Limitations on Virginia Default Judgments: Supreme Court ruling in AME Financial Corp. v. Kiritsis

On March 4, 2011 Virginia Supreme Court detailed parameters for which a party can be relieved of default judgment. Additionally the Supreme Court took the time to define the amorphous concept of "good cause." In short, if you wish to contest a claim please remember to properly respond when you receive service of the initial complaint.

The written opinion in AME Financial Corp. v. Kiritsis can be found at:

http://www.courts.state.va.us/opinions/opnscvwp/1091244.pdf

What is default judgment?

Default judgment is a form of judgment entered when the opposing party fails to respond to an initial pleading. In most instances, in Virginia Circuit Courts a party receiving a copy of the complaint via proper service of process will have 21 days to file responsive pleadings. This requirement will almost always be stated clearly in a summons attached to the initial complaint served on the defendant. If the defendant then fails to file proper responsive pleadings it is possible for a circuit court to enter default judgment against that defendant. It is important to note that upon failure to file any pleadings within the proper timeframe the defendant is considered in default, but a default judgment will not be entered until the plaintiff files, and the court hears, a motion for default judgment. Additionally, it is possible for a default judgment to be entered without damages being set, such damages to be determined at a later evidentiary hearing.

AME Financial Corp. v. Kiritsis - how not to respond to a Complaint

The defendant in AME Financial Corp. v. Kiritsis, AME Financial Corp. [“AME”], made a surprising series of blunders in attempting to respond to a complaint served upon it by the plaintiff, Kiritsis.  On May 24, 2006 the complaint was served on AME's Virginia registered agent. On June 1, 2006 an officer of AMD contacted counsel for the plaintiff, at which point plaintiff's counsel allegedly informed the officer that AME would need to file a response to the complaint signed by a Virginia licensed attorney. Under Virginia law, corporations may only be represented by an attorney in court. On June 14, 2006 AME filed an answer to the complaint signed by a corporate officer of AME.  The plaintiff then filed a motion for default judgment and served it at least once on AME via US mail. On July 21, 2006 a default judgment hearing was held and default judgment was entered against AME.  AME appears to have then hired a Virginia attorney who filed a motion requesting leave for permission to file late pleadings on July 31, 2006. AME did not file a motion for relief from the default judgment until September 26, 2006.

In ruling upon the motion for relief from default judgment the Circuit Court Judge denied relief from default judgment. Upon a motion for reconsideration a different Circuit Court Judge denied relief from default judgment. Two Circuit Court Judges for the Circuit Court of Chesterfield County ruled in this case, Judge Cleo E. Powell and Judge Frederick G. Rockwell, III. It is not clear from the Supreme Court decision which of the two judges made each particular ruling.

AME, as an active participant in the litigation still contested and was allowed to present evidence contesting the calculation of damages. Although AME appealed another issue, the primary issue addressed by the Supreme Court was whether the Circuit Court Judges abused their discretion by refusing to grant relief from default judgment.

Virginia Supreme Court’s rulings

Two important elements regarding relief from the entry of default judgment were determined by the Virginia Supreme Court in this case. First, the Supreme Court clearly stated the standard of review of judges’ decisions to deny relief from default judgment. Second, the Supreme Court laid out the parameters for determining good cause for relief from default judgment.

Relief from default judgment is allowed for good cause shown under Virginia rule of the Supreme Court 3:19(b).  On pages 10 to 12 of the decision the Supreme Court stated that a Circuit Court Judge’s power to grant relief from a default judgment rests within the sound discretion of the trial court. In other words, the standard of review is for abuse of discretion. In layman's terms the trial judge must have made a very serious error in granting or denying relief from default judgment in order for an appellate court to overturn the trial court's decision.

More importantly, the Supreme Court of Virginia detailed the standard for good cause for motions for relief from default judgment. The court stated a number of things that constitute good cause, for example:

"lack of prejudice to the opposing party, the good faith of the moving party, the promptness of the moving party in responding to the opposing parties’ decision to progress with the cause, the existence of a meritorious claim or substantial defense, the existence of legitimate extenuating circumstances, and justified belief that the suit has been abandoned or will be allowed to remain dormant on the docket.”  Opinion p. 10 (citations omitted).

Under Virginia law the concept of "good cause" is quite amorphous. Parties now have a clear consolidated list of certain factors that can be evaluated in a good cause analysis.

Analyzing the above-referenced facts, reiterating the abuse of discretion standard and searching for clear indications of good cause, the Supreme Court determined the Circuit Court Judges did not abuse her discretion in refusing to relieve AME from default, and affirmed the rulings of the trial court.

What does this mean for future litigants?

First, litigants, especially corporations, must respond properly to complaints. Initial service of a lawsuit is not the time to be cheap about hiring professional litigation advice and assistance. Second, litigants should learn from this case that default judgment is neither a rock solid victory nor is it simple to overturn. The reality lies somewhere in between. Third, litigants looking for decisive case law on the definition of good cause now have a written opinion upon on which to rely.  This opinion, seemingly about a boring trivial procedural subject, will have substantial bearing on the numerous cases where default judgment is at issue in every Circuit Court for years to come.