A.I. Credit Corporation v. Shorter College

ca00-962

ARKANSAS COURT OF APPEALS

NOT DESIGNATED FOR PUBLICATION

JOHN B. ROBBINS, JUDGE

DIVISION II

A.I. CREDIT CORPORATION

APPELLANT

V.

SHORTER COLLEGE

APPELLEE

CA 00-962

APRIL 18, 2001

APPEAL FROM THE PULASKI

COUNTY CIRCUIT COURT, FIFTH DIVISION, [NO. CV98-11056]

HONORABLE MORRIS

THOMPSON, CIRCUIT JUDGE

REVERSED AND REMANDED

Appellant American International Credit Corporation appeals the order setting aside the summary judgment entered in its favor against appellee Shorter College. Because the trial court abused its discretion in setting the judgment aside, we reverse and remand so that the original judgment may be reinstated.

The contract that formed the basis of controversy between these parties was entered by them on May 9, 1997. Appellant, a premium-finance company, agreed to finance insurance premiums on a workers' compensation insurance policy purchased by appellee. Appellee failed to remit monthly installments as due, and appellant filed a complaint on December 22, 1998, seeking judgment for the balance of the debt. Appellee filed a timely answer to this complaint on January 9, 1999, generally denying appellant's allegations. A few

days later, on January 14, 1999, appellant submitted interrogatories and requests forproduction of documents. No discovery responses were filed by appellee. The next pleading of record was appellant's motion for summary judgment, filed on May 13, 1999, to which appellee did not respond. On June 9, 1999, the Pulaski County Circuit Court entered judgment as requested in the amount of $6,664.55, plus $606.91 in pre-judgment interest and $400 in attorney's fees.

A writ of garnishment was served on appellee's bank in August 1999. More than ninety days after the summary judgment was entered, on September 21, 1999, appellee filed a motion to set aside the judgment pursuant to Rule 60 of the Arkansas Rules of Civil Procedure.1 Appellee's motion alleged:

1. Defendant has now determined that there is a defense.

2. Shorter College, Inc [sic] is entitled to have the Judgment of this Court entered on June 7, 1999, set aside pursuant to Rule 60(b) and (d) because Shorter is an improper party with a meritorious defense, as well under Rule 55(c)(4) of the Arkansas Rules of Civil Procedure.

On this same date, appellee moved for a protective order so that it would not have to respond to discovery until after resolution of this motion. Appellant resisted the motion to set aside by filing a response stating that any relief under Rule 60(b) would be precluded because the request was made outside the limitations period, stating incorrectly that the time limit was sixty days instead of ninety. One day prior to the hearing on this motion, which wasconducted on March 31, 2000, appellee filed a document entitled "Hearing Brief" in which the attorney alleged some factual basis underlying the appellee's failure to discover that it had a defense to appellant's complaint prior to the entry of judgment.

At the hearing, appellant argued that pursuant to Rule 60(b), the trial court was without jurisdiction to set aside its order after the expiration of ninety days from the filing of the judgment and that the limited bases for setting aside a judgment after ninety days, as listed in Rule 60(c), were not applicable. Furthermore, appellant asserted that appellee made a conclusory allegation in its motion rather than alleging facts that would show a meritorious defense to the cause of action as contemplated by Rule 60(d). Appellee's counsel explained that Shorter College was in a state of turmoil with the changing of presidents and that it was unaware that the debt was unenforceable for want of consideration until after the judgment was rendered. Counsel attributed the late discovery of this defense to the college's office files being in disarray during the transition. At the hearing, only arguments of counsel were received; no testimony or any other form of evidence was introduced by appellee.

At the conclusion of the hearing, the circuit judge announced that he would set the judgment aside. Thereafter, an order vacating the judgment and quashing the garnishment was entered, which cited Rule 60(c) and (d) for authority. Specifically, the order stated that the debt sued upon was unenforceable for lack of consideration in that appellant sued to collect the cost of an entire year's premium for a workers' compensation insurance policy, but the insurance was canceled after two months of coverage. The order indicated that the case would be reset in order to determine the amount of damages, in light of appellee'scounsel's admission that it did owe for at least two months of the premium. Appellant timely filed a notice of appeal from that order. We reverse and remand.

We first note that the order under appeal does not purport to be a final order, but rather sets aside a previous judgment and directs the case to be scheduled for trial. Inasmuch as an order must be final for us to have jurisdiction, we should consider this issue even though the parties do not raise it. French v. Brooks Ctr., Inc., 57 Ark. App. 30, 940 S.W.2d 507 (1997). An exception to the general rule occurs when a trial court enters an order vacating or modifying a judgment that was granted more than ninety days earlier. In that situation, the order vacating or modifying such judgment may be appealed. Hill-Rom Co., Inc. v. Swink, 65 Ark. App. 71, 984 S.W.2d 834 (1999); see also Lamb v. JFM, Inc., 311 Ark. 89, 842 S.W.2d 10 (1992). Because this is an appealable order and is properly before us, we address the merits of appellant's appeal.

Arkansas Rule of Civil Procedure 60 provides the means by which a party may seek relief from a judgment, decree, or order. When appellee's motion was filed, Rule 60 read, in pertinent part:

(a) Clerical Mistakes. Clerical mistakes in judgments, orders or other parts of the record and errors therein arising from oversight or omission may be corrected by the court at any time on its own motion or on the motion of any party and after such notice, if any, as the court orders. During the pendency of an appeal, such mistakes may be so corrected before the appeal is docketed in the appellate court and thereafter while the appeal is pending may be so corrected with leave of the appellate court.

(b) Ninety-Day Limitation. To correct any error or mistake or to prevent the miscarriage of justice, a decree or order of a circuit, chancery or probate court maybe modified or set aside on motion of the court or any party, with or without notice to any party, within ninety days of its having been filed with the clerk.

(c) Grounds for Setting Aside Judgment, Other Than Default Judgment, After Ninety Days. The court in which a judgment, other than a default judgment [which may be set aside in accordance with Rule 55(c)] has been rendered or order made shall have the power, after the expiration of ninety (90) days after the filing of said judgment with the clerk of the court, to vacate or modify such judgment or order:

(1) By granting a new trial where the grounds therefor were discovered after the expiration of ninety (90) days after the filing of the judgment, or, where the ground is newly discovered evidence which the moving party could not have discovered in time to file a motion under Rule 59(c), upon a motion for new trial filed with the clerk of the court not later than one year after discovery of the grounds or one year after the judgment was filed with the clerk of the court, whichever is the earlier; provided, notice of said motion has been served within the time limitations for filing the motion.

(2) By a new trial granted in proceedings against defendants constructively summoned, and who did not appear, upon a motion filed within two years after the filing of the judgment with the clerk of the court, or within one year after a certified copy of the judgment has been served upon the defendant, whichever shall be the earlier, upon security for costs being given; provided notice of the filing of said motion has been served upon the adverse party within the time limitations for filing the motion.

(3) For misprisions of the clerk.

(4) For fraud practiced by the successful party in obtaining the judgment.

(5) For erroneous proceedings against an infant or person of unsound mind where the condition of such defendant does not appear in the record, nor the error in the proceedings.

(6) For the death of one of the parties before the judgment in the action.

(7) For errors in a judgment shown by an infant within twelve (12) months after reaching the age of eighteen (18) years, upon a showing of cause.

(d) Valid Defense to Be Shown. No judgment against a defendant, unless it was rendered before the action stood for trial, shall be set aside under this rule unlessthe defendant in his motion asserts a valid defense to the action and, upon hearing, makes a prima facie showing of such defense.

Appellee's motion failed to cite to Rule 60(c), though appellee's counsel argued to the trial judge that this subsection of the Rule applied. Appellant argued, and appellee's counsel agreed, that the ninety-day limitation period barred any relief under Rule 60(b). The parties proceeded to argue the merits of whether appellee's situation fell within Rule 60(c), and the trial court's order reflected that the circuit judge rendered his ruling on the basis of Rule 60(c) and (d). The issue was tried by the express consent of the parties. Ark. R. Civ. P. 15(b). Thus, the application of Rule 60(c) is treated as if it had been raised in the pleadings. See id.

Appellant argues that appellee could only gain relief, if any were possible, through Rule 60(c)(1), and both parties appear to agree with this. Appellant then asserts that appellee failed to provide any reason why its situation fell within that subsection. We agree. At the outset, appellee failed to plead or argue to the trial court that it had newly discovered evidence that could not have been discovered in time to move for a new trial pursuant to Rule 59. That the College was poorly run or that its office files were in disarray is not newly discovered evidence that could not have been timely discovered because the College, according to its counsel, made the economic and strategic decision to not respond to the motion for summary judgment subsequent to filing an answer to the complaint. It could have discovered from appellant or the workers' compensation insurance company the documents necessary to defend itself. In short, appellee failed as a matter of law to presentany basis under 60(c)(1) for the trial court to invoke any relief after the expiration of ninety days from the entry of summary judgment.

Furthermore, according to Rule 60, whether relief is sought before or after the expiration of ninety days, the petitioner must demonstrate the existence of a meritorious defense pursuant to Rule 60(d). We hold that appellee failed to assert a meritorious defense to the trial court in its motion to set aside this judgment and failed to present a prima facie showing of such a defense at the hearing.

The motion to set aside a previous judgment must assert that the defendant possesses a valid or meritorious defense. Hendrix v. Hendrix, 26 Ark. App. 283, 764 S.W.2d 472 (1989); Farmers Union Mutual Ins. Co. v. Mockbee, 21 Ark. App. 252, 731 S.W.2d 239 (1987); Bunker v. Bunker, 17 Ark. App. 7, 701 S.W.2d 198 (1986); Taggart v. Moore, 8 Ark. App. 160, 650 S.W.2d 590 (1983). A meritorious defense has been defined as:

[E]vidence, not allegations, sufficient to justify the refusal to grant a directed verdict against the party required to show the meritorious defense. In other words, it is not necessary to prove a defense, but merely present sufficient defense evidence to justify a determination of the issue by a trier of fact.

Tucker v. Johnson, 275 Ark. 61, 66, 628 S.W.2d 281, 283-284 (1982); see also Farmers Union Mutual Ins. Co. v. Mockbee, supra. When one argues that he has a meritorious defense but does not present evidence of such a defense, he is not entitled to have the judgment set aside. Goston v. Craig, 34 Ark. App. 23, 805 S.W.2d 92 (1991).

In the present case, the motion before the trial court only stated that it had discovered a "meritorious defense." The motion did not identify this defense, as appellant points out. Moreover, appellee's "Hearing Brief" made general allegations of the basis of the defense without documentary evidence or affidavits to support those allegations. Then, at the hearing on this motion, only argument of counsel was submitted; appellee did not present any testimony, exhibits, affidavits, or other evidence to support the argument of counsel that appellee possessed a valid defense, that being a lack of consideration.

In Meisch v. Brady, 270 Ark. 652, 606 S.W.2d 112 (Ark. App. 1980), our court determined that the appellee's attempt to have a default judgment set aside pursuant to Rule 60 was deficient in that the petition failed to assert a valid defense when he simply stated that he had "an undoubted defense to said indebtedness and further has a counterclaim against the plaintiff for a substantial amount of money in excess of that money allegedly claimed due by the plaintiff and further, he did not, in fact, owe this plaintiff." In that case, Mr. Brady testified at the hearing and stated that he owed part of the money alleged, but not as much as was claimed, though he was not aware of how much. This was insufficient to assert a valid defense. Appellee's motion in the case at bar was less compliant with the Rules because appellee failed to state what the defense was, and further, there was no evidence presented to demonstrate the existence of a meritorious defense, but only argument of counsel, which clearly is not evidence. See Flentje v. First Nat'l Bank of Wynne, 340 Ark. 563, 574, 11 S.W.3d 531, 539 (2000).

We held similarly in Hendrix v. Hendrix, 26 Ark. App. 283, 764 S.W.2d 472 (1989). In that appeal, appellee's motion merely contained the factual data surrounding the two complaints and responses, and the bare allegation that "this has given rise and causing anunavoidable casualty on behalf of the defendant." Nowhere in appellee's motion did he assert a valid or meritorious defense, nor did he make any showing of such a defense at the hearing. Appellee Hendrix did not testify at the hearing on his motion. In fact, the testimony at the hearing consisted solely of that presented by appellant's attorney who took the stand to explain to the court the events that lead to the default judgment entered against appellee. During cross-examination, appellee's attorney disputed appellant's attorney's version of the events; however, at no time was a defense to appellant's action for recovery of money shown. Because Hendrix did not raise a valid defense to the judgment in his motion pursuant to Rule 60(d), we held that the trial court abused its discretion in setting aside the judgment. We reach the same conclusion today.

In order to reverse the circuit judge's decision, we must find that he abused his discretion. Puterbaugh v. Trussell, 276 Ark. 525, 637 S.W.2d 559 (1982); Meisch v. Brady, supra. After careful review, we hold that the circuit judge abused his discretion in setting aside the summary judgment rendered in appellant's favor.

Reversed and remanded with directions to the trial court to reinstate the summary judgment and proceed consistent with our opinion.

Vaught and Crabtree, JJ., agree.

1 Rule 60 was amended subsequent to the filing of appellee's motion to set aside the judgment, but the substance of those changes has no bearing on the outcome of this appeal. References in this opinion to Rule 60 are to such subsections prior to the January 27, 2000, amendment.