Default Judgments Presentation

Default Judgments
D. Todd Smith September 30, 2012
www.appealsplus.com

Overview

• The paper is very comprehensive, though not focused on
insurance-related issues per se

• Assume we’re talking about no-answer defaults

• Coming at this from the perspective of a P taking a
default judgment. Focusing on four questions:
– How do I take a default judgment effectively?
– Will my default judgment withstand a motion for new trial?
– Will my default judgment stand up on appeal?
– How do keep insurance coverage for my default judgment?

9/30/2012 Copyright © 2012 Smith Law Group, P.C.

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How Do I Take a Default Effectively?

First, consider whether you can legitimately take a default.

• Basic procedural prerequisites (see Appendix 1):
– No answer filed when due—can be almost anything, any time
– Citation with return on file for at least 10 days (TRCP 107)
– Personal and subject-matter jurisdiction are present
– D served with live pleading—not a more onerous amended
pleading—sufficient to provide fair notice of claims

• If ―yes,‖ default likely worthwhile because D’s failure to
answer admits all facts in petition other than the amount
of unliquidated damages


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• Legitimately taking a default may involve ―curing‖ some
things that otherwise might be reversible error

• For example:
– Citation and return can be amended to cure defects if trial court
retains plenary power
– Theoretically, defects in petition can be cured as long as the
petition does not seek to impose a more onerous judgment (but
should serve D per TRCP 21a)


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Next, consider the type of damages.

• Liquidated damages
– Can be calculated from facts stated in petition and a written
instrument, i.e., a sworn account
– No separate hearing or additional proof required
– Great for Ps, but not likely in an insurance situation

• Unliquidated damages
– Everything else
– Must put on evidence of damages as in any other case


5


Consider filing a motion for default judgment.

• Rules don’t require a motion, but filing one allows P to
package everything up neatly
– Recite facts demonstrating default
– Provide certificate of last known address (TRCP 239a)
– Non-military affidavit, if needed (50 App. U.S.C.A. § 521)

• In a no-answer situation, no notice to D required

• But notice may be advisable for purposes of protecting
insurance coverage

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Next, obtain a hearing to prove up unliquidated damages.

• Generally involves live testimony before court reporter
establishing the amount of damages as in contested trial

• Prove what you can prove, but overreach at your peril


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• Can you rely on affidavits?
– Case law says yes, but Ds sometimes cite TRCP 243 to argue
that affidavits are not enough without a formal evidentiary hearing
– Safest course is to hold a hearing on the record and formally
admit the affidavits into evidence

• Whether by affidavit or live testimony, must establish a
―causal nexus‖ between conduct admitted in petition and
damages suffered


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• Risky to rely only on requests for admissions ―embedded‖
in petition that go to damages
– Deemed admission rules and case law suggest this is OK, BUT…
– Citing ―due process concerns,‖ one court reversed a substantial
default judgment based on deemed admissions that D’s conduct
caused a specific amount of damages. Lucas v. Clark, 347
S.W.3d 800 (Tex. App.—Austin 2011, pet. denied).


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Finally, submit a proposed final default judgment.

• Identify the cause and the parties, state the relief granted,
and recite all jurisdictional prerequisites
– Citation was duly served with process
– Return of service was on file 10 days
– D failed to answer and appear

• Make sure the final default judgment disposes of all
issues and parties—no presumption of finality here


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Will My Default Withstand a MNT?

An equitable MNT provides a method by which a defaulting
D may get the judgment vacated in the trial court (see
Appendix 2)

• Elements of an equitable MNT (Craddock) :
– Failure to answer was not intentional, or the result of conscious
indifference on D’s part, but was due to a mistake or accident
– MNT sets up sets up a meritorious defense
– MNT will occasion no delay or otherwise injure P

• But per SCOTUS, a D who can prove lack of notice—lack
of service in a no-answer case—gets a do-over without
having to meet Craddock

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Element 1: D must show that the default resulted from
accident or mistake, not intent or conscious indifference.

• D’s affidavits must show that D and any agent relied on—
i.e., an insurer—satisfied this element
– Explanation must be detailed, not conclusory
– For some courts, almost any explanation will do. Others require
D to negate negligence. Paper lists many examples.
– If D discharges this initial burden, P is entitled to discovery before
any hearing

• If the trial court finds for D, that finding will not be
disturbed absent an abuse of discretion

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Element 2: D must set up a meritorious defense.

• MNT must allege facts that, in law, would constitute a
defense to P’s cause of action

• D must support this element with prima facie evidence

• P can challenge the legal sufficiency of the facts alleged
to form a meritorious defense, but that’s about it


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Element 3: No harm to P or undue delay.

• Once D so alleges, the burden shifts to P

• On harm, loss of the default judgment itself is not
enough; Ds often successfully counteract by:
– Offering to pay P’s expenses in procuring the default
– Stating that D is ready to go to trial
– Explanation must be detailed

• Delay is very case-specific; it must be undue, which
generally means a loss of rights (i.e., evidence is no
longer available)

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Will My Default Stand Up on Appeal?

No Craddock motion filed.

• A D who failed to timely file a MNT cannot rely on the
Craddock elements as a basis for reversing a default

• In that situation, D has three options:
– A direct appeal challenging some other aspect of the
default, such as sufficiency of the damages evidence—very
limited
– A restricted appeal brought within 6 months of the judgment
showing error on the face of the record
– A bill of review—an independent lawsuit seeking to set aside the
judgment on equitable grounds similar to Craddock


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Craddock motion filed.

• A D who timely filed a MNT and lost can appeal the
denial of the MNT or pursue a restricted appeal

• In a restricted appeal, D would have to show lack of
participation, which fits default judgments


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• The key to holding on to a default judgment is to make
sure the proceeding is handled properly on the front end

• Appendix 1 checklist should help you do that; or, if you’re
representing a D who suffered a default judgment, the
checklist should help identify potential avenues of attack

• The paper goes into detail on other considerations we
can’t cover in 30 minutes, such as:
– Specific requirements for citation and return
– Rules for substituted service and citation by publication
– What happens when D received no notice of the default
– Restricted appeals and bills of review (a talk unto itself)

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How Do I Keep Insurance Coverage?

Two main concerns when insurance is in play: (1) lack of
notice to insurer; and (2) lack of cooperation by insured.

• Arise from common policy provisions that are frequently
raised to contest coverage

• Crocker: Notice provisions facilitate timely and effective
defense of claim and trigger insured’s duty to defend by
notifying insurer that a defense is expected

• Policies require insureds to cooperate in investigation or
settlement of claims or defense against suit

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Key to both defenses is lack of prejudice to the insurer

• Notice: Insurer bears the burden
– Actual knowledge of the suit before default will usually create a
fact issue on prejudice
– Enforced through assignment, turnover, or breach of contract suit
as judgment creditor/third-party beneficiary

• Cooperation: Insurer bears the burden
– Lack of cooperation is generally limited to situations in which the
insurer was actually deprived of a valid defense or the insurer
makes an agreement that imposes liability on the insurer
– Abstract loss of the rights to investigate, defend, participate
in, and control settlement negotiations are not sufficient

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• Help keep coverage in play by providing notice to the
insurer at every opportunity
– Notice of claim
– Notice of suit
– Notice of service
– Notice of default judgment, hearing, and intent to take default
– Notice of judgment to allow opportunity to file MNT

• An insurer facing documentation that it received notice
along the way will have difficulty convincing a court that it
suffered prejudice


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