Green v. Karol

• Decision Date: 17 March 1976
• Docket Number: No. 3--174A16,3--174A16
• Citation: 344 N.E.2d 106,168 Ind.App. 467
• Parties: , Blue Sky L. Rep. P 71,284, Fed. Sec. L. Rep. P 95,490 Robert F. GREEN, Appellant (Plaintiff below), v. Herbert J. KAROL, Appellee (Defendant below).
• Court: Indiana Appellate Court

Page 106

344 N.E.2d 106

168 Ind.App. 467, Blue Sky L. Rep. P 71,284,

Fed. Sec. L. Rep. P 95,490

Robert F. GREEN, Appellant (Plaintiff below), v. Herbert J. KAROL, Appellee (Defendant below).

No. 3--174A16.

Court of Appeals of Indiana, Thrid District.

March 17, 1976.

C. David Peebles, Fort Wayne, for appellant.

Clifford E. Simon, Jr., Shoaff, Keegan, Baird & Simon, Fort Wayne, for appellee.

STATON, Presiding Judge.

In early 1967, Dr. Robert Green purchased securities issued by Ingenio la Garita S.A., a Costa Rican corporation. Green paid the corporation $30,000.00 for these securities, which were issued in $6,000.00 units consisting of one debenture with a face value of $5,850.00 and one share of stock with a face value of $150.00. Green received ten shares of stock and no debentures. At the time of the transaction, the securities of the corporation were not registered under the Indiana Securities Law ¹ or under federal law. ²

During the fall and winter of 1966, Dr. Herbert Karol had actively encouraged Green to purchase the corporation's securities. Karol had arranged and attended several formal and informal meetings and talks with Green, at which times Karol spoke highly of the prospects of the corporation and its management.

Green instituted the present action against Karol in May 1972, alleging in four counts that Karol was liable to Green for the purchase price of the securities on the following theories:

(1) selling and delivering securities in violation of federal and state securities laws (Count I);

(2) money had and received (Counts II and III); and

(3) common law fraud (Count IV).

Karol was defaulted for failure to plead, but the default entry was set aside. Trial by jury began on August 22, 1973. After Green presented his evidence, the trial court granted Karol's motion for directed verdict as to Counts I, II, and III. ³ In his appeal to this Court, Green raises the following issues:

(1) Did the trial court abuse its discretion when it set aside the entry of default for failure to plead?

(2) Did the trial court err in directing a verdict for Karol on the issues of securities law violations and money had and received?

We conclude that the trial court committed no reversible errors, and we affirm.

I. Default

Judgments by default are governed by Indiana Rules of Procedure, Trial Rule 55, which provides in part:

'(A) Entry. When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise comply with these rules and that fact is made to appear by affidavit or otherwise, the party may be defaulted.

'(B) Default judgment. In all cases the party entitled to a judgment by default shall apply to the court therefor; but no judgment by default shall be entered against a person known to be an infant or incompetent unless represented in the action by a general guardian, committee, conservator, or other such representative who has appeared therein. If the party against whom judgment by default is sought has appeared in the action, he . . . shall be served with written notice of the application for judgment at least three (3) days prior to the hearing on such application. If, in order to enable the court to enter judgment or to carry it into effect, it is necessary to take an account or to determine the amount of damages or to establish the truth of any averment by evidence or to make an investigation of any other matter, the court may conduct such hearing or order such references as it deems necessary and proper and shall accord a right of trial by jury to the parties when and as required.

'(C) Setting aside default. A judgment by default which has been entered may be set aside by the court for the grounds and in accordance with the provisions of Rule 60(B).'

Trial Rule 55(A) provides the basis for holding a party in default. If a party is in default, or can be defaulted, then Trial Rule 55(B) provides the procedure for obtaining a default judgment. See W. Harvey, 3 Indiana Practice 34--35 (Supp.1975). Once a judgment by default has been entered, Trial Rule 55(C) provides that it can be set aside only in accordance with the grounds and procedures of Trial Rule 60(B). ⁴

Even though there is a technical default, the nondefaulting party is not entitled to a judgment by default as a matter of right. The decision whether or not to enter a judgment by default is within the sound discretion of the trial court. Citizens Nat'l Bank v. First Nat'l Bank (1975), Ind.App., 331 N.E.2d 471. See also, e.g., Duling v. Markun (7th Cir. 1956), 231 F.2d 833, cert. denied, 352 U.S. 870, 77 S.Ct. 96, 1 L.Ed.2d 76; Papagianakis v. The Samos (4th Cir. 1950), 186 F.2d 257, cert. denied,341 U.S. 921, 71 S.Ct. 741, 95 L.Ed. 1354 (1951). The trial court's discretion is considerable. On the one hand, a default judgment plays an important role in the maintenance of an orderly, efficient judicial system as a weapon for enforcing compliance with the rules of procedure and for facilitating the speedy determination of litigation. On the other hand, there is a marked judicial preference for deciding disputes on their merits and for giving parties their day in court, especially in cases involving material issues of fact, ⁵ substantial amounts of money, ⁶ or weighty policy determinations. ⁷ See C. Wright & A. Miller, 10 Federal Practice and Procedure § 2681 (1973). The trial court, in its discretion, must balance these factors in light of the circumstances of each case.

In the present case, the summons and complaint were served on Karol on May 3, 1972, and Karol's counsel entered an appearance on May 10, 1972. On June 5, 1972, Green filed an affidavit for default for failure to plead. A hearing was set for August 11, 1972, and notice was sent to Karol's counsel. On June 14, 1972, Karol's counsel filed a motion to set aside the default entry and, on June 20, 1972, filed a supplemental motion, in which he stated:

'5. By reason of the press of business, preoccupation of Counsel therewith and the inadvertent scheduling of Karol's file, within Counsel's Office, the time for filing a responsive pleading and/or motion expired without knowledge of counsel.

'6. Karol has a meritorious defense to Plaintiff's Complaint and the setting aside of the default taken herein against Karol could not, in any manner, prejudice the rights of the parties hereto.'

On July 18, 1972, after argument and before a default judgment was entered against Karol, the trial court set aside the default. Karol filed an answer to the complaint on July 24, 1972, and trial by jury began on August 22, 1973.

Our review is for an abuse of discretion by the trial court when it set aside the default entry and allowed Karol to plead. Clark County State Bank v. Bennett (1975), Ind.App., 336 N.E.2d 663. The defaulted party has the burden to show the trial court why a default judgment would result in an injustice and why his failure to plead should be excused. See Moldwood Corp. v. Stutts (5th Cir. 1969), 410 F.2d 351; Clark County State Bank v. Bennett, supra (setting aside default judgment). However, a default judgment is not generally favored, and any doubt of its propriety must be resolved in favor of the defaulted party. See, e.g., Finch v. Big Chief Drilling Co. (E.D.Texas 1972), 56 F.R.D. 456; Indiana Travelers' Accident Ass'n v. Doherty (1919), 70 Ind.App. 214, 123 N.E. 242. If we consider the substantial amount of money involved in the present case, the material issues of fact accompanying the allegations of common law fraud and securities law violations, the existence on a meritorious defense to the action, the apparent inadvertence of the delay, the short length of the delay, and lack of prejudice to Green by the delay, we conclude that the trial court did not abuse its discretion in allowing the case to be heard on the merits.

Green argues that Karol's allegations of 'press of business' and 'inadvertent scheduling' amount only to negligence, which cannot be condoned and which does not establish 'excusable neglect.' Minneapolis Brewing Co. v. Merritt (D.N.D.1956), 143 F.Supp. 146; Federal Enterprises, Inc. v. Frank Allbritten Motors, Inc. (W.D.Mo.1954), 16 F.R.D. 109. TR. 55 does not impose explicit standards to be applied by the trial court when it is setting aside a mere entry of default. Only when a default judgment has been entered does TR. 55(C) call into play the TR. 60(B) standards, one of which is 'excusable neglect.' In determining whether or not to enter a default judgment after a technical default has been noted, the trial court must exercise its discretion in light of all the circumstances of the case. See Kreczmer v. Allied Constr. Co. (1972), 152 Ind.App. 665, 284 N.E.2d 869.

II. Directed Verdict

When a motion for judgment on the evidence (directed verdict) is made under Trial Rule 50 of the Indiana Rules of Procedure, the court must draw all fair and rational inferences from the evidence in favor of the party opposing the motion. The motion should be granted only when there is insufficient evidence to support a verdict for the non-moving party, that is, when there is a lack of evidence upon one of the factual issues necessary to support the verdict or when a defense to the action is proved by the evidence. Miller v. Griesel (1974), Ind., 308 N.E.2d 701, 707; Mamula v. Ford Motor Co. (1971), 150 Ind.App. 179, 275 N.E.2d 849.

We conclude that the trial court did not err in directing a verdict for defendant Karol on the issues of violation of the Indiana Securities Law, violation of federal securities laws, and money had and received. The securities law violations were barred by the applicable statutes of limitations, a defense, and there is no evidence to support liability on the theory of money had and received.

A. Indiana Securities Law Violations

Green purchased securities in Ingenio la Garita S.A. by checks dated January 19, 1967 (a downpayment of $5,000.00) and February 24, 1967 (the balance of the...