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Malloy v. Smith

Court of Appeals of Arkansas, Division III

May 10, 2017

PATRICK MALLOY AND JOHN CALLAGHAN APPELLANTS
v.
BRUCE SMITH AND JAN SMITH APPELLEES

         APPEAL FROM THE CLEBURNE COUNTY CIRCUIT COURT [NO. 12CV-15-89] HONORABLE TIM WEAVER, JUDGE

          Wright, Lindsey & Jennings LLP, by: Charles T. Coleman, Michael A. Thompson, and Jacob P. Fair, for appellants.

          Bowen Law Firm, PLLC, by: Martin W. Bowen, for appellees.

          BART F. VIRDEN, Judge

         This case arises out of a default judgment in the Cleburne County Circuit Court. Patrick Malloy and John Callaghan raise the following three arguments in support of their position that the default judgment should be set aside: (1) Bruce and Jan Smith (the Smiths) did not comply with New York law regarding completion of service; (2) the Smiths' summonses do not strictly comply with Ark. R. Civ. P. 4(b); and (3) the default judgment against Malloy and Callaghan should be set aside for the reasons stated above and also due to "excusable neglect." Callaghan further argues that Malloy's defense of excusable neglect due to illness should inure to him under the common-defense doctrine. For the reasons set forth below, we find no error and affirm the circuit court.

         I. Factual History

         On June 1, 2015, the Smiths filed a complaint against New York residents Patrick Malloy and John Callaghan in the Cleburne County Circuit Court. In their complaint, they alleged that Malloy and Callaghan only partially performed the contract they executed with the Smiths and were therefore in breach. The Smiths asserted that in order to meet the costs of running a business owned by their son, Dane, they loaned Malloy and Callaghan around $300, 000 between November 1, 2001, and June 27, 2013. According to the Smiths, Malloy and Callaghan promised to repay the Smiths, but they failed to do so after they had made a few payments.

         On June 29 and July 1, 2015, the Smiths personally served Malloy and Callaghan at their places of business in New York. On July 13, 2015, the Smiths mailed a copy of the summonses to Malloy's and Callaghan's business addresses. On July 16, 2015, both proofs of personal service were filed in the Cleburne County Court. The June 29, 2015 proof of service showed that it was delivered by process server to Patrick Malloy's workplace, Malloy Enterprises, 14 Bay Street, Sag Harbor, NY 11963, and that Jenny Pagano accepted the summons. The proof of service of the summons dated July 1, 2015, showed that it was delivered by process server to John Callaghan's place of business at 50 Route 111, Suite 315, Smithtown, New York, 11787 and that it was left with Gloria Scholz. The parties agree that a summons was mailed to Malloy's and Callaghan's places of business on July 13, 2015; however, separate proofs of mailing the summonses were not filed within twenty days of mailing.

         Neither Malloy nor Callaghan answered the Smiths' complaint, and the Smiths filed a motion for default judgment on August 17, 2015. In their motion, they asserted that both Malloy and Callaghan had been properly served, but neither party filed a responsive pleading within thirty days, as required. The Smiths requested a hearing on damages, and a notice of the hearing was mailed to Malloy's and Callaghan's places of business. Neither party responded. On October 5, 2015, the damages hearing was conducted, and on October 19, the order awarding the Smiths $285, 346.91 (with 10 percent postjudgment interest) was entered.

         Malloy and Callaghan filed a joint answer on November 6, 2015, in which they denied they were in breach of contract. Malloy and Callaghan also asserted that they had not been properly served, and thus, the circuit court lacked personal jurisdiction over the parties.

         On November 16, 2015, Malloy and Callaghan filed a motion to set aside the default judgment in which they argued that the default judgment against them was void due to insufficient service of process according to both New York and Arkansas law. Malloy and Callaghan also asserted that the court should set aside the default judgment based on "excusable neglect" due to Malloy's illness from June through October 2015, and that Malloy's defense inured to Callaghan under the common-defense doctrine. Malloy attached an affidavit from his physician, Dr. William B. Kerr, in which he stated that during May and June 2015, Malloy became increasingly lethargic and that his health deteriorated after a ruptured Achilles tendon on June 4. Dr. Kerr stated in his affidavit that Malloy was in and out of consciousness for an unspecified amount of time, that he was unable to speak clearly, that he could not tend to his daily needs, and that he required 24-hour nursing care. Dr. Kerr asserted that Malloy remained in grave medical condition and had been in the hospital off and on until around October 21, 2015, when he seemed to regain relatively normal functioning. Malloy submitted no other evidence or documentation of his illness.

          The Smiths responded that service was proper according to both New York and Arkansas law and that Malloy's illness did not constitute excusable neglect.

         On February 2, 2016, there was a hearing on the motion to set aside the default judgment. The court ruled from the bench that the Smiths met the requirements of Ark. R. Civ. P. 4 regarding service, and the circuit court rejected Malloy's argument regarding excusable neglect, finding that Malloy had failed to "attend to his business[.]" The circuit court took the issue of New York's requirements regarding proof of service under advisement. On April 29, 2016, the circuit court entered an order denying the motion to set aside the default judgment. In the order, the circuit court found that after having considered the testimony, documents filed in support, arguments of counsel, and "all other evidence and proof" the motion should be "denied in its entirety."

         Malloy and Callaghan filed a timely notice of appeal.

         II. Standard of Review

         Arkansas Rule of Civil Procedure 55(c) (2016) governs default judgments, and subsection (c) sets forth the circumstances under which a court may set aside a default judgment:

The court may, upon motion, set aside a default judgment previously entered for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) the judgment is void; (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; or (4) any other reason justifying relief from the operation of the judgment. The party seeking to have the judgment set aside must demonstrate a meritorious defense to the action; however, if the judgment is void, no other defense to the action need be shown.

         Our standard of review for an order denying a motion to set aside a default judgment depends on the grounds upon which the appellant claims the default judgment should be set aside. Steward v. Kuettel, 2014 Ark. 499, 450 S.W.3d 672. In cases in which the appellant claims that the default judgment is void, our review is de novo, and we give no deference to the circuit court's ruling. Id.

         For their first and second points on appeal, Malloy and Callaghan assert that the default judgment is void under Rule 55(c)(2) for lack of proper service, and thus our review is de novo. For their third point on appeal regarding excusable neglect, this court reviews the circuit court's order denying the motion to set aside default for abuse of discretion. See Steward, supra.

         III. Iss ...


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