United States District Court, W.D. Tennessee, Eastern Division
DONALD BURGER and THOMAS BRADEN d/b/a DIVERSIFIED FINISHING SYSTEMS, Plaintiffs,
ENGINEERED PAINT APPLICATIONS, LLC, ERNEST MANCILLA, and FABIAN CARDENAS Defendants.
ORDER GRANTING DEFENDANTS' MOTION TO SET ASIDE
THOMAS ANDERSON, CHIEF UNITED STATES DISTRICT JUDGE
the Court is Defendants Ernest Mancilla and Fabian
Cardenas's Motion to Set Aside Default Judgment (ECF No.
19) filed on June 9, 2017. Plaintiffs Donald Burger and
Thomas Braden d/b/a Diversified Finishing Systems have
responded in opposition, and Defendants with leave of court
have filed a reply. The parties having fully briefed the
issues, Defendants' Motion is now ripe for determination.
For the reasons set forth below, the Motion is
filed a Complaint on April 11, 2017, seeking sales
commissions allegedly owed under an agreement between the
parties. Plaintiffs allege that Donald Burger is a citizen of
the state of Texas and that Thomas Braden is a citizen of
Mississippi. Both Plaintiffs do business as Diversified
Finishing Systems (“Diversified”). Defendants
Ernest Mancilla and Fabian Cardenas are citizens of
California and the sole members of Engineered Paint
Applications, LLC (“EPA”), a California limited
liability company. According to the Complaint, Diversified
and EPA have a long-standing business relationship where
Diversified acts as a sales consultant for EPA and in return
receives a 10 percent commission from EPA on sales.
Plaintiffs allege that Diversified is owed commissions on two
such contracts from 2015. First, Diversified completed a sale
for a finishing system to Rough County, LLC in Dyersburg,
Tennessee (“the Rough Country contract”). Per the
agreement between Diversified and EPA, EPA owed Diversified a
commission of $86, 650 on the Rough Country contract but
received only two payments from EPA for $8, 665 and $25, 995.
In a second transaction, Diversified assisted in the sale of
a finishing system to Tecnico Corporation. Although
Diversified agreed to accept a reduced, flat commission of
$50, 000, EPA has failed to pay Diversified its commission.
Based on these allegations, Plaintiffs allege claims for
breach of contract, unjust enrichment, and quantum meruit.
same day Plaintiffs filed their Complaint, Plaintiffs caused
summons to issue as to EPA, Mancilla, and Cardenas. On May
12, 2017, Plaintiffs filed affidavits of service showing that
they had served Cardenas on April 21, 2017, and Defendant
Mancilla on April 23, 2017. To date Plaintiffs have not shown
that they perfected service on EPA, though the Complaint
alleges Mancilla and Cardenas are the sole
“owners” of the LLC. On May 26, 2017, Plaintiffs
filed separate motions for entry of default as to Mancilla
and Cardenas, and the same day the Clerk of Court entered
default. On May 30, 2017, Plaintiffs filed and the Clerk
granted separate motions for default judgment as to Mancilla
7, 2017, counsel filed a notice of appearance on behalf of
EPA, Mancilla, and Cardenas, and filed the Motion to Set
Aside the Default Judgments against Mancilla and Cardenas.
Defendants argue that the Court should set aside the default
judgments against Mancilla and Cardenas under Federal Rules
of Civil Procedure 55(c), 60(b)(1), and 60(b)(6). For cause
Mancilla and Cardenas assert that they were in active
settlement negotiations with counsel for Plaintiffs when
Plaintiffs obtained entry of default and the default
judgments against them. Defendants have submitted affidavits
from Cardenas and from their attorney Lewis Cobb.
affidavits show that after receiving service of process,
Mancilla and Cardenas acted pro se and first spoke
with counsel for Plaintiffs on May 12, 2017. At that time
counsel for Plaintiffs agreed to allow Mancilla and Cardenas
until May 22, 2017, in which to file a responsive pleading
and Mancilla and Cardenas agreed to make a settlement offer.
Mancilla and Cardenas made their offer by email on May 22,
2017, and Plaintiffs rejected the offer later the same day.
In communicating Plaintiffs' decision to decline the
offer, counsel for Plaintiffs requested that Mancilla and
Cardenas notify him if they intended to make another offer or
if they had any questions. On May 24, 2017, Mancilla and
Cardenas emailed counsel for Plaintiffs a second offer and
never heard from him. Two days later on May 26, 2017, the
Friday before the Memorial Day weekend, Plaintiffs sought and
were granted entry of default as to Mancilla and Cardenas.
The same day, May 26, 2017, Mr. Cobb, who is now counsel of
record for all Defendants, called and left a voicemail for
counsel for Plaintiffs. Mr. Cobb advised counsel for
Plaintiffs that Defendants had contacted him about
representing them in this matter, and Mr. Cobb was calling to
discuss the status of the case. Plaintiffs filed their
motions for default judgment on May 30, 2017, the Tuesday
after the Memorial Day holiday. Counsel for Plaintiffs
returned Mr. Cobb's call only after the Clerk had granted
Plaintiffs default judgments against Mancilla and Cardenas.
argue that all of the relevant factors are met to aside the
default judgments. Plaintiffs will not be prejudiced, and
Defendants have not acted culpably. Defendants argue that
Plaintiffs were willing to negotiate with Mancilla and
Cardenas as long as they were acting pro se and only
moved for entry of default and default judgment after
Mancilla and Cardenas attempted to retain counsel. Defendants
argue that Plaintiffs acted without responding to the second
offer tendered by Mancilla and Cardenas or notifying them
that the negotiations were complete or warning them about the
defaults or returning Mr. Cobb's phone call. Defendants
also argue they have meritorious defenses. The default
judgments included an award of attorney's fees in the
amount of $35, 696.50 against both Mancilla and Cardenas.
According to Defendants, the alleged agreement between
Diversified and EPA was an oral contract and did not provide
for attorney's fees. Defendants further suggest that EPA
is not a proper party to the action. EPA was a brand name
used by Relmex, Inc., a California corporation owned by
Cardenas. These factors weigh in favor of allowing the case
to proceed on its merits. As such, the Court should set aside
the default judgments and entries of default.
their response in opposition, Plaintiffs adduce a number of
additional background facts about the parties' course of
dealing. When Cardenas first contacted counsel for
Plaintiffs, Plaintiffs agreed to negotiate with Defendants
until May 22, 2017, and give Defendants until that time to
respond to the Complaint without seeking a default. Cardenas
agreed to make an offer of settlement by May 18, 2017.
Instead Cardenas emailed counsel for Plaintiffs with an offer
at 4:30 p.m. on May 22, 2017, the deadline for Defendants to
file an answer. Defendants never requested more time to file
an answer. On May 26, 2017, counsel for Plaintiffs prepared
Plaintiffs' motions for entry of default and left them
with an associate to be filed with the Court. Counsel for
Plaintiffs returned to work on May 30, 2017, and attempted to
return Mr. Cobb's call. Although counsel for Plaintiffs
did not reach Mr. Cobb, Plaintiffs proceeded to file their
motions for default judgment as to Mancilla and Cardenas on
May 30, 2017. Counsel for Plaintiffs eventually spoke with
Mr. Cobb's associate, Mr. Hardegree, on May 31, 2017. Mr.
Hardegree informed counsel for Plaintiffs that his firm had
been contacted by Defendants but had not yet been retained.
Before taking any action to enforce the default judgments,
counsel for Plaintiffs attempted to contact Mr. Hardegree
again on June 7, 2017, but was unable to reach him.
argue that Defendants have not shown why the Court should set
aside the default judgments under Rule 60(b)(1) or Rule
60(b)(6). Mancilla and Cardenas cannot demonstrate surprise,
mistake, or excusable neglect. Both Defendants had notice
from the summons as well as from Plaintiffs' agreement
not to file a motion for default that they had an obligation
to enter an appearance and plead. Plaintiffs' certificate
of service shows that they served Mancilla and Cardenas with
the motions for entry of default. Defendants cannot show then
why relief is warranted under Rule 60(b)(1) or Rule 60(b)(6).
also argue that Defendants cannot satisfy the lesser good
cause for setting aside the default judgments. Defendants
showed reckless disregard for the consequences of their
failure to request a further extension of time to answer the
Complaint. The time for Defendants to file an answer passed,
and Defendants could not simply rely on the possibility of
settlement discussion to avoid their responsibilities under
the Federal Rules of Civil Procedure. Nor have Defendants
shown they have meritorious defenses. The contract at issue
was with EPA, not Relmex, Inc. or any other entity.
Plaintiffs assert that all of their dealings have been with
EPA and Mancilla and Cardenas. The California Franchise and
Tax Board suspended Relmex, Inc. from doing business in the
state on June 1, 2015. As for prejudice to Plaintiffs, the
status of Defendants' business organizations calls into
doubt how much relevant information Plaintiffs will be able
to obtain from Defendants in discovery. Finally, Plaintiffs
contend that the default judgment's award of
attorney's fees was proper. The Complaint prayed for an
award of attorney's fees, and the amount of fees was for
a sum certain. For all of these reasons, Plaintiffs ask the
Court to deny the Motion to Set Aside the Default Judgments.
have filed a reply. Defendants argue that they have satisfied
Rule 60(b)(1) by showing that the entry of the default
judgment constitutes surprise. Defendants were engaged in
ongoing negotiations with Plaintiffs. The Sixth Circuit has
held that such conduct evidences intent to defend and
establishes good cause for setting aside a default judgment.
Additionally, Plaintiffs' failure to give Defendants
notice of their intent to seek default makes the default
judgment voidable for purposes of Rule 60(b)(6). Defendants
have also shown that their default was not culpable.
Defendants have acted promptly to move to set aside the
default judgment and have not otherwise ignored the orders of
the Court. With respect to their defenses on the merits,
Defendants argue that they need only show that they have a
defense good at law, not that they will prevail. Defendants
argue for the first time in their reply that they are
entitled to relief from the default judgments under Rule
60(b)(3), contending that Plaintiffs misrepresented to the
Court the nature of the contract and the grounds for an award
of attorney's fees.
Rule of Civil Procedure 55(b)(1) requires a Clerk of Court to
enter judgment against “a defendant who has been
defaulted for not appearing and who is neither a minor nor an
incompetent person” as long as “the
plaintiff's claim is for a sum certain or a sum that can
be made certain by computation.” Fed.R.Civ.P. 55(b)(1).
A district court “may set aside an entry of default for
good cause, and it may set aside a final default judgment
under Rule 60(b).” Fed.R.Civ.P. 55(c). The parties have
assumed, perhaps with good reason, that the standards for
granting relief from a final judgment under Rule 60(b) apply
in this case. The Sixth Circuit has long construed Rule 55(c)
to allow a district court to vacate a default ...