Capital One Services, Inc. v. Rawls

• Decision Date: 02 December 2004
• Docket Number: No. 2003-CA-01050-SCT.,2003-CA-01050-SCT.
• Parties: CAPITAL ONE SERVICES, INC., a Delaware Corporation v. C.J. RAWLS and Lula Rawls.
• Court: Mississippi Supreme Court

904 So.2d 1010

CAPITAL ONE SERVICES, INC., a Delaware Corporation v. C.J. RAWLS and Lula Rawls.

No. 2003-CA-01050-SCT.

Supreme Court of Mississippi.

December 2, 2004.

Billy Berryhill, Jackson, W. Wayne Drinkwater, Jr., Lawrence Elder Hahn, Columbia, attorneys for appellant.

Thomas M. Matthews, III, William L. Ducker, Purvis, attorneys for appellees.

EN BANC.

CARLSON, Justice, for the Court.

¶ 1. Capital One Services, Inc. appeals from the trial judge's refusal to set aside a $63,071.00 default judgment entered against it in the Circuit Court of Lamar County. C.J. Rawls and Lula Rawls (hereinafter "plaintiffs"), have filed a cross-appeal, asserting that the circuit court lacked jurisdiction when it amended the default judgment from $693,071 to $63,071. We affirm the trial court's refusal to aside the default judgment as to liability, but vacate the judgment and remand this case to the circuit court for an evidentiary hearing and the entry of a new judgment consistent with the evidence received at that hearing.

FACTS AND PROCEDURAL HISTORY

¶ 2. On April 14, 2001, Capital One Services (hereinafter "COS") received a signed acceptance certificate for a pre-approved MasterCard purportedly from C.J. Rawls. The credit card was sent to and received by the plaintiffs with a sticker advising them how to activate the card. The plaintiffs never called to activate the card but an annual fee was charged to the account. C.J. and his wife, Lula, learned of the charges in June 2001. They then requested that COS cancel the account and charge off the balance. On September 18, 2001, COS sent the plaintiffs a letter confirming that the balance had been cancelled, that the account had been closed, and that the credit reporting agencies had been directed to remove any derogatory information regarding the account.

¶ 3. In May of 2002, with the derogatory information still listed on their credit report, the plaintiffs hired counsel. The plaintiffs had by then built a house and their mortgage application had been denied.¹ Counsel sent a letter to COS demanding that all derogatory information be removed from their credit report. On November 12, 2002, with COS having not complied with the demand letter, the plaintiffs filed a complaint in the Circuit Court of Lamar County.

¶ 4. The plaintiffs served COS both by mail and personal service. COS acknowledged receipt of process on November 18, 2002.² On December 23, 2002, the circuit clerk's default was entered pursuant to Miss. R. Civ. P. 55(a). The plaintiffs then applied for a judgment by default and requested a writ of inquiry to assess their damages.³ The record does not reflect that a hearing was ever conducted on the issue of damages. On January 10, 2003, the circuit court entered a Final Judgment in the amount of $63,071 in actual damages and $630,000 in punitive damages. On January 22, 2003, counsel for COS filed an entry of appearance.

¶ 5. On February 10, 2003, the plaintiffs filed a Suggestion of Writ of Garnishment, and a writ of garnishment was issued for service shortly thereafter. In the writ, COS was listed as the defendant and Capital One Bank (hereinafter "COB") was listed as the garnishee defendant.⁴

¶ 6. On February 13, 2003, COS filed a Motion to Set Aside Default Judgment in accordance with Miss. R. Civ. P. 55(c) and 60(b). This was COS's first response to the underlying claim. In this motion, COS claimed to have a meritorious defense. COS argued that the plaintiffs made several misrepresentations and that it was not the proper party defendant. Attached to the motion was an affidavit from the Executive Response Specialist (hereinafter "specialist") for COS. The specialist declared that the card was issued pursuant to a response to an offer for a pre-approved MasterCard; that on August 16, 2001, the outstanding balance was charged off; and, that on September 18, 2001, COS sent the plaintiffs a letter confirming that the account had been closed and that it had directed the credit reporting agencies to remove any derogatory information that may have resulted.

¶ 7. On March 10, 2003, the trial court heard arguments regarding COS's motion to set aside the default judgment. At that time, COS declined to offer any witnesses or documentary evidence and instead chose to stand on the sworn affidavit of the specialist. The trial court informed COS that it was prepared to conduct a full hearing and consider any testimony in support of its motion, especially regarding any existing good cause for not answering the complaint, potential meritorious defenses, or any proof that the plaintiffs would not be prejudiced if the default judgment were set aside.⁵ On March 11, 2003, the trial court denied COS's motion.

¶ 8. On March 14, 2003, COB removed the case to the United States District Court for the Southern District of Mississippi. On March 20, 2003, new counsel for COS filed an entry of appearance in the circuit court. Pursuant to Miss. R. Civ. P. 59(e), new counsel also filed a Motion to Alter and Amend the Judgment, or, in the Alternative, to Reconsider the Motion to Set Aside the Default Judgment. On April 29, 2003, all parties entered into an agreed stipulation dismissing the federal court proceedings, without prejudice.

¶ 9. On April 30, 2003, the circuit court granted in part and denied in part COS's motion to alter or reconsider. The trial court set aside the award of punitive damages based on the United States Supreme Court's decision in State Farm Mutual Automobile Ins. Co. v. Campbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003); however, the trial court left undisturbed the judgment for actual damages.

¶ 10. Before this Court are the appeal and cross-appeal from the trial court's March 11, 2003, and April 30, 2003, orders. COS raises issues regarding the default judgment, especially damages awarded, and the denial of the motion to set aside the default judgment.

¶ 11. The plaintiffs' cross-appeal raises the issue concerning the April 30, 2003 Amended Opinion in which the trial court set aside the punitive damage award. Further, the plaintiffs argue that the trial court and this Court lack jurisdiction to review the punitive damage award.

ANALYSIS

¶ 12. At the outset, the Court notes that save the failure to hold a hearing regarding damages, the entry of the clerk's default and the default judgment was in accordance with the procedural dictates of Miss. R. Civ. P. 55(a) and (b), respectively. COS was likewise properly served with process. COS filed a motion to set aside the judgment in accordance with Miss. R. Civ. P. 60(b). There are no issues raised regarding the clerk's entry of default pursuant to Miss. R. Civ. P. 55(a).

I. Refusal to Set Aside Default Judgment.

¶ 13. There is a three-prong balancing test for trial courts to consider in determining whether to set aside a default judgement pursuant to Miss. R. Civ. P. 60(b).⁶ Stanford v. Parker, 822 So.2d 886, 887-88 (Miss.2002) (citing McCain v. Dauzat, 791 So.2d 839, 842 (Miss.2001)). The court must consider: (1) the nature and legitimacy of the defendant's reasons for default; (2) whether the defendant has a colorable defense to the merits of the claim; and (3) the nature and extent of prejudice which may be suffered by the plaintiff if the judgment is set aside. Id. at 843.

¶ 14. Where there is reasonable doubt as to whether the default judgment should be set aside, the doubt falls in favor of allowing the case to go forward for a decision on the merits. McCain v. Dauzat, 791 So.2d at 843. "Where the defendant has shown that he has a meritorious defense," we have encouraged trial courts to vacate default judgments. Allstate Ins. Co. v. Green, 794 So.2d 170, 174 (Miss. 2001) (quoting Bailey v. Ga. Cotton Goods Co., 543 So.2d 180, 182 (Miss.1989)). See also Stanford v. Parker, 822 So.2d at 887-88

(¶ 6). Nevertheless, the decision to set aside a default judgment is addressed to the sound discretion of the trial court. Williams v. Kilgore, 618 So.2d 51, 55 (Miss.1992) (citing Pointer v. Huffman, 509 So.2d 870, 875 (Miss.1987)). This discretion must be exercised in accordance with the rules set forth in Miss. R. Civ. P. 55(c) and 60(b). Guar. Nat'l Ins. Co. v. Pittman, 501 So.2d 377, 388 (Miss.1987).

¶ 15. In its motion to set aside the default judgment, COS asserted that it had a colorable defense; that the complaint misidentified the cardholder; and that it was not a proper party. In support of the motion was the affidavit from the specialist discussed infra. Attached to the affidavit were several documents including the September 18, 2001 letter and an account summary that indicated that the sum of $71 had been credited to the account.

¶ 16. On March 10, 2003, COS's motion to set aside the default judgment was heard by the trial court. At that time, COS declined to present any testimony or additional proof in favor of its argument. Instead, COS chose to stand alone on the affidavit. Finding the defenses submitted by COS insufficient, the trial court denied the motion. The circuit court ruled that both the motion and the supporting affidavit failed to establish a meritorious and colorable defense. The trial court further held that all of these alleged deficiencies in the complaint could have been corrected had COS answered the suit.

¶ 17. Considering the three-prong balancing test, the trial court determined that the first prong favored the plaintiffs. The circuit court focused on the fact that COS waited thirteen days after the court entered the default judgment before making an appearance. The trial court emphasized that at that time, COS failed to attack the default judgment. Instead, COS simply filed an entry of appearance and waited until a later date to file a motion to set aside the default judgment. The trial court noted that COS never responded to the proceedings until the plaintiffs sought to have the judgment enforced via the writ of garnishment.

¶ 18. We agree that...