Ascentium Capital LLC v. James Marshall Individually and D/B/A Your Furniture Store

2023 Ark. App. 236, 666 S.W.3d 866

• Court: Court of Appeals of Arkansas
• Decided: April 26, 2023
• Status: Published

Opinion

Cite as 2023 Ark. App. 236 ARKANSAS COURT OF APPEALS DIVISION I No. CV-21-460

Opinion Delivered April 26, 2023

ASCENTIUM CAPITAL LLC APPEAL FROM THE PULASKI APPELLANT COUNTY CIRCUIT COURT, FOURTH DIVISION V. [NO. 60CV-18-7573]

JAMES MARSHALL, INDIVIDUALLY HONORABLE HERBERT T. AND D/B/A YOUR FURNITURE WRIGHT, JUDGE STORE APPELLEE AFFIRMED

BRANDON J. HARRISON, Chief Judge

Ascentium Capital LLC appeals the circuit court’s denial of its motion to set aside a

default judgment. Ascentium argues that the underlying complaint failed to allege facts to

support a claim on which relief could be granted and that the amount of damages awarded

is not supported by the evidence. We affirm the circuit court’s order.

In October 2018, James Marshall, individually and d/b/a Your Furniture Store,

commenced an action against Ascentium and Corey Bolton. According to the complaint,

Ascentium is a business that sells credit-card machines and services to small businesses such

as Marshall’s furniture store, and Bolton is an agent, servant, or employee of Ascentium.

The complaint alleged that Bolton had intentionally forged Marshall’s signature to an

agreement with the purpose of defrauding him, that the agreement was part of a conspiracy

between Bolton and Ascentium, and that these actions resulted in “thousands of dollars” in fraudulent charges on Marshall’s account. Marshall served Ascentium’s registered agent with

a summons and copy of the complaint on 19 December 2018.

Ascentium filed no answer or responsive pleading in the circuit court within thirty

days, so on 8 February 2019, Marshall moved for default judgment and requested a hearing

on damages. On 21 August 2019, the circuit court convened a hearing and, after receiving

testimony from Marshall, entered judgment for Marshall in the amount of $150,000 in

compensatory damages and $450,000 in punitive damages plus $185 in costs, for a total of

$600,185. On 31 December 2019, the circuit court dismissed Bolton from the action

without prejudice after finding that he had not been served with a summons and complaint.

On 21 January 2020, Ascentium moved to set aside the default judgment, asserting

that it should have received notice of the hearing, that Marshall’s complaint failed to state a

claim on which relief could be granted, that Marshall’s damages had not been proved at the

hearing, and that it had a meritorious defense to the underlying claim. On 30 January 2020,

Ascentium filed a notice of appeal designating the August 2019 default judgment and the

December 2019 order dismissing Bolton as the orders appealed. Finally, on 13 February

2020, Ascentium moved to stay execution of the judgment pending appeal and for a

supersedeas bond. The court granted the stay and approved the bond on 19 February 2020.

Ascentium’s appeal was submitted to this court in February 2021, and we dismissed

the appeal for lack of jurisdiction. Ascentium Capital, LLC v. Marshall, 2021 Ark. App. 94.

We held that Ascentium’s notice of appeal had not been filed within thirty days of the

default judgment, which was the final and appealable decision by operation of law. We also

2 explained that Ascentium’s motion to set aside the default judgment was still pending, as it

had not been denied by written order nor deemed denied by operation of law.

On 11 March 2021, Ascentium’s counsel submitted a letter to the circuit court

requesting action on the outstanding motion to set aside. The circuit court convened a

hearing on May 19 and heard arguments from counsel; the court then issued its order on

June 3. The circuit court quoted Ark. R. Civ. P. 55(c), which provides

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.

The circuit court also noted that Ark. R. Civ. P. 55(b) does not require that notice of a

hearing on damages be given to a defaulting defendant who has not appeared.

The circuit court found that Ascentium had not “alleged mistake, inadvertence,

surprise, or excusable neglect. Nor have they shown fraud, misrepresentation[,] or

misconduct of an adverse party. Defendant alleges no defects in the summons or service of

the Complaint.” The court also found that Marshall’s complaint had stated a cause of action:

“The Complaint in this matter alleges that Bolton forged [Marshall’s] signature on a

contract, collected monies based on that forged contract, and that the Plaintiff suffered

damages as a result.” Finally, the court found that Marshall had testified at the 21 August

2019 hearing to the damages he suffered as a result of the defendant’s actions. The circuit

court denied Ascentium’s motion to set aside the default judgment, and Ascentium has

timely appealed.

3 The standard of review for an order denying a motion to set aside default judgment

depends on the grounds on which the appellant claims the default judgment should be set

aside. Steward v. Kuettel, 2014 Ark. 499, 450 S.W.3d 672. When 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. In all other cases, we review an order denying a motion to set aside

default judgment for abuse of discretion. Id. In the present case, Ascentium does not allege

that the default judgment is void; therefore, we review the circuit court’s order for an abuse

of discretion. This court has described abuse of discretion as a high threshold that requires

not only error but also a ruling made improvidently, thoughtlessly, or without due

consideration. Gonzales v. Cont’l Cas. Co., 2022 Ark. App. 501, 659 S.W.3d 277.

I. Failure to State a Claim

In his complaint, Marshall alleged the following:

4. That the defendant Corey Bolton operating within the course and scope of his employment or agency with Ascentium intentionally forged plaintiff’s signature to an agreement with the purpose of defrauding him. The agreement was part of a conspiracy between the defendants Bolton and Ascentium to lure small business such as plaintiffs into their fraudulent scheme with the express purpose of electronically stealing monies from him as alleged herein after. The forged agreement is attached as Exhibit “1” to this complaint.

5. That the defendant Ascentium was fully aware of the forgery by Cory Bolton and thereafter adopted his efforts to extort and take unearned monies from the plaintiff by manipulating monthly charges and chargebacks to reflect fraudulent charges or debt that would be taken from plaintiff’s account in the amount of thousands of dollars.

6. On information and belief the defendants, Ascentium and Cory Bolton, and perhaps others, acted to ensnare and defraud many small business owners and plaintiffs pray that they be allowed to amend to class action status following discovery.

4 7. That despite learning of the fraudulent activities of Corey Bolton and Ascentium in furtherance of their conspiracy and scheme, refused to desist from acting on the forged signature and then hired collectors and law firms to collect monies from plaintiff and other similarly situated business men whom they knew at the time were not indebted because of the fraudulent signature on the agreement. Ascentium continues to pursue plaintiff and other business men who were also defrauded. See Exhibit “2”, collection notice.

8. That as a direct and proximate result of the fraud of the defendants, plaintiffs pray for an amount in excess of the minimum federal jurisdictional limits which at this time are Seventy-Five Thousand Dollars, $75,000.00, exclusive of interest and cost.

9. That the plaintiffs should collect punitive damages for the fraudulent and dishonest conduct in the sum to be determined but in excess of the minimum federal jurisdictional amount of $75,000.

Ascentium argues that Marshall’s complaint failed to state a claim for fraud with the

required particularity to sustain a finding of liability by default. Rule 9(b) of the Arkansas

Rules of Civil Procedure requires the circumstance of fraud to be pled with particularity.

Ark. R. Civ. P. 9(b) (2023). It has long been held that when fraud is relied on, the complaint

must state something more than mere conclusions, and the facts relied on as constituting the

fraud must be clearly set forth. Burns v. Burns, 199 Ark. 673, 135 S.W.2d 670 (1940).

According to Ascentium, the complaint alleges that Bolton forged Marshall’s

signature on the lease agreement, that Ascentium “adopted [Bolton’s] efforts to extort and

take unearned monies from [Marshall],” that Ascentium and Bolton acted to “ensnare and

defraud many small business owners,” and that Ascentium pursued collection of the unpaid

balance of the lease agreement from Marshall when he stopped making payments.

Ascentium asserts that these allegations are conclusory and “fail to connect the dots between

an alleged forgery by one Defendant and actionable fraud by the other Defendant.” In

5 addition, these allegations fail to address the five required elements of a fraud claim. 1 For

example, the complaint does not identify any false representation of material fact made by

Ascentium, nor does it allege that Marshall was induced to act or refrain from acting by

Ascentium. The complaint also implies, but does not outright allege, a civil conspiracy

between Bolton and Ascentium, again without any supporting factual allegations.

Ascentium also contends that the complaint failed to sufficiently state a claim for the

damages awarded to Marshall. It argues that the complaint focused on Bolton’s alleged

forgery and Ascentium’s attempted collection of lease payments; the complaint did not allege

any lost profits or other special damages. Ascentium argues that Arkansas law requires this

type of damages to be specifically pled. Ark. R. Civ. P. 9(g); IC Corp. v. Hoover Treated

Wood Prods., Inc., 2011 Ark. App. 589, 385 S.W.3d 880. Ascentium acknowledges that at

the hearing in August 2019, Marshall was questioned about lost profits as a result of his

inability to process credit cards at his place of business. However, Ascentium characterizes

Marshall’s testimony as “unsupported” and “unsubstantiated.” In addition, Marshall made

only a bare request for punitive damages in his complaint with no supporting allegations.

Finally, Ascentium asserts that at the August 2019 hearing, Marshall’s attorney

proceeded without informing the court that he had spoken to Randy Woods, a senior

1 To establish a claim for fraud, a plaintiff must show (1) a false representation of material fact by the defendant; (2) knowledge or belief by the defendant that the representation is false or that there is insufficient evidence on which to make the representation; (3) intent to induce plaintiff to act or not act in reliance on the representation; (4) plaintiff’s justifiable reliance on the representation; and (5) damage suffered by plaintiff as a result of the reliance. Born v. Hosto & Buchan, PLLC, 2010 Ark. 292, 372 S.W.3d 324; Godwin v. Hampton, 11 Ark. App. 205, 669 S.W.2d 12 (1984).

6 account representative at Ascentium, in January 2019 and that Woods had told him that

Ascentium had ceased collection efforts on Marshall’s account in June 2018 and that Bolton

was not, and had never been, an Ascentium employee. Ascentium argues that “[t]his reflects

an effort to knowingly present false information” at the hearing in violation of Rule 3.3 of

the Arkansas Rules of Professional Conduct and that this is an “independent reason” to set

aside the default judgment.

First, there is no merit to any argument that Marshall’s attorney violated the rules of

professional conduct and that such violation warrants setting aside the default judgment.

Second, we note that pleadings are to be liberally construed and will support a default

judgment if they fully advise a defendant of his obligations and alleged breach of them.

Allied Chem. Corp. v. Van Buren Sch. Dist. No. 42, 264 Ark. 810, 575 S.W.2d 445 (1979).

Here, the complaint alleged that Bolton was using an Ascentium lease and forged Marshall’s

signature on it, and Ascentium was aware of the forgery but nevertheless used the forged

lease in a collection effort. The forged contract and the collection notice, attached as

exhibits to the complaint, support these allegations. And the circuit court specifically found

that a cause of action had been pled. Applying the required standard of review, we hold

that the circuit court did not abuse its discretion when it denied the motion to set aside the

default judgment. The complaint, when liberally construed and deemed true, stated a claim

for fraud. The circuit court made no ruling on whether the complaint sufficiently pled

damages, so we do not address it. Roberts v. Jackson, 2011 Ark. App. 335, 384 S.W.3d 28.

7 II. Evidence of Damages

In Arkansas, a default judgment establishes liability but not the extent of damages.

Entertainer, Inc. v. Duffy, 2012 Ark. 202, 407 S.W.3d 514. A hearing is required to establish

damages, and the plaintiff must introduce evidence to support damages. Id. Our standard

of review of a circuit court’s award of damages is whether the circuit court’s findings are

clearly erroneous or clearly against the preponderance of the evidence. Allen v. Sargent,

2022 Ark. App. 14. A finding is clearly erroneous when, although there is evidence to

support it, the reviewing court on the entire evidence is left with a definite and firm

conviction that a mistake has been made. Id.

At the August 2019 hearing, Marshall testified that he sustained losses of

approximately $7,000 a month since July 2017 because he had been unable to accept credit

cards. This amounted to a loss of approximately $168,000, and Marshall requested $150,000

in compensatory damages, which was granted. Marshall also requested treble damages for

punitive purposes, which the circuit court granted.

Ascentium argues that the damages awarded by the circuit court, including the

punitive damages, far exceeded the amount demanded in the complaint in violation of Ark.

R. Civ. P. 54(c), which provides that “a judgment by default shall not be different in kind

from or exceed in amount that prayed for in the demand for judgment.” In support of

reversal, Ascentium cites Robinson v. Robinson, 103 Ark. App. 169, 287 S.W.3d 652 (2008),

wherein this court noted that in cases where judgment is entered by default, a party is

expressly precluded from obtaining any relief not demanded in his pleadings.

8 Ascentium also asserts that the default judgment was prepared by Marshall’s counsel

prior to the hearing, it did not contain any specific findings of fact or conclusions of law,

and it did not explain how the court reached the amount of compensatory and punitive

damages awarded. Ascentium cites MCSA, LLC v. Thurmon, 2014 Ark. App. 540, 444

S.W.3d 428, in which this court reversed a default-damages award of $645,809.98 that was

over twenty times the total amount of the plaintiff’s medical bills and related travel expenses.

We recognized that the circuit court found the testimony of the plaintiff and her husband

credible, but we noted that theirs was the only testimony presented, and it lacked any

supporting computation, objective proof, or expert opinion. Further, there was no

foundation for the figures suggested by counsel for pain and suffering, mental anguish, and

future medicals. See also McGraw v. Jones, 367 Ark. 138, 238 S.W.3d 15 (2006) (holding

that a damages award that was over ten times the amount of the appellees’ actual out-of-

pocket medical bills and lost wages was arbitrary and not supported by sufficient evidence).

Ascentium argues that, as in Thurmon and McGraw, the damages award to Marshall is

not supported by the meager evidence presented at the hearing. Marshall presented no

supporting documents or testimony regarding his purported inability to process credit-card

payments, his business’s historical financial performance or profit margins, or his assertion

that he had been placed on a “master list” that meant no other credit-card companies would

do business with him. Marshall’s attorney merely calculated the amount of damages that he

believed Marshall had sustained, Marshall agreed with the amount, and the circuit court

simply adopted the calculations of Marshall’s attorney.

9 In its order, the circuit court did not address damages other than the following:

“Plaintiff testified to the damages he suffered as a result of the actions of the defendants. . . .

Plaintiff is entitled to the default regarding to [sic] liability without further notice, and upon

subsequently proving their damages, Plaintiff was entitled to the judgments in the amounts

proven.” Assuming this constitutes a ruling on Ascentium’s argument, we first note that

the complaint did not plead any certain amount of compensatory or punitive damages—

instead only asking for more than $75,000 on each—so any argument that the amount

awarded was more than the amount prayed for in the complaint is meritless. Second, it is

clear from the transcript of the August 2019 hearing that Marshall testified as to his business

losses and that the circuit court credited this testimony. We defer to the circuit court sitting

as the trier of fact to resolve matters of credibility. Grimsley v. Drewyor, 2019 Ark. App. 218,

575 S.W.3d 636. Also, Marshall requested $150,000 in compensatory damages as well as

treble damages for punitive purposes, which explains how the circuit court arrived at the

amounts awarded. Ascentium makes no argument that the circuit court erred by awarding

treble damages. The circuit court’s award of damages is not clearly erroneous.

III. Notice of Hearing

For its third point, Ascentium argues that under the particular circumstances of this

case, Marshall should have provided notice of the motion for default and the hearing. It

acknowledges that Ark. R. Civ. P. 55(b) requires that notice of a motion for default

judgment be provided to a defendant only when the defendant has made an appearance in

the litigation. However, Ascentium asserts, Marshall’s attorney had communicated with

Woods, an Ascentium employee, and therefore knew that Ascentium was “not ignoring the

10 complaint.” And while Rule 55 did not impose an explicit obligation to give notice because

Ascentium did not enter an appearance through counsel beforehand, equitable

considerations should certainly impose such an obligation on Marshall or his attorney.

Ascentium concludes that the default judgment should be vacated and that it should be

allowed to defend itself at a damages hearing.

We hold that Ascentium had no right to notice of the hearing, nor did Marshall or

his counsel have an equitable obligation to inform it of the hearing. Rule 55(b) is clear that

notice of a hearing is required only when a defendant has appeared. An “appearance” under

Rule 55(b) is any action on the part of a defendant, except to object to jurisdiction, that

recognizes the case as in court. Trelfa v. Simmons First Bank, 98 Ark. App. 287, 254 S.W.3d

775 (2007). Ascentium did not make an appearance in the case; therefore, it was not entitled

to notice.

Affirmed.

GLADWIN and WOOD, JJ., agree.

Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, by: Blair B. Evans, for appellant.

Chuck Gibson and James Swindoll, for appellee.