Specialty Hospitals v. Rappahannock Goodwill Industries

• Court: Supreme Court of Virginia
• Decided: March 2, 2012
• Docket: 102196
• Status: Published

Opinion

Present: All the Justices SPECIALTY HOSPITALS OF WASHINGTON, LLC OPINION BY v. Record No. 102196 CHIEF JUSTICE CYNTHIA D. KINSER March 2, 2012 RAPPAHANNOCK GOODWILL INDUSTRIES, INC.

FROM THE CIRCUIT COURT OF THE CITY OF FREDERICKSBURG Gordon F. Willis, Judge

Specialty Hospitals of Washington, LLC appeals from the

circuit court's judgment denying a motion to set aside a default

judgment under Rule 3:19(d)(1). We conclude that a trial court

is not required to find "actual notice" to a defendant or to

articulate its consideration of and findings with regard to the

factors listed in Rule 3:19(d)(1) when denying a motion for

relief from a default judgment. We further conclude that the

circuit court did not abuse its discretion in refusing such

relief in this case. Therefore, we will affirm the circuit

court's judgment.

RELEVANT FACTS AND PROCEEDINGS

Rappahannock Goodwill Industries, Inc. (RGI) entered into a

"Rental Laundry-Linen Service Agreement" (the Agreement) with

"Specialty Hospitals of Washington, LLC" (Specialty Hospitals),

referred to in the Agreement as the "CUSTOMER." The cover page

of the Agreement, however, indicated that it was prepared for

"Specialty Hospitals of Washington" with an address of "1310

Southern Avenue SE, Washington, DC 20032." Eugene F. Kelleher, Director, executed the Agreement on behalf of "Specialty

Hospitals of Washington, Inc." ∗

When Specialty Hospitals allegedly did not pay for linen

and laundry services provided by RGI pursuant to the Agreement,

RGI filed a complaint in the circuit court against Specialty

Hospitals, asserting claims for breach of contract, conversion,

and quantum meruit. Because Specialty Hospitals was a foreign

corporation, RGI effected substituted service of process on

Specialty Hospitals through its statutory agent, the Secretary

of the Commonwealth. See Code §§ 8.01-301(3) and -329(A). In

its affidavit for service of process on the Secretary of the

Commonwealth, RGI listed the last known address of Specialty

Hospitals as the Southern Avenue address shown on the cover page

of the Agreement and requested service of the summons and

complaint on Specialty Hospitals' registered agent, The

Corporation Trust Company, at 1209 Orange Street, Wilmington,

Delaware. On June 7, 2010, the Secretary of the Commonwealth

filed a certificate of compliance certifying that the summons

and complaint had been forwarded by certified mail, return

∗ Any notice or communication required to be given to the customer pursuant to the Agreement was to be sent to Eugene Kelleher, Regional Director, Supply Chain Management, Specialty Hospitals of Washington, 1310 Southern Avenue SE, Washington, D.C. 20032.

2 receipt requested, to The Corporation Trust Company at the

Wilmington address on June 3, 2010.

No responsive pleadings were filed on behalf of Specialty

Hospitals. On August 16, 2010, RGI moved for default judgment

against Specialty Hospitals. The circuit court granted the

motion and, on August 23, 2010, entered judgment in favor of RGI

in the amount of $815,634.32, plus attorneys' fees in the amount

of $12,500.00 and $1,000.00 in anticipated costs to enforce the

judgment. Within 21 days of the order entering judgment for

RGI, Specialty Hospitals filed a motion under Rule 3:19(d)(1) to

set aside the default judgment. In its motion, Specialty

Hospitals alleged that service of process was defective, that

RGI's claims were against a different entity, and that it had

erroneously sued Specialty Hospitals. Specialty Hospitals

claimed that it did not own or operate the facility located at

the 1310 Southern Avenue address.

At an ore tenus hearing on Specialty Hospitals' motion,

Raymond Alvarez, "group vice president for Specialty Hospitals

of Washington," testified that an entity known as "United

Medical Center," not Specialty Hospitals, operates the facility

at the 1310 Southern Avenue address. Although Alvarez admitted

that Specialty Hospitals received the order granting default

judgment against it from The Corporation Trust Company, he

3 nevertheless denied that The Corporation Trust Company sent the

summons and complaint to Specialty Hospitals. Alvarez further

indicated that if a lawsuit had been pending against Specialty

Hospitals, his job duties would have included handling the

lawsuit or hiring counsel to do so.

Alvarez also admitted that Specialty Hospitals is

incorporated in the State of Delaware and that its registered

agent is The Corporation Trust Company. However, when asked to

whom The Corporation Trust Company would have forwarded

"paperwork" received by it in May 2010 as the registered agent

for Specialty Hospitals, Alvarez responded, "I can't answer that

question."

The circuit court found that "[t]here's nothing that's been

presented here today that the information contained within the

affidavit such as the person to be served or the address of the

registered agent is the inappropriate registered agent for the

defendant." The court further found that

[t]he evidence was a little sketchy from Mr. Alvarez about what happened with this matter that was served upon its registered agent by the Secretary of the Commonwealth. There's nobody here from [T]he Corporation Trust Company to testify as to whether or not they received what was sent to them by certified mail, return receipt requested, by the Secretary of the Commonwealth or what they did with it once they received it. But, notice [was] provided through proper service. And in this case the plaintiff properly served per Virginia law the defendant. 4 Thus, the circuit court held "that the motion to set aside will

be denied. There's proper service. And for whatever reason, the

defendant did not take action to protect its interest and appear

before the [c]ourt in timely fashion."

We awarded Specialty Hospitals this appeal on two issues:

(1) whether the circuit court erred by failing to find "actual

notice" to Specialty Hospitals when denying the motion to set

aside the default judgment; and (2) whether the circuit court

erred by failing to consider all the factors set forth in Rule

3:19(d)(1).

ANALYSIS

Generally, a defendant must file responsive pleadings

within 21 days after service of the summons and complaint. Rule

3:8(a). A "defendant who fails timely to file a responsive

pleading as prescribed in Rule 3:8 is in default." Rule

3:19(a). However, Rule 3:19(d)(1) provides that within 21 days

of the entry of final judgment,

the court may by written order relieve a defendant of a default judgment after consideration of the extent and causes of the defendant's delay in tendering a responsive pleading, whether service of process and actual notice of the claim were timely provided to the defendant, and the effect of the delay upon the plaintiff.

5 Whether to relieve a defendant of a default judgment under Rule

3:19(d)(1) rests within the sound discretion of a trial court.

See AME Fin. Corp. v. Kiritsis, 281 Va. 384, 392-93, 707 S.E.2d

820, 824 (2011); see also Harper v. Virginia Dep't of Taxation,

250 Va. 184, 194, 462 S.E.2d 892, 898 (1995)(holding that the

word "may" is permissive, importing discretion). Thus, on

appeal, the standard of review is whether the trial court abused

its discretion. See Poulston v. Rock, 251 Va. 254, 258-59, 467

S.E.2d 479, 482 (1996).

The circuit court's factual findings based on the evidence

adduced at the ore tenus hearing on the motion to set aside the

default judgment will be reversed on appeal only if such

findings are plainly wrong or without evidence to support them.

Ryland v. Manor Care, Inc., 266 Va. 503, 509, 587 S.E.2d 515,

519 (2003). We review such evidence in the light most favorable

to RGI as the prevailing party. Id.

Specialty Hospitals argues that the circuit court was

required to make a factual finding whether Specialty Hospitals

received actual notice of the complaint filed against it by RGI

and that the court committed reversible error by failing to do

so. According to Specialty Hospitals, the factors listed in

Rule 3:19(d)(1) should be viewed in the disjunctive and a

defendant should be relieved from a default judgment if it

6 establishes any one of those factors. Specialty Hospitals

further contends that it established all the factors and that

the circuit court erred by failing to state its consideration of

and findings on each factor. We disagree.

Service of process may be effected on a foreign corporation

in accordance with the provisions of Code § 8.01-329. Code

§ 8.01-301(3). Pursuant to Code § 8.01-329(A), service of

process or notice may be served on the Secretary of the

Commonwealth. In relevant part, that statute further provides:

Such service [on the Secretary of the Commonwealth] shall be sufficient upon the person to be served, provided that notice of such service, a copy of the process or notice, and a copy of the affidavit are forthwith mailed by certified mail, return receipt requested, by the Secretary to the person or persons to be served at the last known post-office address of such person, and a certificate of compliance herewith by the Secretary or someone designated by him for that purpose and having knowledge of such compliance, shall be forthwith filed with the papers in the action.

Code § 8.01-329(C).

As RGI notes, Specialty Hospitals did not dispute that it

is incorporated in the State of Delaware, that The Corporation

Trust Company is its registered agent, or that the registered

agent is located at the address shown in the affidavit for

service of process on the Secretary of the Commonwealth.

Neither did it challenge the accuracy of the certificate of

7 compliance, in which the Secretary of the Commonwealth certified

that legal service was made upon the Secretary of the

Commonwealth as the statutory agent in accordance with Code

§ 8.01-329, nor that the summons and complaint were forwarded by

certified mail, return receipt requested, to The Corporation

Trust Company. Indeed, the circuit court stated that Specialty

Hospitals presented no evidence to show either "that the

information contained within the affidavit such as the person to

be served or the address of the registered agent [was] the

inappropriate registered agent for [Specialty Hospitals]" or

that the information in the affidavit was "false or incorrect."

Thus, the circuit court concluded that "notice [was] provided

through proper service" by RGI under Virginia law.

In Basile v. American Filter Service, Inc., 231 Va. 34, 340

S.E.2d 800 (1986), the plaintiff obtained a default judgment in

an action against a nonresident corporation. Id. at 35, 340

S.E.2d at 800. The plaintiff effected service of process on the

nonresident corporation by serving its statutory agent, the

Secretary of the Commonwealth. Id. at 36, 340 S.E.2d at 801.

The Secretary of the Commonwealth then certified that the suit

papers had been forwarded to the defendant. Id. When the

defendant failed to file any responsive pleadings, the plaintiff

sent notice to the defendant advising that the plaintiff would

8 seek a default judgment. Id. The statutory notice by the

Secretary of the Commonwealth and the plaintiff's notice of

default judgment both were sent to the same address by certified

mail, return receipt requested, but the address did not include

a zip code. Id. Each mailing was returned unclaimed. Id.

The defendant failed to appear at the scheduled hearing for

default judgment, and the trial court awarded a default judgment

and damages against the nonresident corporate defendant. Id.

The defendant then filed a motion to set aside the default

judgment pursuant to Code § 8.01-428, alleging it had not

received actual notice of the suit but had only learned of it

through a related action. Id. at 36-37, 340 S.E.2d at 801-02.

The trial court granted the motion and set aside the default

judgment. Id. at 35, 340 S.E.2d at 801.

On appeal to this Court, the defendant argued that "the

Virginia cases in which default judgments have been upheld

involved defendants who had actual knowledge of the pendency of

suits against them and such a judgment should not be allowed to

stand where, as here, the defendant had no actual knowledge of

the litigation." Id. at 38, 340 S.E.2d at 802. However, this

Court reversed the trial court's judgment, determining that the

requirements of Code § 8.01-329 for service of process on the

Secretary of the Commonwealth were met and thus service was

9 "complete and conclusive." Id. The failure to include the zip

code in the corporate defendant's address did not invalidate the

service because the evidence before the trial court demonstrated

that "omission of the zip code could not result in delivery to

any location other than the corporation's correct address." Id.

Thus, the Court concluded that "there [was] no basis under

§ 8.01-329 for invalidating service on the statutory agent

because of the defendant's failure to receive actual notice of

the suit." Id.

Although Specialty Hospitals sought relief from the default

judgment under Rule 3:19(d)(1), not Code § 8.01-428, we

nevertheless conclude, as we did in Basile, that the

requirements in Code § 8.01-329 for service on the Secretary of

the Commonwealth were met and that service is therefore

"complete and conclusive." 231 Va. at 38, 340 S.E.2d at 802.

The evidence supported the circuit court's conclusion that

Specialty Hospitals received notice through proper service on

the Secretary of the Commonwealth pursuant to the provisions of

Code § 8.01-329. A finding by the circuit court that Specialty

Hospitals had "actual notice" was not required when denying

relief from the default judgment under Rule 3:19(d)(1).

Specialty Hospitals further contends, however, that the

circuit court erroneously failed to consider and make findings

10 with regard to all the factors enumerated in Rule 3:19(d)(1)

despite being presented with arguments and evidence on each

factor. Specialty Hospitals contends that while there is no

case law indicating "that a showing of all five factors is

necessary to set aside a default, or whether the [trial court]

must make [a finding] with regard[] to each factor," the Court,

nevertheless, should require a trial court to state its

consideration of and findings with regard to each factor, as we

do when a trial court sets aside a default judgment under Code

§ 8.01-428(D). See Ryland, 266 Va. at 510, 587 S.E.2d at 519

(holding that "a trial court's decision to set aside a default

judgment [under Code § 8.01-428(D)] is a significant action and

must, therefore, include its consideration of and findings with

regard to all the necessary elements"); Charles v. Precision

Tune, Inc., 243 Va. 313, 317-18, 414 S.E.2d 831, 833 (1992)

(stating the elements of an independent action in equity to set

aside a default judgment under what is now Code § 8.01-428(D)).

Whether a trial court must state its consideration of and

findings as to all the factors set forth in Rule 3:19(d)(1) when

relieving a defendant of a default judgment, as is required when

granting such relief under Code § 8.01-428(D), is not before us

today. For purposes of the narrow issue in this appeal, we find

nothing in the language of Rule 3:19(d)(1) requiring a trial

11 court to do so when exercising its discretion to deny a

defendant's motion to set aside a default judgment. Nor are we

willing to impose such a requirement.

Nevertheless, it may be inferred from the reasons stated by

the circuit court that it did indeed consider "the extent and

causes of the defendant's delay in tendering a responsive

pleading, whether service of process and actual notice of the

claim were timely provided to the defendant, and the effect of

the delay upon the plaintiff." Rule 3:19(d)(1); see also

Poulston, 251 Va. at 260, 467 S.E.2d at 482 (noting that

consideration of factors relevant to remitting a jury verdict

"may be 'fairly inferred from the reasons given'") (quoting

Caldwell v. Seaboard Sys. R.R., Inc., 238 Va. 148, 157, 380

S.E.2d 910, 915 (1989)). In denying the motion to set aside the

default judgment, the circuit court stated that "[t]here's

proper service. And for whatever reason, the defendant did not

take action to protect its interest and appear before the

[c]ourt in a timely fashion. And the default judgment received

is appropriate." In sum, we cannot say that the circuit court

abused its discretion in refusing to relieve Specialty Hospitals

of the default judgment entered against it.

12 CONCLUSION

For these reasons, we will affirm the judgment of the

circuit court.

Affirmed.