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Burger v. Engineered Paint Applications, LLC

United States District Court, W.D. Tennessee, Eastern Division

August 9, 2017

DONALD BURGER and THOMAS BRADEN d/b/a DIVERSIFIED FINISHING SYSTEMS, Plaintiffs,
v.
ENGINEERED PAINT APPLICATIONS, LLC, ERNEST MANCILLA, and FABIAN CARDENAS Defendants.

          ORDER GRANTING DEFENDANTS' MOTION TO SET ASIDE DEFAULT JUDGMENT

          S. THOMAS ANDERSON, CHIEF UNITED STATES DISTRICT JUDGE

         Before 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 GRANTED.

         BACKGROUND

         Plaintiffs 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.

         On the 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 and Cardenas.

         On June 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.

         The 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.

         Defendants 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.

         In 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.

         Plaintiffs 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).

         Plaintiffs 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.

         Defendants 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.

         STANDARD OF REVIEW

         Federal 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 ...


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