STERLING RESOURCES, INC. v. CHARLES B. PERDUE
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RENDERED: JUNE 15, 2001; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2000-CA-000982-MR
STERLING RESOURCES, INC.
v.
APPELLANT
APPEAL FROM LEE CIRCUIT COURT
HONORABLE WILLIAM W. TRUDE, JR., JUDGE
ACTION NO. 99-CI-00186
CHARLES B. PERDUE
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
BUCKINGHAM, JOHNSON, AND TACKETT, JUDGES.
BUCKINGHAM, JUDGE: Sterling Resources, Inc., appeals from a
default judgment entered by the Lee Circuit Court and from an
order overruling its motion to set aside that default judgment.
We find no error and thus affirm.
The appellee, Charles B. Perdue, owned property in Lee
County, Kentucky, which he had purchased from Ashland Oil
Company.
He set up an oil producing operation and began drilling
on the property under the name of Perdue Davidson Oil Company.
The operation resulted in numerous citations from the
Environmental Protection Agency (EPA), ultimately leading to a
civil action being filed and a judgment being entered in favor of
the United States against Perdue and his company for $3,800,000.
As a further result of the operation, the Commonwealth of
Kentucky took administrative action against Perdue resulting in
approximately $80,000 in fines.
As a result of the fines and judgment against him,
Perdue elected to sell the company.
During 1996 and 1997, he
entered into a stock purchase agreement with Central Gas
Utilities.
Under the agreement, the sale and transfer of the
company’s stock was conditioned upon the buyer obtaining
financing and negotiating a satisfactory settlement of the
environmental citations so as to allow resumption of the
operation.
In August 1997, Sterling Resources assumed the rights
and obligations of Central Gas Utilities.
Just as the stock
purchase agreement required Central Gas Utilities to resolve the
EPA dispute, the agreement with Sterling Resources included the
same condition.
With the execution of the contract to sell,
Perdue transferred the stock of the company to Sterling
Resources.
On April 19, 1999, Perdue’s attorney sent a letter to
Sterling Resources indicating that it was in default of its
obligations under the stock purchase agreement.
The letter
mentioned that the disputes between the EPA and the Commonwealth
had yet to be resolved and that Sterling Resources had failed to
meet payment obligations it had assumed.
Although the letter
stated that legal action would commence after forty-five days if
the default conditions were not resolved, Perdue did not file his
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declaratory judgment action until December 2, 1999.
In his
complaint, Perdue alleged that Sterling Resources had failed to
perform its duties, and he asked for a rescission of the contract
and for the entry of an order requiring the return of the
company’s stock.
Summons for Sterling Resources was issued on
December 2, 1999, and was served on the Kentucky Secretary of
State on December 3, 1999.
It was not received by the process
agent for Sterling Resources until January 11, 2000.
Sterling
Resources, a Texas corporation, sought local counsel and sought
to resolve the dispute without further litigation.
The parties
agreed to a continuance which would allow Sterling Resources
until February 8, 2000, to file an answer.
Sterling Resources’
president, Charles Davis, signed and filed an answer to Perdue’s
complaint on February 22, 2000.
In its answer, Sterling
Resources generally denied the allegations in the complaint.
Following the filing of Sterling Resources’ answer,
Perdue moved the court to strike the answer and to award him a
default judgment.
In support of his motion, he alleged that the
answer was not timely filed and that it was signed by an
individual who was not a practicing attorney and was thus engaged
in the unauthorized practice of law.
On March 7, 2000, an
attorney from Kentucky moved the court to enter an order allowing
an attorney from Tulsa, Oklahoma, to represent Sterling Resources
pro hac vice.
After a hearing on March 8, 2000, the trial court
entered a default judgment against Sterling Resources.
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The
judgment, which was entered on March 20, 2000, held in pertinent
part as follows:
On December 2, 1999, a Complaint for
Declaratory Judgment was filed by the
Plaintiff. No proper Response thereto has
been filed as of yet, however, one was
tendered at the Hearing on this matter on
March 8, 2000. In reviewing the Answer of
the Defendant, the Court finds that the
Defendant has admitted that it has not met
certain conditions pertaining to the Contract
but asserts that Perdue has agreed to
Sterling’s continued efforts to satisfy these
conditions.
Obviously, the Plaintiff has filed a
suit and has not agreed to any continuance of
time.
Furthermore, the Defendant requested of
Plaintiff’s counsel a continuance through
February 7, 2000, which the then attorney for
the Plaintiff agreed to. However, as noted
above, no Answer has yet been filed, however,
one has been tendered.
On March 30, 2000, Sterling Resources filed a motion to stay the
enforcement of the judgment and a motion to set it aside.
In an
order entered on April 13, 2000, the trial court granted the
motion to stay the enforcement of the judgment but denied the
motion to set the judgment aside.1
This appeal by Sterling
Resources followed.
Sterling Resources’ first argument is that the trial
court erred in granting Perdue a default judgment and erred in
1
The motion to stay enforcement of the judgment was granted
because a federal court had previously entered a writ of
garnishment ordering Sterling Resources to “hold property
belonging to, or indebted to, the judgment debtor” [Perdue] and
restraining Sterling Resources “from paying to the judgment
debtor, or to anyone for him, money or property in your
possession belonging to him or in which he has any interest.”
The federal court has since released this writ of garnishment.
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failing to set it aside.
CR2 12.01 requires a defendant to serve
his answer within twenty days after service of the summons upon
him.
Sterling Resources was served on January 11, 2000, and its
answer should have been filed by no later than January 31, 2000,
in order to meet the requirements of CR 12.01.
Sterling
Resources’ answer to the complaint, which was filed by a company
representative who was not an attorney, was filed on February 22,
2000, twenty-two days late.
When Perdue moved the court to grant
him a default judgment three days later, he complied with CR
55.01 by serving written notice of the motion on Sterling
Resources since it had previously appeared in the action.
No
further answer was filed on behalf of Sterling Resources prior to
the March 8, 2000, hearing, although the court noted that one was
tendered at that time.3
Sterling Resources also contends that the trial court
should have set aside the default judgment pursuant to its timely
motion.4
CR 55.02 provides that “[f]or good cause shown the
court may set aside a judgment by default in accordance with Rule
60.02.”
As Sterling Resources has argued, “[d]efault judgments
are not favored.”
Bargo v. Lewis, Ky., 305 S.W.2d 757, 758
(1957).
In Childress v. Childress, Ky., 335 S.W.2d 351 (1960),
the court held that “since every cause of action should be tried
2
Kentucky Rules of Civil Procedure.
3
The tendered answer was apparently not made a part of the
record herein.
4
The judgment was entered on March 20, 2000, and the motion
to set it aside was filed on March 30, 2000.
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upon the merits, the rendering of judgments by default ought to
be withheld where seasonable objection is made unless a
persuasive reason to the contrary is submitted.”
Id. at 354.
The court also held that “[a] liberal attitude should be observed
toward a timely application to set aside a default judgment,
although delay in pleading without reasonable excuse cannot
always be overlooked.”
Id.
Further, in Educator & Executive
Insurers, Inc. v. Moore, Ky., 505 S.W.2d 176 (1974), the court
held that two factors to be considered by the trial court in
determining whether to set aside a default judgment are “whether
the movant had a fair opportunity to present his claim at the
trial on the merits and whether the granting of the relief sought
would be inequitable to the other parties.”
Id. at 177.
The first issue is whether the trial court should have
granted the default judgment in the first instance.
As we have
noted, Sterling Resources’ answer was due no later than
January 31, 2000.
Its answer, filed on February 22, 2000, was
untimely and was prepared by a person apparently not authorized
to practice law.
When the matter came before the trial court on
Perdue’s motion for default judgment on March 8, 2000, Sterling
Resources had still not filed a proper answer.
Under these
circumstances, we conclude the trial court did not abuse its
discretion in granting the default judgment.
See Dressler v.
Barlow, Ky.App., 729 S.W.2d 464 (1987), wherein the court held
that the granting of default judgments is discretionary with the
trial court in most cases.
Id. at 465.
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The second issue is whether the trial court should have
set the default judgment aside.
if good cause is shown.
As we have noted, it may do so
CR 55.02.
“Although default judgments
are not favored, trial courts possess broad discretion in
considering motions to set them aside and we will not disturb the
exercise of that discretion absent abuse.”
Ky.App., 749 S.W.2d 690, 692 (1988).
Howard v. Fountain,
Furthermore, the court in
S.R. Blanton Dev., Inc. v. Investors Realty and Management Co.,
Ky.App., 819 S.W.2d 727 (1991), held that a party moving to set
aside a default judgment must show a valid excuse for default, a
meritorious defense to the claim, and the absence of prejudice to
the nondefaulting party.”
Id. at 729.
See also Perry v. Central
Bank & Trust Co., Ky.App., 812 S.W.2d 166, 170 (1991).
Having reviewed the factors to be considered in setting
aside a default judgment, we conclude the trial court did not
abuse its discretion in denying Sterling Resources’ motion.
The
trial court entered findings rejecting Sterling Resources’
excuses for not filing an answer in a timely manner.
Further,
the trial court noted that Sterling Resources had admitted that
it had not met certain contract conditions.
As in the Perry
case, “we believe the excuses for failing to answer are weak as
are the defenses[.]” Id. at 170.
Sterling Resources’ second argument is that even if the
trial court was within its discretion in granting a default
judgment and refusing to set it aside, it nonetheless erred in
granting equitable relief where there were no specific
allegations or evidentiary findings sufficient to sustain
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rescission of the contract.
It argues that (1) the trial court
was required to hold further hearings for the parties to present
evidence on damages, (2) rescission is an extraordinary form of
equitable relief which is not available in this case, and (3) the
court’s findings do not support the granting of this remedy.
Sterling Resources refers to the language in CR 55.01 which
states as follows:
If, in order to enable the court to enter
judgment or to carry it into effect, it is
necessary to take an account or to determine
the amount of damages or to establish the
truth of any averment by evidence or to make
an investigation of any other matter, the
court, without a jury, shall conduct such
hearings or order such references as it deems
necessary and proper, unless a jury is
demanded by a party entitled thereto or is
mandatory by statute or by the constitution.
A party in default for failure to appear
shall be deemed to have waived his right of
trial by jury.
The rule clearly leaves it in the court’s discretion to make a
determination as to whether further evidence is necessary.
The
remedy sought by Perdue was the return of the stock he had
transferred to Sterling Resources in reliance on the purchase
agreement.
Since the court had determined in its findings that
Sterling Resources had admittedly failed to meet its obligations
under the agreement, the court was within its discretion in not
conducting a further hearing.
Sterling Resources also asserts that the remedy of
rescission could not have been granted in this case.
The cases
cited in its brief have distinguishing facts, and we conclude the
remedy of rescission was appropriate.
Sterling Resources’
argument that the remedy of rescission was inappropriate without
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further fact findings is without merit since no further findings
were requested.
See CR 52.04.
Sterling Resources’ last argument is that the trial
court erred in ordering it to transfer the stock of the company
back to Perdue because such transfer was contrary to a writ of
garnishment that had been entered by the federal court.
In fact,
after the default judgment had been entered, the trial court
granted Sterling Resources’ motion to stay enforcement of the
judgment due to the federal writ.
Because the writ has now been
released, the issue is moot.
For the foregoing reasons, the judgment and order of
the Lee Circuit Court are affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
John F. Kelley, Jr.
London, Kentucky
Charles B. Perdue, Pro Se
Beattyville, Kentucky
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