Jones v. Hydro-Wave of Alabama, Inc., HYDRO-WAVE

• Decision Date: 01 April 1988
• Docket Number: HYDRO-WAVE
• Citation: 524 So.2d 610
• Parties: Tom JONES v.OF ALABAMA, INC. 86-326.
• Court: Alabama Supreme Court

Page 610

524 So.2d 610

Tom JONES v. HYDRO-WAVE OF ALABAMA, INC.

86-326.

Supreme Court of Alabama.

April 1, 1988.

Randy D. Whitten, Florence, for appellant.

John O. Morrow, Jr., Florence, for appellee.

HOUSTON, Justice.

Tom Jones, the defendant, appeals from the trial court's denial of his motion to set aside a default judgment in the amount of $75,000 entered in favor of Hydro-Wave of Alabama, Inc.

This action began in 1984 when Hydro-Wave of Alabama, Inc., filed a 12-count complaint against Hydro-Wave, Inc., and several of its agents, including Tom Jones, alleging breach of contract and fraud. The dispute between the parties emanates from a contract in which Hydro-Wave, Inc., agreed to purchase 500 Hydro-Wave "instant demand" water heaters from Hydro-Wave of Alabama. Hydro-Wave of Alabama alleges that, relying on the defendants' contractual obligation to purchase the water heaters upon completion, it borrowed money for the purpose of manufacturing the water heaters, and did so to its detriment. When Hydro-Wave of Alabama presented the finished water heaters to the defendants for purchase, the defendants rejected them, giving as their reason defectiveness of the finished products. In their timely filed answer, Hydro-Wave, Inc., and the individual defendants, including Tom Jones, set forth as their affirmative defense the plaintiff's failure to comply with the conditions of the contract by manufacturing defective water heaters. On February 11, 1985, because of the defendants' failure to obey the trial court's discovery orders, which compelled them to produce documents for inspection by the plaintiff and because of their delays in answering interrogatories, plaintiff filed a motion for default judgment. On February 15, 1985, defendant Hydro-Wave, Inc., answered the interrogatories, explaining in detail why the water heaters were, in its opinion, defective and thus unworthy of serving the purpose for which they were to be purchased. In essence, the defendant asserted the defense of breach of contract on the ground that the plaintiff did not manufacture functional water heaters consistent with the plans supplied by Hydro-Wave, Inc. In response to the plaintiff's motion for default judgment, the trial court entered an order on March 6, 1985, directing the defendants to comply with its discovery orders or, in the alternative, to provide the court with substantial reasons for their failure to do so. Apparently, the defendants had not yet produced the documents requested by the plaintiffs. On May 17, 1985, predicating its decision on the failure of Hydro-Wave, Inc., to comply with its March 6 order, the trial court entered a default judgment against defendant Hydro-Wave, Inc.; and, in accordance with a consent judgment agreed upon by Hydro-Wave, Inc., and Hydro-Wave of Alabama, the trial court entered a judgment in the amount of $70,000 against defendant Hydro-Wave, Inc.

Meanwhile, the plaintiff continued its suit against Tom Jones, claiming damages incurred from Jones's alleged breach of contract and from his alleged fraud. The plaintiff moved for summary judgment and stated in an affidavit supporting its motion that Tom Jones, as an agent of Hydro-Wave, Inc., approached Hydro-Wave of Alabama with a proposal for it to build water heaters to be purchased by Hydro-Wave, Inc., upon completion and then influenced the First National Bank of Florence to lend the plaintiff the money to manufacture the water heaters by assuring the bank that he and Hydro-Wave, Inc., would purchase them. According to the plaintiff, Jones's representation induced it to enter a contract with Hydro-Wave, Inc., and, in turn, to manufacture the water heaters, to its detriment.

The day before the summary judgment hearing, Jones retained new counsel; his first attorney, after court approval, withdrew, stating that his "relationship with Mr. Jones over the past several months has been more adversarial than advisory." Jones submitted an affidavit in opposition to the motion for summary judgment in which he disclaimed any responsibility for contractual commitments made by Hydro-Wave, Inc., and not by him. Jones stated that he made no representation to the First National Bank of Florence that he individually intended to purchase the water heaters. He further stated that at all times he acted solely as a representative of Hydro-Wave, Inc., and not in an individual capacity and that, when he entered discussions with the plaintiff and the bank, the contract between Hydro-Wave, Inc., and Hydro-Wave of Alabama had already been entered. The trial court denied the plaintiff's motion for summary judgment.

On September 22, 1986, the day on which the case was set for trial, Jones failed to appear. In view of this, the trial judge proposed entering a default judgment; but, when Jones's attorney informed him that his client had had no prior knowledge of the trial date, the trial judge postponed the case until September 24. The trial court later changed this date to September 25, in spite of Jones's objections that this change conflicted with his out-of-town business engagements. On September 25, 1986, Jones once again failed to appear for trial, and, consequently, the trial judge entered a default judgment against him for $75,000. Jones then filed a motion to set aside the default judgment. In addition to averring the existence of a meritorious defense, Jones argued that his nonappearance was attributable to an illness that prevented him from traveling the long distance from Oklahoma to Alabama. The record shows that Jones did in fact visit the Norman Manor Emergency Center in Norman, Oklahoma, on September 24, 1986, and was treated there by the attending physician, Dr. Husky, who diagnosed Jones's illness as a syncopal episode, or in laymen's terms, a faint. The trial court denied the motion, and Jones appeals.

The issue here is whether the trial court abused its discretion in denying Jones's motion to set aside the default judgment. For the reasons set out below, we hold that the trial court did not abuse its discretion.

The parties' briefs indicate some confusion as to whether Jones sought to have the default judgment set aside pursuant to Rule 55(c), Ala.R.Civ.P., or pursuant to Rule 60(b). Because Jones called the motion a "Motion to set aside Default Judgment" and because he did not expressly set out any of the grounds for relief from judgment enumerated under Rule 60(b), it appears that Jones intended to invoke Rule 55(c) and not Rule 60(b). Moreover, Jones filed the motion within the 30-day period after entry of judgment, as mandated by Rule 55(c). For these reasons, we will consider Jones's motion to be a Rule 55(c) motion.

I.

The pertinent part of Rule 55(c) provides: "The court may also set aside a judgment by default on the motion of a party filed not later than 30 days after the entry of the judgment." Although Rule 55(c) vests a trial judge with an extensive amount of discretionary authority, a ruling on a Rule 55(c) motion must not be made without taking into consideration restrictions on the use of that discretion and without examining certain guidelines. First, a trial judge, in exercising his discretion under Rule 55(c), must begin with the presumption that a litigant has a paramount right to defend on the merits and that, therefore, cases should be resolved on the merits whenever practicable. Kirtland v. Fort Morgan Authority Sewer Service, Inc., 524 So.2d 600 (Ala.1988); Article I, Section 10, Alabama Constitution of 1901; Hritz v. Woma Corp., 732 F.2d 1178, 1181 (3rd Cir.1984). See Ex parte Illinois Central Gulf R.R., 514 So.2d 1283 (Ala.1987) (stating that Rule 55(c) contemplates a liberal exercise of discretion in favor of setting aside default judgments); and Oliver v. Sawyer, 359 So.2d 368 (Ala.1978) (doubts should be resolved in favor of the defaulting party). Second, when exercising discretion under Rule 55(c), a trial court must consider the three-factor analysis enunciated by this Court in Kirtland v. Fort Morgan Authority Sewer Service, Inc., supra. As a threshold matter, a trial court must peruse the defaulting party's answer, the motion to set aside the default judgment, the motion's supporting affidavits, any other affidavits submitted by the defaulting party such as affidavits associated with summary judgment proceedings, and any relevant discovery matters to ascertain whether the defaulting party has shown the existence of a meritorious defense. The defaulting party does not have to prove the meritorious defense. But, the defaulting party must set forth with sufficient particularity a plausible defense--a defense predicated on a viable legal theory and a strong factual basis that counters the cause of action averred in the complaint. The defense must be of sufficient merit to induce the trial court reasonably to infer that allowing the defense to be litigated could foreseeably alter the outcome of the case. To be more precise, a defaulting party has satisfactorily made a showing of a meritorious defense when allegations in an answer or in a motion to set aside the default judgment and its supporting affidavits, if proven at trial, would constitute a complete defense to the action, or when sufficient evidence has been adduced either by way of affidavit or by some other means that would warrant submission of the case to the jury. Kirtland v. Fort Morgan Authority Sewer Service, Inc., supra. Next, the trial court must determine whether the non-defaulting party would be substantially prejudiced if the default judgment is vacated. Last, the trial court must determine whether the defaulting party was culpable in committing the default. Id.

II.

Applying these principles to the facts of this case, we hold that the trial court did not abuse its discretion in denying Jones's Rule 55(c) motion.

a) Presentation of a Meritorious Defense

After reviewing Jones's Rule 55(c) motion, his answer, and his affidavit in...