Opinion
Case No. 02-2505-GTV
January 29, 2004
MEMORANDUM AND ORDER
Plaintiff Ryan Transportation Service, Inc. ("Ryan") brings this breach of contract action against Defendant Paschall Services, Inc. ("Paschall") for failure to pay freight charges on interstate transportation services. Paschall then filed a third-party complaint against Freight USA, Inc., for Humanity ("Freight USA"), claiming that Freight USA had agreed to indemnify Paschall for cargo loss or damage. Freight USA failed to answer Paschall's third-party complaint before the deadline for filing an answer expired. The U.S. District Clerk entered default judgment in the amount of $537,980 on June 25, 2003. Freight USA now asks the court to set aside the default judgment (Doc. 48). In addition, Ryan asks the court to review Magistrate Judge Waxse's denial of its motion to intervene in the third-party action (Doc. 64). For the following reasons, the court grants Freight USA's motion to set aside the default judgment and sustains Ryan's objections to the magistrate judge's order.
I. Motion to Set Aside Default Judgment
Freight USA asks the court to set aside the default judgment for ten reasons. The court need only address the first two, (1) Paschall's claim was not for a "sum certain"; and (2) Freight USA did not fail to appear. Without a "sum certain" or a failure to appear, the Clerk was without authority to enter judgment by default.
The Clerk of the Court is authorized to enter default judgment only if (1) the plaintiff's claim is for a "sum certain or for a sum which can by computation be made certain" and (2) the defendant has been defaulted for failure to appear. Fed.R.Civ.P. 55(b)(1). "In the Rule 55 context, a claim is not a sum certain unless there is no doubt as to the amount to which a plaintiff is entitled as a result of the defendant's default."KPS Assocs. v. Designs by FMC, 318 F.3d 1, 17 (1st Cir. 2002). Furthermore, as will be explained in more detail below, courts have broadly defined the "appearance" referenced in Rule 55. Rogers v. Hartford Life Accident Ins. Co., 167 F.3d 933, 936-37 (5th Cir. 1999). The court determines that neither requirement was satisfied in this case. When either requirement is not met, a default judgment entered by the Clerk of the Court is void ab initio. See Direct Mail Specialists, Inc. v. Eclat Computerized Tech., Inc., 840 F.2d 685, 689 (9th Cir. 1988).
A. "Sum Certain"
Paschall's claims against Freight USA are not for a "sum certain" because they are claims dependent upon the resolution of the main action between Ryan and Paschall. Paschall brought its claims against Freight USA pursuant to Fed.R.Civ.P. 14(a). "A third-party claim may be asserted under this rule only when the third party's liability is in some way dependent on the outcome of the main claim or when the third party is secondarily liable to the defendant." Bethany Med. Ctr. v. Harder, 641 F. Supp. 214, 217 (D. Kan. 1986) (citing Wright and Miller, Federal Practice and Procedure § 1446, at 246 (1971)).According to the allegations in the complaints and the attachments, Freight USA is a motor carrier licensed to transport freight that sold its accounts receivable to Ryan. One of the accounts receivable was Paschall, who had entered into a Broker Carrier Agreement with Freight USA. Under the Broker Carrier Agreement, Freight USA was to provide transportation services for shipments arranged or brokered by Paschall. When a particular shipment was stolen, Paschall withheld payments of freight charges from Ryan and indicated that it would not pay additional bills. After Ryan filed suit for payment, Paschall filed a third-party complaint against Freight USA for the value of the stolen cargo and for other damages arising from the Broker Carrier Agreement.
Based on this series of events and the nature of third-party claims filed under Fed.R.Civ.P. 14(a), the court determines that there cannot be a sum certain until all claims in the case are resolved. Furthermore, the court notes that Paschall's claims against Freight USA involve the value of personal property. "The amount of a defendant's liability is not a sum certain nor capable of certainty by computation when it is a matter of estimation such as the value of [a] converted chattel." Am. Water Purification, Inc. v. Barkley Mfg. Eng'g, Inc., No. 87-1003-C, 1989 WL 31397, at *3 (D. Kan. Mar. 2, 1989) (citing Combs v. Coal Mineral Mgmt. Servs., Inc., 105 F.R.D. 472, 474 (D.D.C. 1984)). The parties' briefing also indicates that a portion of the damages sought by Paschall may involve attorney fees. If that is the case, then the amount sought is not a sum certain.See Hunt v. Inter-Globe Energy, Inc., 770 F.2d 145, 148 (10th Cir. 1985); Venable v. Haislip, 721 F.2d 297, 300 (10th Cir. 1983).
For all of these reasons, the court determines that the damages requested by Paschall were not a sum certain, thereby depriving the Clerk of the Court of the authority to enter judgment by default.
B. Failure to Appear
The court also determines that Freight USA "appeared" in the action for purposes of Fed.R.Civ.P. 55. The Clerk of the Court may only enter default judgment if a party has been defaulted for failure to appear. Fed.R.Civ.P. 55(b)(1).
As noted above, courts have held that "appearing" in an action need not be limited to a formal filing in court. See, e.g., Rogers, 167 F.3d at 936-37; Key Bank of Maine v. Tablecloth Textile Co., 74 F.3d 349, 353-54 (1st Cir. 1996) (collecting cases and holding that informal contacts between counsel constituted an appearance); United States ex rel. Time Equip. Rental Sales, Inc. v. Harre, 983 F.2d 128, 130 (8th Cir. 1993) (holding that the defendant appeared when he served an answer on the plaintiff's counsel, but the court struck the answer as late-filed); Sun Bank of Ocala v. Pelican Homestead Sav. Ass'n, 874 F.2d 274, 276-77 (5th Cir. 1989) (holding that counsel's receipt of an unfiled motion to dismiss constituted an appearance, conveying the defendant's intent to contest the suit); Lutomski v. Panther Valley Coin Exch., 653 F.2d 270, 271 (6th Cir. 1981) (holding that request by the defendant's counsel to the plaintiff's counsel asking for extension of time to file answer constituted an appearance). But see Direct Mail Specialists, Inc., 840 F.2d at 688 (holding that the defendant failed to appear even though he engaged in settlement negotiations because the negotiations never rose to the level of a "clear intention to defend").
Here, the court determines that Freight USA gave Paschall notice that it intended to defend the action, thereby precluding default for failure to appear. On June 5, 2003, Freight USA's answer allegedly was due, although Freight USA disputes that it received service before that date. Nonetheless, Pedro Lopez, president of Freight USA, knew of the lawsuit and attempted to file a motion for extension of time to answer on June 6, 2003, stating that he was seeking counsel within the jurisdiction. Magistrate Judge Waxse struck Mr. Lopez's pro se pleading, but the motion was served upon Paschall's counsel.
On June 23, 2003, Stephen B. Millin, Jr., agreed to represent Freight USA and telephoned Charles Schimmel, counsel for Paschall, and left a voice message advising Mr. Schimmel that he had agreed to represent Freight USA and intended to ask for an extension of time to file a response. Mr. Millin called Mr. Schimmell again on June 24 and left a second message. On June 24, 2003, Mr. Schimmel returned Mr. Millin's call, and Mr. Millin advised Mr. Schimmel that he would file the motion for extension of time on June 25, 2003. Because of a technical difficulty, he did not file the motion until June 26, 2003, but served the motion on Paschall on June 25. On that same date, June 25, 2003, Paschall filed a motion for judgment by default without notice to Freight USA, which was immediately granted by the Clerk of the Court.
The court concludes that Freight USA's contacts with Paschall constitute an appearance in this action sufficient to preclude default for failure to appear. Paschall notes that any contact by Freight USA occurred after the deadline for filing an answer, June 5, 2003, passed. Under the unique circumstances of this case, the court finds the one day missed deadline immaterial, particularly since Paschall did receive notice of Freight USA's intent to defend before it filed its motion for judgment by default. Moreover, Paschall's argument is somewhat disingenuous, as it too missed a deadline; Paschall failed to serve Freight USA by April 12, 2003, the deadline imposed by Magistrate Judge Waxse.
For all of the above-stated reasons, the court concludes that the judgment by default should be set aside. The Clerk of the Court was without authority to enter default judgment against Freight USA, and the default judgment was void ab initio.
II. Review of Magistrate's Order Denying Motion to Intervene
Ryan has filed objections to Magistrate Judge Waxse's order denying Ryan's motion to intervene in the above-referenced third-party action. Magistrate Judge Waxse summarily denied Ryan's motion as moot because the Clerk of the Court had entered judgment by default. The court determines that Ryan should be allowed to intervene in the third-party action.
Ryan contends that the appropriate standard of review of the magistrate's decision is de novo. The de novo standard is reserved for dispositive motions. Fed.R.Civ.P. 72(b). When a magistrate rules on nondispositive matters, the appropriate standard of review is clearly erroneous or contrary to law. Fed.R.Civ.P. 72(a). The court questions whether de novo review is the correct standard of review, but need not decide the standard because the magistrate's decision should be reversed under either standard. See Rhodes v. Ohse, No. 97-CV-17 FJS, 1998 WL 809510, at *1 (N.D.N.Y. Oct. 30, 1998) (treating motion to intervene as a non-dispositive matter); Sunrise Shipping, Ltd, v. M/V Am. Chemist, No. 96-2849, 1997 WL 289349, at *1 (E.D. La. May 29, 1997) (same). But see N.Y. Chinese TV Programs, Inc. v. U.E. Enters., Inc., 996 F.2d 21, 23 (2d Cir. 1993) (treating motion to intervene as dispositive); Sunbelt Veterinary Supply. Inc. v. Int'l Bus. Svs. United States, Inc., 200 F.R.D. 463, 465 (M.D. Al. 2001) (same).
The court has determined that the Clerk of the Court was without authority to enter judgment by default. The magistrate's reasoning for denying Ryan's motion to intervene is therefore no longer valid. The court has reviewed the briefs regarding the motion to intervene and determines that intervention should be allowed in this case. Under Fed.R.Civ.P. 24(a)(2), the court concludes that Ryan is claiming "an interest relating to the property or transaction which is the subject of the action and [Ryan] is so situated that the disposition of the action may . . . impair or impede [Ryan's] ability to protect that interest." Paschall has attempted to collect the money it claims Freight USA owes by withholding freight charges from Ryan. Ryan, as an assignee of Freight USA's accounts receivable, is intrinsically involved in the dispute between Paschall and Freight USA, and should be allowed to intervene in the third-party action between them.
IT IS, THEREFORE, BY THE COURT ORDERED that Freight USA's motion to set aside the judgment by default (Doc. 48) is granted. Freight USA is granted thirty (30) days to answer Paschall's third-party complaint.
IT IS FURTHER ORDERED BY THE COURT that Ryan's objections to the magistrate judge's order (Doc. 64) are sustained. Magistrate Judge Waxse's order of July 18, 2003 is vacated, and the court grants Ryan's motion to intervene in the third-party action (Doc. 25).
IT IS FURTHER ORDERED BY THE COURT that this case is removed from the April 6, 2004 trial calendar.
Copies or notice of this order shall be transmitted to counsel of record.
IT IS SO ORDERED.