Business Management Solutions v. Steve Manry d/b/a Graphic Signs

ca00-419

ARKANSAS COURT OF APPEALS

NOT DESIGNATED FOR PUBLICATION

JOHN B. ROBBINS, CHIEF JUDGE

DIVISION I

BUSINESS MANAGEMENT

SOLUTIONS

APPELLANT

V.

STEVE MANRY d/b/a GRAPHIC

SIGNS

APPELLEE

CA 00-419

DECEMBER 6, 2000

APPEAL FROM THE LONOKE

COUNTY CIRCUIT COURT

[NO. CIV96-506]

HONORABLE LANCE LAMAR

HANSHAW, CIRCUIT JUDGE

AFFIRMED

The Lonoke County Circuit Court entered a default judgment against appellant Business Management Solutions (BMS), and BMS filed a motion to set aside the default judgment. That motion was denied, and BMS now appeals, arguing that the trial court erred in failing to grant its motion. We find no error and affirm.

In 1993, BMS entered into a lease agreement with appellee Graphic Signs, whereby BMS agreed to lease business computers and other office equipment to Graphic Signs. BMS later assigned its interest under the lease agreement to Bell Atlantic Tricon Leasing Corporation, and following a series of such assignments, Finova Capital Corporation became the penultimate successor in interest to BMS as lessor pursuant to the agreement.

On November 20, 1996, Finova Capital Corporation filed suit in Lonoke County Circuit Court against Graphic Signs to recover nonpayment of rent for the equipment, alleging that no payment had been received since March 1996. On December 18, 1996, Graphic Signs filed its answer, denying any indebtedness and seeking dismissal of the action. Nine days later, Finova Capital Corporation filed a motion for substitution of parties, reciting that it had transferred its assets to Green Tree Vendor Services Corporation (GTVSC), and the trial court granted this motion on January 3, 1997.

On March 24, 1997, Graphic Signs filed a third-party complaint against BMS, seeking to recover $16,000.00 based on its allegation that the office equipment at issue was delivered by BMS in a defective condition. BMS was served with the third-party complaint on March 31, 1997, but failed to file a timely answer. As a result, Graphic signs moved for a default judgment against BMS on June 25, 1997, and the trial court entered a default judgment on the same day.

On July 23, 1997, BMS filed an answer with attached exhibits and a motion to set aside the default judgment. In support of its motion, BMS made the following assertions:

4. That due to misrepresentations of the Third Party Plaintiff's attorney, Mr. Clinton D. McGue, to the Third Party Defendant's attorney, Mr. Bryan Blackburn, the Third Party Defendant did not file an Answer to the Third Party Complaint until July 23, 1997. That the Default Judgment should be set aside due to these misrepresentations. (See Affidavit attached as Exhibit "D")

5. That the Third Party Defendant does have a meritorious defense to the Third Party Complaint. That the Third Party Plaintiff purchased the equipment in question in May of 1993 and the equipment was in normal working condition when it was delivered to the Third Party Plaintiff. Further, the Third Party Plaintiff never informed the Third Party Defendant that theequipment did not work, with the exception of minor problems which the Third Party Plaintiff caused itself, until at least three years later. Further, that the Third Party Plaintiff made payments on the equipment from June of 1993 until March of 1996. (See Exhibit "B" attached which is also attached to the Answer)

Also, that the Third Party Plaintiff signed an acceptance of leased equipment stating that after full inspection the leased equipment was satisfactory for all purposes of the lease. (See Exhibit "C" attached which is also attached to the Answer)

6. That according to the Agreement signed by both parties the venue for any litigation was to be in Duval County, Florida. Both parties also agreed that Florida law would govern the Agreement. (See Exhibit "A" which is also attached to the Answer)

The attached affidavit, sworn by counsel for BMS, recited:

1. My name is Bryan E. Blackburn and I am an attorney licensed to practice law in the State of Florida. I was admitted in 1984 and my Bar Number is 437506. My practice is in Jacksonville, Duval County, Florida.

2. In connection with my practice, I represent Business Management Solutions, Inc., which contacted me on or about April 3, 1997 regarding defense of a Third Party Complaint in the styled cause.

3. Thereafter I had an office conference with Mr. Rich Flemmer, President of Business Management Solutions, during which we discussed the nature of the complaint and various options for its resolution.

4. Thereafter and on or about April 4, 1997, I spoke with Mr. Clinton D. McGue about the styled cause in general and the possibility of settlement in lieu of my client obtaining an attorney in Arkansas to defend it. Based upon that conversation I understood the following:

a. That Mr. McGue intended to explore settlement options with Green Tree Vendor Services Corporation (Plaintiff) to determine whether settlement options might be available at all;

b. That I would be contacted by Mr. McGue regarding potential settlement options;

c. That Mr. McGue recognized my client's jurisdictional objections; and

d. That I would be contacted prior to further proceedings on the Third Party Complaint to enable my client to retain counsel in Arkansas and submit its defenses to the action which are, in my opinion, meritorious.

5. Immediately following such conversation, I contacted my client and further instructed my legal assistant to make a list of potential counsel that I had marked from Martindale-Hubbell. This list was to be placed in the file.

6. Following the aforesaid phone conversation through and including my client's receiving the Default Final Judgment in the styled cause, I did not receive notice from Mr. McGue of his intent to proceed with default or otherwise. Moreover, I was not provided with a copy of the Judgment from Mr. McGue but, rather, my client received a demand letter from Mr. McGue directly.

7. To the best of my knowledge and belief, my client:

a. At all times was ready, willing and able to present meritorious defenses to this action;

b. At all times had sufficient resources to retain counsel to defend itself;

c. At all times recognized the responsibilities it had to the Court; and

d. At all times was willing to entertain settlement options and was, at my instruction, waiting to hear from Mr. McGue prior to taking any further action on the matter.

8. Based on the foregoing conversation with Mr. McGue, it was my understanding that I would be treated forthright in connection with this litigation and that my client would be given an opportunity to defend in the event settlement discussions failed.

On August 21, 1997, the trial court entered summary judgment against Graphic Signs and in favor of GTVSC for $17,331.32. This judgment was eventually satisfied by virtue of a compromise settlement between GTVSC and Graphic.

On December 10, 1999, the trial court held a hearing on BMS's motion to set aside the default judgment. At the hearing, Mr. Blackburn testified about his April 4, 1997, telephone conversation with Graphic Sign's counsel. Mr. Blackburn stated that he and Mr. McGue were trying to settle the case and that he did not retain an Arkansas lawyer for BMS "because what I recall from my conversation with Mr. McGue was that he was going to get back with [GTVSC] and determine would they be willing to settle their suit forsomething less than they were apparently demanding." According to Mr. Blackburn, he understood from the conversation that Mr. McGue would call him back with further negotiations or call him back to inform him that Graphic Signs would not settle and to "go ahead and get a lawyer." However, Mr. McGue failed to contact him after that time. Mr. Blackburn testified, "I didn't get that call back from Mr. McGue, and I guess it slipped my calendar."

Mr. McGue acknowledged in his testimony that he recalled having a telephone conversation with Mr. Blackburn in April 1997, and that he recalled Mr. Blackburn offering $2,000.00 to settle the case. As to how the conversation ended, Mr. McGue stated, "I have no idea. There were no ... it was just ... I guess, `We'll talk later,' type of thing. I don't recall how it was left."

At the conclusion of the hearing, the trial court announced that the evidence presented by BMS did not constitute a showing of excusable neglect for BMS's failure to timely answer Graphic Signs' third-party complaint. On December 27, 1999, the trial court entered its order denying BMS's motion to set aside the default judgment.

BMS now argues on appeal that the trial court committed reversible error in denying its motion to set aside the default judgment. Rule 55(c) of the Arkansas Rules of Civil Procedure provides:

Setting Aside Default Judgments. The court may, upon motion, set aside a default judgment previously entered for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) the judgment is void; (3) fraud, misrepresentation, or other misconduct of an adverse party; or (4) any other reason justifying relief from the operation of the judgment. The partyseeking to have the judgment set aside must demonstrate a meritorious defense to the action; however, if the judgment is void, no other defense to the action need be shown.

BMS asserts that it established excusable neglect for failing to file a timely answer to Graphic Signs' complaint, and further asserts that it demonstrated a meritorious defense to the action.

For its argument that its failure to file an answer was excusable, BMS cites cases where a default judgment was held to be improper due to a misunderstanding between counsel. In Foote v. Jitney Jungle, 283 Ark. 103, 671 S.W.2d 186 (1984), counsel for the appellee represented to appellant's counsel that there might be some difficulty in filing an answer by the due date, and appellant's attorney responded, "Don't worry. File it whenever you obtain the information." Nonetheless, appellant's attorney obtained a default judgment two days after the due date, and the trial court later set it aside. In affirming, the supreme court stated, "At the very least there was a misunderstanding about whether the appellee's time for answering had been extended by agreement." 283 Ark. at 104, 671 S.W.2d at 187. In Martin v. Martin, 241 Ark. 9, 405 S.W.2d 934 (1966), neither appellant nor her attorney appeared at a hearing, and a default judgment was entered. The trial court refused to set the default judgment aside, but the supreme court reversed because there was a misunderstanding between counsel as to the date of the hearing. The supreme court held, "Where an attorney's failure to resist an application for a default judgment is attributable not to any fault on his part but to a misunderstanding between counsel, there is such an unavoidable casualty that the judgment should be vacated[.]" 241 Ark. at 10, 405 S.W.2dat 934-35 (citing Kochtitsky & Johnson v. Malvern Gravel Co., 192 Ark. 523, 92 S.W.2d 385 (1936)).

Applying the above cases to the facts of the instant case, BMS submits that it clearly established that its failure to timely answer the third-party complaint was due to a misunderstanding between counsel as to whether Graphic Signs would proceed to prosecute the case without first notifying BMS. BMS asserts that the uncontradicted testimony of Mr. Blackburn was that, during his telephone conversation with opposing counsel, Mr. McGue assured him that he would not prosecute the action on behalf of Graphic Signs without first inquiring into settlement possibilities and thereafter contacting Mr. Blackburn as to whether settlement was a possibility or whether Graphic Signs intended to go forward with the action.

BMS further contends that it demonstrated a meritorious defense to Graphic Signs' third-party complaint. In its motion to set aside default judgment and contemporaneous answer, BMS averred that the office equipment had been delivered in perfect working order, and it attached documentation showing that Graphic Signs found the equipment to be satisfactory after inspecting it. Furthermore, BMS attached a document showing that timely rental payments had been from 1993 through 1996, and it asserted that these payments were made without any complaints that the equipment was defective. BMS asserts that it clearly established a meritorious defense and that as such the case should be remanded for a trial on the merits. Alternatively, BMS argues that, since the trial court did not address whether or not it established a meritorious defense in light of its decision that there was no excusableneglect, this case should be remanded for the trial court to reconsider whether or not to set aside the default judgment based solely on the issue of whether a meritorious defense was demonstrated.

It is within the sound discretion of the trial court to grant or deny a motion to set aside a default judgment, and the question on appeal is whether there has been an abuse of discretion. Cammack v. Chalmers, 284 Ark. 161, 680 S.W.2d 689 (1984). We hold that the trial court did not abuse its discretion in refusing to set aside the default judgment.

Although BMS asserts that Mr. McGue agreed that he would not prosecute the action without first contacting Mr. Blackburn, this assertion is not supported by the evidence. Mr. McGue recalled the April 1997 telephone conversation, but did not concede that there was an agreement to delay the action pending further contact with Mr. Blackburn. Mr. Blackburn testified that it was his understanding that a return call would be made, but even he could not state that an agreement had been made between counsel to the effect that he would be relieved of his responsibility to file a timely answer. Unlike the cases cited by appellant, there was a lack of evidence that, in this case, the default judgment was brought about by opposing counsel's inducement or a misunderstanding between counsel. The trial court did not abuse its discretion in finding that BMS failed to establish excusable neglect for failing to file a timely answer.

As a result of our disposition of the first contention raised by BMS, we need not consider whether or not it demonstrated a meritorious defense to the third-party action.

Affirmed.

Hart and Neal, JJ., agree.