Ruben Pazmino v. 2444 Acquisitions, LLC (mem. dec.)

MEMORANDUM DECISION
Pursuant to Ind. Appellate Rule 65(D),
this Memorandum Decision shall not be FILED
regarded as precedent or cited before any
Nov 15 2017, 9:48 am
court except for the purpose of establishing
the defense of res judicata, collateral CLERK
Indiana Supreme Court
estoppel, or the law of the case. Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEE
Abraham Murphy Christopher J. McElwee
Abraham Murphy Attorney at Law, Monday McElwee and Albright
LLC Indianapolis, Indiana
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Ruben Pazmino, November 15, 2017
Appellant-Defendant, Court of Appeals Case No.
49A02-1701-PL-53
v. Appeal from the Marion Superior
Court
2444 Acquisitions, LLC, The Honorable James B. Osborn,
Appellee-Plaintiff. Judge
Trial Court Cause No.
49D14-1605-PL-16074
Mathias, Judge.
[1] Ruben Pazmino (“Pazmino”) appeals the trial court’s order denying his request
to set aside a default judgment entered against him in favor of 2444
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Acquisitions, LLC (“2444 Acquisitions”).1 Pazmino raises two issues, which we
consolidate and restate as whether the trial court abused its discretion when it
denied Pazmino’s motion to set aside default judgment.
[2] We affirm in part, reverse in part, and remand with instructions.
Facts and Procedural History
[3] Pazmino acquired a 49% ownership stake in 2444 Acquisitions in 2007. In
2008, 2444 Acquisitions leased property to El Sol Also Rises, Inc. (“El Sol”).2
Pazmino owned a 51% ownership interest in El Sol. El Sol operated a Mexican
Restaurant from 2008 through July 2014. Pazmino took over operations of the
restaurant in fall 2011. Pazmino did not pay rent to 2444 Acquisitions during
the three-year period from when he took over operations until the restaurant
closed. 2444 Acquisitions filed for bankruptcy in 2014 and also filed a
complaint for turnover of unpaid rent from El Sol.
[4] In January 2015, the United States Bankruptcy Court for the Southern District
of Indiana (“bankruptcy court”) entered a judgment in favor of 2444
Acquisitions and against El Sol in the amount $255,581.95 for the unpaid rent.
Thereafter, 2444 Acquisitions filed a third-party complaint against Pazmino
alleging that Pazmino was personally liable for the rent amount owed by El Sol.
1
2444 Acquisitions was administratively dissolved in December 2013.
2
El Sol was administratively dissolved in December 2014.
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[5] In February 2016, the bankruptcy court concluded that “as a result of
Pazmino’s breach of his fiduciary duty to avoid self-dealing, [2444
Acquisitions] sustained damages in the amount of $255,581.95 plus costs, fees,
and interest.” Appellant’s App. p. 45. However, because the bankruptcy court
determined the issue was a “non-core, related matter,” it could not enter a final
judgment. Id. at 43.
[6] On May 9, 2016, 2444 Acquisitions filed a complaint against Pazmino seeking
to enforce the judgment of the bankruptcy court. In its complaint, 2444
Acquisitions alleged (1) tortious interference of contract, (2) tortious
interference with a business relationship, (3) breach of fiduciary duty, and (4)
personal liability of Pazmino for El Sol. 2444 Acquisitions was granted
permission to serve Pazmino by publication.3 Notice was filed in the
Indianapolis Recorder Newspaper on May 20, May 27, and June 3. On June
20, the clerk filed a return on service by publication, which demonstrated that
service by publication was complete. Pazmino, living in Chicago at the time,
never responded to the complaint.
[7] On July 5, the first permissible day under Indiana Trial Rule 4.13, 2444
Acquisitions filed, and the trial court granted, a motion for default judgment
against Pazmino in the amount of $255,581.95. Pazmino filed a motion to set
3
In July 2015, 2444 Acquisitions attempted to serve Pazmino by certified mail at his Chicago address. The
mail was returned “undeliverable.” Appellant’s App. p. 36. Based on this, 2444 Acquisitions filed a practice
for service by publication and an affidavit in support in May 2016. Id. at 12–13.
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aside the default judgment on August 25. The court held a hearing on the
motion on November 7, and denied it on December 12. The court noted in the
order “that there is no meritorious defense which would lead to a different
result if the case was tried upon the merits.” Appellant’s App. p. 54. Pazmino
now appeals.
Discussion and Decision
[8] Pazmino argues that the trial court abused its discretion when it denied his
motion to set aside default judgment. Because Indiana law strongly prefers
disposition of cases on the merits, default judgments are generally disfavored,
and the trial court’s discretion in granting a default judgment should be
exercised in light of this disfavor. Coslett v. Weddle Bros. Const. Co., Inc., 798
N.E.2d 859, 861 (Ind. 2003). On appeal, we review the trial court’s decision for
an abuse of discretion. Allstate Ins. Co. v. Watson, 747 N.E.2d 545, 547 (Ind.
2001). An abuse of discretion occurs when the trial court’s denial is clearly
against the logic and effect of the facts and inferences supporting the order.
Whitt v. Farmer’s Mutual Relief Ass’n, 815 N.E.2d 537, 539 (Ind. Ct. App. 2004).
[9] Indiana Trial Rule 55(C) explains that “[a] judgment by default which has been
entered may be set aside by the court for the grounds and in accordance with
the provisions of Rule 60(B).” Indiana Trial Rule 60(B) provides in relevant
part:
On motion and upon such terms as are just the court may relieve
a party or his legal representative from a judgment, including a
judgment by default, for the following reasons:
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(1) mistake, surprise, or excusable neglect;
***
(4) entry of default or judgment by default was entered against
such party who was served only by publication and who was
without actual knowledge of the action and judgment, order or
proceedings;
***
(8) any reason justifying relief from the operation of the
judgment, other than those reasons set forth in sub-paragraphs
(1), (2), (3), and (4).
***
A movant filing a motion for reasons (1), (2), (3), (4), and (8)
must allege a meritorious claim or defense.
[10] By seeking relief under subsections (1), (4), and (8), Pazmino must also “allege
a meritorious claim or defense.” Id. A meritorious defense for the purposes of
Trial Rule 60(B) is “one that would lead to a different result if the case were
tried on the merits.” Bunch v. Himm, 879 N.E.2d 632, 637 (Ind. Ct. App. 2008).
[11] Pazmino initially argues that “the service by publication was inadequate, it was
unreasonable under the circumstances, and did not result in personal jurisdiction
over Pazmino.” Appellant’s Br. at 9 (emphasis added). However, when Pazmino
moved to set aside the default judgment under Trial Rule 60(B), he did not
allege lack of personal jurisdiction. Pazmino claimed that mistake or excusable
neglect resulted in his failure to respond. Appellant’s App. pp. 27–29. “A party
can waive lack of personal jurisdiction and submit himself to the jurisdiction of
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the court if he responds or appears and does not contest the lack of
jurisdiction.” Heartland Resources, Inc. v. Bedel, 903 N.E.2d 1004, 1007 (Ind. Ct.
App. 2009). Therefore, when Pazmino failed to allege lack of personal
jurisdiction in his Trial Rule 60(B) motion, he waived that issue for appeal. Id;
see also Morequity, Inc. v. Keybank, N.A., 773 N.E.2d 308, 314 (Ind. Ct. App.
2002) (Mortgagee’s failure to raise a lack of personal jurisdiction with the trial
court, or to mention Indiana Trial Rule 60(B)(6) in its motion for relief of
default judgment waived its right to argue that the trial court lacked personal
jurisdiction on appeal), trans. denied.
[12] Waiver of personal jurisdiction aside, Pazmino satisfies the first requirement for
setting aside a default judgment under either Indiana Trial Rule 60(B)(1) or (4).
Indiana Trial Rule 60(B)(1) allows a trial court to set aside a default judgment
for “mistake, surprise, or excusable neglect.” Our courts have consistently held
that failure to receive actual notice due to faulty process can constitute
excusable neglect. E.g., Kretschmer v. Bank of America, N.A., 15 N.E.3d 595, 600
(Ind. Ct. App. 2014) (citation omitted), trans denied. Under Trial Rule 60(B)(4),
a trial court can set aside a default judgment when a party was served only by
publication and had no actual knowledge of the proceedings against him.
Ferguson v. Stevens, 851 N.E.2d 1028, 1031 (Ind. Ct. App. 2006).
[13] Pazmino moved to Chicago in 2014 and testified that he does not receive any
Indianapolis newspapers. Tr. pp. 5, 8. When Pazmino was asked if he ever
received the summons or complaint in this case, he responded, “No, I never
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have.” Id. at 8. 2444 Acquisitions concedes this point in their brief stating,
“Pazmino never received the summons and complaint at his Chicago address
and didn’t see the notice in the Indianapolis Recorder.” Appellee’s Br. at 12.
Because Pazmino was served by publication and lacked actual knowledge of the
complaint against him, he has demonstrated a sufficient reason for setting aside
the default judgement under Trial Rule 60(B)(1) or (4). However, under either
Rule 60(B)(1) or (4), Pazmino must also allege a proper meritorious defense.
[14] In its order, the trial court denied Pazmino’s motion because it found “that
there is no meritorious defense which would lead to a different result if the case
was tried upon the merits.” Appellant’s App. p. 54. Absolute proof of the
defense is unnecessary; however, there must be “enough admissible evidence to
make a prima facie showing of a meritorious defense indicating to the trial
court the judgment would change and that the defaulted party would suffer an
injustice if the judgment were allowed to stand.” Heartland Resources, Inc., 903
N.E.2d at 1007. “It is up to the trial court to determine on a case-by-case basis
whether a movant has succeeded in making a prima facie allegation [of a
meritorious defense].” Shane v. Home Depot USA, Inc., 869 N.E.2d 1232, 1238
(Ind. Ct. App. 2007).
[15] 2444 Acquisitions argues that Pazmino failed to assert a meritorious defense
because he did not “consider the allegations in the entire complaint,” and that
he “failed to provide allegations or evidence that would cause the trial court to
rule differently than the bankruptcy court did.” Appellee’s Br. at 10–11.
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Pazmino restates the argument he made in his motion to set aside default
judgment:
[2444 Acquisitions have] alleged that they should be entitled to a
judgment against Pazmino merely because they have a judgment
against an entity in which Pazmino may have had an interest. . . .
There must be some kind of showing that Pazmino is personally
liable for the debts of a corporation, not merely because [2444
Acquisitions] says it is so.
Appellant’s Br. at 11.
[16] A default judgment here amounts to a confession of all four counts stated in
2444 Acquisition’s complaint against Pazmino. JK Harris & Co., LLC v. Sandlin,
942 N.E.2d 875, 885 (Ind. Ct. App. 2011), trans. denied. While the relief sought
under each of the first three counts is payment for the rent owed, Count IV
seeks to hold Pazmino personally liable for the unpaid rent but also for all of El
Sol’s debts.
[17] Pazmino’s meritorious defense argument in his motion to set aside default
judgment and his brief focuses entirely on Count IV. Additionally, at the
hearing to set aside default judgment, Pazmino was directly asked if he felt he
should be personally liable for the debts of El Sol. Tr. p. 9. He responded,
“Personally, no.” Id. at 10.
[18] In Indiana, “a shareholder of a corporation is not personally liable for the acts
or debts of the corporation except that the shareholder may become personally
liable by reason of the shareholder’s own acts or conduct.” Ind. Code § 23-1-26-
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3(b). “[O]ur courts are reluctant to disregard corporate identity; however, we
may do so if it is necessary to prevent fraud or unfairness to third parties.” Ziese
& Sons Excavating, Inc. v. Boyer Const. Corp., 965 N.E.2d 713, 719 (Ind. Ct. App.
2012). An individual may be held liable for the debts of corporation under the
principles of piercing the corporate veil or the alter ego doctrine. Id. at 719–20.
However, using either necessitates a “highly fact-sensitive inquiry,” and the
party seeking to impose personal liability of corporate debt bears the burden of
proof. Id. (citation and quotation omitted).
[19] Here, the bankruptcy court did not determine that Pazmino was personally
liable for all debts of El Sol.4 Thus, although Pazmino has failed to allege a
meritorious defense for Counts I, II, or III in the complaint,5 he has alleged a
meritorious defense to Count IV, i.e., “2444 should first be required to show
that it can pierce the corporate veil or prove an alter ego theory of liability”
before Pazmino can be held personally liable for all debts of El Sol. Appellant’s
Br. 11; see also Ziese & Sons Excavating , Inc., 965 N.E.2d at 721 (holding that a
trial court’s decision to pierce the corporate veil is fact-sensitive and is rarely
4
The bankruptcy court found that Pazmino breached his fiduciary duty to avoid self-dealing and awarded the
amount of rent owed, $255,581.95 plus costs, fees, and interest, to 2444 Acquisitions. Appellant’s App. p. 45.
5
Pazmino stated in his motion to set aside default judgment that he “strongly disputes the sum and substance
of the claims that are set forth in 2444’s Complaint. If given the opportunity . . . he will strongly defend
against the merits of 2444’s action.” Appellant’s App. p. 30. However, a broad statement simply disputing
the claims, or declaring that except for excusable neglect the suit would have been defended on the merits are
insufficient to establish a meritorious defense. Teegardin v. Maver’s, Inc., 622 N.E.2d 530, 533 (Ind. Ct. App.
1993). Additionally, Pazmino does not dispute any of the elements necessary for tortious interference with
contract (Count I) or tortious interference with business relationship (Count II). Further, Pazmino does not
dispute the bankruptcy court’s finding that he breached his fiduciary duty (Count III).
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appropriate on summary judgment). Therefore, because Pazmino asserts that
his conduct does not rise to the level necessary for 2444 Acquisitions to pierce
the corporate veil, he has adequately alleged a meritorious defense for Count
IV.
Conclusion
[20] Under the facts and circumstances before us, we conclude that Pazmino waived
his right to argue that the trial court lacked personal jurisdiction over him.
Additionally, the trial court did not abuse its discretion when it declined to set
aside default judgment on Counts I, II, and III, because Pazmino failed to
allege a meritorious defense. However, Pazmino has made a proper showing of
a meritorious defense on Count IV. Accordingly, we affirm in part, reverse in
part, and remand with instructions to set aside default judgment on Count IV.
[21] Affirmed in part, reversed in part, and remanded for proceedings consistent
with this opinion.
Vaidik, C.J., and Crone, J., concur.
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