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Novik v. Lendr, LLC

Court of Appeals of Texas, Fourteenth District

October 31, 2019

LENDR, LLC, Appellee

          On Appeal from the County Civil Court at Law No. 1 Harris County, Texas, Trial Court Cause No. 1096630

          Panel consists of Chief Justice Frost and Justices Jewell and Bourliot.


          Kevin Jewell Justice.

         Uladzislau Novik appeals from a no-answer default judgment rendered against him and Stone Mountain Roofing & Restoration, Inc., in favor of Lendr, LLC f/k/a Viking Funding Group, LLC ("Lendr"). In two issues, Novik contends that the trial court erred in refusing to grant a new trial because: (1) Lendr's pleading does not strictly comply with the long-arm statute's requirements for service on a nonresident, [1] and he was not properly served with process; and (2) he satisfied the Craddock test[2] for entitlement to a new trial after rendition of a default judgment. Stone Mountain has not appealed. We reject Novik's first issue because in its petition Lendr asserts facts that, if true, make Novik amenable to service through the Texas Secretary of State. Additionally, the Secretary's return of service establishes Novik's receipt of process, and Novik failed to rebut the presumption of receipt. We reject Novik's second issue because he failed to satisfy Craddock's meritorious-defense element. We affirm the judgment.


         In its petition, Lendr alleged that: (1) it is a resident of Harris County, Texas; (2) the events giving rise to the suit occurred or arose out of a contract signed by Novik and performable in Harris County; and (3) Novik could be served through the Texas Secretary of State at his home address of 948 Nimblewood Way, Stone Mountain, Georgia, 30088. Lendr asserted that the Texas Secretary of State is a proper agent for service because Novik and/or Stone Mountain does not have a regular place of business or designated agent for service of process in Texas.

         In support of its claims, Lendr alleged that it "is a corporation that purchases future receipts from companies like [Stone Mountain]," and that the parties executed a "Payment Rights Purchase and Sale Agreement" (the "Agreement"). The Agreement is not in our appellate record, but according to Lendr, it provides that in return for a "purchase amount" Lendr is entitled to receive a percentage of Stone Mountain's future sales or receipts. To that end, according to Lendr, Lendr is permitted to debit Stone Mountain's bank account daily in an agreed-upon amount, and Stone Mountain is responsible for ensuring sufficient sums are available in the account. Lendr stated that it complied with its end of the bargain by paying the purchase amount, but that Stone Mountain defaulted because daily debits from the account have failed or been rejected. Lendr also alleged that the Agreement contains an unconditional personal guaranty, by which Novik personally guaranteed all obligations under the Agreement. Lendr asserted claims against Stone Mountain and Novik for breach of contract, against Stone Mountain for conversion, and against Novik for breach of the guaranty.

         The record contains a copy of the citation addressed to Novik and to be served through the Texas Secretary of State at Novik's purported home address in Georgia. The record also contains a certificate from the Secretary of State, which certifies that: (1) the Secretary received a copy of the original petition and citation in this action on August 25, 2017; (2) the Secretary forwarded the petition and citation by certified mail-return receipt requested to Novik on August 30, 2017; and (3) the certified mail return receipt was received by the Secretary dated September 2, 2017, bearing signature. The Secretary of State's certificate was filed with the county clerk and is included in the appellate record.

         Lendr filed a motion for default judgment, asserting that Novik had not filed an answer or appeared in the case despite having been served with the petition and that the damages were liquidated and proven by a written instrument. Lendr attached an affidavit and supporting documentation purporting to show a history of credits and debits. The trial court signed a final default judgment on February 5, 2018, against Stone Mountain and Novik for $22, 703.04, plus $4, 000 in attorney's fees, plus another $4, 000 in attorney's fees conditioned on an unsuccessful appeal by either defendant. The same day, the county clerk mailed written notice of the default judgment to Novik at the 948 Nimblewood Way address.

         Unrepresented by counsel, Novik filed a timely "motion to set aside default judgment," a timely motion for new trial, and a notice of hearing on the motions. Novik supported the motion to set aside default judgment with an unsworn declaration.[3] In that motion, Novik asserted that the court should set aside the default because: (1) he was not properly served with citation and did not receive proper notice of the default-judgment hearing; (2) he did not file an answer due to mistake or accident; (3) he has a meritorious defense; and (4) granting a new trial would not cause delay or harm. In further support of his motion, Novik stated that he resides in Georgia, that he "changed residency address," and that he was not given notice or citation personally.

         Novik raised additional arguments in his motion for new trial, but that motion was neither verified nor supported by an unsworn declaration.[4]

         The trial court signed an order denying the motion for new trial. Our record contains no written order denying the motion to set aside default judgment, so we consider it overruled by operation of law. See Tex. R. Civ. P. 324b(c); Tex.R.App.P. 33.1(b). There is no reporter's record from the default-judgment hearing. No party requested, and the trial court did not sign, findings of fact or conclusions of law.

         Novik appealed the judgment. Stone Mountain has not appealed.

         Issues Presented

         In his first issue, Novik contends that the trial court erred in denying a new trial because he was not properly served with process. In an alternative second issue, Novik argues that the trial court erroneously denied a new trial because he established the Craddock elements. We review a trial court's denial of a motion for new trial after a default judgment for abuse of discretion. See In re R.R., 209 S.W.3d 112, 114 (Tex. 2006) (per curiam). A trial court abuses its discretion if its decision is arbitrary, unreasonable, or without reference to guiding principles. Cire v. Cummings, 134 S.W.3d 835, 838-39 (Tex. 2004). We first turn to Novik's arguments regarding service.

         A. The court did not err in denying a new trial on Novik's improper- service ground.

         Under his first issue, Novik argues that Lendr was required to comply strictly with service requirements under the Texas long-arm statute, but Lendr failed to do so because its petition contains insufficient allegations to support service under that statute.

         For a trial court to acquire jurisdiction necessary to support a default judgment upon substituted service under the Texas long-arm statute, (1) the pleadings must contain factual allegations that, if true, would make the defendant amenable to process under that statute, and (2) proof must appear in the record that the defendant, in fact, was served in the manner required by statute. Capitol Brick, Inc. v. Fleming Mfg. Co., 722 S.W.2d 399, 401 (Tex. 1986); Whitney v. L & L Realty Corp., 500 S.W.2d 94, 95-96 (Tex. 1973); Sec. Pac. Corp. v. Lupo, 808 S.W.2d 126, 127 (Tex. App.-Houston [14th Dist.] 1991, writ denied). The plaintiff must strictly follow the requirements of the long-arm statute authorizing substitute service on the Secretary of State, and the plaintiff bears the burden of affirmatively showing such compliance. McKanna v. Edgar, 388 S.W.2d 927, 930 (Tex. 1965); see also Primate Constr., Inc. v. Silver, 884 S.W.2d 151, 152 (Tex. 1994) (per curiam) (for default judgment to withstand direct attack on appeal, strict compliance with rules governing service of process must affirmatively appear on face of record); Wilson v. Dunn, 800 S.W.2d 833, 836 (Tex. 1990) (same). If the record on appeal fails to affirmatively show strict compliance with the rules governing service of process, the attempted service is invalid. See Uvalde Country Club v. Martin Linen Supply Co., 690 S.W.2d 884, 885 (Tex. 1985) (per curiam). In the face of a direct attack on a default judgment, there are no presumptions favoring valid issuance, service, and return of citation. Id.; McKanna, 388 S.W.2d at 929. Absent fraud or mistake, which Novik does not assert, a certificate from the Secretary of State's office is conclusive evidence that the Secretary of State, as the nonresident's agent, received service of process for the nonresident and forwarded it as required by the long-arm statute. Capitol Brick, 722 S.W.2d at 401.

         Texas's "long-arm" statute, Civil Practice and Remedies Code sections 17.041 et seq., provides that the Secretary of State is an agent for service of process on a nonresident in certain circumstances, including when a nonresident engages in business in Texas but does not maintain a regular place of business in Texas or a designated agent for service of process, in any proceeding arising out of the business done in Texas to which the nonresident is a party. Tex. Civ. Prac. & Rem. Code § 17.044(b). Lendr did not cite section 17.044 in its petition, but its allegation that "service through the Secretary of State is appropriate because Defendant does not have a regular place of business, or a designated agent for service of process, in Texas" appears aimed at meeting the requirements of section 17.044(b).

         According to Novik, Lendr did not allege in its petition that Novik does business in Texas or that this lawsuit arises from Novik's business in Texas. The record supports neither contention. As relevant here, a nonresident does business in Texas if the nonresident "contracts by mail or otherwise with a Texas resident and either party is to perform the contract in whole or in part" in Texas. Id. ยง 17.042(1). Lendr sufficiently asserted factual allegations in the original petition that Lendr and Novik are parties to the Agreement, including the personal guaranty, and that Lendr is a Texas resident. Further, Lendr alleged that the contract forming the basis of this suit was performed in Harris County. These allegations, if ...

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