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Johnson v. USL Products, Inc.

Court of Appeals of Minnesota

December 30, 2013

Steve M. Johnson, et al., Appellants,
USL Products, Inc., Defendant, Clam Corporation, Inc., Respondent.


Hennepin County District Court File No. 27-CV-10-9077.

Scott Andresen, Mark R. Bradford, Bassford Remele, Minneapolis, Minnesota (for appellants)

Michael T. Berger, Ashley M. DeMinck, Hinshaw & Culbertson LLP, Minneapolis, Minnesota (for respondent)

Considered and decided by Stoneburner, Presiding Judge; Rodenberg, Judge; and Hooten, Judge.


In this appeal after remand, appellants contest the district court's decision to vacate a default judgment against defendant that allegedly transferred assets to respondent. Because the district court did not abuse its discretion in vacating the default judgment, we affirm and remand for trial.


Many of the facts and the procedural history are set forth in our decision in appellants' first appeal, Johnson v. USL Prods., Inc., No. A11-1774, 2012 WL 2078478 (Minn.App. June 11, 2012) (Johnson I), review denied (Minn. Aug. 21, 2012). Accordingly, we condense the background facts and provide the pertinent additional facts relevant to this appeal.

As a result of a December 2002 federal lawsuit brought in Tennessee against defendant USL Products, Inc., appellants JT&O Technologies, LLC and its managing member, Steve M. Johnson, were awarded a default judgment for three million dollars on February 2, 2005. Days later, appellants sued USL, respondent Clam Corporation, Inc., Ronald Randall (USL's majority shareholder and CEO), and David Osborne (the sole shareholder of Clam), alleging fraudulent transfer of assets in violation of the Minnesota Uniform Fraudulent Transfer Act (MUFTA), Minn. Stat. §§ 513.41–.51 (2012), breach of fiduciary duties, alter ego liability/piercing the corporate veil, and successor liability. Appellants claimed that USL fraudulently transferred assets to Clam in order to avoid paying the anticipated judgment in the federal court matter. USL did not answer the complaint.

After appellants settled with Randall and dismissed the claims against Osborne, Clam moved for summary judgment. In an order dated February 25, 2011, the district court denied Clam's motion, determining, without further explanation, that there were "genuine issues of material fact." On April 25, 2011, the first day of trial, the district court sua sponte reconsidered Clam's summary-judgment motion. In addition, the district court heard Clam's motions in limine seeking to exclude appellants' evidence on assumption of liability, de facto merger, mere continuance, and intent and valuation evidence. After extensive oral arguments, the district court, determining that there were no genuine issues of material fact, orally granted summary judgment in favor of Clam on the MUFTA and successor-liability claims and, in the alternative, granted Clam's motions in limine. The district court made a record of its legal analysis and cancelled the trial, but it allowed the parties to supplement the record prior to the issuance of a written order for the purpose of an appeal. In a written order filed on May 3, 2011, the district court summarily granted Clam's motion for summary judgment and dismissed appellants' MUFTA and successor-liability claims with prejudice. The district court also, in the alternative, granted Clam's motions in limine.

On July 15, 2011, appellants moved for default judgment against USL, alleging by affidavit of their counsel that the complaint had been served on USL and that USL had failed to answer or otherwise respond. On August 12, 2011, without requiring any proof of the merits of appellants' claims, the district court signed appellants' proposed order granting default judgment against USL on the MUFTA claim. The record indicates that judgment was entered on August 17, 2011, and that notification of this entry of judgment was sent to USL on this date.

There was no appeal from the default judgment. In Johnson I, appellants challenged the May 3, 2011, summary-judgment order and September 8, 2011, amended- judgment order in favor of Clam. We concluded that the district court erred by dismissing appellants' MUFTA claim against Clam because there were genuine issues of material fact, including issues regarding whether there was fraudulent intent and whether reasonably equivalent value was exchanged between USL and Clam. Johnson I, 2012 WL 2078478, at *8. Consistent with our view that these material issues of fact should have been presented to and resolved by a jury, we reversed the district court's order precluding appellants from presenting evidence regarding intent and valuation at trial. Id. Most significantly, for purposes of this appeal, we concluded that "[t]hrough the default judgment against USL, " appellants "established USL's fraudulent transfer under Minn. Stat. § 513.44(a)(1), (2) and all of the factors from section 513.44(b) alleged in the complaint to establish actual intent under section 513.44(a)(1)." Id. at *4. We explained that the default judgment was a final judgment "determining that the transfer was made with actual intent to defraud [appellants] and was made without USL receiving a reasonably equivalent value in exchange for the transfer under the circumstances described in the statute." Id. Based primarily on this conclusion, we further held that the district court erred by granting summary judgment on appellants' successor-liability claim because the fraudulent transfer satisfied an exception to the general rule that a corporation which purchases or receives by transfer the assets of another corporation is not liable for the debts and liabilities of the seller or transferring corporation. Id. at *7. Accordingly, we remanded for trial on appellants' "entitlement under the MUFTA to relief against Clam for USL's fraudulent transfer of assets to Clam." Id. at *8.

On remand, appellants filed a motion on December 7, 2012, for entry of judgment against Clam on the successor-liability claim in the amount of $5, 242, 602.74 and to impose a constructive trust. Appellants argued that this court, in Johnson I, "determined that the default judgment against USL was a final judgment and had definitively established that the transfer of assets from USL to Clam Corporation was fraudulent and that [appellants] had therefore established all of the elements of their common-law successor-liability claim." Appellants further asserted that this court "reinstated both claims" such that Clam's liability had been established under the MUFTA and successor-liability claims, and that this court "remanded the case for trial only on [the MUFTA claim] and only to determine the scope of damages to which [appellants] are entitled under the MUFTA." The district court denied the motion on January 4, 2013, and scheduled a trial pursuant to this court's remand instructions.

On January 16, 2013, Clam moved to vacate the default judgment entered against USL under Minn. R. Civ. P. 60.02 because the default judgment was "counter to the first-final-judgment principle and ha[d] created an 'absurd' and illegal result." The district court agreed and vacated the default judgment. The district court concluded that USL and Clam were "jointly liable" under the MUFTA and the successor-liability claims; that the default judgment entered against USL, after the granting of summary judgment in favor of Clam, was contradictory under the first-final-judgment rule as set forth in Reilly v. Bader, 50 Minn. 199, 52 N.W. 522 (1892); and that appellants' claims against USL should have been dismissed. In responding to appellants' request for reconsideration, the district court explained at a pretrial hearing that "the default should never have been entered because there was no proof taken" and that "it was wrongfully entered."

Appellants filed this appeal from the district court's order denying their motion for entry of judgment on the successor-liability claim against Clam and the ...

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