Opinion
CASE NO. 01-CV-70063-DT.
August 21, 2001
OPINION
This is a student loan case in which the Government seeks to collect $5,941.83 plus interest from Defendant James L. Fisher. Defendant, proceeding pro se, has filed a motion for summary judgment asserting that the Government's claims are barred by res judicata on account of a 1992 state court judgment involving the same student loans. The Government has filed no response to Defendant's motion. For the reasons stated below, Defendant's motion shall be granted.
Background
The Government filed its complaint in this action on January 5, 2001. On February 21, 2001, the Government filed a request for a clerk's entry of default alleging that the Defendant had failed to "defend this action as required . . . ." At 1:08 p.m. on February 22, 2001, Defendant filed an answer to the complaint. On the same day, at 3:09 p.m., a clerk's entry of default was entered against Defendant. However, no default judgment has been entered against Defendant. Furthermore, the parties appeared for a status conference on March 20, 2001, and the Government filed an answer to Defendant's affirmative defenses on March 20, 2001, a witness list on June 28, 2001, and a motion to compel discovery on July 17, 2001.
Although the complaint was filed earlier in the day, the clerk's entry of default is docket no. 5 and Defendant's answer is docket no. 6.
The Government's motion to compel requests information from Defendant regarding the state court action, most of which were answered by Defendant's motion for summary judgment and exhibits thereto. For example, question number one asks if the 1992 state court judgment was rendered in the 2-1 Judicial District Court for the State of Michigan.
This matter is now before the Court on Defendant's motion for summary judgment. The Government has filed no response to Defendant's motion despite the fact that, on July 16, 2001, this Court sent Plaintiffs counsel a "Notice Regarding Motion Practice" reminding counsel of the provisions of Local Rule 7.1(b)(1)(B) which provides that, "A response to a dispositive motion must be filed within 21 days after service of the motion."
Discussion
Because Defendant's Answer was filed before the clerk's entry of default, it is, at least arguable, that the clerk's entry of default should not have been entered. However, assuming the clerk's entry of default was properly entered, in this Court's opinion, the clerk's entry of default should be set aside.
Rule 55(c) of the Federal Rules of Civil Procedure provides that the Court may set aside a clerk's entry of default "[f]or good cause shown." In general, three factors should be considered in determining whether to set aside an entry of default: "1) whether the non-defaulting party will be prejudiced; 2) whether the defendant has a meritorious defense; and 3) whether the culpable conduct of the defendant led to the default." Smith v. Comm'r of Internal Revenue, 926 F.2d 1470, 1479 (6th Cir. 1991) (citing United Coin Meter v. Seaboard Coastline R.R., 705 P.24 839, 845 (6th Cir. 1983)). The Government has proceeded with this case as if no default has been entered. Therefore, the Court is satisfied that the Government will not be prejudiced if the default is set aside. Furthermore, Defendant has presented a potentially meritorious defense of res judicata, and in this Court's opinion, there is no evidence of culpable conduct by Defendant. As previously indicated, Defendant's pro se answer, although filed a week late, was filed before the clerk's entry of default was filed. Accordingly, good cause exists for setting aside the clerk's entry of default.
Returning to Defendant's motion for summary judgment, Defendant argues that the Government's claims are barred by the doctrine of res judicata based upon a 1992 state court consent judgment entered against him involving the same student loans. Summary judgment is proper only if there is no genuine issue as to any material fact, thereby entitling the moving party to judgment as a matter of law. Hunter v. Caliber Sys., Inc., 220 F.3d 702, 709 (6th Cir. 2000); see also Fed.R.Civ.P. 56(c). There is no genuine issue of material fact for trial unless, by viewing the evidence in a light most favorable to the nonmoving party, a reasonable jury could "return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed. 26202 (1986). On a motion for summary judgment, the moving party bears the initial responsibility of informing the Court of the basis for its motion and identifying those portions of the record that establish the absence of a material issue of fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed. 24265 (1986).
Once the moving party has met its burden, the nonmoving party must go beyond the pleadings and come forward with specific facts to show that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Celotex, 477 U.S. at 322-24, 106 S.Ct. at 2552-53. The nonmoving party must do more than show that there is some metaphysical doubt as to the material facts. Pierce v. Commonwealth Life Ins. Co., 40 F.3d 796, 800 (6th Cir. 1994). The nonmoving party must present significant probative evidence in support of its opposition to the motion for summary judgment. Moore v. Phillip Morris Comp., Inc., 8 F.3d 335, 339-40 (6th Cir. 1993). If, after adequate time for discovery, the party bearing the burden of proof fails to make a showing sufficient to establish an essential element of his claim, summary judgment is appropriate. Celotex, 477 U.S. at 322-24, 106 S.Ct. at 2552-53.
"The doctrine of res judicata, or claim preclusion, provides that a final judgment on the merits of an action precludes the `parties or their privies from relitigating issues that were or could have been raised' in a prior action." Kane v. Magna Mixer Co., 71 F.3d 555, 560 (6th Cir. 1995) (quoting Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 2428, 69 L.Ed. 24 103 (1981)). For the doctrine of res judicata to apply, there must be: 1) a final decision on the merits by a court of competent jurisdiction; 2) a subsequent action between the same parties or their privies; 3) an issue in the subsequent action which was litigated or which should have been litigated in the prior action; and 4) an identity of the causes of action. Kane, 71 F.3d at 560. When a federal plaintiff socks to assert claims in a federal complaint that were already presented and decided in a state court proceeding, the claims suffer from the same preclusive effect that would be given the prior judgment under the law of the state in which the judgment was entered. See Migra v. Warren City Sch. Dist. Bd. of Ed., 465 U.S4 75, 80-85, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984).
In 1992, the Michigan Department of Treasury filed suit against Defendant to collect on a number of student loans evidenced by promissory notes and guaranteed by the Michigan Department of Education. ( See Def.'s Mot., Ex. A). According to the documents attached to Defendant's motion, those notes were dated July 31, 1980, January 15, 1981, July 23, 1981, August 5, 1981, and July 22, 1982. ( See id.). On October 21, 1992, a consent judgment was entered against Defendant in which he agreed to pay $75.00 per month to the State of Michigan until the judgment was paid in full. ( See id., Ex. B).
The complaint in this action seeks to recover on the same promissory notes as involved in the 1992 state court action. Documentation attached to the complaint indicates that the holder of the notes demanded payment from the Michigan Department of Education under its guaranty. The Michigan Department of Education paid the holder. The United States Dcpartment of Education then reimbursed the Michigan Department of Education under its reinsurance agreement. After the Michigan Department of Education was unable to collect from Defendant presumably after the 1992 consent judgment was entered in state court), it assigned its right and title to the notes to the United States Department of Treasury in 1994. In this action, the United States seeks to collect on the promissory notes executed by Defendant.
Under Michigan law, once entered, a consent judgment is the equivalent of a state court judgment following a trial on the merits. Trendell v. Solomon, 178 Mich. App. 365, 369 (1989). Therefore, the consent judgment entered by the state court in 1992 is a "final decision on the merits by a court of competent jurisdiction." Kane, 71 F.3d at 560.
In this Court's opinion, this action involves "the same parties or their privies" because, based on the evidence before the Court, the Government obtained an interest in the relevant student loans by assignment from the Michigan Department of Education in 1994. Under Michigan law:
"A privy is one who, after rendition of the judgment, has acquired an interest in the subject matter affected by the judgment through or under one of the parties, as by inheritance, succession, or purchase." The concept of privity has generally been applied to persons who in the eyes of the law "stand in the shoes" of another with respect to their relationship to the subject matter of the suit, e.g., assignor and assignee, executor and testator, master and servant, guardian and ward, trustee in bankruptcy and bankrupt, or indemnitor and indemnitee.Eliason Corp. v. Michigan Dep't of Labor, 564 F. Supp. 1298, 1305 (W.D. Mich. 1983) (citing Michigan Law Practice, Judgment §§ 265-72 (1957 Supp. 1982)). The Government is, in this Court's opinion, a privy of the Michigan Department of Education and therefore, this case involves "the same parties or privies." Kane, 71 F.3d at 560.
For res judicata to apply, the subsequent action must also involve an issue "which was litigated or which should have been litigated in the prior action." Id. The issue in this case, i.e., Defendant's default on the identified promissory notes, was the exact issue litigated in the 1992 action. Accordingly, this prong is satisfied.
The last requirement is "an identity of the causes of action." Id. "Identity of causes of action means an identity of the facts creating the right of action and of the evidence necessary to sustain each action." Sanders Confectionery Prods., Inc. v. Heller Fin., Inc., 973 F.2d 474, 484 (6th Cir. 1992) (internal quotation omitted). Based upon the complaint in this action and the complaint in the 1992 state court action, the two actions are essentially identical except for the named plaintiffs and therefore, there is an identity of both the facts creating the right of action and the evidence necessary to sustain each of them.
Based upon the current record, no genuine issue of material fact exists as to whether the Government's claims, as set forth in the complaint, are barred by the doctrine of res judicata. As the Government has failed to provide the Court with any "significant probative evidence" indicating otherwise, Defendant's motion for summary judgment shall be granted.
It appears that the Government obtained an interest in these notes two years after the state court judgment was entered. Under the doctrine of merger, related to the principle of res judicata which precludes the relitigation of the same cause of action, upon obtaining a judgment, the cause of action, i.e., the State's claim on the notes, was merged in to the judgment. See Lechter County v. DeFoe, 151 F.2d 987, 991 (6th Cir. 1945). The Court's grant of summary judgment applies only to the lawsuit pending before this Court, which in this Court's opinion, is a suit to recover on the notes. The Court expresses no opinion as to whether the Government may seek to obtain an interest in the judgment that was entered and thus attempt to enforce rights under that judgment.
Conclusion
For the reasons stated above, the Court is satisfied that the Government's claims are barred by the doctrine of res judicata. Accordingly, the clerk's entry of default against Defendant shall be set aside and Defendant's motion for summary judgment shall be granted.A Judgment consistent with this Opinion shall issue forthwith.
Date: AUG 21 2001
PATRICK J. DUGGAN UNITED STATES DISTRICT JUDGE
Copies to: Sheridan V. Holzman, Esq., James L. Fisher