Opinion
Civil Action 2:12-cv-01203
02-02-2015
Paul Gary Wilson, et al., Plaintiffs v. Columbia Gas Transmission, LLC, Defendant/Counterclaimant v. Exclusive Natural Gas Storage, Easements, et al., Counterclaim-Defendants
Judge Graham
ORDER
This matter is before the Magistrate Judge on plaintiffs' December 2, 2014 motion to set aside entries of default (doc. 485) and defendant Columbia Gas Transmission, LLC's ("Columbia Gas") December 26, 2014 motion to strike (doc. 503).
Background. The complaint makes the following allegations. Columbia Gas has 14 natural gas storage fields in Ohio. When natural gas is removed from a storage field, some quantity of native natural gas is also removed. Columbia Gas has not paid the named plaintiffs compensation for storing gas on their property and has not acquired their property by eminent domain. Plaintiffs seek to represent a class of property owners whose property is used by Columbia Gas to store natural gas but have not been compensated for that use. Claims are pleaded for trespass, conversion, unjust enrichment for use of property and for taking native natural gas without compensation, inverse condemnation, and declaratory judgment under the Natural Gas Act and the fifth amendment takings clause.
On May 17, 2013, Columbia Gas filed its first counterclaim in condemnation against four of the named plaintiffs and several hundred additional landowners, all members of the putative class. On June 12, 2014, Columbia Gas filed a second amended counterclaim against more than 2,100 property members.
Class certification briefing has been deferred until March 2015, following the completion of discovery.
Motion to Strike. As a preliminary matter, Columbia Gas filed a motion to strike arguing that neither the named plaintiffs nor their counsel represent the counterclaim-defendants on behalf of whom they purported to file the motion to set aside the entries of default. Columbia Gas argues that it is a violation of the Federal Rules of Civil Procedure and the Ohio Rules of Professional Conduct to make such filings on behalf of parties that counsel for plaintiffs do not represent.
Columbia Gas argues that the named plaintiffs have grossly overstepped their proper roles in filing the motion to set aside entries of default. Defendant argues that no attorney-client relationship forms between an attorney and an unnamed member of a purported class. Defendants maintain that even if plaintiffs' claims were suitable for treatment on a class-wide basis, counsel for plaintiffs would still be have to be separately retained by each property owner to represent them in connection with the second amended counterclaim in condemnation.
Columbia Gas maintains that each counterclaim-defendant was served with original process by a private process server at their home pursuant to Rule 71.1(d)(3)(A) and Rule 4(e)(2). Nearly all of the counterclaim-defendants also received a letter from Columbia Gas seeking to acquire underground storage rights prior to being added to the condemnation action. Columbia Gas also believes that each counterclaim-defendant received a solicitation letter from counsel for plaintiffs after being personally served with the condemnation action seeking to individually represent them on a contingency fee basis. Defendant argues that Rule 11 of the Federal Rules of Civil Procedure does not permit a party to make representations or file pleadings on behalf of another.
Columbia Gas maintains that the defaulted counterclaim-defendants have received multiple letters and formal service of process at their home, and it is entirely within their rights to decline to hire counsel, file an answer or challenge Columbia Gas's substantive right to condemn the property. They are also entitled to opt to participate (or not) in the hearing on just compensation. Columbia Gas maintains that its right to condemn easements under the property identified in the second amended counterclaim in condemnation is not seriously open to question. Columbia Gas argues that the Natural Gas Act affords it, as the holder of certificates of public convenience and necessity issued by the Federal Energy Regulatory Commission ("FERC"), the right to use eminent domain to secure any property rights it needs to operate its fourteen underground natural gas storage fields in Ohio. Columbia Gas maintains that the defaulted counterclaim-defendants that do not wish to challenge Columbia Gas's right to condemn their property are entitled to a swift determination of just compensation and prompt payment thereafter at the hearing that Columbia Gas has requested in its motion for default judgment. Columbia Gas contends that neither plaintiffs nor their counsel have the right to insert themselves into this process by purporting to represent the defaulted counterclaim-defendants.
Columbia Gas also argues that the fact that plaintiffs seek to represent an uncertified class does not alter the Federal Rules of Civil Procedure or enable their counsel to file a reply on behalf of defaulted counterclaim-defendants who have not sought or consented to their representation. A client-lawyer relationship with a potential member of the class does not begin until the class has been certified and the time for opting out by a potential member of the class has expired. Putative class members are not represented parties for purposes of the ABA Model Rules prior to certification.
Setting aside the issue of class certification, defendant maintains that counsel for plaintiffs cannot represent parties that have not engaged its representation in the separate condemnation counterclaim. Columbia Gas did not bring its condemnation action collectively against the class; it brought individual actions against individual properties in rem and against individual landowners. Even if the Court were to certify a class, plaintiffs' counsel would still have to be individually retained by each defaulted counterclaim-defendant for purposes of the counterclaim.
In response, plaintiffs argue that Rule 13 of the Federal Rules of Civil Procedure does not authorize counterclaims against non-party absent class members and that Rule 71.1 does not require any response to a claim in condemnation. Despite this, Columbia Gas has sought default judgment against the putative class members who did not file answers or appearances. Plaintiffs argue that moving to set aside the defaults entered by the Clerk and opposing the motions for default judgment is consistent with their obligations to the putative class. Class counsel is permitted to proceed as needed on behalf of absent putative class members to protect their rights until the class certification issue can be decided.
Plaintiffs maintain that federal courts regularly respond to motions filed by class counsel regarding filings against absent class members before a class is certified. Plaintiff notes that Columbia Gas cites to no legal authority stating that there is anything improper in class counsel protecting the rights of absent class members threatened with defaults on counterclaims. Plaintiffs argue that allowing defaults on counterclaims against absent class members before a decision on class certification because class counsel are not permitted to protect the absent class members would completely undermine the purpose of a class action.
Plaintiffs further argue that Columbia Gas has not shown good cause for striking plaintiffs' motion to set aside entries of default. When no good cause exists and the opposing party will not be prejudiced, the motion should not be stricken.
Columbia Gas's motion to strike is DENIED. Rule 12(f) does not permit the Court to strike motions because the rule only applies to pleadings. Harvey v. Pickell, No. 11-11979, 2013 WL 2634632, at *6 (E.D. Mich. 2013) A motion to set aside an entry of default is not a pleading within the meaning of Rule 7(a) of the Federal Rules of Civil Procedure.
Arguments of the Parties. Plaintiffs seek to set aside the entries of default against 121 properties entered by the Clerk of Court in docket entries 454, 467 and 473. Plaintiffs argue that there is good cause to set aside these defaults. Although the property owners did not formally respond to Columbia Gas's counterclaims in condemnation, plaintiffs maintain that Rule 71.1 of the Federal Rules of Civil Procedure does not require a property owner to answer or file an appearance in a condemnation case in order to proceed to trial on value.
Plaintiffs also argue that even absent Rule 71.1's procedural impediment, Columbia Gas should not be able to obtain defaults that cut off the affirmative claims of putative class members. All of the property owners against whom the Clerk has entered defaults are members of the putative class. No class certification determination has been made, and the issue is not ripe for briefing under the applicable case management order. See doc. 422. Plaintiffs maintain that the putative class members have the right to rely on the pendency of the class claim for inverse condemnation.
Plaintiffs contend that they could find no cases on point that allow Columbia Gas to obtain default judgment against property owners who elect to take no action under Rule 71.1. Plaintiffs maintain that those cases where default judgment was entered in a condemnation action are easily distinguishable from the instance action.
Plaintiffs maintain that there is no issue of time in this action. Columbia Gas already has possession of the properties it seeks to condemn and has been conducting its gas storage there for decades. Columbia Gas will continue to do so, and there is no urgency or need for immediate Court action.
Plaintiffs argue that until the Court rules on the issue of class certification, all defaults already entered should be set aside. The adverse effects on the property owners will be profound if the entries are not set aside. If default judgment is entered, the putative class members' rights to pursue inverse condemnation claims on a class-wide basis will be foreclosed. Entering default against an individual who is a member of putative class is completely inconsistent with the concept of a class action. The potential recovery by each landowner on the inverse condemnation claim is dwarfed by the financial burden required to individually retain specialized lawyers and experts needed to effectively litigate each claim separately. Columbia Gas, on the other hand, has experienced lawyers and the financial resources to litigate on an individual or collective basis. The ability to aggregate relatively small claims is one of the most important policies militating in favor of a class-wide proceeding.
Plaintiffs further argue that service was not properly made on all parties and therefore no default can be entered as to those parties. Plaintiffs maintain that first class mail service is not proper under Rule 71.1(f) for parties who have not previously appeared. Because none of the parties against whom Columbia Gas moved for default have previously appeared, service conforming to the requirements of Rule 71.1(d) was required. Rule 71.1(d) requires personal service or, if the residence address is not known, service by publication. Plaintiffs contend that because Columbia Gas did not properly serve these parties, the entries of default are improper and should be set aside. Plaintiffs also argue that Columbia Gas failed to properly serve all owners of certain properties and that the defaults must be set aside for those properties where not all owners were properly served.
Memorandum in Opposition. In response, Columbia Gas argues that plaintiffs misapprehend the procedure set forth in Rule 71.1, which is intended to provide swift and just compensation to property owners in federal condemnation cases. Plaintiffs' motion delays each counterclaim-defendant's right to obtain prompt payment of just compensation. Defendant also maintains that plaintiffs have failed to establish the requisite good cause required to set aside the entry of default under Rule 55(c).
Columbia Gas maintains that each counterclaim-defendant subject to the motions for default judgment was served with original process by a private process server at their home pursuant to Rule 71.1(d)(3)(A) and Rule 4(e)(2). Nearly all the counterclaim-defendants received a letter from Columbia Gas seeking to acquire underground storage rights prior to being added to the condemnation action. Each counterclaim-defendant also received at least one solicitation letter from counsel for plaintiffs. According to Columbia Gas, many counterclaim-defendants retained plaintiffs' counsel to represent them. Other counterclaim-defendants retained other counsel, and many counterclaim-defendants opted not to retain counsel and not to file a response to the second amended counterclaim in condemnation. Despite having no relationship with the defaulted counterclaim-defendants that would allow plaintiffs or their counsel to make filings on their behalf, the named plaintiffs filed the motions at issue.
Columbia Gas argues that the Court should deny plaintiffs' motion. Rule 71.1 was created to standardize eminent domain proceedings in federal court and to simplify the proceedings. According to defendant, plaintiffs entirely mischaracterize the procedure set forth in Rule 71.1. Under Rule 71.1, after being served with a condemnation action, the property owner can elect one of two affirmative options. If the property owner has "no objection or defense to the taking," the property owner can file a notice of appearance triggering the requirement that the property owner be given notice of ongoing proceedings. Rule 71.1(e)(1). In the alternative, the property owner can file an answer if the property owner has an objection or defense. Rule 71.1(e)(2). Any such objection must be determined prior to the hearing to determine just compensation. Any defenses that are not stated in the answer are waived. Rule 71.1(e)(3).
Columbia Gas argues that in the event that the property owners fail to avail themselves of either option, then they cannot challenge the taking, although they do retain the right to present evidence on the amount of compensation to be paid. Rule 71.1(e)(3). Columbia Gas argues that plaintiffs have failed to point to any authority that would support their position that the condemnation action should be stayed based on the claims alleged in the uncertified class action complaint. Defendant contends that counsel for plaintiff's wish to be appointed class counsel do not afford them any right to file on behalf of the defaulted counterclaim-defendants.
Columbia Gas maintains that even if plaintiffs' motion was procedurally proper, the motion is without merit because plaintiffs have not shown good cause to set aside the entries of default. Columbia Gas maintains that the factors for determining whether to set aside an entry of default weigh in favor of denying plaintiffs' motion.
Reply Memorandum. Plaintiffs argue that federal courts have repeatedly recognized that absent members of a putative class are not parties to the litigation and they are not subject to compulsory or permissive counterclaims asserted by the defendant until and unless the court grants class certification and the defendant's liability on the class claims has been determined.
Rule 13 of the Federal Rules of Civil Procedure authorizes counterclaims against opposing parties, and federal courts have repeatedly held that unnamed members of a putative or certified class are not opposing parties and therefore not subject to Rule 13 compulsory or permissive counterclaims.
Plaintiffs further argue that even of if Columbia Gas's counterclaims are properly asserted in this action, their resolution must be deferred until after the class certification determination. Plaintiffs argue that courts routinely find that counterclaims in a class action should proceed, if at all, in the damage phase of a class proceeding.
Plaintiffs maintain that individual adjudications of Columbia Gas's condemnation counterclaims will delay, not expedite compensation. Columbia Gas has been avoiding paying due compensation to these landowners for decades while knowingly storing natural gas under their properties. Individual hearings on the condemnation compensation owed to the absent class members who have not responded to the counterclaims will slow down the resolution of the class-wide tort claims, inverse condemnation claims, and tort claims of landowners who have filed responses to the counterclaim or otherwise entered appearances. Columbia Gas's attempted use of counterclaims to convert class claims to myriad individual claims, with hundreds of individual compensation hearings, will only delay compensation to the class on all the claims, eviscerating the efficiency that is one of the primary benefits of a class proceeding.
Discussion. Columbia Gas objects to counsel for plaintiffs filing this motion on behalf of parties who did not retain counsel. Plaintiffs cite to several cases where class counsel respond to motions concerning counterclaims against absent putative class members before a class is certified without any objection from the courts. See, e.g., Owner-Operator Indep. Drivers Assoc., Inc., v. Arctic Express, Inc., 238 F. Supp. 2d 963 (S.D. Ohio 2003); Circle Click Media v. Regus Mgmt. Group, No. 12-04000 , 2013 WL 4353550 (N.D. Cal. Aug. 13, 2013); and James D. Hinson Elec. Contracting Co., Inc. v. Bellsouth Communications, Inc., No. 3:07-cv-598-J-32MCR, 2011 WL 2448911 (M.D. Fla. Mar. 28, 2011). None of these decisions discuss any impropriety in counsel representing the interests of absent class members prior to class certification. As a result, I conclude that the putative class representatives and their counsel may properly oppose Columbia Gas's attempt to obtain default judgments against absent class members.
Rule 55(a) of the Federal Rules of Civil Procedure provides that "[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default." Fed. R. Civ. P. 55(a). Although there has been no entry of default on the docket, defendants are technically in default pursuant to Rule 55(a). However, an entry of default may be set aside for good cause. Fed. R. Civ. P. 55(c). To determine whether good cause exists, the Court considers the following factors: (1) whether the opposing party will be prejudiced if the default is set aside; (2) whether the defaulting party has a meritorious defense; and (3) whether culpable conduct on the part of the defaulting party led to the default. United Coin Meter Co. v. Seaboard Coastline R.R., 705 F.2d 839, 845 (6th Cir. 1983). There is a "general preference" for judgments on the merits as opposed to default judgments. Id. at 841.
A showing of delay in tendering a response is insufficient to show prejudice from the setting aside of a default. United Coin Meter Co., 705 F.2d at 845 ("[m]ere delay in satisfying a plaintiff's claim, if it should succeed at trial, is not sufficient prejudice to require denial of a motion to set aside a default judgment"). An argument that delay will result in increased litigation cost if the case is allowed to proceed to resolution on the merits does not amount to prejudice that would support denying a motion to set aside an entry of default. United States v. $22,050.00 United States Currency, 595 F.3d 318, 325 (6th Cir. 2010). Rather, to be deemed prejudicial, "the delay must result in tangible harm such as loss of evidence, increased difficulties of discovery, or greater opportunity for fraud or collusion." Thompson v. American Home Assur. Co., 95 F.3d 429, 433-34 (6th Cir.1996) (citation omitted).
Here, Columbia Gas has not shown that it will be prejudiced by the delay. Rather, Columbia Gas argues that the defaulting parties will be prejudiced by the delay in determining their compensation. Throughout this litigation, Columbia Gas continues to store natural gas underground on the affected properties. As a result, Columbia Gas will not be prejudiced by any delay in adjudicating these claims.
To establish a meritorious defense, the defaulting defendant must simply state a defense that is "good at law." United Coin Meter Co., 705 F.2d at 845 (6th Cir. 1983). The likelihood of success is not a determining factor in deciding that a defense is meritorious. Id. Here, it appears that the parties in default may have a meritorious defense. Plaintiffs assert that under Rule 13, unnamed members of a putative class are not parties for purposes of asserting a counterclaim. Plaintiffs have filed a motion to dismiss on this basis, which remains pending before the Court. Accordingly, the defaulting parties may have a meritorious defense to Columbia Gas's counterclaims.
"To be treated as culpable, the conduct of a defendant must display either an intent to thwart judicial proceedings or a reckless disregard for the effect of its conduct on those proceedings." Shepard Claim Service, 796 F.2d at 194. In determining if the conduct is culpable, the Court may consider the length of delay beyond the deadlines, and also whether or not the conduct has established a "pattern of disregard for court orders or rules." Id. Carelessness, without some expressed intent to impede proceedings, is not sufficient to constitute culpable conduct. Id.
The defaulting parties have not displayed an intent to thwart judicial proceedings or a reckless disregard for the effect of its conduct on those proceedings. While it is true that the defaulting parties have failed to respond to the counterclaims, there is no indication that this failure to respond was done in bad faith. Furthermore, I note that granting Columbia Gas's motion for default judgment under these circumstances undercuts the purposes permitting a class-wide proceeding.
Conclusion. For the reasons stated above, plaintiffs' December 2, 2014 motion to set aside entries of default (doc. 485) is GRANTED and defendant Columbia Gas Transmission, LLC's ("Columbia Gas") December 26, 2014 motion to strike (doc. 503) is DENIED.
Under the provisions of 28 U.S.C. §636(b)(1)(A), Rule 72(a), Fed. R. Civ. P., and Eastern Division Order No. 91-3, pt. F, 5, either party may, within fourteen (14) days after this Order is filed, file and serve on the opposing party a motion for reconsideration by the District Judge. The motion must specifically designate the Order, or part thereof, in question and the basis for any objection thereto. The District Judge, upon consideration of the motion, shall set aside any part of this Order found to be clearly erroneous or contrary to law.
s/Mark R. Abel
United States Magistrate Judge