Opinion
CIVIL ACTION NO. 03-1903
August 25, 2003
MEMORANDUM
Presently pending before this Court is the Motion of Defendants Visionquest, Ltd., Visionquest National Ltd., Visionquest Lodgemakers, Inc., and Visionquest Nonprofit Corporation ("Visionquest") to Set Aside Entry of Default and/or Open Entry of Default pursuant to Federal Rules of Civil Procedure 55(b)(2), 55(c) and 60(b). For the following reasons, Visionquest's Motion will be granted.
1. BACKGROUND
The case arose out of an alleged sexual assault inflicted by Defendant Darrell Steach ("Steach") upon Plaintiff Natasha C. at a Visionquest facility. As a result of this alleged incident, Plaintiffs are suing Visionquest on nine separate counts. Specifically, Plaintiffs' claims against Visionquest are the following: denial of procedural and substantive due process in violation of 42 U.S.C. § 1983 (Count I); violation of the Pennsylvania Mental Health Procedures Act (Count II); violation of the Pennsylvania Juvenile Act (Count III); sexual battery (Count IV); negligent infliction of emotional distress (Count V); negligent hiring, supervision and retention (Count VII); corporate negligence (Count VIII), violations of the Restatement (Second) of Torts § 323 (Count IX); and violation of Restatement (Second) of Torts § 317 (Count X).
The Complaint in the above-captioned case was filed on March 27, 2003. Subsequently, a copy of the Complaint, a Summons and a request for wavier of formal service were sent to Visionquest's counsel, Donald Davis ("Davis"). Davis never responded to this request. Thus, on May 14, 2003, Visionquest was formally served with a copy of the Complaint and Summons. Visionquest's Answer was therefore due on June 3, 2003. On or about June 2 (before the Answer was due), Davis spoke with Plaintiffs' counsel by telephone and requested an extension of time to file a responsive pleading. The substance of this conversation is disputed by the parties, but it is undisputed that the conversation did in fact occur and that no definitive answer was given by Plaintiffs' counsel in regards to the extension request. Thereafter, neither party contacted each other concerning the extension. On June 24, 2003, Plaintiff's application for entry of default judgment was filed with this Court based on the failure of all Defendants to submit a timely responsive pleading. On June 26, 2003, this Court entered default judgment against all Defendants in this action. Presently, Visionquest requests that this Court set aside and/or open the entry of default judgment against Visionquest pursuant to Rules 55(b)(2), 55(c) and 60(b).
2. STANDARD OF REVIEW
Rule 55(c) provides that "for good cause shown the court may set aside an entry of default and, if a judgment by default has been entered, may likewise set it aside in accordance with Rule 60(b)." Fed.R.Civ.P. 55(c). Rule 60(b) states, in pertinent part: "on motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect. . . ." Fed.R.Civ.P. 60(b)(1). The Court has broad discretion in deciding whether to set aside a default judgment. Momah, M.D. v. Albert Einstein Med. Ctr., 161 F.R.D. 304, 307 (E.D.Pa. 1995). In general, defaults are not favored because the interests of justice are best served by reaching a decision on the merits. Momah, 161 F.R.D. at 307. The Third Circuit has explicitly stated it "does not favor default judgments and in a close case, doubts should be resolved in favor of setting aside the default and reaching the merits." Zawadski de Bueno v. Bueno Castro, 822 F.2d 416, 420 (3d Cir. 1987). Thus, motions to set aside default judgments are construed in favor of the movant. Brokerage Concepts, Inc., v. The Nelson Med. Group, No. C.A. 99-5214, 2000 WL 283849, at *1 (E.D.Pa. March 15, 2000).
The Third Circuit has articulated four factors a court must considering in deciding whether to set aside a default judgment. The factors are as follows: (1) whether the plaintiff will be prejudiced if the default judgment is set aside; (2) whether the defendant has a meritorious defense; (3) whether the default was the product of defendant's culpable conduct; and (4) whether alternative sanctions would be effective.Emcasco Ins. Co. v. Sambrick, 834 F.2d 71, 73 (3d Cir. 1987).
3. DISCUSSION A. Notice of Default
Visionquest first argues the default judgment should be set aside because the Plaintiffs failed to give requisite notice pursuant to Rule 55(b). Rule 55(b)(2) states that "[i]f the party against whom judgment is sought has appeared in the action, the party . . . shall be served with written notice of the application for judgment at least 3 days prior to the hearing on such application." Fed.R.Civ.P. 55(b)(2) (emphasis added). Plaintiffs concede that no notice was given to Visonquest prior to their filing of the application for entry of default judgment. Nevertheless, Plaintiffs argue no notice was needed since Visonquest had not appeared in the action. Thus, the relevant issue in the instant case is whether Visionquest "appeared in this action" for purposes of Rule 55(b)(2).
The cases are clear in interpreting Rule 55(b)(2) that a party may make either a formal appearance by filing a notice of appearance with the court or an informal appearance by indicating to the plaintiff a clear intent to defend the suit. FROF, Inc. v. Harris, 695 F. Supp. 827, 830 (E.D.Pa. 1988). In the instant case, Visonquest never made a formal entry of appearance. It is clear from the contacts between the parties, however, that Visonquest did make an informal appearance in the action. For example, in August 2002, Plaintiffs received a letter from Visonquest's counsel that advised Plaintiff of defense counsel's representation in the matter. Moreover, the conversation between counsel for the parties in June 2003, concerning the extension of time to respond to the Complaint, clearly displays that Plaintiffs were aware that Visonquest was going to defend the action.
The Court finds that Visonquest had validly appeared in this case before entry of the default judgment. Thus, according to Rule 55(b)(2), three days notice prior of the application for default judgment should have been given. As previously discussed, this notice was not given to Visonquest or its counsel.
This failure to give notice does not mandate that this Court vacate the default judgment. Corestates Leasing, Inc., v. Westchester Square Med. Ctr., No. C.A. 96-7557, 1997 WL 325798, at *2 (E.D.Pa. June 5, 1997). Instead, the decision to set aside the default judgment remains a matter of discretion pursuant to Rules 55(c) and 60(b). Collex, Inc. v. Walsh, 74 F.R.D. 443, 447 (E.D.Pa. 1977). Specifically, the Court should examine this failure to give notice in light of the four Emcasco factors.
B. Analysis Pursuant to Rules 55(c) and Rule 60(b)
The four prong Emcasco test that was articulated by the Third Circuit must be analyzed in determining whether to set aside a default judgment pursuant to Rules 55(c) and 60(b). As previously discussed, these factors are: (1) whether the plaintiff will be prejudiced if the default judgment is set aside; (2) whether the defendant has a meritorious defense; (3) whether the default was the product of defendant's culpable conduct; and (4) whether alternative sanctions would be effective. In the instant action, after a careful examination of the facts, it is clear that the default judgment should be set aside and that a decision on the merits should be reached.
1. Prejudice to the Plaintiff
The first factor to be considered is whether setting aside the default judgment would prejudice the plaintiff. Prejudice arises when "plaintiff's claim would be materially impaired because of the loss of evidence, an increased potential for fraud or collusion, substantial reliance on the entry of default, or other substantial factors." Dizzley v. Friends Rehab. Program, 202 F.R.D. 146, 147-48 (E.D.Pa. 2001). It is well established, however, that mere delay in satisfying a claim rarely establishes the degree of prejudice necessary to set aside a default judgment. Feliciano v. Reliant Tooling Co., Ltd., 691 F.2d 653, 656-57 (3d Cir. 1982); Cassell v Philadelphia Maintenance Co., 198 F.R.D. 67, 69 (E.D.Pa. 2000).
In this case, the Court finds that no prejudice would result to the Plaintiffs if the default judgment were set aside two months after it was originally ordered by the Court. Plaintiffs' argument that prejudice would result is two-fold. First, Plaintiffs argue that "it is likely Plaintiff has lost the ability to take the deposition of a witness who is certain to become unavailable once he is released from criminal detention: that of defendant Darrell Steach himself." (Pls.' Resp. to Def.'s Mot. To Set Aside Default at 5). This argument is unpersuasive because the Plaintiffs offer no basis for their prediction that this key witness will become unavailable. Moreover, this type of speculative fear of loss of evidence does not suffice to display prejudice. Second, Plaintiffs argue that Plaintiff Natasha C. "has relied upon the entry of default judgment as an indication that she can now `move on with her life,' putting the damaging memories behind her and left to deal only with the damages portion of this lawsuit." Id. Plaintiffs are essentially arguing that setting aside the default judgment would be emotionally damaging to Plaintiff Natasha C. because it would mean delaying the resolution of her claim. As previously noted, a simple delay of an action is rarely adequate to show prejudice. Specifically, the two-month delay in this case between default judgment and the setting aside of default judgment would not suffice to establish prejudice. Dizzley, 202 F.R.D. at 147-48 (finding that three-month delay did not establish prejudice to the plaintiff). The fact that the Plaintiffs will be forced to argue the merits of their case rather than proceed by default does not constitute prejudice. Cassell, 198 F.R.D. at 69.
There is no evidence that Plaintiffs would be prejudiced in any manner. Accordingly, the Court finds that no prejudice would be suffered by Plaintiffs in this action if the default judgment was set aside at this early stage in the proceeding.
2. Meritorious Defense
The second factor to consider is whether Visionquest has set forth a meritorious defense to Plaintiffs' Complaint. "The showing of a meritorious defense is accomplished when allegations of defendant's answer, if established at trial, would constitute a complete defense to the action." U.S. v. $55,518.05 in U.S. Currency, 728 F.2d 192, 195 (3d Cir. 1984). It is well established that a general denial of the allegations is insufficient and that defendant must assert "specific facts supporting the existence of a prima facie meritorious defense."Kauffman v. Cal Spas, 37 F. Supp.2d 402, 405 (E.D. Pa. 1999). The Third Circuit has made clear it does not mandate that the defaulting party "prove beyond a shadow of a doubt that [they] will win at trial, but merely to show that [they have] a defense to the action which at least has merit on its face." Emcasco, 834 F.2d at 74.
In this case, the Court must consider the defenses in Visionquest's Motion since it never filed an Answer to the Complaint. Moreover, the Court will consider the defenses in Visionquest's proposed Answer which is attached to its Motion. In this case, the Court finds that Visionquest has a set forth a meritorious defense to all counts of Plaintiffs' Complaints.
Plaintiffs' claims against Visionquest in the Complaint are as follows: denial of procedural and substantive due process in violation of 42 U.S.C. § 1983 (Count I); violation of the Pennsylvania Mental Health Procedures Act (Count II); violation of the Pennsylvania Juvenile Act (Count III); sexual battery (Count IV); negligent infliction of emotional distress (Count V); negligent hiring, supervision and retention (Count VII); corporate negligence (Count VIII), violations of the Restatement (Second) of Torts § 323 (Count IX); and violation of Restatement (Second) of Torts § 317 (Count X). As to Count I, Visionquest denies that it acted "under color of state law" to expose them to liability. In terms of Count II, Visionquest denies that is acted in a willful and/or grossly negligent manner in violation of the Pennsylvania Mental Health Procedures Act. In relation to Count III, Visionquest denies any violation under the Pennsylvania Juvenile Act. As to Count IV, Visionquest denies that it is susceptible to liability since Steach did not act within the scope of his employment. Regarding Count V, Visonquest contends that Plaintiff Gerard C. has no action for negligent infliction of emotional distress since he did not physically observe the alleged incident. In relation to Count VII, Visonquest maintains that it was not negligent because it took all reasonable steps and precautions in hiring and supervising Steach. Regarding Count VIII, Visonquest contends that it acted appropriately with regard to the operation and training of their employees and with regard to the implementation of policies and procedures. In terms of Counts IX and X, Visonquest denies that is was negligent.
In general, Visionquest's direct responses to Plaintiffs' claims are specific enough to support the existence of a meritorious defense. The responses to the state law claims that are somewhat general in nature do not destroy the existence of a meritorious defense because Visionquest asserts an affirmative defense that would be a complete bar to the state claims in Counts II-X of the Complaint. Specifically, Visionquest contends that this Court should not exercise jurisdiction over any of the state claims since this Court does not have federal question jurisdiction over any cause of action in this matter. This affirmative defense would be a complete defense to Plaintiffs' state law claims and it makes Visionquest's overall defense meritorious despite the somewhat general denials of a portion of Plaintiffs' allegations. This case is similar to the Cassell case where the court found that the defendant had asserted a meritorious defense despite general denials because the defendant had set forth a statute of limitations defense that would have barred all but one of the plaintiff's claims. Cassell, 198 F.R.D. at 69 ("Here, although the defendant's general denial of the plaintiff's allegations that he sexually discriminated and harassed her is clearly insufficient to constitute a meritorious defense, he nevertheless challenges all but one of the counts of the complaint on statute of limitations grounds which, could of course be a meritorious defense.").
Although the Court would have preferred more specific denials to some of the state law claims, Visionquest has met its burden through its responses and affirmative defenses. The Court finds Visonquest has established a meritorious defense to Plaintiffs' Complaint. If established at trial, Visonquest's contentions would establish a complete defense.
3. Culpable Conduct
The third factor to consider is whether Visionquest's failure to file a timely responsive pleading to the Complaint was the result of culpable conduct on the part of Visionquest. "Culpable conduct means actions taken willfully or in bad faith." Gross v. Stereo Component Systems, Inc., 700 F.2d 120, 123-24 (3d Cir. 1983). Thus, more than negligence is required according to this factor. Momah, 161 F.R.D. at 308. It is clear that a court may infer culpability from a defendant's "reckless disregard for repeated communications from either the plaintiff or the Court."Kaufmann, 37 F. Supp.2d at 405. Visionquest argues that their failure to file a timely response was only the product of mistake or excusable neglect as opposed to culpable conduct. Rule 60(b)(1) specifically allows a court to set aside a default judgment for "mistake, inadvertence, surprise, or excusable neglect." Fed.R.Civ.P. 60(b)(1). Thus, Visonquest argues that the judgment may be set aside pursuant to Rule 60(b)(1).
The Court agrees with Visionquest that its failure to file a timely response was at most the result of a mistake or excusable neglect pursuant to Rule 60(b)(1). While it is true that defense counsel should have filed the responsive pleading earlier or contacted Plaintiffs' counsel earlier in search of an extension to file, there is no evidence that Visionquest engaged in culpable conduct in failing to respond to Plaintiffs' Complaint. Rather, the facts show that Visonquest's counsel may have been mistaken as to the substance of the last conversation he had with Plaintiffs' counsel regarding an extension of time to file a responsive pleading. Further, Visionquest's counsel was neglectful in seeking an extension so close to the deadline to file an Answer. The fact counsel for both parties were in contact regarding an extension shows that Visionquest was not in reckless disregard of repeated communications from the Plaintiff. Moreover, there is simply no showing that Visionquest acted in bad faith or with the deliberate intent to delay the proceedings.
Accordingly, this Court finds that Visionquest's conduct was at most negligent. The failure to file a timely response to Plaintiffs' Complaint was the product of a breakdown of communications between the parties that resulted in Visionquest's failure to file a timely responsive pleading. Additionally, Visionquest's conduct represented excusable neglect based on the fact Visonquest's counsel waited until the deadline to request an extension from opposing counsel. Both mistake and excusable neglect permit this Court to set aside the default judgment pursuant to Rule 60(b)(1). The Court finds no evidence of culpable conduct on the part of Visionquest that would preclude the setting aside of the default judgment.
1. Alternative Sanctions
The last factor that the Court must briefly consider is the effectiveness of alternative sanctions. A court may consider alternative sanctions against the defaulting party when determining whether to set aside a default judgment. Royal Insurance Co. of America v. Packaging Coordinators, Inc., No. C.A. 00-CV-3231, 2000 WL 1586081, at *3 (E.D.Pa. Oct. 24, 2000). However, as one court noted, "[p]unitive sanctions are inappropriate absent evidence of bad faith or willful misconduct, or where the defendant sets forth a meritorious defense." Id. In the instant case, Visionquest satisfied these standards and therefore alternative sanctions are unnecessary in this action.
4. CONCLUSION
After a careful examination of the instant action and in light of theEmcasco factors, the Court concludes that the default judgment should be set aside pursuant to Rules 55(c) and 60(b). The Plaintiffs will not be prejudiced in setting aside the default judgment, Visionquest has set forth a meritorious defense, and Visionquest did not engage in culpable conduct in causing the default. In light of the strong preference for deciding cases on the merits, the default judgment entered against Visionquest on June 26, 2003 will be set aside.
An appropriate Order follows.
ORDER
AND NOW, this 25th day of August, 2003, upon consideration of the Motion to Set Aside Entry of Default of Defendants Visionquest, Ltd., Visionquest National Ltd., Visionquest Lodgemakers, Inc., and Visionquest Nonprofit Corporation (Doc. No. 7), and the Responses and Replies thereto, it is hereby Ordered that:1. said Motion is GRANTED;
2. the Default Judgment is Set Aside pursuant to Federal Rules of Civil Procedure 55(c) and 60(b); and
3. Defendants are directed fo file answer within ten (10) days upon receipt of this Order.