Southern Transit Company, Inc. v. Eugene Collums

SOUTHERN TRANSIT COMPANY v. Eugene COLLUMS

97-967                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
                  Opinion delivered May 7, 1998


1.   Civil procedure -- default judgment -- revision of Ark. R. Civ. P. 55 made grant
     discretionary. -- In 1990, the supreme court substantially revised
     Ark. R. Civ. P. 55 so that more cases would be decided on the
     merits instead of upon the technicalities that often lead to
     default judgment; one of the changes was to make the grant of
     default judgment under Rule 55(a) discretionary rather than
     mandatory.

2.   Civil procedure -- default judgment -- factors to be considered in deciding whether
     to enter. -- In deciding whether to enter a default judgment, the
     court should take into account the following factors: whether
     the default is largely technical and the defendant is now
     ready to defend; whether the plaintiff has been prejudiced by
     the defendant's delay in responding; and whether the court
     would later set aside the default judgment under Ark. R. Civ.
     P. 55(c).

3.   Civil procedure -- default judgment -- setting aside -- requirements. -- Under Ark.
     R. Civ. P. 55(c), a default judgment may be set aside for the
     following reasons: mistake, inadvertence, surprise, or
     excusable neglect; the judgment is void; fraud,
     misrepresentation, or other misconduct of an adverse party; or
     any other reason justifying relief from the operation of the
     judgment. 

4.   Civil procedure -- default judgment -- setting aside -- meritorious defense must be
     shown. -- In addition to establishing one of the grounds for
     setting aside a default judgment, the defendant must also
     demonstrate a meritorious defense to the action, unless the
     ground asserted is that the judgment is void.

5.   Civil procedure -- default judgment -- void if defendant improperly served. -- A
     default judgment is void under Ark. R. Civ. P. 55(c)(2) if the
     defendant was improperly served under Ark. R. Civ. P. 4. 

6.   Process -- summons -- compliance with technical requirements must be exact. -- The
     technical requirements of a summons, and compliance with those
     requirements, must be exact.

7.   Statutes -- statutory requirements -- compliance must be exact. -- Statutory
     requirements, being in derogation of common-law rights, must
     be strictly construed; compliance with them must be exact.

8.   Civil procedure -- default judgment -- trial court could have rendered void on basis
     of defective summons. -- Where the summons correctly listed the names
     of both defendants but incorrectly directed the summons to
     employee defendant instead of appellant corporate defendant
     and thus did not strictly comply with the technical
     requirements of Ark. R. Civ. P. 4, the trial court could have
     ruled that the default judgment was void ab initio regardless
     of the fact that appellant corporate defendant had actual
     knowledge of the complaint against it.       

9.   Process -- insufficiency of -- when defense is waived. -- Pursuant to Ark. R.
     Civ. P. 12(h)(1), a party waives the defense of insufficiency
     of process under Ark. R. Civ. P. 12(b)(4) if he or she fails
     to raise the argument in either the answer or a motion filed
     simultaneously with or before the answer.

10.  Process -- insufficiency of -- appellant's defense waived. -- Where appellant
     did not raise its valid defense of insufficiency of process in
     its answer or by motion filed prior to or simultaneously with
     its answer, the supreme court held that the defense was
     waived.  

11.  Pleading -- denial of allegation not equivalent to stating facts sufficient to support
     defense. -- The mere denial of a factual allegation is not
     equivalent to stating facts sufficient to support a legal
     defense.  

12.  Civil procedure -- lack of personal jurisdiction separate defense from insufficiency
     of process. -- Lack of jurisdiction over the person under Ark. R.
     Civ. P. 12(b)(2) is a separate and distinct defense from
     insufficiency of process under Ark. R. Civ. P. 12(b)(4).

13.  Process -- insufficiency of -- appellant's denial that court had personal jurisdiction
     did not sufficiently raise defense. -- Appellant's mere denial of the
     factual allegation that the court had jurisdiction over the
     parties did not sufficiently raise the legal defense of
     insufficiency of process.

14.  Civil procedure -- default judgment -- trial court did not abuse discretion in granting
     as to appellant's liability. -- Where appellant waived its valid
     defense of insufficiency of process by failing to raise that
     defense in its first responsive pleading, the supreme court
     held that the trial court did not abuse its discretion when it
     granted default judgment with respect to appellant's
     liability.  


     Appeal from Hempstead Circuit Court; Jim Gunter, Judge;
affirmed.
     McKenzie, McRae, Vasser & Barber, by: James H. McKenzie, for
appellant.
     Gary Eubanks & Associates, by: Robert S. Tschiemer and William
Gary Holt, for appellee.

     Annabelle Clinton Imber, Justice.
     The appellant, Southern Transit Co. Inc., challenges a default
judgment that was entered in favor of the appellee, Eugene Collums,
on the issue of liability.  We affirm. 
     The appellant, Eugene Collums, collided with a truck owned by
the appellee, Southern Transit Company, and operated by its
employee, Bruce Peek.  On February 26, 1997, Collums filed a
negligence action against Southern Transit and Bruce Peek for the
injuries he sustained during the accident.  Collums then sent by
certified mail a copy of the complaint, the summons, and several
discovery requests to Southern Transit's agent for service.  The
summons correctly listed Southern Transit and Bruce Peek as the
defendants, but it was improperly directed to Defendant Bruce Peek
instead of Southern Transit.  On March 7, 1997, Southern Transit's
agent for service received the certified mail and signed the return
receipt.
     On April 2, 1997, Collums gave Southern Transit a thirty-day
extension to file an answer to the complaint.  When Southern
Transit failed to file its answer within the extended time period,
Collums filed a motion for default judgment on May 21, 1997.  On
June 19, 1997, which was 104 days after the date of service and 43
days after the expiration of the thirty-day extension, Southern
Transit filed its answer to Collums's complaint.  On June 23, 1997,
Southern Transit also filed a response to Collums's request for
default judgment.  In its response, Southern Transit argued for the
first time that default judgment should not be granted to Collums
because the summons was improperly directed to Bruce Peek, instead
of Southern Transit. 
     On July 8, 1997, the trial court struck Southern Transit's
answer as untimely, ordered a default judgment against Southern
Transit as to liability, and granted a jury trial on the issue of
damages.  The default judgment was entered as to Southern Transit
only and did not apply to Defendant Bruce Peek.  Southern Transit
subsequently filed a motion to set aside the default judgment,
which was denied by the trial court on July 30, 1997.  Southern
Transit appeals.  Although the issue of damages remains to be
resolved by a jury and the default judgment was entered only as to
Southern Transit, we have jurisdiction over this case because it is
an interlocutory appeal of the trial court's order striking
Southern Transit's answer.  See Ark. Sup. Ct. R. 1-2(a)(11); Ark.
R. App. P. 2(a)(4) -- Civ; Arnold Fireworks Display, Inc. v.
Schmidt, 307 Ark. 316, 820 S.W.2d 44 (1991).  
                        I.  Void Judgment
     On appeal, Southern Transit contends that the trial court
erred when it granted Collums's motion for default judgment under
Ark. R. Civ. P. 55(a).  In 1990, we substantially revised Rule 55
so that more cases would be decided on the merits instead of upon
the technicalities that often lead to default judgment.  B & F
Engineering, Inc. v. Cotroneo, 309 Ark. 175, 830 S.W.2d 835 (1992)
(citing Addition to Reporter's Notes to Rule 55, 1990 Amendment). 
One of the changes was to make the grant of default judgment under
Rule 55(a) discretionary rather than mandatory.  Id.  The comments
to Rule 55 also provide that:

     In deciding whether to enter a default judgment, the
     court should take into account the factors utilized by
     the federal courts, including:  whether the default is
     largely technical and the defendant is now ready to
     defend; whether the plaintiff has been prejudiced by the
     defendant's delay in responding; and whether the court
     would later set aside the default judgment under Rule
     55(c).

Addition to Reporter's Notes to Rule 55, 1990 Amendment (emphasis
added).  Accordingly, in B & F Engineering, supra, we used the
grounds listed in Rule 55(c) when deciding whether the trial court
abused its discretion in granting a default judgment under Rule
55(a).  This analysis is equally applicable to the case at hand.
     Arkansas Rule of Civil Procedure 55(c) provides that a default
judgment may be set aside 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. 

In addition to establishing one of the above grounds, the defendant
must also demonstrate a meritorious defense to the action, unless
the ground asserted is that the judgment is void.  Ark. R. Civ. P.
55(c); Wilburn v. Keenan Co., Inc., 298 Ark. 461, 768 S.W.2d 531
(1989).
     In this case, Southern Transit argues that the default
judgment was void because the service of process was improper.  In
several cases we have held that a default judgment is void under
Ark. R. Civ. P. 55(c)(2), if the defendant was improperly served
under Ark. R. Civ. P. 4.  See, e.g, Thompson v. Potlatch Corp., 326
Ark. 244, 930 S.W.2d 355 (1996) (no summons was issued to the
defendant); Carruth v. Design Interiors, Inc., 324 Ark. 373, 921 S.W.2d 944 (1996) (summons was not signed by the clerk); Wilburn v.
Keenan Co. Inc., 298 Ark. 461, 768 S.W.2d 531 (1989) (the summons
was not marked "restricted delivery").  In Thompson, supra, we held
that "the technical requirements of a summons, and compliance with
those requirements must be exact."  Likewise, in Carruth, supra,
and Wilburn, supra, we said that "[s]tatutory requirements, being
in derogation of common law rights, must be strictly construed and
compliance with them must be exact."  Accordingly, we held in
Carruth and Wilburn that the default judgments were "void ab
initio" due to the defective summons regardless of the whether the
defendant had actual knowledge of the pending lawsuit.   
      Arkansas Rule of Civil Procedure 4 requires the summons to
contain, among other things, "the names of the parties," and that
the summons "be directed to the defendant."  In this case, the
summons correctly listed the names of both defendants, but
incorrectly directed the summons to Bruce Peek instead of Southern
Transit.  Because the summons did not strictly comply with the
technical requirements of Ark. R. Civ. P. 4, the trial court could
have held that the default judgment was void "ab initio" regardless
of the fact that Southern Transit had actual knowledge of the
complaint against it.    
     In reaching this conclusion, we are not unmindful of two older
Arkansas cases where we said that only "substantial compliance"
with Ark. R. Civ. P. 4 is required.  Ford Life Ins. Co. v. Parker,
277 Ark. 516, 644 S.W.2d 239 (1982); Tucker v. Johnson, 275 Ark.
61, 628 S.W.2d 281 (1982).  These cases, however, were decided
before Rule 55 was revised in 1990, and accordingly they are no
longer applicable.  See Addition to Reporter's Notes to Rule 55,
1990 Amendment (explaining that  "[b]ecause the [revised] rule
represents a significant break from prior practice, many cases
decided under the old rule and the statute from which it was
derived will no longer be of precedential value").  For these
reasons, Southern Transit is correct in its assertion that the
trial court could have rendered the default judgment void due to
the defective summons.  We, however, do not reverse on this basis
because Southern Transit waived the defense of insufficiency of
process by failing to raise that defense in its first responsive
pleading. 
                         II.  Waiver    
     It is well settled that pursuant to Ark. R. Civ. P. 12(h)(1),
a party waives the defense of insufficiency of process under Ark.
R. Civ. P. 12(b)(4) if he or she fails to raise the argument in
either the answer or a motion filed simultaneously with or before
the answer.  Farm Bureau Mut. Ins. Co. v. Campbell, 315 Ark. 136,
865 S.W.2d 643 (1993); Lawson v. Edmondson, 302 Ark. 46, 786 S.W.2d 823 (1990).  In this case, Southern Transit filed an answer on June
19, 1997, but its argument regarding the insufficiency of process
was not raised until June 23, 1997, when Southern Transit filed its
response to Collums's motion for default judgment.  Because
Southern Transit did not raise its valid defense of insufficiency
of process in the answer, or by motion filed prior to or
simultaneously with the answer, we hold that the defense was
waived.  
     In an attempt to defeat this result, Southern Transit contends
that it raised the defense in its answer when it denied Collums's
assertion in the complaint that the court had jurisdiction over the
parties.  We disagree.  
     In paragraph 2 of the complaint, Collums declared that:

     This accident happened in Little River County, Arkansas. 
     This is the proper venue of this action and this Court
     has jurisdiction of the parties.

In its answer, Southern Transit replied:

     The Defendants admit that there was a motor vehicle
     accident in Little River County, Arkansas, involving a
     vehicle driven by the Plaintiff and another vehicle
     operated by the Defendant, Bruce Peek; however, the
     Defendants are without knowledge or information to form
     a belief as to all the other allegations in Paragraph 2
     of the Plaintiff's Complaint and therefore deny the same.
     
     Similar to this case, in Kolb v. Morgan, 313 Ark. 274, 854 S.W.2d 719 (1993), the defendants argued that they had preserved
their legal challenge to the issuance of attorney's fees by
generally denying the paragraph of the complaint that contained an
allegation that the plaintiff was entitled to attorney's fees.  We
explained that "[a] denial of a material allegation is generally
thought to be a denial of [a] material factual allegation, see ARCP
Rule 8(b), while avoidance of a claim because of operation of law
is generally thought to require the filing of an affirmative
defense, see ARCP Rule 8(c)."  Id.  We acknowledge that Kolb
involved the preservation of an affirmative defense under Rule 8
while this case concerns the assertion of a defense under Rule
12(b).  We, however, find the Kolb decision applicable to the case
at hand because it clearly established that the mere denial of a
factual allegation is not equivalent to stating facts sufficient to
support a legal defense.  
     In this case, it is impossible to tell from Southern Transit's
answer whether it is claiming that the court lacks jurisdiction
over Southern Transit due to the defective summons.  In fact, the
defect in the summons is not specifically mentioned anywhere in the
answer.  Moreover, lack of jurisdiction over the person under Rule
12(b)(2) is a separate and distinct defense from insufficiency of
process under Rule 12(b)(4).  
     Finally, Southern Transit cites Farm Bureau Mutual Ins. Co. v.
Campbell, 315 Ark. 136, 865 S.W.2d 643 (1993), in support of its
contention that such a general denial contained in the answer is
sufficient.  This argument, however, is misplaced because in
Campbell, supra, Farm Bureau asserted the insufficiency-of-process
defense in a separate paragraph of its answer, instead of making a
general denial of personal jurisdiction as in this case.  For these
reasons, we hold that Southern Transit's mere denial of the factual
allegation that the court had jurisdiction over the parties did not
sufficiently raise the legal defense of insufficiency of process.
     In sum, we conclude that Southern Transit waived its valid
defense of insufficiency of process by failing to raise that
defense in its first responsive pleading.  Accordingly, we hold
that the trial court did not abuse its discretion when it granted
default judgment as to Southern Transit's liability.  
     Affirmed.