Newgate Recovery, LLC v. Holrob-Harvey Road, LLC

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
June 18, 2014 Session

NEWGATE RECOVERY, LLC v. HOLROB-HARVEY ROAD, LLC, ET AL.

Appeal from the Chancery Court for McMinn County
No. 2011CV445 Jerri S. Bryant, Chancellor

No. E2013-01899-COA-R3-CV-FILED-AUGUST 14, 2014

This appeal concerns a garnishment. Newgate Recovery, LLC (“Newgate”) brought a
garnishment action in the Chancery Court for McMinn County (“the Trial Court”) against
Manreet Singh (“Singh”) through Singh’s former employer R & R Group, Inc., d/b/a The
Deerfield Inn (“Garnishee”). After Garnishee failed to respond to the garnishment, the Trial
Court entered judgment against Garnishee in the amount of $1,283,066. Garnishee moved
for relief from the judgment on the basis of insufficient service. The Trial Court granted
Garnishee’s Tenn. R. Civ. P. 60.02 motion and set aside the final judgment on the basis of
excusable negligence and ineffective service of process. Newgate appeals, arguing, among
other things, that Garnishee waived the issue of service of process and that Garnishee’s
employees had colluded to avoid a valid judgment. We find and hold that the Trial Court did
not abuse its discretion in granting Garnishee’s motion for relief from judgment. We,
therefore, affirm the Trial Court.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed;
Case Remanded

D. M ICHAEL S WINEY, J., delivered the opinion of the Court, in which C HARLES D. S USANO,
J R., C.J., and T HOMAS R. F RIERSON, II, J., joined.

Pamela A. Fleenor and Adam U. Holland, Chattanooga, Tennessee, for the appellant,
Newgate Recovery, LLC.

R & R Group, Inc., d/b/a The Deerfield Inn, pro se appellee.1

1
Appellee R & R Group, Inc., d/b/a The Deerfield Inn filed no brief on appeal.
 OPINION

Background

In December 2011, Newgate sued Singh, Gurraj Grewal (“Grewal”), and others
for breach of two loan guaranty agreements. The amount at issue was around 1.2 million
dollars. In June 2012, the Trial Court entered default judgment with respect to Singh and
Grewal. In October 2012, Newgate issued a writ of garnishment for Singh on Garnishee, the
hotel where Singh had worked. Garnishee took no responsive action. Newgate moved for
entry of conditional judgment. Garnishee again took no responsive action. The Trial Court
entered an order for conditional judgment in the amount of $1,283,066. After Garnishee
continued not to respond, the Trial Court entered a final judgment of $1,283,066 against
Garnishee in January 2013.

In March 2013, Newgate issued and served a garnishment on Farmer’s Bank
where Garnishee had an account. Farmer’s Bank reported $6,630.95 belonging to Garnishee
and forwarded these funds to the McMinn County Clerk and Master. In April 2013,
Garnishee’s counsel filed a notice of appearance in the Trial Court. Garnishee moved to stay
execution of the final judgment. In May 2013, Garnishee filed a Tenn. R. Civ. P. 60.02
motion for relief from the final judgment order. An evidentiary hearing on Garnishee’s
motion was held.

Two witnesses testified at the hearing. Mike Ferguson (“Ferguson”), a co-
owner of Garnishee, testified first. Ferguson had held his ownership interest in the hotel for
around 17 years. Ferguson testified that the hotel was a very small business. One employee
usually is there along with two or three part-time maids. The defendants in the garnishment
action previously had been involved in the hotel but had moved on. This left Ferguson with
additional responsibilities. Ferguson testified that, historically, he did not closely oversee the
daily operations at the hotel. Tina Marra (“Marra”), an employee with experience in
managing hotels, did most of the management work. According to Ferguson, he never had
been personally served with anything in this matter. Ferguson first learned that something
was amiss on January 31, 2013 when he found a garnishment for Grewal in the mail.

The hotel’s practice of placing mail not addressed to the hotel in a stack was
a point of contention. On cross-examination, Ferguson was asked about the policy on mail:

Q. I’m trying to understand why there’s a stack of mail that you never got
for months and all of a sudden Ms. Marra gives you mail on the 31st. What
was the difference?

-2-
 A. I didn’t say I never got the mail.

Q. All right. Well, then explain to me.

A. I got the mail on a regular basis, but if it wasn’t addressed to us just like
this, I stuck it aside because - - I mean, I’ve got - - I’ve got mail here from just
when I grabbed recently that’s for other people besides us that I don’t go
through and open because, I mean, it doesn’t concern. We don’t have anything
to do with it, so I don’t waste my time there. The same thing there. I’ll put it
in a box.

Upon learning of the Grewal garnishment, Ferguson made a phone call and sent a letter to
the Clerk and Master explaining that the people listed in the papers were no longer connected
to Garnishee. In April 2013, after Garnishee’s bank funds were forwarded pursuant to the
garnishment served on Farmer’s Bank, Garnishee began to formally respond to the
garnishment litigation.

Marra testified next. Marra, the front desk clerk, had worked for Garnishee for
three years. Marra acknowledged once having refused to accept a garnishment for Grewal
because she lacked authority to accept it. Marra stated that she later was told not to accept
any more mail that was not directed to the hotel. Otherwise, the mail went into a pile.

At the end of the hearing, the Trial Court directed the parties to file briefs on
the issue of service of process. However, the Trial Court entered its order prematurely before
the parties filed briefs. The Trial Court’s order granted Garnishee’s motion for relief, stating
in its order: “Here, the garnishment was served by mail upon an unknown low level
employee.” The Trial Court set aside the judgment against Garnishee on the basis of
excusable negligence and ineffective service of process pursuant to Tenn. R. Civ. P. 60.02.
The Trial Court became aware of its previous instruction to the parties to brief the issue of
service of process and held enforcement of its order in abeyance so that the parties could
submit their briefs. In July 2013 after the parties submitted briefs, the Trial Court entered
its final order sustaining its earlier order.

Earlier, on June 24, 2013, Newgate had filed a notice of filing affidavit of one
Deputy Wright. Newgate filed Wright’s affidavit to counter the Trial Court’s description in
its prematurely filed order of the garnishment as having been served by mail upon a low level
employee. The affidavit contained an assertion that the deputy hand-delivered the
garnishment to a female desk clerk “in charge.” Garnishee later objected to the filing of this
affidavit after the hearing. In an October 2013 order, the Trial Court stated that it neither
considered nor relied upon the Wright affidavit because it was not part of the record at the

-3-
time the hearing was held and that the affidavit would be included in the record only for
identification purposes:

After review, the court finds that after hearing argument of counsel
regarding the issue of service of process at trial, the court put down an Order
on May 14, 2013 addressing the issue of service of process. The parties
requested additional argument which the court allowed on June 6, 2013. The
court took this matter under advisement and put down its Order on July 16,
2013. It is noted the Affidavit of Deputy Wright was filed on June 24, 2013;
however, said Affidavit by Deputy Wright was not considered a part of the
record at the hearing when this matter was before the court, and therefore was
not relied upon by this court. The court will allow the Affidavit of Deputy
Wright to be included in the record for the Court of Appeals for identification
purposes only, and this Order hereby reflects that the affidavit was not a part
of the record at the time of argument of counsel on these issues.

(Emphasis in original).

Newgate appeals the setting aside of the judgment against Garnishee.2

Discussion

We restate and consolidate the issues raised on appeal as a single issue:
whether the Trial Court erred in setting aside the final judgment entered against Garnishee.

Our review is de novo upon the record, accompanied by a presumption of
correctness of the findings of fact of the trial court, unless the preponderance of the evidence
is otherwise. Tenn. R. App. P. 13(d); Bogan v. Bogan, 60 S.W.3d 721, 727 (Tenn. 2001).
A trial court's conclusions of law are subject to a de novo review with no presumption of
correctness. S. Constructors, Inc. v. Loudon County Bd. of Educ., 58 S.W.3d 706, 710 (Tenn.
2001).

Newgate argues that the Trial Court erred in setting aside the final judgment
against Garnishee. Our standard of review as to a trial court’s disposition of a Tenn. R. Civ.

2
The Trial Court’s July 2013 order appeared to leave unresolved Newgate’s claims against
defendants Holrob-Harvey Road, LLC, Gregory Mark Shipe, or Fox Express, Inc. We issued a show cause
order as to why this appeal should not be dismissed as premature. Subsequently, the record was
supplemented with an order from the Trial Court directing entry of final judgment as to claims between the
parties on appeal. We, therefore, now proceed with this appeal.

-4-
P. 60.02 motion for relief from a judgment is set forth in Henry v. Goins, where our Supreme
Court stated as follows:

In reviewing a trial court’s decision to grant or deny
relief pursuant to Rule 60.02, we give great deference to the trial
court. See Underwood v. Zurich Ins. Co., 854 S.W.2d 94, 97
(Tenn. 1993). Consequently, we will not set aside the trial
court’s ruling unless the trial court has abused its discretion. See
id. An abuse of discretion is found only when a trial court has
“‘applied an incorrect legal standard, or reached a decision
which is against logic or reasoning that caused an injustice to the
party complaining.’” State v. Stevens, 78 S.W.3d 817, 832
(Tenn. 2002) (quoting State v. Shuck, 953 S.W.2d 662, 669
(Tenn. 1997)). The abuse of discretion standard does not permit
an appellate court to merely substitute its judgment for that of
the trial court. See Eldridge v. Eldridge, 42 S.W.3d 82, 85
(Tenn. 2001).

Henry v. Goins, 104 S.W.3d 475, 479 (Tenn. 2003).

In pertinent part, Tenn. R. Civ. P. 60.02 provides as follows:

On motion and upon such terms as are just, the court may relieve
a party or the party’s legal representative from a final judgment,
order or proceeding for the following reasons: (1) mistake,
inadvertence, surprise or excusable neglect; (2) fraud (whether
h e r e t o f o r e d e n o m i n a t e d i n t r i n s i c o r e x tr i n s i c ) ,
misrepresentation, or other misconduct of an adverse party; (3)
the judgment is void; (4) the judgment has been satisfied,
released or discharged, or a prior judgment upon which it is
based has been reversed or otherwise vacated, or it is no longer
equitable that a judgment should have prospective application;
or (5) any other reason justifying relief from the operation of the
judgment . . . .

Tenn. R. Civ. P. 60.02.

In Rogers v. Estate of Russell, this Court observed that:

-5-
 To set aside a judgment under Rule 60.02, the movant has the burden
to prove that he is entitled to relief, and there must be proof of the basis on
which relief is sought. Banks v. Dement Const. Co., Inc., 817 S.W.2d 16, 18
(Tenn. 1991); Federated Ins. Co. v. Lethcoe, 18 S.W.3d 621, 623-624 (Tenn.
2000). A motion for relief from a judgment pursuant to Rule 60.02 addresses
the sound discretion of the trial judge, and the scope of review on appeal is
limited to whether the trial judge abused his discretion. Banks, 817 S.W.2d at
18. Rule 60.02 “was designed to strike a proper balance between the
competing principles of finality and justice.” Id., quoting Jerkins v. McKinney,
533 S.W.2d 275, 280 (Tenn. 1976). Rule 60.02 “acts as an escape valve from
possible inequity that might otherwise arise from the unrelenting imposition
of the principle of finality imbedded in our procedural rules.” Id., quoting
Thompson v. Firemen’s Fund Ins. Co., 798 S.W.2d 235, 238 (Tenn. 1990).
Because of the importance of this “principle of finality,” the “escape valve”
should not be easily opened. Id., quoting Toney v. Mueller Co., 810 S.W.2d
145, 146 (Tenn. 1991).

Rogers v. Estate of Russell, 50 S.W.3d 441, 444-45 (Tenn. Ct. App. 2001). Further, as this
Court noted in Turner v. Turner:

As a prerequisite to the extraordinary relief available under Rule
60.02(1), the movant is required to set forth in a motion or petition, or in
affidavits in support thereof, facts explaining why the movant was justified in
failing to avoid mistake, inadvertence, surprise or neglect. Hopkins v.
Hopkins, 572 S.W.2d 639, 640 (Tenn. 1978).

Turner v. Turner, 776 S.W.2d 88, 92 (Tenn. Ct. App. 1988) (quoting Travis v. City of
Murfreesboro, 686 S.W.2d 68, 69 (Tenn. 1985)).

Part of Newgate’s argument on this issue is a contention that Garnishee, in
allegedly failing to timely assert defenses or otherwise respond to the litigation, waived its
right to contest sufficiency of service. This Court previously has discussed the issue of
waiver and appearance:

Rule 12.02(2) of the Tennessee Rules of Civil Procedure is the defense of
“lack of jurisdiction over the person.” Under this rule, “objections to personal
jurisdiction and venue are deemed waived unless they are raised in a timely
manner.” Dixie Sav. Stores, Inc. v. Turner, 767 S.W.2d 408, 410 (Tenn.
App.1988). If a party makes a “general appearance” without challenging
personal jurisdiction, venue, or other matters, these objections are deemed

-6-
waived. See id. In Landers v. Jones, 872 S.W.2d 674 (Tenn.1994), the Court
stated:

Initially, we note that there is a modern legal trend away from
the technical requirement that a defendant must enter a special
appearance to contest personal jurisdiction. . . . Under both the
state and federal civil procedure rules, therefore, a defendant is
permitted to raise the defense of lack of personal jurisdiction at
the same time other defenses are raised. Waiver occurs only if
there is no objection to personal jurisdiction in the first filing,
either a Rule 12 motion or a answer.

872 S.W.2d at 676. Tennessee courts have defined the term “general
appearance,” as “acts from which it can reasonably be inferred that the party
recognizes and submits itself to the jurisdiction of the court. Thus a party's
consent to the entry of a judgment against it constitutes a general appearance.”
Dixie Sav. Stores, 767 S.W.2d at 410. In Patterson v. Rockwell International,
665 S.W.2d 96 (Tenn. 1984), the Tennessee Supreme Court discussed the
finding of an appearance:

[B]efore an appearance will be found by implication, it must be
shown from the defendant's seeking, taking, or agreeing to some
step or proceeding in the cause beneficial to himself or
detrimental to the plaintiff other than one contesting only the
jurisdiction of the court or by reason of some act or proceeding
recognizing the case as being in court.

Patterson, 665 S.W.2d at 99-100. The Landers court cautioned:

In accordance with the modern trend, and Rule 12.02 of the
Tennessee Rules of Civil Procedure juvenile courts should only
find a general appearance that waives a defendant's right to
contest personal jurisdiction when the defendant has recognized
the proper pendency of the cause by making a motion that goes
to the merits or by filing an answer, without challenging
personal jurisdiction. To the extent that prior judicial decisions
can be read as requiring otherwise, they are overruled.

Landers, 872 S.W.2d at 677.

-7-
Guardsmark, Inc. v. Borg-Warner Protective Services, No. 2A01-9409-CH-00207, 1998 WL
959664, at **5-6 (Tenn. Ct. App. Nov. 4, 1998), no appl. perm. appeal filed.

First, Newgate asserts that Garnishee waived its right to contest sufficiency of
process by making an appearance by implication, or, a general appearance, and failing at
these points to raise the defense of insufficiency of service of process. Next, Newgate argues
that the Trial Court should have considered the affidavit of Deputy Wright which purported
that Wright personally served an employee of Garnishee, and that, at any rate, service of
process was proper. Newgate also argues that Garnishee engaged in collusion and that no
excusable neglect can be found under these circumstances.

With respect to waiver, we are not persuaded that Garnishee waived its right
to contest sufficiency of service of process. Ferguson’s early communications to the Clerk
and Master and Garnishee’s later notice of appearance are hardly tantamount to waiver. As
to Wright’s affidavit, the Trial Court made it explicitly clear that it neither considered nor
relied upon this document because it was not before the Trial Court at the hearing on the
motion. We find no error in the Trial Court’s declining to consider the affidavit submitted
only after the hearing on the motion.

This is very much a case where the standard of review is decisive. The
applicable standard of review is that of abuse of discretion. As laid out more fully above,
this standard provides a trial court with considerable latitude in the range of reasonable
choices. In our view, the Trial Court, in setting aside the final judgment against Garnishee,
did nothing outside the range of reasonable choices available to it. We affirm the judgment
of the Trial Court.

Conclusion

The judgment of the Trial Court is affirmed, and this cause is remanded to the
Trial Court for collection of the costs below. The costs on appeal are assessed against the
Appellant, Newgate Recovery, LLC, and its surety, if any.

_________________________________
D. MICHAEL SWINEY, JUDGE

-8-