Court Opinion

ID: 4220575
Source: CourtListenerOpinion
Date Created: 2017-11-15 16:42:08.31806+00
Date Added: 2024-06-11T14:42:16.139984
License: Public Domain

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

      Court of Appeals of Indiana | Memorandum Decision 49A02-1701-PL-53 | November 15, 2017         Page 1 of 10
      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.

      Court of Appeals of Indiana | Memorandum Decision 49A02-1701-PL-53 | November 15, 2017   Page 2 of 10
[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.

      Court of Appeals of Indiana | Memorandum Decision 49A02-1701-PL-53 | November 15, 2017           Page 3 of 10
      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:

      Court of Appeals of Indiana | Memorandum Decision 49A02-1701-PL-53 | November 15, 2017   Page 4 of 10
               (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

       Court of Appeals of Indiana | Memorandum Decision 49A02-1701-PL-53 | November 15, 2017   Page 5 of 10
       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

       Court of Appeals of Indiana | Memorandum Decision 49A02-1701-PL-53 | November 15, 2017   Page 6 of 10
       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.

       Court of Appeals of Indiana | Memorandum Decision 49A02-1701-PL-53 | November 15, 2017   Page 7 of 10
       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-

       Court of Appeals of Indiana | Memorandum Decision 49A02-1701-PL-53 | November 15, 2017   Page 8 of 10
       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).

       Court of Appeals of Indiana | Memorandum Decision 49A02-1701-PL-53 | November 15, 2017            Page 9 of 10
       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.

       Court of Appeals of Indiana | Memorandum Decision 49A02-1701-PL-53 | November 15, 2017   Page 10 of 10