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Li v. NextGear Capital, Inc.

Court of Appeals of Indiana

December 11, 2019

Jun LI and Jimmy Chung Fai Tam, Appellant-Defendants,[1]
NEXTGEAR CAPITAL, INC., Appellee-Plaintiff.

Page 314

          Appeal from the Hamilton Superior Court, The Honorable William J. Hughes, Judge, The Honorable Darren J. Murphy, Magistrate, Trial Court Cause No. 29D03-1805-CC-4643

         Attorneys for Appellant: Kevin S. Smith, Church, Church, Hittle & Antrim, Fishers, Indiana, Gregory A. Schrage, Church, Church, Hittle & Antrim, Noblesville, Indiana.

         Attorneys for Appellee: David J. Jurkiewicz, Nathan T. Danielson, Bose McKinney & Evans LLP, Indianapolis, Indiana.


         Kirsch, Judge.

         [¶ 1] This case concerns a default judgment entered against Jun Li ("Li") for failure to answer or respond to a complaint filed in Hamilton County, Indiana by NextGear Capital, Inc. ("NextGear") against Li, Li’s former business partner, Jimmy Chung Fai Tam ("Tam"), and their business, No Credit Check Auto Sales, Inc. ("Dealership"), all based in California. NextGear’s complaint alleged default on a promissory note guaranteed by Li and Tam under which NextGear loaned money to Dealership. After NextGear did not receive responses to its complaint, it filed a motion for default judgment as to Li and Tam, which the trial court granted. Li and Tam filed a motion to set aside the default judgment, which the trial court granted as to Tam but not as to Li. Li appeals, raising the following dispositive issue for our review: whether the trial court abused its discretion in not setting aside the default judgment against him because relief should have been granted under Indiana Trial Rule 60(B)(1) for mistake, surprise, or excusable neglect.

          [¶ 2] We reverse and remand.

         Facts and Procedural History[2]

          [¶ 3] Dealership was a California corporation with its principal place of business in Hayward, California. Appellant’s App. Vol. II at 9. Tam and Li, who were business partners in Dealership, are individuals residing in California. Id. at 98. NextGear is a Delaware corporation with its principal place of business in Hamilton County, Indiana. Id. at 9.

          [¶ 4] On September 30, 2013, Dealership and NextGear entered into a Demand Promissory Note and Loan and Security Agreement ("the Note"), under which NextGear loaned money to Dealership and took a security interest in Dealership’s assets, including Dealership’s automobile inventory. Id. at 10, 17-33. The Note set forth the terms upon which NextGear extended to Dealership a credit line in the original maximum principal sum of $450,000.00. Id. at 17-32. Tam signed the Note on behalf of Dealership as Dealership’s President, and Li signed it as Dealership’s Vice President. Id. at 28. Tam and Li also each executed individual guaranties on the Note. Id. at 10, 53-63. The Note was subsequently amended to increase the amount of Dealership’s credit line. Id. at 48, 50.

          [¶ 5] Not long after executing the Note and his individual guaranty, Li ceased having any relationship with the operation of Dealership, and Tam assumed individual control thereof. Tr. at 29. Other than the complaint and summons he received related to this lawsuit, Li never received any correspondence or communication from NextGear after he ceased involvement in Dealership. Id. at 29-30.

          [¶ 6] Over a period of time, NextGear advanced funds to Dealership for the purchase of inventory that would serve as collateral pursuant to the terms of the Note. Appellant’s App. Vol. II at 99. The Note detailed when Dealership was required to repay the amounts advanced by NextGear, as well as the timing and amounts of required interest payments and principal reduction payments. Dealership failed to repay the amounts advanced by NextGear as agreed under the Note. Id. at 99. Due to Dealership’s failure to pay as required, NextGear declared the entire indebtedness due and owing under the Note to be immediately due and payable in full. Id. As of October 11, 2018, according to NextGear’s records, the amount due to NextGear under the Note totaled $1,216,027.74. Id. at 100.

          [¶ 7] On November 20, 2017, NextGear repossessed around one hundred of Dealership’s vehicles due to Dealership’s default on the Note. Tr. at 23; Appellant’s App. Vol. II at 11. Neither Tam nor Li ever received any documentation from NextGear stating whether or when the vehicles would be sold. Tr. at 23, 29-30. On May 17, 2018, Yasha Rahimzadeh ("Rahimzadeh"), who is a California attorney representing Dealership and Tam, began negotiating with NextGear concerning Dealership’s indebtedness to NextGear on the Note. Def.’s Ex. 1; Tr. at 20-21. Rahimzadeh called and exchanged numerous emails with NextGear’s Senior Recovery Specialist and its Risk & Recovery Counsel between May 17, 2018 and June 28, 2018. Def.’s Ex. 1.

          [¶ 8] On May 23, 2018, NextGear filed a complaint in Hamilton Superior Court against Dealership, Tam, and Li, alleging breach of contract on the Note against Dealership, breach of contract on the personal guaranties against both Tam and Li, and conversion against all three parties. Appellant’s App. Vol. II at 9-15. NextGear attempted service on all three parties, but was only able to perfect service on Li. Id. at 64-72; Tr. at 21. On June 11, 2018, Li was served with a copy of the complaint and a summons via a private process server. Id. at 68-72. Li did not appear in the lawsuit or file any pleadings in response to the complaint. Id. at 3-4.

          [¶ 9] After receiving the complaint, Li called Tam immediately regarding the lawsuit. Tr. at 30. Li later testified that after he spoke with Tam, "Jimmy Tam talked to ... his lawyer ... the lawyer actually negotiating with NextGear," which was Rahimzadeh. Id. Tam also told Li to call Rahimzadeh, which Li did. Id. at 21, 30, 32. Li testified that Rahimzadeh told him that Rahimzadeh was "on top of it" and was attempting to negotiate a global resolution of NextGear’s claims. Id. at 21-22, 30-31, 35. Rahimzadeh told Li and Tam that the settlement negotiations with NextGear not only pertained to Dealership’s debt obligation, but also to Li’s obligation as a guarantor. Id. at 21, 34. Tam also told Li that Rahimzadeh was negotiating with NextGear on Li’s behalf. Id. at 22. Li agreed to contribute a certain amount of money as part of Rahimzadeh’s settlement offer, and Rahimzadeh told Li that Rahimzadeh would "get [Li] a [sic] answer when NextGear respond [sic]." Id. at 30-31. Li testified that when he spoke with Rahimzadeh, he asked Rahimzadeh to represent Li in the litigation, and Rahimzadeh responded that he represented Tam and Dealership and because he represented Dealership, the representation "should ... include [Li]." Id. at 35. Li did not personally retain Rahimzadeh to represent him in the lawsuit, but testified that he thought he did not need to appear in the lawsuit by counsel to respond to the complaint because Rahimzadeh was negotiating with NextGear. Id. at 31, 32. After Li’s initial conversations with Tam and Rahimzadeh about the lawsuit, Li contacted Tam approximately every two weeks to inquire about the status of the NextGear litigation and Rahimzadeh’s negotiations with NextGear. Id. at 33-34.

          [¶ 10] On October 18, 2018, NextGear filed a notice of dismissal without prejudice as to Dealership, and the trial court entered an order dismissing Dealership without prejudice from the lawsuit. Appellant’s App. Vol. II at 3. On October 19, 2018, NextGear filed a motion seeking the entry of default judgment against Tam and Li. Id. at 76-78. On October 23, 2018, the trial court granted NextGear’s motion and entered default judgment against Tam and Li and awarded damages in favor of NextGear in the amount $1,216,027.74. Id. at 116-17.

          [¶ 11] On November 20, 2018, Indiana attorney Gregory A. Schrage entered an appearance for both Tam and Li in this case and filed a motion to set aside default judgment. Id. at 120-26. The motion alleged that default judgment should be set aside as to Tam because he was not properly served with the complaint and summons and should be set aside as to both Tam and Li due to excusable neglect. Id. at 122-26. NextGear filed an objection to the motion to set aside, and the trial court set the motion for a hearing on December 11, 2018. Id. at 5, 127. The trial court issued an order allowing Tam and Li to appear telephonically at the hearing. Id. at 135.

          [¶ 12] At the hearing, Li and Tam testified concerning their beliefs that Rahimzadeh was representing both of them individually as well as Dealership with regard to NextGear’s claims, and their understanding that because Rahimzadeh was negotiating with NextGear concerning its claims against them raised in the Indiana lawsuit, there was nothing more they needed to do to respond to the lawsuit. For example, the following exchange occurred during Tam’s testimony:

Q: Okay. Now, at the time that you became aware of the lawsuit that [Li] told you about, did you have any conversations with [Rahimzadeh], related to this lawsuit?
A: Om, no, I left, I tell my lawyer [Rahimzadeh]. He handle it for me. He handle all the negotiations for me and [Li].
Q: Okay, and when you say he handled all the negotiations for you and [Li], did you have a conversation with [Rahimzadeh] related to negotiating on behalf of [Li] as well?
A: Yeah. Yes sir. Yeah. He defend me also.
Q: Okay. So, it was your understanding that when you went to [Rahimzadeh] related to this lawsuit that [Rahimzadeh] was negotiating on behalf of both yourself and [Li]. Is that right?
A: Yes. Yes.
Q: Okay. And did you tell [Li] that [Rahimzadeh] was negotiating on ...

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