Company fails in bid to have default judgment set aside

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The S.C. Supreme Court has upheld the rejection of a company’s effort to set aside a judgment because the company failed to present what the court called “a meritorious defense” when it intervened in a case in 2005.

The company, New Prime, Inc., intervened in a lawsuit brought by Ann and Steve McClurg against New Prime employee Harrell Wayne Deaton. Deaton was driving New Prime’s truck when he allegedly caused an accident in 2002 that injured Ann McClurg. Deaton never responded to the McClurgs’ lawsuit. Faced with possibly having to pay an $800,000 default judgment the McClurgs won in the suit, New Prime moved to set aside the judgment.

The company argued that it was never informed of the lawsuit by the McClurgs’ lawyer, Don Moorhead of Greenville, and didn’t find out about it until after the judgment had been entered against Deaton. Greenville County Circuit Court Judge Edward W. Miller allowed New Prime to intervene in the case, but he denied New Prime’s motion to set aside the default judgment because it failed to raise a meritorious defense.

Raising a meritorious defense is one of several requirements for setting aside a default judgment under Rule 60(b) of the S.C. Rules of Civil Procedure.

New Prime appealed Judge Miller’s order. The Court of Appeals agreed with New Prime in a 2008 opinion that it was taken by surprise when Moorhead filed the lawsuit against Deaton and failed to notify New Prime or its insurer, “thereby meeting the surprise or excusable neglect requirement under Rule 60(b)(1).”

The court also expressed “serious concerns” with the fact that Moorhead failed to notify New Prime’s insurer of the lawsuit. Moorhead had been negotiating a settlement with the insurer, Zurich North America, for close to three years before filing the lawsuit against Deaton.

But the Court of Appeals upheld Judge Miller’s ruling that New Prime could not set aside the default judgment because it failed to raise a meritorious defense when it intervened in the case. The court defined a meritorious defense as “one which raises a question of law deserving of some investigation and discussion or a real controversy as to real facts arising from conflicting or doubtful evidence.”

The Supreme Court granted New Prime’s certiorari petition and upheld the Court of Appeals’ ruling in a Sept. 6 opinion, agreeing that New Prime didn’t raise the issue of a meritorious defense in Circuit Court and failed to preserve the issue for appeal.

New Prime had pinned its hopes on a damages issue. It argued in Circuit Court that the McClurgs had demanded only $170,000 to settle the case but then claimed damages of over $1million in the lawsuit. Ultimately the court awarded $750,000 to Ann McClurg for her injuries and $50,000 to Steve McClurg for loss of consortium.

Moorhead said the damages issue wasn’t raised by New Prime as a meritorious defense. “They argued that the size of the default judgment was out of line,” Moorhead said. An objection to damages has never been recognized as a meritorious defense in a Rule 60(b) motion.

New Prime’s attorney, Stuart Mauney of Greenville, said he was disappointed that the Supreme Court majority declined to address the damages issue in McClurg. In a dissenting opinion, Chief Justice Jean Hoefer Toal wrote that New Prime had raised the issue of a meritorious defense, although it may have failed to use what she dubbed “the magic words, ‘meritorious defense[.]’” She would have ruled that New Prime’s argument relating to the amount of damages satisfied the meritorious defense requirement under Rule 60(b).

Columbia lawyer Cynthia Barrier Patterson, who represented the McClurgs on appeal, said an expansion of the meaning of “meritorious defense” to include arguments over damages would open the proverbial floodgates. “How broad should Rule 60 be?” she asked. “If we want any finality to judgments, this was not the right case for Rule 60 to be expanded.”

Mauney said New Prime is reviewing its options, which include a possible petition for rehearing at the Supreme Court. He said litigation is ongoing in federal court to determine whether there is any insurance coverage or whether New Prime will have to pay the entire judgment itself.

Opinion Brief

Case name: McClurg v. Deaton (Lawyers Weekly No. 010-139-11, 11 pp.)

Court: S.C. Supreme Court

Judges: Justice Costa M. Pleicones; Justice Donald W. Beatty, Justice John W. Kittredge and Acting Justice John H. Waller, concurring; Chief Justice Jean Hoefer Toal, dissenting

Date: Sept. 6, 2011

Petitioners’ (Deaton and New Prime’s) attorneys: C. Mitchell Brown, William C. Wood, A. Mattison Bogan and Michael J. Anzelmo, all of Nelson Mullins Riley & Scarborough (Columbia); C. Stuart Mauney, Phillip E. Reeves and Jennifer D. Eubanks, all of Gallivan, White & Boyd (Greenville); and Samuel W. Outten and Sandi R. Wilson of Womble Carlyle Sandridge & Rice (Greenville)

Respondent’s (McClurg’s) attorneys: Cynthia Barrier Patterson (Columbia) and Donald R. Moorhead (Greenville)

Issue: Did the Court of Appeals err when it upheld the Circuit Court’s denial of a motion to set aside a default judgment under Rule 60(b) SCRCP because the intervening party failed to raise a meritorious defense?

Holding: No, the intervening party failed to raise a meritorious defense in Circuit Court and denial of its motion to set aside the default judgment under Rule 60(b) SCRCP was proper.