Carrel v. Serco Inc.

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Nebraska A dvance Sheets
291 Nebraska R eports
CARREL v. SERCO INC.
Cite as 291 Neb. 61
Benjamin Carrel, appellee, v. Serco Inc.,
a New Jersey corporation, appellant,
and Devin Witt, individually and as
an employee of Serco I nc., a New
Jersey corporation, appellee.
___ N.W.2d ___
Filed June 12, 2015. No. S-14-377.
1. Default Judgments: Motions to Vacate: Appeal and Error. In review-
ing a trial court’s action in vacating or refusing to vacate a default judg-
ment, an appellate court will uphold and affirm the trial court’s action in
the absence of an abuse of discretion. On appeal, a much stronger show-
ing is required to substantiate an abuse of discretion when the judgment
is vacated than when it is not.
2. Judges: Words and Phrases. A judicial abuse of discretion exists when
the reasons or rulings of a trial judge are clearly untenable, unfairly
depriving a litigant of a substantial right and denying just results in mat-
ters submitted for disposition.
3. Default Judgments: Proof: Time. Generally, when the court has entered
a default judgment and the defendant has made a prompt application at
the same term to set it aside, with the tender of an answer or other proof
disclosing a meritorious defense, the court should on reasonable terms
sustain the motion and permit the cause to be heard on the merits.
4. Default Judgments. When determining whether to set aside a default
judgment, two competing interests must be considered: the right of a
litigant to defend the action on the merits and judicial efficiency.
5. Default Judgments: Motions to Vacate: Words and Phrases. In the
context of a motion to vacate a default judgment, a meritorious defense
is one which is worthy of judicial inquiry because it raises a question of
law deserving some investigation and discussion or a real controversy as
to the essential facts.
6. Default Judgments: Motions to Vacate. Although a defendant seek-
ing to vacate a default judgment is required to present a meritorious
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Nebraska A dvance Sheets
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CARREL v. SERCO INC.
Cite as 291 Neb. 61
defense, it is not required that the defendant show he will ultimately
prevail in the action, but only that the defendant show that he has a
defense which is recognized by the law and is not frivolous.
7. Default Judgments: Motions to Vacate: Proof. Regarding a refusal to
set aside a default judgment, an abuse of discretion may exist where the
defaulted party tenders an answer or other proof disclosing a meritorious
defense to the action which is the subject of the default.
Appeal from the District Court for Gage County: Paul W.
Korslund, Judge. Reversed and remanded with directions.
Thomas J. Culhane and Matthew B. Reilly, of Erickson &
Sederstrom, P.C., L.L.O., for appellant.
Lyle J. Koenig, of Koenig Law Firm, for appellee Benjamin
Carrel.
Heavican, C.J., Wright, Connolly, Stephan, Miller-Lerman,
and Cassel, JJ.
Stephan, J.
Benjamin Carrel filed a personal injury action against Serco
Inc., a New Jersey corporation, and Devin Witt. When Serco
did not respond to service of summons, a show cause order,
or notice of Carrel’s motion for a default judgment, the dis-
trict court for Gage County sustained the motion and entered
a default judgment against the company. Within the 6 months
following its entry, Serco moved to vacate the default judg-
ment. The district court denied the motion, and Serco appeals
from that order. We conclude that the district court erred in
denying Serco’s motion to vacate the default judgment, and we
therefore reverse, and remand with directions.
BACKGROUND
The underlying incident occurred in August 2008. Witt
allegedly drove a Chevrolet pickup truck over Carrel’s foot
in a parking lot outside a bar in Beatrice, Nebraska. The truck
was registered to “Serco Inc at 1430 North Main in Borger,
TX 79007.”
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Nebraska A dvance Sheets
291 Nebraska R eports
CARREL v. SERCO INC.
Cite as 291 Neb. 61
The attorney who was then representing Carrel sent a letter
to Serco at a Reston, Virginia, address on February 18, 2010,
advising the company of the incident and asserting a claim for
damages. Serco’s corporate claims manager responded to the
letter the next day, informing Carrel that it had never employed
Witt and had “no knowledge of any Serco owned vehicles”
located in Nebraska.
Represented by the same attorney, Carrel commenced this
action against Serco and Witt on May 21, 2012, alleging
that Serco, as Witt’s employer, was vicariously liable for his
actions. Serco’s agent in Nebraska received service of sum-
mons on August 7. Because Serco had not filed a responsive
pleading, an order to show cause was entered on June 27, 2013.
Serco did not respond. On July 23, Carrel filed a motion for
default judgment. A hearing on the motion was set for August
12. The court ordered Carrel to file an affidavit in support of
his motion for default judgment and scheduled the matter for
further hearing on September 30. Notice was sent to Serco’s
registered agent.
Serco did not appear at the hearing. The district court
entered default judgment on October 7, 2013, in the amount of
$210,216.36, reflecting the lost wages and medical expenses
claimed by Carrel. The court also awarded postjudgment inter-
est at the rate of 2.086 percent per year.
On March 11, 2014, Carrel initiated garnishment proceed-
ings on Serco’s account at a Pennsylvania bank. The writ of
execution was served on the bank on March 14. Serco’s gen-
eral counsel first learned of the default judgment that March.
On April 1, Serco filed its motion to vacate the judgment.
This was 5 months 25 days after the entry of default judg-
ment. In support of its motion, Serco tendered an answer and
affidavits stating that Serco did not employ Witt or own the
vehicle he was driving, and therefore was not the appropriate
defendant in this action. Serco also filed a motion to enjoin
the garnishment proceedings. Following a hearing, the district
court granted a temporary restraining order suspending the
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Nebraska A dvance Sheets
291 Nebraska R eports
CARREL v. SERCO INC.
Cite as 291 Neb. 61
garnishment proceedings until the court ruled on the motion
to vacate.
At the subsequent hearing on the motion to vacate, Serco
presented evidence showing that there is a Borger, Texas, cor-
poration named “Service Engineering Repair Company, Inc.”
which uses the acronym “SERCO.” Serco’s evidence further
established that it has never been affiliated in any manner with
the Texas corporation. Serco also presented evidence establish-
ing that when the summons was served on its Nebraska regis-
tered agent, it was sent to Serco’s offices in Reston, Virginia,
and forwarded to its risk management department. However,
employees in the risk management department did not take any
further action, because they “mistakenly believed no action
was necessary because the claims did not involve a Serco
employee and did not tender it to Serco’s insurance carrier for
its defense as [they] should have.” Further, when notice of the
default judgment was received by Serco, a “newly employed
paralegal . . . did not appreciate the significance of the notice,”
resulting in Serco’s failure to make a timely opposition to
the motion.
The district court determined that Serco’s neglect was
“severe” and thus denied the motion to vacate default judg-
ment. The district court found that Serco moved to vacate the
judgment within 6 months of the order and presented a meri-
torious defense. However, the court found the inquiry did not
end there, and then it examined the reasons why Serco failed
to respond. Ultimately, the court concluded that the filing
was not prompt and that Serco’s purported explanations and
blame shifting to Carrel for filing against the wrong defendant
rang “hollow.”
Serco filed a timely appeal. We moved this case to our
docket pursuant to our statutory authority to regulate the case-
loads of the appellate courts of this state.1
1
Neb. Rev. Stat. § 24-1106(3) (Reissue 2008).
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Nebraska A dvance Sheets
291 Nebraska R eports
CARREL v. SERCO INC.
Cite as 291 Neb. 61
ASSIGNMENTS OF ERROR
Serco assigns, consolidated, that the district court erred
in (1) denying Serco’s motion to vacate default judgment
on the basis of Serco’s neglect, (2) failing to consider the
issue of “‘gross laches,’” and (3) finding Serco did not act
promptly in moving to vacate the default judgment, and
that the court abused its discretion in refusing to vacate the
default judgment.
STANDARD OF REVIEW
[1] In reviewing a trial court’s action in vacating or refus-
ing to vacate a default judgment, an appellate court will
uphold and affirm the trial court’s action in the absence of an
abuse of discretion.2 On appeal, a much stronger showing is
required to substantiate an abuse of discretion when the judg-
ment is vacated than when it is not.3
[2] A judicial abuse of discretion exists when the reasons or
rulings of a trial judge are clearly untenable, unfairly depriv-
ing a litigant of a substantial right and denying just results in
matters submitted for disposition.4
ANALYSIS
We begin our analysis with Neb. Rev. Stat. § 25-2001(1)
(Reissue 2008), which provides: “The inherent power of a
district court to vacate or modify its judgments or orders dur-
ing term may also be exercised after the end of the term, upon
the same grounds, upon a motion filed within six months after
the entry of the judgment or order.” Here, default judgment
was entered on October 7, 2013, and the motion to vacate was
filed on April 1, 2014. Because the motion was filed after term
but less than 6 months after the default judgment was entered,
2
Fitzgerald v. Fitzgerald, 286 Neb. 96, 835 N.W.2d 44 (2013); First Nat.
Bank of York v. Critel, 251 Neb. 128, 555 N.W.2d 773 (1996).
3
Beliveau v. Goodrich, 185 Neb. 98, 173 N.W.2d 877 (1970).
4
Turbines Ltd. v. Transupport, Inc., 285 Neb. 129, 825 N.W.2d 767 (2013);
Prime Home Care v. Pathways to Compassion, 283 Neb. 77, 809 N.W.2d
751 (2012).
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Nebraska A dvance Sheets
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CARREL v. SERCO INC.
Cite as 291 Neb. 61
§ 25-2001(1) applies and the district court had discretionary
statutory authority to vacate the default judgment on the same
grounds as if it had been within term.
[3,4] Generally, when the court has entered a default judg-
ment and the defendant has made a prompt application at the
same term to set it aside, with the tender of an answer or other
proof disclosing a meritorious defense, the court should on
reasonable terms sustain the motion and permit the cause to be
heard on the merits.5 When determining whether to set aside a
default judgment, two competing interests must be considered:
the right of a litigant to defend the action on the merits and
judicial efficiency.6 The law favors allowing a defendant to
present a defense to the court. We have stated:
“‘It is the policy of the law to give a litigant full opportu-
nity to present his contention in court and for this purpose
to give full relief against slight and technical omissions.
On the other hand, it is the duty of the courts to prevent
an abuse of process, unnecessary delays, and dilatory
and frivolous proceedings in the administration of jus-
tice. . . . Mere mistake or miscalculation of a party or his
attorneys is not sufficient, in itself, to warrant the refusal
to set aside a default judgment, where there is a good
defense pleaded or proved and no change of position or
substantial misjustice [sic] will result from permitting a
trial on the merits.’”7
The record discloses that Serco acted promptly when its
general counsel became aware of the default judgment. He
stated in his affidavit: “After learning of the default judgment
in March 2014, I took immediate action to retain counsel to
5
State on behalf of A.E. v. Buckhalter, 273 Neb. 443, 730 N.W.2d 340
(2007); Beliveau v. Goodrich, supra note 3.
6
See 49 C.J.S. Judgments § 605 (2009). See, generally, Miller v.
Steichen, 268 Neb. 328, 682 N.W.2d 702 (2004).
7
Miller v. Steichen, supra note 6 at 335, 682 N.W.2d at 708 (emphasis in
original), quoting DeVries v. Rix, 203 Neb. 392, 279 N.W.2d 89 (1979)
(quoting Beliveau v. Goodrich, supra note 3).
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CARREL v. SERCO INC.
Cite as 291 Neb. 61
appear in the action and defend Serco’s interests.” Although
lower level employees were aware of the action earlier, they
misunderstood its significance and the necessity to respond.
The writ of execution was served on March 14, 2014, and
Serco filed its motion to vacate the default judgment on April 1.
[5-7] And, as the district court concluded, Serco has dem-
onstrated that it has a meritorious defense to Carrel’s claim. In
this context, a meritorious defense is one which is worthy of
judicial inquiry because it raises a question of law deserving
some investigation and discussion or a real controversy as to
the essential facts.8 Although a defendant seeking to vacate a
default judgment is required to present a meritorious defense,
it is not required that the defendant show he will ultimately
prevail in the action, but only that the defendant show that he
has a defense which is recognized by the law and is not frivo-
lous.9 We have also said that regarding a refusal to set aside
a default judgment, an abuse of discretion may exist where
the defaulted party tenders an answer or other proof disclos-
ing a meritorious defense to the action which is the subject of
the default.10
In Miller v. Steichen,11 we determined that an insurance
company against which a default judgment had been entered in
a garnishment proceeding demonstrated a meritorious defense
by asserting that the professional liability policy it issued
to the defendant in a professional liability case excluded
coverage for the acts or omissions upon which formed the
basis of the claim against the insured. Without determining
whether the claims were covered by the policy or not, we
determined that this defense was a question of law worthy of
consideration and that thus, the default judgment should have
been vacated.
8
Miller v. Steichen, supra note 6.
9
Id.
10
Fredericks v. Western Livestock Auction Co., 225 Neb. 211, 403 N.W.2d
377 (1987).
11
Miller v. Steichen, supra note 6.
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Nebraska A dvance Sheets
291 Nebraska R eports
CARREL v. SERCO INC.
Cite as 291 Neb. 61
Here, Serco alleged in its tendered answer that it had never
employed Witt and was not the owner of the vehicle operated
by him at the time of Carrel’s injury. At the hearing on its
motion to vacate the default judgment, Serco produced evi-
dence in support of these allegations. Carrel’s appellate coun-
sel acknowledged during oral argument that Carrel’s previous
counsel apparently sued the wrong defendant. It is difficult to
conceive of a more meritorious defense than Serco’s substanti-
ated and uncontested claim that it was a complete stranger to
the incident upon which Carrel’s claim is based.
The critical question, then, is whether any negligence on
the part of Serco in responding to the suit is inexcusable. It is
evident from the record that Serco’s employees made mistakes
in their handling of the service of summons and the notice
of default. Their conduct is similar to that at issue in Barney
v. Platte Valley Public Power and Irrigation District.12 In
that case, the president of the board of directors of a power
and irrigation district was served with a summons but did
not report that fact to the district’s general manager or legal
counsel, because he was of the mistaken belief that they were
aware of the suit. Another employee of the district was also
aware of the suit but likewise did not advise the general man-
ager or legal counsel, who did not become aware of the suit
until after a default judgment had been entered against the dis-
trict. In reversing an order of the district court overruling the
motion to set aside the default judgment, this court reasoned
that while the district was not without fault due to the failure
of its employees to notify the general manager and counsel of
the suit, their conduct was not “so inexcusable that it should
have the effect of defeating the district’s right to have a trial of
the issues . . . on the merits.”13
Also pertinent to our analysis is the fact that Carrel would
not be unfairly prejudiced by permitting Serco to defend the
12
Barney v. Platte Valley Public Power and Irrigation District, 147 Neb.
375, 23 N.W.2d 335 (1946).
13
Id. at 381, 23 N.W.2d at 338.
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CARREL v. SERCO INC.
Cite as 291 Neb. 61
action on the merits. As we have noted, more than 2 years
before the suit was filed, Serco placed Carrel’s previous
counsel on notice of its position that it did not employ Witt
or own the vehicle he was driving at the time of the incident.
And, as Serco contends and Carrel does not dispute, the stat-
ute of limitations with respect to the proper corporate defend­
ant had run prior to the date on which Serco’s answer was
originally due.
Considering all of these circumstances, we conclude that
permitting the default judgment to stand would unfairly deprive
Serco of a substantial right and produce an unjust result. The
effect of the judgment is to exact a substantial penalty against
Serco for the lapses of its employees while permitting Carrel
a full recovery from a defendant which, on the basis of the
record before us, had no possible legal liability for his injury
and damages. We therefore conclude that the district court
abused its discretion in denying Serco’s motion to vacate the
default judgment.
CONCLUSION
For the foregoing reasons, we reverse the judgment of the
district court and remand the cause with directions to the dis-
trict court to (1) vacate the default judgment entered against
Serco on October 7, 2013, and (2) give Serco a reasonable time
in which to file an appropriate responsive pleading.
R eversed and remanded with directions.
McCormack, J., participating on briefs.