Dominion Mech. Contractors v. E.C. Ernst, Inc.
| Decision Date | 24 March 2022 |
| Docket Number | 236-2021 |
| Court | Court of Special Appeals of Maryland |
| Parties | Dominion Mechanical Contractors, Inc., et al. v. E.C. Ernst, Inc. |
Circuit Court for Queen Anne's County Case No C-17-CV-20-000121
OPINION [*]
A subcontractor filed suit against its prime contractor, a Virginia corporation. The subcontractor also filed suit against five of the prime contractor's officers and employees, all of whom were alleged to be residents of Virginia. The Circuit Court for Queen Anne's County entered default judgments against the prime contractor and each of the officers and employees. They appealed.
For the reasons stated in this opinion, we conclude that the court erred in entering the default judgments. Therefore, we shall vacate the judgments and remand for further proceedings.
On June 25, 2020, appellee E.C. Ernst, Inc. ("Ernst"), filed a complaint in the Circuit Court for Queen Anne's County. As defendants, Ernst named Dominion Mechanical Contractors, Inc. ("Dominion"), as well as five of its officers and employees.
In Count I of the complaint, Ernst alleged that Dominion had breached a contract by failing to pay $54, 490.00 for the labor and materials that Ernst had provided in connection with a job in Baltimore City. In Counts II through IV, Ernst alleged that each of the individual officers and employees had violated the Maryland Construction Trust Statute, Md. Code , § 9-201 to -204 of the Real Property Article, by knowingly and wrongfully retaining and misappropriating the funds that the project owner had paid to Dominion for Ernst's work.[1]
Ernst's complaint alleged that Dominion is a Virginia corporation licensed to do business in Maryland. It also alleged that three of the individual defendants, Will McAteer, Douglas Seal, and David Coffee, are Virginia residents who "serve as principal officers of Dominion" and "exercise control over the operating accounts and finances of Dominion, including monies paid" to Dominion for Ernst's work and materials. The complaint went on to allege that the two other individual defendants, Brian Colella and Karin Fellows, are Virginia residents who "exercised control over whether to pay [Ernst] for monies received . . . for labor and material[]" by "provid[ing] signed lien releases . . . wherein they falsely asserted that Dominion had paid, or that funds paid pursuant to the lien releases would be used to pay," Ernst for its services and materials. The complaint did not allege that the individual defendants engaged in any of that alleged conduct in Maryland.
The court issued summonses on June 26, 2020. According to affidavits of service filed on August 26, 2020, Ernst personally served defendants Colella, Coffee, and McAteer at their Virginia residences in July and August of 2020. Ernst, however, did not succeed in personally serving defendants Dominion, Seal, or Fellows before the initial summonses expired. See Md. Rule 2-113 ().
On September 2, 2020, Ernst requested and obtained renewed summonses for defendants Seal and Fellows. In requesting the summonses, Ernst stated that it had received updated information about where to serve those defendants. The updated address for Fellows was the address of Dominion's primary place of business in Springfield, Virginia.
On September 11, 2020, Ernst filed affidavits of service for Seal and Fellows. The affidavit of service for Fellows stated that she had been served at a residential address in Dumfries, Virginia, not at the address stated on the summons.
Ernst did not serve Dominion.
The individual defendants did not file timely answers. Consequently, on December 29, 2020, Ernst moved for orders of default against them. Ernst did not move for an order of default against Dominion, because it had not yet been served with process (and thus had not failed to file a timely response to the complaint).
In its motion for the entry of orders of default against the individual defendants, Ernst identified their last-known addresses. For Fellows, Ernst listed the Dumfries residence where she had been served with process.
The next day, December 30, 2020, the court granted Ernst's request and entered orders of default against the five individual defendants. Later that day, the clerk of the court sent notice of these default orders to each individual defendant at the addresses listed in Ernst's motion, with one exception: instead of sending the default order against Fellows to her residential address in Dumfries, as requested by Ernst, the clerk mailed her notice to Dominion's corporate address in Springfield, which was listed in the reissued summons.
On January 5, 2021, the court sent notice of a remote hearing to each of the individual defendants. The notice stated that the hearing would occur at 2:00 p.m. on February 23, 2021. According to the notice, the purpose of the hearing was to consider "Default and any pending motions or other motions served at least 20 days before that time and for the other matters relevant to the management of the action." As before, the clerk sent the notice for Fellows to Dominion's corporate address in Springfield, rather than her residential address in Dumfries.
On February 2, 2021, Ernst requested a renewed summons for Dominion. The next day, the court issued another summons for service on Dominion's resident agent, Corporation Trust, at an address in Maryland.
At 1:52 p.m. on February 23, 2001, eight minutes before the remote hearing was to begin, the individual defendants moved to vacate the orders of default. In support of the motion, the defendants proffered that Dominion "is now insolvent and no longer in operation" and that all of the individual defendants, who "were once employees of Dominion," "believed that their interests were actively being represented by the legal counsel retained to represent them in this case." The individual defendants asserted a common defense, "that none of them had any control over Dominion's inability to pay [Ernst] because Dominion's lender . . . unlawfully seized Dominion's operating account," which contained the funds that "would have been used to pay" Ernst. Citing an unsigned affidavit that accompanied the motion, the individual defendants maintained that they "did not willfully disregard the Maryland Rules." They asserted that they had engaged counsel to represent them and Dominion, but that counsel had become ill with COVID-19 and had failed to perform his obligations. They also asserted that they had "recently" retained their current counsel.
According to the unsigned affidavit of defendant Coffee, a principal shareholder who served as Dominion's vice-president, the company's surety declared a default and withdrew bonding for Dominion's projects when the lender seized the company's operating account. As a consequence, the affidavit averred, the business became "irreversibly insolvent" and was forced "to close its doors." The affidavit also averred that Coffee had hired an attorney to represent Dominion and the individual defendants, but that the attorney had become ill during the COVID-19 pandemic and had failed to render the services that he was engaged to perform. According to the affidavit, Coffee had taken steps to engage the individual defendants' current counsel when he learned of the pending hearing on the motion for a default judgment.
In a series of additional affidavits (one of which was unsigned), the other individual defendants echoed the assertions in the Coffee affidavit: they said that they had no ability to pay Ernst, because Dominion's lender had seized its operating account; they believed that they were being represented by counsel until they learned of the motion for a default judgment; and they took steps to engage their current counsel when they learned that their attorney had failed to perform his obligations and that the court had set a hearing on the motion for a default judgment.
In addition to these common grounds for relief, defendant Brian Colella, in an unsigned affidavit, disputed that he had ever been personally served with process.
When the remote hearing began at 2:00 p.m. on February 23, 2021, defense counsel explained that the individual defendants had reached out to her firm the previous afternoon and that she had prepared the motion to vacate as soon as the firm determined that it had no conflicts of interest. The court responded that it had entered the order of default two months earlier and that the hearing concerned the question of damages. Defense counsel replied that Dominion had "yet to be served." She added that the individual defendants had previously engaged another attorney to represent them, that the attorney had become ill with COVID-19 and had been unable to represent them, and that the individual defendants had been unaware of the attorney's inaction.
Counsel for Ernst pointed out that the individual defendants had filed the motion to vacate more than 30 days after the deadline in Rule 2-613(d) and 48 days after the court gave notice of the hearing.[2] Counsel also pointed out that the individual defendants had not engaged counsel until the day before the hearing. He characterized the last-minute motion as "unfair" and insisted that the court proceed to consider the amount of damages.
The court told defense counsel that it would proceed to hear testimony on damages, subject to its review of the motion to vacate the orders of default.
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