Court Opinion

ID: 828005
Source: CourtListenerOpinion
Date Created: 2013-03-01 20:02:02.022204+00
Date Added: 2024-06-11T15:12:12.168001
License: Public Domain

Michigan Supreme Court
                                                                                 Lansing, Michigan
                                                     Chief Justice:          Justices:

Opinion                                              Robert P. Young, Jr. Michael F. Cavanagh
                                                                          Marilyn Kelly
                                                                          Stephen J. Markman
                                                                          Diane M. Hathaway
                                                                          Mary Beth Kelly
                                                                          Brian K. Zahra

                                                                      FILED JUNE 30, 2011

                            STATE OF MICHIGAN

                                    SUPREME COURT

 LAWRENCE M. CLARKE, INC.,

              Plaintiff-Appellee,

 v                                                            No. 140683

 RICHCO CONSTRUCTION, INC., and
 RONALD J. RICHARDS, JR.,

              Defendants-Appellants.

 BEFORE THE ENTIRE BENCH

 CAVANAGH, J.
       The issue in this case is whether the trial court abused its discretion when it

 concluded that defendants were personally notified of the default judgment against them

 and denied defendants’ motion to set aside the judgment. We hold that the trial court

 abused its discretion and that defendants are entitled to relief from the judgment under

 MCR 2.612(B) because (1) personal jurisdiction over defendants was necessary and
apparently acquired,1 (2) defendants had no knowledge of the action pending against

them, (3) defendants entered an appearance within one year after the final judgment, (4)

defendants have presented facts and arguments showing meritorious defenses to

plaintiff’s breach of contract and fraud claims, and (5) granting defendants relief from the

judgment will not prejudice any innocent third persons. Accordingly, we reverse and

remand the case to the trial court for further proceedings consistent with this opinion.

                            I. FACTS AND PROCEEDINGS

       The lawsuit at issue in this case arose out of a contractual relationship between

plaintiff and defendant Richco Construction, Inc.       In 2003 and 2004, plaintiff was

working on a residential subdivision construction project in Monroe County. In the

summer of 2003, plaintiff hired Richco as a subcontractor to work on the sewer system

for the project. There was no written contract.

       It is undisputed that Richco’s corporate filings with the state of Michigan’s

Department of Labor and Economic Growth (DLEG) (now the Department of Licensing

and Regulatory Affairs) indicated that defendant Ronald Richards, Jr., was the

corporation’s president and treasurer and that Thomas Richards2 was the corporation’s

1
  Although defendants contest the trial court’s personal jurisdiction over them, we will
assume arguendo that the trial court acquired personal jurisdiction for purposes of
applying MCR 2.612(B) in this opinion for the reasons discussed in part III(A) of this
opinion.
2
  After this Court heard oral arguments on defendants’ application for leave to appeal,
plaintiff and Thomas agreed to a settlement, and Thomas withdrew his application for
leave to appeal. Thus, Thomas is no longer a party to this case, and this opinion has no
effect between plaintiff and Thomas.

                                             2
secretary and vice president. Further, the corporate filings identified Ronald as Richco’s

resident agent and the corporation’s registered office address as 27734 Ecorse Road in

Romulus, Michigan. Finally, the address shown for Ronald and Thomas as corporate

officers was also 27734 Ecorse Road in Romulus.

        Richco’s work on the sewer system did not satisfy the governing municipality, and

after Richco’s efforts to repair the work were not satisfactory, plaintiff contracted with

another party to finish the work, delaying the project according to plaintiff. Defendants

claim that Richco was never fully paid and, at some point, Richco recorded a construction

lien, which plaintiff claims caused further problems.

        Plaintiff filed a breach of contract and fraud complaint on July 19, 2006, in the

Monroe Circuit Court, but plaintiff was not able to serve any of the defendants.

Plaintiff’s process server attempted to serve the complaint at Richco’s business address

on file with DLEG, but no one was at that address. The process server discovered that

Richco had vacated the listed address and had not left a forwarding address.     A motor

home was parked in the parking lot at the Ecorse Road address, and another tenant in the

area told the process server that it might belong to one of the individual defendants.

Plaintiff’s counsel used the license plate on the motor home to obtain a phone number,

but the person who answered denied that the motor home was connected to either

individual defendant. In October 2006, the process server investigated a lead about a

Ronald Richards in Waterford, Michigan, but that person was not the defendant in this

case.   Plaintiff’s complaint was dismissed without prejudice on October 30, 2006,

because plaintiff could not effect service.

                                              3
      After the complaint was dismissed, plaintiff continued its efforts to locate

defendants by contacting the Secretary of State and again searching DLEG’s files. These

efforts were unsuccessful, however, and plaintiff refiled the same complaint on January

7, 2007, along with a motion to allow alternative service. Plaintiff explained its previous

efforts to locate defendants and noted that service was attempted at Richco’s registered

office without success. The trial court allowed alternative service by (1) posting the

documents at Richco’s registered address, (2) mailing the documents to the registered

address for Thomas, (3) mailing the documents to the registered address for Ronald, and

(4) publishing a copy of the order in a Monroe County newspaper pursuant to MCR

2.106. After there was no response to the notice, the court clerk entered a default against

all three defendants on April 5, 2007. Notice of the default was sent by regular and

certified mail to Richco, Thomas, and Ronald at the Ecorse Road address and was

published in a Monroe County newspaper.

      On September 28, 2007, plaintiff moved for entry of a default judgment, claiming

approximately $244,000 in damages, plus the cost of a bond, “contractual interest,”

$8,000 in attorney fees, and more than $15,000 in prejudgment interest. After a hearing

on October 10, 2007, the trial court granted plaintiff’s motion and signed a default

judgment ordering that Richco, Ronald, and Thomas were jointly liable for a total of

$371,598.37.

       Plaintiff located defendants after the default judgment was entered and, on April

12, 2008, Ronald’s and Thomas’s personal vehicles were seized from their homes in

Wayne County. According to defendants, this was how they first became aware of

plaintiff’s complaint and the default judgment.

                                            4
       Four days later, on April 16, 2008, defendants filed an emergency motion to set

aside the default judgment, and defense counsel made a special appearance. The motion

was not accompanied by an affidavit, but defense counsel attempted to provide signed

affidavits from Thomas and Ronald at the hearing on the motion held on April 22, 2008.

The trial court refused to consider the affidavits and denied defendants’ motion to set

aside the default judgment, noting that defendants had not filed an affidavit of factual and

meritorious defense as required by MCR 2.603(D)(1).               Defendants moved for

reconsideration and included more detailed supporting affidavits from Thomas and

Ronald, but the trial court denied reconsideration without a hearing.

       The Court of Appeals denied defendants’ application for leave to appeal, but this

Court remanded for consideration as on leave granted. Lawrence M Clarke, Inc v Richco

Constr, Inc, 481 Mich 939 (2008). On remand, the Court of Appeals affirmed the trial

court’s decision to deny the motion to set aside the default judgment. Lawrence M

Clarke, Inc v Richco Constr, Inc, unpublished opinion per curiam of the Court of

Appeals, issued November 17, 2009 (Docket No. 285567).             The Court of Appeals

reasoned that defendants’ motion to set aside the default judgment was properly denied

because defendants had failed to file a timely affidavit in support of their motion.

Defendants sought leave to appeal in this Court, and this Court ordered oral argument on

whether to grant the application or take other peremptory action. Lawrence M Clarke,

Inc v Richco Constr, Inc, 486 Mich 1071 (2010).

                             II. STANDARD OF REVIEW

     A trial court’s decision regarding a motion to set aside a default judgment is

reviewed for an abuse of discretion. Alken-Ziegler, Inc v Waterbury Headers Corp, 461

                                             5
Mich 219, 227; 600 NW2d 638 (1999). When construing a court rule, this Court employs

the legal principles governing the application and construction of statutes. Grievance

Administrator v Underwood, 462 Mich 188, 193-194; 612 NW2d 116 (2000).

                                     III. ANALYSIS

     A trial court may grant relief from a judgment if the defendant was not personally

notified of an action pending against the defendant and several additional requirements

are satisfied. Specifically, MCR 2.612(B) states:

              A defendant over whom personal jurisdiction was necessary and
       acquired, but who did not in fact have knowledge of the pendency of the
       action, may enter an appearance within 1 year after final judgment, and if
       the defendant shows reason justifying relief from the judgment and
       innocent third persons will not be prejudiced, the court may relieve the
       defendant from the judgment, order, or proceedings for which personal
       jurisdiction was necessary, on payment of costs or on conditions the court
       deems just.

Thus, defendants may be entitled to relief from the default judgment if (1) personal

jurisdiction over defendants was necessary and acquired, (2) defendants in fact had no

knowledge of the action pending against them, (3) defendants entered an appearance

within one year after the final judgment, (4) defendants show a reason justifying relief

from the judgment, and (5) granting defendants relief from the judgment will not

prejudice innocent third persons.

       As a preliminary matter, we acknowledge that defendants did not offer their

affidavits of meritorious defense simultaneously with their motion to set aside the default

judgment and that this arguable misstep was the foundation of the lower courts’

decisions.   The lower courts, however, applied MCR 2.603(D)(1) in reaching their

                                            6
decisions. That rule permits a court to grant relief from a default judgment when, along

with the fulfillment of other requirements, “an affidavit of facts showing a meritorious

defense is filed.” We conclude that the lower courts’ reasoning is inapplicable to our

analysis of MCR 2.612(B) because, unlike MCR 2.603(D)(1), MCR 2.612(B) does not

expressly state that a defendant must provide an affidavit of meritorious defense.

Therefore, we conclude that defendants may seek relief under MCR 2.612(B), and we do

not opine about whether MCR 2.603(D)(1) requires that an affidavit of meritorious

defense be filed simultaneously with a motion to set aside a default judgment.3

                            A. PERSONAL JURISDICTION

       A court “cannot adjudicate [an in personam] controversy without first having

obtained jurisdiction [over the] defendant by service of process . . . .” Eisner v Williams,

298 Mich 215, 220; 298 NW 507 (1941). A court must obtain personal jurisdiction over

a defendant in order to “satisfy the due process requirement that a defendant be informed

of an action by the best means available under the circumstances.” MCR 2.105(J)(1).

“The fundamental requisite of due process of law is the opportunity to be heard. . . . This

right to be heard has little reality or worth unless one is informed that the matter is

pending . . . .” Mullane v Central Hanover Bank & Trust Co, 339 US 306, 314; 70 S Ct

3
  To the extent that defendants’ failure to offer their affidavits simultaneously with their
motion creates any doubt that defendants are entitled to relief from the default judgment,
our holding is consistent not only with the plain language of MCR 2.612(B), but also
with the general principle that “[d]efaults are not favored and doubts generally should be
resolved in favor of the defaulting party.” Wood v DAIIE, 413 Mich 573, 586; 321
NW2d 653 (1982).

                                             7
652; 94 L Ed 865 (1950) (quotation marks and citation omitted). Personal notice,

however, is not necessary to satisfy due process requirements in all cases. Jacob v

Roberts, 223 US 261, 265; 32 S Ct 303; 56 L Ed 429 (1912). Rather, under MCR

2.105(I)(1), “[o]n a showing that service of process cannot reasonably be made as

provided by [MCR 2.105], the court may by order permit service of process to be made

in any other manner reasonably calculated to give the defendant actual notice of the

proceedings and an opportunity to be heard.”         As MCR 2.105(J)(1) explains, the

provisions of the court rules related to service of process are “intended to satisfy the due

process requirement that a defendant be informed of an action by the best means

available under the circumstances.” See, also, Krueger v Williams, 410 Mich 144, 156;

300 NW2d 910 (1981) (explaining that “[s]ervice may be made personally on a

defendant or, if this is not possible, constructive service is permitted”), and Mullane, 339

US at 314 (explaining that notice that is “reasonably calculated, under all the

circumstances, to apprise interested parties of the pendency of the action and afford them

an opportunity to present their objections” is sufficient to satisfy due process). But while

personal service is not always required, “[t]he requirement of notice so as to afford an

opportunity to be heard is clearly the heart” of Michigan’s substituted-service court rule.

Krueger, 410 Mich at 158.4

4
 In Krueger, we considered the predecessor of MCR 2.105(I), GCR 1963, 105.8, which
was substantively similar to MCR 2.105(I)(1).

                                             8
     Because defendants were parties to the action in this case, personal jurisdiction over

them was required to satisfy due process. Defendants argue that the trial court failed to

acquire personal jurisdiction over them because plaintiff’s efforts to provide them with

notice were so lacking that they were deprived of notice and an opportunity to be heard.

Nevertheless, for the purpose of this appeal, we assume arguendo that the trial court

acquired personal jurisdiction over defendants because we conclude that defendants are

entitled to relief under MCR 2.612(B) and this Court does not decide cases on

constitutional grounds when doing so can be avoided. People v Quider, 172 Mich 280,

288-289; 137 NW 546 (1912).

                B. DEFENDANTS’ KNOWLEDGE OF THE ACTION

     As previously stated, defendants must also show that they did not “in fact have

knowledge of the pendency of the action” in order to be entitled to relief under MCR

2.612(B). This Court has not considered what is required for a party to have knowledge

in fact under MCR 2.612(B), but this Court has generally taken care to acknowledge that

a difference in specificity exists between the phrase “actual knowledge” and mere

“knowledge.” See, e.g., Travis v Dreis & Krump Mfg Co, 453 Mich 149, 173; 551

NW2d 132 (1996) (opinion by BOYLE, J.) (explaining that when “the Legislature [is]

careful to use the term ‘actual knowledge,’ and not the less specific word ‘knowledge,’

we determine that the Legislature meant that constructive, implied, or imputed

knowledge is not enough”).

     But MCR 2.612(B) does not simply use the word “knowledge”; rather, it states that

a defendant may be relieved of a judgment if the defendant “did not in fact have

                                            9
knowledge of the pendency of the action . . . .” (Emphasis added.) “In fact” is defined as

“[a]ctual or real; resulting from the acts of parties rather than by operation of law.”

Black’s Law Dictionary (9th ed). This definition further distinguishes actual knowledge

from constructive or implied knowledge of the pending action. Thus, we conclude that

the plain language of MCR 2.612(B) permits a defendant to seek relief from a default

judgment as long as the defendant did not have actual knowledge of the pending action.

     Our conclusion is supported by the available caselaw and supplemental authority.

In Nat’l Car Rental v S & D Leasing, Inc, 89 Mich App 364, 368; 280 NW2d 529 (1979),

the Court of Appeals concluded that lack of actual notice was sufficient to satisfy the

knowledge-in-fact requirement.5 In support of its conclusion that knowledge in fact is

synonymous with actual knowledge, the Court of Appeals in Nat’l Car cited 3 Honigman

& Hawkins, Michigan Court Rules Annotated (2d ed), p 180, which explained that “[t]he

intent of [GCR 1963, 528.2] is that failure to receive actual notice is itself sufficient

ground for relief from default judgment . . . .” (Emphasis added.) Notably, more recent

5
  In Nat’l Car, the Court of Appeals applied GCR 1963, 528.2, the predecessor of MCR
2.612(B). The language used in MCR 2.612(B) and GCR 1963, 528.2 is nearly identical.
GCR 1963, 528.2 stated:

             Any defendant over whom personal jurisdiction was necessary and
      acquired but who did not in fact have knowledge of the pendency of the
      action may, at any time within 1 year after final judgment, enter his
      appearance, and if he shows reason justifying relief from the judgment and
      innocent third persons will not be prejudiced, the court may relieve him
      from the judgment, order, or proceedings as to which personal jurisdiction
      was necessary, on payment of such costs thereon or such creditors as the
      court deems just.

                                           10
supplemental authority also explains that failure to receive actual notice is sufficient to

satisfy the knowledge-in-fact requirement of MCR 2.612(B). See 3 Longhofer, Michigan

Court Rules Practice (5th ed), § 2612.8, p 505.

       In this case, defendants did not have actual knowledge, or knowledge in fact, of

the action pending against them because defendants were never personally served with a

summons and complaint and stated in their affidavits6 that they only became aware of the

action against them when personal property was seized from Thomas’s and Ronald’s

homes on April 12, 2008. Also, during oral argument before this Court, plaintiff’s

counsel impliedly conceded that defendants did not have actual notice of plaintiff’s action

against defendants when he argued that constructive notice is sufficient to bar relief under

MCR 2.612(B).

6
  Despite the trial court’s refusal to consider defendants’ affidavits as part of defendants’
motion to set aside the default judgment under MCR 2.603(D)(1), it is proper for this
Court to consider the affidavits as part of our analysis of MCR 2.612(B). To begin with,
there is no requirement that an affidavit of meritorious defense be filed at all, let alone
that it must be filed simultaneously with the motion for relief from judgment under MCR
2.612(B). Also, MCR 2.119(C)(1) permits a court to modify the period for service of
affidavits “for good cause.” In this case, good cause existed because defendants did not
unreasonably delay production of the affidavits: the motion to set aside the judgment was
filed in an emergency fashion only 4 days after defendants first learned of the judgment
against them, and defendants provided affidavits at the hearing on their motion to set
aside the judgment, which was held 10 days after the motion was filed. Moreover,
Thomas was out of the state for work during the period between defendants’ first notice
of the judgment and the filing of the motion. Finally, defendants also provided more
detailed affidavits with their motion for reconsideration of the trial court’s order denying
the motion to set aside the default judgment. Therefore, we conclude that defendants’
affidavits of meritorious defense may be considered as part of our application of MCR
2.612(B).

                                             11
          Finally, plaintiff’s attempts to serve defendants were unlikely to provide

defendants with actual knowledge of the action against them, even under the court rules

permitting substituted service. Under MCR 2.105(I)(2), a motion requesting substituted

service

          must set forth sufficient facts to show that process cannot be served under
          this rule and must state the defendant’s address or last known address, or
          that no address of the defendant is known. If the name or present address
          of the defendant is unknown, the moving party must set forth facts showing
          diligent inquiry to ascertain it.
“A truly diligent search for an absentee defendant is absolutely necessary to supply a fair

foundation for and legitimacy to the ordering of substituted service,” Krueger, 410 Mich

at 168, and substituted service “is not an automatic right,” id. at 159. Further, even if a

motion for substituted service is granted, MCR 2.105(I)(1) requires that the substituted

service be “reasonably calculated to give the defendant actual notice of the proceedings

and an opportunity to be heard.” Thus, substituted service must be “‘reasonably certain

to inform those affected,’” and “the means employed to notify interested parties must be

more than a mere gesture; they must be means that one who actually desires to inform the

interested parties might reasonably employ to accomplish actual notice.” Sidun v Wayne

Co Treasurer, 481 Mich 503, 509-510; 751 NW2d 453 (2008), quoting Mullane, 339 US

at 315.

          In this case, even assuming that plaintiff’s attempt to personally serve defendants

satisfied the diligent-inquiry requirement for seeking substituted service, the method of

substituted service used was inadequate to provide defendants with actual knowledge of

the action against them. Three of the trial court’s four requirements involved mailing

service to the address that the trial court and plaintiff already knew was no longer a

                                              12
current address for defendants. And the trial court’s fourth requirement, publishing a

copy of the order in a Monroe County newspaper, was also unlikely to succeed given the

significant limitations of publication alone as a successful form of providing any notice,

let alone actual notice. See Dow v Michigan, 396 Mich 192, 207, 210; 240 NW2d 450

(1976) (stating that publication is unlikely to provide notice), and Mullane, 339 US at

315-317 (stating that publication alone is not a reliable means of providing notice). On

the other hand, we have previously concluded that when “the specific whereabouts of a

person is unknown, service of process by publication may be the most practicable and

adequate method of service available.” Krueger, 410 Mich at 166; see, also, Sidun, 481

Mich at 510-512 (discussing Mullane, 339 US 306, and Jones v Flowers, 547 US 220;

126 S Ct 1708; 164 L Ed 2d 415 [2006], and noting that, depending on any “unique

information” about the intended recipient and the specific circumstances and conditions

of the case, service by publication may be constitutionally sufficient with regard to

parties whose addresses are unknown).       Thus, it cannot be said with certainty that

plaintiff’s efforts were insufficient to provide constructive knowledge that passed

constitutional muster. But in this case, publication in a Monroe County newspaper was

particularly unlikely to provide defendants with actual knowledge of the action against

them, given that defendants resided in Wayne County and performed the work in Monroe

County in 2004 at the latest and that the advertised notice was not published in the

newspaper until 2007.7

7
  Although MCR 2.106(D)(1) requires that notice be published in a newspaper in the
county where the defendant resides, publication in the Monroe County newspaper
arguably satisfied that requirement with respect to Richco despite the fact that Richco

                                           13
      Thus, although plaintiff’s efforts may have been adequate to satisfy the

requirements for granting a motion for substituted service and the subsequent substituted

service may have been enough to provide defendants with sufficient constructive

knowledge of the action against them to satisfy MCR 2.105(I)(1), we conclude that

plaintiff’s efforts were inadequate to provide defendants with actual knowledge as

required by MCR 2.612(B). Thus, we conclude that defendants satisfied this requirement

for relief from the default judgment under MCR 2.612(B).

        C. APPEARANCE WITHIN ONE YEAR AFTER FINAL JUDGMENT

     Next, under MCR 2.612(B), defendants must have entered an appearance within one

year after the final judgment. A default judgment is a final judgment. Allied Electric

Supply Co, Inc v Tenaglia, 461 Mich 285, 288; 602 NW2d 572 (1999).8 In this case, the

default judgment against the defendants was entered on October 10, 2007, when the trial

court granted plaintiff’s motion and signed the default judgment. On April 16, 2008,

defense counsel made a special appearance and filed an emergency motion to set aside

the default judgment. On April 22, 2008, the trial court held a hearing on defendants’

was registered in Wayne County because when a corporation does not maintain its
registered office, the corporation is “deemed to have a place of residence in the county
where it exercises its corporate powers and transacts its business.” Flewelling v Prima
Oil Co, 291 Mich 281, 285; 289 NW 160 (1939). But because Ronald and Thomas are
not corporations, and both lived in Wayne County, it is unlikely that publication in
Monroe County was sufficient to provide actual notice to the individual defendants.
8
 Although the two dissenting justices in Allied Electric, 461 Mich at 291-292 (MARILYN
KELLY, J., dissenting), continue to adhere to their position in that case, the disagreement
between the majority and dissenting positions in Allied Electric is of no moment in this
case.

                                            14
motion. Thus, defendants made an appearance well within one year after the default

judgment.

               D. REASON JUSTIFYING RELIEF FROM THE JUDGMENT

      Defendants also must show “reason justifying relief from the judgment . . . .” MCR

2.612(B). This Court has not previously considered what is required to justify relief in

the context of this court rule. However, it is clear that a defendant seeking relief under

MCR 2.612(B) need not show mistake, inadvertence, surprise, excusable neglect, newly

discovered evidence, fraud, misrepresentation, or other misconduct of an adverse party

because MCR 2.612(C) provides for relief from a judgment on those grounds. Indeed,

MCR 2.612(C)(3) expressly states that subrule (C) “does not limit the power of a court to

entertain an independent action to relieve a party from a judgment, order, or proceeding;

[or] to grant relief to a defendant not actually personally notified as provided in subrule

(B) . . . .”

      In one of the few published opinions applying either MCR 2.612(B) or its

predecessor, GCR 1963, 528.2, the Court of Appeals in Nat’l Car, 89 Mich App at 368-

369, relied on Honigman & Hawkins, p 180, to provide further clarification of the

requirement of a “reason justifying relief” and concluded that a defendant must only

show that it did not have actual notice of the action and that a meritorious defense to the

action exists. Nat’l Car’s conclusion is further supported by Longhofer, § 2612.8, p 505,

which explains that

        [t]he requirement of showing “reason justifying relief” was intended
        substantially to restate the requirement of “showing a meritorious defense”
        applied in connection with setting aside default judgments. . . . [F]ailure to

                                             15
       receive actual notice is itself sufficient ground for relief of default
       judgment, if the defendant can show that he or she has a meritorious
       defense . . . .

This interpretation of what is required to satisfy MCR 2.612(B) is consistent with the

other court rules addressing relief from a default judgment. Under MCR 2.603(D)(1), a

party seeking to set aside a default judgment must satisfy two separate and distinct

requirements: (1) good cause for the failure to respond to the complaint and (2) a

meritorious defense. Alken-Ziegler, 461 Mich at 229. However, MCR 2.603(D) states

twice that MCR 2.612 provides an exception to its requirements for setting aside a

default judgment. MCR 2.603(D)(2) (“Except as provided in MCR 2.612 . . . .”); MCR

2.603(D)(3) (“In addition, the court may set aside a default and a default judgment in

accordance with MCR 2.612.”). Thus, we conclude that a defendant may satisfy the

requirement of a “reason justifying relief from the judgment” by showing that he or she

(1) did not have actual notice of the action and (2) has a meritorious defense.

       In this case, as previously explained, defendants did not have actual notice of the

action. See part III(B). Defendants have also presented facts and arguments showing

meritorious defenses to plaintiff’s breach of contract and fraud claims sufficient to justify

relief from the default judgment.

       By forcefully contesting the damages awarded to plaintiff, defendants have

presented facts showing a meritorious defense to plaintiff’s contract claim sufficient to

justify relief from the judgment under MCR 2.612(B).            “In actions for breach of

contract, . . . in order to recover substantial damages the plaintiff must offer evidence

from which the loss can be computed with reasonable certainty.” Vandenberg v Slagh,

                                             16
150 Mich 225, 229; 114 NW 72 (1907). In this case, the only support for the contract

damages award of more than $370,000 was the testimony of a single witness who was

employed by plaintiff. According to the record, that hearing was conducted over the

course of six minutes, and no documentary evidence supporting the witness’s testimony

regarding the contract damages was introduced. Furthermore, the witness provided no

support for the award of contractual interest, prejudgment interest, attorney fees, or costs.

Rather, the only support for those damages was the statements of plaintiff’s counsel on

the record. Indeed, plaintiff’s counsel conceded at oral argument before this Court that

“[t]here was no documentary evidence presented to the trial court . . . .” In fact, the only

explanation plaintiff’s counsel offered to support plaintiff’s claim for contractal interest

in this oral contract case was that it was his “understanding . . . that the contract interest

was basically agreed upon by the parties . . . .” The documentary evidence in the record

supporting the damages award is insufficient to allow calculation of the damages with

reasonable certainty and, thus, the individual and corporate defendants in this case have a

meritorious defense to plaintiff’s breach of contract claim.

       Defendants have also noted several fundamental deficiencies in plaintiff’s fraud

claim that constitute a meritorious defense to those claims.         Generally, in order to

establish an actionable fraud claim, a plaintiff must show

       (1) [t]hat defendant made a material representation; (2) that it was false; (3)
       that when he made it he knew it was false, or made it recklessly, without
       any knowledge of its truth and as a positive assertion; (4) that he made it
       with the intention that it should be acted upon by plaintiff; (5) that plaintiff
       acted in reliance upon it; and (6) that he thereby suffered injury. [Scott v
       Harper Recreation, Inc, 444 Mich 441, 446 n 3; 506 NW2d 857 (1993)
       (quotation marks and citations omitted).]

                                             17
Furthermore, fraud requires a misrepresentation about the past or present. Hi-Way Motor

Co v Int’l Harvester, 398 Mich 330, 336, 339; 247 NW2d 813 (1976). Finally, MCR

2.112(B)(1) requires that fraud allegations be stated with particularity.

       We conclude that defendants have presented sufficient facts showing a meritorious

defense against plaintiff’s fraud allegations given that plaintiff may not have stated its

fraud claim with particularity under MCR 2.112(B)(1) because plaintiff did not allege in

its complaint that defendants made a misrepresentation about the past or the present.

Instead, the support for plaintiff’s fraud allegation addressed only what defendants

“would” do in the future. Furthermore, plaintiff’s complaint only referred to Thomas’s

and Ronald’s conduct; therefore, it appears that there may be no basis for a fraud claim

against defendant Richco.      In addition, defendants’ argument that plaintiff’s fraud

allegations are merely mislabeled contract claims also represents a meritorious defense to

the fraud claim because a plaintiff generally cannot maintain an action in tort for

nonperformance of a contract. Ferrett v Gen Motors Corp, 438 Mich 235, 242; 475

NW2d 243 (1991).       Finally, defendants have presented an argument representing a

meritorious defense to plaintiff’s claim that defendants fraudulently filed a construction

lien on plaintiff’s property. Defendants argue that they filed the lien in accordance with

the applicable laws only after plaintiff refused to pay them for the work that defendants

had performed.     Therefore, we conclude that defendants have presented facts and

arguments representing meritorious defenses sufficient to satisfy the requirement of MCR

2.612(B) that the defendant show a reason justifying relief from the judgment.

                                             18
                          E. PREJUDICE TO THIRD PARTIES

     Finally, defendants must show that “innocent third persons will not be prejudiced” if

the default judgment is set aside. MCR 2.612(B). Because this case involves a contract

dispute and all the parties to the contract were also parties to this action, it appears that no

third parties would be prejudiced if the default judgment were to be set aside. Also, there

is no evidence in the record that any third parties have an interest in this case. Thus, we

conclude that this requirement is met.

                                    IV. CONCLUSION

     We hold that the trial court abused its discretion when it concluded that defendants

were personally notified of the default judgment against them.             We also hold that

defendants are entitled to relief from the default judgment under MCR 2.612(B) because

defendants satisfied each of the five elements within that court rule. Thus, we reverse

and remand the case to the trial court for further proceedings consistent with this opinion.

                                                           Michael F. Cavanagh
                                                           Robert P. Young, Jr.
                                                           Marilyn Kelly
                                                           Stephen J. Markman
                                                           Mary Beth Kelly
                                                           Brian K. Zahra

                                              19
                             STATE OF MICHIGAN

                                     SUPREME COURT

LAWRENCE M. CLARKE, INC.,

               Plaintiff-Appellee,

v                                                            No. 140683

RICHCO CONSTRUCTION, INC., and
RONALD J. RICHARDS, JR.,

               Defendants-Appellants.

MARILYN KELLY, J. (concurring).
       I concur fully with the majority opinion. I would explicitly instruct trial courts

that substituted service should not be permitted in cases like this one absent a showing

that counsel made reasonable use of Internet search tools.           I would add such a

requirement by amending MCR 2.105(I).

       In 2011, electronic technology has greatly improved the likelihood of locating a

defendant.     How can someone establish that he or she has made a diligent but

unsuccessful effort to locate another party unless, at a minimum, a cursory Internet search

can be demonstrated?

       This case provides an apt illustration. In part by executing an Internet search,

plaintiff was able to locate defendants in relatively short order after the default judgment

was entered.     Defendants demonstrated that a five-minute Google search for the

individual defendants, even with the limited information available to plaintiff, would

have led to their longtime home addresses.

       With these observations, I join the majority’s opinion.

                                                        Marilyn Kelly
                               STATE OF MICHIGAN

                                       SUPREME COURT

LAWRENCE M. CLARKE, INC.,

                 Plaintiff-Appellee,

v                                                               No. 140683

RICHCO CONSTRUCTION, INC., and
RONALD J. RICHARDS, JR.,

                 Defendants-Appellants.

HATHAWAY, J. (concurring).
         I agree with the majority that the trial court abused its discretion by failing to set

aside the default judgment because defendants were entitled to relief from the judgment

under MCR 2.612(B).           The majority opinion “assume[s] arguendo” that personal

jurisdiction was acquired over defendants.1 I write separately because I do not believe

that a court can properly determine whether defendants are entitled to relief under MCR

2.612(B) without first establishing that personal jurisdiction was in fact acquired over the

defendants.

         MCR 2.612(B) provides:

                A defendant over whom personal jurisdiction was necessary and
         acquired, but who did not in fact have knowledge of the pendency of the
         action, may enter an appearance within 1 year after final judgment, and if
         the defendant shows reason justifying relief from the judgment and
         innocent third persons will not be prejudiced, the court may relieve the

1
    Ante at 9.
         defendant from the judgment, order, or proceedings for which personal
         jurisdiction was necessary, on payment of costs or on conditions the court
         deems just. [Emphasis added.]

         The language of the rule is clear. In order to afford relief under MCR 2.612(B),

the first issue that must be decided is whether personal jurisdiction was acquired over the

defendant. If a court determines that personal jurisdiction was necessary and acquired,

the court may provide relief, assuming the additional requirements of the rule are met. If

the court determines that personal jurisdiction was not acquired, a party is not entitled to

relief under MCR 2.612(B); rather, the judgment is void and the party may seek relief

under MCR 2.612(C)(1)(d). The treatise Michigan Court Rules Practice explains:

                MCR 2.612(B) does not apply to cases in which the court lacked
         personal jurisdiction over the defendant, but such jurisdiction was required
         for entry of a valid judgment. In those cases the judgment is void and relief
         may be obtained at any time under MCR 2.612(C)(1)(d). [3 Longhofer,
         Michigan Court Rules Practice (5th ed), § 2612.8, p 505.]

         In this case, the facts as set forth in the majority opinion demonstrate that plaintiff

made diligent efforts to locate and serve defendants. When plaintiff was unable to

effectuate service, it properly applied to the trial court for substituted service, which the

trial court appropriately allowed.2 The trial court’s order allowing for substituted service

was in accordance with the well-established procedures set forth in the court rules.3

Thus, substituted service on defendants was effectuated in accordance with the court

rules.

2
    MCR 2.105(I).
3
    Id.; MCR 2.106.

                                                2
          Due process requires that service of process be reasonably calculated under the

circumstances to provide the defendant with notice of the lawsuit.4        However, due

process does not require that actual notice be given in every case; instead, constructive

notice is permitted.5 The Court of Appeals correctly noted that because “the court rules

pertaining to service of process are intended to satisfy due process requirements, a party

who serves process consistently with those rules will, generally, comport with due

process requirements. See MCR 2.105(J).”6 There is nothing in the record to indicate

that these defendants were not afforded due process. Accordingly, I would specifically

hold that personal jurisdiction was in fact acquired over defendants, thus allowing the

trial court to consider providing relief under MCR 2.612(B).

          In this case, all the requirements of MCR 2.612(B) had been met. Defendants’

motion was filed within one year of the judgment, defendants did not in fact have

knowledge of the pendency of the action, defendants have shown reasons justifying relief

from the judgment, and no innocent third persons will be prejudiced. Thus, the trial court

abused its discretion by failing to set aside the default judgment, and defendants are

entitled to relief.    Therefore, I agree with the majority that this matter should be

remanded to the trial court for further proceedings.

                                                        Diane M. Hathaway

4
    See Krueger v Williams, 410 Mich 144, 156; 300 NW2d 910 (1981).
5
    Id.
6
 Lawrence M Clarke, Inc v Richco Constr, Inc, unpublished opinion per curiam of the
Court of Appeals, issued November 17, 2009 (Docket No. 285567), p 3.

                                             3