Lawrence M. Clarke Inc. v. Richco Constr. Inc.
| Decision Date | 30 June 2011 |
| Docket Number | Docket No. 140683. |
| Citation | 803 N.W.2d 151,489 Mich. 265 |
| Parties | LAWRENCE M. CLARKE, INC., Plaintiff–Appellee,v.RICHCO CONSTRUCTION, INC., and Ronald J. Richards, Jr., Defendants–Appellants. |
| Court | Michigan Supreme Court |
OPINION TEXT STARTS HERE
Myers & Myers, PLLC, Howell (by Roger L. Myers and Christopher G. Bovid), for plaintiff.Hafeli Staran Hallahan & Christ, P.C., Bloomfield Hills (by John D. Staran), for defendants.
The issue in this case is whether the trial court abused its discretion when it concluded that defendants were personally notified of the default judgment against them and denied defendants' motion to set aside the judgment. We hold that the trial court abused its discretion and that defendants are entitled to relief from the judgment under MCR 2.612(B) because (1) personal jurisdiction over defendants was necessary and apparently acquired,1 (2) defendants had no knowledge of the action pending against them, (3) defendants entered an appearance within one year after the final judgment, (4) defendants have presented facts and arguments showing meritorious defenses to plaintiff's breach of contract and fraud claims, and (5) granting defendants relief from the judgment will not prejudice any innocent third persons. Accordingly, we reverse and remand the case to the trial court for further proceedings consistent with this opinion.
The lawsuit at issue in this case arose out of a contractual relationship between plaintiff and defendant Richco Construction, Inc. In 2003 and 2004, plaintiff was working on a residential subdivision construction project in Monroe County. In the summer of 2003, plaintiff hired Richco as a subcontractor to work on the sewer system for the project. There was no written contract.
It is undisputed that Richco's corporate filings with the state of Michigan's Department of Labor and Economic Growth (DLEG) (now the Department of Licensing and Regulatory Affairs) indicated that defendant Ronald Richards, Jr., was the corporation's president and treasurer and that Thomas Richards 2 was the corporation's secretary and vice president. Further, the corporate filings identified Ronald as Richco's resident agent and the corporation's registered office address as 27734 Ecorse Road in Romulus, Michigan. Finally, the address shown for Ronald and Thomas as corporate officers was also 27734 Ecorse Road in Romulus.
Richco's work on the sewer system did not satisfy the governing municipality, and after Richco's efforts to repair the work were not satisfactory, plaintiff contracted with another party to finish the work, delaying the project according to plaintiff. Defendants claim that Richco was never fully paid and, at some point, Richco recorded a construction lien, which plaintiff claims caused further problems.
Plaintiff filed a breach of contract and fraud complaint on July 19, 2006, in the Monroe Circuit Court, but plaintiff was not able to serve any of the defendants. Plaintiff's process server attempted to serve the complaint at Richco's business address on file with DLEG, but no one was at that address. The process server discovered that Richco had vacated the listed address and had not left a forwarding address. A motor home was parked in the parking lot at the Ecorse Road address, and another tenant in the area told the process server that it might belong to one of the individual defendants. Plaintiff's counsel used the license plate on the motor home to obtain a phone number, but the person who answered denied that the motor home was connected to either individual defendant. In October 2006, the process server investigated a lead about a Ronald Richards in Waterford, Michigan, but that person was not the defendant in this case. Plaintiff's complaint was dismissed without prejudice on October 30, 2006, because plaintiff could not effect service.
After the complaint was dismissed, plaintiff continued its efforts to locate defendants by contacting the Secretary of State and again searching DLEG's files. These efforts were unsuccessful, however, and plaintiff refiled the same complaint on January 7, 2007, along with a motion to allow alternative service. Plaintiff explained its previous efforts to locate defendants and noted that service was attempted at Richco's registered office without success. The trial court allowed alternative service by (1) posting the documents at Richco's registered address, (2) mailing the documents to the registered address for Thomas, (3) mailing the documents to the registered address for Ronald, and (4) publishing a copy of the order in a Monroe County newspaper pursuant to MCR 2.106. After there was no response to the notice, the court clerk entered a default against all three defendants on April 5, 2007. Notice of the default was sent by regular and certified mail to Richco, Thomas, and Ronald at the Ecorse Road address and was published in a Monroe County newspaper.
On September 28, 2007, plaintiff moved for entry of a default judgment, claiming approximately $244,000 in damages, plus the cost of a bond, “contractual interest,” $8,000 in attorney fees, and more than $15,000 in prejudgment interest. After a hearing on October 10, 2007, the trial court granted plaintiff's motion and signed a default judgment ordering that Richco, Ronald, and Thomas were jointly liable for a total of $371,598.37.
Plaintiff located defendants after the default judgment was entered and, on April 12, 2008, Ronald's and Thomas's personal vehicles were seized from their homes in Wayne County. According to defendants, this was how they first became aware of plaintiff's complaint and the default judgment.
Four days later, on April 16, 2008, defendants filed an emergency motion to set aside the default judgment, and defense counsel made a special appearance. The motion was not accompanied by an affidavit, but defense counsel attempted to provide signed affidavits from Thomas and Ronald at the hearing on the motion held on April 22, 2008. The trial court refused to consider the affidavits and denied defendants' motion to set aside the default judgment, noting that defendants had not filed an affidavit of factual and meritorious defense as required by MCR 2.603(D)(1). Defendants moved for reconsideration and included more detailed supporting affidavits from Thomas and Ronald, but the trial court denied reconsideration without a hearing.
The Court of Appeals denied defendants' application for leave to appeal, but this Court remanded for consideration as on leave granted. Lawrence M. Clarke, Inc. v. Richco Constr., Inc., 481 Mich. 939, 751 N.W.2d 33 (2008). On remand, the Court of Appeals affirmed the trial court's decision to deny the motion to set aside the default judgment. Lawrence M. Clarke, Inc. v. Richco Constr., Inc., unpublished opinion per curiam of the Court of Appeals, issued November 17, 2009 (Docket No. 285567), 2009 WL 3837400. The Court of Appeals reasoned that defendants' motion to set aside the default judgment was properly denied because defendants had failed to file a timely affidavit in support of their motion. Defendants sought leave to appeal in this Court, and this Court ordered oral argument on whether to grant the application or take other peremptory action. Lawrence M. Clarke, Inc. v. Richco Constr., Inc., 486 Mich. 1071, 784 N.W.2d 56 (2010).
A trial court's decision regarding a motion to set aside a default judgment is reviewed for an abuse of discretion. Alken–Ziegler, Inc. v. Waterbury Headers Corp., 461 Mich. 219, 227, 600 N.W.2d 638 (1999). When construing a court rule, this Court employs the legal principles governing the application and construction of statutes. Grievance Administrator v. Underwood, 462 Mich. 188, 193–194, 612 N.W.2d 116 (2000).
A trial court may grant relief from a judgment if the defendant was not personally notified of an action pending against the defendant and several additional requirements are satisfied. Specifically, MCR 2.612(B) states:
A defendant over whom personal jurisdiction was necessary and acquired, but who did not in fact have knowledge of the pendency of the action, may enter an appearance within 1 year after final judgment, and if the defendant shows reason justifying relief from the judgment and innocent third persons will not be prejudiced, the court may relieve the defendant from the judgment, order, or proceedings for which personal jurisdiction was necessary, on payment of costs or on conditions the court deems just.
Thus, defendants may be entitled to relief from the default judgment if (1) personal jurisdiction over defendants was necessary and acquired, (2) defendants in fact had no knowledge of the action pending against them, (3) defendants entered an appearance within one year after the final judgment, (4) defendants show a reason justifying relief from the judgment, and (5) granting defendants relief from the judgment will not prejudice innocent third persons.
As a preliminary matter, we acknowledge that defendants did not offer their affidavits of meritorious defense simultaneously with their motion to set aside the default judgment and that this arguable misstep was the foundation of the lower courts' decisions. The lower courts, however, applied MCR 2.603(D)(1) in reaching their decisions. That rule permits a court to grant relief from a default judgment when, along with the fulfillment of other requirements, “an affidavit of facts showing a meritorious defense is filed.” We conclude that the lower courts' reasoning is inapplicable to our analysis of MCR 2.612(B) because, unlike MCR 2.603(D)(1), MCR 2.612(B) does not expressly state that a defendant must provide an affidavit of meritorious defense. Therefore, we conclude that defendants may seek relief under MCR 2.612(B), and we do not opine about whether MCR 2.603(D)(1) requires that an affidavit of meritorious defense be filed simultaneously with a ...
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