DAVIS, Justice:
In this appeal, Petitioner Lexon Insurance Co. ("Lexon"),
This case arises from two performance bonds issued by Lexon to DLM, LLC ("DLM").
On December 9, 2010, Berkeley County made a demand on Lexon under the $1,050,000 site improvement performance bond. Subsequently, on January 25, 2011, Berkeley County made a demand on Lexon under the $2,388,565.20 infrastructure performance bond. Lexon responded by letter dated February 24, 2011, acknowledging receipt of Berkeley County's demands. Over the following months, Berkeley County and Lexon met on at least two occasions and also exchanged communications in an attempt to resolve the matter. Berkeley County rejected offers made by Lexon to either complete only those portions of the Chandler's Glen subdivision that contained purchased lots, or to settle the matter for an amount that was less than the face value of the two performance bonds. By letter dated October 6, 2011, Berkeley County reiterated its demand for the full proceeds of the two performance bonds.
Having received no response to its letter of October 6, 2011, Berkeley County filed the instant lawsuit, naming Lexon and DLM as defendants, on November 17, 2011. In its complaint, Berkeley County sought "specific performance of the Surety's obligations according to the terms of the subject bonds," in addition to its "costs and expenses in prosecution of this matter; and, for such other relief as the Court deems appropriate and proper."
Thereafter, Lexon and Berkeley County entered an informal agreement to extend the time for Lexon to file a response to Berkeley County's complaint. This agreement is reflected in an email from Bruce Maas, counsel for Lexon, to Norwood Bentley, Legal Director for Berkeley County Council. The email, dated December 15, 2011, stated, in relevant part, that "this will confirm that Lexon has an indefinite extension of time to respond to the complaint and that you will give me 15 days notice if this consent is withdrawn." By subsequent email, dated April 20, 2012, Norwood Bentley advised Bruce Maas that Berkeley County had "decided to go forward and press the litigation which was earlier filed against your client, Lexon.... Will appreciate your answer at your earliest convenience." This email was followed, on May 9, 2012, by another email that included a copy of the April 20 email and sought to confirm receipt of that email:
Also on May 9, 2012, Berkeley County sent a letter to Bruce Maas via the United States Postal Service, which letter informed Mr. Maas that,
Having received no response to its communications of April 20 and May 9, Berkeley County, on June 14, 2012, filed a motion for default judgment, pursuant to Rule 55(b)(1) of the West Virginia Rules of Civil Procedure, against Lexon.
In this appeal, Lexon seeks reversal of the circuit court's order denying its motion to set aside default judgment. It is well settled that
Syl. pt. 1, Drumheller v. Fillinger, 230 W.Va. 26, 736 S.E.2d 26, 27 (2012). In other words, "`"[a]ppellate review of the propriety of a default judgment focuses on the issue of whether the trial court abused its discretion in entering the default judgment." Syllabus point 3, Hinerman v. Levin, 172 W.Va. 777, 310 S.E.2d 843 (1983).' Syl. pt. 1, Cales v. Wills, 212 W.Va. 232, 569 S.E.2d 479 (2002)." Syl. pt. 2, Hardwood Grp. v. Larocco, 219 W.Va. 56, 631 S.E.2d 614 (2006). With this standard as our guide, we proceed to evaluate the arguments herein raised.
In this appeal, Lexon raises several grounds for reversing the circuit court's denial of its motion to set aside the judgment of
Lexon first argues that the circuit court erred by failing to set aside the default judgment where it received no notice of hearing, and no hearing was conducted on damages despite the fact that Lexon had a right to elect a method of curing the default of its principal as opposed to paying monetary damages. In essence, Lexon contends that requirements for default judgment under Rule 55(b)(1) were not met. Berkeley County responds that it properly moved for default judgment under Rule 55(b)(1); therefore, no notice to Lexon or hearing on damages was required. This is so, argues Berkeley County, because Lexon had refused Berkeley County's demand for performance, which refusal obligated Lexon to pay the full penal sum of its bonds as liquidated damages. We disagree.
Rule 55(b) provides two methods for entering default judgment:
(Emphasis added).
As noted above, Berkeley County sought default judgment under Rule 55(b)(1). Critically, there are certain prerequisites to seeking default judgment pursuant to Rule 55(b)(1). In this regard, it has been observed that
Franklin D. Cleckley, Robin J. Davis, & Louis J. Palmer, Jr., Litigation Handbook on West Virginia Rules of Civil Procedure § 55(b)(1)[2], at 1193 (4th ed.2012) (footnote omitted) (emphasis added). Relevant to the instant appeal is the "sum certain" prerequisite:
Syl. pt. 3, Cales v. Wills, 212 W.Va. 232, 569 S.E.2d 479 (2002) (emphasis added).
This Court addressed the definition of the term "sum certain" in Farm Family Mutual Insurance Co. v. Thorn Lumber Co., 202 W.Va. 69, 501 S.E.2d 786 (1998). Farm Family involved a subrogation action in which an insurer, Farm Family Mutual, sought to recover the full amount it had paid to its insured to cover a loss resulting from the alleged negligence of the defendant, which was $135,416.37. When the defendant failed to appear in the action, Farm Family Mutual sought default judgment under Rule 55(b)(1). In support of its motion for default judgment, Farm Family Mutual presented an affidavit stating that it was owed $135,416.37 by the defendant. The circuit court accepted the amount as a "sum certain" and granted default judgment to Farm Family Mutual without first conducting an evidentiary hearing on the issue of damages. On appeal, this Court was asked to decide whether the damages in the case were, in fact, a sum certain or an amount that could be rendered certain by calculation. Observing that "[t]ypical `sum certain' situations covered by Rule 55(b)(1) [1959] include actions on money judgments, negotiable instruments, or similar actions where the damages can be determined without resort to extrinsic proof," this Court held that
Farm Family Mut. Ins. Co., 202 W.Va. at 74, 501 S.E.2d at 791, & Syl. pt. 3.
Farm Family Mut. Ins. Co., 202 W.Va. at 74, 501 S.E.2d at 791.
It similarly has been recognized that the penal sum of a bond is not recognized to be a settled amount of liquidated damages payable upon breach of the bond. For example, one commentator has observed that,
11 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3D § 163:9, at 163-19 (2005) (emphasis added) (footnotes omitted). See also 4A Philip L. Bruner & Patrick J. O'Connor, Jr., Bruner & O'Connor on Construction Law § 12:22, at 94 (2009) ("The limit of the surety's financial exposure under a performance bond is the sum stated on the face of the performance bond as the surety's maximum liability to the obligee for completion of the contract or payment of the oblige's actual costs of completion. This sum historically has been referred to as the `penal sum' or `bond penalty' — terms which originated in earlier times when the penal sum was forfeited entirely upon the principal's default as a `penalty,' rather than serving as a mere source for payment of the obligee's actual damages up to the penal sum limit. Outright forfeiture provisions in modern surety bonds are rare." (emphasis added) (footnotes omitted)).
Courts addressing this issue have reached the same conclusion as the commentators. In St. Paul Mercury Insurance Co. v. Department of State, Division of Corrections, 581 So.2d 976, 977 (Fla.Dist.Ct.App.1991) (per curiam), a trial court had awarded damages equal to the full amount of a bond. In reducing the award to the amount of damages the state actually suffered, the Florida District Court of Appeal commented that
St. Paul Mercury Ins. Co., 581 So.2d at 977. See also Westchester Fire Ins. Co. v. City of Brooksville, 731 F.Supp.2d 1298, 1308 (M.D.Fla.2010) ("The measure of recovery under a performance bond is the amount actually and reasonably expended in completing the duties under the bonded contract." (quotations and citation omitted)), aff'd, 465 Fed.Appx. 851 (11th Cir.2012); Turner Constr. Co. v. First Indem. of Am. Ins. Co., 829 F.Supp. 752, 759 (E.D.Pa.1993) ("[W]hen a performance bond surety fails to complete its principal's work, the surety is `liable for the loss plaintiff sustained, not exceeding the amount of the bond' because of the surety's breach of its `absolute undertaking to erect and complete the building'. Purdy v. Massey, 306 Pa. 288, [293,] 159 A. 545, 547 (1932)."), aff'd sub nom. Turner Constr. Co. v. Space U.S.A., Inc., 22 F.3d 303 (3d Cir. 1994). But see Synovus Bank v. County of Henderson, 222 N.C. App. 319, 729 S.E.2d 731 (2012) (unpublished opinion) (treating performance bond as penal bond and awarding full amount).
The indefinite nature of amount of the damages forfeited under a performance bond is further demonstrated by this very case. Indeed, the circuit court's default judgment order, as well as Berkeley County's representations to this Court, establish that the damages sought in this action are not a sum certain. In this respect, the circuit court expressly concluded in its default judgment order that Berkeley County "represented that it is only seeking to retain proceeds from Lexon under the bonds in the amount that the county actually expends installing the site improvements and infrastructure for Chandler's Glen, and that any amount of the default judgment not so expended will be returned to Lexon." (Emphasis added). Furthermore, according to Berkeley County's brief, relevant regulations provide that "`[t]he bond shall be subject to forfeiture to the County Commission for the sole purpose of installation or completion of required improvements.'"
Based upon our above analysis, we now hold that the sum stated on the face of a performance bond is not equal to a "sum certain" for purposes of obtaining default judgment without a hearing under Rule 55(b)(1) of the West Virginia Rules of Civil Procedure.
Because Berkeley County's claim against Lexon was not for a "sum certain" as required by Rule 55(b)(1), the damages were unliquidated. "When unliquidated damages are involved, a plaintiff must utilize the procedure under Rule 55(b)(2) of the West Virginia Rules of Civil Procedure for obtaining default damages against a defaulting party...." Syl. pt. 6, in part, Cales v. Wills, 212 W.Va. 232, 569 S.E.2d 479 (2002). Thus, Lexon was entitled to three days notice and a hearing pursuant to Rule 55(b)(2):
Syl. pt. 4, Cales v. Wills, 212 W.Va. 232, 569 S.E.2d 479 (2002). Accordingly, we find that the circuit court erred in granting default judgment in favor of Berkeley County pursuant to Rule 55(b)(1), and without affording Lexon notice and a hearing on damages pursuant to Rule 55(b)(2). This conclusion, however, does not end our analysis. We must additionally examine the propriety of the circuit court's entry of default against Lexon.
The summons served on Lexon with Berkeley County's complaint expressly stated that "[y]ou are required to serve your answer within 30 days after service of this summons upon you, exclusive of the day of service. If you fail to do so, judgment by default will be taken against you for the relief demanded in the complaint...." Thus, this summons complied with the requirement of Rule 4(a) of the West Virginia Rules of Civil Procedure that the summons "shall also state the time within which the defendant must appear and defend, and notify the defendant that failure to do so will result in a judgment by default against the defendant for the relief demanded in the complaint."
The record reflects, however, that prior to the expiration of the thirty-day period, Berkeley County waived its right to pursue a default pursuant to the West Virginia Rules of Civil Procedure by entering an informal agreement with Lexon allowing Lexon an indefinite time within which to respond to Berkeley County's complaint. This informal agreement is reflected in an email dated December 15, 2011, in which counsel for Lexon sought to confirm that Lexon was being given "an indefinite extension of time to respond to the complaint and that you [Berkeley County] will give me 15 days notice if this consent is withdrawn." Lexon, in apparent reliance on this agreement, did not file its answer within the thirty-day period mandated by the summons. Likewise, Berkeley County, apparently also relying on the agreement, failed to move for default at the expiration
Lexon now argues that Berkeley County failed to provide it with the agreed upon fifteen-day notice that Berkeley County was withdrawing its consent to the indefinite extension for filing an answer.
(Emphasis added).
Lexon asserts that these communications were equivocal and failed to amount to proper notice that Berkeley County was providing the agreed upon fifteen-day notice that it was withdrawing its consent to Lexon having an indefinite time within which to answer the complaint. Berkeley County contends that its three communications demonstrated that Berkeley County "intended to move forward with this lawsuit and expected Lexon to file its answer."
The primary difficulty demonstrated by the foregoing events in this case is the parties' combined failure to comply with the West Virginia Rules of Civil Procedure. Rule 6(b) provides the proper method of extending the time for the filing of a defendant's answer:
W. Va. R. Civ. P. 6(b). Instead of complying with the procedure set out in Rule 6(b), the parties instead engaged in an unclear and poorly executed agreement to indefinitely extend the time afforded to Lexon for answering the complaint. Although we find that the parties improperly sought to extend the time frame for filing an answer to the complaint, the parties will be bound by their agreement for the purposes of this appeal.
In ruling on the propriety of the default under the unique circumstances herein presented, we are mindful that, "`[a]lthough courts should not set aside default judgments or dismissals without good cause, it is the policy of the law to favor the trial of all cases on their merits.' Syl. Pt. 2, McDaniel v. Romano, 155 W.Va. 875, 190 S.E.2d 8 (1972)." Syl. pt. 6, Gray v. Mena,
Because we find that the damages sought in this case are not a "sum certain" as required by West Virginia Rule of Civil Procedure 55(b)(1), default judgment was improperly granted under that rule. In addition, we find that default was improperly entered under the unique circumstances of this case where the parties failed to follow the Rules of Civil Procedure pertaining to the extension of the time for filing an answer. Accordingly, we reverse the Circuit Court of Berkeley County's order of February 6, 2014, denying Lexon's motion to set aside default judgment, and remand this case for further proceedings.
Reversed and Remanded.