Justin Roe & Rjx Enterprises, LLC v. Theodore Somach

2024 Ark. App. 527, 699 S.W.3d 749

• Court: Court of Appeals of Arkansas
• Decided: October 30, 2024
• Status: Published

Opinion

Cite as 2024 Ark. App. 527 ARKANSAS COURT OF APPEALS DIVISION III No. CV-23-526

JUSTIN ROE AND RJX ENTERPRISES, Opinion Delivered October 30, 2024

LLC APPEAL FROM THE WASHINGTON APPELLANTS COUNTY CIRCUIT COURT [NO. 72CV-22-3031] V. HONORABLE BETH STOREY BRYAN, THEODORE SOMACH; TWS JUDGE HOLDINGS, LLC; AND ENTERTAINMENT DISTRIBUTION GROUP, INC., D/B/A ENTERTAINMENT USA AFFIRMED APPELLEES

CINDY GRACE THYER, Judge

Justin Roe (“Roe) and RJX Enterprises, LLC (“RJX”), appeal from the order of the

Washington County Circuit Court that granted a motion for default judgment and motion

to strike amended answer filed by appellees Theodore Somach; TWS Holdings, LLC; and

Entertainment Distribution Group, Inc. (collectively, “Somach”). We affirm.

I. Factual and Procedural Background

According to a complaint filed on November 16, 2022, Somach, who operates retail

businesses that sell products in online marketplaces, hired Roe and RJX to perform services

related to product advertising and marketing as well as distribution logistics. The complaint

alleged that RJX and Roe, who owns and operates RJX, had breached the parties’ business agreement, engaged in fraud, and converted Somach’s property. At the time the complaint

was filed, RJX’s status with the Arkansas Secretary of State’s office was “not current.”

Separate summonses were issued for Roe and RJX on November 16. Proof of service on both

defendants was obtained on January 5, 2023, and filed in circuit court on January 11.

On January 23, the parties filed an order stating they “have agreed to and the court

does hereby grant an extension of twenty-one (21) days for the defendants to file their answer

to the complaint filed in this matter.” Roe thereafter filed an answer, pro se, on February 28,

2023. The answer was clearly signed “Respectfully Submitted Pro Se, Justin Roe, Defendant.”

On April 25, Somach moved for default judgment against RJX, arguing that RJX had

failed to file a responsive pleading within either thirty days or the additional twenty-one days

granted in the agreed order. Somach acknowledged that Roe had filed a pro se answer on

February 28, but he asserted that Roe could not file an answer on behalf of the LLC and had

engaged in the unauthorized practice of law by attempting to do so. Somach therefore

requested a default judgment specifically––and solely––against RJX.

Roe and RJX subsequently hired counsel who, on May 8, filed an amended answer

and motion to dismiss. In the motion to dismiss, Roe and RJX alleged that RJX lacked the

legal capacity to be sued in state court because its entity status had been revoked by the

Arkansas Secretary of State’s office at the time the complaint was filed. They further argued

that the complaint failed to establish the existence of a contract or plead fraud with the

requisite specificity.

2 Roe and RJX also responded to Somach’s motion for default judgment, again arguing

that RJX lacked the legal capacity to be sued. In addition, they denied that Roe had appeared

on behalf of RJX or otherwise engaged in the unauthorized practice of law. Further, they

urged the court to exercise its discretion to deny the motion for default judgment because

there were meritorious defenses available to RJX; there was a possibility of inconsistent

judgments being entered against Roe individually and against RJX; and RJX had not willfully

failed to answer the complaint.

Somach moved to strike the amended answer on May 18, 2023. He acknowledged

that Roe had filed a pro se answer on February 28, 2023. The amended answer, however,

was the first answer to the complaint filed by RJX. Because it was submitted well outside the

time for filing an answer, Somach asked the court to strike the answer “as it relates to

Defendant RJX” from the record. Somach also responded to Roe and RJX’s motion to

dismiss, acknowledging RJX’s argument that it lacked capacity to be sued at the time the

complaint was filed but asserting that the issue was moot because RJX’s status with the

Secretary of State’s office had been reinstated. Somach attached a copy of a printout from

the Secretary of State’s office showing that RJX’s status was in “good standing.”

On June 8, without holding a hearing, the circuit court entered an order granting

Somach’s motion for default judgment against RJX and his motion to strike RJX’s amended

3 answer. The order stated that the court would set the matter for trial to determine liability

and damages against Roe and to determine damages against RJX.1

Roe and RJX filed a timely notice of appeal and now raise three arguments for

reversal: (1) RJX lacked the legal capacity to be sued; therefore, a default judgment is not an

available remedy for Somach; (2) Roe did not appear on behalf of RJX or engage in the

unauthorized practice of law; and (3) the circuit court abused its discretion by striking the

amended answer and granting a default judgment against RJX.

II. Standard of Review

The standard of review for considering whether a default judgment was properly

granted is whether the circuit court abused its discretion. Ewing v. Schmalz, 2024 Ark. App.

127, 686 S.W.3d 25; Gawenis v. Zelda Walls Living Tr., 2022 Ark. App. 302. Likewise, a circuit

court’s decision to strike an answer is reviewed for an abuse of discretion. Looney v. Blair,

2010 Ark. 479.

III. Discussion

1 Ordinarily, a judgment or order is not final and appealable if the issue of damages remains to be decided. Israel v. Oskey, 92 Ark. App. 192, 212 S.W.3d 45 (2005); see also Sevenprop Assoc. v. Harrison, 295 Ark. 35, 746 S.W.2d 51 (1988) (in an appeal from a default judgment on liability, when there was a failure to file a timely answer and the issue of damages was not yet resolved, dismissal of appeal was required). When, however, a default judgment that does not resolve damages is coupled with an order striking an answer, an appeal may be taken. In Arnold Fireworks Display, Inc. v. Schmidt, 307 Ark. 316, 820 S.W.2d 444 (1991), the supreme court held that the specific provision in Arkansas Rule of Appellate Procedure–Civil 2(a)(4) that allows an appeal from an order that strikes all or part of an answer controls over the more general rule of Rule 2(a)(1), which requires a “final judgment.” See also Israel, supra (permitting an appeal when default judgment was coupled with an order striking the answer).

4 A. RJX’s Legal Capacity

In its first argument on appeal, RJX argues that it lacked the legal capacity to be sued;

therefore, a default judgment was not an available remedy against it. It argues that because

its corporate status was “not current” at the time Somach filed his complaint, it was not a

legal entity subject to suit at that time.

RJX correctly notes that corporate existence is governed by the law of the state in

which the corporation is domiciled. Teague v. Home Mortg. & Inv. Co., 250 Ark. 322, 324,

465 S.W.2d 312, 313 (1971). As an Arkansas corporation, RJX’s capacity is thus determined

by Arkansas law. The pertinent Arkansas law on this matter is found in Arkansas Code

Annotated section 26-54-112(a)(1)(A) (Repl. 2020), which addresses corporations2 whose

authority to do business in the state has been revoked by the Secretary of State’s office. The

statute expressly declares that such a corporation may be “reinstated to all its rights, powers,

and property” and that such reinstatement “shall be retroactive to the time that the

corporation’s authority to do business in the state was declared revoked.” Ark. Code Ann. §

26-54-112(a)(1)(A)(i)–(ii).

Although it is not clear from the record when RJX’s corporate status was reinstated,

RJX does not, either in its pleadings below or in its briefs to this court, dispute the validity

of the document submitted by Somach indicating that it was in “good standing” as of May

2 Arkansas Code Annotated section 26-54-102(a) (Supp. 2023) provides that “corporation” means “any corporation or limited liability company . . . which is organized in or qualified under the laws of the State of Arkansas.” (Emphasis added.)

5 18, 2023 (the date on which Somach responded to RJX’s motion to dismiss). Once a

company’s corporate status is restored, it is “vested . . . with continuous existence as though

revocation of its charter had never occurred.” Beck v. Inter City Transp., Inc., 2012 Ark. App.

370, at 3, 417 S.W.3d 740, 743. Because RJX does not dispute that its status had been

reinstated, we must therefore conclude that its good standing was retroactive, at a minimum,

to the date on which the lawsuit was filed.3 Because RJX maintained retroactive standing at

that time, its corporate status was not a basis for the circuit court to dismiss the complaint

against it.

B. Unauthorized Practice of Law

In its second point on appeal, RJX argues that Somach’s motion for default judgment

was “based on [the] faulty premise” that Roe had attempted to file an answer on its behalf

and had thus engaged in the unauthorized practice of law. The default-judgment motion

asserted the following:

Defendant Justin Roe cannot file an answer on behalf of a Limited Liability Company. While Defendant Justin Roe is entitled to represent himself, any attempt at an appearance on behalf of RJX Enterprises LLC constitutes the unauthorized practice of law. Where a party not licensed to practice law in this state attempts to represent the interest of others, those actions, such as the filing of pleadings, are rendered a nullity. Accordingly, to the extent Defendant Justin Roe intended to file a pro se answer on behalf of RJX Enterprises LLC such action must be rendered a nullity.

3 Somach’s exhibits reflecting RJX’s corporate status are not dated. As noted above, however, RJX does not contest the validity of these documents.

6 Roe concedes that a nonlawyer is not allowed to represent an LLC in court proceedings. See

Davidson Props., LLC v. Summers, 368 Ark. 283, 244 S.W.3d 674 (2006). He argues, however,

that he did not engage in the practice of law on behalf of RJX but instead filed his pro se

answer to the complaint solely in his individual capacity. Roe maintains that because

Somach’s motions for default judgment and to strike the amended answers “were based on

the assertion of ‘unauthorized practice of law’ and there was no evidence to support this

conclusion, the circuit court abused its discretion in granting the motion.”

Regardless of Somach’s arguments regarding the alleged unauthorized practice of law

in his motion, it remains without dispute that RJX failed to file a timely responsive pleading.

Although default judgments are disfavored by courts, issuing a default judgment when a

defendant fails to timely respond to a complaint under Arkansas Rule of Civil Procedure 55

is not an error of law or against the preponderance of the evidence. Sanders v. JLP, LLC, 2024

Ark. App. 65, 683 S.W.3d 607; Macom v. Di Cresce, 2023 Ark. App. 530, 680 S.W.3d 36.

We therefore find no merit to this argument on appeal.

C. Default Judgment

In its final point on appeal, RJX argues that the circuit court’s order granting the

default judgment and striking the amended answer should be reversed for three reasons: (1)

RJX has valid defenses to the lawsuit; (2) reversing the order would not harm Somach, but

affirming will severely impact Roe and RJX; and (3) the order should be reversed because

Somach seeks to hold Roe and RJX jointly and severally liable.

7 RJX first asserts that it had valid defenses to Somach’s lawsuit, and the default

judgment should therefore not have been entered against it. When a party against whom a

judgment for affirmative relief is sought has failed to plead or otherwise defend as provided

by these rules, judgment by default may be entered by the court. Ark. R. Civ. P. 55(a). 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, misrepresentation, or other misconduct of an adverse party; or (4) any other reason

justifying relief from the operation of the judgment. Ark. R. Civ. P. 55(c).4 The party seeking

to have the judgment set aside must demonstrate a meritorious defense to the action (unless

the judgment is void, which RJX does not allege here). Id.

RJX does not dispute that its answer was not timely filed, and our review of the record

does not indicate that it ever offered any reason for its failure to do so. When a party opposes

a motion for default judgment, a showing of one of the four enumerated reasons in Rule

55(c) is a “threshold” matter that must be satisfied before considering whether the defaulting

party has a meritorious defense. In Nissan North America, Inc. v. Harlan, 2017 Ark. App. 203,

at 8–9, 518 S.W.3d 89, 95, this court held that Rule 55(c) “requires a two-step analysis before

a defaulting defendant can succeed in having a default judgment set aside,” and the first step

4 Although RJX did not expressly file a motion to set aside the default judgment, Arkansas’s courts have adopted the federal practice and consider opposition to a motion for default judgment to be the equivalent of asserting a motion to set aside a default judgment. Solis v. State, 371 Ark. 590, 597, 269 S.W.3d 352, 357 (2007); B&F Eng’g, Inc. v. Cotroneo, 309 Ark. 175, 178, 830 S.W.2d 835, 837 (1992).

8 is demonstrating “that one of the four enumerated categories of legally acceptable reasons or

excuses existed to justify setting aside the default judgment.” When the threshold issue is

not met, this court will not reach the second step of the analysis. Id. Stated another way,

while it is true that a defendant wishing to set aside a default judgment must demonstrate a

meritorious defense to the action, the defense in and of itself is not sufficient without first

establishing one of the grounds laid out in Rule 55(c). Riggs v. Riggs, 2020 Ark. App. 381,

606 S.W.3d 588. The naked allegation that a party has a meritorious defense does not

warrant setting aside a default judgment. Id.

RJX’s first argument for reversing the default judgment is that it has meritorious

defenses to Somach’s claims, including (1) it lacked the legal capacity to be sued; (2) Somach

failed to establish the existence of a valid contract; (3) Somach failed to adequately plead

fraud; and (4) RJX returned Somach’s property to him, thus negating his claim for

conversion. RJX does not, however, establish that any of the grounds for setting aside the

default judgment set forth in Rule 55(c) exist. Indeed, RJX fails to assert any reason or

explanation as to why it failed to file a timely answer. Because we conclude that RJX has

failed to meet the threshold issue of establishing a legally acceptable reason to justify setting

aside the default judgment, our analysis ends here.

In its next subpoint, RJX argues that this court should reverse the entry of default

judgment against it because doing so will not harm or prejudice Somach, while affirming

“would inflict significant harm on both Roe and RJX” because of the possibility of

9 inconsistent verdicts. RJX adds that it is clear that Roe attempted to comply with court

procedures and did not intentionally default on behalf of RJX.

Although RJX generally appeals to fairness and the court’s discretion, it fails to cite a

single case in support of this argument. This court will not consider arguments not supported

by convincing argument or citation to authority. Jade Prop. Holdings, LLC v. First Serv. Bank,

2024 Ark. App. 414, ___ S.W.3d ___; Hamerlinck v. Hamerlinck, 2023 Ark. App. 475;

Grimsley v. Drewyor, 2019 Ark. App. 218, 575 S.W.3d 636. It is therefore unnecessary to

address this point further.

Finally, RJX questions whether a default judgment can be entered against one

defendant when there are multiple defendants alleged to be jointly and severally liable and

the action against the other defendant is still pending. RJX asserts generally that “when one

party defaults while the action is still pending and there is joint and several liability, all claims

must be disposed of as to all defendants before a final, appealable judgment can be entered.”

See Ark. R. Civ. P. 54(b). This means, it continues, that “when a complaint alleges that

defendants are jointly liable and one of them defaults, judgment should not be entered

against the defaulting defendant until the matter has been adjudicated with regard to all

defendants.” It goes on to posit a hypothetical situation: If Roe wins in the circuit court

against all of Somach’s claims, RJX could still potentially have to pay damages. RJX therefore

argues that reversing the default judgment against it would prevent potential future

inconsistent judgments.

10 This argument is speculative, at best. Roe is still entitled to a trial, and RJX is still

entitled to a hearing on damages. As Somach notes, “the issues raised by appellees in this

argument are still to be determined and may not be issues at all,” and thus, a reversal based

on this argument would be premature. We agree, and we therefore affirm on this point. See

Etoch v. Simes, 340 Ark. 449, 10 S.W.3d 866 (2000) (refusing to address an argument because

it was “purely speculative and premature”).

Affirmed.

KLAPPENBACH and WOOD, JJ., agree.

Table Law, by: Martha Ayres, for appellants.

Hickey and Hull Law Partners, by: Bradley D. Hull, for appellees.