H. G. Hill Realty Company, L.L.C. v. Re/Max Carriage House, Inc.

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
June 11, 2013 Session
H.G. HILL REALTY COMPANY, L.L.C. v. RE/MAX CARRIAGE HOUSE,
INC., ET AL.
Direct Appeal from the Chancery Court for Davidson County
No. 110261IV Russell T. Perkins, Chancellor
No. M2012-01509-COA-R3-CV - Filed July 23, 2013
This appeal arises from the denial of Appellant’s Tennessee Rule of Civil Procedure
60.02 motion for relief from a default judgment. Appellee’s original complaint was filed
against the Appellant’s company for breach of a commercial lease agreement. Appellee was
granted leave to amend the complaint to add Appellant, individually, as a party-defendant.
Appellant failed to file any responsive pleadings in the case and a default judgment was
entered against him. Several months later, Appellant filed a Rule 60.02 motion to set aside
the default judgment against him. We conclude that the trial court did not err in piercing the
corporate veil to add Appellant as a defendant, or in the amount of damages awarded in the
default judgment. Because Appellant failed to meet his burden of proof on the Rule 60.02
motion, we also conclude that the trial court did not err in denying the motion. Affirmed and
remanded.
Tenn. R. App. P. 3. Appeal as of Right; Judgment of the Chancery Court Affirmed
and Remanded
J. S TEVEN S TAFFORD, J., delivered the opinion of the Court, in which D AVID R. F ARMER, J.,
and H OLLY M. K IRBY, J., joined.
Fred C. Dance, Franklin, Tennessee, for the appellant, Robert L. Wood, Jr.
Derek W. Edwards and Keith W. Randall, Nashville, Tennessee, for the appellee, H. G. Hill
Realty Company, L.L.C.
OPINION
On February 25, 2011, H. G. Hill Realty Company, L.L.C. (“H. G. Hill,” or
“Appellee”) filed its original complaint in the Chancery Court of Davidson County. The
original complaint named Re/Max Carriage House, Inc. f/k/a Re/Max Elite-Carriage House,
Inc. (“Re/Max”) as the sole defendant, and sought possession of a premises leased by
Re/Max. At paragraph seven, the original complaint states that Re/Max “presently owes
$22,709.68 for rents past due and owing . . . which will be increased by $5,876.04 per month
for every month that Tenant does not pay.” In support of the original complaint, H. G. Hill
attached, as exhibits, both the parties’ lease agreement and an itemization of the rental
amounts allegedly due. On March 7, 2011, Re/Max surrendered possession of the leased
premises pursuant to an agreed order, which was signed and submitted by H. G. Hill’s
lawyer, with the permission of Re/Max’s President, Robert L. Wood, Jr. (“Mr. Wood,” or
“Appellant”). On June 17, 2011, H. G. Hill filed an amended complaint, seeking money
damages for past-due rent. The ad damnum clause of the amended complaint states:
7. At the time the original complaint was filed, Tenant owed
$22,709.68 for rents past due. Because of Tenant’s default,
Landlord exercised its option under Paragraph 17 d of the Lease
Agreement to declare that all current and future rent and other
monetary obligations are immediately due and payable. The
Lease Agreement was to end on June 30, 2013, and thus amount
now due for rent is $206,396.48 . . . .
The certificate of service indicates that the amended complaint was mailed to Mr. Wood on
June 15, 2011; he does not dispute receipt of the amended complaint.
There is no evidence in the record that H. G. Hill made any responsive pleadings to
either the original, or amended complaint. Accordingly, on July 22, 2011, H. G. Hill filed
a motion for default judgment against Re/Max for money damages, along with an affidavit
and default judgment certificate in support thereof. The certificate of service indicates that
the motion for default judgment, and supporting documents, were mailed to Mr. Wood on
July 22, 2011; he does not dispute that he received notice of the motion for default judgment
against Re/Max.
On August 3, 2011, H. G. Hill entered a motion for leave to file an amendment to its
amended complaint in order to name Mr. Wood as a co-defendant. The certificate of service
for the motion indicates that it was mailed to Mr. Wood on August 2, 2011; Mr. Wood does
not dispute receipt of the motion for leave to file an amendment to the amended complaint.
In support of its contention that Mr. Wood should be made a party-defendant to the lawsuit,
H. G. Hill’s proposed amendment to the amended complaint stated:
12. Mr. Wood is personally liable for the debt of Defendant
ReMax because the corporation was grossly undercapitalized,
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stock certificates were not issued (or there was impropriety in
the issuance of them), the corporation was used as an
instrumentality or business conduit for an individual or another
corporation, corporate assets were diverted or manipulated, and
Mr. Wood withheld payments that were earmarked for H. G.
Hill, but diverted for his own personal benefit.
While H. G. Hill’s motion for leave to file an amendment to its amended complaint
was pending, on August 19, 2011, the trial court entered a final default judgment against
Re/Max for money damages in the amount of $217,517.66. The certificate of service
indicates that Mr. Wood received notice of the default judgment against Re/Max by mail on
or about July 22, 2011. No appeal has been filed concerning the default judgment entered
against Re/Max.
By order entered on August 31, 2011, the trial court granted H. G. Hill’s motion for
leave to file an amendment to its amended complaint; the certificate of service indicates that
the order allowing the amendment was mailed to Mr. Wood on August 22, 2011. Mr. Wood
made no response to the order allowing the amendment, and the amendment to the amended
complaint was entered on August 31, 2011. The certificate of service indicates that the
amendment to the amended complaint was mailed to Mr. Wood on August 22, 2011. He did
not respond.
After Mr. Wood was made a party-defendant by entry of the amendment to the
amended complaint, on November 4, 2011, H. G. Hill filed a motion for default judgment
against Mr. Wood for money damages, along with an accompanying affidavit and default
judgment certificate in support thereof. Again, the certificate of service indicates that the
motion for default judgment was sent to Mr. Wood by mail on November 4, 2011. Mr. Wood
did not respond to the motion for default judgment against him. Following a hearing on
November 18, 2011, on November 28, 2011, the trial court entered a final default judgment
against Mr. Wood for money damages, joint and several with Re/Max, in the amount of
$218,817.21. The certificate of service indicates that the default judgment was mailed to Mr.
Wood on November 18, 2011.
On March 19, 2012, H. G. Hill filed a motion for an order of sale of the realty at issue,
seeking an order from the trial court to sell the realty owned by Mr. Wood to satisfy the
judgment against him.
On April 9, 2012, Mr. Wood filed his first response in the trial court in opposition to
the motion for sale of realty. On the same day, Mr. Wood filed a Tennessee Rule of Civil
Procedure 60.02 motion to set aside the default judgment entered against him. As grounds
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for the motion, Mr. Hill averred:
(1) The ad damnum in the amendment to the amended complaint
does not demand a judgment against the defendant Wood as
required by [Tennessee Rule of Civil Procedure] 8.01 . . . .
(2) Even taking the amendment to the amended complaint and
the amended complaint together the “complaint” against
defendant Wood is legally insufficient, fails to state a claim
upon which relief can be granted, to subject Wood to individual
liability for the corporate debt on any legal theory including that
of piercing the corporate veil.
(3) Even taking the Amended Complaint and the Amendment to
the Amended Complaint together the ad damnum for damages
is limited to $22,709.68. Thus the judgment of $218,817.21 is
greatly in excess of the amount prayed for in the Complaint and
renders the judgment void.
A hearing on Mr. Wood’s motion to set aside the default judgment was held on May
11, 2012. By order of June 11, 2012, the trial court denied Mr. Wood’s motion.
Specifically, the trial court held that:
It is further Ordered, Adjudged, and Decreed that Mr.
Wood has not met his burden to show that the default was not
willful–a requirement for relief under Rule 60.02(1).
It is further Ordered, Adjudged, and Decreed that Mr.
Wood has not met his burden to show that (i) the Court lacked
subject-matter jurisdiction; (ii) the Court lacked personal
jurisdiction over him; or (iii) the Court acted inconsistent with
due process of law. Accordingly, Mr. Wood has not met his
burden to show that the Default Judgment is void–a requirement
for relief under Rule 60.02(3).
Thereafter, on June 21, 2012, Mr. Wood filed a Tennessee Rule of Civil Procedure
59.01 motion to alter or amend the June 11, 2012 order. The trial court treated the Rule
59.01 motion as a second Rule 60.02(3) motion, and denied it by order of July 13, 2012. No
appeal is taken as to the July 13, 2012 order; Mr. Wood appeals only the June 11, 2012 order,
denying him Rule 60.02 relief from the default judgment.
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Mr. Wood raises three issues for review as stated in his brief:
1. Did the trial court err in failing to set aside the default
judgment against [Mr. Wood], because the judgment is void
because the judgment exceeds the scope of the pleadings filed
by [Re/Max].
2. Did the trial court err in failing to set aside the default
judgment against [Mr. Wood], because the ad damnum clause
in the complaint did not demand a judgment for a specific dollar
amount against [Mr. Wood].
3. Did the trial court err in failing to set aside the default
judgment against [Mr. Wood], because [Re/Max] failed to
mitigate its damages.
After review of the appellate record, we perceive that there are two dispositive issues
in this case:
1. Whether the trial court erred in entering a default judgment
against Mr. Wood by piercing the corporate veil.
2. If the corporate veil was properly pierced, whether the trial
court erred in denying Mr. Wood’s motion to set aside the
judgment pursuant to Tennessee Rule of Civil Procedure 60.02.
Default Judgment
Here, Mr. Wood appeals the trial court’s denial of his motion to set aside the default
judgment that was entered against him. The propriety of a trial court's denial of a request to
set aside a default judgment depends in part on whether the default judgment was properly
entered in the first place. Yearwood, Johnson, Stanton & Crabtree, Inc. v. Foxland Dev.
Venture, 828 S.W.2d 412, 413 (Tenn. Ct. App. 1991). Accordingly, we first address whether
default judgment was properly entered against Mr. Wood in this case.
Tennessee Rule of Civil Procedure 55.01 governs the entry of default judgments in
the trial court. The rule provides:
When a party against whom a judgment for affirmative
relief is sought has failed to plead or otherwise defend as
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provided by these rules and that fact is made to appear by
affidavit or otherwise, judgment by default may be entered as
follows:
The party entitled to a judgment by default shall apply to the
court. Except for cases where service was properly made by
publication, all parties against whom a default judgment is
sought shall be served with a written notice of the application at
least five days before the hearing on the application, regardless
of whether the party has made an appearance in the action. A
party served by publication is entitled to such notice only if that
party has made an appearance in the action. No judgment by
default shall be entered against an infant or incompetent person
unless represented in the action by a general guardian,
committee, conservator, or other such representative who has
appeared therein. If, in order to enable the court to enter
judgment or to carry it into effect, it is necessary to take an
account or to determine the amount of damages or to establish
the truth of any averment by evidence or to make an
investigation of any other matter the court may conduct such
hearings or order such references as it deems necessary and
proper and shall accord a right of trial by jury to the parties
when and as required by any statute.
As discussed in Lawrence A. Pivnick, Tennessee Circuit Court Practice, § 27.2
(2012):
Judgment by default (previously called judgment pro
confesso) is an expediting procedure which acts as a deterrent to
defending parties resorting to delay as an element of their
litigation strategy. Generally, a default judgment is sought by a
party seeking “affirmative relief” when his adversary fails to
properly and timely respond to an initial pleading . . . .
Generally, the entry of a default judgment has the effect
of an answer admitting the well-pleaded material allegations of
fact contained in the adversary’s pleading and fair inferences
therefrom. . . .
In addition to creating admissions as to factual statements
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in prior unanswered pleadings, the default judgment has a
second important purpose: “to record that time for pleadings has
past; that one party has failed to plead; but that the case may
proceed to trial without waiting for delinquent parties.”
Id. (footnotes omitted). As explained by this Court:
A judgment by default is a final order disposing of a case
on its merits, like any other judgment. A judgment by default is
generally considered an admission of all the properly pleaded
material allegations of fact in the complaint, except the amount
of unliquidated damages.1 See Patterson [v. Rockwell Int’l], 665
S.W.2d [96,] 101 [(Tenn. 1984)].
The essence of a default judgment is that a
nonmovant fails to take a step required by a rule
of practice or of the court. A default judgment
contemplates a lack of responsiveness by
defendant such that plaintiff is entitled to
judgment as a matter of policy; defendants are not
to be allowed to prolong litigation by imposing
procedural delays. The default judgment protects
a diligent party from continual delay and
uncertainty as to his or her rights.
1
The damages in this case are liquidated. As noted in Bryan Garner, A Dictionary of Modern Legal
Usage 530 (2nd ed.1995), the term “liquidated damages applies when the parties to a contract have agreed
in advance on the measure of damages to be assessed in the event of default.” Liquidated damages are
distinguishable from forfeiture or penalty type damages, “which involve[] a provision imposed as a threat
of punishment rather than as a genuine estimate of damages upon default.” Id.; see further Robert E. Burch,
Trial Handbook for Tennessee Lawyers § 33:17 (May 2013) (“If the parties agree by contract what the
damages for the breach of their contract shall be, the damages are said to be liquidated and, unless the
amount is unreasonable or unless the agreement violates some principle of law, the parties are bound
thereby.”) (footnote omitted). Here, and as discussed infra, the amended complaint’s ad damnum states that
the “amount now due for rent is $206,396.48.” In addition to the rent, in the prayer for relief section of the
amended complaint, H. G. Hill asks for “other damages allowed under the Lease,” “consequential damages,”
“attorney fees, court costs, and expenses.” Therefore, under the plain language of the contract, the parties
agreed to the measure of damages to be assessed in the event of a default, i.e., acceleration of rent, attorney
fees, court costs, expenses, and other consequential damages arising from the breach. Accordingly, we can
only conclude that the damages sought, and awarded, in this case were liquidated and were not penal.
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49 C.J.S. Judgments § 196 (1997).
State ex rel. Jones v. Looper, 86 S.W.3d 189, 194 (Tenn. Ct. App. 2000); see also Clark v.
Sputniks, LLC, 368 S.W.3d 431, 435 (Tenn. 2012 ) (“By allowing default judgments to be
entered against them, the defendants impliedly admitted as true all the material factual
allegations contained in the complaints, except the amount of the plaintiffs’ unliquidated
damages.”). In order to aver factual allegations sufficient to sustain default judgment, the
complaint “‘need not contain detailed allegations of all the facts giving rise to the claim,’ but
it ‘must contain sufficient factual allegations to articulate a claim for relief.’” Plunk v.
Gibson Guitar Corp., No. M2012-00882-COA-R3-CV, 2013 WL 2420539, at *3 n.3 (Tenn.
Ct. App. May 31, 2013) (affirming the trial court’s holding that the factual allegations of the
complaint were sufficient to sustain the default judgment). “While a complaint . . . need not
contain in minute detail the facts that give rise to the claim, it must contain direct allegations
on every material point necessary to sustain a recovery on any legal theory, even though it
may not be the theory suggested . . . by the pleader, or contain allegations from which an
inference may fairly be drawn that evidence on these material points will be introduced at
trial.” Webb v. Nashville Area Habitat for Humanity, Inc., 346 S.W.3d 422, 427 (Tenn.
2011) (quoting Leach v. Taylor, 124 S.W.3d 87, 92 (Tenn. 2004)).
However, “[p]laintiffs cannot extend the default judgment to matters outside the issues
raised in the pleadings.” Clark, 368 S.W.3d at 439 (citing Tenn. R. Civ. P. 54.03) (“A
judgment by default shall not be different in kind from or exceed in amount that prayed for
in the demand for judgment.”). In addition, a default judgment judgement does not admit any
conclusion of law contained in a complaint. See Brashears v. Hartsook, 450 S.W.2d 7, 9
(Tenn. 1969) (noting that a default judgment “is in no way an admission of legal conclusions
or matters of law”); but see Webb, 346 S.W.3d at 433–34 (“In many instances, however, the
distinction between whether an allegation is a “fact” or a “conclusion” is fine, blurry, and
hard to detect.”) (confirming “the observation of Professors Banks and Entman that the
fact/conclusion dichotomy has rarely been invoked in Tennessee.”) (citing Robert Banks, Jr.
& June F. Entman, Tennessee Civil Procedure § 5–4(c) (3d ed. 2009)). Thus, we turn to
consider the cause of action asserted against Mr. Wood and the factual allegations in H. G.
Hill’s complaint to support that cause of action.
Here, it is undisputed that the lease agreement, upon which the lawsuit was instigated,
was entered by and between H. G. Hill and Re/Max; consequently, Mr. Wood was not a party
to the lease. Accordingly, the sole basis for entry of a default judgment against Mr. Wood,
holding him jointly and severally liable for breach of the subject lease, is through the
mechanism of piercing the corporate veil.
This Court explained the doctrine of piercing the corporate veil in the recent case of
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Edmunds v. Delta Partners, L.L.C, No. M2012-00047-COA-R3-CV, 2012 WL 6604580(Tenn. Ct. App. Dec. 18, 2012) (perm app. denied May 9, 2013):
Conditions under which the corporate entity will be disregarded
vary according to the circumstances present in the case, and the
matter is particularly within the province of the trial court.
Muroll Gesellschaft M.B.H. v. Tennessee Tape, Inc., 908
S.W.2d 211, 213 (Tenn. Ct. App. 1995) (citing Electric Power
Bd. of Chattanooga v. St. Joseph Valley Structural Steel Corp.,
691 S.W.2d 522 (Tenn. 1985)); Piper v. Andrews, No. 01A01-
9612-CV-00570, 1997 WL 772127, at *3 (Tenn. Ct. App. Dec.
17, 1997) (Perm. app. denied June 8, 1998). Thus, the question
of when an individual should be held liable for corporate
obligations is largely a factual one. “Each case involving
disregard of the corporate entity must rest upon its special
facts.” Muroll Gesellschaft, 908 S.W.2d at 213; Schlater v.
Haynie, 833 S.W.2d 919, 925 (Tenn. Ct. App. 1991).
***
There is a presumption that a corporation is a distinct
legal entity, wholly separate and apart from its shareholders,
officers, directors, or affiliated corporations. In an appropriate
case and in furtherance of the ends of justice, the separate
identity of a corporation may be discarded and the individual or
individuals owning all its stock and assets will be treated as
identical to the corporation. Muroll Gesellschaft, 908 S.W.2d at
213; Schlater, 833 S.W.2d at 925; see also Fidelity Trust Co.
v. Service Laundry Co., 160 Tenn. 57, 61, 22 S.W.2d 6, 7–8
(1929); see generally E.O Bailey & Co. v. Union Planters Title
Guar. Co., 33 Tenn. App. 439, 232 S.W.2d 309 (1950).
Discarding the fiction of the corporate entity, or piercing the
corporate veil, is appropriate when the corporation is liable for
a debt but is without funds to pay the debt, and the lack of funds
is due to some misconduct on the part of the officers and
directors. Muroll Gesellschaft, 908 S.W.2d at 213; S.E.A., Inc.
v. Southside Leasing Co., et al., No. E2000-00631-COA-R3-
CV, 2000 WL 1449852, at *9 (Tenn. Ct. App. Sept. 29, 2000)
(no Tenn. R. App. P. 11 filed); Emergicare Consultants, Inc. v.
Woolbright, No. W1998-00659-COA-R3-CV, 2000 WL
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1897350, at *2 (Tenn. Ct. App. Dec.29, 2000) (Perm. app.
denied. May 14, 2001).
In those circumstances, courts may pierce the corporate
veil to find the “true owners of the entity” liable, Murroll
Gesellschaft, 908 S.W.2d at 213, or “to impose liability against
a controlling shareholder who has used the corporate entity to
avoid his legal obligations.” Manufacturers Consolidation
Serv., Inc. v. Rodell, 42 S.W.3d 846, 866 (Tenn. Ct. App. 2000).
Our courts will disregard the corporation as a separate entity
upon a showing that the corporation is a sham or dummy or such
action is necessary to accomplish justice. Muroll Gesellschaft,
908 S.W.2d at 213; Tennessee Racquetball Investors, Ltd. v.
Bell, 709 S.W.2d 617, 619 (Tenn. Ct. App. 1986); Oak Ridge
Auto Repair Serv. v. City Fin. Co., 57 Tenn.App. 707, 711, 425
S.W.2d 620, 622 (1967); Fidelity Trust Co., 160 Tenn. at 61, 22
S.W.2d at 7–8; Emergicare Consultants, Inc., 2000 WL
1897350, at *2; Piper, 1997 WL 772127, at *3.
Edmunds v. Delta Partners, L.L.C, 2012 WL 6604580, at *10–*11(citing VP Buildings,
Inc. v. Polygon Group, No. M2001-00613-COA-R3-CV, 2002 WL 15634, *4–5 (Tenn. Ct.
App. Jan. 8, 2002)); see also Boles v. National Development Co., Inc., 175 S.W.3d 226,
244–45 (Tenn. Ct. App. 2005) (citing favorably the analysis and discussion in VP Buildings).
However, courts in Tennessee are cautioned that the doctrine of piercing the corporate
veil should be applied only in “extreme circumstances to prevent the use of a corporate entity
to defraud or perform illegal acts.” Pamperin v. Streamline Mfg., Inc., 276 S.W.3d 428, 437
(Tenn. Ct. App. 2008) (perm. app. denied Oct. 6, 2008). As this Court explained:
The principle of piercing the fiction of the corporate veil is to be
applied with great caution and not precipitately, since there is a
presumption of corporate regularity.” Schlater, 833 S.W.2d at
925; Emergicare Consultants, Inc., 2000 WL 1897350, at *2;
Lindsey, Bradley & Maloy v. Media Marketing Systems, Inc.,
No E200-00678-COA-R3-CV, 2000 WL 1875882, at *4 (Tenn.
Ct. App. Dec.15, 2000) (no Tenn. R. App. P. 11 filed). The party
wishing to negate the existence of such separate entity has the
burden of proving facts sufficient to justify piercing the
corporate veil. Schlater, 833 S.W.2d at 925.
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VP Buildings, 2002 WL 15634, at *5.
The most common factors used by Tennessee courts to determine whether to pierce
the corporate veil were originally set forth in Federal Deposit Ins. Corp. v. Allen, 584 F.
Supp. 386 (E.D. Tenn. 1984), as follows:
Factors to be considered in determining whether to disregard the
corporate veil include not only whether the entity has been used
to work a fraud or injustice in contravention of public policy,
but also: (1) whether there was a failure to collect paid in
capital; (2) whether the corporation was grossly
undercapitalized; (3) the nonissuance of stock certificates; (4)
the sole ownership of stock by one individual; (5) the use of the
same office or business location; (6) the employment of the
same employees or attorneys; (7) the use of the corporation as
an instrumentality or business conduit for an individual or
another corporation; (8) the diversion of corporate assets by or
to a stockholder or other entity to the detriment of creditors, or
the manipulation of assets and liabilities in another; (9) the use
of the corporation as a subterfuge in illegal transactions; (10) the
formation and use of the corporation to transfer to it the existing
liability of another person or entity; and (11) the failure to
maintain arms length relationships among related entities.
Id. at 397 (citing cases from various jurisdictions); see also Marshall v. Jackson, No.
M2007-01764-COA-R3-CV, 2008 WL 5156312, *6 (Tenn. Ct. App. Dec. 08, 2008) (citing
the above factors and noting that they are commonly referred to as the Allen factors);
AmPharm, Inc. v. Eastland Pharmacy Services, L.L.C., No. M2006–01334–COA–R3–CV,
2008 WL 4830803, *6 (Tenn. Ct. App. Nov 5, 2008) (citing the Allen factors); Altice v.
NATS, Inc., No. M2007-00212-COA-R3-CV, 2008 WL 1744571, *2 (Tenn. Ct. App.
Apr.15, 2008) (same); Dolle v. Fisher, No. E2003-02356-COA-R3-CV, 2005 WL 2051288,
*4 (Tenn. Ct. App. Aug. 26, 2005) (same); Boles v. National Development Co., Inc., 175
S.W.3d 226, 245 (Tenn. Ct. App. 2005); Oceanics Schools, Inc. v. Barbour, 112 S.W.3d
135, 140 (Tenn. Ct. App. 2003) (same); Emergicare Consultants, Inc. v. Woolbright, No.
W1998-00659-COA-R3-CV, 2000 WL 1897350, *2 (Tenn. Ct. App. Dec.29, 2000) (same).
Generally, no one factor is conclusive in determining whether to pierce the corporate veil;
rather, courts will rely upon a combination of factors in deciding the issue. Pamperin, 276
S.W.3d at 438 (citing Oceanics Schools, 112 S.W.3d at 140). “Even though corporate
formalities have been observed, one may still challenge the corporate entity by showing that
he has been the victim of some basically unfair device by which the corporate form of
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business organization has been used to achieve an inequitable result.” Pamperin, 276 S.W.3d
at 438 (quoting Schlater v. Haynie, 833 S.W.2d 919, 925 (Tenn. Ct. App. 1991)).
As noted by Professor Pivnick, supra, “the entry of a default judgment has the effect
of an answer admitting the well-pleaded material allegations of fact contained in the
adversary’s pleading and fair inferences therefrom . . . .” Accordingly, the question in this
case is whether the pleadings (specifically, the amended complaint and the amendment
thereto, see discussion infra) aver facts sufficient to form a basis to pierce the corporate veil
so as to hold Mr. Wood jointly and severally liable, with Re/Max, for the judgment in this
case. As set out in full context above, the amendment to the amended complaint states that
Mr. Wood is personally liable for the debt of Re/Max because: (1) Re/Max was grossly
undercapitalized; (2) stock certificates were not issued (or there was impropriety in the
issuance); (3) the corporation was used as an instrumentality or business conduit for an
individual or another corporation; (4) corporate assets were diverted or manipulated; and (5)
Mr. Wood withheld payments that were earmarked for H. G. Hill, but were diverted for his
own personal benefit.
Mr. Wood’s failure to answer these allegations led to a default judgment being entered
against him, and amounted to an admission that the allegations in the pleadings are true.
Therefore, taking the foregoing allegations as true, we conclude that the pleadings aver facts
sufficient to pierce the corporate veil in this case.
Even though the trial court’s piercing of the corporate veil was not erroneous under
the facts stated in the pleadings, the availability of default judgment is limited by several
other exceptions, including:
[N]o default judgment may be rendered granting relief that is different
in kind or that exceeds the amount prayed for in the demand for
judgment in the plaintiff’s complaint. . . .
Lawrence A. Pivnick, Tennessee Circuit Court Practice, § 27.2 (2012).
In his appellate brief, Mr. Wood argues that “the ad damnum in the amendment to the
amended complaint does not demand a judgment against [Mr. Wood] individually as required
by [Tennessee Rule of Civil Procedure] 8.01.”2 By way of edification, an “amended”
2
Tennessee Rule of Civil Procedure 8.01 provides;
A pleading which sets forth a claim for relief, whether an original claim,
(continued...)
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complaint and an “amendment to” a complaint are two different things. An “amended
complaint” is complete in itself without adoption or reference to the original; as such, it
supersedes and destroys the original complaint as a pleading. McBurney v. Aldrich, 816
S.W.2d 30 (Tenn. Ct. App.1991). An “amendment to” a complaint merely modifies the
existing complaint, which remains before the trial court as modified. Id.
As set out above, the original complaint, filed on February 25, 2011 contained an ad
damnum clause, which stated that Re/Max “presently owes $22,709.68 for rents past due and
owing . . . which will be increased by $5,876.04 per month for every month that Tenant does
not pay.” In his brief, Mr. Wood argues that the original ad damnum amount of $22,709.68
is the most H. G. Hill may recover in this case. However, Mr. Wood’s argument overlooks
the fact that H. G. Hill filed an amended complaint on August 3, 2011. Based upon the
foregoing authority, the amended complaint superseded the original complaint. Accordingly,
the ad damnum in the original complaint was replaced by the ad damnum in the amended
complaint, which states, in relevant part, that the “amount now due for rent is $206,396.48.”
In addition to the rent, in the prayer for relief section of the amended complaint, H. G. Hill
asks for “other damages allowed under the Lease,” “consequential damages,” “attorney fees,
court costs, and expenses.” H. G. Hill then filed an amendment to the amended complaint
on August 31, 2011. As noted above, this “amendment to” the amended complaint merely
modified the amended complaint, but did not supersede it. The amendment to the amended
complaint seeks only to add Mr. Wood as a party-defendant, and to hold him jointly and
severally liable, with Re/Max, for any damages. It does not modify the ad damnum clause
contained in the amended complaint. Accordingly, having determined above that the trial
court did not err in piercing the corporate veil so as to join Mr. Wood in the lawsuit as a
defendant, so long as Mr. Wood is not entitled to Tennessee Rule of Civil Procedure 60 relief
from the default judgment entered against him (see discussion infra), he may be held jointly
and severally liable for the ad damnum amount set out in the amended complaint, which asks
not only for rent amounts, but also for attorney fees and incidental damages incurred by
Re/Max in collecting the debt.
Finally, as is relevant to this appeal, “a default judgment cannot be entered unless the
court file shows service of process on the defaulting party.” Lawrence A. Pivnick, Tennessee
Circuit Court Practice, § 27.2 (2012). As discussed above, the certificates of service indicate
that Mr. Wood received the amended complaint, the amendment to the amended complaint,
2
(...continued)
counterclaim, cross-claim, or third-party claim, shall contain: (1) a short
and plain statement of the claim showing that the pleader is entitled to
relief; and (2) a demand for judgment for the relief the pleader seeks. Relief
in the alternative or of several different types may be demanded.
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all relevant motions, notice of all scheduled hearings, and all orders entered by the trial
court. In fact, Mr. Wood never disputed, either at the trial level, or on appeal, that he
received all relevant filings made in this case.3
For the foregoing reasons, we conclude that the trial court did not err in entering a
default judgment against Mr. Wood. The amended complaint and amendment thereto set
forth sufficient facts to pierce the corporate veil. Furthermore, the amount of the judgment
against Mr. Wood, i.e., $218,817.21, was set forth in the default judgment certificate filed
in conjunction with H. G. Hill’s motion for default judgment against Mr. Wood. As
discussed above, the amount of the judgment is also supported by the ad damnum clause
contained in the amended complaint, which prays not only for past due rent, but also for other
related fees and expenses. Finally, there is no evidence that Mr. Wood did not receive
sufficient notice of the filings made in the case.
Having determined that default judgment was properly entered against Mr. Wood, and
in an amount that is supported by the pleadings, we now turn to address whether Mr. Wood
is entitled to relief from the default judgment under Tennessee Rule of Civil Procedure 60.02.
Tennessee Rule of Civil Procedure 60.02 Relief
Tennessee Rule of Civil Procedure 55.02 provides that, “for good cause shown the
court may set aside a judgment by default in accordance with [Tennessee Rule of Civil
Procedure] 60.02.” As set out in full context above, the trial court states that Mr. Wood is
not entitled to relief under Rule 60.02(1), or 60.02(3). Tennessee Rule of Civil Procedure
60.02 provides, in relevant part:
On motion and upon such terms as are just, the court may
relieve a party or the party's legal representative from a final
judgment, order or proceeding for the following reasons: (1)
mistake, inadvertence, surprise or excusable neglect. . .(3) the
judgment is void. . .(5) any other reason justifying relief from
the operation of the judgment. The motion shall be made within
a reasonable time, and for reasons (1) and (2) not more than one
year after the judgment, order or proceeding was entered or
3
We are cognizant of the fact that mailing a copy of a complaint utilizing a certificate of service is
not a substitute for proper service of process pursuant to Rules 4.01 through 4.04 of the Tennessee Rules of
Civil Procedure. However, Mr. Wood did not raise the defense of insufficiency of service of process, either
in the trial court, or on appeal. Therefore, this issue is waived. See Faulks v. Crowder, 99 S.W.3d 116, 125
(Tenn. Ct. App. 2003) (“The failure . . . to challenge insufficiency of process in accordance with Rule 8.03,
Tenn. R. Civ. P. constitutes a waiver of the matter . . . .”).
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taken. . . .
The Tennessee Supreme Court recently explained the standard of review regarding
the denial of a motion pursuant to Rule 60.02:
We ... review for abuse of discretion a trial court's ruling on a
Rule 60.02 motion for relief from a final judgment[.] Henry v.
Goins, 104 S.W.3d 475, 479 (Tenn. 2003). Abuse of discretion
is found “‘only when the trial court applied incorrect legal
standards, reached an illogical conclusion, based its decision on
a clearly erroneous assessment of the evidence, or employed
reasoning that causes an injustice to the complaining party.’”
State v. Jordan, 325 S.W.3d 1, 39 (Tenn. 2010) (quoting State
v. Banks, 271 S.W.3d 90, 116 (Tenn. 2008)). The abuse of
discretion standard does not permit an appellate court to merely
substitute its judgment for that of the trial court. See Eldridge v.
Eldridge, 42 S.W.3d 82, 85 (Tenn. 2001); Henry, 104 S.W.3d
at 479. Instead, “[u]nder the abuse of discretion standard, a trial
court's ruling ‘will be upheld so long as reasonable minds can
disagree as to [the] propriety of the decision made.’” Eldridge,
42 S.W.3d at 85 (quoting State v. Scott, 33 S.W.3d 746, 752
(Tenn.2000)).
Discover Bank v. Morgan, 363 S.W.3d 479, 487 (Tenn. 2012).
Despite this strict standard of review, Rule 60.02 motions should be viewed liberally
when the movant seeks relief from a default judgment. Pryor v. Rivergate Meadows
Apartment Assocs. Ltd. P'ship, 338 S.W.3d 882, 885 (Tenn. Ct. App. 2009) (citing Tenn.
Dep't of Human Servs. v. Barbee, 689 S.W.2d 863, 866 (Tenn.1985)). Therefore, “the court
should grant the application whenever there is reasonable doubt as to whether the default
judgment should be set aside.” Rivergate Meadows, 338 S.W.3d at 885 (citing Tenn. State
Bank v. Lay, 609 S.W.2d 525, 527 (Tenn. Ct. App. 1980)).
This Court discussed the burden on the party seeking relief from a default judgment
due to “mistake, inadvertence, surprise or excusable neglect,” i.e., Tennessee Rule of Civil
Procedure 60.02(1), in Pryor v. Rivergate Meadows Apartment Assocs. Ltd. P’ship, 338
S.W.3d 882 (Tenn. Ct. App. 2009):
The party seeking relief under Rule 60.02(1) has the
burden to “offer proof of the basis on which relief is sought.”
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Henry v. Goins, 104 S.W.3d 475, 482 (Tenn. 2003). To meet
this burden, the movant must “set forth in a motion or petition
and supporting affidavits facts explaining why the movant was
justified in failing to avoid the mistake, inadvertence, surprise
or neglect.” Lay, 609 S.W.2d at 527. Three factors must be
considered when determining if a default judgment should be
vacated under Rule 60.02(1): “(1) whether the default was
willful; (2) whether the defendant has a meritorious defense; and
(3) whether the non-defaulting party would be prejudiced if
relief were granted.” Henry v. Goins, 104 S.W.3d 475, 481
(Tenn.2003) (citing Tenn. Dep't of Human Servs. v. Barbee,
689 S.W.2d 863, 866 (Tenn. 1985)). Again, the trial court “is in
the best position to assess the various factors that should be
considered in determining whether a default judgment should be
vacated.” Barbee, 689 S.W.2d at 867.
These factors—willfulness, meritorious defense, and
prejudice—have not replaced the Rule 60.02(1) reasons of
mistake, inadvertence, surprise or excusable neglect. Bowers v.
Gutterguard of Tenn., Inc., No. M2002-02877-COA-R3-CV,
2003 WL 22994302, at *7 (Tenn. Ct. App. Dec. 17, 2003).
Specifically, Tennessee courts have wrestled with the apparent
incompatibility of “excusable neglect” and “willfulness.” A
recent Tennessee decision explained the relationship as follows:
“[t]his approach has been to find that negligence, a form of
neglect, may be excusable and to employ wilfulness as a critical
factor in distinguishing neglect that is excusable from that which
is not.” World Relief Corp. of Nat'l Ass'n of Evangelicals v.
Messay, No. M2005-01533-COA-R3-CV, 2007 WL 2198199,
at *7 n. 9 (Tenn. Ct. App. July 26, 2007).
Rivergate Meadows, 338 S.W.3d at 886. Accordingly, in determining whether Mr. Wood is
entitled to relief under Tennessee Rule of Civil Procedure 60.02(1), this Court must consider
whether Mr. Wood’s inaction was willful, whether he has set forth a meritorious defense, and
whether H. G. Hill would be prejudiced if the relief were granted.
We have reviewed Mr. Wood’s motion for relief from the default judgment as well
as his affidavit in support thereof. Therein, Mr. Wood provides no explanation whatsoever
concerning why he failed to respond to the pleadings in this case. Specifically, there is no
indication in the record that Mr. Wood’s failure to respond was the result of some excusable
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neglect. From the record, and as discussed above, Mr. Wood does not dispute the certificates
of service, which indicate that all relevant filings were mailed to him. Accordingly, there is
no basis from which to conclude that Mr. Wood’s failure to answer in this case was anything
but willful. Mr. Wood has the burden to show that his failure to answer was not willful; he
has failed to meet this burden.
Mr. Wood does assert, however, that he has put forth three meritorious defenses that
justify setting aside the default judgment: (1) that the judgment exceeds the ad damnum; (2)
the pleadings fail to aver facts sufficient to pierce the corporate veil; and (3) H.G. Hill failed
to mitigate its damages. We have previously discussed the first two arguments above and
conclude that the record does not support a conclusion that the default judgment is void
based upon either of these arguments.4 With regard to H.G. Hill’s failure to mitigate its
damages, regardless of whether Mr. Wood has set forth a meritorious defense to the
underlying action, this Court will not set aside a default judgment when the defendant’s
action in failing to appear was willful. See Discover Bank v. Morgan, 363 S.W.3d 479,
493–94 (Tenn. 2012) (“If the court finds that the defaulting party has acted willfully, the
judgment cannot be set aside on “excusable neglect” grounds, and the court need not consider
the other factors. If the conduct was not willful, however, then the court must consider
whether the defaulting party has a meritorious defense and whether the non-defaulting party
would be prejudiced by the granting of relief.”). Because we have determined that Mr.
Wood’s conduct was willful, we need not consider whether he has set forth a meritorious
defense. Accordingly, although Mr. Wood may have a meritorious defense to the underlying
action, the trial court did not err in denying Mr. Wood’s motion to set aside the default.
For the foregoing reasons, we affirm the order of the trial court. The case is remanded
for such further proceedings as may be necessary and are consistent with this Opinion. Costs
of this appeal are assessed against the Appellant, Robert L. Wood, Jr., and his surety.
_________________________________
J. STEVEN STAFFORD, JUDGE
4
Although he raised the issues of subject-matter and personal jurisdiction in the trial court, on
appeal, Mr. Wood has not pursued these grounds for his argument that the default judgment is void.
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