Ryland v. Manor Care, Inc.

Present:    All the Justices

ELIZABETH ANN LONG RYLAND,
EXECUTRIX OF THE ESTATE
OF POLLY E. LONG

v.   Record No. 020306 OPINION BY JUSTICE CYNTHIA D. KINSER
                                       October 31, 2003
MANOR CARE, INC., ET AL.

            FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
                   Jonathan C. Thacher, Judge


      This appeal involves a chancery suit brought under the

provisions of Code § 8.01-248(D) and challenges the circuit

court’s judgment setting aside a default judgment.     Because

we cannot say that the court’s judgment was plainly wrong

or without evidence to support it, we will affirm that

judgment.

                 MATERIAL FACTS AND PROCEEDINGS

      Manor Care, Inc. and Manor Care of America, Inc.

(collectively “Manor Care”), filed a bill of complaint,

seeking to set aside a default judgment that previously had

been entered against it in favor of Elizabeth Ann Long

Ryland, executrix for the estate of Polly E. Long

(“Ryland”).   The Circuit Court of Fairfax County had

entered that default judgment in a medical malpractice

action styled Ryland v. Tyroler, et al, No. 196801 (Va.
Cir. Ct. Aug. 31, 2001) (order granting default judgment). 1

Manor Care unsuccessfully moved to have the default

judgment in the medical malpractice action reconsidered or

set aside.   While that motion was pending, Manor Care filed

this separate chancery suit under the provisions of Code

§ 8.01-428(D).   The circuit court heard the following

evidence ore tenus.

     On July 18, 2001, Manor Care received from its

registered agent the notice of motion for judgment and

other papers concerning the medical malpractice action that

Ryland had re-filed against it.    Manor Care faxed those

documents to its insurance company, PHICO Insurance Company

(“PHICO”), on July 19, 2001, and requested PHICO to assign

defense counsel to represent Manor Care as soon as

possible.    That same day, Manor Care sent the documents

concerning the re-filed medical malpractice action to PHICO

via a commercial overnight delivery service.   The

litigation coordinator for Manor Care acknowledged that

Manor Care relied on PHICO to retain defense counsel and to

assure that responsive pleadings were timely filed.

     On July 25, 2001, after receiving the documents from

Manor Care, PHICO assigned Vicki L. Layman (“Layman”) to


     1
       Ryland had re-filed the medical malpractice action
after taking a nonsuit in a prior action.

                               2
defend the action. 2    The written assignment, which PHICO

faxed to Layman on that date, requested Layman to enter an

appearance and answer the action on behalf of its insured,

Manor Care.   PHICO advised Layman that an action had been

filed in 1998 involving the same plaintiff and defendant,

and that it was reopening its file.     PHICO sent a copy of

the assignment to Manor Care.

     After receiving the assignment from PHICO, Layman

contacted the attorney representing Ryland and obtained an

extension of time to August 24, 2001, for Manor Care to

file responsive pleadings. 3    Then, in a letter dated August

1, 2001, Layman advised PHICO that she was requesting an

increase in her hourly compensation for representing

PHICO’s insureds.      Layman asked PHICO to advise her by

August 6, 2001, as to whether it agreed not only to her

increased fee but also to monthly billing.     If PHICO

approved the rate increase, Layman asked PHICO to forward

the necessary documents to confirm their agreement.

Finally, Layman advised PHICO that, in the event it did not

approve her fee increase, PHICO should immediately reassign


     2
       Layman had represented Manor Care in the non-suited
medical malpractice action filed by Ryland.
     3
       According to Layman, responsive pleadings were
originally due on August 7, 2001.



                                 3
the defense of Ryland’s medical malpractice case against

Manor Care to another attorney since responsive pleadings

were due on August 7, 2001. 4

        PHICO received Layman’s August 1 letter on August 6,

2001.       PHICO’s senior claims representative telephoned

Layman that same day and left a detailed voice message

authorizing the requested rate increase for Layman’s

defending Manor Care in the Ryland medical malpractice

action.      However, PHICO never sent Layman a written

agreement reflecting the rate increase.

        On August 16, 2001, a Pennsylvania court, acting on a

petition by the Insurance Commissioner of the Commonwealth

of Pennsylvania, placed PHICO into “Rehabilitation.”

According to PHICO’s senior claims representative, that

action caused many defense attorneys to become reluctant

about working for PHICO because all bills not paid as of

that date were placed in the Rehabilitation estate.       Due to

PHICO’s financial circumstances, Layman notified PHICO, in

a letter faxed to PHICO on August 21, 2001, that she was

unable to represent Manor Care in the Ryland medical

malpractice action and that PHICO, therefore, should

immediately reassign the matter to another attorney.

        4
       Apparently, Layman did not advise PHICO at that time
about the extended deadline for filing responsive


                                  4
Layman also informed PHICO that Ryland’s attorney had

agreed to extend the deadline for filing responsive

pleadings to August 24, 2001.

     That same day, PHICO contacted another attorney, Gary

Godard, about representing Manor Care and faxed “the new

assignment” to him.   Godard agreed to represent Manor Care,

and in a letter received by PHICO on August 22, 2001,

Godard’s office confirmed that Godard would file

appropriate responsive pleadings on behalf of Manor Care.

On August 21, PHICO also advised Manor Care that a new

attorney had been assigned to the case and that the

attorney would file responsive pleadings.    Manor Care’s

litigation coordinator did not contact PHICO again until

August 30, 2001.

     Layman received a voice message from Godard on August

23, 2001, and she then called Ryland’s attorney to advise

that Godard had been assigned to the case.   In a prior

telephone conversation with Ryland’s attorney, Layman had

requested a 30-day extension for filing responsive

pleadings, but the attorney did not agree to her request.

However, at trial, Manor Care attempted to show that Layman

had “asked the judge” for and had received a verbal

agreement that a 30-day extension would be granted to the


pleadings.

                                5
new defense counsel.   The circuit court made a factual

finding that there was no evidence to support any claim

that such an extension had been agreed to or granted by the

court.   Nevertheless, the circuit court accepted that Manor

Care had that understanding, whether it was right or wrong.

     On August 27, 2001, PHICO learned that Godard had a

conflict of interest and could not represent Manor Care.

Consequently, PHICO contacted yet another attorney about

representing Manor Care, but that attorney declined to do

so on August 28, 2001.   Two days later, PHICO obtained

counsel to represent Manor Care and advised Manor Care of

that fact.   However, unbeknownst to PHICO or Manor Care,

Ryland had moved for default judgment against Manor Care on

August 24, 2001.   The court entered the judgment of default

on August 31, 2001.

     After hearing this evidence, the circuit court

observed that Ryland’s attorney knew on August 23 that

Godard “allegedly, had been brought into this case, and it

was very shortly after that that this default judgment was

obtained.”   The court queried whether it was “equitable

that this case [did not] get tried on its merits because

Mr. Godard had a conflict, and the law precludes him from

doing what he said he would do, and he [had] to get out of

the case[.]”   In conclusion, the circuit court stated, “I


                              6
hang my hat on number one . . . in that the default

judgment should not, in equity, in good conscience, be

enforced.   I’m not sure it rises to the level of

negligence.”   For the reasons stated from the bench, the

court subsequently entered an order granting the relief

sought in the bill of complaint and vacating the default

judgment entered against Manor Care.   Ryland appeals from

that judgment.

                           ANALYSIS

     In Charles v. Precision Tune, Inc., 243 Va. 313, 317,

414 S.E.2d 831, 833 (1992), we stated that the provision

now numbered subsection (D) of Code § 8.01-428 “does not

create any new rights or remedies, but merely preserves a

court’s inherent equity power to entertain an independent

action” by a party seeking relief from any judgment.   We

then enumerated the elements of this independent action in

equity:

     (1) a judgment which ought not, in equity and good
     conscience, to be enforced; (2) a good defense to the
     alleged cause of action on which the judgment is
     founded; (3) fraud, accident, or mistake which
     prevented the defendant in the judgment from obtaining
     the benefit of his defense; (4) the absence of fault
     or negligence on the part of the defendant; and (5)
     the absence of any adequate remedy at law.

Id. at 317-18, 414 S.E.2d at 833 (citing National Surety

Co. of New York v. State Bank of Humboldt, 120 F. 593, 599



                              7
(8th Cir. 1903)); accord Media General, Inc. v. Smith, 260

Va. 287, 290, 534 S.E.2d 733, 735 (2000).      The party

seeking relief under Code § 8.01-428(D) has the burden to

prove each of these elements.       Media General, id.

     On appeal, Ryland acknowledges that only three of

these elements are in dispute: whether in equity and good

conscience the default judgment should be enforced; whether

an accident or mistake prevented Manor Care from having the

benefit of its defense; and whether there was an absence of

fault or negligence on the part of Manor Care.      However,

Ryland asserts that the circuit court erred in setting

aside the default judgment because Manor Care failed to

prove these elements.   Manor Care disagrees and argues that

the court’s judgment is supported by sufficient evidence.

     The parties do not dispute our standard of review in

this appeal.   Since the circuit court heard evidence ore

tenus, its judgment cannot be disturbed on appeal unless

the court’s findings are plainly wrong or without evidence

to support them.   Code § 8.01-680; Pizzarelle v. Dempsey,

259 Va. 521, 527, 526 S.E.2d 260, 263 (2000); Blue Cross &

Blue Shield of Virginia v. St. Mary’s Hosp. of Richmond,

Inc., 245 Va. 24, 34, 426 S.E.2d 117, 123 (1993).        We

review the evidence and all reasonable inferences in the

light most favorable to the prevailing party at trial.


                                8
Ravenwood Towers, Inc. v. Woodyard, 244 Va. 51, 57, 419

S.E.2d 627, 630 (1992).

     Before addressing the merits of Ryland’s challenge to

the circuit court’s judgment, we point out that the court

did not articulate specific findings with regard to the

five elements that must be proven in order to obtain relief

under Code § 8.01-428(D). 5   Instead, the court stated only

that the default judgment should not, in equity and good

conscience, be enforced and that it was not sure whether

Manor Care’s conduct rose “to the level of negligence.” 6      We

presume that the court nonetheless made the necessary

findings since it set aside the default judgment.

     Even so, we take this opportunity to stress that a

trial court must articulate its findings with particularity

regarding each of the five elements set forth in Precision

Tune.    Because of the need to have finality and certainty

with regard to judgments, see Byrum v. Lowe & Gordon, Ltd.,

225 Va. 362, 365, 302 S.E.2d 46, 48 (1983), a trial court’s

decision to set aside a default judgment is a significant

action and must, therefore, include its consideration of

     5
       The parties stipulated that Manor Care had a good
defense to the cause of action upon which the default
judgment was granted.




                               9
and findings with regard to all the necessary elements.    In

a somewhat analogous situation, i.e., setting aside a jury

verdict and ordering remittitur, we require that the record

include “both the trial court’s conclusion that the verdict

was excessive and a demonstration that, in reaching that

conclusion, the trial court considered ‘factors in evidence

relevant to a reasoned evaluation of the damages.’ ”

Poulston v. Rock, 251 Va. 254, 259, 467 S.E.2d 479, 482

(1996) (quoting Bassett Furniture Indus. v. McReynolds, 216

Va. 897, 911-12, 224 S.E.2d 323, 332 (1976)); accord

Shepard v. Capitol Foundry of Virginia, Inc., 262 Va. 715,

721, 554 S.E.2d 72, 75 (2001).    No less detailed analysis

is permissible when setting aside a default judgment.

     Turning now to the merits of the issue on appeal, we

conclude that, despite the sequence of events starting with

PHICO’s requesting Layman to file an answer to the re-filed

medical malpractice action on behalf of Manor Care and

ending with her ultimate decision not to represent Manor

Care, the critical events that led to the entry of default

judgment commenced when PHICO assigned the case to Godard.

At that point, sufficient time remained before the August

24 deadline expired during which responsive pleadings could

     6
       Ryland’s assignments of error address only the
sufficiency of evidence and do not challenge the court’s


                             10
have been filed.   Godard’s office confirmed in writing on

August 21 that he would file appropriate responsive

pleadings on behalf of Manor Care.   But, Godard later

learned, at a time not shown in the record, that he had a

conflict of interest and could not represent Manor Care.

Unfortunately, he did not advise PHICO or Manor Care of

that fact until August 27, three days after responsive

pleadings were due.

     We hold that the record is sufficient to support a

finding that Godard’s actions constituted a mistake that

prevented Manor Care from having the benefit of its

defense.   See Director, State Employees Workers’ Comp. Div.

v. Evans, 889 S.W.2d 266, 269 (Tex. 1994) (attorney’s

failure to appear was due to accident or mistake when

predecessor attorney misdated the trial date on a calendar

and conveyed the wrong information to the new attorney).

Because this mistake impacted Godard’s ethical

responsibilities, it is not akin to an attorney’s error

about a filing deadline or the negligent failure to file a

pleading by a certain date.   Godard had no choice but to

decline the representation of Manor Care.   As the circuit

court correctly commented during closing arguments, the law

precluded Godard from doing what he indicated to PHICO in


failure to enunciate these findings.

                              11
good faith that he would do.    His conflict of interest and

failure to inform either PHICO or Manor Care about that

conflict until after the deadline for filing responsive

pleadings had passed caused Manor Care to lose the benefit

of its defense.

     Next, we also hold that the record is sufficient to

support the circuit court’s implied finding that both PHICO

and Manor Care were free from fault or negligence during

this critical period. 7   However, Ryland argues that PHICO

and Manor Care were, in fact, negligent because neither of

them contacted Godard before August 24 to confirm that he

had filed an answer on behalf of Manor Care, or called the

circuit court clerk’s office either to verify that Godard

had filed responsive pleadings or to determine whether

information Manor Care allegedly received concerning a 30-

day extension of time was accurate.    We are not persuaded


     7
       Citing Ayres v. Morehead’s Adm’r, 77 Va. 586 (1883),
Ryland argues that the actions of PHICO must be attributed
to Manor Care. In that case, this Court stated that “[t]he
rule that a party who has, through the negligence of
himself or his agents or attorneys, failed to avail himself
of a defence which he might have made at law, will not be
relieved in equity is too well settled to require any
extended reference to the adjudged cases.” Id. at 588. It
is not necessary to decide that issue in the present case
because we conclude that neither PHICO nor Manor Care were
negligent during the period of time immediately preceding
the default. We note, however, that Ryland has not argued
that Godard’s actions should be attributed to Manor Care.



                               12
by this argument.    Given the written communication from

Godard’s office advising that he would file responsive

pleadings, we cannot say that either PHICO or Manor Care

was negligent by failing to make further inquiries at that

time.

        The present situation is distinguishable from the

circumstances in Media General that led us to hold that the

defendant there was not free of fault or negligence.     In

that case, the evidence showed only that a system put in

place by the defendant to receive and respond to service of

process had failed, but there was no evidence explaining

how or why the system had failed.    260 Va. at 291, 534

S.E.2d at 735.    Thus, there was no evidence that the

defendant was free of fault or negligence when it did not

respond to the motion for judgment.     Id.   In contrast, we

have evidence in the present case explaining why responsive

pleadings were not timely filed after Godard agreed to

represent Manor Care, and that evidence does not impute any

fault or negligence to PHICO or Manor Care.

        Finally, we hold that the record is sufficient to

support the circuit court’s finding that, in equity and

good conscience, the default judgment should not be

enforced.    As Ryland argued, this element does not carry

more weight than the other four elements, all of which must


                                13
be proven in order to obtain relief under Code § 8.01-

428(D).   The five elements set forth in Precision Tune,

taken together, reflect the balance that must be struck

between the need to uphold the rules of court by

sanctioning the late appearance of a party and the

injustice that results from denying that party the

opportunity to litigate a claim on its merits.         See

Restatement (Second) of Judgments § 67 cmt. a (1982).

                             CONCLUSION

      In summary, we cannot say that the circuit court’s

judgment was plainly wrong or without evidence to support

it.   See Code § 8.01-680.    The question here is not whether

the evidence would have supported a judgment in favor of

Ryland.   Instead, the relevant inquiry is whether, upon

applying correct principles of law, the record contained

sufficient evidence to support the judgment of the circuit

court in favor of Manor Care.         Barnes v. Craig, 202 Va.

229, 235, 117 S.E.2d 63, 67 (1960) (citing Barnes v. Moore,

199 Va. 227, 228, 98 S.E.2d 683, 684 (1957)).         And, we

conclude that it did.   As with a jury verdict, if there is

evidence to support a trial court’s judgment rendered after

receiving evidence ore tenus, this Court cannot simply

overturn that judgment and substitute its own judgment,

even if its opinion might differ from that of the trial


                                 14
court.   See Cable v. Commonwealth, 243 Va. 236, 239, 415

S.E.2d 218, 220 (1992).

     For these reasons, we will affirm the judgment of the

circuit court. 8


                                                    Affirmed.




     8
       In light of our decision, it is not necessary to
address Ryland’s remaining assignment of error.

                              15