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Franklin Collection Service, Inc. v. Bancorpsouth Bank

Supreme Court of Mississippi

May 23, 2019

FRANKLIN COLLECTION SERVICE, INC.
v.
BANCORPSOUTH BANK FRANKLIN COLLECTION SERVICE, INC.
v.
BANCORPSOUTH BANK BANCORPSOUTH BANK
v.
FRANKLIN COLLECTION SERVICE, INC.

          DATE OF JUDGMENT: 06/08/2017

          LEE COUNTY CIRCUIT COURT HON. JAMES SETH ANDREW POUNDS JUDGE

          TRIAL COURT ATTORNEYS: CLAUDE F. CLAYTON, JR. WILLIAM HULL DAVIS, JR. DANA G. DEARMAN J. PATRICK CALDWELL

          ATTORNEYS FOR APPELLANT: DANA G. DEARMAN CLAUDE F. CLAYTON, JR. WILLIAM HULL DAVIS, JR.

          ATTORNEYS FOR APPELLEE: J. PATRICK CALDWELL DAVID K. HAADSMA

          ATTORNEYS FOR APPELLANT: CLAUDE F. CLAYTON, JR. DANA G. DEARMAN WILLIAM HULL DAVIS, JR.

          ATTORNEYS FOR APPELLEE: J. PATRICK CALDWELL DAVID K. HAADSMA

          BEFORE RANDOLPH, C.J., ISHEE AND GRIFFIS, JJ.

          GRIFFIS, JUSTICE

         ¶1. This case involves three consolidated interlocutory appeals. Each appeal arises from litigation filed by Franklin Collection Service, Inc. (Franklin), against BancorpSouth Bank (BancorpSouth).

         ¶2. Franklin and BancorpSouth had been in litigation for approximately forty months. After Franklin determined that BancorpSouth had failed to file a responsive pleading to the second amended complaint, Franklin applied for and obtained an entry of default by the clerk. Franklin also filed a motion to deem admitted the allegations of the second amended complaint. BancorpSouth then filed a motion to set aside the entry of default and a motion for leave to file a responsive pleading to the second amended complaint.

         ¶3. The trial court heard each motion and decided to deny Franklin's motion to deem admitted the allegations of the second amended complaint; to grant BancorpSouth's motion for leave to file a responsive pleading to the second amended complaint; and to deny BancorpSouth's motion to set aside the entry of default. We affirm in part, we reverse in part, and we remand.

         FACTS AND PROCEDURAL HISTORY

         ¶4. Franklin is a debt-collection company located in Tupelo. As part of its operations, Franklin maintained a number of bank accounts, including its general operating account, at BancorpSouth. Each business day, a large number of checks passed through Franklin's operating account. Because of the nature of its collection business, Franklin deposited into its operating account many checks from debtors that bounced. Instead of returning checks that Franklin wrote against insufficient funds, BancorpSouth routinely paid the checks into overdraft. These payments resulted in service charges to the operating account. From March 28, 2006, to December 31, 2008, Franklin incurred total overdraft charges in excess of $600, 000.[1]

         ¶5. Franklin demanded reimbursement of the overdraft fees, but BancorpSouth refused. As a result, Franklin filed its first amended complaint against BancorpSouth in March 2010.[2]In its first amended complaint, Franklin alleged that "from 2006 through 2008, BancorpSouth[] charged Franklin excessive amounts of overdraft fees through practices which were neither fair to Franklin nor adequately disclosed to Franklin in [a]ccount documents." Franklin further alleged that BancorpSouth "imposed excessive and wrongful overdraft fees against Franklin by the artificial manipulation of the order in which checks presented for payment on Franklin's [operating] [a]ccount were paid." Franklin asserted various causes of action against BancorpSouth, including breach of contract and negligence. BancorpSouth timely responded to the first amended complaint and asserted forty-three affirmative defenses.

         ¶6. In November 2012, Franklin filed a motion for leave to file a second amended complaint. Franklin sought to remove the claim for negligent hiring, retention, and supervision, and to assert a new claim for breach of fiduciary duty. On June 6, 2013, the motion was granted, and Franklin's second amended complaint was filed. It is undisputed that BancorpSouth did not timely file an answer to the second amended complaint. Nevertheless, the parties continued to actively litigate the case for more than three years.

         ¶7. On September 1, 2016, BancorpSouth filed a motion for summary judgment based on thirteen of the defenses asserted in its answer to the first amended complaint. Franklin filed its response to the motion for summary judgment on October 14, 2016. That same day, Franklin filed a motion to deem admitted the allegations of the second amended complaint and an application for an entry of default by the court. The application was hand delivered to the circuit clerk's office. Default was entered by the clerk on October 14, 2016. Franklin then moved for default judgment.

         ¶8. In response, on October 21, 2016, BancorpSouth filed a motion to set aside the entry of default. Thereafter, on November 15, 2016, BancorpSouth filed a motion for leave to file a responsive pleading to the second amended complaint and attached to the motion its proposed answer and defenses.

         ¶9. Following a hearing on the various motions, the trial court denied Franklin's motion for default judgment, denied Franklin's motion to deem admitted the allegations of the second amended complaint, granted BancorpSouth's motion for leave to file an answer to the second amended complaint, and denied BancorpSouth's motion to set aside the entry of default. Separate orders were subsequently entered. On April 13, 2017, BancorpSouth filed its answer and defenses to Franklin's second amended complaint.

         ¶10. Franklin filed two separate petitions for interlocutory appeal: one from the trial court's denial of the motion to deem admitted the allegations of the second amended complaint, No. 2017-IA-00895-SCT, and one from the trial court's grant of BancorpSouth's motion to file a responsive pleading to the second amended complaint, No. 2017-IA-00900-SCT. BancorpSouth filed a petition for interlocutory appeal from the denial of its motion to set aside the entry of default, No. 2017-IA-00905-SCT. This Court granted all three petitions and consolidated the appeals. BancorpSouth's appeal was designated a cross-appeal. We first address BancorpSouth's cross-appeal.

         DISCUSSION

         I. Whether the trial court's denial of BancorpSouth's motion to set aside the entry of default was error.

         ¶11. BancorpSouth argues that the trial court erred in denying its motion to set aside the entry of default. We review a trial court's grant or denial of a motion to set aside an entry of default for abuse of discretion. Tucker v. Williams, 198 So.3d 299, 309 (Miss. 2016).

         ¶12. The trial court found that default "was properly entered by the clerk." In an effort to clarify, the court stated, "I'm not setting the clerk's entry of default aside, I'm just not granting a default judgment based on that entry of default."

         ¶13. In Tucker, this Court discussed the "interrelated" standards for setting aside entries of default and default judgments. Id. at 308. An entry of default may be set aside for "good cause shown" under Mississippi Rule of Civil Procedure 55(c). Id. at 309 (quoting M.R.C.P. 55(c)). On the other hand, to set aside a default judgment requires one of the more compelling reasons enumerated in Mississippi Rule of Civil Procedure 60(b). Id.

         ¶14. "Good cause" is shown when the moving party provides an explanation for the default or gives reasons why setting aside the entry of default would serve the interests of justice. Id. at 310.

"Any of the reasons sufficient to justify the vacation of a default judgment under Rule 60(b) normally will justify relief from a default entry and in various situations a default entry may be set aside for reasons that would not be enough to open a default judgment. . . ." Thus, when considering whether the trial court abused its discretion by failing to set aside an entry of default, the Court considers [(1)] the nature and legitimacy of the explanation for the default, [(2)] whether there is a colorable defense to the claim, and [(3)] the extent of prejudice to the plaintiff if the default is set aside. When reviewing the trial court's refusal to set aside an entry of default, the Court applies a more liberal standard to its consideration of these factors than it applies when reviewing a default judgment.

Id. (internal quotation marks omitted) (citations omitted).

         1. The Nature and Legitimacy of BancorpSouth's Explanation for the Default

         ¶15. BancorpSouth asserts its counsel has "no record of having received the order granting leave to file the second amended complaint." Yet BancorpSouth admittedly received the second amended complaint and referenced the second amended complaint in its motion for summary judgment.

         ¶16. Franklin asserts, "the reason for [BancorpSouth's] default can only be characterized as inadvertence of counsel," which is insufficient to establish good cause. See Stanford v.Parker, 822 So.2d 886, 889 (Miss. 2002) ("simple inadvertence, mistake of counsel, and failure to follow up" do not amount to good cause). Franklin argues BancorpSouth "has not and cannot show good cause for its ...


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