Summary
In N.C. Power Co. v. Hamilton, 235 F. 311, court received evidence as to income, operating expenses, taxes, depreciation and amortization, and, in arriving at net, deducted from operating revenue all usual current expenses and taxes, and actual physical depreciation at 3 per cent per annum, and also considered limited life of mining camp and deducted another 10 per cent depreciation for that reason, recognizing that depreciation is cost.
Summary of this case from State v. Tonopah Extension M. Co.Opinion
No. COA11–1218.
2012-07-17
SOUTHLAND DISTRIBUTORS OF NORTH CAROLINA, LLC, Plaintiff, v. Michael A. HAMILTON, Defendant.
Van Winkle, Buck, Wall, Starnes & Davis, P.A., by Esther E. Manheimer, for plaintiff-appellee. FB Jackson & Associates Law Firm, PLLC, by James L. Palmer, for defendant-appellant.
Appeal by defendant from order entered 22 June 2011 by Judge Peter Knight in Henderson County District Court. Heard in the Court of Appeals 21 February 2012. Van Winkle, Buck, Wall, Starnes & Davis, P.A., by Esther E. Manheimer, for plaintiff-appellee. FB Jackson & Associates Law Firm, PLLC, by James L. Palmer, for defendant-appellant.
GEER, Judge.
Defendant Michael A. Hamilton appeals from an order denying his motion pursuant to Rule 60(b) of the North Carolina Rules of Civil Procedure for relief from a judgment entered in favor of plaintiff Southland Distributors of North Carolina, LLC. We agree with defendant that the trial court erred in determining that he failed to demonstrate that he has a meritorious defense. With respect to the second prong under Rule 60(b)—excusable neglect—defendant contends that the trial court erred in not finding excusable neglect when defendant sent plaintiff's counsel a letter specifying his proper mailing address, but plaintiff's counsel nonetheless mailed plaintiff's motion for summary judgment and notice of hearing to an address where defendant did not live.
The trial court, although it chose to make findings of fact and conclusions of law when denying defendant's motion, failed to resolve certain material issues of fact on the question of excusable neglect, including whether plaintiff's counsel had notice of defendant's proper mailing address prior to serving the summary judgment motion and, even if defendant was not properly served, whether he had actual notice of the summary judgment motion and notice of hearing. We must, therefore, remand for further proceedings to fully resolve all material factual issues.
Facts
On 26 July 2007, defendant signed a credit application in order to purchase materials from plaintiff. Under “COMPANY INFORMATION” on the application, defendant wrote “Hamilton, Michael A.” and gave an address of 16 Rosebud Lane, Hendersonville, NC 28739. The application asked the applicant to identify its “business type[ ]” and provided seven options: contractor, wholesaler, commercial, corporation, proprietorship, partnership, and LLC. Defendant put an “X” beside “LLC” and signed the application.
At the end of the document, however, plaintiff also included a “PERSONAL DEBT GUARANTY AGREEMENT” with the following language:
I(we) hereby agree to pay Southland all indebtedness now or hereafter owing by me (us) to said company, whether individually, partnership or corporation. In consideration of Southland extending to the applicant, the undersigned does hereby individually and personally guarantee to Southland Distributors the sum or sums of money as may at anytime [sic] hereafter become due to Southland from the said applicant for material sold to the applicant.
(Original in all caps.) Defendant signed after that paragraph as well.
On 9 March 2009, plaintiff filed an unverified complaint alleging that defendant was liable to it based on the personal guaranty in the amount of $4,060.82, the balance allegedly due on the account created as a result of the credit application. Plaintiff attempted to have defendant personally served with the summons and complaint by the Sheriff's Department using the address on the credit application: 16 Rosebud Lane, Hendersonville, North Carolina 28739. The return of service filed by the deputy sheriff on 12 March 2009 indicated that “per def's grandmother @ listed address defendant lives in Madison County, N.C. @ unknown address. Def not located in Henderson County. No RMS or tax record.”
Plaintiff next sought to have the Sheriff's Department personally serve defendant with an alias and pluries summons at 23 Rosebud Lane, Hendersonville, North Carolina. The deputy sheriff's return of service dated 29 April 2009, filed in the trial court, stated: “Defendant WAS NOT served for the following reason: Def lives in Madison Co. NC and attends Mars Hill College per grandma @ address Given.”
Four months later, plaintiff again sought to have defendant served by the Sheriff's Department, but this time listed both 16 Rosebud Lane and 23 Rosebud Lane as defendant's address. The summons was dated 31 August 2009 and delivered to the Sheriff's Department for service on 1 September 2009. Without, however, waiting to see whether the Sheriff's Department would be successful, plaintiff's counsel, on 2 September 2009, purported to serve defendant with the summons and complaint by certified mail, return receipt requested. Plaintiff's counsel used the 16 Rosebud Lane address.
The affidavit of service, filed in the trial court eight months later on 24 May 2010, does not attach a return receipt. The affidavit asserts that the summons and complaint “were in fact received on September 5, 2009” based on the USPS Track & Confirm Report printed out from the internet. The report, attached to the affidavit, stated that the mailing had been forwarded from Hendersonville, NC to Mars Hill, NC and delivered to an unspecified address in Mars Hill on 5 September 2009 at 12:00 p.m.
The deputy sheriff subsequently filed a return of service with the trial court on 18 September 2009. That return of service stated: “Def not at address given, Def is student at Mars Hill College, in Madison Co. address is: Ivy Ridge Apt 131 Bldg 238 Mars Hill NC.”
On some unidentified date, defendant mailed a letter to plaintiff's counsel, providing his phone number and proper mailing address in Mars Hill. In this letter, defendant noted that he had never authorized others to use his account; that the charges he personally made had been paid in full; that others had charged on the account without his knowledge or authorization; and that plaintiff is attempting to charge him for materials not ordered by him or authorized by him.
On 25 October 2010, a year after plaintiff's counsel learned that the complaint and summons had been forwarded by the United States Postal Service from 16 Rosebud Lane, Hendersonville to Mars Hill, plaintiff purported to serve defendant with a motion for summary judgment and notice of hearing for 3 December 2010 by mail addressed to defendant at 16 Rosebud Lane, Hendersonville, NC 28739. The record contains no information regarding what happened to that mailing.
In support of the motion for summary judgment, plaintiff filed the affidavit of Chris Conoley, General Manager for plaintiff. With respect to plaintiff's claims, Mr. Conoley stated only:
2. That in my capacity as General Manager, I am familiar with the books and records of the Plaintiff.
3. That I have received a copy of and have read the foregoing Complaint on behalf [of] the Plaintiff, that the information contained in the Complaint has been compiled from company records and information provided by authorized employees, and that said Complaint is correct and true to the best of my knowledge and belief.
On 3 December 2010, the trial court entered an order granting plaintiff summary judgment against defendant and awarding plaintiff $4,060.82 in damages plus interest and costs. Apparently, defendant did not attend the summary judgment hearing. Plaintiff's counsel served the order on defendant on 22 December 2010 by mail addressed to Michael A. Hamilton, 16 Rosebud Lane, Hendersonville, North Carolina 28739.
On 11 May 2011, defendant filed a verified motion to set aside the judgment pursuant to Rules 60(b)(1), (3), (4), and (6) of the Rules of Civil Procedure. Defendant argued that plaintiff's affidavit of service, filed eight months after the mailing of the summons and complaint, did not comply with the proof of service requirements of Rule 4 of the Rules of Civil Procedure because it did not attach a return receipt. Defendant, however, acknowledged that he received the complaint in September 2009 and claimed he sent a two-page response to plaintiff's attorney with his actual address and telephone number included.
Defendant's motion argued that “[d]espite the mail being forwarded from Hendersonville to Mars Hill, and despite notations on the back of the March 2009 summons, the April 2009 summons, and the August 31, 2009 summons, and the [Defendant's] own letter to Plaintiff's counsel that the Defendant was living in Mars Hill and not Hendersonville, the Plaintiff sent the Notice of Hearing for the December 3rd summary judgment court date to 16 Rosebud Lane, Hendersonville, NC.” The verified motion noted that defendant has never received the summary judgment order and had never received anything from plaintiff at his proper mailing address until plaintiff twice served him by mail with the Notice of Rights to Have Exemptions on 2 May 2011.
The verified motion further stated that defendant had not resided at 16 or 23 Rosebud Lane, Hendersonville since approximately August 2007. The motion asserted that those addresses are not listed on defendant's driver's license, and he does not use the addresses as a mailing address.
Defendant also claimed to have a meritorious defense:
The Defendant has a meritorious defense to the complaint in that the charges that are alleged to have been made on the account were made by a third party (Robert Corbeil) [sic], who was not authorized or permitted by the Defendant to make charge [sic], and this was known to those agents and employees of Southland, who allowed, either intentionally or negligently, the third party to charge them to the Defendant's account.
The motion attached a copy of the letter defendant sent to plaintiff's counsel. That letter stated that no other individuals were authorized to use the account, that all authorized charges were paid in full, and that plaintiff had allowed defendant's uncle and aunt to use his account for their business when they were not authorized to do so.
The trial court denied defendant's Rule 60(b) motion on 22 June 2011. The trial court found that defendant was served with the summons and complaint on 5 September 2009 and that defendant attempted to file an “Answer,” but due to the lack of an identifying court file number, the “Answer” was not filed in the court's file. The court further found, however, that the “Answer” was received by plaintiff's counsel. The court's order did not specifically identify what document constituted the “Answer,” and no document is identified in the record on appeal as the “Answer.”
The trial court's order stated that the court had reviewed the “Answer” and that the “Answer:”
a. admits the existence of an account with the Plaintiff;
b. admits the existence of the charges described in Plaintiff's Complaint;
c. admits a claim against third-parties, Robert and Jeannette Corbiel; and
d. alleges that Defendant received the Defendant's account statement for the Defendant's account with Plaintiff prior to preparing Defendant's Answer.
Based on these findings, the trial court then concluded that defendant had not shown excusable neglect and had not demonstrated a meritorious defense. The trial court, therefore, denied defendant's Rule 60(b) motion for relief from the summary judgment order. Defendant timely appealed the denial of that order to this Court.
Discussion
While defendant originally moved in the trial court for relief under Rule 60(b)(1), (3), (4), and (6), he relies only on Rule 60(b)(1) on appeal. “A party moving to set aside a judgment under Rule 60(b)(1) must show not only one of the grounds listed above [—mistake, inadvertence, surprise, or excusable neglect—] but also the existence of a meritorious defense [.]” Baker v. Baker, 115 N.C.App. 337, 340, 444 S.E.2d 478, 480 (1994).
Defendant first contends that the trial court erred in concluding that he did not show excusable neglect. Defendant argues that due to plaintiff's counsel mailing the summary judgment motion and notice of hearing to the incorrect address, he had no notice of the summary judgment hearing and, therefore, could not present a defense.
“[W]hether excusable neglect has been shown is a question of law—not of fact. Based on the facts found by the trial court, an appellate court must determine, as a matter of law, whether defendant's actions constitute excusable neglect.” Thomas M. McInnis & Assocs. v. Hall, 318 N.C. 421, 425, 349 S.E.2d 552, 554 (1986) (internal citations omitted). Whether the neglect is excusable or inexcusable depends on the surrounding circumstances and what “ ‘may be reasonably expected of a party.’ “ JMM Plumbing & Utils., Inc. v. Basnight Constr. Co., 169 N.C.App. 199, 202, 609 S.E.2d 487, 490 (2005) (quoting McInnis, 318 N.C. at 425, 349 S.E.2d at 555).
Here, defendant claimed in his verified motion that he sent plaintiff's counsel a letter identifying the address that should be used for service. Although the trial court referenced only the unidentified “Answer” in its order, the parties seem to agree that the “Answer” was the letter sent by defendant to plaintiff's counsel. Assuming, without deciding, that the “Answer” was the letter, the trial court then specifically found that plaintiff's counsel received the letter. That letter set out defendant's actual address—the same address that was included on the 18 September 2009 return of service.
While the trial court found that plaintiff's counsel did receive the answer, the court made no finding regarding the date of receipt. If plaintiff's counsel received the letter prior to October 2010, when he served the motion for summary judgment and notice of hearing, then this Court's opinion in Barnett v. King, 134 N.C.App. 348, 517 S.E.2d 397 (1999), controls. In Barnett, we held:
Where a defendant, especially one acting pro se, provides a mailing address in a document filed in response to a complaint and serves a copy of that filing on opposing counsel, he or she should be able to rely on receiving later service at that address; by the same token, opposing counsel (or a pro se party) may also rely on that address for service of all subsequent process and other communications until a new address is furnished.
Id. at 351, 517 S.E.2d at 400.
“ Barnett stands for the proposition that one party may not serve a second party at its previous address once the second party provides an updated address in a more recent court filing.” J.M. Parker & Sons, Inc. v. William Barber, Inc., ––– N.C.App. ––––, ––––, 704 S.E.2d 64, 67 (2010). See also Brown v. Ellis, 206 N.C.App. 93, 108, 696 S.E.2d 813, 823 (2010) (finding motion for new trial should have been granted because the defendant “had no way of knowing and no reason to know that both his original counsel and the trial court were sending documents to him at an incorrect address”), appeal dismissed and disc. review denied,365 N.C. 209, 709 S.E.2d 928 (2011). Thus, the date that plaintiff's counsel received defendant's letter with defendant's proper address was a material issue that needed to be determined before the court could decide whether defendant showed excusable neglect.
Additionally, the trial court did not make any finding regarding whether plaintiff's counsel had knowledge of defendant's updated address through means other than the letter. It goes without saying that attorneys practicing in our state courts are required to be familiar with North Carolina's Rules of Civil Procedure. Rule 4(c) of the North Carolina Rules of Civil Procedure requires that a summons, when it has been served by a deputy sheriff, “shall be returned immediately to the clerk who issued it, with notation thereon of its service.” If the deputy is not able to serve the summons, then it “shall be returned ... by the officer to the clerk of the court who issued it with notation thereon of its nonservice and the reasons therefor ....“ Id. In this case, the deputy filed three separate returns of service, each stating that defendant did not live at the address on the summons and the last one providing counsel with defendant's actual address in Mars Hill.
The trial court made no finding of fact regarding whether plaintiff's counsel knew about the returns of service and did not consider whether plaintiff's counsel should have known about them. Further, the court made no finding regarding whether plaintiff's counsel made any attempt to identify defendant's address in Mars Hill once he knew that the summons and complaint had been forwarded there.
These are all issues relevant to the question of excusable neglect. See Town of Cary v. Stallings, 97 N.C.App. 484, 486, 389 S.E.2d 143, 144 (1990) (affirming trial court's grant of Rule 60(b) motion where defendant alleged he had not been served, he did not reside at the address correspondence had been sent to, and plaintiff knew defendant did not live there); Laroque v. Laroque, 46 N.C.App. 578, 581, 265 S.E.2d 444, 446 (1980) (reversing trial court's denial of Rule 60(b) motion, noting “that it has long been the practice in this State that when a party to an action does not have counsel, a copy of each calendar on which his action appears calendared for trial is mailed to him at the last address available to the Clerk ” (emphasis added)).
While plaintiff argues that the trial court was not required to make findings of fact because neither party requested findings, the trial court, in this case, exercised its discretion to make specific findings of fact and conclusions of law in denying defendant's motion. Once it chose to do so, it was required to make sufficient findings to support its conclusions of law. Epps v. Duke Univ., Inc., 116 N.C.App. 305, 308, 447 S.E.2d 444, 446 (1994) (“If a court does enter conclusions of law, they must be supported by adequate findings.”).
Plaintiff also argues that, despite the service by mailing to Rosebud Lane, it is possible that defendant did in fact receive the summary judgment motion and notice of hearing. The trial court, however, never addressed that issue. Speculation cannot be a basis for finding no excusable neglect. Before deciding there was no excusable neglect, the trial court should have addressed that factual issue.
Plaintiff contends that, in any event, under Macon v. Edinger, 303 N.C. 274, 278 S.E.2d 256 (1981), service of the summary judgment motion and notice of hearing by mail to the Rosebud address was proper since the summons and complaint had been forwarded from that address and ultimately received by defendant. In Macon, the issue was whether the clerk had properly served a commissioners' report in a partition proceeding under Rule 5(b) of the Rules of Civil Procedure. Id. at 280, 278 S.E.2d at 259. The Court noted that Rule 5(b) requires either personal service or service by mail addressed to the last known address of the party. Id. The Court concluded that the clerk of court had substantially complied with the service requirement based on the clerk's finding of fact that “a copy of the report was mailed by him to respondents at the same address at which they admitted receiving a copy of the decree of confirmation which was mailed to them approximately two weeks later.” Id., 278 S.E.2d at 259–60. The Court noted, however, that it would have been preferable for the clerk, in his findings of fact, to have “tracked the statute and found that the copy was mailed to respondents at ‘their last known address' ....“ Id., 278 S.E.2d at 260.
Macon highlights the problem in the trial court's order in this case. There are no findings in the order that 16 Rosebud Lane was defendant's last known address or that mailing to that address with the potential for forwarding was substantial compliance with Rule 5(b). In Macon, the clerk had found that the parties had in fact received a different document only two weeks later at the address actually used by the clerk in mailing the report. Nothing in Macon suggests that when a prior pleading was successfully forwarded from a particular address a year earlier, then that address may be used a year later for service when, because of the forwarding, counsel knows the address used is not the party's actual mailing address.
In short, the trial court's findings of fact are not adequate for us to determine whether the court properly concluded that defendant had not shown excusable neglect. If, however, the trial court properly found that defendant did not meet the meritorious defense prong of Rule 60(b), then it would be unnecessary to remand for further findings.
On a motion to set aside a judgment, “it is not necessary that a meritorious defense be proved, but only that a prima facie defense exists.” U.S.I.F. Wynnewood Corp. v. Soderquist, 27 N.C.App. 611, 615, 219 S.E.2d 787, 790 (1975). “A meritorious defense by definition is a real or substantial defense on the merits. In determining whether a meritorious defense exists, the trial court, without hearing the facts, merely determines whether the movant has pled, in good faith, a meritorious defense.” PYA/Monarch, Inc. v. Ray Lackey Enters., Inc., 96 N.C.App. 225, 227–28, 385 S.E.2d 170, 171 (1989) (internal citation omitted).
Defendant was sued on his personal guaranty. “A guaranty of payment is an absolute promise to pay the debt of another if the debt is not paid by the principal debtor.” Craftique, Inc. v. Stevens & Co., 321 N.C. 564, 566, 364 S.E.2d 129, 131 (1988). Plaintiff must, therefore, establish that the amount it is seeking from defendant was a debt of the principal debtor. Indeed, the guaranty in this case provided only that defendant guaranteed sums that became “due to Southland from the said applicant for material sold to the applicant.”
Defendant's verified motion and attached letter asserted that the account with plaintiff was paid in full, that he had paid for all materials that he had purchased, and that subsequent charges to his account were not authorized. Defendant further claimed that those charges were for the benefit of his uncle and aunt's business and not for his benefit and that plaintiff negligently or intentionally allowed an unauthorized third party to make charges on his account.
In concluding that defendant had failed to show a meritorious defense, the trial court found the letter admitted the account, the charges to the account, receipt of an account statement, and a claim against third parties. These findings do not, however, take into account defendant's contention that the charges were not authorized, the purchases were not for his benefit, and plaintiff nonetheless negligently or intentionally allowed them. If defendant successfully proves that the charges were not authorized, then there was no debt owed to plaintiff, and nothing due on his guaranty. See Kight v. Harris, 33 N.C.App. 200, 203, 234 S.E.2d 637, 639 (1977) (upholding verdict for defendant in action on account when plaintiff failed to show that goods were sold or delivered to defendant because invoices were signed by individuals not authorized to order or accept goods for defendant). See also Foote & Davies, Inc. v. Arnold Craven, Inc., 72 N.C.App. 591, 595, 324 S.E.2d 889, 892 (1985) (holding principal is liable on contract made by agent with third person only when agent acts within scope of actual authority, when principal ratified unauthorized act, or when agent acts within scope of apparent authority unless third person has notice that agent exceeded actual authority).
Our Supreme Court's decision in Van Hanford v. McSwain, 230 N .C. 229, 53 S.E.2d 84 (1949), is controlling. In Van Hanford, the plaintiffs claimed that they had extended credit to defendant, and they sued to recover for merchandise allegedly sold and charged to that account. The Court reversed the trial court's order denying the defendant's motion to set aside the judgment, holding that defendant had sufficiently set forth a meritorious defense to set aside a judgment for the plaintiffs when his answer admitted that credit had been extended to him, but also alleged that he had paid for all the merchandise he purchased, the transactions at issue in the lawsuit took place after he sold the business, the plaintiffs knew of the sale, and the defendant had no knowledge of the transactions. Id. at 234, 53 S.E.2d at 87.
Van Hanford is materially indistinguishable from this case. See also Dollar v. Tapp, 103 N.C.App. 162, 165, 404 S.E.2d 482, 484 (1991) (holding that defendant sufficiently forecast a meritorious defense under Rule 60(b) when she claimed repayment; whether she could establish that repayment transaction in fact took place was matter “properly to be resolved at a trial on the merits”). While the trial court seemed to focus on the fact that defendant might also have a claim against the third parties, the existence of such a claim does not negate defendant's defense that the charges on his account were not authorized. See Coastal Fed. Credit Union v. Falls, –––N.C.App. ––––, ––––, 718 S.E.2d 192, 197 (2011) (holding in breach of contract dispute that defendants had forecast meritorious defense under Rule 60(b) despite fact defendants appeared to have valid claim against insurance company that would absolve them from liability to plaintiff).
In response, plaintiff contends that defendant personally cannot use any defenses that may have been available to the LLC. As this Court has stated, however, “ ‘[i]n a suit brought on a collateral or continuing guarantee, ... a prima facie case is made when the plaintiff enters proof of the original indebtedness, the debtor's default and the guarantee.’ “ Kimbrell v. Roberts, 186 N.C.App. 68, 78, 650 S.E.2d 444, 450 (2007) (emphasis added) (quoting Mid–City Indus. Supply Co. v. Horwitz, 476 N.E.2d 1271, 1277 (Ill.App.Ct.1985)). If the debtor does not owe the plaintiff, because a transaction was not authorized, we fail to see how the creditor can collect for the unauthorized transaction by suing on a guaranty. Not surprisingly, plaintiff cites no cases in support of its position.
Since defendant has sufficiently forecast a meritorious defense, the issue of excusable neglect must be decided. We, therefore, vacate the order denying the Rule 60(b) motion and remand for further proceedings in accordance with this opinion. We note that the trial court may need to seek additional evidence in the form of affidavits or testimony in order to resolve the factual questions set out above.
Vacated and remanded. Judges McGEE and McCULLOUGH concur.
Report per Rule 30(e).