Most collection lawsuits result in judgments obtained by default. A Default Judgment is awarded when the defendant fails to file a written response to the lawsuit within the required time period, typically 30 days. Over 90% of collection lawsuits filed in Nebraska result in a default judgment.
The concept of allowing default judgments seems fair enough. If a debtor fails to respond to the lawsuit it is pretty clear they probably owe the money. The problem with default judgments, however, is that in a significant portion of these lawsuits the debtor never actually receives a copy of the complaint. There are a variety of reasons for this. Some debtors evade service of summons by refusing to answer the door when a sheriff comes to deliver the court summons. Many debtors are simply not home when summons are delivered because they are working. Most commonly, the debtor has moved to another address. This is a problem for a creditor because no judgment can be issued, including default judgments, until the court has proof that a debtor was served with notice of the lawsuit and has had 30 days to respond to the complaint.
So, what does a creditor do when a debtor cannot be personally served with a copy of a lawsuit? They ask the court to allow an alternative form of service call Constructive Service. This allows a creditor to serve a copy of the complaint by taping it to the debtor’s door and simultaneously sending a copy via U.S. First Class mail. Less commonly, service of summons may be accomplished by publication of notice in a local newspaper when there is no known residence.
This is the background in the case of Kountze v Domina Law Group decided by the Nebraska Court of Appeals. Domina sued Edward Kountze for unpaid legal bills totaling $103,548 in the District Court of Washington County, Nebraska. Unsure of where Kountze resided, Domina obtained a Westlaw Peoples Search that provided 15 possible addresses, 3 of which were post office boxes. Believing, incorrectly, that service of summons could not be obtained via a post office box, Domina sent a copy of his complaint to each of the 12 residential addresses by certified mail.
Domina received a signed certified mail receipt from the summons mailed to a Portland Place address in Boulder, Colorado. When no response to the lawsuit was filed, Domina moved the court to issue a default judgment. The court awarded Domina’s motion and issued a judgment against Kountze for $103,548 plus court costs of $82.50 in April 2014.
According to an affidavit signed by Kountze, he had no knowledge of the lawsuit or judgment until one of his attorneys brought it to his attention in June 2015. Kountze then filed a Complaint to vacate the default judgment.
The Washington County District Court granted the motion to vacate the default judgment because Domina failed to send summons to the PO Box in Colorado that Domina sent regular billing statements to Kountze over the past 6 years. Next, Kountze’s attorneys file a motion to dismiss the underlying collection lawsuit because Domina failed to serve the summons within 6 months of filing his lawsuit in violation of Nebraska Statute 25-217. The court granted the motion to dismiss the underlying lawsuit and Domina filed an appeal.
VACATING THE DEFAULT JUDGMENT
The District Court and the Appeals Court harped on the fact that Domina failed to send summons to the PO Box in Boulder Colorado that Domina sent regular billing statements.
Due process requires notice to be reasonably calculated to apprise the defendant of the pendency of the action and to afford him the opportunity to present his objections. . . Indeed, “[t]he means employed must be such as one desirous of actually informing the absentee might reasonably adopt to accomplish it.
According to the appeals court, Domina failed to meet this due process standard and his efforts to apprise the debtor of the pending litigation was not reasonably calculated to provide notice because a summons was not mailed to the address Domina used to send regular billing statements–the Boulder, Colorado PO Box.
But what if Domina had actually sent summons to this post office box? Why would that make a difference? According to the Kountze affidavit he did not reside in Colorado. Rather, according to the affidavit, Kountze lived in Florida. So how would a summons mailed to an address in a state the debtor did not reside in magically transform Domina’s efforts from unreasonably calculated to provide notice to reasonably calculated? The court’s logic is somewhat bizarre.
To the contrary, the fact that Domina obtained a Westlaw People Search and mailed summons to 12 physical addresses throughout the United States seems to be the essence of making a reasonably calculated effort to apprise a debtor of pending litigation.
Mailing a summons to the Boulder post office box would not have provided notice to a fellow who lives in Florida.
Why does it make a difference whether the service of summons was reasonably calculated to provide notice? Isn’t the real issue here the fact that the defendant did not have actual notice, not whether plaintiff reasonably attempted to provide notice? Does non-service of summons become service when it is reasonably calculated? Apparently so.
There is no real dispute that the judgment should have been vacated since Kountze did not receive a copy of the lawsuit, but the court’s analysis is puzzling.
MOTION TO DISMISS UNDER NEBRASKA STATUTE §25-217
The real power of this decision comes from the court’s ruling that the underlying lawsuit should be dismissed under Nebraska Statute 25-217 for failure to serve summons within 6 months. The crushing impact of that ruling is that the Statute of Limitations has now probably run and Domina may never be able to sue Kountze for the unpaid debt. (Creditors generally have 4 to 5 years from the date of last payment to sue on an unpaid debt.)
This result seems patently unfair. Domina did receive a signed certified mail receipt to one of the 12 summons mailed to Kountze within the six-month requirement, although later Kountze claimed he did not sign the receipt and has no idea who actually did sign it. It would appear that is was reasonable for Domina to assume that Kountze had received actual notice of the lawsuit.
What the appeals court is not considering is that thousands of default judgments are awarded to plaintiffs in Nebraska annually when summons are mailed to addresses where the debtor no longer resides. Further, although Domina obtained a Westlaw People Search and mailed summons to 12 of 15 possible addresses, in the typical collection lawsuit such reports are rarely obtained and default judgments are normally awarded after creditors get court approval to utilize constructive service.
Is the Nebraska Court of Appeals saying that if a creditor fails to obtain a Westlaw Peoples Search and then to mail summons to ALL possible addresses on that report then the creditor has failed to provide a reasonably calculated notice to apprise the defendant of the pendency of the action?
Up to now this lawyer has assumed that a successful motion to vacate a default judgment only voided the judgment and that it was then necessary for the defendant to then file an answer to the complaint. Now it appears that, assuming service was not perfected within 6 months, the next step is to file a motion to dismiss the case under Neb. Rev. Stat. §25-217. That’s a game changer, especially when the statute of limitation has expired. I suspect that thousands of default judgments entered in Nebraska may not only be vacated, but the underlying lawsuit may be dismissed entirely because the statute of limitations has now expired.
Image courtesy of Flickr and angela n.