Dave Stafford for www.theindianalawyer.com

A lawyer’s failure to appear at a hearing to represent his client who was being sued in a civil case arising from a failed joint business venture should not have resulted in a default judgment and sanctions against the defendants, the Indiana Court of Appeals ruled Wednesday.

The appellate panel affirmed a Marion Superior Court order setting aside a default judgment, treble damages and sanctions entered against defendants in a business joint venture that fizzled and resulted in litigation.

In 2013, KWD Industrias SA DE CV provided $46,800 to Mark Reynolds on behalf of IMP LLC to purchase equipment to manufacture heavy-duty commercial solenoid switches in Mexico. But after the deal soured, KWD sued, demanding return of the money, treble damages, attorney fees and punitive damages.

IMP retained Indianapolis attorney Steven Fulk to defend against the claims, and Fulk also filed a replevin action as a counterclaim, seeking return of property valued at more than $170,000 and stating numerous other claims and affirmative defenses. But Fulk failed to appear at an April 18, 2018, final pre-trial conference, a day after which KWD filed a motion for sanctions, default judgment, attorney fees and other relief.

After a hearing, the court entered default judgment on May 14, 2018, in favor of KWD and against IPM for $46,800 plus costs of $151 and against Reynolds for $140,400 plus attorney fees of $22,747.39 and costs of $151, and ordered that appellees’ counterclaims be dismissed with prejudice. In June 2018, KWD sought and was granted leave from the court to communicate directly with the defendants, noting Fulk had not been in communication or reachable for months.

“On July 24, 2018, Appellees by new counsel filed a motion under Ind. Trial Rule 60 requesting that the court set aside its May 14, 2018 order and set the matter for a pre-trial conference. The motion stated that the dispute arises out of a failed joint venture between KWD and IPM; that Appellees, represented by Attorney Fulk, filed an answer and counterclaims; that neither IPM nor Reynolds was notified of either the final pre-trial conference or the scheduling of the bench trial; that ‘[i]t is unknown to undersigned counsel whether Mr. Fulk had notice as he has not responded to undersigned counsel’s attempts to contact him’; and that, ‘[t]o date, Mr. Fulk has not responded to inquiries as to why he failed to appear,’” Judge Elaine Brown wrote.

Under these facts, the trial court properly set aside the default judgment per Trial Rule 60(B), the panel concluded in KWD Industrias SA DE CV v. IPM LLC and Mark Reynolds, 18A-CC-2751.

“Appellees have alleged facts which, if true, may support their defenses or counterclaims and lead the fact-finder to reach a different result,” Brown wrote. “KWD raises claims of breach of contract and unjust enrichment against IPM and claims of conversion and deception against Reynolds. In response, Appellees assert affirmative defenses including, among others, that KWD failed to mitigate its damages and that its claims are barred by the doctrine of unclean hands and fraud. Appellees also raise several counterclaims against KWD including an action in replevin seeking the return of property valued in excess of $170,000 and damages, civil conversion seeking treble damages, and unjust enrichment. They allege that KWD is unlawfully detaining property which belongs to them. Reynolds states in his declaration that IPM provided KWD with two complete manufacturing assembly lines, KWD did not pay for the equipment and assembly lines, it is believed KWD still has possession of the property, and the value of the property is approximately $156,000.

“… Under these circumstances, we cannot say the trial court abused its discretion in granting Appellees equitable relief from the finality of default judgment,” the panel concluded, affirming the trial court’s setting aside that order.

While not referenced in the opinion, Fulk was suspended from the practice of law in later June by the Indiana Supreme Court for failing to cooperate in the investigation of a grievance against him. The suspension order did not state the nature of the grievance.