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HP Hotel Management, Inc. v. Layne

Court of Appeals of Kentucky

December 8, 2017

HP HOTEL MANAGEMENT, INC.; AND CAMPBELL FAYETTE LLC, D/B/A THE CAMPBELL HOUSE APPELLANTS
v.
LELA LAYNE APPELLEE

         APPEALS FROM FAYETTE CIRCUIT COURT HONORABLE KIMBERLY N. BUNNELL, JUDGE ACTION NO. 15-CI-03987

          BRIEFS FOR APPELLANTS: Jane C. Higgins Sarah E. Noble Lexington, Kentucky

          BRIEF FOR APPELLEE: Brandis Bradley Pikeville, Kentucky

          BEFORE: COMBS, J. LAMBERT, AND NICKELL, JUDGES.

          OPINION

          LAMBERT, J., JUDGE.

         HP Hotel Management, Inc., and Campbell Fayette LLC d/b/a The Campbell House have appealed from the orders of the Fayette Circuit Court denying their motions to set aside the default judgment entered in favor of Lela Layne in her personal injury suit. We reverse and remand.

         Campbell Fayette is a foreign limited liability company that does business as The Campbell House. The Campbell House is a hotel located on South Broadway in Lexington, Kentucky. HP Hotel Management is a foreign corporation doing business in Fayette County, Kentucky, and is a hotel management company that oversees operations of The Campbell House. Layne was a guest of The Campbell House on October 31, 2014, when she was injured in a trip and fall in the entranceway of the establishment.

         On October 30, 2015, Layne filed a complaint in the Fayette Circuit Court seeking damages for personal injuries she sustained in the fall. She alleged that her fall was "due to an inadequately and/or un-marked step and inadequate lighting along the path of the hotel entranceway" and that the defendants failed to maintain the premises in a reasonably safe condition or warn her of the unsafe condition. She requested service of process upon the defendants' registered agents, CT Corporation System for Campbell Fayette and CSC Lawyer's Incorporating Service Company for HP Hotel Management, through the Kentucky Secretary of State as the statutory agent.

         The circuit clerk's office sent the civil summons to the Secretary of State via certified mail. By memorandum dated November 16, 2015, the Summons Division of the Office of the Secretary of State indicated that it had been served with a summons and other documents for CSC Lawyer's Incorporating Service Company (the registered agent for HP Hotel Management), that it had sent a copy of the summons and documents to that entity via certified mail, return receipt requested, on November 3, 2015, and that the United States Postal Service provided a scanned image of the return receipt received on November 9, 2015, and signed by Linda A. Smith confirming receipt of the summons.[1] In a separate memorandum dated December 21, 2015, the Summons Division indicated that it had also served Campbell Fayette by sending a copy of the summons and documents via certified mail, return receipt requested, on November 5, 2015. However, the office never received the postal return receipt card or the undelivered letter.

         Almost nine months later, on June 24, 2016, Layne filed a motion for default judgment pursuant to Kentucky Rules of Civil Procedure (CR) 55.01 against both defendants. Because neither defendant had answered her complaint after having been served by the Office of the Secretary of State via their registered agents, Layne asserted that she was entitled to a judgment by default and a determination of damages to which she was entitled. She did not serve either defendant with the motion, and the court held a hearing on July 22, 2016.[2] On August 22, 2016, Layne filed a motion for a hearing on damages and noticed the motion to be heard on September 2, 2016. Unlike with the motion for default judgment, Layne served both defendants via the Office of the Secretary of State through their registered agents with a copy of this motion.[3] At the conclusion of the hearing, the court found that Layne was entitled to $75, 000.00 in damages as she requested.

         On September 16, 2016, the court entered a default judgment, finding that both defendants had been duly served with the complaint and had failed to defend against it. The court awarded Layne $35, 458.92 for past medical expenses; $2, 229.00 for future medical expenses; $3, 500.00 in lost wages; and $33, 812.08 for pain and suffering.

         After the judgment was entered, the court received a notification from the Summons Division dated September 12, 2016, that Campbell Fayette had been served on August 30, 2016, with the motion for a hearing and that it had been delivered on September 7, 2016. It was signed for by Christian Bast.

         On September 26, 2016, HP Hotel Management filed a CR 59.05 motion for relief from the default judgment. In support, HP Hotel Management stated that it was not properly served with process because the person served with the complaint and summons in August 2016 (Brian Howard) was not an employee or a registered agent of HP Hotel Management; it was improperly served through the Secretary of State rather than through its registered agent; neither HP Hotel Management nor its registered agent received timely, written notice of Layne's motions for a default judgment and for a damages hearing; and Layne's motion for a default judgment was filed and granted before HP Hotel Management was served with process, thereby violating CR 12.01 and CR 55.01. HP Hotel Management reminded the court that default judgments are disfavored by Kentucky law when no prejudice would result otherwise. HP Hotel Management also stated that its current registered agent authorized to receive and accept service of process in Kentucky was Corporation Service Company, as reflected in a Statement of Change of Registered Agent dated October 27, 2015.

         HP Hotel Management went on to argue that Layne had improperly served her summons and complaint on it via the Secretary of State rather than its registered agent, citing Kentucky Revised Statutes (KRS) 14A.4-040, which under subsection (1) provides that "[a]n entity's or foreign entity's registered agent shall be its agent for service of process, notice, or demand required or permitted by law to be served on the entity or foreign entity." Layne had improperly served her summons and complaint on HP Hotel Management by serving it through the Secretary of State rather than its registered agent. The Secretary of State mailed the motion for a damages hearing to its registered agent on September 1, 2016, and HP Hotel Management found out about the lawsuit when it was served with that motion, after the September 2, 2016, hearing on the motion. HP Hotel Management again argued that it had been improperly served through the Secretary of State rather than through its registered agent. HP Hotel Management argued that Layne would not be prejudiced by setting aside the default judgment as HP Hotel Management had not substantially delayed the litigation, stating that it entered an appearance 31 days after being served. HP Hotel Management also argued that it would be presenting a meritorious defense in arguing that Layne's fall was caused by her own contributory negligence because she was using her phone at the time she fell. Because it had established good cause through a valid excuse for its failure to answer, the absence of prejudice to Layne, and a meritorious defense, HP Hotel Management argued that the circuit court should vacate the default judgment and that the case should be decided on the merits.

         On September 30, 2016, the court heard arguments from counsel for HP Hotel Management on its motion for CR 59.05 relief. HP Hotel Management argued that there were issues with service because the complaint was not served on the registered agent and that service was not effectuated until August 26, 2016. Layne explained that the August 26, 2016, service was of the motion for a damages hearing. The court permitted Layne to file a response and redocketed the hearing for a later date.

         The court held a second hearing on October 7, 2016. Layne filed a written response during the hearing. In her written response, Layne argued that HP Hotel Management had been properly served through the Secretary of State, pursuant to Kentucky's long-arm statute, KRS 454.210, who would then serve the registered agents for both defendants. She argued that actual notice of a lawsuit is not a prerequisite for personal jurisdiction when service is effectuated through the Secretary of State pursuant to that statute. She also argued that she would be prejudiced if the default judgment were to be vacated based on the amount of medical bills she had accrued. During the hearing, the parties discussed the registered agent issue and how and when the summons and complaint were served. While HP Hotel Management conceded that it remained in default because it had not yet filed an answer to Layne's complaint, it said it had only been in default for no longer than twenty-one days and that it was ready to defend against the lawsuit. Layne continued to argue that actual notice was not required. The court discussed the fact that it had questioned at the prior hearing why the defendants had not responded to the complaint, which was the reason it directed Layne to re-serve the defendants with notice of the damages hearing to permit them to appear and ask for more time to answer the complaint. That did not happen, and neither defendant appeared at the damages hearing, leading to the entry of the default judgment after hearing testimony on damages. The court did not believe HP Hotel Management's pleadings were entirely accurate and did not find a sufficient basis to vacate the default judgment. Accordingly, the court orally denied HP Hotel Management's motion at the conclusion of the parties' arguments.

         Campbell Fayette, in a separate motion filed October 10, 2016, moved for relief from the default judgment pursuant to CR 59.05 and CR 60.02, also stating that it had never received the summons or complaint and, therefore, it had never received actual notice of the lawsuit. Campbell Fayette indicated that it was the former owner of The Campbell House, having sold it on October 16, 2015. It did not become aware of the lawsuit until the date it filed its motion for relief. It also pointed out that the memorandum from the Office of the Secretary of State provided that it had not received the postal return receipt card or the undelivered letter, which contained the summons and complaint. Because the property had been sold two weeks before the complaint was filed, Campbell Fayette suggested that the complaint might instead have been received by the new owner of The Campbell House. Campbell Fayette went on to argue that there was no prejudice to the other parties because it had just become aware of the lawsuit and that it was prepared to present a meritorious defense against Layne's claims. Layne also objected to Campbell Fayette's motion, arguing that it had received sufficient notice of her complaint. Pursuant to KRS 454.210, the summons was deemed to have been served upon the date of the memorandum from the Secretary of State that it had not received the postal return receipt card or the undelivered letter. She argued that possible receipt of the summons and complaint by the new owner of the property was not good cause to set aside a default judgment.

         The court heard arguments on Campbell Fayette's motion for relief on October 14, 2016. Campbell Fayette argued that although service was done through the Secretary of State, it did not receive notice of the lawsuit. Counsel for Campbell Fayette found out about Layne's lawsuit from counsel for HP Hotel Management at a hearing in a separate suit at the end of September. Counsel contacted the insurance company to notify it, and she was retained October 7, 2016, at a time she was out of the office. Counsel stated she filed the motion for relief on the day she spoke with her client. Layne continued to argue that lack of actual notice, by itself, did not constitute excusable neglect and that Campbell Fayette failed to produce evidence to demonstrate the fault for this was attributable to Layne, the Office of the Secretary of State, ...


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