CONSECO FINANCE SERVICING CORPORATION F/K/A GREEN TREE FINANCIAL SERVICING CORPORATION v. HURSTBOURNE HEALTHCARE, LLC
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RENDERED:
December 3, 2004; 2:00 p.m.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2002-CA-001757-MR
CONSECO FINANCE SERVICING
CORPORATION F/K/A GREEN TREE
FINANCIAL SERVICING CORPORATION
v.
APPELLANT
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE LISABETH HUGHES ABRAMSON, JUDGE
ACTION NO. 02-CI-001193
HURSTBOURNE HEALTHCARE, LLC
APPELLEE
OPINION AND ORDER
(1) REVERSING
(2) DENYING MOTION TO STRIKE REPLY BRIEF
** ** ** ** **
BEFORE:
BARBER, KNOPF, AND TACKETT, JUDGES.
BARBER, JUDGE:
This action began when George A. Conn, Ronald L.
Westfall, Advanced Acquisition Group International, Inc., and
Advanced Acquisition Group filed a complaint in foreclosure
against David A. Mikels, Sr., Gary J. Adams and the parties to
this appeal.
THS Partners I, Inc., THS Partners II, Inc., and
Hurstbourne Care Centre at Stoney Brook (collectively referred
to as HCC) filed a cross claim against Conseco Finance Servicing
Corporation f/k/a Green Tree Financial Servicing Corporation
(Conseco).
The court granted a default judgment to HCC for
Conseco’s failure to appear in the action and Conseco moved to
set aside the judgment.
this appeal followed.
The court denied Conseco’s motion and
We reverse.
Conseco held a first mortgage on the property sought
to be foreclosed on by the plaintiffs below.
Gary J. Adams and
HCC also had interests in the property by virtue of judgment
liens that had been filed of record.
KRS 426.006 requires the
plaintiff to make these entities parties defendant.
KRS 426.006
also requires those made defendants to assert their right to
share in any proceeds of the foreclosure by filing an answer and
cross claim.
The foreclosure action was served on Conseco February
19, 2002.
claim.
Also on that date HCC filed its answer and cross
HCC did not have its cross claim served on Conseco.
On
March 19, 2002, HCC filed for default judgment against Conseco
and on March 29, 2002, the court granted the motion.
At this
point Conseco had not entered an appearance in the action in any
manner.
On June 11, 2002, Conseco asked the court to be
allowed to file an answer to the plaintiffs’ complaint out of
time.
The motion was denied, but Conseco did not appeal from
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this order because the judgment entered in favor of the
plaintiffs’ provided that the property be sold subject to
Conseco’s first mortgage.
On June 27, 2002, Conseco filed for
relief from the default judgment entered in favor of HCC.
On
August 15, 2002, the court order denying Conseco’s motion for
relief from the default judgment in favor of HCC was entered.
The default judgment in favor of HCC did not provide for the
property to be sold subject to Conseco’s first mortgage.
Conseco’s sole argument on appeal is that the court
should have granted its motion to set aside the default judgment
in favor of HCC because the cross-claim filed by HCC against it
was never served as required by the Kentucky Rules of Civil
Procedure.
Thus, the judgment is void.
HCC makes several
arguments in response, and we shall deal with each.
Preliminarily HCC maintains that the appeal should be
dismissed as moot.
It contends that Conseco’s failure to file
an appeal from the denial of its motion to file an answer out of
time now forecloses Conseco’s ability to argue that the order
denying its motion to set aside the default judgment in favor of
HCC was in error.
This is because even if the relief Conseco
requests, setting aside the default judgment, is granted,
Conseco is still classified as a non-answering defendant in the
case.
KRS 426.006 provides that a defendant is not entitled to
“withdraw or receive any of the proceeds” of a sale unless it
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has shown its “right thereto by answer and cross claim.”
Therefore, HCC asserts that Conseco would not be able to receive
any proceeds in any event.
Conseco responds to this argument by stating that it
was never intended that it share in the proceeds because the
judgment granted to the plaintiffs in the action, unlike the
judgment granted to HCC, provided that the property was to be
sold subject to Conseco’s first mortgage.
An appeal should be dismissed if it is moot.
That is,
if the question presented is abstract or otherwise makes it so
that the relief granted would have no practical effect.
Courts
are to decide questions that injuriously affect the “rights of
some party to the litigation.”
S.W.2d 543, 544 (1936).
White v. Hamlin, 265 Ky. 631, 97
See also Brown v. Baumer, 301 Ky. 315,
321, 191 S.W.2d 235, 238 (1945).
Judged by this standard, it is clear that this appeal
is not moot.
The judgment granted to the plaintiffs below
preserved Conseco’s interest in the property providing that it
would be sold subject to its first mortgage.
However, the
judgment obtained by HCC does not preserve Conseco’s first
mortgage, but instead gives HCC priority.
Consequently,
Conseco’s rights are injuriously affected by the entry of the
default judgment in favor of HCC.
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In addition, although Conseco may not share in any of
the proceeds of any sale of the property (which Conseco
maintains it was never intended to do since the sale was to
transfer the property subject to its mortgage), the lien it has
on the property by virtue of its first mortgage is still valid.
Safety Motor Coach Co. v. Maddin’s Adm’x, 266 Ky. 459, 99 S.W.2d
183, 187 (1936).
If HCC’s default judgment is allowed to stand,
then its lien may be adjudged superior to Conseco’s first
mortgage which is the very position it has argued in papers it
has filed with the trial court.
HCC next responds to Conseco’s argument by asserting
that the court did not abuse its discretion in refusing to set
aside the default judgment.
Ordinarily on a motion to set aside
a default judgment the court should consider whether there
exists a valid excuse for default; whether the party has a
meritorious defense; and whether prejudice will result to the
opposing party.
Perry v. Central Bank & Trust Co., Ky. App.,
812 S.W.2d 166, 170 (1991).
The true standard though allows a court to set aside a
default judgment “for good cause shown” in accordance with CR
60.02. CR 55.02; Roadrunner Mining, Engineering & Development
Co., Inc. v. Bank Josephine, Ky., 558 S.W.2d 597, 598 (1977).
Of the grounds enumerated in CR 60.02, Conseco is arguing that
the judgment is void the same as argued in Bank Josephine.
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Id.
When the question is whether the judgment is void, the
factors discussed in Perry, supra do not provide appropriate
guidance and are not necessarily relevant because if a judgment
is void, a court has no choice but to set it aside.
A void
judgment is not entitled to any deference or respect and a court
has no discretion about whether or not to set it aside.
As a
matter of law it must hold that the judgment is a nullity.
Foremost Insur. Co. v. Whitaker, Ky. App., 892 S.W.2d 607, 610
(1995).
Faulty service of process can make a judgment void.
Id.; Hertz’ You Drive It Yourself System, Inc. v. Castle, Ky.,
317 S.W.2d 177, 177-178 (1958).
Therefore, if Conseco’s argument has merit, it is not
a question of whether the trial court abused its discretion in
its decision to let the default judgment stand.
As a matter of
law the court would be required to set the judgment aside if
there has been insufficient service of process, a question that
we shall now address.
Thus we come to the heart of this appeal:
Whether
HCC’s failure to serve its cross-claim on Conseco makes the
default judgment rendered in its favor void.
We hold that it
does.
KRS 426.006 requires a defendant named, such as HCC,
in a foreclosure action to assert any cross-claim it may have in
accordance with “the Rules of Civil Procedure.”
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KRS 426.006.
The Rules of Civil Procedure mandate that a party have summons
issued and serve any complaint “or other initiating document.”
CR 4.01(1).
Therefore, the question is whether a cross-claim is
an initiating document.
Conseco argues it is and HCC that it is
not.
The main argument that HCC makes that a cross claim is
not an “initiating document” is based upon the history behind
KRS 426.006.
Prior to the adoption of KRS 426.006, foreclosure
actions were governed by Carroll’s Civil Code of Practice § 692.
KRS 426.006 tracks Section 692 of the Code with the exception
that Section 692 provided that “unless a personal judgment be
prayed for in such cross-petition, there need not be any summons
thereon; and it shall be treated with reference to the time of
answering thereto, as a set-off or counter-claim.”
Numerous
cases interpreting that Section reaffirm the principle.
See
Noel v. Noel, 307 Ky. 128, 131, 210 S.W.2d 140, 142 (1947);
Ideal Savings, Loan & Building Ass’n of Newport, Ky. v. Town of
Park Hills, 281 Ky. 571, 136 S.W.2d 748, 750 (1940); Louisville
Title Co. v. White Const. Co., 250 Ky. 212, 62 S.W.2d 795, 796
(1933); Lorton v. Ashbrook, 220 Ky. 830, 295 S.W. 1027, 1028
(1927); Griffith v. Blue Grass Building & Loan Ass’n, 22 Ky. L.
Rptr. 391, 108 Ky. 713, 57 S.W. 486, 487 (1900).
However, when KRS 426.006 was adopted the language
relieving a party from serving a cross petition that did not
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seek a personal judgment was deleted and in its place parties
are now required to comply with the Rules of Civil Procedure.
A
cross claim initiates an action between two defendants in an
action.
Rules.
An initiating document must be served according to the
CR 4.01. The claims set up in a cross-petition may or
may not involve the plaintiff or plaintiffs.
There is no logic
for excepting foreclosures from this rule.
Moreover, even at the time Section 692 of Carroll’s
Code of Civil Practice was in effect a cross claim was
considered the commencement of an action so that it must be
served.
Hays v. Lundy, 293 Ky. 711, 170 S.W.2d 49, 50 (1943);
Carter v. Capshaw, 249 Ky. 483, 60 S.W.2d 959, 961 (1933); Allen
v. Sweeney, 185 Ky. 94, 213 S.W. 217, 218 (1919); Howard v.
Jones, 147 Ky. 303, 143 S.W. 1058, 1059 (1912); Brackett’s Adm’r
v. Boreing, 28 Ky. L. Rptr. 386, 89 S.W. 496, 499 (1905).
And
parties proceeding under Section 692 were excused from serving a
cross petition only because of the express language of the
Section.
Therefore, when KRS 426.006 was adopted it is logical
that the Legislature intended foreclosure actions to conform to
the generally accepted rule that cross petitions were the
commencement of an action and should be served as provided for
in the Rules of Civil Procedure.
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We hold that a cross-petition is an initiating
document under CR 4.01 and therefore, must be served according
to the Rules of Civil Procedure.
Because HCC did not comply
with the requirements of the Rules on service of process, the
default judgment it obtained against Conseco is void and the
court should have set it aside.
Hertz’ You Drive It Yourself
System, supra; Foremost Insur. Co., supra.
HCC also argues that Conseco is not a “party in
default” under the Rules of Civil Procedure and, thus, it is not
required to serve its cross claim except by regular mail under
CR 5.01 & 5.02.
HCC further maintains that fairness and equity
do not favor setting aside the judgment because it is Conseco’s
failure to answer or otherwise appear that resulted in the
default judgment being entered.
Given our holding that the
default judgment against Conseco is void, these arguments need
not be addressed.
HCC has made a motion to strike Conseco’s reply brief.
Its motion is based on two sentences in Conseco’s reply brief
that state, “Appellee/HCC’s’s (sic) answer and cross-claim were
mailed via regular mail to 4965 U.S. Hwy 42, Suite 1500 in
Louisville, KY [R.50].
The record is silent as to why HCC
believed this to be a valid address to serve Appellant.”
The
remainder of Conseco’s reply brief does not mention this fact
nor attempt to use it in anyway to argue for reversal.
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In fact,
the remainder of its reply brief replies to the arguments made
by HCC in its response brief.
Out of these two sentences HCC
contends that Conseco’s reply brief should be stricken because
“it improperly asserts arguments neither raised below, in its
Prehearing Statement or its Appellant’s Brief, or in response to
arguments asserted in HCC’s Brief.”
We do not believe the motion to strike is well taken.
Our disposition of the case does not rely on where the crossclaim was sent, but on whether the cross-claim had to be served
according to the Rules of Civil Procedure.
HCC admittedly did
not serve the cross-claim and Conseco’s sole argument is that
this is fatal to the default judgment entered against it.
Therefore, the motion to strike is DENIED.
The judgment of the circuit court is vacated and the
case is remanded for proceedings consistent with this Opinion.
ALL CONCUR.
ENTERED:
_December 3, 2004
BRIEFS FOR APPELLANT:
James D. Keffer
Cincinnati, Ohio
__/s/ David A. Barber____
JUDGE, COURT OF APPEALS
BRIEF FOR APPELLEE THS
PARTNERS I, INC.; THS PARTNERS
II, INC.:
J. Gregory Troutman
Louisville, Kentucky
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