Business Sued Without Knowing It: Minnesota Next Steps

How can a business be sued and lose without knowing it?

A Minnesota business can be validly served without anyone at the company seeing the papers. Under Minn. Stat. § 5.25, subd. 1, a plaintiff may serve the Secretary of State “if no agent, officer, manager, or general partner can be found at the address on file with the secretary of state.” The state then mails the papers to the address in its own records, and if that address is stale, nobody reads them.

For the business entities it covers, the statute lists who may be served. Process may be served on “(1) the registered agent, if any; (2) if no agent has been appointed then on an officer, manager, or general partner of the entity; or (3)” on the Secretary of State under the conditions quoted above. Minn. Stat. § 5.25, subd. 1. For an LLC, the Secretary of State becomes the company’s agent if the company “does not appoint or maintain an agent for service of process in this state or the agent for service of process cannot with reasonable diligence be found at the agent’s street address.” Minn. Stat. § 322C.0116, subd. 2. A corporation may be served through its registered agent, an officer, or the Secretary of State. Minn. Stat. § 302A.901, subd. 1. Section 5.25 also provides that “Nothing in this section limits the right of a person to serve any process, notice, or demand required or permitted by law to be served upon a business entity in another manner.” Minn. Stat. § 5.25, subd. 8.

Service through the state is a filing: the plaintiff files “one copy of the process, notice, or demand along with payment of a $35 fee.” Minn. Stat. § 5.25, subd. 3. The Secretary of State must then immediately forward it by certified mail “in care of the agent of the business entity, at its registered office in this state as it appears in the records of the secretary of state.” Minn. Stat. § 5.25, subd. 6. A registered office that moved, closed, or belonged to a former bookkeeper is where those papers go.

Out-of-state companies face a second version of the same problem. A foreign corporation “is considered to be doing business in Minnesota if it makes a contract with a resident of Minnesota to be performed in whole or in part by either party in Minnesota,” and service on the Secretary of State then “has the same legal force and effect as if served personally on it within the state of Minnesota.” Minn. Stat. § 5.25, subd. 4. For a company that never registered here, the state mails the papers “at the address provided by the party submitting the document for service of process.” Minn. Stat. § 5.25, subd. 6. In my practice, I have seen this happen to a company that sold into another state without registering there: the lawsuit was served on that state’s filing agency, which had no good address to send it to. If the judgment came from another state’s court, the rules for a judgment entered in another state govern how it reaches your Minnesota assets. If the papers have just arrived and no judgment exists yet, the steps are different; see what to do after your business is served.

What makes a default judgment final in Minnesota?

A default judgment is entered when the defendant “has failed to plead or otherwise defend within the time allowed therefor by these rules or by statute, and that fact is made to appear by affidavit.” Minn. R. Civ. P. 55.01. Rule 55.01 splits default cases in two. When the claim is “upon a contract for the payment of money only,” the court administrator, on the plaintiff’s request and an affidavit of the amount due, “shall enter judgment for the amount due and costs against the defendant.” Minn. R. Civ. P. 55.01(a). In other cases the plaintiff applies to the court, and notice of that application goes only to a defendant who “has appeared in the action.” Minn. R. Civ. P. 55.01(b). A business that never appeared gets no warning before the judgment is entered.

The time to answer depends on how the company was served. After service through the Secretary of State, the statute provides that “the business entity so served has 30 days from the date of mailing by the secretary of state in which to answer the complaint.” Minn. Stat. § 5.25, subd. 7. Check the current text of that subdivision before relying on the period, because that clock runs from the state’s mailing date, whether or not anyone at the company ever opened the envelope.

What can a creditor do with a default judgment before you find out?

A creditor holding a Minnesota money judgment may garnish the company’s bank accounts and receivables “at any time after entry of a money judgment in the civil action.” Minn. Stat. § 571.71. Once the judgment is docketed, it also becomes a lien on the company’s real property in that county.

The lien rule is broad: “From the time of docketing the judgment is a lien, in the amount unpaid, upon all real property in the county then or thereafter owned by the judgment debtor.” Minn. Stat. § 548.09, subd. 1. The statute adds that “it is not a lien upon registered land unless it is also recorded pursuant to sections 508.63 and 508A.63,” so Torrens property needs a separate recording. The lien reaches property the company buys later, and it surfaces when the company tries to sell or refinance. For the mechanics, see how a Minnesota judgment lien works.

Garnishment can come even earlier in a contract case. The same statute allows a garnishment summons “at any time 45 days or more after service of the summons and complaint upon the debtor in the civil action when a judgment by default could have, but has not, been entered pursuant to Rule 55.01(a),” after the notices that clause requires. Minn. Stat. § 571.71. So a frozen account does not always mean a judgment exists yet.

In my experience, the calls typically begin with the bank: the company’s account is frozen and the owner has never heard of the case. The statute lets a creditor issue a garnishment summons “against any third party,” so a second bank or a customer that owes the company money can be next. The same tools apply to collecting a Minnesota judgment against any business.

What should a business do first after discovering a default judgment?

Start by getting the court file and reading the affidavit of service, then file a motion under Rule 60.02 with a request for a stay. The motion alone does not stop collection, because “A Rule 60.02 motion does not affect the finality of a judgment or suspend its operation.” Minn. R. Civ. P. 60.02. A default judgment from conciliation court is reopened under Minn. Gen. R. Prac. 520(b) instead, where application for relief “must be made within a reasonable time after the applicant learns of the existence of the judgment,” and “the motion is filed with the court administrator of conciliation court.”

The first steps, in order:

1. Find the case. The garnishment summons or lien notice names the court and the file number. Minnesota district court files can be searched through Minnesota Court Records Online, and the court administrator can provide copies of documents not available there.
2. Read the affidavit of service. It states who was served, where, and how: an officer, a registered agent, or the Secretary of State. That one document usually decides whether the company argues that the judgment is void or asks the court to excuse the default.
3. Ask for a stay. The court “may stay the execution of or any proceedings to enforce a judgment pending the disposition of” a Rule 60 motion, “in its discretion and on such conditions for the security of the adverse party as are proper.” Minn. R. Civ. P. 62.01. Plan for the court to require a bond or other security as the price of a stay.
4. Prepare a proposed answer. A court asked to reopen a case wants to see the defense, not a promise of one.
5. Act with diligence. Diligence after learning of the judgment is one of the requirements for relief, discussed below.

When I take on one of these matters, I also send written notice to the bank and the sheriff that the company disputes the judgment and the levy. That notice does not replace the stay order under Rule 62.01. When the judgment came from district court, the motion itself must be filed through a licensed attorney, because a corporation cannot appear in district court through its owner (see the FAQ below).

When is a default judgment void because of bad service?

A default judgment is void, and must be set aside, when the company was never validly served. Rule 60.02 lists “(d) The judgment is void” as its own ground for relief, and the Minnesota Supreme Court has explained that “A judgment entered without due service of process is absolutely void, not merely irregular or erroneous.” Lange v. Johnson, 204 N.W.2d 205 (Minn. 1973).

A void judgment is not a matter of the judge’s discretion. In Lange, the court stated that “If a judgment is void, it must be set aside,” and that “There is no time limit set forth in Rule 60.02 for commencing proceedings to set aside a void judgment.” Lange cited the clause by its former number, 60.02(4); the current rule lists it as Minn. R. Civ. P. 60.02(d). Two later decisions bear on timing: the court held in Bode v. Minnesota Department of Natural Resources, 612 N.W.2d 862 (Minn. 2000) that “direct attacks on a judgment based on lack of subject matter jurisdiction must be brought within a reasonable time,” and in Peterson v. Eishen, 512 N.W.2d 338 (Minn. 1994), a default judgment held void for inadequate service of process, it said “we decline to rule on whether this case presents extraordinary circumstances justifying a departure from the general rule that void judgments can be vacated at any time.”

Lange also shows the limit of that argument. The plaintiffs had named the owner instead of his corporation, but they served the corporation’s president and sole shareholder, and the corporation answered. The court held that the corporation had actual notice, called the defects irregularities rather than a lack of jurisdiction, and reversed the order that had vacated the judgment. A void-judgment motion therefore works best when the affidavit of service shows a real gap: the papers went to someone with no authority to receive them, or the plaintiff used the Secretary of State without meeting the conditions that applied to the company, such as those in Minn. Stat. § 5.25, subd. 1, or for an LLC, Minn. Stat. § 322C.0116, subd. 2. For a private domestic corporation with “no officer at the registered office of the corporation within the state upon whom service can be made,” Minn. Stat. § 543.08 provides that “the return of the sheriff of the county in which that office is located, or the affidavit of a private person not a party, that none can be found in that county shall be conclusive evidence.” For a dissolved or revoked entity served through the state, the statute adds that “The court shall determine if service is proper.” Minn. Stat. § 5.25, subd. 5.

How do Minnesota courts decide whether to reopen a valid default judgment?

When service was valid and the judgment came from district court, the company asks the court to excuse the default for “(a) Mistake, inadvertence, surprise, or excusable neglect.” Minn. R. Civ. P. 60.02. The company must show four things set out in Finden v. Klaas, 128 N.W.2d 748 (Minn. 1964).

Under Finden, the moving party:

1. “is possessed of a reasonable defense on the merits”;
2. “has a reasonable excuse for his failure or neglect to answer”;
3. “has acted with due diligence after notice of the entry of judgment”; and
4. shows “that no substantial prejudice will result to the other party.”

Finden involved an individual whose own attorney never answered, and the court reversed the denial of relief, citing “a liberal policy conducive to the trial of causes on their merits.” The Minnesota Supreme Court restated the test in Gams v. Houghton, 884 N.W.2d 611 (Minn. 2016), a case about a plaintiff’s dismissed lawsuit rather than a default. It held that the district court must find all four requirements before granting relief under Rule 60.02(a). It also held that the court “does not have unfettered discretion to deny relief when the movant has met his burden of establishing all four Finden requirements.”

For a business that never saw the papers, the diligence requirement has a clear starting point: Finden measures it from notice of the entry of judgment, which is usually the day the bank freezes the account. The rule also sets an outer limit: “The motion shall be made within a reasonable time, and for reasons (a), (b), and (c) not more than one year after the judgment, order, or proceeding was entered or taken.” Minn. R. Civ. P. 60.02. Check the current text of the rule before relying on that period. For more on the motion itself, see vacating a default judgment in Minnesota.

What changes when the summons was published in a newspaper?

Service by publication is limited for a business, and a defendant served that way gets a separate right to defend. Minn. R. Civ. P. 4.043 provides that if “the defendant receives no actual notification of the action,” the defendant “shall be permitted to defend upon application to the court before judgment and for sufficient cause.”

Rule 4.04(a) allows publication only in listed cases. The ones a business is likely to meet are a case where the plaintiff has attached or garnished property in Minnesota and “(B) The defendant is a nonresident individual or a foreign corporation, partnership or association,” and a case where “the subject of the action is real or personal property within the state in or upon which the defendant has or claims a lien or interest,” along with mortgage and lien foreclosures. Minn. R. Civ. P. 4.04(a). An ordinary collection suit against a Minnesota company goes through personal service or the Secretary of State instead.

After judgment, the defendant “may be permitted to defend at any time within one year after judgment, on such terms as may be just,” and “If the defense is sustained, and any part of the judgment has been enforced, such restitution shall be made as the court may direct.” Minn. R. Civ. P. 4.043. Check the current text of the rule before relying on that period. The court may also have required the plaintiff to post a bond before the default, because after published or out-of-state service “default judgment must not be entered until the plaintiff, if required by the court, has filed a court-approved bond” for restitution. Minn. R. Civ. P. 55.01(d).

How can a business keep this from happening again?

The most effective protection is an accurate registered office on file with the Minnesota Secretary of State, because that is where the state sends papers served through its office. Minn. Stat. § 5.25, subd. 6, directs the papers to the registered office “as it appears in the records of the secretary of state.”

Three habits close most of the gaps:

1. Check the state’s record, not your memory. Look up the company on the Secretary of State’s business filing search and confirm the registered office and any registered agent. If the office moved, file the change. The rules on registered office and registered agent explain what the address must be.
2. Route agent mail to a person who acts on it. A commercial agent’s notice that lands in an unwatched inbox produces the same default as a stale address.
3. Register where you do business. Minnesota treats a foreign corporation that contracts with a Minnesota resident for performance here as doing business in the state for service purposes. Minn. Stat. § 5.25, subd. 4. Other states have their own registration and service rules, and a company selling into them should check each state’s law.

Dissolution by the state does not end the exposure: a dissolved company can still be sued and served, as the FAQ below explains.

A default judgment against your business can be reopened in the situations described above. Read the affidavit of service first: it tells you whether to argue the judgment is void or to ask the court to excuse the default, under the Finden requirements when the judgment came from district court, and either way the motion and a request for a stay should move quickly. For related collection issues, see my Minnesota business debt collection practice. If your company has just discovered a default judgment, email Aaron Hall at aaron@aaronhall.com with the court file number, the garnishment or lien notice, and a short description of what happened, and I will give you a practical read on your options.