The Kaplan Law Firm
Virginia Supreme Court Says Default Judgment Can be Entered Against Defendant Who Knows Nothing Of Lawsuit
The message of a somewhat surprising recent Virginia Supreme Court decision, Specialty Hospitals Of Washington v. Rappahannock Goodwill Industries, Inc., is clear:  anyone sued in a Virginia court had better file a timely response to the lawsuit—whether or not they actually know that they have been sued. 

The case arose when Rappahannock Goodwill Industries (RGI) filed a complaint against Specialty Hospitals in Fredericksburg Circuit Court for Specialty Hospitals’ alleged failure to pay for linen and laundry services that RGI had provided it.  Because Specialty Hospitals was an out of state corporation, RGI served the summons and complaint announcing the lawsuit through RGI’s statutory agent, the Secretary of the Commonwealth, instead of serving RGI directly, although it presumably could have done so.  Under Virginia law (and the law of many other states) such service is proper.  According to an affidavit, the Secretary of the Commonwealth mailed notice of the lawsuit, return receipt requested, to Specialty Hospitals’ Delaware agent. 

Specialty Hospitals never responded to the summons.  Consequently, RGI asked the Circuit Court to enter a default judgment, which it did, ordering Specialty Hospitals to pay $838,134.32.  

Not surprisingly, Specialty Hospitals moved to set aside the default judgment.  At a hearing in Circuit Court a company vice president testified that the company’s Delaware agent had never forwarded notice of the lawsuit to the company and that, consequently, had been unaware that it had been filed.  Specialty Hospitals also claimed that RGI had sued the wrong party—that it was not the entity that caused RGI’s alleged damages.  Despite this testimony, the Circuit Court refused to vacate the default judgment.

In its unanimous opinion, written by Chief Justice Cynthia Kinser, the Virginia Supreme Court upheld both the default judgment and the refusal to vacate that judgment.  Because service on the Secretary of the Commonwealth was authorized by Virginia law, and because there was no dispute as to the accuracy of the affidavit indicating that the Secretary of the Commonwealth had forwarded notice of the lawsuit to the company’s Delaware corporate agent, the trial court had done nothing improper in refusing to set aside the default judgment.  The Virginia Supreme Court held that, although whether or not defendants have received actual notice is a factor that trial courts should consider when asked to set aside a default judgment, the fact that a defendant does not have actual notice of a case against him does not mandate setting aside such a judgment.  The high court emphasized that Virginia trial courts have substantial discretion when it comes to motions to set aside a default judgment; the Supreme Court would presumably have also upheld the Circuit Court if it had, in fact, set aside the default judgment.

The decision raises some obvious policy and due process concerns.  Do we really want court rules to be interpreted so that a defendant, who might not otherwise be liable, can be required to pay hundreds of thousands of dollars if a summons goes missing?  And even if the Virginia courts and rule makers think such a harsh rule appropriate, is it consistent with due process to bind a litigant who, through no fault of its own, never receives actual notice of a lawsuit?  Notably, Specialty Hospitals contains no discussion of whether the manner of service in the case was consistent with fundamental fairness or the constitutional requirement of due process.  Of course the counterargument is that it is often nearly impossible to disprove a defendant’s claim to have never received actual notice of a lawsuit against him or her and that a rule universally requiring proof of actual notice would lead to endless gamesmanship. 

Whatever the merits of the decision, it is clear that corporations which do business in Virginia must have effective procedures in place to ensure than any legal notices delivered to their corporate agents are promptly forwarded to the corporation.  And anyone who receives a summons must be sure to timely respond to it.

 

 

 

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