Discover Bank v. Morgan, E2009–01337–SC–R11–CV.

CourtSupreme Court of Tennessee
Citation363 S.W.3d 479
Docket NumberNo. E2009–01337–SC–R11–CV.,E2009–01337–SC–R11–CV.
Decision Date27 March 2012

363 S.W.3d 479


No. E2009–01337–SC–R11–CV.

Supreme Court of Tennessee, at Knoxville.

Aug. 31, 2011 Session.March 27, 2012.

[363 S.W.3d 483]

Ronald S. Range, Jr., Johnson City, Tennessee, and Gary C. Shockley, Nashville, Tennessee, for the Appellant, Discover Bank.

Jennifer L. Chadwell, for the Appellee, Joy A. Morgan.


CORNELIA A. CLARK, C.J., delivered the opinion of the court, in which JANICE M. HOLDER, GARY R. WADE, WILLIAM C. KOCH, JR., and SHARON G. LEE, JJ., joined.


In this consumer protection case, we must determine which Tennessee Rule of Civil Procedure applies to a motion that seeks relief from a default judgment of liability on a counter-complaint, where the motion has been filed within thirty days of entry of the default, the trial court has not expressly directed the entry of judgment on the counter-complaint pursuant to Rule 54.02, and neither liability on the original complaint nor damages on the counter-complaint have been determined. We hold that Rule 54.02, rather than Rule 60.02, applies in this situation; however, we also hold that the same test applies to motions seeking relief from default judgment, under either rule, on the basis of “excusable neglect.” We also hold that actual damages are recoverable for loss of available credit under Tennessee Code Annotated section 47–18–109(a) (2001) of the Tennessee Consumer Protection Act where the plaintiff suffers a demonstrable loss of credit, proximately caused by the defendant, resulting in actual harm. For these reasons, we affirm the judgment of the Court of Appeals upholding the default judgment, vacating the award of damages, and remanding the case to the trial court for a new hearing on the amount of damages.

Factual and Procedural Background

This case began when Discover Bank (“Discover”) filed an action against Joy A. Morgan (“Morgan”) on March 23, 2006. In its complaint, Discover alleged that Morgan owed $16,341.52 in principal on a credit card issued by Discover, and that Morgan breached the cardmember agreement by failing to meet its payment terms. Accordingly, Discover sought a judgment for the principal and interest due, as well as for costs and attorney's fees.

Morgan filed an answer and counter-complaint on January 31, 2007.1 In her answer, Morgan denied that she had ever entered into a contractual agreement with Discover, alleging instead that her deceased husband had accepted the credit card and designated Morgan as a mere “authorized user” of the account. Morgan argued that she was not in breach of the cardmember agreement because she had no contractual agreement with Discover.

In her counter-complaint, Morgan alleged that Discover initially informed her that she would not be held responsible for the account if she provided a copy of her husband's death certificate. After receiving a copy of the death certificate, however, Discover sought collection of the balance from Morgan and reported her nonpayment to the credit reporting agency.

Morgan alleged that this collection action injured her credit in the following ways: she could not refinance her property as expected, (over a longer term at a lower and fixed interest rate), which would have lowered her monthly mortgage payments by at least $200 over fifteen years; her accounts were closed and her credit privileges were suspended by other companies, including MBNA, Citicard, Capital One Bank, and AT & T Universal, which

[363 S.W.3d 484]

reduced her available credit from $123,400 to $18,000; she was unable to open new credit accounts, including one for $400 with Sears Bank; the annual percentage rate (APR) on her other credit cards increased, including that of her Chase Visa card, which rose from 11.24% to 29.99%; and she could no longer purchase investment homes at the interest rate previously available to her.

In addition to common-law libel, Morgan alleged statutory causes of action under the Fair Debt Collections Practices Act (FDCPA), 15 U.S.C. §§ 1692–1692p (2006),2 the Fair Credit Reporting Act (FCRA), 15 U.S.C. §§ 1681– 1681x (2006), and the Tennessee Consumer Protection Act (TCPA), Tenn.Code Ann. §§ 47–18–101 to –130 (2001 & 2011 Supp.).

After being served, Discover contacted Morgan's counsel and obtained an extension of time to answer the counter-complaint until April 2, 2007, but that date passed with no response from Discover. Counsel for Morgan sent opposing counsel a letter, dated April 13, 2007, warning that if no answer were received within fourteen days, Morgan would seek default judgment on the counter-complaint, but Discover made no response.

Morgan filed a motion for default judgment on May 4, 2007, which the trial court granted on May 22, 2007. The order decreed that judgment be entered on the countercomplaint in Morgan's favor, but it did not mention Discover's pending complaint. Damages on the counter-complaint also remained unresolved.

Discover filed a motion to set aside the default judgment on June 8, 2007, which sought relief “pursuant to Rule 60.02 of the Tennessee Rules of Civil Procedure” on the ground that counsel for Discover had “documented the wrong hearing date” and that such “inadvertent error” was “excusable pursuant to Rule 60.02 of the Tennessee Rules of Civil Procedure.” Discover did not respond to the counter-complaint and offered no explanation for its ongoing failure to do so.

On February 18, 2008, Discover filed an amended motion to set aside the default judgment, in which it sought relief, as before, “pursuant to Rule 60 of the Tennessee Rules of Civil Procedure.” Also on February 18, 2008, Discover lodged a response to the countercomplaint, in which it denied liability. Moreover, although Discover could neither admit nor deny whether Morgan had ever been made a joint account holder, it alleged that Morgan had made a balance transfer of $14,500 to the Discover account after her husband died, on or about August 27, 2004. In support of this allegation, Discover submitted account statements indicating a payment of $14,500 on September 14, 2004, a purchase of airline tickets on September 21, 2004, and a balance transfer of $14,500 on October 4, 2004. Discover contended that these transactions made Morgan liable for the entire account balance.

On February 21, 2008, Morgan filed a response to the amended motion to set aside the default judgment, which admitted that Morgan had transferred $14,500 and purchased the airline tickets after her husband died—but again denied liability. On February 22, 2008, the trial court orally denied Discover's amended motion to set aside the default judgment after a hearing on the issue. 3

On March 17, 2008, Morgan filed a motion to dismiss the original complaint, “[d]ue to the mutually exclusive nature of the allegations contained in the Complaint

[363 S.W.3d 485]

and the Counter–Complaint,4 the Complaint filed by Discover Bank cannot survive in light of the entry of the default judgment on the Counter–Complaint.” On March 20, 2008, the trial court granted the motion to dismiss the complaint with prejudice.

The trial court denied Discover's motion to set aside the default judgment on April 4, 2008, noting Discover's failure to timely answer the counter-complaint or respond to the motion for default judgment. Without citing the Tennessee Rules of Civil Procedure, the trial court acknowledged that excusable neglect is a basis for setting aside a default judgment, but the court found that Discover's failure to timely answer the counter-complaint or to appear at the default judgment hearing did not constitute excusable neglect.

On April 22, 2008, Discover moved to set aside the dismissal of its complaint. As a procedural matter, Discover contended that the trial court violated its due process rights by dismissing the complaint ex parte and without proper notice.5 As to the merits, Discover argued that allegations in the complaint and counter-complaint could not be “mutually exclusive” because the latter sounded in tort while the former relied upon breach of contract.

On April 29, 2008, Discover's counsel appeared at a hearing, originally set ex parte to determine damages on the counter-complaint, although the trial court also heard arguments on Discover's motion to set aside the dismissal of its complaint.6 At the hearing, the court orally denied the motion to set aside the dismissal of the complaint, affirming its order of March 20, 2008. Morgan then testified as to her damages.

Morgan testified that since May 5, 2005, her available credit had decreased from $123,400 to $5,500,7 while the interest rates on her Chase card, which carried a balance of $3,000, had increased from 14% to 29.99%. Morgan also testified that, before February of 2005, her “credit cards had [an APR of] one percent, two percent, three percent, mostly.” She said that, after February of 2005, she had been denied a credit card for the first time, specifically a Sears Card for $400. Finally, Morgan testified that she could not refinance her home as she had anticipated, which forced her to take out a home equity line of credit instead, resulting in monthly payments $200 higher than the refinancing would have allowed. Morgan did not know what her credit score had been prior to February of 2005.8 She did not testify at the hearing about any inability to buy investment homes, as alleged in the countercomplaint. Morgan submitted no other evidence in support of these alleged damages.9

[363 S.W.3d 486]

On this evidence, the trial court found that Morgan had suffered a $117,900 reduction in available credit,10 $6,800 in additional Home Equity costs,11 and $500 in additional interest expenses on her credit cards,12 for a total of $125,200. The trial court made a provisional finding that the TCPA applied and trebled the damages to $375,600, citing Discover's “intentional actions.” 13 Finally, the trial court awarded Morgan attorney's fees of $4,460 for a grand total of $380,060.


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