First Nat. Bank v. Sankey Motors

• Decision Date: 03 April 2009
• Docket Number: No. 100,114.,100,114.
• Citation: 204 P.3d 1167
• Parties: FIRST NATIONAL BANK IN BELLEVILLE, Appellee, v. SANKEY MOTORS, INC., a Kansas Corporation, Ronald Sankey, Rhonda Sankey, Defendants, Chrysler Financial Company, LLC, Appellant, and Republic County, Kansas, Defendant.
• Court: Kansas Court of Appeals

204 P.3d 1167

FIRST NATIONAL BANK IN BELLEVILLE, Appellee, v. SANKEY MOTORS, INC., a Kansas Corporation, Ronald Sankey, Rhonda Sankey, Defendants Chrysler Financial Company, LLC, Appellant, and Republic County, Kansas, Defendant.

No. 100,114.

Court of Appeals of Kansas.

April 3, 2009.

Robert Minter and Creath L. Pollack, of Minter & Pollack, of Wichita, for appellant.

Nathanael Berg, of Hampton & Royce, L.C., of Salina, for appellee.

Before BUSER, P.J., ELLIOTT and GREEN, JJ.

GREEN, J.

Chrysler Financial Company, LLC, n/k/a DaimlerChrysler Financial Services Americas, LLC (Chrysler), appeals from the trial court's judgment denying Chrysler's motion to set aside the default judgment for $80,700 entered against it and in favor of First National Bank in Belleville (Bank). First, Chrysler argues that the trial court abused its discretion in not setting aside the default judgment under K.S.A. 60-260(b)(1) or (b)(5). Nevertheless, we agree with the trial court that Chrysler failed to show that there was excusable neglect to warrant setting aside the default judgment under K.S.A. 60-260(b)(1). Moreover, K.S.A. 60-260(b)(5) is inapplicable to this case because the Bank's money judgment against Chrysler did not have prospective application and because there was no change in conditions occurring after the entry of default judgment that would make continued enforcement of the judgment inequitable.

Next, Chrysler contends that because the damages requested in the Bank's petition were unliquidated, the Bank's failure to comply with Supreme Court Rule 118 (2008 Kan. Ct. R. Annot. 200) makes the default judgment voidable. We agree with Chrysler's argument. There is nothing in the record to establish the date on which the damages claimed in the Bank's petition became due and the actual amount that Chrysler owed the Bank. As a result, we determine that the damages claimed in the Bank's petition represent an unliquidated amount. The Bank's failure to comply with Supreme Court Rule 118(d) in notifying Chrysler of its motion for default judgment renders the default judgment voidable. Because Chrysler, the named defendant in this case, has successfully challenged the entry of default judgment, the judgment is declared void. Accordingly, we reverse and remand.

In 2004, the Bank entered into a financing arrangement with Ronald and Rhonda Sankey and Sankey Motors, Inc. (Dealership), in which the Bank provided operating funds and purchase money for automobiles and real property for the Dealership. The Bank secured this financing arrangement with promissory notes, various mortgages, and Uniform Commercial Code (UCC) filings. The UCC filings included, among other things, a security interest in the Dealership's accounts receivable. The Sankeys and the Dealership eventually defaulted on their financing arrangement with the Bank.

On January 26, 2006, the Bank sued the Dealership; the Sankeys; Chrysler; and Republic County, which held a tax lien against certain real property owned by the Dealership. In Count II of its petition, the Bank claimed that the Dealership had an $80,700 account receivable due to it by Chrysler. The Bank asked that Chrysler be ordered to pay the outstanding balance of the account receivable. In addition, the Bank asked for a money judgment against the Sankeys and the Dealership; for rulings regarding the Bank's interests in certain real and personal property; and for the sale of the real and personal property.

Chrysler's registered agent was served with the petition. Nevertheless, Chrysler failed to answer the Bank's petition or to file any other responsive pleading in the case. On April 24, 2006, the Bank moved for default judgment against Chrysler. The Bank mailed Chrysler a copy of its motion for default judgment by regular mail. The trial court entered a default judgment against Ronald Sankey and the Dealership on June 6, 2006. The journal entry of default judgment against Sankey and the Dealership provided that Chrysler was in default but that the Bank's claim against Chrysler would be determined at a separate time.

Apparently, on June 6, 2006, a subpoena was sent to Chrysler requesting all of its records regarding its contractual relationship with the Dealership. Chrysler did not respond to the subpoena. On June 12, 2006, a second copy of the motion for default judgment was sent to Chrysler via its registered agent. The Bank also attempted to contact an individual from Chrysler through Chrysler's automated voice answering system.

The trial court entered a default judgment against Chrysler on July 28, 2006. Although the journal entry of default judgment indicates that an evidentiary hearing was held on Chrysler's motion for default judgment, there is no transcript of this hearing in the appellate record. In awarding the Bank judgment of $80,700 plus interest, the journal entry provides:

"5. The Court generally finds in favor of Plaintiff and finds that the allegations of First National Bank of Belleville's Petition are true and correct.

"6. Defendant Sankey Motors, Inc., has an account receivable due to it by Defendant Chrysler Financial Company, LLC in the amount of $80,700.00."

The trial court determined that the Bank had a perfected security interest and was entitled to the account receivable from Chrysler. A copy of the journal entry was sent to Chrysler's registered agent by regular mail.

The Bank later contacted another local Chrysler dealership regarding the best way to contact an attorney for it. Thereafter, a Chrysler attorney contacted the Bank and requested a copy of the legal proceedings. A complete copy of the legal proceedings was sent to Chrysler's attorney on September 28, 2006.

On February 13, 2007, Chrysler moved to set aside the default judgment entered against it. Chrysler acknowledged that service of process had been made on its registered agent. Nevertheless, Chrysler argued that the default judgment should be set aside based on excusable neglect under K.S.A. 60-260. Chrysler asserted that the registered agent miscoded the action as a foreclosure action. Therefore, all pleadings had been forwarded to the wrong Chrysler service center and mistakenly designated as related to foreclosure.

Chrysler further maintained that because it had no judgment against the defendants or claims that it wished to make in the foreclosure action, it had taken no action in the lawsuit. Chrysler further argued that it had a valid defense to the lawsuit because there was no evidence that Chrysler had any liability. Chrysler asserted that the Bank had sued the wrong entity as part returns are an obligation of the manufacturer or supplier, which presumably would be the separate entity of Chrysler Corporation or Daimler Chrysler Corporation. Moreover, Chrysler argued that the Bank's claim against it appeared to be for unliquidated damages and that the Bank's failure to comply with Supreme Court Rule 118 (2008 Kan. Ct. R. Annot. 200) rendered the default judgment voidable.

The Bank filed a written objection to Chrysler's motion to set aside the default judgment. After holding a nonevidentiary hearing, the trial court denied Chrysler's motion to set aside the default judgment. The trial court determined that Chrysler could not meet its burden to establish excusable neglect in its decision to not respond to the Bank's petition and other documentation. The trial court further determined that Supreme Court Rule 118(d) had no application to the instant case because the specific sum of $80,700 recited in the petition represented liquidated damages. Moreover, the trial court noted that Chrysler had been notified by mail that the Bank had intended to proceed to obtain a default judgment. The trial court found that the default judgment was not entered until 3 months later, which gave Chrysler ample opportunity to investigate and respond to the Bank's motion for default judgment.

I. Did the trial court abuse its discretion in not setting aside the default judgment under K.S.A. 60-260(b)?

First, Chrysler argues that the trial court abused its discretion in not setting aside the default judgment under K.S.A. 60-260(b). "In determining whether to set aside a default judgment, a court should resolve any doubt in favor of the motion so that cases may be decided on their merits. [Citation omitted.]" Bazine State Bank v. Pawnee Prod. Serv., Inc., 245 Kan. 490, 495, 781 P.2d 1077 (1989), cert. denied 495 U.S. 932, 110 S.Ct. 2173, 109 L.Ed.2d 502 (1990). Nevertheless, a decision to set aside a default judgment rests within the discretion of the trial court and will be disturbed only upon a showing of abuse of discretion. Producers Equip. Sales, Inc. v. Thomason, 15 Kan. App.2d 393, 396, 808 P.2d 881 (1991). An abuse of discretion will be found only when no reasonable person would take the view of the trial court. In re A.A., 38 Kan.App.2d 1100, 1105, 176 P.3d 237, rev. denied 286 Kan. 1177 (2008).

K.S.A. 60-260(b) states in relevant part:

"On motion and upon such terms as are just, the court may relieve a party or said party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under K.S.A. 60-259(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2) and (3) not more than one year after the judgment, order, or...