Summary
providing that a trial court cannot render a no-answer default judgment against a defendant who has filed an answer
Summary of this case from Yeoung Jin Kim v. KimOpinion
NO. 01-15-00850-CV
06-28-2016
MAXX BUILDERS, LLC, Appellant v. EDWARD L. STORY, INDIVIDUALLY AND AS THE REPRESENTATIVE OF THE ESTATE OF KAREN L. STORY, Appellee
On Appeal from the 10th District Court Galveston County, Texas
Trial Court Case No. 15-CV-0393
MEMORANDUM OPINION
Edward Story sued Maxx Builders, a limited liability corporation, for violations of the Texas Deceptive Trade Practices Act. After striking Maxx Builders's pro se "answer," filed by a non-attorney corporate officer, the trial court entered a default judgment against it. Although Maxx Builders admits that its answer was "defective" because it was filed by a non-attorney, it argues it was entitled to notice of a default judgment hearing. Because a defective answer, including an answer filed for a limited liability corporation by a non-attorney, prevents a trial court from entering a default judgment without first giving notice of a hearing on the motion for default judgment, we reverse and remand for additional proceedings.
Background
Maxx Builders, an LLC, entered into a contract with Story to construct a "fire wall" for his building. The contract specified the materials Maxx Builders was required to use. Story alleges Maxx Builders used inferior materials to those specified in the contract.
Story sued Maxx Builders for damages and attorney's fees under the Texas Deceptive Trade Practices Act. Harris Khan, the non-attorney owner of Maxx Builders, filed a pro se answer on behalf of Maxx Builders.
In response, Story filed a motion to show authority to act, arguing that Khan, as a non-attorney, could not represent an LLC. Maxx Builders did not respond to the motion. The trial court issued an order requiring Maxx Builders to designate a person authorized to act on its behalf and appear before the trial court by June 26 or it would strike Maxx Builders's answer.
Maxx Builders did not designate an attorney by that date and, on July 1, Story filed a motion to strike Maxx Builders's answer and enter default judgment against it. Story served this motion on Maxx Builders the same day. On July 7, Story set a hearing on the motion for July 28 and served notice to Maxx Builders that its "motion to strike pleadings and enter default judgment . . . will be considered at a hearing on July 28 . . . ."
Instead of waiting until July 28, the trial court struck Maxx Builders's pleadings and entered default judgment against it on the day Story filed his motion. The trial court ordered Story to provide evidence of damages at the scheduled July 28 hearing.
Maxx Builders did not appear at the July 28 hearing. The trial court, after hearing testimony from Story, found Maxx Builders liable for actual damages, mental anguish damages, and "additional damages for the knowingly committed actions, as well as prejudgment interest and attorney's fees."
After the July 28 hearing, Maxx Builders hired an attorney and, through its attorney, filed a motion for new trial. The trial court denied Maxx Builders's motion. Maxx Builders appeals the orders granting default judgment and denying its motion for a new trial.
Maxx Builders Filed an Answer
Maxx Builders argues that it appeared by filing an answer, and, "a trial court may not render a default judgment against a defendant who has appeared without first giving the defendant notice of the dispositive default judgment hearing."
A. No-answer default and post-answer default judgments generally
Texas recognizes two types of default judgments: a no-answer default judgment and a post-answer default judgment. See Dolgencorp of Texas, Inc. v. Lerma, 288 S.W.3d 922, 930 (Tex. 2009). A no-answer default is a default judgment "caused by a defendant's failure to answer after service . . . ." Paradigm Oil, Inc. v. Retamco Operating, Inc., 372 S.W.3d 177, 183 (Tex. 2012). "A post-answer default judgment occurs when a defendant who has answered fails to appear for trial." Lerma, 288 S.W.3d at 925. A trial court cannot render a no-answer default judgment against a defendant who has filed an answer. See Davis v. Jefferies, 764 S.W.2d 559, 560 (Tex. 1989) (per curiam).
The plaintiff's burden differs for each type of default judgment: in a no-answer default, "a defaulting defendant admits all facts properly pled in the plaintiff's petition . . . . [And] the plaintiff is only required to prove its claim for unliquidated damages." Lerma, 288 S.W.3d at 930. But if the defendant files an answer, "the plaintiff is required to offer evidence and prove all aspects of its claim" before the trial court can enter a post-answer default judgment. Id. Judgment after a post-answer default "cannot be entered on the pleadings, but, rather, a plaintiff must offer evidence and prove his case as in a judgment on trial." Sharif v. Par Tech, Inc., 135 S.W.3d 869, 873 (Tex. App.—Houston [1st Dist.] 2004, no pet.).
Before entering a post-answer default judgment, the trial court must hold a hearing on the plaintiff's evidence, and the defendant must be given notice of the hearing.See In re $475,001.16, 96 S.W.3d 625, 627-28 (Tex. App.—Houston [1st Dist.] 2002, no pet.) ("[O]nce a defendant has made an appearance in a cause, he is entitled to the notice of the trial setting as a matter of due process under the Fourteenth Amendment."); KSNG Architects, Inc. v. Beasley, 109 S.W.3d 894, 899 (Tex. App.—Dallas 2003, no pet.) ("[W]ell-settled law forbids entering a default judgment against a defendant that has received no notice of the hearing on a motion for default judgment."); Vaughan v. Medina, No. 01-09-00885-CV, 2011 WL 1233556, at *2 (Tex. App.—Houston [1st Dist.] Mar. 31, 2011, no pet.) (mem. op.) (After defendant files answer, "judgment cannot be entered on the pleadings, but the claimant must offer evidence and prove his case as in a judgment upon a trial.").
Maxx Builders focuses its appellate argument on whether it received notice of a hearing, not on whether the required hearing was held. Therefore, we focus our analysis on the same issue.
The rule governing post-answer default judgment applies even when the trial court strikes the defendant's answer. Beasley, 109 S.W.3d at 899; see Knox v. Long, 257 S.W.2d 289, 296 (Tex. 1953) ("In the case of a disobedient defendant where answer on the merits of the case has been stricken, a default judgment may not be taken, but the plaintiff must discharge his burden of showing his right to a recovery."); Rabb Int'l, Inc. v. SHL Thai Food Serv., LLC, 346 S.W.3d 208, 210 (Tex. App.—Houston [14th Dist.] 2011, no pet.) (stating, in case not involving stricken answer, "this court and other intermediate courts of appeals have held that an answer purportedly filed on behalf of a corporation by a non-attorney, though defective, still prevents the trial court from granting a default judgment."); Guadalupe Econ. Servs. Corp. v. Dehoyos, 183 S.W.3d 712, 715-17 (Tex. App.—Austin 2005, no pet.) (holding that due process entitled defendant-corporation that filed pro se answer to notice of trial date); Santex Roofing & Sheet Metal, Inc. v. Venture Steel, Inc., 737 S.W.2d 55, 56 (Tex. App.—San Antonio 1987, no writ) (noting, in dicta, that "[t]he Texas Supreme Court has held that it is improper to render judgment by default even in a case where the trial court has correctly ordered the answer of the defendant stricken"); Wuxi Taihu Tractor Co. v. York Grp., Inc., No. 01-13-00016-CV, 2014 WL 6792019, at *9 (Tex. App.—Houston [1st Dist.] Dec. 2, 2014, pet. denied) (mem. op.) (stating, in case where trial court had not struck defective answer, "non-attorney's answer on behalf of a corporation, although defective, prevents the trial court from granting a default judgment against the corporation").
B. Standard of review
A trial court's decision to overrule a motion to set aside a default judgment and grant a new trial is subject to review for abuse of discretion. Interconex, Inc. v. Ugarov, 224 S.W.3d 523, 536 (Tex. App.—Houston [1st Dist.] 2007, no pet.). When a defendant receives proper notice of a post-answer hearing, the trial court should set aside a post-answer default judgment if the defendant establishes that (1) its nonappearance was the result of an accident or mistake, not intentional or the result of conscious indifference; (2) the motion for new trial alleges a meritorious defense; and (3) granting the motion will not cause undue delay or otherwise injure the plaintiff. Craddock v. Sunshine Bus Lines, Inc., 133 S.W.2d 124, 126 (Tex. 1939). But when a defendant does not receive notice of the hearing, the defendant's lack of notice satisfies the first Craddock prong and renders analysis of the second and third prongs unnecessary. See Mathis v. Lockwood, 166 S.W.3d 743, 744 (Tex. 2005) (holding that lack of notice renders analysis under second prong unnecessary and acknowledging, without deciding, that intermediate appellate courts have also held that lack of notice renders analysis under third prong unnecessary); Mahand v. Delaney, 60 S.W.3d 371, 375 (Tex. App.—Houston [1st Dist.] 2001, no pet.).
C. Deficient answer of non-attorney corporate officer constitutes an answer for default judgment purposes
Maxx Builders argues that the trial court's order granting default judgment against it violates its due process rights "and thus is void because [it] had answered and appeared and therefore [was] entitled to receive notice of the dispositive hearings." Story responds that Maxx Builders did not "appear" in this lawsuit because "a non-attorney may not appear pro se on behalf of a corporation." And because its answer was appropriately stricken, Maxx Builders "was not entitled to notice" of the default judgment hearing. Story argues that even if Maxx Builders's "defective answer was sufficient to preclude summary judgment, it does not follow that [it] was relieved from taking any action on its own behalf to prevent the Answer from being stricken. [It] was noticed of every hearing; thus [its] opportunity to be heard was lost by its own inaction."
A trial court can properly strike a corporate officer's pro se answer for a corporation because only a licensed attorney may appear and represent a corporation in litigation. Kunstoplast of Am., Inc. v. Formosa Plastics Corp., USA, 937 S.W.2d 455, 456 (Tex. 1996). But due process requires that a party be given "an opportunity to be heard." Guadalupe, 183 S.W.3d at 715. Thus, "Texas courts have always been reluctant to uphold a default judgment without notice where some response from the defendant is found in the record." Santex, 737 S.W.2d at 56. "It is a basic tenet of jurisprudence that the law abhors a default." Hock v. Salaices, 982 S.W.2d 591, 593 (Tex. App.—San Antonio 1998, no pet.). Thus, "[t]raditionally any sort of appearance will defeat a default. Indeed, the courts have gone to great lengths to excuse defects in answers to prevent the entry of default judgments against parties who have made some attempt, albeit deficient, unconventional, or flat out forbidden under the Rules of Civil Procedure . . . ." Id.
Thus, a no-answer default judgment is improper when a trial court has "correctly ordered the answer of the defendant stricken." Santex, 737 S.W.2d at 56 (citing Knox v. Long, 257 S.W.2d 289, 296 (Tex. 1953)). An "answer" filed by a non-lawyer corporate officer, although "defective," is sufficient to constitute an answer for default-judgment purposes and thus, any default judgment after such an answer is filed must follow the requirements of a post-answer default judgment. Rabb Int'l, 346 S.W.3d at 210 ("[A] document filed in court by a non-attorney purportedly on behalf of a corporation is defective but not void, and may be effective for certain purposes, such as avoiding a default judgment and perfecting appeal"); Dehoyos, 183 S.W.3d at 715-17 (Because "[c]ourts have repeatedly held that due process requires that a party be given notice of a lawsuit and an opportunity to be heard" and defendant-corporation filed pro se letter with court that constituted answer, defendant was entitled to notice and hearing on post-answer default judgment); Beasley, 109 S.W.3d at 899 n.5 ("An answer filed on behalf of a corporation by a non-attorney is sufficient to prevent a default judgment."); Wuxi Taihu, 2014 WL 6792019, at *9 ("non-attorney's answer on behalf of a corporation, although defective, prevents the trial court from granting a default judgment against the corporation")
Story cites to three cases to support his argument that the trial court did not err in striking Maxx Builders's pro se answer. But that is not the issue; the trial court could not enter a default judgment without giving notice and a hearing because Maxx Builders filed an answer—albeit a defective one—and a defective answer precludes entry of a no-answer default judgment. --------
This court in Wuxi Taihu discussed the split in other jurisdictions and noted that some state courts hold that any action taken by a non-lawyer for a corporation "constitutes a nullity, and renders the proceedings void ab initio." 2014 WL 6792019, at *8 (internal citations and quotation marks omitted). But the majority of jurisdictions, including Texas, have adopted the "curable defect" approach, which "hold[s] that an action taken by a non-attorney on behalf of a corporation presents a curable defect." Id. This approach "liberally construe[s] the rules of civil procedure [to] emphasize substance over form to advance the policy favoring resolution of cases on the merits." Id.
The "curable defect" approach to post-answer defaults was applied to an answer filed for a corporation by a non-attorney in Beasley. 109 S.W.3d at 899. In that case, an officer of a defendant-corporation filed a pro se answer and received notice of a hearing on a motion to strike its answer but had no notice that the trial court could enter a default judgment against it at that hearing. Id. The Dallas court held that, because "well-settled law forbids entering a default judgment against a defendant that has received no notice of the hearing on a motion for default judgment," an "answer filed on behalf of a corporation by a non-attorney is sufficient to prevent a default judgment" Id. at 899 & n.5. "Texas law does not favor striking defective pleadings without giving an opportunity to replead. . . . Texas law states the trial court must afford the party who filed the defective pleading an opportunity to cure the defect by repleading." Id. at 898. The Dallas court concluded that the trial court erred by "striking the defective answer" and by not allowing the defendant "a reasonable time to remedy the defect" before entering a default judgment. Id. at 899.
Story attempts to distinguish Beasley by arguing that it considered the "narrow question . . . of whether, after striking the defective answer, the trial court abused its discretion by not allowing the offending party any time to remedy the defect." Story argues that Maxx Builders had the opportunity to hire a lawyer and was put on notice that if it did not do so, "the Court will strike [its] pleadings." But this argument ignores the "well-settled rule" in Texas that a defendant is entitled to notice and a hearing on a post-answer default judgment—even if entered after the trial court strikes a defective answer. See id. at 899.
Although Maxx Builders's answer was properly stricken because it was filed by a non-lawyer corporate officer, the default judgment against it is a post-answer default judgment because Maxx Builders filed at least some form of answer in the trial court. Maxx Builders did not receive notice of a hearing on Story's motion for post-answer default judgment because the trial court granted the default motion on the day it was filed, July 7, rather than waiting for the date set forth in the notice of hearing, July 28.
Story argues that Maxx Builders had notice of the order requiring it to hire an attorney by June 26 and Maxx Builders "rejected the opportunity and effectively ignored the case." While it is true that Maxx Builders had notice of that order, that order only stated that Maxx Builders's answer would be stricken—not that the trial court would enter default judgment against it. Nor did Maxx Builders receive notice or a hearing before the trial court ruled on Story's motion for post-answer default judgment.
We sustain Maxx Builders's first issue. Because Maxx Builders did not have notice of a hearing on Story's motion for default judgment, we do not reach the issues of whether Maxx Builders had sufficient notice of the hearing on liquidated damages or whether the evidence was sufficient to support Story's damages claims.
Conclusion
We reverse the trial court's order granting Story's motion for default judgment and remand to the trial court.
Harvey Brown
Justice Panel consists of Justices Bland, Brown, and Lloyd.