Justin Roe & Rjx Enterprises, LLC v. Theodore Somach ( 2024 )

Cite as 2024 Ark. App. 527ARKANSAS COURT OF APPEALS
DIVISION III
No. CV-23-526
JUSTIN ROE AND RJX ENTERPRISES, Opinion Delivered October 30, 2024
LLC
APPEAL FROM THE WASHINGTON
APPELLANTS
COUNTY CIRCUIT COURT
[NO. 72CV-22-3031]
V.
HONORABLE BETH STOREY BRYAN,
THEODORE SOMACH; TWS JUDGE
HOLDINGS, LLC; AND
ENTERTAINMENT DISTRIBUTION
GROUP, INC., D/B/A
ENTERTAINMENT USA AFFIRMED
APPELLEES
CINDY GRACE THYER, Judge
Justin Roe (“Roe) and RJX Enterprises, LLC (“RJX”), appeal from the order of the
Washington County Circuit Court that granted a motion for default judgment and motion
to strike amended answer filed by appellees Theodore Somach; TWS Holdings, LLC; and
Entertainment Distribution Group, Inc. (collectively, “Somach”). We affirm.
I. Factual and Procedural Background
According to a complaint filed on November 16, 2022, Somach, who operates retail
businesses that sell products in online marketplaces, hired Roe and RJX to perform services
related to product advertising and marketing as well as distribution logistics. The complaint
alleged that RJX and Roe, who owns and operates RJX, had breached the parties’ business
agreement, engaged in fraud, and converted Somach’s property. At the time the complaint
was filed, RJX’s status with the Arkansas Secretary of State’s office was “not current.”
Separate summonses were issued for Roe and RJX on November 16. Proof of service on both
defendants was obtained on January 5, 2023, and filed in circuit court on January 11.
On January 23, the parties filed an order stating they “have agreed to and the court
does hereby grant an extension of twenty-one (21) days for the defendants to file their answer
to the complaint filed in this matter.” Roe thereafter filed an answer, pro se, on February 28,
2023. The answer was clearly signed “Respectfully Submitted Pro Se, Justin Roe, Defendant.”
On April 25, Somach moved for default judgment against RJX, arguing that RJX had
failed to file a responsive pleading within either thirty days or the additional twenty-one days
granted in the agreed order. Somach acknowledged that Roe had filed a pro se answer on
February 28, but he asserted that Roe could not file an answer on behalf of the LLC and had
engaged in the unauthorized practice of law by attempting to do so. Somach therefore
requested a default judgment specifically––and solely––against RJX.
Roe and RJX subsequently hired counsel who, on May 8, filed an amended answer
and motion to dismiss. In the motion to dismiss, Roe and RJX alleged that RJX lacked the
legal capacity to be sued in state court because its entity status had been revoked by the
Arkansas Secretary of State’s office at the time the complaint was filed. They further argued
that the complaint failed to establish the existence of a contract or plead fraud with the
requisite specificity.
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Roe and RJX also responded to Somach’s motion for default judgment, again arguing
that RJX lacked the legal capacity to be sued. In addition, they denied that Roe had appeared
on behalf of RJX or otherwise engaged in the unauthorized practice of law. Further, they
urged the court to exercise its discretion to deny the motion for default judgment because
there were meritorious defenses available to RJX; there was a possibility of inconsistent
judgments being entered against Roe individually and against RJX; and RJX had not willfully
failed to answer the complaint.
Somach moved to strike the amended answer on May 18, 2023. He acknowledged
that Roe had filed a pro se answer on February 28, 2023. The amended answer, however,
was the first answer to the complaint filed by RJX. Because it was submitted well outside the
time for filing an answer, Somach asked the court to strike the answer “as it relates to
Defendant RJX” from the record. Somach also responded to Roe and RJX’s motion to
dismiss, acknowledging RJX’s argument that it lacked capacity to be sued at the time the
complaint was filed but asserting that the issue was moot because RJX’s status with the
Secretary of State’s office had been reinstated. Somach attached a copy of a printout from
the Secretary of State’s office showing that RJX’s status was in “good standing.”
On June 8, without holding a hearing, the circuit court entered an order granting
Somach’s motion for default judgment against RJX and his motion to strike RJX’s amended
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answer. The order stated that the court would set the matter for trial to determine liability
and damages against Roe and to determine damages against RJX.1
Roe and RJX filed a timely notice of appeal and now raise three arguments for
reversal: (1) RJX lacked the legal capacity to be sued; therefore, a default judgment is not an
available remedy for Somach; (2) Roe did not appear on behalf of RJX or engage in the
unauthorized practice of law; and (3) the circuit court abused its discretion by striking the
amended answer and granting a default judgment against RJX.
II. Standard of Review
The standard of review for considering whether a default judgment was properly
granted is whether the circuit court abused its discretion. Ewing v. Schmalz, 2024 Ark. App.
127, 686 S.W.3d 25; Gawenis v. Zelda Walls Living Tr., 2022 Ark. App. 302. Likewise, a circuit
court’s decision to strike an answer is reviewed for an abuse of discretion. Looney v. Blair,
2010 Ark. 479.
III. Discussion
1
Ordinarily, a judgment or order is not final and appealable if the issue of damages
remains to be decided. Israel v. Oskey, 92 Ark. App. 192, 212 S.W.3d 45 (2005); see also
Sevenprop Assoc. v. Harrison, 295 Ark. 35, 746 S.W.2d 51 (1988) (in an appeal from a default
judgment on liability, when there was a failure to file a timely answer and the issue of
damages was not yet resolved, dismissal of appeal was required). When, however, a default
judgment that does not resolve damages is coupled with an order striking an answer, an
appeal may be taken. In Arnold Fireworks Display, Inc. v. Schmidt, 307 Ark. 316, 820 S.W.2d
444 (1991), the supreme court held that the specific provision in Arkansas Rule of Appellate
Procedure–Civil 2(a)(4) that allows an appeal from an order that strikes all or part of an
answer controls over the more general rule of Rule 2(a)(1), which requires a “final judgment.”
See also Israel, supra (permitting an appeal when default judgment was coupled with an order
striking the answer).
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A. RJX’s Legal Capacity
In its first argument on appeal, RJX argues that it lacked the legal capacity to be sued;
therefore, a default judgment was not an available remedy against it. It argues that because
its corporate status was “not current” at the time Somach filed his complaint, it was not a
legal entity subject to suit at that time.
RJX correctly notes that corporate existence is governed by the law of the state in
which the corporation is domiciled. Teague v. Home Mortg. & Inv. Co., 250 Ark. 322, 324,
465 S.W.2d 312, 313 (1971). As an Arkansas corporation, RJX’s capacity is thus determined
by Arkansas law. The pertinent Arkansas law on this matter is found in Arkansas Code
Annotated section 26-54-112(a)(1)(A) (Repl. 2020), which addresses corporations2 whose
authority to do business in the state has been revoked by the Secretary of State’s office. The
statute expressly declares that such a corporation may be “reinstated to all its rights, powers,
and property” and that such reinstatement “shall be retroactive to the time that the
corporation’s authority to do business in the state was declared revoked.” Ark. Code Ann. §
26-54-112(a)(1)(A)(i)–(ii).
Although it is not clear from the record when RJX’s corporate status was reinstated,
RJX does not, either in its pleadings below or in its briefs to this court, dispute the validity
of the document submitted by Somach indicating that it was in “good standing” as of May
2
Arkansas Code Annotated section 26-54-102(a) (Supp. 2023) provides that
“corporation” means “any corporation or limited liability company . . . which is organized in
or qualified under the laws of the State of Arkansas.” (Emphasis added.)
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18, 2023 (the date on which Somach responded to RJX’s motion to dismiss). Once a
company’s corporate status is restored, it is “vested . . . with continuous existence as though
revocation of its charter had never occurred.” Beck v. Inter City Transp., Inc., 2012 Ark. App.
370, at 3, 417 S.W.3d 740, 743. Because RJX does not dispute that its status had been
reinstated, we must therefore conclude that its good standing was retroactive, at a minimum,
to the date on which the lawsuit was filed.3 Because RJX maintained retroactive standing at
that time, its corporate status was not a basis for the circuit court to dismiss the complaint
against it.
B. Unauthorized Practice of Law
In its second point on appeal, RJX argues that Somach’s motion for default judgment
was “based on [the] faulty premise” that Roe had attempted to file an answer on its behalf
and had thus engaged in the unauthorized practice of law. The default-judgment motion
asserted the following:
Defendant Justin Roe cannot file an answer on behalf of a Limited Liability
Company. While Defendant Justin Roe is entitled to represent himself, any attempt
at an appearance on behalf of RJX Enterprises LLC constitutes the unauthorized
practice of law. Where a party not licensed to practice law in this state attempts to
represent the interest of others, those actions, such as the filing of pleadings, are
rendered a nullity. Accordingly, to the extent Defendant Justin Roe intended to file
a pro se answer on behalf of RJX Enterprises LLC such action must be rendered a
nullity.
3
Somach’s exhibits reflecting RJX’s corporate status are not dated. As noted above,
however, RJX does not contest the validity of these documents.
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Roe concedes that a nonlawyer is not allowed to represent an LLC in court proceedings. See
Davidson Props., LLC v. Summers, 368 Ark. 283, 244 S.W.3d 674 (2006). He argues, however,
that he did not engage in the practice of law on behalf of RJX but instead filed his pro se
answer to the complaint solely in his individual capacity. Roe maintains that because
Somach’s motions for default judgment and to strike the amended answers “were based on
the assertion of ‘unauthorized practice of law’ and there was no evidence to support this
conclusion, the circuit court abused its discretion in granting the motion.”
Regardless of Somach’s arguments regarding the alleged unauthorized practice of law
in his motion, it remains without dispute that RJX failed to file a timely responsive pleading.
Although default judgments are disfavored by courts, issuing a default judgment when a
defendant fails to timely respond to a complaint under Arkansas Rule of Civil Procedure 55
is not an error of law or against the preponderance of the evidence. Sanders v. JLP, LLC, 2024
Ark. App. 65, 683 S.W.3d 607; Macom v. Di Cresce, 2023 Ark. App. 530, 680 S.W.3d 36.
We therefore find no merit to this argument on appeal.
C. Default Judgment
In its final point on appeal, RJX argues that the circuit court’s order granting the
default judgment and striking the amended answer should be reversed for three reasons: (1)
RJX has valid defenses to the lawsuit; (2) reversing the order would not harm Somach, but
affirming will severely impact Roe and RJX; and (3) the order should be reversed because
Somach seeks to hold Roe and RJX jointly and severally liable.
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RJX first asserts that it had valid defenses to Somach’s lawsuit, and the default
judgment should therefore not have been entered against it. When a party against whom a
judgment for affirmative relief is sought has failed to plead or otherwise defend as provided
by these rules, judgment by default may be entered by the court. Ark. R. Civ. P. 55(a). The
court may, upon motion, set aside a default judgment previously entered for the following
reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) the judgment is void;
(3) fraud, misrepresentation, or other misconduct of an adverse party; or (4) any other reason
justifying relief from the operation of the judgment. Ark. R. Civ. P. 55(c).4 The party seeking
to have the judgment set aside must demonstrate a meritorious defense to the action (unless
the judgment is void, which RJX does not allege here). Id.RJX does not dispute that its answer was not timely filed, and our review of the record
does not indicate that it ever offered any reason for its failure to do so. When a party opposes
a motion for default judgment, a showing of one of the four enumerated reasons in Rule
55(c) is a “threshold” matter that must be satisfied before considering whether the defaulting
party has a meritorious defense. In Nissan North America, Inc. v. Harlan, 2017 Ark. App. 203,
at 8–9, 518 S.W.3d 89, 95, this court held that Rule 55(c) “requires a two-step analysis before
a defaulting defendant can succeed in having a default judgment set aside,” and the first step
4
Although RJX did not expressly file a motion to set aside the default judgment,
Arkansas’s courts have adopted the federal practice and consider opposition to a motion for
default judgment to be the equivalent of asserting a motion to set aside a default judgment.
Solis v. State, 371 Ark. 590, 597, 269 S.W.3d 352, 357 (2007); B&F Eng’g, Inc. v. Cotroneo,
309 Ark. 175, 178, 830 S.W.2d 835, 837 (1992).
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is demonstrating “that one of the four enumerated categories of legally acceptable reasons or
excuses existed to justify setting aside the default judgment.” When the threshold issue is
not met, this court will not reach the second step of the analysis. Id. Stated another way,
while it is true that a defendant wishing to set aside a default judgment must demonstrate a
meritorious defense to the action, the defense in and of itself is not sufficient without first
establishing one of the grounds laid out in Rule 55(c). Riggs v. Riggs, 2020 Ark. App. 381,
606 S.W.3d 588. The naked allegation that a party has a meritorious defense does not
warrant setting aside a default judgment. Id.RJX’s first argument for reversing the default judgment is that it has meritorious
defenses to Somach’s claims, including (1) it lacked the legal capacity to be sued; (2) Somach
failed to establish the existence of a valid contract; (3) Somach failed to adequately plead
fraud; and (4) RJX returned Somach’s property to him, thus negating his claim for
conversion. RJX does not, however, establish that any of the grounds for setting aside the
default judgment set forth in Rule 55(c) exist. Indeed, RJX fails to assert any reason or
explanation as to why it failed to file a timely answer. Because we conclude that RJX has
failed to meet the threshold issue of establishing a legally acceptable reason to justify setting
aside the default judgment, our analysis ends here.
In its next subpoint, RJX argues that this court should reverse the entry of default
judgment against it because doing so will not harm or prejudice Somach, while affirming
“would inflict significant harm on both Roe and RJX” because of the possibility of
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inconsistent verdicts. RJX adds that it is clear that Roe attempted to comply with court
procedures and did not intentionally default on behalf of RJX.
Although RJX generally appeals to fairness and the court’s discretion, it fails to cite a
single case in support of this argument. This court will not consider arguments not supported
by convincing argument or citation to authority. Jade Prop. Holdings, LLC v. First Serv. Bank,
2024 Ark. App. 414, ___ S.W.3d ___; Hamerlinck v. Hamerlinck, 2023 Ark. App. 475;
Grimsley v. Drewyor, 2019 Ark. App. 218, 575 S.W.3d 636. It is therefore unnecessary to
address this point further.
Finally, RJX questions whether a default judgment can be entered against one
defendant when there are multiple defendants alleged to be jointly and severally liable and
the action against the other defendant is still pending. RJX asserts generally that “when one
party defaults while the action is still pending and there is joint and several liability, all claims
must be disposed of as to all defendants before a final, appealable judgment can be entered.”
See Ark. R. Civ. P. 54(b). This means, it continues, that “when a complaint alleges that
defendants are jointly liable and one of them defaults, judgment should not be entered
against the defaulting defendant until the matter has been adjudicated with regard to all
defendants.” It goes on to posit a hypothetical situation: If Roe wins in the circuit court
against all of Somach’s claims, RJX could still potentially have to pay damages. RJX therefore
argues that reversing the default judgment against it would prevent potential future
inconsistent judgments.
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This argument is speculative, at best. Roe is still entitled to a trial, and RJX is still
entitled to a hearing on damages. As Somach notes, “the issues raised by appellees in this
argument are still to be determined and may not be issues at all,” and thus, a reversal based
on this argument would be premature. We agree, and we therefore affirm on this point. See
Etoch v. Simes, 340 Ark. 449, 10 S.W.3d 866 (2000) (refusing to address an argument because
it was “purely speculative and premature”).
Affirmed.
KLAPPENBACH and WOOD, JJ., agree.
Table Law, by: Martha Ayres, for appellants.
Hickey and Hull Law Partners, by: Bradley D. Hull, for appellees.
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