It seems so simple. If you don't file an answer, you lose. Default is entered, so you are deemed to have admitted all the allegations in the complaint. But what happens if there is to be a hearing on damages (what we used to call "default and inquiry)? What evidence and arguments are allowed by the defense in such a hearing, and which are verboten because default has been entered? In the recent decision Webb v. McJas, Inc., the Court of Appeals allowed a judgment to stand where the Superior Court Judge awarded $992.88 in damages and $506.78 in attorney fees after a hearing on default damages involving a complaint that sought $139,259.86 in compensatory damages. Did we already say that the defendant was in default?
The case arose out of a lease for a McAlister's Deli in Pitt County. After filing an amended complaint seeking the $139,259.86 in unpaid rent against an individual guarantor, judgment was eventually entered by the clerk for the full amount sought since the guarantor in question had failed to file an answer. In response to a later motion to set aside the judgment, filed by the guarantor, the trial judge set the default judgment aside but not the entry of default itself. As such, the case was scheduled for a damages hearing. After evidence was presented, another trial judge entered the much lower damages award after determining that the guarantor only guaranteed a portion of the amounts sought by the plaintiff, and that credits should apply given payments made by or on behalf of other defendants.
The plaintiff cried foul on appeal. Pointing out that the entry of default should have foreclosed any liability defenses, the plaintiff characterized the trial court's action as allowing a defaulting litigant to escape the consequences of his default status. The Court of Appeals disagreed, holding that in determining the correct amount of damages, the trial court was allowed to critically examine the evidence presented and come to the conclusion that not all the damages sought were recoverable from the guarantor as opposed to some other party. Since the documents that showed the guarantor did not guarantee the entire amount sought were attached to the complaint by the plaintiff himself, the judge could hardly ignore such evidence staring him in the face just because the defendant defaulted.
Practice point for the plaintiff: there is no need to attach all supporting documents to a collection complaint. Bare bones allegations, when admitted in default, create a cleaner record for entry of default judgment. For the defense: just because your client is in default does not mean you throw up your hands in defeat. Creative and persuasive lawyering can still be of great value to a defaulted client.
