Aoun & Cole, Inc. v. Fitzpatrick

• Decision Date: 05 December 2017
• Docket Number: No. COA17-240,COA17-240
• Citation: Aoun & Cole, Inc. v. Fitzpatrick, 808 S.E.2d 177(Table) (N.C. App. 2017)
• Court: North Carolina Court of Appeals
• Parties: AOUN & COLE, INC., Plaintiff, v. Donald Stephen FITZPATRICK and Jun H. Lee, Defendants.

808 S.E.2d 177 (Table)

AOUN & COLE, INC., Plaintiff,

v.Donald Stephen FITZPATRICK and Jun H. Lee, Defendants.

No. COA17-240

Court of Appeals of North Carolina.

Filed: December 5, 2017

Khot & Associates, PLLC, Raleigh, by Bobby P. Khot, and Ledolaw, Wake Forest, by Michele A. Ledo, for plaintiff.

Sprouse Law Firm, PLLC, Raleigh, by James W. Sprouse, Jr., for defendantJun H. Lee.

DAVIS, Judge.

PlaintiffAoun & Cole, Inc.("Aoun & Cole") and DefendantJun H. Lee each appeal from the trial court's order pursuant to Rule 60(b)(6) of the North Carolina Rules of Civil Procedure setting aside a portion of the damages awarded in its prior default judgment.After a thorough review of the record and applicable law, we affirm.

Factual and Procedural Background

Aoun & Cole entered into a contract for construction services (the "Contract") with Lee and his subcontractor, Donald Stephen Fitzpatrick(collectively "Defendants").The parties agreed that Fitzpatrick—under Lee's supervision—would demolish an existing structure and construct a convenience store at 1700 New Bern Avenue in Raleigh, North Carolina.The Contract provided that the project would be completed by 3 May 2015.In addition, the Contract contained a section entitled "Completion of the Work," which contained the following language:

Time is of the essence to this contract.Contractor agrees to pay Owner as liquidated damages, and not as a penalty, the sum of $500 per day that final completion is delayed beyond the completion date identified herein.Owner and Contractor understand, acknowledge and agree that the amount of liquidated damages is a reasonable estimate of the damages Owner is expected to incur if completion is delayed and that the determination of actual damages will be difficult if not impossible to calculate.

At some point, Fitzpatrick falsely informed Aoun & Cole that he had received a permit to begin construction, and based on this misrepresentation Aoun & Cole paid $26,109 "in order to obtain commercial construction services from the Defendants."At some point after paying Defendants for the project, Aoun & Cole learned that they did not, in fact, possess a permit to begin the project.Due to Defendants' ultimate failure to complete the project, Aoun & Cole also spent an additional $3,600 in hiring new workers and obtaining permits.

On 26 April 2016, Aoun & Cole filed a complaint (the "Complaint") against Defendants in Wake County Superior Court.The Complaint alleged that (1)Defendants had breached the Contract; (2) Lee failed to supervise Fitzpatrick in connection with Defendants' obligations under the Contract; and (3)Defendants had committed fraud.In the Complaint, Aoun & Cole sought compensatory damages in an amount exceeding $25,000 and special damages as well as attorneys' fees, costs, and interest.

On 26 May 2016, a civil summons addressed to Lee along with a copy of the Complaint were served on Lee's wife at their home.The summons notified Lee that a civil action had been commenced against him and directed him to respond to the complaint within thirty days.However, Lee failed to respond to the Complaint.

On 1 July 2016, Aoun & Cole filed a motion for entry of default again Lee, and the motion was served on Lee.The Wake County clerk of court subsequently made an entry of default against Lee on 6 July 2016.Aoun & Cole filed a motion for default judgment on 11 July 2016, which was served on Lee by mail that same day.Aoun & Cole filed a document captioned "Motion for Default Judgment Summary Judgment" as well as a notice of hearing scheduling the motion for hearing on 25 July 2016.Both of these documents were served on Lee by mail on 18 July 2016 and filed on 19 July 2016.On 19 July 2016, Aoun & Cole took a voluntary dismissal without prejudice as to its claims against Fitzpatrick.

On 20 July 2016, Aoun & Cole filed the affidavit of Mounib Aoun, the owner of Aoun & Cole.The affidavit was served on Lee by mail on 20 July 2016.In his affidavit, Aoun summarized the grounds for its lawsuit and explained the origin of—and basis for—the liquidated damages clause in the Contract.He further stated that in the lawsuit Aoun & Cole was seeking $224,000 from Lee in liquidated damages (based on the assertion that Defendants had been in breach of the Contract for 448 days), $29,709 in compensatory damages, and costs in the amount of $300.

On 25 July 2016, a hearing took place before the Honorable Paul C. Ridgeway on Aoun & Cole's motions.Lee did not appear at the hearing.Following the hearing, the trial court entered a default judgment against Lee and awarded Aoun & Cole compensatory damages in the amount of $29,709, liquidated damages in the amount of $224,000, $2,275 in attorneys' fees, and $300 in costs.

On 3 November 2016, Lee filed a motion to set aside the entry of default and the default judgment pursuant to Rules 55(d)and60(b) of the North Carolina Rules of Civil Procedure.In his motion, he argued, in pertinent part, that (1) Fitzpatrick had forged Lee's name to the Contract without prior authorization from Lee; (2) Fitzpatrick had assured Lee that he would resolve the lawsuit; and (3) Lee's wife was served with the summons and Complaint while he was out of the country.For these reasons, he argued, good cause existed to set aside the entry of default and default judgment based on excusable neglect pursuant to Rule 60(b)(1), extrinsic fraud pursuant to Rule 60(b)(2), and in the interests of justice pursuant to Rule 60(b)(3).Alternatively, he argued, because Aoun & Cole's prayer for relief in its Complaint did not specifically request liquidated damages the trial court had erred in awarding such damages in the default judgment.Lee attached to the motion an affidavit from Fitzpatrick in which he stated that he had, in fact, signed Lee's name to the Contract.

On 14 November 2016, the trial court entered an Order and Amended Judgment that stated, in pertinent part, as follows:

1.The grounds for relief stated in Defendant Lee's motion and reflected in the record are insufficient to rise to the level of excusable neglect or other good cause that would justify setting aside the entry of default or default judgment in this matter, except as noted below.

2.The Court finds, however, that the default judgment should be amended to strike the liquidated damages previously allowed by the Court because the Plaintiff's Complaint does not assert a claim for liquidated damages, and the contract that is at issue in the Complaint, and attached thereto, does not contain a liquidated damages provision.SeeKnutton v. Cofield, 273 N.C. 355(1968)("The phrase ‘liquidated damages' means a sum stipulated and agreed upon by the parties, at the time of entering into a contract, as being payable as compensation for injuries in the event of a breach.["]) Because the contract between the parties contained no liquidated damages provision, and the Complaint did not allege a liquidated damages claim for relief, the Defendant is entitled to relief under Rule 60(b)(6) from that portion of the default judgment awarding damages for liquidated damages.

On 23 November 2016, Aoun & Cole filed a notice of appeal.On 2 December 2016, Lee cross-appealed.

Analysis

A court's authority to set aside a default judgment is governed by Rule 55(d) of the North Carolina Rules of Civil Procedure, which provides as follows:

(d)Setting aside default.—For good cause shown the court may set aside an entry of default, and, if a judgment by default has been entered, the judge may set it aside in accordance with Rule 60(b).

N.C. R. Civ. P. 55(d).

"A trial court's decision to grant or deny a motion to set aside an entry of default and default judgment is discretionary.Absent an abuse of that discretion, this Court will not reverse the trial court's ruling."Wiley v. L3 Communs. Vertex Aero., LLC, ––– N.C. App. ––––, ––––, 795 S.E.2d 580, 586(2016)(citation and quotation marks omitted), disc. review denied, ––– N.C. ––––, 797 S.E.2d 17(2017)."[W]e only find abuse of discretion where the trial court's judgment is manifestly unsupported by reason."Bodie Island Beach Club Ass'n, Inc. v. Wray, 215 N.C. App. 283, 290, 716 S.E.2d 67, 74(2011).

Aoun & Cole argues in its appeal that the trial court erred in setting aside the portion of the 25 July 2016 default judgment awarding liquidated damages in the amount of $224,000.In his cross-appeal, Lee contends that the trial court abused its discretion in denying his request to set aside the default judgment in its entirety.We first address Lee's cross-appeal and then consider Aoun & Cole's appeal.

I. Lee's Cross-Appeal

Lee argues that the trial court erred in denying his motion to set aside the default judgment in its entirety (1) on the basis of excusable neglect pursuant to Rule 60(b)(1); and (2) based on extraordinary circumstances under Rule 60(b)(6).We address each of his arguments in turn.

A.Rule 60(b)(1)

"Although the decision to set aside a judgment under Rule 60(b)(1) is a matter within the trial court's discretion, what constitutes ‘excusable neglect’ is a question of law which is fully reviewable on appeal."In re Hall, 89 N.C. App. 685, 687, 366 S.E.2d 882, 884(citation omitted), disc. review denied, 322 N.C. 835, 371 S.E.2d 277(1988).We have held that "[w]hether neglect is ‘excusable’ or ‘inexcusable’ is a question of law which depends upon what, under all the surrounding circumstances, may be reasonably expected of a party to litigation."Anderson Trucking Serv., Inc. v. Key Way Transp., Inc., 94 N.C. App. 36, 41, 379 S.E.2d 665, 668(1989)(citation and quotation marks omitted)."However, the trial court's decision is final if there is competent evidence to support its findings and those findings support its conclusion.Whether the movant has shown excusable neglect must be determined by his actions at or before entry of judgment."Hall, 89 N.C. App. at 687, 366 S.E.2d at 884(internal citations omitted).

Lee argues that his failure to...