Bank of Montreal v. Olafsson

Brief Fact Summary.

The Bank of Montreal (Plaintiff), a Canadian corporation, brought an action against Olafsson (Defendant), an Icelandic citizen in federal district court. The court entered a default judgment, but later vacated that judgment for lack of diversity jurisdiction.

Synopsis of Rule of Law.

An appellate court will review a trial court’s vacation of a judgment under Federal Rule of Civil Procedure 60(b) using an abuse of discretion standard.

Facts.

Plaintiff, a Canadian corporation, brought an action against Defendant, an Icelandic citizen in federal district court to recover on promissory notes. Defendant did not appear and the court entered a default judgment in Plaintiff’s favor in May 1978. In June 1979, Defendant moved to set aside the default judgment for lack of subject matter jurisdiction. The trial court agreed, finding that because neither party was a U.S. citizen, there was no diversity jurisdiction. The court further found that Plaintiff should have known of the lack of diversity and that the policy against granting judgments without valid jurisdiction outweighed the prejudice to Plaintiff that resulted from its reliance on the default judgment. Plaintiff appealed.   

Issue.

Where a trial court vacates a judgment under Federal Rule of Civil Procedure 60(b), will that decision be upheld absent an abuse of discretion?

Held.

(Per curiam.) Yes. An appellate court will review a trial court’s vacation of a judgment under Federal Rule of Civil Procedure 60(b) using an abuse of discretion standard. The district court in this case properly balanced the competing equities and found in favor of applying constitutional limits to the court’s jurisdiction. This finding was clearly not an abuse of discretion and the ruling setting aside the default judgment is affirmed.

Discussion.

The Federal Rules of Civil Procedure give defendants only one way to attack a judgment without appealing it. Under Fed. R. Civ. Pro. 60, a party must attack the judgment on the grounds of mistake, inadvertence, or newly discovered evidence within one year of its entry.  A party may attack the original judgment as void, as was the case here, beyond the one-year period.