The Huntingon National Bank v. Car-X Assoc. Corp

ATTORNEYS FOR APPELLANT ATTORNEY FOR APPELLEE
Bryan H. Babb Christopher M. Keefer
David J. Jurkiewicz Sopko, Nussbaum, Inabnit, & Kaczmarek
Nathan T. Danielson South Bend, Indiana
Bose McKinney & Evans LLP
Indianapolis, Indiana
John David Cross
Mercer Belanger, P.C.
Indianapolis, Indiana Aug 21 2015, 1:07 pm
In the
Indiana Supreme Court
No. 64S04-1504-MF-187
THE HUNTINGTON NATIONAL BANK,
Appellant (Defendant below),
v.
CAR-X ASSOC. CORP.,
Appellee (Plaintiff below).
Appeal from the Porter Superior Court, No. 64D02-1401-MF-398
The Honorable William E. Alexa, Judge
On Petition to Transfer from the Indiana Court of Appeals, No. 64A04-1405-MF-227
August 21, 2015
David, Justice.
After suing a mortgagee to foreclose on a lien, junior creditor Car-X Associates
Corporation (Car-X) obtained a default judgment against co-defendant and senior creditor
Huntington National Bank (Huntington) after Huntington failed to timely respond to the complaint
and summons. A few weeks later, Huntington filed a motion to set aside the default judgment,
arguing that it was entitled to relief under Indiana Trial Rule 60(B)(1) because of its excusable
neglect and under Indiana Trial Rule 60(B)(8) because such relief would be just and equitable
under the circumstances. Finding that Huntington failed to establish either avenue of relief, the
trial court denied its motion. The Court of Appeals, however, determined that Huntington had in
fact proven the existence of excusable neglect and accordingly held that the trial court abused its
discretion in deciding otherwise.
By their nature, cases involving claims of excusable neglect are highly fact sensitive. Here,
the record reveals that the source of Huntington’s untimely response was that, in the absence of
the employee who typically received service, a supervisor failed to refer the summons and
complaint to counsel until after the deadline had passed. “This is neglect, but not excusable neglect
as the term appears in Rule 60(B)(1).” Smith v. Johnston, 711 N.E.2d 1259, 1262 (Ind. 1999).
Thus, we find that the trial court did not abuse its discretion in denying Huntington’s
motion to set aside Car-X’s default judgment on this basis. But this conclusion does not terminate
Huntington’s appeal, for there is still the question of whether the denial of Huntington’s motion
was just and equitable under the circumstances. To best answer this question, we remand this case
to the trial court to reevaluate the motion under Trial Rule 60(B)(8), especially in light of
Huntington’s meritorious defense to the underlying foreclosure suit (as Car-X concedes), the
substantial amount of money involved, and Car-X’s lack of prejudice from the delay, among other
considerations.
Facts and Procedural History
On October 19, 2005, SkyBank recorded a mortgage in the amount of $310,500 on the
Woods family home. Subsequently, SkyBank merged into Huntington National Bank, so in this
opinion we will refer to the pre-merger actions of SkyBank as done by Huntington.
2
On July 11, 2013, Car-X obtained a judgment against the Woods for $200,359 and recorded
a notice of judgment lien against the property on September 23, 2013—nearly eight years after
Huntington recorded its mortgage on the property. On January 8, 2014, Car-X sued to foreclose
the judgment lien against the Woods. In addition to the Woods, Car-X’s complaint named senior
creditor Huntington as a defendant to answer as to any interest it may have in the real estate by
virtue of its October 2005 mortgage. Car-X served Huntington’s registered Indiana agent with the
complaint and summons by certified mail on January 27, 2014, and Huntington received service
the following day.
Because the Huntington employee who typically received service of process for the bank
was away on maternity leave, Huntington’s foreclosure supervisor received the complaint and
summons in her stead on January 28, 2014, “but due to the volume of [his] regular duties” was
unable to refer the service to counsel until February 25, 2014 (Appellant’s App. at 50)—six days
after Huntington’s deadline to respond.
That same day, Car-X moved for default judgment against Huntington. Two days later, on
February 27, the trial court entered default judgment in favor of Car-X and concluded that Car-
X’s interest in the real estate “is prior and superior to any and all interests . . . of Huntington.”
(Appellee’s App. at 50.) With that language, Huntington’s 2005 mortgage became subordinate to
Car-X’s 2013 judgment lien.
On March 14, 2014, Huntington filed a motion to set aside the default judgment pursuant
to Indiana Trial Rule 60. Citing the well-established precedent that “Indiana law strongly prefers
disposition of cases on their merits,” (Appellant’s App. at 10 (citing Coslett v. Weddle Bros. Const.
Co., Inc., 798 N.E.2d 859, 861 (Ind. 2003)), Huntington argued that its untimely response
amounted to no more than excusable neglect under Trial Rule 60(B)(1) and that under the
circumstances it would be just and equitable pursuant to Trial Rule 60(B)(8) to set aside the default
judgment and allow Huntington to protect its interest in the real estate.
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Following a hearing, the trial court issued an order denying Huntington’s motion to set
aside the default judgment. Though noting that Indiana generally favors deciding cases on the
merits instead of on default judgment, the trial court also referenced the “considerable equitable
discretion” of the court when evaluating a motion to set aside a default judgment. (Appellant’s
App. at 5 (citing Coslett, 798 N.E.2d at 860–61).) In rejecting Huntington’s Trial Rule 60(B)(1)
excusable neglect argument, the trial court explained that “Defendant is not a lay person but a
sophisticated bank, which should understand perfectly the ramifications of foreclosure suits and
summons. Defendant properly received Plaintiff’s complaint, and thus had a duty to appear and
answer to defend any interests it may have had in the property.” (Appellant’s Br. at 7.) Similarly,
regarding Huntington’s contention that setting aside the default judgment would be fair and
equitable under Trial Rule 60(B)(8), the trial court reasoned that “[i]t is difficult to find Huntington
to be an ‘unsuspecting litigant’ given its sophistication” and consequently rejected its claim.
(Appellant’s Br. at 7.)
Huntington appealed, arguing that the trial court abused its discretion in denying relief
under Trial Rule 60(B)(1) by ignoring Huntington’s reasons for responding untimely and under
Trial Rule 60(B)(8) by ignoring Huntington’s substantial interest in the real estate as well as the
equitable result. In a published decision, a majority of the Court of Appeals reversed and held that
the trial court abused its discretion in denying Huntington’s motion to set aside the default
judgment. Huntington Nat’l Bank v. Car-X Assoc. Corp., 22 N.E.3d 687, 692 (Ind. Ct. App. 2014)
(Barnes, J., dissenting). Car-X subsequently sought transfer, which we granted, thereby vacating
the opinion below. Huntington Nat’l Bank v. Car-X Assoc. Corp., 29 N.E.3d 123 (table). See Ind.
Appellate Rule 58(A).
Standard of Review
In Kmart Corp. v. Englebright, this Court set forth the standards governing a trial court’s
decision to set aside a default judgment.
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The decision whether to set aside a default judgment is given
substantial deference on appeal. Our standard of review is limited
to determining whether the trial court abused its discretion. An
abuse of discretion may occur if the trial court’s decision is clearly
against the logic and effect of the facts and circumstances before the
court, or if the court has misinterpreted the law. . . . The trial court’s
discretion is necessarily broad in this area because any
determination of excusable neglect, surprise, or mistake must turn
upon the unique factual background of each case. . . . A cautious
approach to the grant of motions for default judgment is warranted
in “cases involving material issues of fact, substantial amounts of
money, or weighty policy determinations.” In addition, the trial
court must balance the need for an efficient judicial system with the
judicial preference for deciding disputes on the merits.
Furthermore, reviewing the decision of the trial court, we will not
reweigh the evidence or substitute our judgment for that of the trial
court. Upon a motion for relief from a default judgment, the burden
is on the movant to show sufficient grounds for relief under Indiana
Trial Rule 60(B).
719 N.E.2d 1249, 1253 (Ind. 1999) (internal citations omitted).
I. Excusable Neglect
We now seek to resolve two factual inquires: whether Huntington is entitled to relief from
the default judgment under Trial Rule 60(B)(1) for excusable neglect or under Trial Rule 60(B)(8)
for equitable reasons. Under subsection (B)(1), a trial court may relieve a party from a default
judgment for “mistake, surprise, or excusable neglect” if the party files a motion within one year
of the judgment and alleges a meritorious claim or defense. Addressed to the trial court’s equitable
discretion, “[a] Trial Rule 60(B)(1) motion does not attack the substantive, legal merits of a
judgment, but rather addresses the procedural, equitable grounds justifying the relief from the
finality of a judgment.” Kmart, 719 N.E.2d at 1254 (citation omitted). Because “[t]here is no
general rule as to what constitutes excusable neglect under Trial Rule 60(B)(1),” “[e]ach case must
be determined on its particular facts.” Id. (citations omitted).
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Upon review, a majority of the Court of Appeals concluded that the trial court abused its
discretion in denying Huntington’s motion to set aside the default judgment. Huntington Nat’l
Bank, 22 N.E.3d at 692. In reaching the conclusion that Huntington’s failure to respond to Car-
X’s complaint constituted excusable neglect under Trial Rule 60(B)(1), the majority looked to: (1)
the short length of delay; (2) Huntington’s security interest and the amount at issue; (3) the absence
of evidence of prejudice to Car-X by the delay; and (4) the severity of the sanction of default
judgment. Id. Furthermore, the majority explained that Huntington alleged a meritorious
defense—its mortgage on the real estate—and established that the result of the proceedings would
be different if the default judgment were to be set aside. Id.
To the contrary, in his dissent Judge Barnes observed that Huntington had evidently failed
to adequately cover the duties of the employee who typically received service during her maternity
leave; as a result, the time period for responding to the complaint ran, and Huntington did not
respond until at least twenty days after the deadline. Id. at 693. Judge Barnes continued,
Excusable neglect to me is just that: excusable neglect, not just
neglect. It is something that can be explained by an unusual, rare,
or unforeseen circumstance, for instance. One employee’s
maternity leave is not such a circumstance and should not be used
as an excuse for delaying judicial proceedings beyond the clear
deadlines set by our Trial Rules, especially where a large and
sophisticated party such as Huntington is concerned.
Id. at 694. Accordingly, Judge Barnes would have deferred to the trial court’s discretion and
affirmed the denial of Huntington’s motion to set aside the default judgment. Id.
Judge Barnes grounded his reasoning in Smith, 711 N.E.2d 1259. There, the plaintiff filed
a medical malpractice claim against Dr. Smith and his surgical group. Id. at 1261. The plaintiff
served the defendants with the complaint and summons via certified mail at their place of business,
but the office manager, who ordinarily handled legal matters, was in the process of quitting his job
and was out of the office at the time. Id. at 1261–62. A nurse who did not normally receive mail
placed the complaint and summons on Dr. Smith’s desk, but the doctor did not see it until after the
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plaintiff secured a default judgment in the amount of $750,000 against him. Id. at 1262. Upon
discovery of the complaint and summons, Dr. Smith filed a motion to set aside the default judgment
in part under Trial Rule 60(B)(1) for excusable neglect based on a “breakdown in communication.”
Id. at 1261. The trial court denied the motion, the Court of Appeals affirmed the trial court, and
we granted Dr. Smith’s petition to transfer. Id.Though ultimately we resolved the case under another subsection of Trial Rule 60(B), our
explanation of our rejection of Dr. Smith’s excusable neglect claim is instructive to the present
circumstances, especially given the factual similarities between the cases. Like Huntington’s
foreclosure supervisor, Dr. Smith was aware that the employee who typically handled legal mail
was no longer doing so but nevertheless ignored the complaint and summons until after a default
judgment had been entered. This preventable oversight led us to conclude that “[t]his is neglect,
but not excusable neglect as the term appears in Rule 60(B)(1),” for “we [did] not agree that the
failure of Smith to read his mail amounts to a breakdown in communication sufficient to qualify
as excusable neglect.” Id. at 1262. Accordingly, we found that the trial court did not abuse its
discretion in refusing to set aside the default judgment. Id.Additionally, in reaching our conclusion we distinguished Smith from our prior decisions
finding excusable neglect for a breakdown in communication: “[i]n those cases the defendants did
all that they were required to do but subsequent misunderstandings as to the assignments given to
agents of the defendants resulted in the failure to appear.” Id. One such case is Boles v. Weidner,
449 N.E.2d 288 (Ind. 1983). In this case arising out of an auto accident, a default judgment was
entered against Weidner after he failed to respond to Boles’ complaint and summons. Id. at 289.
However, Weidner had delivered the complaint and summons to his insurance agent, who was
then supposed to notify the insurance carrier of the suit, but Weidner’s carrier did not receive
notice. Id. Weidner filed a motion to set aside the default judgment, contending that the
breakdown in communication between his agent and carrier constituted excusable neglect. Id.
The trial court agreed and granted Weidner’s motion, but the Court of Appeals reversed, finding
insufficient facts to justify excusable neglect. Id. at 289–90.
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Weidner successfully sought transfer, and we affirmed the trial court, as “Weidner had
done everything that apparently needed to be done” and it was the “breakdown in
communications” between the agent and carrier that resulted in the failure to employ counsel and
ensuing entry of default judgment against Weidner. Id. at 291. Thus, we held that the trial court
did not abuse its discretion in finding Weidner’s failure to appear and defend the lawsuit a result
of excusable neglect. Id.
Another example of a legitimate breakdown in communication through no fault of the
defaulted party occurred in Whittaker v. Dail, 584 N.E.2d 1084 (Ind. 1992). Dail filed a battery
suit against Whittaker, who then contacted his insurance company and was informed that it would
employ an attorney to defend him at trial. Id. at 1084, 1086. The insurance attorney, however,
believed he was supposed to file a declaratory judgment action against Whittaker rather than
defend him. Id. at 1086–87. Accordingly, the attorney failed to appear and default judgment was
entered against Whittaker. Id. at 1086. Whittaker subsequently filed a motion to set aside the
default judgment, which the trial court denied. Id. at 1087. A split Court of Appeals affirmed the
trial court, but this Court granted transfer and reversed the trial court for abusing its discretion in
denying Whittaker’s motion. Id. “The obvious import of the evidence is that a ‘breakdown in
communication’ occurred giving rise to Whittaker’s legitimately-held belief that his insurance
carrier would hire a lawyer to represent him.” Id. Importantly, “there was no evidence of any
‘foot dragging’ on the part of Whittaker.” Id. Though we cited Boles as holding that a breakdown
in communication resulting in failure to employ counsel “is a sufficient basis” to support a trial
court’s finding of excusable neglect, we were careful to recognize “that Boles does not stand for
the proposition that every breakdown in communication requires that a judgment be set aside.” Id.
After reviewing Boles, Whittaker, and Smith, it is apparent that the facts at hand are
appreciably more similar to the latter than the two former. As in Smith, the entity’s untimely
response to service is wholly attributable to the defaulted party’s inattentiveness. There was no
true breakdown in communication between agents of the party that caused the party’s failure to
appear; rather, the party was subjected to a default judgment because, in the absence of the
employee typically responsible for handling legal mail, another employee let the notice sit on his
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desk until the time to respond had past. Comparatively, in Boles and Whittaker the defaulted party
timely passed notice on to his insurer, and it was the party’s agent who was responsible for an
inadvertent breakdown in communication. It would be far from accurate to conclude, as we stated
in Boles and implied in Whittaker, that Huntington “had done everything that apparently needed
to be done” upon receipt of notice to secure representation and answer the complaint. Boles, 449
N.E.2d at 291.
Further, unlike in Smith, Huntington is a bank that “understood perfectly the ramifications
of foreclosure suits and summons.” Security Bank & Trust Co. v. Citizens Nat. Bank of Linton,
533 N.E.2d 1245, 1247 (Ind. Ct. App. 1989). 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. “The judicial system simply cannot allow its processes
to be stymied by simple inattention.” Smith, 711 N.E.2d at 1262. Therefore, under the facts of
this case, we hold that the trial court did not abuse its discretion and affirm its denial of
Huntington’s motion to set aside the default judgment for excusable neglect under Trial Rule
60(B)(1).
II. “Any Reason Justifying Relief”
Having determined that Huntington is not entitled to relief under Trial Rule 60(B)(1), we
now turn our attention to another subset of Trial Rule 60, subsection (B)(8), in order to resolve
whether under the circumstances the trial court abused its discretion in failing to set aside the
default judgment for equitable reasons, among them Huntington’s meritorious defense of a prior
mortgage.
Under Trial Rule 60(B)(8), a trial court has the discretion to set aside a default judgment
for “any reason justifying relief from the operation of the judgment” other than those set forth in
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other subsections of Trial Rule 60 1 if the party’s motion is filed “within a reasonable time” and the
party alleges a meritorious claim or defense. “When a Trial Rule 60(B)(8) motion is filed, the
burden is on the movant to demonstrate that relief is both necessary and just.” Gipson v. Gipson,
644 N.E.2d 876, 877 (Ind. 1994) (citation omitted). As with subsection (B)(1), the decision
whether to grant or deny a party’s motion is left to the trial court’s equitable discretion and highly
fact specific. Id.In addition to claiming its 2005 mortgage as a meritorious defense to Car-X’s underlying
suit, 2 Huntington lists five considerations it contends support setting aside the default judgment
under Trial Rule 60(B)(8) for equitable reasons: (1) its substantial interest in the real estate through
its mortgage; (2) its “excusable reason” for untimely responding; (3) its quick action to set aside
the default judgment once the complaint and summons were discovered; (4) its significant loss if
the default judgment is not set aside; and (5) the minimal prejudice to Car-X should the case be
reinstated. (Appellant’s Br. at 9.) We think it best to remand to the trial court to reevaluate
Huntington’s motion upon consideration of these and all relevant circumstances 3—especially
Huntington’s meritorious defense to the underlying suit, the substantial amount of money
involved, and the lack of prejudice to Car-X. Should the trial court find that Huntington
demonstrated sufficient grounds for relief from default judgment under Trial Rule 60(B)(8), then
the case shall proceed to a resolution on its merits.
Lastly, we caution that the important and even essential policies necessitating the use of
default judgments—maintaining an orderly and efficient judicial system, facilitating the speedy
1
These subsections are (B)(1) (mistake, surprise, or excusable neglect); (B)(2) (any ground that could be
raised on motion to correct error); (B)(3) (fraud); and (B)(4) (default without proper notice).
2
At oral argument, Car-X conceded that Huntington has a meritorious defense.
3
The trial court may also consider our finding that Huntington failed to establish excusable neglect.
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determination of justice, and enforcing compliance with procedural rules—should not come at the
expense of professionalism, civility, and common courtesy. Standard Lumber Co. of St. John, Inc.
v. Josevski, 706 N.E.2d 1092, 1095 (Ind. Ct. App. 1999). “An extreme remedy,” a default
judgment “is not a trap to be set by counsel to catch unsuspecting litigants” and should not be used
as a “gotcha” devise when an email or even a phone call to the opposing party inquiring about the
receipt of service would prevent a windfall recovery and enable fulfillment of our strong preference
to resolve cases on their merits. Smith, 711 N.E.2d at 1264; Coslett, 798 N.E.2d at 861.
This is especially true where, as here, it is easy to locate the opposing party or counsel, and
just as simple to pick up a phone and remind counsel of an imminent deadline—a courtesy every
attorney would like (and may very well need) extended to him or her at some point in his or her
career. Such a moment of professionalism and civility can reap significant dividends, both in the
resolution of the case itself and the legal community in general. By fostering a spirit of fair
competition and collegiality, courteous attorneys better serve their clients and greatly improve the
quality of our profession. After all, the practice of law is a marathon, not a sprint, and attorneys
would be well advised to remember that procedural rules are not intended to be used as swords to
obtain judgments. Our profession deserves better. Though trial courts may continue to grant
default judgments where a party undoubtedly fails to defend or prosecute a lawsuit, we strongly
urge attorneys not to resort to seeking such a measure unless and until no other method would
move the case forward.
Conclusion
We affirm the trial court’s denial of Huntington’s motion to set aside the default judgment
under Trial Rule 60(B)(1) for excusable neglect but remand to the trial court to reconsider whether
equitable reasons support granting Huntington’s motion under Trial Rule 60(B)(8).
Rush, C.J., Dickson, and Massa, J.J., concur.
Rucker, J., concurs in result.
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