Present: Kinser, C.J., Lemons, Goodwyn, Millette, and Mims,
JJ., and Koontz, S.J. ∗
AME FINANCIAL CORPORATION
OPINION BY
v. Record No. 091244 JUSTICE S. BERNARD GOODWYN
March 4, 2011
PAUL G. KIRITSIS, ET AL.
FROM THE CIRCUIT COURT OF CHESTERFIELD COUNTY
Cleo E. Powell, Judge;
Frederick G. Rockwell, III, Judge
In this appeal, we consider whether AME Financial
Corporation (AME) demonstrated good cause to receive relief
from default and whether the circuit court abused its
discretion in failing to grant AME relief pursuant to Rule
3:19(b).
I. Background
Paul G. Kiritsis and Emilie A. Kiritsis (collectively the
Kiritsises) filed a complaint against AME and GreenPoint
Mortgage Funding, Inc. (GreenPoint) 1 in the Circuit Court of
Chesterfield County, requesting declaratory relief and alleging
breach of contract, actual and constructive fraud, conspiracy,
and violation of the Virginia Consumer Protection Act, Code
§§ 59.1-196 et seq. AME failed to timely file responsive
∗
Justice Koontz presided and participated in the hearing
and decision of this case prior to the effective date of his
retirement on February 1, 2011; Justice Kinser was sworn in as
Chief Justice on February 1, 2011.
1
The complaint also named two other defendants who are not
relevant to the resolution of this appeal.
pleadings and was found to be in default. GreenPoint filed a
timely response to the complaint as well as a cross-claim
against AME.
AME’s numerous motions for relief from default were
denied. The circuit court bifurcated the trial on the
complaint. It first tried the issue of declaratory relief and
ruled in favor of the Kiritsises. In the second phase of the
trial, it considered monetary damages, and awarded the
Kiritsises attorney’s fees and punitive damages against AME.
The circuit court also granted GreenPoint judgment against AME
on the cross-claim. AME appeals.
II. Facts
According to the allegations contained in the complaint
and the evidence presented at trial, the Kiritsises obtained a
mortgage from AME, and at closing executed all documents
supplied, thereby completing the loan transaction on the terms
previously agreed to by the Kiritsises. A few weeks after the
closing, the Kiritsises were contacted by a lawyer for AME who
demanded that they sign a new promissory note with
significantly different terms. The Kiritsises responded in
writing, refusing to sign the new note.
At some time thereafter, without notice to the Kiritsises,
Ron Duer, a vice president of AME, wrote his own signature upon
a copy of the proposed new note in place and stead of the
2
Kiritsises’ signatures “as AIF,” attorney-in-fact, for the
Kiritsises. Neither Duer nor any other person affiliated with
any of the defendants had been granted power of attorney by the
Kiritsises to execute the new note. AME thereafter, for due
consideration, assigned the Kiritsises’ loan to GreenPoint.
GreenPoint subsequently attempted to enforce the terms of the
new note against the Kiritsises. Those terms were
significantly different from the terms of the note signed by
the Kiritsises. The Kiritsises filed this action.
On May 24, 2006, the Kiritsises served AME, a Georgia
corporation, through its Virginia registered agent. On or
about June 1, 2006, a vice president of AME spoke to the
Kiritsises’ attorney and was told he would need an attorney
licensed in Virginia to file responsive pleadings for AME.
However, the vice president for AME, who was not licensed to
practice law, signed and filed an answer on behalf of AME on
June 14, 2006. In response, on June 22, 2006, the Kiritsises
filed a motion to strike the answer and a motion for default
judgment against AME, arguing that the answer was improper and
that it was a product of the unauthorized practice of law.
Notice of a hearing on the matter, scheduled for July 21, 2006,
was filed with the motion. The Kiritsises filed an amended
motion for default judgment on July 11, 2006, along with a
notice of hearing for July 21, 2006. The Kiritsises certified
3
that they mailed a copy of the original motion and notice to
AME on June 21, 2006, a month before the July 21 hearing.
AME did not appear at the July 21 hearing. At that
hearing, the circuit court granted the Kiritsises’ motion to
strike AME’s answer from the record and found that AME was in
default. Because AME defaulted, the circuit court held that
AME was deemed to have admitted the allegations in the
complaint, and directed that, as concerned AME, the case remain
on the docket only for consideration of damages.
AME retained an attorney licensed to practice law in
Virginia, and filed a motion for leave to file late responsive
pleadings on July 31, 2006. AME thereafter filed a motion for
relief from default on September 26, 2006. AME also filed a
demurrer to the complaint.
The circuit court heard these motions on October 24, 2006.
The circuit court denied AME’s motion to file late responsive
pleadings and motion for relief from default, “specifically
accepting plaintiffs’ counsel’s representation that he
forewarned AME . . . prior to the filing of their actual pro se
answer, that AME must have Virginia counsel file an answer on
their behalf.” 2 In addition, the circuit court “declined to
consider AME’s Demurrer as it was not removed from default.”
2
The Kiritsises’ counsel represented that on June 1, 2006,
he advised AME that it could not file pleadings without
4
AME filed a motion to reconsider. AME additionally filed
an amended demurrer. After conducting a hearing on these
matters, the circuit court denied the motion and further denied
consideration of the amended demurrer “as the Court has not
removed AME from default.”
At this point, the circuit court judge assigned to the
case recused himself because of a conflict and the court
reassigned the case to a different judge. AME filed another
motion for relief from default for consideration by the new
presiding judge. The circuit court again denied AME’s motion,
stating that it was “substantially similar to motions
[previously] denied, and that no new contentions have been
brought” to the circuit court’s attention.
The Kiritsises’ action against AME and GreenPoint
proceeded to trial in two phases. In the first phase, heard on
November 15, 2007, the Kiritsises sought declaratory relief
against GreenPoint, which was not in default, and AME. Because
it was in default, AME was not permitted to present evidence on
liability issues at this proceeding. However, GreenPoint had
filed timely responsive pleadings. As AME’s assignee, it was
allowed the opportunity to present AME’s defenses as well as
its own as AME had declined to indemnify GreenPoint or provide
representation by an attorney licensed to practice law in
Virginia.
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it a defense. After hearing the evidence, the circuit court
ruled against GreenPoint, as well as AME, and granted the
Kiritsises’ motion for declaratory judgment. The circuit court
held that the Kiritsises were not obligated to either defendant
under any instrument that the Kiritsises did not sign
themselves.
In the second phase of the trial, heard on February 4,
2008, the circuit court heard the Kiritsises’ evidence of
damages against the defendants. AME was allowed to present
evidence on that issue. After hearing evidence on damages, the
circuit court took the matter under advisement. The circuit
court ultimately awarded the Kiritsises $69,463.16 in
attorney’s fees and court costs on their fraud counts, and
$25,000 in punitive damages against AME. In reaching its
decision, the circuit court referred to the sufficiency of the
Kiritsises’ complaint:
In their cause of action, plaintiffs alleged acts of
actual and constructive fraud on the part of the
defendants, and at the hearing on February 4, 2008,
the Court held the claims to be sufficiently pled and
denied Defendant’s motion to strike. As AME . . .
[is] in a default posture, the sufficiently [pled]
claims provide a legal basis for the plaintiff’s
request for attorney fees. 3
3
In a footnote, the circuit court additionally held that
“the breach of contract and conspiracy claims were also
sufficiently [pled].”
6
On GreenPoint’s cross-claim against AME, the circuit court
heard evidence concerning GreenPoint’s allegations that AME
breached its contract and warranty with GreenPoint, and that
AME failed to honor the indemnity clause in the contract. AME
presented evidence in its defense. In ruling in GreenPoint’s
favor, the circuit court referenced the following evidence in
its letter opinion:
AME contracted to convey the Kiritsis note to
GreenPoint without deficiency. If there was a
deficiency, AME contracted that it would repurchase
the note or indemnify GreenPoint at GreenPoint’s
discretion. AME does not dispute the deficiencies in
the note. GreenPoint sent AME a letter requesting
that it either cure the deficiency by November 4, 2005
or repurchase the note. AME did not cure the
deficiencies in the note by November 4, 2005, nor did
it repurchase the note. AME breached its contract
with GreenPoint by not repurchasing the deficient
note. Because of AME’s breach, GreenPoint suffered
damages.
. . . .
AME signed a contract asserting that it properly
executed the note with the Kiritsises and that there
was no fraud on the part of AME or its agents during
the transaction. . . . AME failed to live up to its
warranty. The note was improperly executed and AME
committed fraud during the transaction. GreenPoint
has offered sufficient proof of a breach of warranty.
. . . .
Section 11-13 of the Representations, Warranties,
and Indemnities section of the Seller’s Agreement
states in part, “seller agrees to indemnify and hold
the Company, . . . harmless from Loans that were
originated, underwritten, funded and closed by Seller
. . . and to defend and make whole the Company.” . . .
GreenPoint argued that AME did nothing that this
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clause required. GreenPoint offered the current
litigation as evidence that GreenPoint has not held
AME harmless and defended it. AME provided no
counter-argument on this issue. AME has not held
GreenPoint harmless nor has it defended it. AME
failed to indemnify GreenPoint as required by its
contract.
The circuit court found that specific performance was
appropriate and ordered AME to repurchase the note from
GreenPoint with interest.
AME appeals the Kiritsises’ and GreenPoint’s judgments
against it. It asserts the circuit court erred as follows:
1. The trial court abused its discretion by
denying AME Financial’s motions for relief under Rule
3:19(b), and in entering judgment based on default,
because AME Financial demonstrated good cause for
such relief.
2. The trial court erroneously granted judgment
against AME Financial on GreenPoint’s cross-claim,
based in part on its finding of default.
3. The trial court refused to consider AME
Financial’s demurrer before awarding judgment.
III. Analysis
AME admits that its original answer was insufficient
without a signature of a member of the Virginia State Bar and,
accordingly, does not assign error to the circuit court’s
decision to strike the answer. AME argues, however, that the
circuit court should have granted it relief from its “brief
technical default.” AME claims that the circuit court abused
its discretion by denying AME’s motion for relief from default
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because AME demonstrated good cause for such relief. AME
contends that it has satisfied what it calls the “liberal” good
cause standard stated in Rule 3:19(b), noting that AME never
indicated an intent to abandon its defense, AME filed a timely
answer that was later struck by the court, AME retained
Virginia counsel the same day that it learned of the default
order, and the Kiritsises have not claimed that the delay
negatively affected them.
The Kiritsises respond that AME failed to demonstrate good
cause because AME had been in default for six weeks before
filing its motion for leave to file late responsive pleadings,
AME waited more than a month to retain an attorney after
learning that its initial answer was invalid and, despite
receiving notice, AME failed to attend the July 21 hearing.
Thus, the Kiritsises argue that the circuit court did not abuse
its discretion in denying AME relief from default. We agree
with the Kiritsises.
Under the rules of this Court, a defendant must file
responsive pleadings within 21 days after service of process
upon that defendant. Rule 3:8(a). “A defendant who fails
timely to file a responsive pleading as prescribed in Rule 3:8
is in default.” Rule 3:19(a). However, Rule 3:19(b) provides
that “[p]rior to the entry of judgment, for good cause shown
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the court may grant leave to a defendant who is in default to
file a late responsive pleading.” 4
Although this Court has not interpreted “good cause” in
the context of present Rule 3:19(b), we have previously stated
that circumstances that support the exercise of discretion to
extend the time for filing include lack of prejudice to the
opposing party, the good faith of the moving party, the
promptness of the moving party in responding to the opposing
parties’ decision to progress with the cause, the existence of
a meritorious claim or substantial defense, the existence of
legitimate extenuating circumstances, and justified belief that
the suit has been abandoned or will be allowed to remain
dormant on the docket. See Westfall v. Westfall, 196 Va. 97,
103, 82 S.E.2d 487, 490 (1954); Eagle Lodge, Inc. v. Hofmeyer,
193 Va. 864, 870, 71 S.E.2d 195, 198 (1952); Worsham v. Nadon,
156 Va. 438, 443, 157 S.E. 560, 561 (1931). Clearly, this list
of justifiable circumstances is not exhaustive or necessarily
determinative. A good cause determination invests a trial
court with discretion. See Stephens v. Commonwealth, 274 Va.
157, 162, 645 S.E.2d 276, 278 (2007). Additionally, the use of
the word “may,” as opposed to “shall,” in Rule 3:19(b)
evidences that even after a defendant shows good cause, a trial
4
The present version of Part Three of the Rules became
effective on January 1, 2006. See, e.g., James v. Peyton, 277
10
court has discretion to grant or refuse the defendant’s motion
for leave to file late responsive pleadings. See Harper v.
Virginia Dep’t of Taxation, 250 Va. 184, 194, 462 S.E.2d 892,
898 (1995) (“the word ‘may’ is prima facie permissive,
importing discretion”) (internal quotation marks omitted).
Thus, the decision as to whether good cause has been shown
so as to allow additional time to file responsive pleadings
clearly “rests within the sound judicial discretion of the
trial court, it being impossible to lay down a rule which will
be binding in all cases.” Eagle Lodge, Inc., 193 Va. at 870,
71 S.E.2d at 198 (referring to a former statute that required
the filing of the response in an equity suit within a specified
time, but also permitted additional time “for good cause
shown”); see also Blinder, Robinson & Co. v. State Corp.
Comm’n, 227 Va. 24, 28, 313 S.E.2d 652, 654 (1984) (“Whether
relief from a default should be granted is a question resting
in the sound discretion of the trial tribunal.”).
This Court has previously stated:
[A]n appellate court should not simply rubber stamp
every discretionary decision of a trial court. To
the contrary, we have an obligation to review the
record and, upon doing so, to reverse the judgment
of the trial court if we find a clear abuse of
discretion.
The determination whether a trial court has
abused its discretion is fact-specific.
Va. 433, 447 n.1, 674 S.E.2d 864, 865 n.1 (2009).
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Walsh v. Bennett, 260 Va. 171, 175, 530 S.E.2d 904, 907 (2000)
(regarding trial court’s discretion to determine appropriate
sanction for failure to comply with an order related to
discovery). In evaluating whether a trial court abused its
discretion, “we do not substitute our judgment for that of the
trial court. Rather, we consider only whether the record
fairly supports the trial court’s action.” Beck v.
Commonwealth, 253 Va. 373, 385, 484 S.E.2d 898, 906 (1997); see
also Noll v. Rahal, 219 Va. 795, 801-02, 250 S.E.2d 741, 745
(1979) (trial court did not abuse its discretion in
disqualifying an expert witness even though “reasonable trial
judges could properly disagree” and “some members of this
[C]ourt, had they presided at the trial, may have admitted” the
testimony). “ 'The abuse-of-discretion standard [also]
includes review to determine that the discretion was not guided
by erroneous legal conclusions.’ ” Grattan v. Commonwealth,
278 Va. 602, 620, 685 S.E.2d 634, 644 (2009) (quoting Porter v.
Commonwealth, 276 Va. 203, 260, 661 S.E.2d 415, 445 (2008))
(internal quotation marks omitted).
In the instant case, AME was served with the Kiritsises’
complaint on May 24, 2006. The circuit court accepted as true
the representation from the Kiritsises’ counsel that as early
as June 1, 2006, AME had notice that its answer to the
12
complaint needed to be filed by an attorney licensed to
practice law in Virginia. Despite this notice, AME’s vice
president signed and filed a pro se answer on behalf of the
corporation on June 14. Thereafter, the Kiritsises served AME
with motions advising it that they were moving the court to
strike the improper answer and for AME to be found in default
and provided written notice of the July 21 hearing regarding
the matter. In fact, AME indicated that on or about June 22,
2006 it received a copy of the Kiritsises’ motion to strike.
Certainly, at that point, AME was on notice of the alleged
impropriety of its answer and the serious risk that it was in
default. Yet in the nearly one-month period between June 22
and July 21, AME failed to retain counsel and did not have any
representative appear at the July 21 hearing. Despite numerous
opportunities, AME provided the circuit court no explanation
for AME’s failure to appear at the July 21 hearing on the
motion to strike its answer and for entry of default. Upon
this record, our Court cannot find that the circuit court
abused its discretion in denying AME relief from default
pursuant to Rule 3:19(b).
AME also argues that the circuit court erred in granting
judgment against it on GreenPoint’s cross-claim based, in part,
on the circuit court’s finding that AME was in default. The
record, however, does not show that the circuit court relied on
13
AME’s default in ruling on the cross-claim. To the contrary,
the circuit court’s letter opinion concerning the cross-claim
does not rely on AME’s default, but examines the evidence
presented at trial supporting GreenPoint’s cross-claim for
breach of contract, breach of warranty and indemnity. The
letter opinion demonstrates that the circuit court entered
judgment based upon such evidence. Because AME fails to
support its allegation that the circuit court erroneously
relied on AME’s default in granting judgment for GreenPoint and
because the record shows that there was evidence to support the
judgment for GreenPoint on its cross-claim, we hold that the
circuit court did not err in granting such judgment.
Lastly, AME argues that the circuit court erred by failing
to consider AME’s demurrer before awarding judgment for the
Kiritsises. This Court has stated, regarding a judgment based
upon a defendant’s default, that “one of the bases upon which
such a judgment may be invalidated is when the motion for
judgment fails to state a cause of action; under such
circumstances, that failure is held to disable the court from
entering a valid default judgment.” Landcraft Co. v. Kincaid,
220 Va. 865, 870, 263 S.E.2d 419, 422 (1980) (internal
quotation marks omitted). Although the circuit court, in
ruling on AME’s motions for relief from default, stated that it
“declined to consider AME’s Demurrer as it was not removed from
14
default,” the circuit court did consider the sufficiency of the
Kiritsises’ pleadings prior to entering judgment for the
Kiritsises. In its letter opinion awarding the Kiritsises
damages against AME, the circuit court reiterated that at trial
it held that the Kiritsises’ causes of action were sufficiently
pled. Therefore, we hold that AME’s assertion that the circuit
court erred because it refused to consider AME’s demurrer
before awarding judgment lacks merit.
IV. Conclusion
Accordingly, for the reasons stated, we will affirm the
circuit court’s judgment.
Affirmed.
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