On the Level Fence & Deck, Inc. v. Indiana Bell Telephone Company d/b/a AT&T Indiana ( 2023 )

FILED
Aug 31 2023, 8:48 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE
Jonathan W. Slagh Blake Bower
Hunt Suedhoff Kearney, LLP Corey Meridew
South Bend, Indiana Camden & Meridew, P.C.
Fishers, Indiana
IN THE
COURT OF APPEALS OF INDIANA
On the Level Fence & Deck, August 31, 2023
Inc., Court of Appeals Case No.
Appellant-Defendant, 22A-CT-3073
Appeal from the
v. Lake Superior Court
The Honorable
Indiana Bell Telephone John M. Sedia, Judge
Company d/b/a AT&T Indiana, Trial Court Cause No.
Appellee-Plaintiff 45D01-2207-CT-701
Opinion by Judge Vaidik
Judge Tavitas concurs.
Judge Foley dissents with separate opinion.
Vaidik, Judge.
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Case Summary
[1] During a fence project, On the Level Fence & Deck, Inc. (“On the Level”)
damaged utility lines owned by Indiana Bell Telephone Company d/b/a AT&T
Indiana (“AT&T”). AT&T sued On the Level and obtained a default judgment
after On the Level failed to answer the complaint. The next month, On the
Level moved to have the default judgment set aside under Trial Rule 60(B)(1),
arguing that it believed its insurer knew about and was dealing with the lawsuit
because AT&T had been communicating directly with the insurer before filing
suit. The trial court denied the motion. Concluding that On the Level’s failure
to answer the complaint was the result of excusable neglect, we reverse and
remand.
Facts and Procedural History
[2] In July 2020, On the Level was digging holes for a fence at a home in Crown
Point when it damaged underground utility lines owned by AT&T. On July 19,
2022, AT&T sued On the Level, alleging negligence, trespass, and statutory
violations. On the Level didn’t answer the complaint, and on August 19, AT&T
moved for default judgment. Three days later, on August 22, the trial court
granted AT&T’s motion and entered a default judgment against On the Level in
the amount of $12,130.83.
[3] Two-and-a-half weeks later, on September 9, an attorney for On the Level
called AT&T’s counsel and left a voicemail about the default judgment. On
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September 22, another attorney who had been retained by On the Level’s
insurer wrote to AT&T’s counsel explaining that On the Level “mistakenly
believed that the insurance company was aware of the suit” and that “it is likely
that insurance coverage may be denied based upon the default judgment being
entered.” Appellant’s App. Vol. II p. 75. The letter asked AT&T to agree to
vacate the default judgment.
[4] AT&T rejected that request, so on September 28 On the Level moved to set
aside the default judgment under Trial Rule 60(B)(1). On the Level argued that
it failed to answer the complaint as a result of excusable neglect. In its motion,
On the Level stated it believed its insurer “was aware of the Complaint and
Summons and was in the process of handling same by hiring counsel for it.” Id.
at 42. On the Level also alleged the following as a meritorious defense:
[On the Level] was not able to see the lines marked by [AT&T]
that had been done prior to the excavation. The markings had
been eliminated by the homeowner mowing their grass or by the
weather conditions themselves. Either way, the markings were
not visible to [On the Level] at the time excavation commenced
and therefore [On the Level] was unaware of any underground
lines buried by [AT&T].
Id. at 43.
[5] In response, AT&T argued that On the Level had no reason to believe that its
insurer “would have notice of the lawsuit or complaint without On the Level
communicating that information or providing a copy of it to the insurance
company.” Id. at 51. In its written reply, On the Level explained that AT&T
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was communicating directly with On the Level’s insurer before filing suit and
argued that it reasonably assumed the insurer “would handle the matters as
they had handled all of the matters up to that point.” Id. at 109.
[6] The trial court heard oral arguments on the motion to set aside. AT&T’s
attorney did not dispute that AT&T had been communicating directly with On
the Level’s insurer before filing suit.1 Nonetheless, the court denied On the
Level’s motion. The court found that On the Level “appears” to have a
meritorious defense but had not shown excusable neglect. Id. at 114-15.
[7] On the Level now appeals.
Discussion and Decision
[8] On the Level challenges the trial court’s denial of its motion to set aside the
default judgment. As the parties note, our Supreme Court has said that a trial
court’s ruling on such a motion is entitled to “substantial deference” and will be
reversed only for an abuse of discretion. Huntington Nat’l Bank v. Car-X Assocs.
Corp., 39 N.E.3d 652, 655 (Ind. 2015). But the Court has also said that where,
as here, a trial court rules on a Trial Rule 60(B) motion based on a paper record
and argument from counsel, without an evidentiary hearing, the appellate court
“in as good a position as the trial court to determine the force and effect of the
1
On the Level did not submit any documentary evidence of this pre-suit communication, but AT&T has
never disputed that the communication occurred.
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evidence,” and the review is de novo. In re Adoption of C.B.M., 992 N.E.2d 687,
691 (Ind. 2013); see also Holland v. Trs. of Ind. Univ., 171 N.E.3d 684, 688 (Ind.
Ct. App. 2021), reh’g denied, trans. denied. When the trial court does not hold an
evidentiary hearing and judge witness credibility, de novo review is appropriate.
But even applying the abuse-of-discretion standard cited by the parties, we
conclude the trial court’s decision should be reversed.
[9] “Indiana law strongly prefers disposition of cases on their merits.” Coslett v.
Weddle Brothers Constr. Co., 798 N.E.2d 859, 861 (Ind. 2003), reh’g denied.
Therefore, a trial court considering a motion to set aside a default judgment
“must balance the need for an efficient judicial system with the judicial
preference for deciding disputes on the merits.” Baker v. Paschen, 188 N.E.3d
486, 491 (Ind. Ct. App. 2022), reh’g denied, trans. denied. That said, because a
default judgment is generally disfavored, any doubt as to its propriety must be
resolved in favor of the defaulted party. Coslett, 798 N.E.2d at 861.
[10] On the Level moved to set aside the default judgment under Trial Rule
60(B)(1), which provides that a judgment may be set aside based on a party’s
“mistake, surprise, or excusable neglect” if the motion is filed within one year
of the judgment and the moving party alleges “a meritorious claim or defense.”
On the Level filed its motion well within a year of the default judgment—just
over a month after the judgment was entered. And the trial court found that On
the Level adequately alleged a meritorious defense, a finding AT&T does not
challenge on appeal. Therefore, the only issue before us is whether On the Level
showed that its failure to answer AT&T’s complaint was the result of “mistake,
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surprise, or excusable neglect.” On the Level’s brief mentions both mistake and
excusable neglect, but its discussion focuses on excusable neglect. “Because
there is no general rule as to what constitutes excusable neglect under Trial
Rule 60(B)(1), each case must be determined on its particular facts.” Huntington
Nat’l Bank, 39 N.E.3d at 655 (cleaned up).
[11] On the Level argues, as it did in the trial court, that because AT&T was
communicating directly with On the Level’s insurer before filing suit, On the
Level reasonably believed that its insurer would (1) know about the lawsuit and
(2) continue handling matters as it had been up to that point. The trial court did
not address this argument in its order, and AT&T does not respond to it on
appeal. Under the circumstances, we agree with On the Level that its failure to
contact its insurer after being served with the complaint amounts to excusable
neglect. To be sure, On the Level should have contacted its insurer out of an
abundance of caution. But by all indications, On the Level, a fence and deck
company, is not a sophisticated party with significant litigation experience. Cf.
Huntington Nat’l Bank, 39 N.E.3d at 658 (“A savvy, sophisticated bank
exceedingly familiar with foreclosure actions that fails to respond to a
complaint and summons for no reason other than an employee’s disregard of
the mail cannot successfully allege a breakdown in communication sufficient to
establish excusable neglect.”). Therefore, it was reasonable for On the Level to
believe that AT&T would continue communicating directly with On the Level’s
insurer after filing suit and that the insurer had things under control.
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[12] Balancing the efficiency interests underlying default judgments against our
preference for deciding cases on the merits and On the Level’s reasonable
explanation for not answering the complaint, we conclude the motion to set
aside should have been granted whether the standard of review is de novo or
abuse of discretion. We reverse the denial of the motion and remand this matter
to the trial court for further proceedings on the merits of AT&T’s complaint.
[13] Reversed and remanded.
Tavitas, J., concurs.
Foley, J., dissents with separate opinion.
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Foley, Judge, dissenting.
[14] I respectfully dissent and would affirm the trial court’s denial of the motion to
set aside the default judgment. I agree with the trial court that On the Level
failed in meeting its burden of demonstrating excusable neglect.
[15] The parties extensively briefed the issues to the trial court, appeared for oral
argument, and then the trial court issued its order denying On the Level’s
motion, stating as follows:
Although it appears that On The Level has a meritorious defense,
its mere assertion that:
. . . [W]hile On the Level Fence & Deck Inc. did receive
service of the complaint and subsequent documents,
mistakes and excusable neglect resulted in On the Level
Fence & Deck Inc.’s failure to notify its insurance
company of the pending action or to otherwise retain an
attorney to appear on its behalf until after the entry of
default judgment, On The Level Memorandum In Support of
Motion To Set Aside Default judgment, page 1.
is insufficient to overcome its burden as a defaulted party that it
was not at fault for a breakdown in communication. Nothing was
put forward by On The Level that a subsequent breakdown in
communication in the inner workings of its carrier caused a
failure to respond to the Complaint and resulted in a default
judgment. On The Level simply states that it failed to notify its
insurance company or hire an attorney to defend the lawsuit. As
the Indiana Supreme Court aptly pointed out in Smith [v. Johnson,
711 N.E.2d 1259 (Ind. 1999)]:
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This is neglect, but not excusable neglect. . . . The judicial
system cannot allow its processes to be stymied by simple
inattention. [Id.] at 1261.
[16] The majority concludes that it was reasonable for On the Level to believe that
the insurer was both aware of the suit and would respond to the suit on its
behalf because the insurer had previously engaged in direct negotiations with
AT&T in an attempt to settle the claim. Despite its burden, On the Level failed
to present any evidence or testimony, either from the insurer or its owners or
employees, regarding what communications On the Level had with its insurer
and why it failed to take any action in response to the suit. In my view, the
record is insufficient to support the conclusion that On the Level’s assumption
was reasonable and therefore represented a breakdown in communication not
of its own making.
[17] I am not unmindful that the balancing of judicial efficiency against the
preference for deciding cases on their merits, as identified by the majority, may
tilt in On the Level’s favor. Nonetheless, I believe On the Level failed to meet
its factual burden to demonstrate excusable neglect. It is my opinion that
reversal on this record would dilute the distinction between neglect and
excusable neglect as to effectively eliminate it. I would affirm the trial court’s
denial of On the Level’s motion to set aside the default judgment.
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