                                                                           FILED
                                                                       Dec 11 2019, 7:00 am

                                                                           CLERK
                                                                       Indiana Supreme Court
                                                                          Court of Appeals
                                                                            and Tax Court




ATTORNEYS FOR APPELLANT                                    ATTORNEYS FOR APPELLEE
Kevin S. Smith                                             David J. Jurkiewicz
Church, Church, Hittle & Antrim                            Nathan T. Danielson
Fishers, Indiana                                           Bose McKinney & Evans LLP
                                                           Indianapolis, Indiana
Gregory A. Schrage
Church, Church, Hittle & Antrim
Noblesville, Indiana



                                            IN THE
    COURT OF APPEALS OF INDIANA

Jun Li and Jimmy Chung Fai                                 December 11, 2019
Tam,                                                       Court of Appeals Case No.
Appellant-Defendants,     1                                19A-CC-608
                                                           Appeal from the
        v.                                                 Hamilton Superior Court
                                                           The Honorable
NextGear Capital, Inc.,                                    William J. Hughes, Judge
                                                           The Honorable
Appellee-Plaintiff.
                                                           Darren J. Murphy, Magistrate
                                                           Trial Court Cause No.
                                                           29D03-1805-CC-4643



Kirsch, Judge.




1
 Default judgment was set aside against Jimmy Chung Fai Tam, and he, therefore, does not join in this
appeal. However, pursuant to Indiana Appellate Rule 17(A), a party at trial is a party on appeal.

Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019                           Page 1 of 22
[1]   This case concerns a default judgment entered against Jun Li (“Li”) for failure

      to answer or respond to a complaint filed in Hamilton County, Indiana by

      NextGear Capital, Inc. (“NextGear”) against Li, Li’s former business partner,

      Jimmy Chung Fai Tam (“Tam”), and their business, No Credit Check Auto

      Sales, Inc. (“Dealership”), all based in California. NextGear’s complaint

      alleged default on a promissory note guaranteed by Li and Tam under which

      NextGear loaned money to Dealership. After NextGear did not receive

      responses to its complaint, it filed a motion for default judgment as to Li and

      Tam, which the trial court granted. Li and Tam filed a motion to set aside the

      default judgment, which the trial court granted as to Tam but not as to Li. Li

      appeals, raising the following dispositive issue for our review: whether the trial

      court abused its discretion in not setting aside the default judgment against him

      because relief should have been granted under Indiana Trial Rule 60(B)(1) for

      mistake, surprise, or excusable neglect.


[2]   We reverse and remand.


                                 Facts and Procedural History2
[3]   Dealership was a California corporation with its principal place of business in

      Hayward, California. Appellant’s App. Vol. II at 9. Tam and Li, who were



      2
       Oral argument was held on June 27, 2019 at Purdue University’s Krannert Graduate School of
      Management. We extend many thanks. First, we thank counsel for the quality of the oral and written
      arguments, for participating in post-argument discussions with the audience, and for commuting to West
      Lafayette, Indiana. We especially thank the Executive Education Program at the Krannert Graduate School
      of Management for their accommodations and the students in the audience for their thoughtful post-
      argument questions.

      Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019                        Page 2 of 22
      business partners in Dealership, are individuals residing in California. Id. at 98.

      NextGear is a Delaware corporation with its principal place of business in

      Hamilton County, Indiana. Id. at 9.


[4]   On September 30, 2013, Dealership and NextGear entered into a Demand

      Promissory Note and Loan and Security Agreement (“the Note”), under which

      NextGear loaned money to Dealership and took a security interest in

      Dealership’s assets, including Dealership’s automobile inventory. Id. at 10, 17-

      33. The Note set forth the terms upon which NextGear extended to Dealership

      a credit line in the original maximum principal sum of $450,000.00. Id. at 17-

      32. Tam signed the Note on behalf of Dealership as Dealership’s President,

      and Li signed it as Dealership’s Vice President. Id. at 28. Tam and Li also each

      executed individual guaranties on the Note. Id. at 10, 53-63. The Note was

      subsequently amended to increase the amount of Dealership’s credit line. Id. at

      48, 50.


[5]   Not long after executing the Note and his individual guaranty, Li ceased having

      any relationship with the operation of Dealership, and Tam assumed individual

      control thereof. Tr. at 29. Other than the complaint and summons he received

      related to this lawsuit, Li never received any correspondence or communication

      from NextGear after he ceased involvement in Dealership. Id. at 29-30.




      Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019      Page 3 of 22
[6]   Over a period of time, NextGear advanced funds to Dealership for the purchase

      of inventory that would serve as collateral pursuant to the terms of the Note.

      Appellant’s App. Vol. II at 99. The Note detailed when Dealership was required

      to repay the amounts advanced by NextGear, as well as the timing and

      amounts of required interest payments and principal reduction payments.

      Dealership failed to repay the amounts advanced by NextGear as agreed under

      the Note. Id. at 99. Due to Dealership’s failure to pay as required, NextGear

      declared the entire indebtedness due and owing under the Note to be

      immediately due and payable in full. Id. As of October 11, 2018, according to

      NextGear’s records, the amount due to NextGear under the Note totaled

      $1,216,027.74. Id. at 100.


[7]   On November 20, 2017, NextGear repossessed around one hundred of

      Dealership’s vehicles due to Dealership’s default on the Note. Tr. at 23;

      Appellant’s App. Vol. II at 11. Neither Tam nor Li ever received any

      documentation from NextGear stating whether or when the vehicles would be

      sold. Tr. at 23, 29-30. On May 17, 2018, Yasha Rahimzadeh (“Rahimzadeh”),

      who is a California attorney representing Dealership and Tam, began

      negotiating with NextGear concerning Dealership’s indebtedness to NextGear

      on the Note. Def.’s Ex. 1; Tr. at 20-21. Rahimzadeh called and exchanged

      numerous emails with NextGear’s Senior Recovery Specialist and its Risk &

      Recovery Counsel between May 17, 2018 and June 28, 2018. Def.’s Ex. 1.


[8]   On May 23, 2018, NextGear filed a complaint in Hamilton Superior Court

      against Dealership, Tam, and Li, alleging breach of contract on the Note

      Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019    Page 4 of 22
      against Dealership, breach of contract on the personal guaranties against both

      Tam and Li, and conversion against all three parties. Appellant’s App. Vol. II at

      9-15. NextGear attempted service on all three parties, but was only able to

      perfect service on Li. Id. at 64-72; Tr. at 21. On June 11, 2018, Li was served

      with a copy of the complaint and a summons via a private process server. Id. at

      68-72. Li did not appear in the lawsuit or file any pleadings in response to the

      complaint. Id. at 3-4.


[9]   After receiving the complaint, Li called Tam immediately regarding the lawsuit.

      Tr. at 30. Li later testified that after he spoke with Tam, “Jimmy Tam talked to

      . . . his lawyer . . . the lawyer actually negotiating with NextGear,” which was

      Rahimzadeh. Id. Tam also told Li to call Rahimzadeh, which Li did. Id. at

      21, 30, 32. Li testified that Rahimzadeh told him that Rahimzadeh was “on top

      of it” and was attempting to negotiate a global resolution of NextGear’s claims.

      Id. at 21-22, 30-31, 35. Rahimzadeh told Li and Tam that the settlement

      negotiations with NextGear not only pertained to Dealership’s debt obligation,

      but also to Li’s obligation as a guarantor. Id. at 21, 34. Tam also told Li that

      Rahimzadeh was negotiating with NextGear on Li’s behalf. Id. at 22. Li

      agreed to contribute a certain amount of money as part of Rahimzadeh’s

      settlement offer, and Rahimzadeh told Li that Rahimzadeh would “get [Li] a

      [sic] answer when NextGear respond [sic].” Id. at 30-31. Li testified that when

      he spoke with Rahimzadeh, he asked Rahimzadeh to represent Li in the

      litigation, and Rahimzadeh responded that he represented Tam and Dealership

      and because he represented Dealership, the representation “should . . . include

      Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019     Page 5 of 22
       [Li].” Id. at 35. Li did not personally retain Rahimzadeh to represent him in

       the lawsuit, but testified that he thought he did not need to appear in the lawsuit

       by counsel to respond to the complaint because Rahimzadeh was negotiating

       with NextGear. Id. at 31, 32. After Li’s initial conversations with Tam and

       Rahimzadeh about the lawsuit, Li contacted Tam approximately every two

       weeks to inquire about the status of the NextGear litigation and Rahimzadeh’s

       negotiations with NextGear. Id. at 33-34.


[10]   On October 18, 2018, NextGear filed a notice of dismissal without prejudice as

       to Dealership, and the trial court entered an order dismissing Dealership

       without prejudice from the lawsuit. Appellant’s App. Vol. II at 3. On October 19,

       2018, NextGear filed a motion seeking the entry of default judgment against

       Tam and Li. Id. at 76-78. On October 23, 2018, the trial court granted

       NextGear’s motion and entered default judgment against Tam and Li and

       awarded damages in favor of NextGear in the amount $1,216,027.74. Id. at

       116-17.


[11]   On November 20, 2018, Indiana attorney Gregory A. Schrage entered an

       appearance for both Tam and Li in this case and filed a motion to set aside

       default judgment. Id. at 120-26. The motion alleged that default judgment

       should be set aside as to Tam because he was not properly served with the

       complaint and summons and should be set aside as to both Tam and Li due to

       excusable neglect. Id. at 122-26. NextGear filed an objection to the motion to

       set aside, and the trial court set the motion for a hearing on December 11, 2018.



       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019     Page 6 of 22
       Id. at 5, 127. The trial court issued an order allowing Tam and Li to appear

       telephonically at the hearing. Id. at 135.


[12]   At the hearing, Li and Tam testified concerning their beliefs that Rahimzadeh

       was representing both of them individually as well as Dealership with regard to

       NextGear’s claims, and their understanding that because Rahimzadeh was

       negotiating with NextGear concerning its claims against them raised in the

       Indiana lawsuit, there was nothing more they needed to do to respond to the

       lawsuit. For example, the following exchange occurred during Tam’s

       testimony:


               Q: Okay. Now, at the time that you became aware of the lawsuit
               that [Li] told you about, did you have any conversations with
               [Rahimzadeh], related to this lawsuit?


               A: Om, no, I left, I tell my lawyer [Rahimzadeh]. He handle it
               for me. He handle all the negotiations for me and [Li].


               Q: Okay, and when you say he handled all the negotiations for
               you and [Li], did you have a conversation with [Rahimzadeh]
               related to negotiating on behalf of [Li] as well?


               A: Yeah. Yes sir. Yeah. He defend me also.


               Q: Okay. So, it was your understanding that when you went to
               [Rahimzadeh] related to this lawsuit that [Rahimzadeh] was
               negotiating on behalf of both yourself and [Li]. Is that right?


               A: Yes. Yes.



       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019      Page 7 of 22
        Q: Okay. And did you tell [Li] that [Rahimzadeh] was
        negotiating on his behalf as well?


        A: Yes.


        Q: Okay. And is it your understanding that [Rahimzadeh] was
        the, was the individual that was to have the communications
        with [NextGear]?


        A: Yes.


Tr. at 21-22. Li gave similar testimony:


        Q: Okay. Now, when you received the lawsuit, did you talk to
        [Tam] about the lawsuit?


        A: Yeah. When I received the court letter, I talked to, ah, ah,
        [Tam] immediately, and ah, and [Tam] talked to ah, talked to his
        lawyer and om, the lawyer actually negotiating with NextGear.


        Q: Okay. And was it your belief that this attorney,
        [Rahimzadeh], was actually negotiating on your behalf as well?


        A: Yes.


        Q: Okay. And why did you believe that?


        A: Why? Because . . . he say he represent the company also.


        Q: Okay. So, did you have conversations with [Rahimzadeh]?


        A: Yes, I did.

Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019     Page 8 of 22
        Q: Okay. And in those conversations, what, what was the basis
        of those, of those discussions?


        A: The, the lawyer say he would contact the NextGear to
        negotiate –


        Q: Okay.


        A: And ah, he would get me a [sic] answer when NextGear
        respond [sic].


        Q: Okay, and without getting too far into the specifics, were you
        at that time, and in this negotiation, were you informing
        [Rahimzadeh], that you may pay certain amounts of money to
        resolve this situation?


        A: Yes, I did.


        Q: Okay. And, to the best of your knowledge, did
        [Rahimzadeh], make that offer to [NextGear]?


        A: Yes. Of course.


        Q: Okay. And to the best of your knowledge, were you, was it
        your belief that you need not appear in this case in Indiana while
        [Rahimzadeh] was negotiating with [NextGear]?


        A: No, I don’t because we have a lawyer negotiating with them,
        so I think for him respond to them already.


        Q: Okay. So, it was your belief that you either had already
        responded by [Rahimzadeh] or that you didn’t need to find an


Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019        Page 9 of 22
               Indiana attorney while [Rahimzadeh] was negotiating? I’m just
               trying to understand what you are saying.


               A: Because we have a lawyer respond to them already so I didn’t
               know I need to write, ah, ah respond the, the court in Indiana.


               Q: Okay. And you believed that because your discussions with
               [Rahimzadeh] led you to believe that he was negotiating on your
               behalf as well?


               A: Yes.


       Id. at 30-31.


[13]   During the hearing on the motion to set aside default judgment, the trial court

       engaged in the following colloquy with Li:


               Q: Did [Rahimzadeh] ever specifically tell you that he was going
               to represent you or your interest in this litigation?


               A: Oh! Actually when I talk to the lawyer and I tell him, can you
               represent me also, and the lawyer says he represent [Tam] and
               also the company. Him and the company have my guarantor, so
               om, he on top of it, is what he said.


               Q: But, he didn’t specifically say that he’s representing you as
               guarantor?


               A: No. But, he say he represent the company and should that
               include me. That what he said.




       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019       Page 10 of 22
               Q: Did he tell you you should not respond to this summons or
               didn’t have to take any action based on your receipt of the
               summons?


               A: He say he negotiating with NextGear and I think that is a
               response already.


       Id. at 35. Counsel for Tam and Li then asked Li the following related question:


               Q: . . . Even if [Rahimzadeh] never, you never retained him
               technically as an attorney, was it your belief that he was
               negotiating on your behalf?


               A: Yes, yes, that is what I believe.


       Id. at 36.


[14]   Following the hearing, the trial court issued an order allowing Tam and Li to

       file a supplemental brief in support of their motion to set aside default

       judgment. Appellant’s App. Vol. II at 136-37. A supplemental brief was filed,

       which alleged that the default judgment should be set aside due to excusable

       neglect pursuant to Indiana Trial Rule 60(B)(1) and due to misconduct pursuant

       to Indiana Trial Rule 60(B)(3). Id. at 138-47. After NextGear filed a responsive

       brief, the trial court issued an order on February 12, 2019, granting in part and

       denying in part the motion to set aside default judgment. Id. at 7-8. The trial

       court granted the motion in favor of Tam and vacated the order of default

       judgment against him. Id. at 7. The trial court denied the motion as it

       pertained to Li, stating that, “[Li] admitted receiving proper service of the


       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019        Page 11 of 22
       complaint. The evidence presented did not establish excusable neglect to set

       aside the default judgment.” Id. Li now appeals.


                                       Discussion and Decision
[15]   Li argues that the trial court abused its discretion when it denied his motion to

       set aside default judgment as to him. Our Supreme Court set out the following

       standard of review governing a trial court’s decision to set aside a default

       judgment:


               The decision whether to set aside a default judgment is given
               substantial deference on appeal. Our standard of review is
               limited to determining whether the trial court abused its
               discretion. An abuse of discretion may occur if the trial court’s
               decision is clearly against the logic and effect of the facts and
               circumstances before the court, or if the court has misinterpreted
               the law . . . . The trial court’s discretion is necessarily broad in
               this area because any determination of excusable neglect,
               surprise, or mistake must turn upon the unique factual
               background of each case . . . . A cautious approach to the grant
               of motions for default judgment is warranted in “cases involving
               material issues of fact, substantial amounts of money, or weighty
               policy determinations.” In addition, the trial court must balance
               the need for an efficient judicial system with the judicial
               preference for deciding disputes on the merits. Furthermore,
               reviewing the decision of the trial court, we will not reweigh the
               evidence or substitute our judgment for that of the trial court.
               Upon a motion for relief from a default judgment, the burden is
               on the movant to show sufficient grounds for relief under Indiana
               Trial Rule 60(B).




       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019      Page 12 of 22
       Huntington Nat’l Bank v. Car-X Assocs. Corp., 39 N.E.3d 652, 655 (Ind. 2015)

       (quoting Kmart Corp v. Englebright, 719 N.E.2d 1249, 1253 (Ind. Ct. App. 1999),

       trans. denied) (internal citations omitted).


[16]   Indiana Trial Rule 60(B)(1) provides in pertinent part that “[o]n motion and

       upon such terms as are just the court may relieve a party or his legal

       representative from a judgment, including a judgment by default, for the

       following reasons . . . mistake, surprise, or excusable neglect.” A movant filing

       a motion pursuant to 60(B)(1) must allege a meritorious claim or defense. Ind.

       Trial Rule 60(B). A motion under Trial Rule 60(B)(1) does not attack the

       substantive, legal merits of a judgment, but rather addresses the procedural,

       equitable grounds justifying the relief from the finality of a judgment.

       Kretschmer v. Bank of Am., N.A., 15 N.E.3d 595, 600 (Ind. Ct. App. 2014) (citing

       Kmart, 719 N.E.2d at 1253), trans. denied. There is no general rule as to what

       constitutes excusable neglect under Trial Rule 60(B)(1). Id. Each case must be

       determined on its particular facts. Id. The following facts have been held to

       constitute excusable neglect, mistake, or surprise:


                    (a) absence of a party’s attorney through no fault of party; (b)
                    an agreement made with opposite party, or his attorney; (c)
                    conduct of other persons causing party to be misled or
                    deceived; (d) unavoidable delay in traveling; (e) faulty
                    process, whereby party fails to receive actual notice; (f) fraud,
                    whereby party is prevented from appearing and making a
                    defense; (g) ignorance of the defendant; (h) insanity or
                    infancy; (i) married women deceived or misled by conduct of
                    husbands; (j) sickness of a party, or illness of member of a
                    family.

       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019         Page 13 of 22
       Kmart, 719 N.E.2d at 1254.


[17]   Li argues that the trial court abused its discretion when it denied his motion to

       set aside the default judgment because he alleges that his failure to file an

       answer to the complaint constituted “mistake” and “excusable neglect” under

       Trial Rule 60(B)(1). He contends that after communicating with Tam and

       Rahimzadeh, he believed that Rahimzadeh’s negotiations with NextGear

       constituted the response necessary to the lawsuit against him. Li, therefore, did

       not believe that any additional response was required in the present litigation.

       He further asserts that, although the trial court seemed to focus on the fact that

       Li did not retain Rahimzadeh as his attorney, under Indiana precedent, the

       inquiry necessary to determine whether mistake or excusable neglect exists is

       whether Li understandably believed, albeit mistakenly, that there was nothing

       more that he needed to do concerning the litigation beyond what Rahimzadeh

       was already doing. He further asserts that he is a layperson, and his confusion

       about what he needed to do was understandable and excusable.


[18]   In Flying J, Inc. v. Jeter, 720 N.E.2d 1247 (Ind. Ct. App. 1999), a panel of this

       court found excusable neglect and reversed the trial court’s denial of a motion

       to set aside default judgment. In that case, a slip and fall occurred in the Flying

       J convenience store, and after Flying J failed to file an answer to the complaint,

       default judgment was entered against it. Id. at 1248. Flying J filed a motion to

       set aside the default judgment, alleging a “breakdown in communication” had

       occurred with its claims adjuster and such a breakdown constituted excusable

       neglect. Id. This court found that the trial court abused its discretion when it

       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019      Page 14 of 22
       failed to set aside the default judgment because Flying J’s failure to file an

       answer was excusable in light of the fact that Flying J contacted its insurance

       adjuster, instructed him to hire a particular law firm, and reasonably believed

       that the adjuster had taken appropriate measures to hire an attorney. Id. at

       1249-50. Although the insurance adjuster failed to timely hire counsel,

       resulting in the failure to file an answer, this was deemed to be due to a

       misunderstanding and excusable neglect. Id.


[19]   In its analysis, the court in Flying J analyzed two Indiana Supreme Court cases

       involving whether a breakdown in communication was excusable neglect. In

       Whittaker v. Dail, 584 N.E.2d 1084 (Ind. 1992), our Supreme Court held that a

       breakdown in communication between an insurance company and its client,

       which resulted in the client not hiring an attorney, was a sufficient basis to set

       aside a default judgment. Id. at 1087. The client was under the impression that

       the insurance company was going to hire an attorney for him, and the insurance

       company adjuster thought that she had hired an attorney for the client. Id. at

       1086. However, the attorney mistakenly believed that he was to file a

       declaratory judgment action against the client, rather than defend the client. Id.

       at 1087. The Supreme Court reasoned that there was no evidence of “foot

       dragging” on the part of the client, and that this breakdown in communication

       was excusable neglect. Id.


[20]   In Smith v. Johnston, 711 N.E.2d 1259 (Ind. 1999), a doctor failed to open his

       mail and, therefore, did not discover that a medical malpractice suit had been

       filed against him and his medical practice group. Id. at 1261. The person who

       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019      Page 15 of 22
       regularly received the mail and handled all legal matters was in the process of

       leaving the group and was not in the office when the summons arrived. Id. at

       1262. Therefore, a nurse who did not normally receive mail signed for the

       summons and placed it on the doctor’s desk. Id. Even though the doctor was

       aware that the person who regularly received the mail was leaving the group, he

       did not open the summons until after a default judgment had been entered

       against him. Id. Our Supreme Court found this breakdown in communication

       to be “neglect, but not excusable neglect” and distinguished it from other cases

       which found breakdowns in communication excusable. Id. The Court stated

       that in the other cases, “the defendants did all that they were required to do but

       subsequent misunderstandings as to the assignments given to agents of the

       defendants resulted in a failure to appear.” Id.


[21]   More recently, our Supreme Court decided Huntington National Bank v. Car-X

       Associates Corp., 39 N.E.3d 652 (Ind. 2015), where a defendant mortgagee bank

       was defaulted by a plaintiff judgment lienholder six days after the bank’s

       deadline to respond to the complaint had expired. Id. at 654. Because the bank

       employee who typically received service of process was out on maternity leave,

       a different bank employee received the complaint, but due to his other duties,

       he did not refer the complaint to the bank’s attorney until the very day the

       plaintiff obtained default judgment. Id. A few weeks later, the bank filed a

       Rule 60(B)(1) motion arguing that its untimely response was due to excusable

       neglect. Id. The trial court refused to set aside the judgment against the bank,

       and our Supreme Court affirmed the trial court, finding that there was no true

       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019    Page 16 of 22
       breakdown in communication that caused the bank’s failure to appear. Id. at

       657-58. Reasoning that the bank was a “savvy, sophisticated bank exceedingly

       familiar with foreclosure actions,” the Court found that the failure to respond to

       a complaint and summons for “no reason other than an employee’s disregard of

       the mail” did not constitute a successful allegation of a breakdown in

       communication sufficient to establish excusable neglect. Id. at 658.


[22]   We find the present circumstances more comparable to the circumstances in

       Whittaker and Flying J than to those in Smith and Car-X. Here, after receiving

       NextGear’s complaint, Li immediately contacted Tam, his former business

       partner, who had been responsible for Dealership for several previous years,

       and then contacted Rahimzadeh after being instructed by Tam to do so.

       Rahimzadeh told Li he was “on top of it” and was negotiating a settlement with

       NextGear, which included Li’s obligation as a guarantor. Tr at 21-22, 34. Li

       agreed to contribute a certain amount of money as part of the settlement offer,

       and Rahimzadeh told Li that Rahimzadeh would get Li an answer when he

       received a response from NextGear. Id. at 30-31. Li testified that he asked

       Rahimzadeh to represent Li in the litigation, and Rahimzadeh responded that

       he represented Tam and Dealership and because he represented Dealership, the

       representation “should . . . include [Li].” Id. at 35. Rahimzadeh did not inform

       Li that there was anything more Li needed to do to protect his interests in the

       litigation, and Li believed that because Rahimzadeh was negotiating on his

       behalf, this was a sufficient response to NextGear’s complaint on the




       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019     Page 17 of 22
       defendants’ collective behalf and that there was nothing more he needed to do.

       Id. at 31.


[23]   Under these circumstances, there was a clear breakdown in communication

       between Li and Rahimzadeh, where Li believed that Rahimzadeh was

       representing his interests in the lawsuit with NextGear, and such breakdown in

       communication resulted in Li not hiring his own attorney to respond to the

       complaint. There was no evidence of foot dragging by Li as he testified that he

       immediately contacted Tam and Rahimzadeh after he received the complaint,

       and, thereafter, he contacted Tam every two weeks to inquire about the status

       of the NextGear litigation and Rahimzadeh’s negotiations with NextGear. Id.

       at 33-34. Unlike the bank in Car-X, which our Supreme Court found to be a

       “savvy, sophisticated bank exceedingly familiar with foreclosure actions,” Li

       was merely a layperson, and there was no evidence that he was savvy or

       sophisticated in the procedures of loan default litigation. Therefore, like the

       defendants in Whittaker and Flying J, Li understandably, albeit mistakenly,

       believed that all was being taken care of and nothing more was required of him.

       We conclude that the neglect by Li in failing to file an answer to NextGear’s

       complaint was excusable.


[24]   However, “‘[t]o prevail on a [Trial Rule] 60(B) motion, the petitioner is not

       only required to show mistake, surprise, or excusable neglect, but also must

       show that he has a good and meritorious defense to the cause of action.’”

       Flying J, 720 N.E.2d at 1250 (quoting Butler v. Shipshewana Auction, Inc., 697

       N.E.2d 1285, 1289 (Ind. Ct. App. 1998)). A meritorious defense is one which

       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019     Page 18 of 22
       would lead to a different result if the case was tried upon the merits. Id. To

       establish a meritorious defense, a party need not prove the absolute existence of

       an undeniable defense. Kretschmer, 15 N.E.3d at 601. Rather, a party need only

       make a prima facie showing of a meritorious defense. Id.


[25]   Here, the evidence presented showed that under the terms of the Note,

       NextGear held a security interest in the automobiles purchased by Dealership

       with NextGear’s funds. Appellant’s App. Vol. II at 17. Therefore, the secured

       transaction between the parties was subject to Indiana Code section 26-1-9.1-

       626, which provides that if a creditor fails to abide by the applicable statutes

       governing secured transactions and the disposition of collateral, the deficiency

       related to that collateral is limited to an amount by which the sum of the

       secured obligation, expenses, and attorney’s fees exceeds the greater of: (A) the

       proceeds of the collection, enforcement, disposition, or acceptance; or (B) the

       amount of proceeds that would have been realized had the noncomplying

       secured party proceeded in accordance with the statutes. Ind. Code § 26-1-9.1-

       626(3). Under Indiana Code section 26-1-9.1-611, NextGear was required to

       provide notice to Dealership, Tam, and Li of the disposition of the vehicles

       NextGear repossessed. At the hearing, evidence was presented that, after

       NextGear repossessed over 100 vehicles from Dealership, neither Li nor Tam

       received any notice as to the disposition of this collateral. Tr. at 23-25, 29-30.

       Because of NextGear’s failure to provide this notice, there has been no showing

       that the disposition of the repossessed vehicles was done in a commercially

       reasonable manner and that the disposition would result in the alleged


       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019      Page 19 of 22
       deficiency that NextGear is requesting as damages.3 We conclude that Li

       presented a prima facie showing of a meritorious defense.


[26]   Based upon the record, we find that Li has demonstrated grounds for setting

       aside the entry of default judgment pursuant to Trial Rule 60(B)(1) and has

       alleged a meritorious defense. Therefore, the trial court abused its discretion in

       denying his motion to set aside default judgment. We reverse the trial court’s

       judgment and remand to the trial court for further proceedings.


[27]   Reversed and remanded.


       Baker, J., concurs.


       Robb, J., concurs with separate opinion.




       3
         On appeal, NextGear acknowledged that Li’s testimony represented evidence that might constitute a
       meritorious defense to one of NextGear’s claims against Li, if Li’s allegations were true. NextGear,
       therefore, did not additionally argue that Li has failed to allege a meritorious defense in support of his motion
       to set aside default judgment.

       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019                               Page 20 of 22
                                                   IN THE
           COURT OF APPEALS OF INDIANA

       Jun Li and Jimmy Chung Fai                                 Court of Appeals Case No.
       Tam,                                                       19A-CC-608
       Appellants-Defendants,

               v.

       NextGear Capital, Inc.,
       Appellee-Plaintiff,




       Robb, Judge, concurring.

[28]   I concur in the majority opinion but write separately to address the majority’s

       use of Smith v. Johnston, 711 N.E.2d 1259 (Ind. 1999). Among other cases, the

       majority cites Smith for the proposition that the circumstances presented therein

       were not excusable neglect and then finds this case “more comparable to the

       circumstances in Whittaker and Flying J than to those in Smith and Car-X.” Slip

       op. at ¶ 22. However, the “circumstances” leading to the result in Smith are

       more than just the neglect by defendant in failing to open his mail.


[29]   The trial court in Smith denied the defendant’s motion to set aside a default

       judgment entered after the defendant failed to appear. If the holding of Smith

       was simply that there was no excusable neglect, one would expect the supreme


       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019            Page 21 of 22
       court would have affirmed the trial court’s judgment. Instead, the supreme

       court reversed, holding that the default judgment must be set aside for

       misconduct “where the plaintiff’s attorney filed suit and pursued the default

       judgment without notifying the attorneys whom she had been advised in

       writing were representing the defendant in the matter.” Id. at 1260-61. In so

       holding, the supreme court looked to the Rules of Professional Conduct and

       determined that the plaintiff’s attorney’s failure to provide notice to attorneys

       who had been representing the defendant’s interests in earlier proceedings in the

       same matter was prejudicial to the administration of justice and therefore

       misconduct warranting relief from the default judgment.


[30]   Smith is an instructive case with regard to an attorney’s obligations to the court

       and to the legal process and stands for a proposition greater than simply, “there

       was neglect, but it was not excusable neglect.” With that observation, I concur

       in the majority opinion.




       Court of Appeals of Indiana | Opinion 19A-CC-608 | December 11, 2019      Page 22 of 22
