Terry Bissell, Individually, and Bissell's Thriftway & Bissell's Grocery v. Eddie McGrew

ARKANSAS COURT OF APPEALS
NOT DESIGNATED FOR PUBLICATION

DIVISION II

CA05-192

September 28, 2005

TERRY BISSELL, Individually, and AN APPEAL FROM HOWARD

BISSELL'S THRIFTWAY & COUNTY CIRCUIT COURT

BISSELL'S GROCERY [CV04-95-1]

APPELLANTS

V. HON. TED CAPEHEART, JUDGE

EDDIE MCGREW AFFIRMED IN PART; REVERSED

APPELLEE AND REMANDED IN PART

Wendell L. Griffen, Judge

Appellants Terry Bissell, Bissell's Thriftway, and Bissell's Grocery appeal from the entry of a default judgment in favor of appellee Eddie McGrew. They argue that the circuit court erred in denying their motion to set aside the default judgment for failure to comply with Ark. R. Civ. P. 55(b) (2005), for lack of due process, and for misconduct by appellee's counsel. They further argue that they were entitled to a hearing on damages. We hold that appellee was entitled to default; however, we also hold that appellants were entitled to a hearing on damages. Accordingly, we affirm in part and reverse and remand in part.

Appellee filed a complaint in Howard County Circuit Court on October 25, 2004, alleging that appellant Bissell executed a promissory note for $6800 and that he agreed to pay $400 for seventeen weeks on the note.1 No interest was to accrue on the principal. The complaint prayed for $3200, the alleged remaining balance on the note. Appellants' answer was due December 6, 2004. According to appellants' attorney, the answer was prepared after business hours on December 1, 2004. The answer denied liability and pled the affirmative defenses of waiver, payment, estoppel, accord and satisfaction, and set-off. Appellants' attorney signed and dated the certificate of service for December 2, 2004, and left instructions with a staff member to file the answer the next day. On December 9, 2004, she discovered that the staff member failed to file the answer. That same day, appellants' attorney filed the answer along with a motion for enlargement of time to file the answer. Appellants' attorney stated that she left a telephone message with appellee's attorney, notifying her of the untimely filed answer and the motion for enlargement of time. However, appellee's attorney had sent a letter to the court requesting default judgment on December 8, 2004.2 Appellee's attorney stated that she was away from her office on December 9, 2004, and did not receive the telephone message until after the default judgment had been filed. The circuit court entered a default judgment in favor of appellee on December 13, 2004, and awarded $3200 in damages and $428.38 in attorney fees and costs. No hearing was held on the application for default judgment. Appellants filed a motion to set aside the default judgment on December 28, 2004; however, that motion was denied. This appeal followed.

When a party against whom judgment is sought fails to file a pleading or otherwise defend a suit, a default judgment may be entered against him. Miller v. Transamerica Commercial Fin. Corp., 74 Ark. App. 237, 47 S.W.3d 288 (2001) (citing Ark. R. Civ. P. 55(a)). Default judgments are not favorites of the law and should be avoided when possible. Id. Rule 55(c) of the Arkansas Rules of Civil Procedure allows a court to 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. See also Nucor Corp. v. Kilman, ___ Ark. ___, ___ S.W.3d ___ (June 17, 2004). Unless the default judgment is void, a party seeking to set aside a default judgment must also demonstrate a meritorious defense to the action. Tharp v. Smith, 326 Ark. 260, 930 S.W.2d 350 (1996). Our standard of review depends on the grounds upon which the appellant is claiming the default judgment should be set aside. In cases where the appellant claims that the default judgment is void, the matter is a question of law, which we review de novo and give no deference to the circuit court's ruling. Nucor Corp. v. Kilman, supra. In all other cases where we review the motion to set aside a default judgment, we do not reverse absent an abuse of discretion. Id.

Appellants argue that the circuit court erred in denying their motion to set aside the default judgment because the judgment was void. They contend that, because they did not receive notice of the default judgment, entry of the default violated Ark. R. Civ. P. 55(b). Rule 55(b) states in part, "If the party against whom judgment by default is sought has appeared in the action, he (or if appearing by representative, his representative) shall be served with written notice of the application for judgment at least 3 days prior to the hearing on such application." This rule does not require that notice be given to a party who has failed to appear. Tharp v. Smith, supra. The failure to comply with the three-day notice requirement renders a default judgment merely voidable, rather than completely void. Bunker v. Bunker, 17 Ark. App. 7, 701 S.W.2d 709 (1986). Accordingly, the party seeking to set aside the default judgment must still present a meritorious defense to the action. Id.

Without deciding whether appellants "appeared" despite an untimely filed answer filed after appellee's request for a default judgment, we affirm on this point because appellants failed to present a meritorious defense to the action. A meritorious defense isevidence, not allegations, sufficient to justify the refusal to grant a directed verdict against the party required to show a meritorious defense. Goston v. Craig, 34 Ark. App. 23, 805 S.W.2d 92 (1991). The motion to set aside the default judgment must assert the defense. Id. Appellants' motion to set aside the default judgment merely states, "Meritorious affirmative defenses have been properly alleged to the lawsuit." No evidence of these affirmative defenses had been presented. Without evidence of a meritorious defense, the circuit court's decision to deny appellants' motion to set aside the default judgment because of failure of notice was proper. Appellants also contend that the circuit court should have ruled on the motion for enlargement of time and that appellee should have been required to file a motion to strike the answer and that the circuit court should have set aside the default judgment due to misconduct of appellee's attorney. However, appellants cite no law, nor are we aware of any, requiring the court to rule on their motion or appellee to move to strike the answer, even with full knowledge of the events surrounding the failure to timely file an answer. This failure to develop the point legally or factually is reason enough to affirm on this point. Johnson v. Encompass Ins. Co., 355 Ark. 1, 130 S.W.3d 553 (2003). Even if we were to agree that either of the aforementioned points had merit, we would still be compelled to affirm because appellants have failed to present a meritorious defense to the action. We affirm the denial of the motion to set aside the default judgment to the extent that it imposed liability on appellants.

However, we agree with appellants that the circuit court erred when it awarded damages to appellee. It is well-settled Arkansas law that a default judgment establishes liability only. Tharp v. Smith, supra. Proof of damages must still be presented to the court. Id.; see also Ark. R. Civ. P. 8(d) (2005) ("Averments in a pleading to which a responsive pleading is required, other than those as to the amount of damage, are admitted when not denied, either generally or specifically, in the responsive pleading.") (emphasis added). The only exception to the proof requirement is in a suit on an account where a verified statement of the account is filed with the complaint. Tharp v. Smith, supra. In the instant case, the circuit court erroneously resolved the issue of damages without receiving evidence regarding the extent of damages. True, appellee's complaint alleged that appellants owed a specific amount; however, an unanswered and unverified complaint is insufficient to establish damages.

Accordingly, the order denying appellants' motion to set aside the default judgment is affirmed as to liability only. We reverse the circuit court and set aside the default judgment to the extent that it awarded damages to appellee and remand for further proceedings.

Affirmed in part; reversed and remanded in part.

Robbins and Crabtree, JJ., agree.

1 Bissell signed the promissory note on behalf of himself personally and on behalf of Bissell's Grocery.

2 At the hearing on the motion to set aside the default judgment, appellee's attorney stated that she sent the circuit court a letter requesting entry of default judgment on December 8, 2004. This letter is not in the record; however, appellants provide no indication that said letter was not sent.