Default Judgment Awarded to Plaintiff When Corporation Fails to Retain Counsel

After a corporation attempted to designate its principal agent the right to file an answer to a complaint pro se, the trial court found that the corporation had not properly appeared before the court and awarded a default judgment to the plaintiff. The corporation attempted to have the default judgment declared void, and the trial court found that the corporation had not demonstrated that it acted with due diligence to explain its failure to file a proper appearance. The appellate panel determined that the trial court did not err and that the corporation’s petition failed under both a standard 2-1401 and a subsection (f) analysis.

AZM Group, Inc. executed an asset purchase agreement with Askew Insurance Group, LLC. The APA addressed AZM’s purchase of Askew. The terms of the agreement stated that Askew would continue its current lease agreement for its office space from September 2014 to April 2017. A separate sublease agreement between AZM and Askew would enable AZM to sublease Askew’s office space from the same time period. AZM agreed to pay Askew $1300 per month for rent. Askew would then add the additional amount to total the monthly rent at $1550, to be paid to the landlord by Askew.

In July 2017, Askew filed a complaint against AZM alleging breach of contract and unjust enrichment. Askew alleged that AZM had failed to pay the rent under the terms of the sublease agreement since February 2017. AZM’s principal agent filed an appearance and answer pro se to the complaint and stated that AZM made the full amount of its rent payments directly to the landlord. In October 2017, Askew filed a motion for a default judgment on its complaint, alleging that AZM had failed to appear. Askew argued that corporations must be represented by counsel in legal proceedings and cannot grant agents the right to represent the corporation through pro se appearances. The trial court continued default proceedings three times over the next several months, and then granted the motion for default in February 2018. In September 2018, AZM filed a section 2-1401 petition to vacate the default judgment entered against it in February 2018. The trial court denied the petition, and AZM appealed.

The appellate panel began by noting that AZM did not timely file its notice of appeal. AZM alleged that its notice of appeal filed in January 2019 was rejected by the circuit court, but that AZM did not learn of the rejection until two weeks later. The panel noted that AZM had not attached any evidence in support of its assertion that it attempted to file its notice of appeal in a timely fashion. Nevertheless, the panel stated that because the motion was verified by AZM’s counsel, it accepted it as the equivalent of a sworn statement provided under oath. The panel found that AZM had established proof of good cause for its failure to file a timely notice of appeal and that it had jurisdiction to consider AZM’s appeal.

The panel then turned to the merits. The panel determined that AZM’s petition failed under both a traditional section 2-1401 analysis and a subsection (f) analysis. Citing People v. Price, the panel stated that only the most fundamental defects warrant declaring a judgment void. The panel noted that the only circumstances under which a judgment could be rendered void were: (1) where the judgment was rendered by a court that lacked jurisdiction, (2) where the judgment was based on a facially unconstitutional statute, and (3) where the judgment imposed a sentence that did not conform to a statutory requirement. The panel stated that AZM had not alleged that the default judgment was void for any of these reasons and that AZM’s allegations that Askew submitted false documentation to the trial court did not render the judgment void or impact the trial court’s jurisdiction over the case.

AZM also argued that the default judgment was void because Askew had dissolved as a corporation in 2015 and therefore lacked the capacity to sue. The panel rejected this argument. The panel stated that even if it assumed that the argument was true, it did not render the default judgment void. Finally, the panel rejected AZM’s petition under a traditional section 2-1401 analysis. The panel stated that it agreed with the trial court that AZM failed to show proof of a meritorious defense and due diligence in raising the meritorious defense in both the original action and the section 2-1401 petition. The panel stated that, at no time, did AZM explain why it failed to file a proper appearance and responsive pleading, although it was aware of the lawsuit from its inception. Therefore, the panel reasoned, AZM could not be said to have demonstrated diligence in raising a meritorious defense. The panel, therefore, affirmed the decision of the trial court.

You can read the Court’s decision here.

Breach of contract strikes home with us a Lubin Austermuehle because we’ve built our practice over the years on integrity, commitment and a devotion to an unswerving work ethic focused on commitment, client service and results.  We’re proud to offer the convenience of three offices and availability throughout the Chicagoland area from Oak Park to Lake Forest.  Take advantage of our FREE consultation where we can discuss your specific needs and wishes and our ability to meet them. You can contact us online here or call us on our locally at 630-333-0333.

Contact Information