Van Pembrook v. Zero Mfg. Co., Docket No. 80114

• Decision Date: 22 January 1986
• Docket Number: Docket No. 80114
• Citation: 146 Mich.App. 87,380 N.W.2d 60
• Parties: Joseph and Darlene VAN PEMBROOK, Plaintiff/Appellees/Cross-Appellants, v. ZERO MANUFACTURING COMPANY, Defendant/Appellant/Cross-Appellee, and Nick Venechuk, Defendant. 146 Mich.App. 87, 380 N.W.2d 60
• Court: Court of Appeal of Michigan — District of US

Page 60

380 N.W.2d 60

Joseph and Darlene VAN PEMBROOK Plaintiff/Appellees/Cross-Appellants, v. ZERO MANUFACTURING COMPANY Defendant/Appellant/Cross-Appellee and Nick Venechuk, Defendant.

Docket No. 80114.

146 Mich.App. 87, 380 N.W.2d 60

Court of Appeals of Michigan.

Submitted May 21, 1985.

Decided Oct. 7, 1985.

Released for Publication Jan. 22, 1986.

[146 MICHAPP 91] Lori and Schwedler, P.C. by David J. Lori, Iron Mountain, for plaintiff/appellees/cross-appellants.

Bruce W. Brouillette, Iron Mountain, for Zero Mfg. Co.

Before CYNAR, P.J., and HOOD and OLZARK ^*, JJ.

HOOD, Judge.

Defendant Zero Manufacturing Company (hereinafter defendant) appeals as of right, and plaintiffs cross-appeal, from an order by the trial court modifying a default judgment entered earlier against defendant.

Before contracting with defendant, plaintiff Joseph Van Pembrook operated a bulk milk trucking business. Plaintiff (hereinafter plaintiff in the singular will refer to Joseph Van Pembrook) became acquainted with defendant through defendant Nick Venechuk (who is not a participant in these appeals), who was looking for a representative for defendant in the area serviced by plaintiff's milk trucking operation. Defendant sells bulk milk storage tanks, dairy equipment, pipelines, and the like. Plaintiff decided to supplement his trucking business by selling defendant's products and, in April, 1969, became a sales representative and distributor for defendant in the upper peninsula of Michigan and in northern Wisconsin.

Plaintiff found after making several sales of defendant's products that his customers were having problems with leaking tanks. Plaintiff testified [146 MICHAPP 92] that he spent considerable time and money repairing the tanks and was never reimbursed by defendant. He also claimed that defendant promised that plaintiff would net between $10,000 and $15,000 a year in profits, but that, due to the repairs and resulting expenses, he made no profit. Plaintiff stopped selling defendant's products in December, 1980, when his dealership was taken away by defendant.

Defendant filed a complaint against plaintiffs in the United States District Court for the Eastern District of Missouri in 1980. On December 11, 1981, the parties entered a stipulation and consent to judgment in which plaintiffs agreed to pay defendant $5,000 at the time of the judgment and $5,000 within one year.

Plaintiffs filed a complaint against defendant in the Dickinson County Circuit Court on October 26, 1982. Plaintiffs secured a default against defendant in January, 1983, and a default judgment was entered on February 22, 1983.

After the judgment was entered, plaintiffs learned that the party on whom they had made the original service of process was not a corporate officer of defendant and thereafter served defendant a second time. A first amended judgment based upon this second service was entered on August 8, 1983. As in the first default judgment, the court awarded plaintiffs $225,000 for loss of expected and anticipated profits, $50,000 for labor spent and mileage incurred as a result of additional problems resulting from the misrepresentations and the actual condition of the products received and sold by Joseph Van Pembrook to his customers, $28,000 for accounts receivable, and $5,000 for attorney fees incurred by plaintiff in a lawsuit in Menominee County in which plaintiff and defendant were both being sued by a Mr. [146 MICHAPP 93] Zaharias, one of plaintiff's customers to whom he had sold defendant's goods.

Defendant brought a motion to set aside the default judgment on December 7, 1983. After a hearing, the court held that defendant had demonstrated a meritorious defense because the person who had been initially served was not an officer or director of defendant but that defendant had failed to show good cause. The trial court further noted that setting aside the judgment in its entirety would result in a grave injustice as Joseph Van Pembrook, now deceased, was actually the sole operator of the business. Since he is no longer available to testify, the court reasoned that plaintiff's case could not be effectively prosecuted. In the court's view, because the delay in resolving plaintiff's action was caused by defendant and not plaintiff, it would be manifestly unjust to set aside the default judgment. The court accordingly entered an order denying defendant's motion to set aside the entire judgment and granting the motion to set aside those provisions of the judgment dealing with damages other than for loss of expected and anticipated profits. These appeals followed.

A court's ruling on a motion to set aside a judgment or decree is discretionary and will not be disturbed on appeal unless a clear abuse of discretion is shown. Freeman v. Remley, 23 Mich.App. 441, 448, 178 N.W.2d 816 (1970). Except when grounded on want of jurisdiction over the defendant, both good cause and a meritorious defense, supported by an affidavit of facts, must be shown before a motion to set aside a default judgment can be granted. GCR 1963, 520.4; Butler v. Cann, 62 Mich.App. 663, 668, 233 N.W.2d 827 (1975).

Good cause sufficient to set aside an entry of default under GCR 1963, 520.4 includes such matters as 1) a substantial defect or irregularity in the [146 MICHAPP 94] proceedings upon which the default was based, 2) a reasonable excuse for failure to comply with the requirements which created the default, or 3) some other reason showing that manifest injustice would result from permitting the default to stand. Midwest Mental Health Clinic, PC v. Blue Cross & Blue Shield of Michigan, 119 Mich.App. 671, 674, 326 N.W.2d 599, lv. den. 417 Mich. 1076 (1983). While the first two elements of good cause are readily defineable, a determination of what constitutes manifest injustice will depend upon the circumstances peculiar to each individual case. In this case defendant claims that lack of jurisdiction, as well as all the foregoing elements of good cause, is present.

Defendant first claims that the trial court erred in refusing to set aside the entire default judgment on the basis that it lacked jurisdiction over the defendant. Defendant claims that service on it was not properly effectuated.

The record reveals that plaintiffs initially served a summons and complaint on Ed Roberts, defendant's manager. Defendant's failure to respond to this service in any way was the basis of the first default judgment entered against it.

Upon learning that Roberts was not a corporate officer of defendant, plaintiffs served defendant a second time by addressing the summons and complaint to G.R. Duncan, Sr. at defendant's address. The first amended judgment was the result of defendant's failure to respond to this second service.

The trial court found that the defendant had a meritorious defense in that the first service on it was defective, but that it had not established good cause. Therefore, the trial court refused to set aside the entire default judgment. While we agree that the first service was defective, we find that [146 MICHAPP 95] this would have been an insufficient reason to set aside the default judgment because the defective service was subsequently cured by the second service on defendant. Defendant's contention that this second service was also defective is without merit.

Defendant argues that pursuant to GCR 1963, 105.4(2) proper service required that plaintiffs leave a copy of the summons and complaint with the directors, trustee, or person in charge of the office at defendant corporation and send a copy of the summons and complaint by registered mail to the corporation's office. Defendant takes the position that while plaintiffs served only G.R. Duncan, admittedly at the same address as defendant's principal headquarters, plaintiffs were also required to address a copy of the papers to the defendant corporation but did not. Therefore, defendant says the service was improper and the trial court lacked jurisdiction over defendant.

Defendant did not raise this issue below. The defense of lack of jurisdiction over the person or property is waived unless made in the first responsive pleading or by motion first filed. GRC 1963, 116.2. While it appears defendant did point out to the trial court that the first service on it was defective, defendant never attacked the effectiveness of the second service on it. Moreover, it appears that G.R. Duncan was defendant's resident agent and therefore separate service on defendant was not required pursuant to GCR 1963, 105.4(1). Therefore, we decline to review this issue on appeal.

Defendant next argues that the judgment should be set aside because it established that its failure to answer the complaint was caused by mistake or excusable neglect. Defendant explains that it was involved in two other cases with the plaintiffs [146 MICHAPP 96] besides the present suit. One case was heard in the United States District Court for the Eastern District of Missouri in which defendant sued the plaintiffs for breach of the sales agency agreement at issue in this case. The other action was brought in Menominee County, Michigan, in which defendant and plaintiff were joined as defendants. Defendant claims that, either personally or through its attorney, it was aware that both federal and Missouri law provide for compulsory counterclaims. Defendant was therefore misled to believe that the documents it received could not be a new lawsuit concerning the same sales agreement which had been litigated in federal court in Missouri.

This explanation is different from that argued to the trial court. In the trial court defendants argued that the agents of the defendant corporation were confused because of the Missouri and Menominee County cases or that it thought the trial court in this case would take judicial notice of the effect of the compulsory counterclaim rule in the Missouri case on the present case and dismiss the present case...