defendant or his attorneys, but, on September 15, defendant filed his belated answer to plaintiff's complaint. A copy of the answer was sent to plaintiff.
On September 22, 1982, the trial court entered judgment by default against defendant, stating that defendant had failed to plead or otherwise defend against plaintiff's claims and that damages of $49,235.25 were proven "in open court". No notice of this order or of its filing was sent to defendant or his attorneys.
On April 20, 1983, defendant filed a motion with the trial court to set aside the default and default judgment. On May 11, 1983, the trial court conducted an evidentiary hearing to determine if defendant had a meritorious defense. At the conclusion of that hearing, finding that defendant had not shown a meritorious defense, the circuit court denied the motion to set aside the default and default judgment.
Defendant asserts that the circuit court erred in denying the motion to set aside default and default judgment because he presented a reasonable excuse which constituted good cause for his failure to timely answer and because he showed that he had a meritorious defense. Deeb v Berri, 118 Mich. App. 556, 561; 325 N.W.2d 493 (1982); First Bank of Cadillac v Benson, 81 Mich. App. 550, 553; 265 N.W.2d 413 (1978); GCR 1963, 520.4.
We agree with the trial court's conclusion that defendant failed to assert a meritorious defense. At the hearing to set aside the default and default judgment, defense counsel admitted that plaintiff was entitled to recover something in quantum meruit on Count II. Counsel's admission of liability clearly establishes no defense.
As to Count I, defense counsel simply argued that judgment was premature as the bankruptcy litigation had not yet been concluded and defendant's liability to plaintiff under the terms of the contingency fee agreement depended on the conclusion. However, counsel did not deny that, when defendant discharged plaintiff, the then status of the case was favorable for defendant and that plaintiff's discharge made it impossible for the law firm to try to retain the favorable status of the case.
When an attorney with a contingent fee contract is wrongfully discharged (and defendant did not assert at the evidentiary hearing that plaintiff's discharge was not wrongful), that attorney is entitled to compensation for the reasonable value of his services based upon quantum meruit recovery. Ambrose v Detroit Edison Co, 65 Mich. App. 484, 491-492; 237 N.W.2d 520 (1975). Thus, the fact that the bankruptcy litigation was not yet concluded did not constitute a meritorious defense.
Defendant also argues that the default judgment entered against him should be set aside because he did not receive notice of plaintiff's application for judgment seven days before the hearing on this application. GCR 1963, 520.2(2) provides that if a party appears in an action, he is entitled to at least seven days' notice before a hearing on any application for default judgment. Despite the conditional language of the rule, both this Court and the Supreme Court have said that notice of default should be sent to the party defaulted. White v Sadler, 350 Mich. 511, 519; 87 N.W.2d 192 (1957); Deeb, supra, p 562.
In this case, defendant filed an answer on the same day as plaintiff filed its application for default judgment. A copy of this answer was served on plaintiff. However, plaintiff nonetheless failed to serve a copy of the default and application for default judgment on defendant.
Plaintiff contends that defendant did not make an appearance and, thus, was not entitled to notice of the application for default judgment. We disagree. Under the principles of Deeb, supra, defendant's belated filing of an answer constituted an appearance. While this answer did not operate to set aside the default and was ineffective to put the question of liability in dispute until such time as it was set aside, it did constitute an action on the part of defendant which recognized the case as in a court of competent jurisdiction (that is, filing the answer constituted an appearance). Cf. Deeb, supra, pp 563-565. (Appearing at a deposition constituted an appearance for purposes of GCR 1963, 520.2[2].)
In this case, it must be acknowledged that defendant's appearance was entered after plaintiff's application for entry of default judgment had been filed. Nonetheless, upon receiving defendant's answer, plaintiff was minimally required to then serve defendant a copy of the default and application for default judgment. GCR 1963, 107 provides in pertinent part:
"1. Service; When Required.
"(1) Unless otherwise specifically provided by this rule, every party who has filed a pleading, an appearance, or motion shall be served with a copy of every written paper subsequently filed in the action, including a default if one has been entered against him." (Emphasis added.)
Given this rule and the proposition that a defaulted party should be served with notice of the default, we hold that the default judgment in this case must be set aside to extend defendant an opportunity to contest the amount of damages. Midwest Mental Health Clinic, PC v Blue Cross Blue Shield of Michigan, 119 Mich. App. 671, 675; 326 N.W.2d 599 (1982). The default itself, however, stands and cements the issue of defendant's liability. Midwest Mental Health, supra.
Defendant also contends that Lawrence Stockler assured defense counsel that no default would be entered if an answer was filed somewhat late. Based upon the alleged stipulation to allow the late filing, defendant asserts that the default should be set aside. We disagree. Attorney Stockler vehemently denies that any such agreement was entered into, the stipulation was not entered in open court, and defendant has not produced a writing subscribed by Stockler or another attorney with Stockler's firm which allows late filing. Assuming, arguendo, the existence of the oral agreement, GCR 1963, 507.9 precludes its enforcement. See, also, Kibby v Rhoads, 29 Mich. App. 261, 274; 185 N.W.2d 117 (1970).
Affirmed in part, reversed in part, and remanded for proceedings consistent with this opinion. We do not retain jurisdiction. No costs, neither party having prevailed in full.