Statewide Envtl. Servs., Inc. v. Fifth Third Bank

• Decision Date: 29 July 2011
• Docket Number: No. 2009–CA–001143–MR.,2009–CA–001143–MR.
• Citation: 352 S.W.3d 927
• Parties: STATEWIDE ENVIRONMENTAL SERVICES, INC.; Ball Development Corporation, Inc.; John Rudolph Ball, Sr.; Nelson Thomas Ball; James Donald Ball, Sr.; and Joseph Bernard Ball, Appellants, v. FIFTH THIRD BANK, Appellee.
• Court: Kentucky Court of Appeals

352 S.W.3d 927

STATEWIDE ENVIRONMENTAL SERVICES, INC.; Ball Development Corporation, Inc.; John Rudolph Ball, Sr.; Nelson Thomas Ball; James Donald Ball, Sr.; and Joseph Bernard Ball, Appellants,

v.FIFTH THIRD BANK, Appellee.

No. 2009–CA–001143–MR.

Court of Appeals of Kentucky.

July 29, 2011.

Laurence J. Zielke, David N. Hise, Louisville, KY, for appellant.

Scott T. Rickman, Lexington, KY, for appellee.

Before ACREE, DIXON and KELLER, Judges.

OPINION

ACREE, Judge:

Two corporate appellants and four individual appellants appeal judgments entered against them as makers and guarantors, respectively, on a single note in favor of appellee, Fifth Third Bank. This case presents issues of civil procedure, namely whether the Marion Circuit Court erred: (1) in granting a motion for default judgment against the corporate appellants, and (2) in granting summary judgment against the individual appellants. We affirm.

Facts and procedure

On August 28, 2006, Statewide Environmental Services, Inc. and Ball Development Corp. (collectively, corporate appellants) executed a promissory note with Fifth Third for $2.5 million. The loan was secured by the real and personal property of the corporations and personally guaranteed by John Rudolph Ball (Rudy), Thomas Nelson Ball (Nelson), James Donald Ball (Donald), and Joseph Bernard Ball (Bernard) (collectively, individual appellants).

When the corporate appellants failed to repay the $2.5 million upon the note's maturity date, Fifth Third demanded payment in full, in accordance with the terms of the note, then filed suit in the Marion Circuit Court. Fifth Third demanded, among other things, that it be awarded a judgment against the corporate and individual appellants for the principal loan amount plus interest, that the real and personal property of the corporate appellants be seized and sold, and that a receiver be appointed to oversee the businesses until the action was resolved. There has been no allegation that any of the individual or corporate appellants were improperly served.

An attorney appearing on behalf of all the individual and corporate appellants entered a special appearance on February 25, 2008, to file a motion requesting an extension of time for the parties to hire counsel and file their answers. ¹ The circuit court granted the motion on March 4, 2008, giving the appellants until March 24, 2008, to file their answers.

Rudy, Nelson, and Bernard each engaged separate legal counsel to represent them. On March 24, 2008, Rudy and Nelson answered the complaint through their respective attorneys.² On the same date, Aline Ball filed an answer on behalf of Donald as his attorney-in-fact under a power of attorney.³ Bernard Ball was granted a second extension and, through his attorney, filed a timely Answer on April 28, 2008.

On March 24, 2008, both corporate appellants filed answers; however, the answers were not signed by an attorney. Each was signed by one of the individual appellants, neither of whom is licensed to practice law. Rudy signed Statewide's answer as its president; Nelson signed Ball Development's answer as its president. Both answers were virtually identical and in the nature of a general denial, setting forth no affirmative defenses. These answers mark the corporate appellants' last participation in the litigation before the circuit court until the filing of their notice of appeal on June 16, 2009.

On August 9, 2008, Fifth Third filed a motion seeking to dispose of the claims against both the corporate and the individual appellants. The bank first moved to strike the corporate appellants' answers for failure to comply with Kentucky Rule of Civil Procedure (CR) 11 and Supreme Court Rule (SCR) 3.020.⁴ Fifth Third then moved for entry of default judgment against the corporations, arguing that once the defective answers were struck, there would be no answer of record for the corporate appellants, justifying default judgment for failure to appear. Fifth Third also argued that once the default judgment was entered, the bank was entitled to summary judgment against the individual appellants because there could be no genuine issue of material fact regarding their liability on the note.

Only the individual appellants responded to the motion in any way: Rudy filed a pro se written response, while attorneys for two other individual appellants appeared at the hearing on the motion. Neither Rudy, who signed the answer on behalf of Statewide, nor Nelson, who filed Ball Development's answer, appeared at the hearing or submitted a written response on behalf of the corporations, and no attorney appeared on the corporations' behalf.

The circuit court did strike the corporate appellants' answers. Then, concluding that the corporate appellants were “in default because their [a]nswers have been stricken[,]” the circuit court sustained Fifth Third's motion in its entirety. An order to that effect was entered on November 18, 2008; that order was subsequently determined by this Court to be interlocutory.⁵ A subsequent order was entered on May 19, 2009, adjudicating the remaining issues and re-adjudicating the issues disposed of in the November 18, 2008 order.

As noted, other than the defective March 24, 2008 answers, the corporate appellants made no appearance before the circuit court whatsoever prior to entry of the November 18, 2008 order. Nor did the corporations make any appearance after the entry of that order and before entry of the final order on May 19, 2009. Following that order, the corporate appellants failed to file a motion pursuant to Kentucky Rules of Civil Procedure 55.02 or 60.02 to set aside the default judgments against them, despite being fully aware of their entry. Enterprise Foundry & Machine Works v. Miners' Elkhorn Coal Co., 241 Ky. 779, 45 S.W.2d 470, 473 (1931) (“[K]nowledge of an officer of the corporation is imputed to the corporation.”). Instead, the corporations took their appeal directly from the default judgments.

On appeal, the corporate and individual appellants assert the circuit court should have denied the motion for default judgment, and, accordingly, the motion for summary judgment, arguing both legal and equitable principles. Finding their arguments unpersuasive, we affirm.

Standard of review

When a defendant against whom a default judgment is entered fails to move the circuit court to set it aside, but instead appeals the default judgment directly, review is limited to determining whether the pleadings were sufficient to uphold the judgment and whether the appellant was actually in default.⁶ Jeffrey v. Jeffrey, 153 S.W.3d 849, 851 (Ky.App.2004), disc. rev. denied (No.2004–SC–000373) (February 9, 2005).

The corporations' argument under “good cause” standard is unavailing

The corporate appellants argue that, on review, this Court should apply the standard established for a circuit court's consideration of a motion to set aside a default judgment articulated in PNC Bank, N.A. v. Citizens Bank of Northern Kentucky, Inc., 139 S.W.3d 527 (Ky.App.2003), namely:

A party seeking to have a default judgment set aside must show good cause; i.e., the moving party must show “(1) a valid excuse for the default; (2) a meritorious defense to the claim; and (3) absence of prejudice to the non-defaulting party.”

PNC Bank, 139 S.W.3d at 530–31 (quoting Sunrise Turquoise, Inc. v. Chemical Design Co., Inc., 899 S.W.2d 856, 859 (Ky.App.1995)). As established earlier in this opinion, this is not the proper standard.

However, even if we were to apply this standard, we would be unpersuaded. As we have said under similar circumstances, “[c]arelessness by a party or his attorney [in responding to a complaint and summons] is not reason enough to set an entry [of default judgment] aside.” Perry v. Central Bank & Trust Co., 812 S.W.2d 166, 170 (Ky.App.1991). In the case sub judice, as in Perry, “the excuses for failing to answer are weak, as are the defenses, and we cannot say it was an error or abuse of discretion for the trial court ... to grant the default judgment[.]” Id.

Specifically, the corporate appellants cannot satisfy the second factor identified in PNC Bank because the record is devoid of evidence of any meritorious defense. Regarding this second factor, the corporate appellants simply ask this Court for “an opportunity to defend themselves by conducting discovery and ascertaining whether or not they had counterclaims that could have been asserted.” This is not “good cause” for reversal.

We shall now apply the proper standard to the default judgment, namely: (1) whether the pleadings were sufficient to uphold the judgment, and (2) whether the corporate appellants were actually in default.

The pleadings were sufficient to uphold the judgment

We have carefully examined Fifth Third's pleadings and find they sufficiently state all the elements of a cause of action for the collection of a note; therefore, the pleadings are sufficient under Jeffrey to support a judgment. See Dalton v. First Nat. Bank of Grayson, 712 S.W.2d 954, 956 (Ky.App.1986) (“[D]efault judgment may not be based upon a complaint which fails to state a cause of action.”), citing Crowder v. American Mut. Liability Ins. Co., 379 S.W.2d 236, 238 (Ky.1964). Appellants make no argument to the contrary. This first factor is met.

The corporate appellants were actually in default

When the corporate appellants, through their respective presidents, served and filed answers on their behalves, they “appeared in the action [.]” CR 55.01. As we said in Leedy v. Thacker, 245 S.W.3d 792 (Ky.App.2008),

The word “appeared” as it is employed in CR 55.01 has been construed to mean that the defendant has voluntarily taken a step in the main action that shows or from which it may be inferred that he has the intention of making some defense. [citation and internal quotation marks omitted].

Leedy, 245 S.W.3d at 796. However, the appellants overstate both the legal significance of their “appearance,” and the...