Jun Li and Jimmy Chung Fai Tam v. NextGear Capital, Inc.

FILED
Dec 11 2019, 7:00 am

CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court

ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Kevin S. Smith David J. Jurkiewicz
Church, Church, Hittle & Antrim Nathan T. Danielson
Fishers, Indiana Bose McKinney & Evans LLP
Indianapolis, Indiana
Gregory A. Schrage
Church, Church, Hittle & Antrim
Noblesville, Indiana

IN THE
COURT OF APPEALS OF INDIANA

Jun Li and Jimmy Chung Fai December 11, 2019
Tam, Court of Appeals Case No.
Appellant-Defendants, 1 19A-CC-608
Appeal from the
v. Hamilton Superior Court
The Honorable
NextGear Capital, Inc., William J. Hughes, Judge
The Honorable
Appellee-Plaintiff.
Darren J. Murphy, Magistrate
Trial Court Cause No.
29D03-1805-CC-4643

Kirsch, Judge.

1
Default judgment was set aside against Jimmy Chung Fai Tam, and he, therefore, does not join in this
appeal. However, pursuant to Indiana Appellate Rule 17(A), a party at trial is a party on appeal.

Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019 Page 1 of 22
[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, Li’s former business partner,

Jimmy Chung Fai Tam (“Tam”), and their business, No Credit Check Auto

Sales, Inc. (“Dealership”), all based in California. NextGear’s 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.

Facts and Procedural History2
[3] Dealership was a California corporation with its principal place of business in

Hayward, California. Appellant’s App. Vol. II at 9. Tam and Li, who were

2
Oral argument was held on June 27, 2019 at Purdue University’s Krannert Graduate School of
Management. We extend many thanks. First, we thank counsel for the quality of the oral and written
arguments, for participating in post-argument discussions with the audience, and for commuting to West
Lafayette, Indiana. We especially thank the Executive Education Program at the Krannert Graduate School
of Management for their accommodations and the students in the audience for their thoughtful post-
argument questions.

Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019 Page 2 of 22
 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

Dealership’s assets, including Dealership’s 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 Dealership’s President,

and Li signed it as Dealership’s 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 Dealership’s 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 29-30.

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[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.

Appellant’s 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 Dealership’s 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

NextGear’s 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

Dealership’s vehicles due to Dealership’s default on the Note. Tr. at 23;

Appellant’s 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 Dealership’s indebtedness to NextGear

on the Note. Def.’s Ex. 1; Tr. at 20-21. Rahimzadeh called and exchanged

numerous emails with NextGear’s Senior Recovery Specialist and its Risk &

Recovery Counsel between May 17, 2018 and June 28, 2018. Def.’s Ex. 1.

[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

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 against Dealership, breach of contract on the personal guaranties against both

Tam and Li, and conversion against all three parties. Appellant’s 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. at 3-4.

[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 NextGear’s claims.

Id. at 21-22, 30-31, 35. Rahimzadeh told Li and Tam that the settlement

negotiations with NextGear not only pertained to Dealership’s debt obligation,

but also to Li’s obligation as a guarantor. Id. at 21, 34. Tam also told Li that

Rahimzadeh was negotiating with NextGear on Li’s behalf. Id. at 22. Li

agreed to contribute a certain amount of money as part of Rahimzadeh’s

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

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 [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 Li’s 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 Rahimzadeh’s

negotiations with NextGear. Id. at 33-34.

[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. Appellant’s 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

NextGear’s 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.

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 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

NextGear’s 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 Tam’s

testimony:

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 right?

A: Yes. Yes.

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 Q: Okay. And did you tell [Li] that [Rahimzadeh] was
negotiating on his behalf as well?

A: Yes.

Q: Okay. And is it your understanding that [Rahimzadeh] was
the, was the individual that was to have the communications
with [NextGear]?

A: Yes.

Tr. at 21-22. Li gave similar testimony:

Q: Okay. Now, when you received the lawsuit, did you talk to
[Tam] about the lawsuit?

A: Yeah. When I received the court letter, I talked to, ah, ah,
[Tam] immediately, and ah, and [Tam] talked to ah, talked to his
lawyer and om, the lawyer actually negotiating with NextGear.

Q: Okay. And was it your belief that this attorney,
[Rahimzadeh], was actually negotiating on your behalf as well?

A: Yes.

Q: Okay. And why did you believe that?

A: Why? Because . . . he say he represent the company also.

Q: Okay. So, did you have conversations with [Rahimzadeh]?

A: Yes, I did.

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 Q: Okay. And in those conversations, what, what was the basis
of those, of those discussions?

A: The, the lawyer say he would contact the NextGear to
negotiate –

Q: Okay.

A: And ah, he would get me a [sic] answer when NextGear
respond [sic].

Q: Okay, and without getting too far into the specifics, were you
at that time, and in this negotiation, were you informing
[Rahimzadeh], that you may pay certain amounts of money to
resolve this situation?

A: Yes, I did.

Q: Okay. And, to the best of your knowledge, did
[Rahimzadeh], make that offer to [NextGear]?

A: Yes. Of course.

Q: Okay. And to the best of your knowledge, were you, was it
your belief that you need not appear in this case in Indiana while
[Rahimzadeh] was negotiating with [NextGear]?

A: No, I don’t because we have a lawyer negotiating with them,
so I think for him respond to them already.

Q: Okay. So, it was your belief that you either had already
responded by [Rahimzadeh] or that you didn’t need to find an

Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019 Page 9 of 22
 Indiana attorney while [Rahimzadeh] was negotiating? I’m just
trying to understand what you are saying.

A: Because we have a lawyer respond to them already so I didn’t
know I need to write, ah, ah respond the, the court in Indiana.

Q: Okay. And you believed that because your discussions with
[Rahimzadeh] led you to believe that he was negotiating on your
behalf as well?

A: Yes.

Id. at 30-31.

[13] During the hearing on the motion to set aside default judgment, the trial court

engaged in the following colloquy with Li:

Q: Did [Rahimzadeh] ever specifically tell you that he was going
to represent you or your interest in this litigation?

A: Oh! Actually when I talk to the lawyer and I tell him, can you
represent me also, and the lawyer says he represent [Tam] and
also the company. Him and the company have my guarantor, so
om, he on top of it, is what he said.

Q: But, he didn’t specifically say that he’s representing you as
guarantor?

A: No. But, he say he represent the company and should that
include me. That what he said.

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 Q: Did he tell you you should not respond to this summons or
didn’t have to take any action based on your receipt of the
summons?

A: He say he negotiating with NextGear and I think that is a
response already.

Id. at 35. Counsel for Tam and Li then asked Li the following related question:

Q: . . . Even if [Rahimzadeh] never, you never retained him
technically as an attorney, was it your belief that he was
negotiating on your behalf?

A: Yes, yes, that is what I believe.

Id. at 36.

[14] Following the hearing, the trial court issued an order allowing Tam and Li to

file a supplemental brief in support of their motion to set aside default

judgment. Appellant’s App. Vol. II at 136-37. A supplemental brief was filed,

which alleged that the default judgment should be set aside due to excusable

neglect pursuant to Indiana Trial Rule 60(B)(1) and due to misconduct pursuant

to Indiana Trial Rule 60(B)(3). Id. at 138-47. After NextGear filed a responsive

brief, the trial court issued an order on February 12, 2019, granting in part and

denying in part the motion to set aside default judgment. Id. at 7-8. The trial

court granted the motion in favor of Tam and vacated the order of default

judgment against him. Id. at 7. The trial court denied the motion as it

pertained to Li, stating that, “[Li] admitted receiving proper service of the

Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019 Page 11 of 22
 complaint. The evidence presented did not establish excusable neglect to set

aside the default judgment.” Id. Li now appeals.

Discussion and Decision
[15] Li argues that the trial court abused its discretion when it denied his motion to

set aside default judgment as to him. Our Supreme Court set out the following

standard of review governing a trial court’s decision to set aside a default

judgment:

The decision whether to set aside a default judgment is given
substantial deference on appeal. Our standard of review is
limited to determining whether the trial court abused its
discretion. An abuse of discretion may occur if the trial court’s
decision is clearly against the logic and effect of the facts and
circumstances before the court, or if the court has misinterpreted
the law . . . . The trial court’s discretion is necessarily broad in
this area because any determination of excusable neglect,
surprise, or mistake must turn upon the unique factual
background of each case . . . . A cautious approach to the grant
of motions for default judgment is warranted in “cases involving
material issues of fact, substantial amounts of money, or weighty
policy determinations.” In addition, the trial court must balance
the need for an efficient judicial system with the judicial
preference for deciding disputes on the merits. Furthermore,
reviewing the decision of the trial court, we will not reweigh the
evidence or substitute our judgment for that of the trial court.
Upon a motion for relief from a default judgment, the burden is
on the movant to show sufficient grounds for relief under Indiana
Trial Rule 60(B).

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 Huntington Nat’l Bank v. Car-X Assocs. Corp., 39 N.E.3d 652, 655 (Ind. 2015)

(quoting Kmart Corp v. Englebright, 719 N.E.2d 1249, 1253 (Ind. Ct. App. 1999),

trans. denied) (internal citations omitted).

[16] Indiana Trial Rule 60(B)(1) provides in pertinent part that “[o]n motion and

upon such terms as are just the court may relieve a party or his legal

representative from a judgment, including a judgment by default, for the

following reasons . . . mistake, surprise, or excusable neglect.” A movant filing

a motion pursuant to 60(B)(1) must allege a meritorious claim or defense. Ind.

Trial Rule 60(B). A motion under Trial Rule 60(B)(1) does not attack the

substantive, legal merits of a judgment, but rather addresses the procedural,

equitable grounds justifying the relief from the finality of a judgment.

Kretschmer v. Bank of Am., N.A., 15 N.E.3d 595, 600 (Ind. Ct. App. 2014) (citing

Kmart, 719 N.E.2d at 1253), trans. denied. There is no general rule as to what

constitutes excusable neglect under Trial Rule 60(B)(1). Id. Each case must be

determined on its particular facts. Id. The following facts have been held to

constitute excusable neglect, mistake, or surprise:

(a) absence of a party’s attorney through no fault of party; (b)
an agreement made with opposite party, or his attorney; (c)
conduct of other persons causing party to be misled or
deceived; (d) unavoidable delay in traveling; (e) faulty
process, whereby party fails to receive actual notice; (f) fraud,
whereby party is prevented from appearing and making a
defense; (g) ignorance of the defendant; (h) insanity or
infancy; (i) married women deceived or misled by conduct of
husbands; (j) sickness of a party, or illness of member of a
family.

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 Kmart, 719 N.E.2d at 1254.

[17] Li argues that the trial court abused its discretion when it denied his motion to

set aside the default judgment because he alleges that his failure to file an

answer to the complaint constituted “mistake” and “excusable neglect” under

Trial Rule 60(B)(1). He contends that after communicating with Tam and

Rahimzadeh, he believed that Rahimzadeh’s negotiations with NextGear

constituted the response necessary to the lawsuit against him. Li, therefore, did

not believe that any additional response was required in the present litigation.

He further asserts that, although the trial court seemed to focus on the fact that

Li did not retain Rahimzadeh as his attorney, under Indiana precedent, the

inquiry necessary to determine whether mistake or excusable neglect exists is

whether Li understandably believed, albeit mistakenly, that there was nothing

more that he needed to do concerning the litigation beyond what Rahimzadeh

was already doing. He further asserts that he is a layperson, and his confusion

about what he needed to do was understandable and excusable.

[18] In Flying J, Inc. v. Jeter, 720 N.E.2d 1247 (Ind. Ct. App. 1999), a panel of this

court found excusable neglect and reversed the trial court’s denial of a motion

to set aside default judgment. In that case, a slip and fall occurred in the Flying

J convenience store, and after Flying J failed to file an answer to the complaint,

default judgment was entered against it. Id. at 1248. Flying J filed a motion to

set aside the default judgment, alleging a “breakdown in communication” had

occurred with its claims adjuster and such a breakdown constituted excusable

neglect. Id. This court found that the trial court abused its discretion when it

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 failed to set aside the default judgment because Flying J’s failure to file an

answer was excusable in light of the fact that Flying J contacted its insurance

adjuster, instructed him to hire a particular law firm, and reasonably believed

that the adjuster had taken appropriate measures to hire an attorney. Id. at

1249-50. Although the insurance adjuster failed to timely hire counsel,

resulting in the failure to file an answer, this was deemed to be due to a

misunderstanding and excusable neglect. Id.

[19] In its analysis, the court in Flying J analyzed two Indiana Supreme Court cases

involving whether a breakdown in communication was excusable neglect. In

Whittaker v. Dail, 584 N.E.2d 1084 (Ind. 1992), our Supreme Court held that a

breakdown in communication between an insurance company and its client,

which resulted in the client not hiring an attorney, was a sufficient basis to set

aside a default judgment. Id. at 1087. The client was under the impression that

the insurance company was going to hire an attorney for him, and the insurance

company adjuster thought that she had hired an attorney for the client. Id. at

1086. However, the attorney mistakenly believed that he was to file a

declaratory judgment action against the client, rather than defend the client. Id.

at 1087. The Supreme Court reasoned that there was no evidence of “foot

dragging” on the part of the client, and that this breakdown in communication

was excusable neglect. Id.

[20] In Smith v. Johnston, 711 N.E.2d 1259 (Ind. 1999), a doctor failed to open his

mail and, therefore, did not discover that a medical malpractice suit had been

filed against him and his medical practice group. Id. at 1261. The person who

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 regularly received the mail and handled all legal matters was in the process of

leaving the group and was not in the office when the summons arrived. Id. at

1262. Therefore, a nurse who did not normally receive mail signed for the

summons and placed it on the doctor’s desk. Id. Even though the doctor was

aware that the person who regularly received the mail was leaving the group, he

did not open the summons until after a default judgment had been entered

against him. Id. Our Supreme Court found this breakdown in communication

to be “neglect, but not excusable neglect” and distinguished it from other cases

which found breakdowns in communication excusable. Id. The Court stated

that in the other cases, “the defendants did all that they were required to do but

subsequent misunderstandings as to the assignments given to agents of the

defendants resulted in a failure to appear.” Id.

[21] More recently, our Supreme Court decided Huntington National Bank v. Car-X

Associates Corp., 39 N.E.3d 652 (Ind. 2015), where a defendant mortgagee bank

was defaulted by a plaintiff judgment lienholder six days after the bank’s

deadline to respond to the complaint had expired. Id. at 654. Because the bank

employee who typically received service of process was out on maternity leave,

a different bank employee received the complaint, but due to his other duties,

he did not refer the complaint to the bank’s attorney until the very day the

plaintiff obtained default judgment. Id. A few weeks later, the bank filed a

Rule 60(B)(1) motion arguing that its untimely response was due to excusable

neglect. Id. The trial court refused to set aside the judgment against the bank,

and our Supreme Court affirmed the trial court, finding that there was no true

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 breakdown in communication that caused the bank’s failure to appear. Id. at

657-58. Reasoning that the bank was a “savvy, sophisticated bank exceedingly

familiar with foreclosure actions,” the Court found that the failure to respond to

a complaint and summons for “no reason other than an employee’s disregard of

the mail” did not constitute a successful allegation of a breakdown in

communication sufficient to establish excusable neglect. Id. at 658.

[22] We find the present circumstances more comparable to the circumstances in

Whittaker and Flying J than to those in Smith and Car-X. Here, after receiving

NextGear’s complaint, Li immediately contacted Tam, his former business

partner, who had been responsible for Dealership for several previous years,

and then contacted Rahimzadeh after being instructed by Tam to do so.

Rahimzadeh told Li he was “on top of it” and was negotiating a settlement with

NextGear, which included Li’s obligation as a guarantor. Tr at 21-22, 34. Li

agreed to contribute a certain amount of money as part of the settlement offer,

and Rahimzadeh told Li that Rahimzadeh would get Li an answer when he

received a response from NextGear. Id. at 30-31. Li testified that 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. Rahimzadeh did not inform

Li that there was anything more Li needed to do to protect his interests in the

litigation, and Li believed that because Rahimzadeh was negotiating on his

behalf, this was a sufficient response to NextGear’s complaint on the

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 defendants’ collective behalf and that there was nothing more he needed to do.

Id. at 31.

[23] Under these circumstances, there was a clear breakdown in communication

between Li and Rahimzadeh, where Li believed that Rahimzadeh was

representing his interests in the lawsuit with NextGear, and such breakdown in

communication resulted in Li not hiring his own attorney to respond to the

complaint. There was no evidence of foot dragging by Li as he testified that he

immediately contacted Tam and Rahimzadeh after he received the complaint,

and, thereafter, he contacted Tam every two weeks to inquire about the status

of the NextGear litigation and Rahimzadeh’s negotiations with NextGear. Id.

at 33-34. Unlike the bank in Car-X, which our Supreme Court found to be a

“savvy, sophisticated bank exceedingly familiar with foreclosure actions,” Li

was merely a layperson, and there was no evidence that he was savvy or

sophisticated in the procedures of loan default litigation. Therefore, like the

defendants in Whittaker and Flying J, Li understandably, albeit mistakenly,

believed that all was being taken care of and nothing more was required of him.

We conclude that the neglect by Li in failing to file an answer to NextGear’s

complaint was excusable.

[24] However, “‘[t]o prevail on a [Trial Rule] 60(B) motion, the petitioner is not

only required to show mistake, surprise, or excusable neglect, but also must

show that he has a good and meritorious defense to the cause of action.’”

Flying J, 720 N.E.2d at 1250 (quoting Butler v. Shipshewana Auction, Inc., 697

N.E.2d 1285, 1289 (Ind. Ct. App. 1998)). A meritorious defense is one which

Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019 Page 18 of 22
 would lead to a different result if the case was tried upon the merits. Id. To

establish a meritorious defense, a party need not prove the absolute existence of

an undeniable defense. Kretschmer, 15 N.E.3d at 601. Rather, a party need only

make a prima facie showing of a meritorious defense. Id.

[25] Here, the evidence presented showed that under the terms of the Note,

NextGear held a security interest in the automobiles purchased by Dealership

with NextGear’s funds. Appellant’s App. Vol. II at 17. Therefore, the secured

transaction between the parties was subject to Indiana Code section 26-1-9.1-

626, which provides that if a creditor fails to abide by the applicable statutes

governing secured transactions and the disposition of collateral, the deficiency

related to that collateral is limited to an amount by which the sum of the

secured obligation, expenses, and attorney’s fees exceeds the greater of: (A) the

proceeds of the collection, enforcement, disposition, or acceptance; or (B) the

amount of proceeds that would have been realized had the noncomplying

secured party proceeded in accordance with the statutes. Ind. Code § 26-1-9.1-

626(3). Under Indiana Code section 26-1-9.1-611, NextGear was required to

provide notice to Dealership, Tam, and Li of the disposition of the vehicles

NextGear repossessed. At the hearing, evidence was presented that, after

NextGear repossessed over 100 vehicles from Dealership, neither Li nor Tam

received any notice as to the disposition of this collateral. Tr. at 23-25, 29-30.

Because of NextGear’s failure to provide this notice, there has been no showing

that the disposition of the repossessed vehicles was done in a commercially

reasonable manner and that the disposition would result in the alleged

Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019 Page 19 of 22
 deficiency that NextGear is requesting as damages.3 We conclude that Li

presented a prima facie showing of a meritorious defense.

[26] Based upon the record, we find that Li has demonstrated grounds for setting

aside the entry of default judgment pursuant to Trial Rule 60(B)(1) and has

alleged a meritorious defense. Therefore, the trial court abused its discretion in

denying his motion to set aside default judgment. We reverse the trial court’s

judgment and remand to the trial court for further proceedings.

[27] Reversed and remanded.

Baker, J., concurs.

Robb, J., concurs with separate opinion.

3
On appeal, NextGear acknowledged that Li’s testimony represented evidence that might constitute a
meritorious defense to one of NextGear’s claims against Li, if Li’s allegations were true. NextGear,
therefore, did not additionally argue that Li has failed to allege a meritorious defense in support of his motion
to set aside default judgment.

Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019 Page 20 of 22
 IN THE
COURT OF APPEALS OF INDIANA

Jun Li and Jimmy Chung Fai Court of Appeals Case No.
Tam, 19A-CC-608
Appellants-Defendants,

v.

NextGear Capital, Inc.,
Appellee-Plaintiff,

Robb, Judge, concurring.

[28] I concur in the majority opinion but write separately to address the majority’s

use of Smith v. Johnston, 711 N.E.2d 1259 (Ind. 1999). Among other cases, the

majority cites Smith for the proposition that the circumstances presented therein

were not excusable neglect and then finds this case “more comparable to the

circumstances in Whittaker and Flying J than to those in Smith and Car-X.” Slip

op. at ¶ 22. However, the “circumstances” leading to the result in Smith are

more than just the neglect by defendant in failing to open his mail.

[29] The trial court in Smith denied the defendant’s motion to set aside a default

judgment entered after the defendant failed to appear. If the holding of Smith

was simply that there was no excusable neglect, one would expect the supreme

Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019 Page 21 of 22
 court would have affirmed the trial court’s judgment. Instead, the supreme

court reversed, holding that the default judgment must be set aside for

misconduct “where the plaintiff’s attorney filed suit and pursued the default

judgment without notifying the attorneys whom she had been advised in

writing were representing the defendant in the matter.” Id. at 1260-61. In so

holding, the supreme court looked to the Rules of Professional Conduct and

determined that the plaintiff’s attorney’s failure to provide notice to attorneys

who had been representing the defendant’s interests in earlier proceedings in the

same matter was prejudicial to the administration of justice and therefore

misconduct warranting relief from the default judgment.

[30] Smith is an instructive case with regard to an attorney’s obligations to the court

and to the legal process and stands for a proposition greater than simply, “there

was neglect, but it was not excusable neglect.” With that observation, I concur

in the majority opinion.

Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019 Page 22 of 22