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concluding that the plaintiff is not substantially prejudiced when the discovery deadline was three months after the court set aside the defendant's default
Summary of this case from Parker v. Bill Melton Trucking, Inc.Opinion
Civil Action No. 3:03-CV-718-D.
May 3, 2004
JACKSON LEWIS LLP, Dallas, Texas, Paul E. Hash, Esq., Elizabeth K. Deardorff, Esq., Attorneys for Defendant.
FINDINGS, CONCLUSIONS, AND RECOMMENDATION
By Order of Reference entered April 8, 2004, the United States District Court referred Defendant POP Restaurants, LLC's ("POP's") January 22, 2004 motion to set aside default judgment to the United States Magistrate Judge for hearing, if necessary, and for recommendation. On February 5, 2004, Plaintiff filed a response to the motion. The Court has considered the parties' pleadings and finds that a hearing is not required.
I.
On April 4, 2003, Plaintiff filed his complaint against POP, a restaurant in Arlington, Texas. Plaintiff claims that while he was a POP employee, he was injured in an assault by a disgruntled former employee of POP. On May 23, 2003, POP timely filed its answer and affirmative defenses. POP was represented by Paul Hood. Hood was retained as POP's counsel by POP's occupational insurance carrier. The insurance carrier denied coverage; insurance counsel moved to withdraw; and on November 4, 2003, the District Court granted Hood's unopposed Motion to withdraw as POP's counsel.
The District Court ordered POP to retain counsel within thirty days. POP relied upon its outside general counsel, Richard Dobbyn, to comply with the District Court's order. Dobbyn did not inform POP that he had been suspended from the practice of law by the State Bar of Texas and was on active suspension from September 14, 2003, to November 14, 2003. Also unknown to POP was the fact that as part of his suspension, Dobbyn was ordered to undergo psychiatric evaluation which revealed that he was suffering from attention deficit disorder that masked severe depression. Another complete psychiatric evaluation on December 23, 2003, revealed Dobbyn was suffering a major depressive episode. The State Bar of Texas appointed a monitor for Dobbyn. The monitor was supposed to meet with him weekly, by telephone, and personally, once a month. Dobbyn was supposed to attend weekly meetings of "Lawyers Concerned for Lawyers." POP's principal owner, Guillermo Perales, first learned of counsel's failure to act on POP's behalf in this lawsuit when the default judgment was entered on January 7, 2004. POP took immediate action upon learning of Dobbyn's mistakes. New counsel entered an appearance on January 20, 2004, and filed the motion to set aside the default judgment on January 22, 2004. The Court notes that the default judgment did not end this lawsuit. Plaintiff served Perales and Corral Group, Inc, in December of 2003. The new defendants filed an answer on January 5, 2004.
POP claims it should be relieved from the default judgment because of excusable neglect. It contends Plaintiff will not be prejudiced because Plaintiff's identical claims against the newly served defendants are still pending; all claims arise out of the same transaction; and the claims against all the defendants can be tried together. Plaintiff opposes the motion on the grounds that POP should be held accountable for Dobbyn's mistakes. Plaintiff claims the client should have checked to make sure its counsel had entered a Notice of Appearance. He further contends that POP has not proffered a meritorious defense. Plaintiff claims he will be substantially prejudiced if the default judgment is set aside because the case has been pending for "nearly a year," and he has not been able to conduct a single deposition.
II.
The terms of FED. R. CIV. P. 55(c) provide that "[f]or good cause shown the court may set aside an entry of default and, if a judgment of default has been entered, may likewise set it aside in accordance with Rule 60(b)." The terms of FED. R. CIV. P. 60(b) provide in relevant part that "the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence . . . or (6) any other reason justifying relief from the operation of the judgment."Courts evidence a clear preference for disposition of litigation on the merits, rather than by default judgment, when it is consistent with sound judicial administration and fairness to the parties. Accordingly, the requirement of "good cause" and the specific criteria of Rule 60(b) have generally been interpreted liberally. See Amberg v. FDIC, 934 F.2d 681, 686 (5th Cir. 1991). See also Azzopardi v. Ocean Drilling Explor. Co., 742 F.2d 890, 895 (5th Cir. 1984). Courts consider such factors as whether the default resulted from excusable neglect, whether setting aside the default would prejudice the adversary, and whether a meritorious defense is presented. See CJC Holdings, Inc. v. Wright Lato, Inc., 979 F.2d 60, 64 (5th Cir. 1992).
The court in CJC Holdings characterizes the first factor as "whether the default was willful." CJC Holdings, 979 F.2d at 64. However, the court suggests that the less subjective "excusable neglect" standard should be used in the future. Id.
When POP's insurance counsel withdrew, POP referred the case to its outside counsel, Dobbyn, trusting that he would represent its interests. Dobbyn provided responses to written discovery on behalf of POP on November 17, 2003, leading Plaintiff's counsel to believe that he was representing POP. Nevertheless, Dobbyn did not comply with the District Court's order to enter an appearance for POP within thirty days of November 4, 2003. The District Court properly enforced its November 4, 2003 order, striking POP's defenses and entering default judgment, in accordance with law. Under basic agency principles, an attorney's neglect is chargeable to the party, but the party may be relieved from the consequences of such neglect when the party has a reasonable excuse for the neglect, has acted diligently after notice of the entry of judgment, has a reasonable claim or defense on the merits, and when the opposing party will not be prejudiced.
Dobbyn failed to inform POP that the State Bar had suspended him and appointed another lawyer to monitor him. POP had no reason to suspect that Dobbyn was being treated for severe depression, or that he was not performing his duties. This Court finds that it would be inequitable for POP to be the victim of its attorney's undisclosed mental illness and dereliction of duty, particularly here, where the factors of due diligence in seeking relief from the default judgment and an absence of substantial prejudice to Plaintiff, weigh heavily in favor of setting aside the default judgment. Plaintiff will not be prejudiced by the reopening of his case against POP because, under the new scheduling order the District Court entered on March 23, 2004, the discovery completion deadline for the other parties is not until August 15, 2004. Finally, POP is now represented by counsel and has shown that it has meritorious defenses.