Kelly v. Bank of Reynolds

• Decision Date: 16 December 1976
• Docket Number: No. 2--1274A295,2--1274A295
• Parties: Raymond E. KELLY, Appellant (Defendant below), v. BANK OF REYNOLDS, Appellee (Plaintiff below).
• Court: Indiana Appellate Court

Page 146

358 N.E.2d 146

171 Ind.App. 515

Raymond E. KELLY, Appellant (Defendant below), v. BANK OF REYNOLDS, Appellee (Plaintiff below).

No. 2--1274A295.

Court of Appeals of Indiana, Second District.

Dec. 16, 1976.

Clifford M. DeWitt, Indianapolis, for appellant.

John C. McLaughlin, Dellinger, Dellinger & McLaughlin, Monticello, for appellee.

SULLIVAN, Judge.

Three issues are presented for resolution in this appeal:

1. Whether a default judgment may be challenged by a motion to correct errors;

2. Whether Kelly's motion to correct errors was sufficiently specific to preserve the error argued;

3. Whether the withdrawal of the appearance of an attorney withdraws all of the pleadings which have been filed on behalf of the client.

Appellee Bank of Reynolds (Bank) filed suit against Appellant Raymond E. Kelly (Kelly), and Dale W. Kelly ¹ alleging money owed upon a promissory note. Although the summons to Kelly was returned unserved he entered an appearance by counsel after learning of the suit through a third party. The attorney filed an answer and counter-claim upon Kelly's behalf. Bank responded to the counter-claim. Kelly's attorney subsequently moved for leave to withdraw from the case, stating that a third party had interfered with his relationship with Kelly, thus making it impossible for him to effectively represent his client. On that day, May 20, 1974 the trial court granted counsel leave to withdraw, and Bank on the same day sent notice to Kelly that it had requested a default judgment, stating as basis therefor that Kelly's attorney had 'withdrawn his appearance and no other party (had) entered an appearance on (his) behalf.' ² The actual withdrawal by Kelly's counsel was filed four days thereafter. Bank subsequently on June 18, 1974 filed its motion for default judgment. The court on that day entered the default and judgment thereon against Kelly.

Following judgment, Kelly retained a new attorney who timely filed a motion to correct errors alleging, pursuant to TR. 59(A)(2), that 'there was accident and surprise which ordinary prudence could not have guarded against in that there was a withdrawal by defense counsel which the Trial Court ruled to constitute the same thing as if the defense attorney never had appeared even though there was an answer of denial and counterclaim by the defense outstanding in the record in this cause.' It was also asserted that the judgment was subject to correction pursuant to TR. 59(A)(7). The trial court overruled that motion as follows:

'The record shows that on May 20, 1974 plaintiff filed Motion for Default Judgment and notice was duly given. May 24, 1974 counsel for defendant withdrew his appearance. June 18, 1974 plaintiff in open court proceeded to take Default Judgment.

'It so appearing from the record that there was no undue surprise and the defendant had ample opportunity, it would further seem that a Motion to Correct Error is not the best remedy to attack this question.'

Kelly then filed a motion pursuant to TR. 60(B)(1), again alleging surprise in that an answer had been filed, and that the cause had been disposed of without trial. In ruling on this motion, the trial court specifically stated that the withdrawal of the appearance of the attorney withdrew all pleadings filed by that attorney, thus leaving the case as if no appearance had ever been filed. The court found that Kelly had not shown sufficient reason for setting aside the default and overruled the motion. Kelly appealed from the overruling of his initial motion to correct errors, but did not file a second motion to correct errors addressed to the overruling of his TR. 60(B) motion.

I

IT WAS PROPER FOR KELLY TO CHALLENGE THE DEFAULT JUDGMENT

VIA A TR. 59 MOTION TO CORRECT ERRORS

Indiana Rules of Procedure TR. 55(C) reads:

'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).'

This provision has been interpreted by the First District of this Court to be exclusive, i.e., the only way to set aside a default judgment is via a TR. 60(B) motion. Yerkes v. Washington Manufacturing Co., Inc. (1st Dist. 1975), Ind.App., 326 N.E.2d 629. We disagree with the inflexibility of this interpretation, and hold that under the facts before us, Kelly's TR. 59 motion to correct errors was a proper method to challenge the trial court's judgment.

Indiana courts have long had both statutory and inherent equitable powers to set aside or modify erroneous or inequitable judgments. Clouser v. Mock (1959), 239 Ind. 143, 155 N.E.2d 745; Indianapolis Life Ins. Co. v. Lundquist (1944), 222 Ind. 359, 53 N.E.2d 338; Wadkins v. Thornton (2d Dist. 1972), 151 Ind.App. 380, 279 N.E.2d 849; King v. King (1948), 119 Ind.App. 46, 82 N.E.2d 527. Before the current rules of trial procedure became effective on January 1, 1970, a litigant who felt aggrieved was faced with a bewildering array of writs, rules, and statutes for attacking judgments. One commentator noted:

'(The remedies) are scattered throughout the statute books and the common law with no thread of centralization or continuity. The present statutory remedies have sprung from different sources and have evolved independently; consequently, many areas overlap and others are not adequately provided for.' Procedural Techniques for Belated Attacks on Judgments in Indiana, 32 Ind.L.J. 205, 237 (1957).

TR. 59 and TR. 60 replaced the old remedies, providing two seemingly simple routes for presenting and correcting errors and inequities, thus purportedly eliminating many of the procedural pitfalls which barred the unwary from appellate review. Unfortunately, however, these two rules did not entirely free themselves from the ambiguities of their antecedents. Some of the conflicts and overlaps of the old remedies were carried over. Kelly was here compelled to venture into one of these treacherous gray areas.

Although the language of Indiana TR. 60(B) in most respects closely copies federal Rule 60(B) (the notable exception being TR. 60(B)(2)), ³ the rule has strong roots in Indiana statutory and common law. The Civil Code Study Commission introduced its discussion of TR. 60(B) by saying, '(t)his rule adopts the Indiana statutory remedies for attacking or challenging judgments, and preserves the equitable remedies for doing so as well. Most of the Indiana case law will remain useful in determining as a substantive matter when relief may be granted. The time and manner of seeking relief may be changed.' 4 Harvey & Townsend, Indiana Practice, pp. 196--197.

Under most circumstances, defaulted parties invoke the equity powers of the trial court to have a default judgment set aside, because most defaults are entered not because of an error of law by the trial court but because the party failed to appear, or, having appeared, failed to plead. The defaulted party seeking relief in such instance presents facts to the trial court explaining the failure to appear or plead and in essence asks the court to forgive the failure. TR. 60 is particularly well-suited in such instances because it allows for an evidentiary hearing, summoning new witnesses, and pursuing discovery if the circumstances warrant. TR. 60(D).

The assumption that a proceeding to set aside a default judgment involves only factual questions was articulated in State ex rel. Beckham, Sr. v. Vanderburgh Cir. Ct. (1954), 233 Ind. 368, 119 N.E.2d 713, a case decided under the old procedure. There, the defaulted party was seeking to have the judgment set aside pursuant to then existing Burns Ind.Stat. § 2--1068, which provided that:

'The court shall relieve a party from a judgment taken against him through his mistake, inadvertence, surprise, or excusable neglect. On complaint filed and notice issued, as in original actions within two (2) years from and after the date of the judgment, . . ..'

(These statutory grounds for relief were carried into the new rules as TR. 60(B)(1)).

In discussing the difference between the procedure under § 2--1068 and a motion for a new trial, ⁴ our Supreme Court said:

'While such a procedure may have some of the characteristics of a motion for a new trial, it differs materially therefrom in that a motion for a new trial raises only a question of law, while a proceeding to set aside a default judgment raises only a question of fact. In a motion for a new trial the court is required to determine questions of law arising out of the trial of the original issues, while in an action to set aside a default judgment it is required to determine facts which are not a part of the original issue but which form the basis for a new and separate action. . . . It is not in any way a trial of the original issues, but a determination of the facts surrounding the action of the court in rendering judgment against the defendant because of some mistake, inadvertence, surprise, or excusable neglect on his part.' 233 Ind. at 371, 119 N.E.2d at 714--15.

That is not to say, however, that courts blindly assume that all appeals from judgments entered by default involve purely factual matters. It was long ago recognized that an appeal could be taken from a default judgment without first moving to set aside the default judgment of the challenge were for error apparent of record, e.g. a challenge to the jurisdiction of the court or the sufficiency of the complaint to state a cause of action. Lee v. Mozingo (1895), 143 Ind. 667, 41 N.E. 454; Searle v. Whipperman (1881), 79 Ind. 424; Monroe v. Strader (1870), 33 Ind. 111; Cochnower v. Cochnower (1866), 27 Ind. 253.

Here, Kelly suffered a default judgment not because he failed to appear or plead, but because the trial court ruled as a matter of law that the appearance and pleading filed on his behalf did not exist. We are not presented with question concerning facts outside the record which entitle Kelly to equitable relief. Rather, we must resolve the pure question of law which...