Opinion
No. COA04-645
Filed 17 May 2005 This case not for publication
Appeal by defendant Wright from order entered 7 October 2003 by Judge Albert Diaz and order entered 21 April 2004 by Judge David S. Cayer in Mecklenburg County Superior Court. Heard in the Court of Appeals 31 January 2005.
Wishart, Norris, Henninger, Pittman, P.A., by June K. Allison, David C. Boggs, and David B. Hawley, for plaintiff appellee and third party defendants. Horack, Talley, Pharr, Lowndes, P.A., by Henry N. Pharr III, and John W. Bowers, for James E. Wright defendant appellant.
Mecklenburg County, No. 02 CVS 19415.
Defendant James Wright ("Wright") appeals from an order which denied his motion to set aside an entry of default and the subsequent default judgment entered against him. Plaintiff Signature Distribution Services, Inc. ("Signature") is involved in the business of warehousing and distribution, specializing in overflow storage. Wright entered into an employment agreement with Signature and accepted a position as Signature's Director of Operations. Wright's job responsibilities included assisting in the bid process and pricing accounts. Prior to his last day of work at Signature, Wright formed Carolina's Choice Distribution ("Carolina's Choice"), a new company which would also work in the business of warehousing and distribution.
Signature filed a complaint against several defendants, including Wright, Carolina's Choice, and Wright's general partners at Carolina's Choice. The complaint accused Wright of breach of contract and breach of fiduciary duty. It also alleged a number of civil claims against all defendants including misappropriation of trade secrets, tortuous interference with contracts and prospective contracts, conspiracy regarding misappropriation of trade secrets, and unfair and deceptive trade practices. The complaint requested damages and costs, as well as a temporary restraining order and a preliminary injunction.
Wright was served with the complaint on 1 November 2002, and the parties have stipulated that service was proper. On 26 June 2003, plaintiff filed a Motion for Entry of Default against all defendants. The trial court granted that entry of default on 30 June 2003. On 1 October 2003, Wright filed a Motion to Set Aside the Entry of Default. Therefore, the delay between the service of the complaint and Wright's first filing was approximately eleven months.
A hearing on the Motion to Set Aside the Entry of Default occurred on 2 October 2003. Subsequently, the trial court entered an order indicating that Wright did not show good cause to set aside the entry of default.
A hearing on damages took place on 17 December 2003. The trial court entered compensatory damages against Wright in the amount of $326,200.00. The trial court trebled the damages pursuant to Chapter 75 of the North Carolina General Statutes. Wright appeals.
On appeal, Wright argues that the trial court erred by (1) denying his motion to set aside the entry of default, (2) entering a default judgment against him, (3) excluding evidence during the damages hearing, and (4) determining that Signature proved its damages with a reasonable certainty. We disagree and affirm the decision of the trial court.
I. Motion to Set Aside Entry of Default
Wright argues that the trial court erred by denying his motion to set aside the entry of default. We disagree. Pursuant to N.C. Gen. Stat. § 1A-1, Rule 55(d) (2003), the trial court may set aside an entry of default "[f]or good cause shown." Our Supreme Court has explained that
[i]n moving for relief of judgment pursuant to Rule 55(d), the burden is on the defendant, as the defaulting party, not to refute the allegations of plaintiff's complaint, nor to show the existence of factual issues as in summary judgment, but to show good cause why he should be allowed to file answer to plaintiff's complaint.
Bell v. Martin, 299 N.C. 715, 721, 264 S.E.2d 101, 105 (1980). Whether or not the movant has carried the burden of establishing good cause to set aside the entry of default depends upon the circumstances of each case. Automotive Equipment Distributors, Inc. v. Petroleum Equipment Service, Inc., 87 N.C. App. 606, 608, 361 S.E.2d 895, 896 (1987). Default judgments are not favored in the law. Id. However,
it is also true that rules which require responsive pleadings within a limited time serve important social goals, and a party should not be permitted to flout them with impunity.
Howell v. Haliburton, 22 N.C. App. 40, 42, 205 S.E.2d 617, 619 (1974).
"Whether good cause exists to set aside an entry of default pursuant to Rule 55(d) is a matter addressed to the sound discretion of the trial court[.]" Id. at 41, 205 S.E.2d at 618. The trial court's "ruling will not be disturbed unless a clear abuse of discretion is shown[.]" Id. at 42, 205 S.E.2d at 618. A trial court abuses its discretion when it takes actions that are manifestly unsupported by reason. Williams v. Jennette, 77 N.C. App. 283, 287, 335 S.E.2d 191, 194 (1985).
Our courts use three factors in conducting this analysis:
(1) was defendant diligent in pursuit of this matter; (2) did plaintiff suffer any harm by virtue of the delay; and (3) would defendant suffer a grave injustice by being unable to defend the action.
Automotive Equipment Distributors, Inc., 87 N.C. App. at 608, 361 S.E.2d at 896-97.
In the present case, defendant was not diligent in pursuit of this matter. Defendant was served with the complaint on 1 November 2002 and did not take any action until eleven months later when he filed a Motion to Set Aside an Entry of Default. Wright did not retain counsel to represent him in this matter for over ten months, and he never personally contacted Signature or Signature's counsel. This inaction is particularly puzzling because Signature's lawsuit asserted several claims against Wright and eventually led to a judgment of $987,600.00 being entered against him.
Wright suggests that he was diligent because he lived out of state and relied on statements that a codefendant, Kenneth Davis, made assuring him that Signature was not pursuing the complaint and that the matter was essentially over. Such reliance is misplaced because Davis's interests were adverse to the interests of Wright. Furthermore, the fact that Wright lived out-of-state does not excuse his lack of attentiveness. Wright could have retained an attorney or done more investigating himself to determine whether or not Signature was actually pursuing the lawsuit. With regard to the second factor, it is not clear whether Signature suffered great harm by virtue of the delay. However, Wright's inaction did hinder the efficient resolution of this matter to some degree.
We acknowledge that under the third factor, Wright would suffer harm as a result of not being able to defend the lawsuit because he must now pay $987,600.00 in damages. However, we cannot classify this result as "a grave injustice" in light of Wright's lack of diligence.
For these reasons, the trial court did not abuse its discretion in refusing to set aside the entry of default. We overrule this assignment of error.
II. Entering a Default Judgment
Wright contends that the trial court erred by entering a default judgment against him where such a judgment could lead to inconsistent verdicts. We disagree.
Our Supreme Court considered "whether a final judgment on the merits can be made separately against one defendant who is in default when there are multiple defendants who are alleged to be jointly and severally liable." Harlow v. Voyager Communications V, 348 N.C. 568, 501 S.E.2d 72 (1998) (emphasis added). The Court noted that where a plaintiff alleges joint liability, a default judgment should not be entered against the defaulting defendant if one or more of the defendants do not default. Id. at 570, 501 S.E.2d at 73. The Court further acknowledged that the United States Supreme Court articulated this principle in Frow v. De LaVega, 82 U.S. 552, 21 L. Ed. 60 (1872). Harlow, 348 N.C. at 571, 501 S.E.2d at 74. The Court explained that
the [ Frow] principle does not apply in the present case because defendants have not been alleged as jointly liable, but as jointly and severally liable. The Frow principle should be applied where the defendants have been alleged only as jointly liable. When two or more obligors are alleged jointly, it means that they are "undivided" and "must therefore be prosecuted in a joint action against them all." Black's Law Dictionary 837 (6th ed. 1990). Because the liability cannot be divided, the matter can be decided only in a like manner as to all defendants. Therefore, if one is liable, then all must be liable, and if one is not liable, then all are not liable.
Id.
The Court also clarified why the Frow principle does not apply to joint and several liability:
Where the plaintiff has alleged the defendants to be jointly and severally liable, the Frow principle will not apply because the defendants are not so closely tied that the judgment against each must be consistent. "A liability is said to be joint and several when the creditor may demand payment or sue one or more of the parties to such liability separately, or all of them together at his option." Id. Thus, the matter can be decided individually against one defendant without implicating the liability of other defendants.
Id.
The holding and result in Harlow is applicable to the facts of the present case. As was the case in Harlow, plaintiff has alleged that Wright and the other defendants are jointly and severally liable. Therefore, the Frow principle is not applicable here. We are also aware that joint and several liability is implicated under principles of North Carolina partnership law. "Except as [otherwise] provided . . . all partners are jointly and severally liable for the acts and obligations of the partnership." N.C. Gen. Stat. § 59-45(a) (2003).
Case law has clarified that each partner is jointly and severally liable for a tort committed by one partner in the course of the partnership business, and the injured person may sue all the members of the partnership or any one of them at his election. Dwiggins v. Bus Co., 230 N.C. 234, 237-38, 52 S.E.2d 892, 894 (1949).
Since Signature alleged joint and several liability, we are bound by the North Carolina Supreme Court's decision in Harlow and must conclude that the Frow principle does not apply. We overrule this assignment of error.
III. Evidentiary Rulings
Defendant argues that the trial court erred in excluding some of his evidence in determining the amount of damages. An "[e]ntry of default against a defendant results in all allegations of plaintiff's complaint being deemed admitted against that defendant[.]" Estate of Teel v. Darby, 129 N.C. App. 604, 607, 500 S.E.2d 759, 762 (1998). "[T]hereafter, defendant is prohibited from defending on the merits of the case." Id. Defendant is, however, entitled to a hearing on the issue of damages. Potts v. Howser, 274 N.C. 49, 61, 161 S.E.2d 737, 746 (1968). "The most defendant can accomplish by his evidence on the inquiry is to reduce the recovery to nominal damages." Id. Nominal damages are permissible when an individual has had some legal right invaded, but has sustained no actual loss or other substantial injury. Id. at 61, 161 S.E.2d at 747. Nominal damages are usually "some trifling amount." Id.
Wright contends that the trial court did not allow him to cross-examine witnesses or present evidence that would have shown that Signature did not suffer the damages it alleged in its complaint. This statement is inaccurate because Wright's attorney did cross-examine Signature's witness, Brady Buckley. Additionally, Wright's attorney called two witnesses and conducted direct examination of those witnesses. Therefore, Wright is really contesting the trial judge's rulings on specific evidentiary matters, rather than his broader right to present witnesses and cross-examine his adversary's witnesses.
Wright argues that the trial court erred by sustaining objections based on the best evidence rule. This suggestion is without merit because Wright was the first party to raise an objection on these grounds. During the direct examination of Signature's only witness, Brady Buckley, Signature's attorney asked Buckley to describe the details of the contract with Concrete Sealants. Wright's attorney objected immediately and stated:
Your honor, I'm going to object if there is a written contract. That is the best evidence of that. I would argue that that needs to be produced rather than the witness testifying about what he believes the contract says.
In response, the trial judge sustained the objection and ruled in a consistent manner throughout the proceedings. Since he was the first party to invoke the best evidence rule, Wright cannot argue that the exclusion of evidence based on that rule is erroneous. See Frugard v. Pritchard, 338 N.C. 508, 512, 450 S.E.2d 744, 746 (1994) ("A party may not complain of action which he induced. . . . The defendants cannot . . . complain of the exclusion of the evidence when they objected to its admission.").
Wright's remaining objections dealt with the exclusion of evidence related to the bid process with Black Decker and why plaintiff lost that account. However, Wright was only permitted to offer evidence of damages; he was not entitled to defend the case on the merits. We believe that the trial judge was correct in excluding this evidence because defendant did not show that it was related to the issue of damages. We overrule this assignment of error.
IV. Proving Damages
Wright argues that the trial court erred in entering a default judgment against him because there was inadequate evidence of damages to support the trial court's ruling. "The burden of proving damages is on the party seeking them." Olivetti Corp. v. Ames Business Systems, Inc., 319 N.C. 534, 547, 356 S.E.2d 578, 586, reh'g denied, 320 N.C. 639, 360 S.E.2d 92 (1987). "[T]he party seeking damages must show that the amount of damages is based upon a standard that will allow the finder of fact to calculate the amount of damages with reasonable certainty." Id. at 547-48, 356S.E.2d at 586. "[O]ur courts have refused to permit recovery based upon speculative forecasts." Byrd's Lawn Landscaping, Inc. v. Smith, 142 N.C. App. 371, 377, 542 S.E.2d 689, 693 (2001). "While the claiming party must present relevant data providing a basis for a reasonable estimate, proof to an absolute mathematical certainty is not required." State Properties, LLC v. Ray, 155 N.C. App. 65, 76, 574 S.E.2d 180, 188 (2002), disc. review denied, 356 N.C. 694, 577 S.E.2d 889 (2003).
Wright argues that the result in Meares v. Construction Co., 7 N.C. App. 614, 173 S.E.2d 593 (1970) is controlling. In Meares, a subcontractor was to install sprinkler systems in buildings being constructed by the general contractor. Id. at 615, 173 S.E.2d at 594. Later, the subcontractor sued the general contractor for alleged breaches of contract. Id. at 617-18, 173 S.E.2d at 596. With regard to the issue of damages, the subcontractor testified that his lost profits were 20% of each job's total costs. Id. at 621, 173 S.E.2d at 598. The subcontractor also indicated that this was how he always calculated lost profits. Id. This Court held that this presentation of evidence did "not provide an adequate factual basis for the jury to ascertain the measure of damages under the standard of certainty[.]" Id. at 623, 173 S.E.2d at 600. We disagree with defendant's suggestion that Meares is controlling. More recently, this Court has indicated that "there is no bright-line rule in determining what amount of evidence is sufficient to establish lost profits[.]" Smith, 142 N.C. App. at 377, 542 S.E.2d at 693. Instead, our courts evaluate the qualityof evidence on lost profits on a case-by-case basis. Id. at 378, 542 S.E.2d at 693. Therefore, the result in Meares was based on the individual facts and circumstances of that case, and the result there does not necessarily dictate the outcome of the present case.
We also note that Meares is distinguishable from the present case in one key respect. The calculation of profits in Meares was based on an assumption of a general, flat rate of 20% of the overall contract price. In the present case, however, lost profits were based on historical dealings with at least two of the companies. Since variable costs were not a factor, the lost profit calculations in this case were more accurate than the speculative anticipated profits in Meares.
Plaintiff directs our attention to Smith, a case which has facts similar to the present case. In Smith, defendant worked as plaintiff's vice-president and general manager and had access to confidential financial information. Id. at 373, 542 S.E.2d at 691. Defendant terminated his employment with plaintiff, opened a competing business, and used plaintiff's financial information to make lower bids allowing him to take business away from his former employer. Id. Plaintiff alleged lost profits and sought treble damages. Id.
The Smith Court grappled with the sufficiency of the evidence regarding the award of damages. Id. at 377-78, 542 S.E.2d at 693-94. It determined that there was evidence showing the previous business relationship of plaintiff and its customer, Summit Properties. Id. at 378, 542 S.E.2d at 694. Furthermore, "plaintiff offered evidence to show the gross revenues which would have been realized upon the maintenance contracts for each of the eight Summit properties for which defendant subsequently obtained maintenance contracts, and the profit margins which plaintiff would have realized on those revenues." Id. at 378, 542 S.E.2d at 693-94. The Court held that the evidence was sufficient to allow the jury to calculate the costs of plaintiff's damages with reasonable certainty. Id. at 378, 542 S.E.2d at 694.
We believe that a similar result is warranted in the present case. As we have indicated, Signature had a prior relationship with two of the other companies, and variable costs were not a factor. Therefore, there was historical data guiding the assessment of lost profits in this case. Additionally, for all three companies (Concrete Sealants, Black Decker, and Bowco), plaintiff submitted gross revenues and profit margins. This was the same type of evidence that the Smith Court determined to be adequate. We conclude that this evidence was sufficient to allow the trial court to calculate damages with reasonable certainty. This assignment of error is overruled.
After careful consideration, we conclude that the trial court acted properly in denying the motion to set aside an entry of default and in entering default judgment against Wright. The decision is
Affirmed.
Chief Judge MARTIN and Judge ELMORE concur.
Report per Rule 30(e).