Murphy-Telegraph Bldg. v. Detroit Thermal, Inc.

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MURPHY-TELEGRAPH BUILDING, LLC, Plaintiff-Appellee, v. DETROIT THERMAL, INC, Defendant-Appellant.

No. 364900

Court of Appeals of Michigan

February 1, 2024

UNPUBLISHED

Wayne Circuit Court LC No. 22-008171-NZ.

Before: GADOLA, P.J., and CAVANAGH and K. F. KELLY, JJ.

PER CURIAM.

Defendant Detroit Thermal, LLC, appeals as of right the trial court's order denying defendant's motion to set aside the default judgment awarded to plaintiff, Murphy-Telegraph Building, LLC. We vacate the trial court's order and remand to the trial court for further proceedings.

I. FACTS

Plaintiff owns property at 151 and 155 West Congress in Detroit, known as the "MurphyTelegraph Building" (the building). Defendant owns and operates steam lines near the building; in 2015, defendant rebuilt approximately 120 feet of steam piping near the building.

On July 8, 2022, plaintiff initiated this lawsuit alleging that defendant's negligent operation of its steam piping caused steam to escape from the manhole covers and damage the building, and that the steam piping also significantly elevated the temperature of the building's basement wall further damaging the building. In its complaint, plaintiff alleged in part that "the damage and negligent acts as set forth herein are ongoing, constantly occurring and recurring since Plaintiff has owned the buildings in question and started when Detroit Thermal made street repairs in 2015 and the occurrences and negligent acts and damages continue through today."

The parties do not dispute that plaintiff properly served defendant with the complaint by personal service to defendant's resident agent on July 19, 2022. Plaintiff also mailed a courtesy copy of the complaint to defendant's business address, and emailed a copy to defendant using the contacts information on defendant's business website. The trial court found that service of the summons and complaint was proper.

Defendant failed to answer the complaint. Plaintiff requested entry of a default on August 22, 2022, which was entered by the trial court clerk September 2, 2022. Plaintiff mailed a copy of the entered default to defendant's resident agent. On October 18, 2022, plaintiff moved for entry of a default judgment in the amount of $488,220, plus interest, costs, and attorney fees. The motion included as exhibits two reports regarding the condition of the building; one report concluded that damage to the building was caused by steam from the steam lines, while the other report concluded that no damage was caused by steam from the steam lines, but instead that any damage to the building was caused by environmental factors and lack of maintenance. In its motion, however, plaintiff incorrectly suggested that both reports concluded that damage to the building was caused by escaping steam.

The trial court held a hearing on the motion for default judgment on October 28, 2022. The record indicates that plaintiff properly served a notice of hearing upon defendant's resident agent. At the conclusion of the hearing, the trial court found that defendant had failed to respond to the complaint. The trial court also found adequate proof of damages and entered a judgment in favor of plaintiff in the amount of $488,595.

On November 21, 2022, defendant moved to set aside the default judgment. Attached to the motion was the affidavit of Todd Grzech, defendant's Chief Executive Officer (CEO), explaining that for the preceding year his attention had been focused on the sale of defendant's business, which resulted in him traveling extensively, that he was away from defendant's Detroit office throughout October 2022 for that reason, and that he did not learn of the lawsuit until October 21, 2022. According to his affidavit, Grzech "resolved to take care of it as soon as I returned to the office in early November," but "[b]efore I had the opportunity to contact legal counsel, I received notice on November 8, 2022 that a judgment had been entered," and thereafter contacted legal counsel.

The motion to set aside the default also was supported by a second affidavit of Todd Grzech asserting that defendant had a meritorious defense. Specifically, Grzech asserted that defendant did not cause the damage to the building and that "[a]ny damage Plaintiff has incurred, if any, was caused by the elements, natural aging of the Subject Property, and/or Plaintiff's failure to maintain the property." The affidavit also asserted that plaintiff had not demonstrated damages in the amount sought.

On January 27, 2023, the trial court held a hearing on the motion to set aside the default judgment, at the conclusion of which the trial court denied the motion. The trial court specifically found that service of the complaint and summons was proper, that defendant's CEO received the summons and complaint but did not "become aware" of it until October 21, 2022, after the period for timely responding to the complaint, and that defendant had not established good cause to set aside the judgment. The trial court further found that defendant failed to present a meritorious defense that would warrant setting aside the default judgment, and that sufficient evidence was presented to support the damages awarded. Defendant now appeals.

II. DISCUSSION

Defendant contends that the trial court erred by denying its motion to set aside the default judgment. We review a trial court's decision to grant or deny a motion to set aside a default judgment for an abuse of discretion. Lawrence M. Clarke, Inc v Richco Constr, Inc, 489 Mich. 265, 272; 803 N.W.2d 151 (2011). A trial court abuses its discretion when its decision is outside the range of principled outcomes, Farm Bureau Ins Co v TNT Equip, Inc, 328 Mich.App. 667, 672; 939 N.W.2d 738 (2019), and also when it makes an error of law, In re Nikooyi, 341 Mich.App. 490, 494; 991 N.W.2d 619 (2022). We review de novo the trial court's interpretation and application of court rules. Henry v Dow Chem Co, 484 Mich. 483, 495; 772 N.W.2d 301 (2009). We review for clear error the trial court's determination regarding the amount of damages awarded. Jackson v Bulk AG Innovations, LLC, 342 Mich.App. 19, 24; 993 N.W.2d 11 (2022).

Michigan's court rules confer upon the trial court the authority to enter a default and a default judgment. Henry v Prusak, 229 Mich.App. 162, 168; 582 N.W.2d 193 (1998). MCR 2.108(A)(1) provides that "[a] defendant must serve and file an answer or take other action permitted by law or these rules within 21 days after being served with the summons and a copy of the complaint in Michigan in the manner provided in MCR 2.105(A)(1)." MCR 2.603(A)(1) requires the trial court clerk to enter a default "[i]f a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend as provided by these rules...." Huntington Nat'l Bank v Ristich, 292 Mich.App. 376, 381; 808 N.W.2d 511 (2011).

In this case, the parties do not dispute that plaintiff properly served defendant with the complaint by personal service to defendant's resident agent. The parties also do not dispute that defendant failed to answer the complaint. Because defendant "failed to plead or otherwise defend as provided by these rules," MCR 2.603(A)(1) required the trial court clerk to enter a default. See Huntington Nat'l Bank, 292 Mich.App. at 381. The trial court then entered the default judgment awarding plaintiff the amount sought.

Defendant thereafter moved to set aside the default judgment. Under MCR 2.603(D)(1), "[a] motion to set aside a default or a default judgment . . . shall be granted only if good cause is shown and a statement of facts showing a meritorious defense, verified in the manner prescribed by MCR 1.109(D)(3), is filed." See Epps v 4 Quarters Restoration, LLC, 498 Mich. 518, 554; 872 N.W.2d 412 (2015). Although the law favors a determination of a claim on the merits, Alken-Ziegler, Inc v Waterbury Headers Corp, 461 Mich. 219, 229; 600 N.W.2d 638 (1999), and disfavors defaults and default judgments, nonetheless, the law also disfavors setting aside a properly entered default and default judgment, Saffian v Simmons, 477 Mich. 8, 15; 727 N.W.2d 132 (2007).

A. GOOD CAUSE

The party moving to set aside a default judgment bears the burden of demonstrating good cause and a meritorious defense. Id. at 14. Although good cause and a meritorious defense are distinct requirements, a lesser showing of good cause is required if the moving party demonstrates a strong meritorious defense. Alken-Ziegler, Inc, 461 Mich. at 233-234.

To demonstrate good cause to set aside a default and default judgment, the moving party must show either "(1) a substantial defect or irregularity in the proceedings upon which the default was based, (2) a reasonable excuse for failure to comply with the requirements which created the default, or (3) some other reason showing that manifest injustice would result from permitting the default to stand." Shawl v Spence Bros, Inc, 280 Mich.App. 213, 221; 760 N.W.2d 674 (2008); but see Brooks Williamson &Assoc, Inc v Mayflower Constr Co, 308 Mich.App. 18, 25; 863 N.W.2d 333 (2014) (Good cause may be established by demonstrating "a procedural irregularity or defect or a reasonable excuse for failing to comply with the requirements that led to the default judgment") (quotation marks and citation omitted). Under Shawl, the factors relevant to whether a party has shown good cause are:

(1) whether the party completely failed to respond or simply missed the deadline to file;

(2) if the party simply missed the deadline to file, how long after the deadline the filing occurred;

(3) the duration between entry of the default judgment and the filing of the motion to set aside the judgment;

(4) whether there was defective process or

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