Opinion ID: 1689547
Heading Depth: 1
Heading Rank: 3

Heading: The Three-part Analysis

Text: Summit first contends that the trial court abused its discretion when it found that Summit was unable to demonstrate a meritorious defense. In order to demonstrate a meritorious defense, Summit need not satisfy the trial court that [Summit] would necessarily prevail at a trial on the merits, only that [it] is prepared to present a plausible defense. Ex parte Illinois Cent. Gulf R.R., 514 So.2d 1283, 1288 (Ala.1987). A plausible defense is a viable legal theory supported by a factual basis. Kirtland, 524 So.2d at 605. The rationale behind the meritorious-defense requirement is that evidence of a defense indicates that the outcome of the case could be different if it were disposed of by a trial on the merits rather than by a default judgment and, therefore, justifies reopening the case so that justice can be done. Kirtland, 524 So.2d at 605-06. Summit submitted an affidavit in support of its motion to set aside the default judgment. Brad Highum, president of Summit, provided that affidavit. The contents of that affidavit were in direct conflict with the allegations in Scott's complaint. Specifically, Highum stated: 6. According to Summit's records, the plaintiff did purchase approximately three thousand dollars ($3,000.00) of inventory and promotional materials from the defendant in February of 1997. At the times referenced in the plaintiff's complaint from February of 1997 until June 6, 1997, the company filled orders submitted and had every intention of continuing to fill orders placed by all distributors and customers, including the plaintiff and/or his customers, and to continue the business indefinitely. Upon determination early in June of 1997, that the company could not continue in business, operations were ceased immediately and the company made efforts to the best of its limited ability to notify its distributors of same and to return orders and receipts in its possession. At no time were any representations made to the plaintiff by the defendant or any of its agents or employees concerning any material facts which were known to be false. 7. The money paid to the defendant when orders were placed was a shipping and handling fee. Summit subsequently refunded money it had received for shipping and handling directly to people who had placed orders and paid for them, but never received the product. Moreover, in its answer to Scott's complaint, Summit averred that no contractual relationship had existed between it and Scott. The answer further stated that, even if such a relationship had existed, Summit did not breach any contract between it and Scott. Highum's affidavit set forth evidence indicating that, under the facts and circumstances of the case, Summit owed Scott no duty other than a possible contractual duty; this evidence contradicted Scott's claims alleging negligence and wantonness. Highum's affidavit also stated that Summit had refunded moneys received as shipping and handling fees, directly to the persons who had placed orders with the company; this evidence contradicted Scott's claims alleging conversion. It appears from Summit's motion and Highum's affidavit that Summit is prepared to present a plausible defense to Scott's claims. Furthermore, it is evident from the affidavit that Summit has taken a defensible position with regard to the claims made against it. Through Highum's affidavit, Summit has specifically refuted Scott's claims; therefore, Summit has made a showing that it could present a meritorious defense. See Kirtland, 524 So.2d at 605-06. Summit next contends that the trial court abused its discretion when it found that Summit had failed to show that Scott would suffer no substantial prejudice if the default judgment were set aside. [M]ere delay or increased cost is not sufficient to justify a refusal to set aside a default judgment. Ex parte Gilliam, 720 So.2d at 906; see also Cunningham v. Gibson, 618 So.2d 1342, 1344 (Ala.1993). Moreover, more than mere allegations and conclusory statements is required in order to establish substantial prejudice. See Hall v. Chrysler Corp., 553 So.2d 98, 100 (Ala.1989). The record contains no evidence indicating Scott would suffer any prejudice from setting aside the default judgment other than a delay in collecting damages. If the judgment is set aside but, ultimately, Scott is determined to be entitled to damages from Summit, the delay in collecting damages can be compensated for by imposing costs on Summit. The record contains no evidence of fraud, collusion, or loss of evidence that would substantially harm Scott. See Kirtland, 524 So.2d at 609. Thus, it appears that no prejudice would result from setting aside the default judgment. Summit also contends that the trial court abused its discretion when it found that Summit's failure to answer Scott's complaint was the result of its own culpable conduct. Conduct committed willfully or in bad faith constitutes culpable conduct for purposes of determining whether a default judgment should be set aside. Negligence by itself is insufficient. Kirtland, 524 So.2d at 607. Willful and bad faith conduct is conduct characterized by incessant and flagrant disrespect for court rules, deliberate and knowing disregard for judicial authority, or intentional nonresponsiveness. 524 So.2d at 608. Finally, a defaulting party's reasonable explanation for inaction and noncompliance may preclude a finding of culpability. 524 So.2d at 608. In the affidavit offered in support of Summit's motion to set aside the default judgment, Highum asserted that the company had failed to answer Scott's complaint because it received that complaint after it had ceased doing business. Consequently, he said, the complaint was misplaced and overlooked. Highum's affidavit stated that Summit had operated with 130 employees, but that after it ceased operations it had no employees. This fact, he said, coupled with the fact that Summit had an inadequate process for receiving, processing, and distributing the large amount of mail it received after its dissolution led to its misplacing the complaint. This Court has held that where a complaint is misplaced because of inadvertence, mistake, or excusable neglect, the defaulting party does not commit a culpable action. Bailey Mortgage Co. v. Gobble-Fite Lumber Co., 565 So.2d 138 (Ala. 1990). Summit's actions, as indicated by Highum's affidavit, while negligent, do not rise to the level of the culpable conduct necessary to justify the denial of a motion to set aside a default judgment.