Minnwest Bank, Respondent,

This opinion is nonprecedential except as provided by
Minn. R. Civ. App. P. 136.01, subd. 1(c).

STATE OF MINNESOTA
IN COURT OF APPEALS
A22-0502

Minnwest Bank,
Respondent,

vs.

Beth Ann Kalass, et al.,
Appellants,

Estate of Henry G Petersen, Decedent, et al.,
Defendants.

Filed December 12, 2022
Reversed and remanded
Smith, Tracy M., Judge

Rock County District Court
File No. 67-CV-20-163

Greg J. Bucher, Stoneberg, Giles & Stroup, P.A., Marshall, Minnesota (for respondent)

Krystal M. Lynne, Stermer & Sellner, Chtd., Montevideo, Minnesota (for appellants)

Considered and decided by Larson, Presiding Judge; Johnson, Judge; and Smith,
Tracy M., Judge.
NONPRECEDENTIAL OPINION
SMITH, TRACY M., Judge
Appellants challenge the grant of default judgment in favor of respondent-lender on
the lender’s claims against appellants under the Minnesota Uniform Voidable Transactions
Act, Minn. Stat. §§ 513.41-.51 (2020) (MUVTA). Because we conclude that the district
2
court abused its discretion in granting default judgment and denying appellants’ motion to
vacate judgment, we reverse and remand.
FACTS
This case involves real property that decedent Henry G. Petersen conveyed to his
daughters, appellants Beth Ann Kalass and Hope Lorraine Schelhaas, via a transfer- on-
death deed (TODD). 1 Respondent Minnwest Bank sued Kalass and Schelhaas and their
respective spouses, appellants Terry Kalass and Lowell Schelhaas, seeking to void the
transfer under the MUVTA.
Respondent loaned Peterson money in exchange for a promissory note signed by
Peterson in favor of respondent. Peterson provided respondent with a personal financial
statement, dated the same day as the promissory note, which identified amongst his assets
the real property at issue here.2
In February 2020, respondent brought suit against Peterson, alleging default on the
promissory note (loan-dispute litigation). Peterson answered respondent’s complaint and
contested the debt.
In the beginning of June 2020, while the loan-dispute litigation was pending,
Peterson executed and filed a TODD designating his daughters as grantee beneficiaries. On

1 A TODD is “[a] deed that conveys or assigns an interest in real property[] to a grantee
beneficiary and . . . transfers the interest to the grantee beneficiary upon the death of the
grantor owner.” Minn. Stat. § 507.071, subd. 2 (2020).

2 There is no allegation that the real property secured the promissory note.
3
June 7, 2020, Peterson died. As of the events relevant to this appeal, the loan-dispute
litigation was ongoing against Peterson’s estate.3
Soon after Peterson’s death, respondent sued appellants, seeking to void the transfer
of the property as fraudulent under MUVTA. Respondent filed its complaint on July 1,
2020, and appellants were personally served on July 6, 2020. Respondent’s counsel
received no answer from appellants, and no answer was filed with the district court.
The same counsel who represented Peterson (and later his estate) in the loan-dispute
litigation took on the representation of appellants here. Respondent’s counsel also
remained the same. From July until September 2020, the parties’ c ounsel engaged in
settlement discussions about this case and the case regarding Peterson’s alleged debt to
respondent. During this time, respondent did not inform appellants or appellants’ counsel
that respondent had not received an answer to the complaint.
On September 11, 2020, the district court administrator sent a deficiency notice to
respondent’s counsel indicating there had been no activity since July 9 and inquiring about
the case’s status. In a letter dated October 12, 2020, respondent’s counsel responded that
appellants had failed to serve and file an answer to the complaint and that respondent
intended to move for default judgment. Neither appellants nor appellants’ counsel were
copied on this response letter to the district court administrator.
Respondent filed a motion for default judgment on February 19, 2021. On March 1,
appellants filed and served their answer, which was dated July 14, 2020. On March 8, 2021,

3 At oral argument, appellants’ counsel stated that trial was set for June 2023.
4
appellants submitted a response to respondent’s motion for default judgment, including an
affidavit from appellants’ counsel. Appellants’ counsel asserted that her file records
indicated that the ans wer had been timely served by mail on July 15, 2020, and she
provided her file copy of a signed service letter. Appellants’ counsel further asserted that
she first learned that respondent had not received an answer when her clients forwarded to
her the motion for default judgment and that she then learned the file number and promptly
filed the answer. Appellants argued that default judgment was inappropriate because they
had timely served an answer or, alternatively, because (1) appellants had reasonable
defenses on the merits; (2) appellants had a reasonable excuse for failing to answer;
(3) appellants had acted with due diligence; and (4) respondent would not be prejudiced.
Following a hearing on March 22, 2021, t he district court granted respondent’s
motion for default judgment. In its order, the district court found that no answer had been
served. The district court did not address appellants’ alternative argument that default
judgment was nevertheless not appropriate. Judgment was entered against appellants on
June 14, 2021.
Appellants filed a motion to vacate the judgment pursuant to Minnesota Rule of
Civil Procedure 60.02(a).
4 Appellants again argued the four factors discussed in their
response to the motion for default judgment. Appellants’ counsel also submitted a second
affidavit, describing the bases on which Peterson’s debt was being challenged in the loan-
dispute litigation, providing more details about the contents of appellants’ counsel’s case

4 Appellants also moved for amended findings pursuant to Minn esota Rule of Civil
Procedure 52.02, which the district court denied, but that ruling is not at issue here.
5
file to explain why she believed an answer had been timely served, and attaching
correspondence between the parties’ counsel from July and August 2020 discussing
settlement of this case. Following a hearing, the district court denied appellants’ motion to
vacate judgment.
This appeal follows.
DECISION
Appellants argue that the district court abused its discretion by granting default
judgment against them and denying their motion to vacate judgment.
Scope of Review
As an initial matter, we address a dispute about the scope of our review. Respondent
argues that our review is limited to the district court’s grant of default judgment and that
we may not consider the part of the record related to appellants’ later motion to vacate
judgment. They base their argument on this court’s order clarifying that this appeal is
construed to be from the district court’s June 14, 2021 judgment.
Respondent confuses the appealability of a judgment with the scope of our review.
Minnesota Rule of Civil Appellate Procedure 103.03 identifies the orders or judgments
from which appeals to this court may be taken. Relevant here, the rule permits an appeal
from a final judgment. Minn. R. Civ. App. P. 103.03(a). But our scope of review is not
limited to the appealable judgment. Minnesota Rule of Civil Appellate Procedure 103.04
provides that, on appeal from a judgment, “ appellate courts . . . may review any order
involving the merits or affecting the judgment.” And we have previously held, “[b]ecause
a motion to vacate by its nature asks the trial court to reassess its final judgment, an order
6
denying the motion will, thus, involve the merits or affect the judgment entered.” Bush
Terrace Homeowners, Assoc., Inc., v. Ridgeway, 437 N.W.2d 765, 770 (Minn. App. 1989),
rev. denied (Minn. June 9, 1989). Thus, both the district court’s grant of default judgment
and its denial of appellants’ motion to vacate judgment are within our scope of review in
this appeal.
Standard of Review and Legal Standard
Both the decision to grant default judgment and the decis ion to open a default
judgment lie within the discretion of the district court. Northland Temps., Inc. v. Turpin,
744 N.W.2d 398, 402 (Minn. App. 2008), rev. denied (Minn. Apr. 29, 2008). A district
court abuses its discretion if its ruling relies on “a misapprehension of the law” or if “its
factual findings are clearly erroneous.” Gams v. Houghton, 884 N.W.2d 611, 620 (Minn.
2016) (quotations omitted).
A party seeking default judgment “generally need do no more than aver that the
defendant has failed to timely answer the complaint.” Laymon v. Minn. Premier Props.
LLC, 903 N.W.2d 6, 17-18 (Minn. App. 2017), aff’d, 913 N.W.2d 449 (Minn. 2018); see
Minn. R. Civ. P. 55.01 . But denial of a motion for default judgment based on a failure to
answer is proper when four requirements are met: the defendant has a reasonable defense
on the merits; the defendant has a reasonable excuse for failing to answer; the defendant
acted with due diligence after becoming aware of the failure; and denial of the motion will
not result in substantial prejudice to other parties. Coller v. Guardian Angels Roman Cath.
Church of Chaska, 294 N.W.2d 712, 715 (Minn. 1980).
7
These are the same four requirements—called the Finden factors—that a party must
establish to obtain relief from a default judgment for “[m]istake, inadvertence, surprise, or
excusable neglect” under Minnesota Rule of Civil Procedure 60.02(a).5 Northland, 744
N.W.2d at 402 (citing Finden v. Klaas, 128 N.W.2d 748 (Minn. 1964)); see Coller, 294
N.W.2d at 715. The moving party bears the burden of establishing all four factors. Gams,
884 N.W.2d at 619-20. “[A] district court abuses its discretion when a movant has met the
burden of ‘clearly demonstrating the existence of the four elements of the Finden analysis,’
and the court nevertheless denies relief.” Id. at 620.
Appellants argued that default judgment was inappropriate under the Finden factors
in both their opposition to the motion for default judgment and their motion to vacate the
judgment. Because their arguments were consistent, and the analysis is essentially
equivalent for a motion for default judgment and a motion to vacate judgment, we consider,
in a single analysis, whether the district court abused its discretion on the record as a whole.
Application of the Finden Factors
In denying appellants’ motion to vacate the judgment, the district court determined
that appellants had acted with due diligence, satisfying the third Finden factor, but failed
to satisfy the remaining three.

5 The moving party must establish: “(1) a reasonable defense on the merits; (2) a reasonable
excuse for the failure or neglect to answer; (3) acted diligently after notice of entry of the
judgment; and (4) demonstrated that no prejudice will occur to the judgment creditor.”
Northland, 744 N.W.2d at 402.
8
Due Diligence
We can quickly dispose of the dispute concerning the third Finden factor.
Respondent argues that appellants did not act with due diligence because they were not
“very prompt” in serving their answer after learning of the problem when respondent’s
motion for default judgment was filed. Tha t motion was filed on February 19, 2021.
Appellants served and filed their answer on March 1, 2021, and filed a response to the
motion a week later. The record supports the district court’s determination that appellants
acted with due diligence once they learned of their mistake in not serving an answer.
We turn to the district court’s determinations regarding the other three Finden
factors—that appellants had not established a reasonable defense on the merits, that
appellants had not established a reasonable excuse for their neglect , and that appellants
failed to show there would be no substantial prejudice to respondent.
Reasonable Defense on the Merits
“A reasonable defense on the merits is one that, if established, provides a defense
to the plaintiff’s claim.” Northland, 744 N.W.2d at 403. The moving party must provide
“specific information” demonstrating the existence of a reasonable defense; “[c]onclusory
allegations in moving papers are ordinarily insufficient.” Cole v. Wutzke, 884 N.W.2d 634,
638 (Minn. 2016).
Appellants argue that they have a reasonable defense on the merits because, for three
reasons, the transfer of Peterson’s property falls outside MUVTA’s scope. Under MUVTA,
a creditor may void “ [a] transfer made or obligation incurred by a debtor” in certain
situations. Minn. Stat. §§ 513.44-.45. “‘Transfer’ means every mode . . . of disposing of or
9
parting with an asset or an interest in an asset, and includes payment of money, release,
lease, license, and creation of a lien or other encumbrance.” Minn. Stat. § 513.41(16).
“‘Asset’ means property of a debtor, but the term does not include . . . property to the extent
it is generally exempt under nonbankruptcy law[.]” Minn. Stat. § 513.41(2). Appellants
argue that (1) the property was Peterson’s homestead and thus is “generally exempt”
property that is not included as an “asset” within the scope of MUVTA, (2) respondent was
not Peterson’s creditor and thus does not have a MUVTA claim, and (3) a transfer of the
real property has yet to even occur. The district court rejected all three arguments.
We conclude that appellants’ argument regarding the homestead exemption presents
a reasonable defense on the merits, and we thus begin and end our analysis there. 6
Minnesota law gives homesteads certain legal protections from creditors. See Minn. Stat.
§ 510.01 (2020). The district court relied on Minnesota Statutes section 510.06 (2020) to
conclude that any homestead exemption for Peterson’s property ended with his death.
Under section 510.06, “[i]f the owner dies leaving a spouse or minor children constituting
the owner’s family surviving, the homestead exemption shall not be affected by the death.”
Because Peterson did not have a surviving spouse or minor children, the district court
determined that a homestead exemption could not provide a reasonable defense on the
merits to respondent’s MUVTA claim.
But Peterson did not simply die, leaving no spouse or minor children. Rather, before
his death, he executed a TODD to transfer the real property to his daughters. Under

6 Although we do not decide whether appellants’ other arguments may be reasonable
defenses on the merits, appellants are free to bring those defenses when the default is lifted.
10
Minnesota law, an “owner may sell and convey the homestead without subjecting it . . . to
any judgment or debt from which it was exempt in the owner’s hands.” Minn. Stat.
§ 510.07. That the transfer of Peterson’s real property occurred upon his death rather than
during his lifetime is immaterial —the protections of section 510.07, rather than section
510.06, control. 7 As the Minnesota Supreme Court has explained, Minnesota law
“jealously protect[s] the rights of homesteaders,” even in cases of fraudulent conveyance.
Nw. Holding Co. v. Evanson, 122 N.W.2d 596, 600 (Minn. 1963) (“Even a conveyance
fraudulent as to creditors does not deprive the property of its homestead exemption.”).
The district court’s conclusion that section 510.06 must apply for the homestead
exemption to survive the owner’s death in the context of a TODD was a misapprehension
of law. And because appellants provided an affidavit claiming that the property was
Peterson’s residence and thus his homestead, appellants satisfied their burden to provide
specific information beyond conclusory allegations in moving papers. The district court

7 The reasoning follows our reasoning in a nonprecedential decision of this court, Kesanen
v. Strope -Robinson, No. A18- 1060, 2019 WL 510800 (Minn. App. Feb. 11, 2019). In
Kesanen, the debtor transferred his property to his niece via a TODD. The creditor sought
to void the transfer under MUVTA. This court concluded that, “if debtor’s property was
homestead property at the time of his death, the transfer of his property falls withi n the
protections of section 510.07 and MUVTA does not apply.” Kesanen, 2019 WL 510800,
at *2-3. As this court explained, “[b]esides the lack of authority for excepting a TODD
from section 510.07, we cannot see why the full protection of homesteaders’ rights under
section 510.07 would not apply to debtor’s conveyance by a TODD when those rights
would have applied had debtor conveyed the property to his niece the day before his death.”
Id. at *3.
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abused its discretion by determining that appellants did not establish a reasonable defense
on the merits.8
Reasonable Excuse for the Neglect
Appellants argue that they had a reasonable excuse for failing to serve an answer
because they believed that an answer had been served by mail even if respondent did not
receive it. Appellants also highlight that respondent did not inform appellants that no
answer had been served despite settlement communications between the parties’ counsel.
“[E]ven in those cases where a court has held the neglect of a client’s attorney to be
inexcusable, if such neglect has been purely that of counsel, ordinarily courts are loath to
‘punish’ the innocent client for the counsel’s neglect.” Cole, 884 N.W.2d at 638 (quoting
Charson v. Temple Israel, 419 N.W.2d 488, 491 (Minn. 1988)). But the supreme court has
made it clear that “there are no per se rules requiring either the grant or denial of a Rule
60.02(a) motion under the ‘reasonable excuse’ requirement.” Id. at 639. Rather, “[t]he
decision whether to grant Rule 60.02 relief is based on all the surrounding facts of each
specific case, and is committed to the sound discretion of the district court.” Gams, 884
N.W.2d at 620.
Here, the district court determined that appellants and appellants’ counsel did not
have a reasonable excuse for the neglect. It explained that “with no Affidavit of Service

8 Whether some or all of the property was in fact Peterson’s homestead is a question for
the district court. “A reasonable defense on the merits is one that, if established , provides
a defense to the plaintiff’s claim.” Northland , 744 N.W.2d at 403 (emphasis added); see
also Cole, 884 N.W.2d at 638 (“[A] debatably meritorious claim is one that, if established
at trial, presents a cognizable claim for relief.” (emphasis added)).
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memorializing the sending of the Answer and no specific recollection or such certainties
there is little to base the belief that the Answer was previously served on Plaintiff.” But, as
appellants’ counsel explained in an unchallenged affidavit, her office generally makes
yellow copies of outgoing letters when mailed. Appellants’ counsel had in her file a yellow
copy indicating that an answer was served by mail on respondent’s attorney within the
requisite 21 days. In addition, in the other lawsuit adjudicating Peterson’s debt, appellants’
counsel had served the answer via mail upon respondent and respondent’s counsel without
issue. Thus, even if the answer was not in fact served, appellants had timely prepared an
answer and had a reasonable basis for believing that it had been served.
The district court also appears to have misinterpreted appellants’ contentions about
settlement discussions. The district court stated that “a defendant does not ‘otherwise
defend himself’ within the requirements of Rule 55.01 by having telephone conversations
with the plaintiff’s attorney.” A defendant may avoid default judgment by “otherwise
defend[ing] within the time allowed” instead of answering. Minn. R. Civ. Pro. 55.01; Black
v. Rimmer, 700 N.W.2d 521, 525- 26 (Minn. App. 2005) (explaining that defendant’s
“cooperation” with plaintiff “does not satisfy the requirements of ‘otherwise defend’”), rev.
dismissed (Minn. Sept. 28, 2005). But appellants did not assert that they “otherwise
defend[ed]” themselves because they engaged in settlement discussions. Rather, they raise
the settlement discussions to show that respondent knew they were represented by counsel
and did not inform either appellants’ counsel or appellants that no answer had been served
or that the case had been filed.
13
The district court explained that “[t]he failure to properly proceed in a case caused
by both the attorney and the party may well be considered an insufficient ground for relief.”
That is true. But the case cited by the district court for this proposition involved a plaintiff
who asked for an answer several times and a defendant who did not satisfy two of the other
Finden factors. See Kosloski v. Jones, 203 N.W.2d 401, 402-03 (Minn. 1973) (finding that
district court did not abuse its discretion by finding defendant “personally guilty of
inexcusable neglect” when plaintiff’s attorney contacted defendant’s lawyer on “numerous
occasions” asking for an answer); see also Standard Oil Co. v. King, 55 N.W.2d 710, 712
(Minn. 1952) (explaining that, if defendant had received plaintiff’s letter stating that default
judgment would occur absent an answer, defendant’s excuse would have been
unreasonable, but, because there were conflicting affidavits, the district court did not abuse
its discretion by finding defendant had a reasonable excuse). Here, respondent did not ask
for an answer. In fact, respondent did not copy appellant s or appellants’ counsel on the
response letter to the district court administrator’s deficiency notice that asserted
appellants’ failure to serve and file an answer and respondent’s intention to move for
default judgment.
Although we are mindful of the deference that we must give the district court, we
conclude that it abused its discretion. The failure to serve an answer— if counsel did fail to
mail the answer—appears to be solely counsel’s mistake. And respondent did not pu t
appellants or appellants’ counsel on notice that it had not received an answer, even though
the parties’ counsel were in settlement discussions, and respondent omitted appellants and
appellants’ counsel from a communication to the district court that would have alerted them
14
to the problem. Given these circumstances, we conclude that appellants had a reasonable
excuse for the neglect.
Substantial Prejudice
Substantial prejudice does not exist when the only prejudicial effect of vacating a
judgment is additional expense and delay. Cole, 884 N.W.2d at 639. Rather, “there must
be some particular prejudice of such a character that some substantial right or advantage
will be lost or endangered if relief is granted.” Id. (quotation omitted). “[T]he movant bears
the burden of demonstrating that the delay resulting from his or her error or omission has
not resulted in a real and particular harm to the other party, such as the loss of witnesses or
evidence, and that the other party has not otherwise detrimentally relied on the resulting
dismissal or judgment.” Id.
The district court determined that “[appellants] only state conclusory allegations
that [respondent] has encountered little to no prejudice from the delay” and that “[t]he court
is not satisfied that [appellants] have met their burden of proving there will be no
substantial prejudice to [respondent] as they have failed to show that no substantial rights
or advantages have not been prejudiced.” But the district court did not address appellants’
arguments that no action had taken place in the other case challenging Peterson’s debt, on
which the MUVTA claim is based, and that respondent contributed to the delay by failing
to copy appellants and appellants’ counsel on the response to the deficiency notice.
Appellants’ arguments are persuasive. Respondent waited approximately six
months from the end of the window to serve the answer to bring the motion for default
judgment. Respondent did not refute that no action had been taken in the loan-dispute
15
litigation on which the MUVTA claim is based or that that case is ongoing. To claim
prejudice, respondent identified only the typical costs and delays associated with litigation.
The district court agreed that those costs constituted prejudice without considering whether
such prejudice could be alleviated by awarding respondent its costs and attorney fees
connected with its motions. See Valley View, Inc. v. Schutte, 399 N.W.2d 182, 185-86
(Minn. App. 1987) (holding that defendant made a strong showing that plaintiff would not
suffer substantial prejudice where plaintiff could not “cite any prejudice other than the
added expense,” an action against other defendants was still pending, and defendant offered
to file a bond), rev. denied (Minn. Mar. 18, 1987). Given the unresolved state of the loan-
dispute litigation, as well as respondent’s own contributions to the delay in this case, the
district court’s determination was an abuse of discretion.
On this record, appellants have established (1) a reasonable defense on the merits,
(2) a reasonable excuse for the failure to answer, (3) that they acted with due diligence
upon learning of the mistake, and (4) that respondent will not be substantially prejudiced.
Therefore, the district court abused its discretion in granting respondent default judgment
and denying appellants’ motion to vacate the judgment. We reverse the district court’s
decision and remand to open the judgment.
Reversed and remanded.