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
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.
We reverse and remand.
and Procedural History
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.
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.
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
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.
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.
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.
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
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.
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.
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
A: Yes. Yes.
Q: Okay. And did you tell [Li] that [Rahimzadeh] was
negotiating on his behalf as well?
Q: Okay. And is it your understanding that [Rahimzadeh] was
the, was the individual that was to have the ...