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Verralab Ja LLC v. Cemerlic

Supreme Court of Kentucky

September 26, 2019

VERRALAB JA LLC, A/K/A VLJA, LLC D/B/A BIOTAP MEDICAL APPELLANT
v.
DR. SENAD CEMERLIC AND ABG PAIN MANAGEMENT APPELLEES

          ON REVIEW FROM COURT OF APPEALS CASE NO. 2015-CA-000284-MR JEFFERSON CIRCUIT COURT NO. 14-CI-002806

          COUNSEL FOR APPELLANT: Robert William DeWees III McClain DeWees, PLLC Sarah Patterson Harris McClain DeWees, PLLC

          COUNSEL FOR APPELLEES: Andrew Epstein Bahe, Cook, Cantley & Nefzger

          OPINION OF THE COURT

          WRIGHT JUSTICE.

         I. BACKGROUND

         Appellees, Dr. Senad Cemerlic, a Delaware resident, and ABG Pain Management (a Delaware LLC of which Dr. Cemerlic is the sole member) entered into an agreement with Appellant, VerraLab, a Kentucky LLC. Under the agreement, VerraLab would install, operate, and maintain a laboratory in Delaware to provide clinical drug testing for Dr. Cemerlic's patients at the ABG pain clinic in exchange for certain fees. VerraLab filed a complaint in Jefferson Circuit Court alleging Cemerlic and ABG failed to pay for services and materials totaling nearly $217, 000. Because Appellees were outside the Commonwealth of Kentucky, Cemerlic and ABG were served through the Secretary of State pursuant to Kentucky Revised Statutes (KRS) 454.210.[1]

         In keeping with KRS 454.2 10's requirements, the Secretary of State served Cermerlic and ABG with the summonses and accompanying documents regarding VerraLab's lawsuit by mailing the documents certified mail with return receipt requested. However, Cemerlic refused to accept the mail from the Kentucky Secretary of State. By this point, VerraLab asserts it had already sent Cemerlic and ABG statements and a demand letter requesting payment that had gone unanswered. The summonses and other documents mailed by the Secretary of State were returned marked "refused"-with both envelopes bearing the handwritten word as well as a large sticker with "REFUSED" appearing in capital typeface.

         After the service was returned, VerraLab filed a motion for default judgment. Its attorney informed the trial court that Cemerlic and ABG had failed to answer or file any other responsive pleading and that they had been served through the Secretary of State's office. VerraLab's president also filed an affidavit in support of the motion which included the parties' agreement and the invoices for the services and materials for which Cemerlic and ABG had not paid, totaling almost $217, 000 plus interest.

         The circuit court granted the default judgment, awarding the full amount sought to VerraLab plus interest and attorney fees and costs. VerraLab then sent a notice to Cemerlic (to the same address at which he had refused to accept the certified mail from the Kentucky Secretary of State) to take a deposition. Two weeks later, an attorney entered an appearance for Cemerlic and ABG and filed a motion to set aside the default judgment. That motion included an affidavit from Cemerlic including his address (the same address utilized by the Secretary of State). However, in it, he stated that he was never served with a copy of the complaint and only learned of the adverse judgment when VerraLab sent the notice of deposition. He also disputed that he and ABG were in breach of contract or owed any amount to VerraLab.

         At a hearing on the motion, Cemerlic and ABG argued they had not been served, as Cemerlic did not know the contents of the envelopes he refused to accept from the Secretary of State and did not otherwise know of the lawsuit until the deposition notice. Appellees requested the default judgment be set aside as they were not served, did not breach the contract, and there would be no prejudice to VerraLab as they acted as soon as they had notice. VerraLab argued the service was effective under KRS 454.210, as it had been made to an admittedly good address, it had already sent Appellees a demand letter, and a deliberate refusal of mail could not qualify as a good reason to set aside a default judgment.

         The circuit court denied Cemerlic and ABG's motion to set aside. Cemerlic and ABG appealed to the Court of Appeals, which agreed with the trial court that service had been made upon Cemerlic and ABG pursuant to KRS 454.210. However, that court held that the trial court had abused its discretion in denying Cemerlic and ABG's motion to set aside the default judgment. Therefore, it reversed and remanded the matter to the trial court for it to hear the case on the merits. VerraLab sought discretionary review from this Court, which we granted. We now reverse the Court of Appeals and reinstate the trial court's denial of Cemerlic and ABG's motion to set aside the default judgment.

         II. ANALYSIS

         Cemerlic and ABG did not file a cross-motion for discretionary review concerning the Court of Appeals' holding that service on the doctor and his LLC was effectuated. Therefore, we will not address that issue herein and that portion of the Court of Appeals' opinion stands. The sole issue we will address is VerraLab's claim of error: whether the Court of Appeals erred in holding that the trial court had abused its discretion in denying Cemerlic and ABG's motion to set aside the default judgment.[2]

         Trial courts look to our civil rules when determining whether to set aside a default judgment. Kentucky Rules of Civil Procedure (CR) 55.02 provides: "For good cause shown the court may set aside a judgment by default in accordance with Rule 60.02." CR 60.02 reads in pertinent part: "On motion a court may, upon such terms as are just, relieve a party or his legal representative from its final judgment, order, or proceeding upon the following grounds: (a) mistake, ...


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