Ruben Pazmino v. 2444 Acquisitions, LLC (mem. dec.)

• Court: Indiana Court of Appeals
• Decided: November 15, 2017
• Docket: 49A02-1701-PL-53
• Status: Published

Opinion

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.

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