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
for Appellant: Kevin S. Smith, Church, Church, Hittle &
Antrim, Fishers, Indiana, Gregory A. Schrage, Church, Church,
Hittle & Antrim, Noblesville, Indiana.
for Appellee: David J. Jurkiewicz, Nathan T. Danielson, Bose
McKinney & Evans LLP, Indianapolis, Indiana.
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,
Lis former business partner, Jimmy Chung Fai Tam
("Tam"), and their business, No Credit Check Auto
Sales, Inc. ("Dealership"), all based in
California. NextGears 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.
and Procedural History
[¶ 3] Dealership was a California
corporation with its principal place of business in Hayward,
California. Appellants 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 Dealerships assets, including Dealerships
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 Dealerships President, and Li signed
it as Dealerships 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 Dealerships 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
[¶ 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. Appellants 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
Dealerships 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 NextGears 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 Dealerships vehicles due
to Dealerships default on the Note. Tr. at 23;
Appellants 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 Dealerships indebtedness to NextGear on
the Note. Def.s Ex. 1; Tr. at 20-21.
Rahimzadeh called and exchanged numerous emails with
NextGears Senior Recovery Specialist and its Risk & Recovery
Counsel between May 17, 2018 and June 28, 2018. Def.s
[¶ 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. Appellants 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.
[¶ 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 NextGears claims. Id. at 21-22, 30-31, 35.
Rahimzadeh told Li and Tam that the settlement negotiations
with NextGear not only pertained to Dealerships debt
obligation, but also to Lis obligation as a guarantor.
Id. at 21, 34. Tam also told Li that Rahimzadeh was
negotiating with NextGear on Lis behalf. Id. at 22.
Li agreed to contribute a certain amount of money as part of
Rahimzadehs 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 Lis
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
Rahimzadehs negotiations with NextGear. Id. at
[¶ 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. Appellants 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 NextGears 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 NextGears 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 Tams
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 ...