LOPEZ v. NTI, LLC

Full title: VALERIO LOPEZ, et al. v. NTI, LLC, et al

Court: United States District Court, D. Maryland

Date published: Dec 4, 2008

Civil Action No. DKC 2008-1579 (D. Md. Dec. 4, 2008)

Opinion

Civil Action No. DKC 2008-1579.

December 4, 2008

MEMORANDUM OPINION

DEBORAH CHASANOW, District Judge

Presently pending and ready for resolution in this action is the motion for entry of default (paper 22) filed by Plaintiffs against six of the Defendants in this case: MTXCELL, LLC, MTXCELL, Tomas Viega, XTEL Construction Group, LLC ("XTEL"), Mike Bahmani, and Adrian Pascu. For the reasons that follow, Plaintiffs will be directed to clarify as to (1) which plaintiffs (or claimants) are included in the defaults sought (and if more than the seven named plaintiffs, the basis for such request), and (2) justification for the entry of default against a defunct corporation.

I. Background

The named Plaintiffs are seven former employees of Defendants. Plaintiffs allege that while they were employed by Defendants, Defendants failed to pay them minimum wage for hours worked and overtime wages for hours worked in excess of 40 hours per week.

On June 17, 2008, the original seven plaintiffs filed suit alleging breaches of their employment contracts as well as violations of their rights under the Fair Labor Standards Act ("FLSA"), 29 U.S.C.A. § 201 et. seq., the Maryland Wage and Hour Law, Md. Code Ann., Lab Empl. §§ 3-401 et seq., and the Maryland Wage Payment and Collection Act, Md. Code Ann. Lab. Empl. §§ 3 501 et seq. Attached to Plaintiffs' complaint were written consent forms filed pursuant to 29 U.S.C. 216(b) for the seven named Plaintiffs. On June 19, 2008, Plaintiffs filed the "First Notice of Filing of Consent Forms to be Claimants Under the Fair Labor Standards Act" ("First Notice") which listed 16 new claimants, the "Supplemental to First Notice of Filing of Consent Forms to be Claimants Under the Fair Labor Standards Act," and consent forms executed the 16 new parties.¹ On July 25, 2008, Plaintiffs served all of these documents via certified mail on Tomas Viega, MTXCELL, MTXCELL, LLC, Mike Bahmani, and XTEL. (Paper 22, Exs. A, C).

1 The "Supplemental to First Notice of Filing of Consent Forms to be Claimants Under the Fair Labor Standards Act" is the English translation of the consent form signed by the Plaintiffs. Plaintiffs' consent forms are in Spanish. Counsel, using the court's CM/ECF system added the 16 claimants as "plaintiffs" in the electronic docket of the case. Such designation does not, however, formally add them as plaintiffs. Counsel should have chosen the role "claimant" from the drop down box on the screen requesting "party information."

On August 29, 2008, Plaintiffs filed an amended complaint.² Plaintiffs did not add the 16 claimants included in the First Notice to the amended complaint. (Paper 15). On September 9, 2008, Plaintiffs filed a "Second Notice of Filing of Consent to be Claimants Under the Fair Labor Standards Act" ("Second Notice"), which added two additional claimants, and their executed consent forms. (Paper 19). On September 11, 2008, Defendant NTI, Inc. filed an answer to Plaintiffs' amended complaint. (Paper 20).

2 Plaintiffs properly filed their amended complaint in accordance with Fed.R.Civ.P. 15(a)(1), which allows a party to amend pretrial pleadings "before being served with a responsive pleading. . . ." In their initial complaint Plaintiffs incorrectly named PAS COM, Inc. as a defendant instead of PASCOM, Inc. The amended complaint corrected this misnomer and identified Adrian Pascu, individually, and doing business as PASCOM, Inc. as Defendants.

On September 29, 2008, Plaintiffs moved for entry of default against the six unresponsive Defendants. On October 13, 2008, Plaintiffs filed a "Third Notice of Filing of Consent Forms to be Claimants Under the Fair Labor Standards Act" ("Third Notice") and the executed consent forms. (Paper 23). The Third Notice added three more claimants. On October 14, 2008, the remaining Defendant, NTI, LLC, filed an opposition to Plaintiffs' motion for entry of default (paper 25), claiming that prematurely granting entry of default would result in unfair prejudice. On December 2, 2008, Plaintiffs filed a "Fourth Notice of Filing of consent Forms to be Claimants Under the Fair Labor Standards Act" ("Fourth Notice") and executed consent forms. (Paper 31).

II. Motion for Entry of Default

Federal Rule of Civil Procedure 55(a) allows an entry of default "[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend" the action. Entry of default is ordinarily the preliminary step toward entry of judgment by default. Its entry cuts off the right of the defaulting party to appear, Clifton v. Tomb, 21 F.2d 893, 897 (4^th Cir. 1927) (cited in William W Schwarzer, A. Wallace Tashima, James M. Wagstaffe, Rutter Group Prac. Guide: Federal Civil Procedure Before Trial, ¶ 6:42 (2008)), and, thereafter, the well-pleaded allegations of fact as to liability in the complaint are deemed admitted as to the defaulting party, Ryan v. Homecomings Financial Network, 253 F.3d 778, 780 (4^th Cir. 2001). Some courts then treat the defaulting party as a non party for discovery purposes. See, e.g., Blazek v. Capital Recovery Associates, Inc., 222 F.R.D. 360, 361 (E.D. Wis. 2004). Although the entry of default by the clerk is sometimes a routine matter, in this case, because of the special procedures applicable to this cause of action, it is prudent to explore the ramifications of the entry of default at this early stage.

Fed.R.Civ.P. 54(c) limits the type of judgment that may be entered based on a party's default: "A default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings." The Amended Complaint in this case seeks, for the named plaintiffs only, declaratory relief and unspecified amounts of wages and damages, prejudgment interest, costs, and attorneys fees. There may well be doubt about the nature and extent of any default judgment that may be entered under these circumstances. As described by the United States Court of Appeals for the Fourth Circuit in In re Genesys Data Technologies, Inc., 204 F.3d 124, 132-33 (4^th Cir. 2000):

Nor is there unanimity among other jurisdictions that have addressed the issue. Indeed, our research reveals that Fed.R.Civ.P. 54(c) and its many state analogues have led to a dizzying array of judicial decisions addressing the precise meaning of the requirement that a default judgment may not "exceed in amount that prayed for in the demand for judgment." See, e.g., 46 Am.Jur.2d Judgments § 312 (1994). When a complaint demands a specific amount of damages, courts have generally held that a default judgment cannot award additional damages. See, e.g., Compton v. Alton Steamship Co., 608 F.2d 96, 104 (4^th Cir. 1979); Producers Equip. Sales, Inc. v. Thomason, 15 Kan.App.2d 393, 808 P.2d 881, 886 (Kan.Ct.App. 1991). The rationale is that a default judgment cannot be greater than the specific amount sought because the defendant could not reasonably have expected that his damages would exceed that amount.

When a complaint demands a specific amount of damages and unspecified additional amounts, or simply demands unspecified amounts to be proven at trial, however, courts have not followed a uniform approach. Some have reasoned that as long as the defendant receives notice that some damages may be awarded, general allegations of actual damages suffice to support a default judgment. These courts have upheld the entry of a default judgment in excess of a specific amount of requested damages, see Henry v. Sneiders, 490 F.2d 315-17 (9^th Cir. 1974); Tarnoff v. Jones, 17 Ariz.App. 240, 497 P.2d 60, 64-65 (Ariz.Ct.App. 1972); or the entry of a default judgment for money damages when the complaint requests no specific amount. See Melehes v. Wilson, 774 P.2d 573, 579-80 (Wyo. 1989); Dairyland Ins. Co. v. Richards, 108 Ariz. 89, 492 P.2d 1196, 1198 (Ariz. 1972) (in banc); Floyd v. First Union Nat'l Bank of Georgia, 203 Ga.App. 788, 417 S.E.2d 725, 727-28 (Ga.Ct.App. 1992). Other courts have held that by "enlarg[ing] the judgment amount" from that prayed in the complaint a default judgment based on general allegations of damages "undermines the fairness of the proceedings" and so violates the rule. See Thorp Loan Thrift Co. v. Morse, 451 N.W.2d 361, 364 (Minn.Ct.App. 1990); see also Growth Properties, Inc. v. Klingbeil Holding Co., 419 F.Supp. 212, 220-21 (D.Md. 1976); Mahmoud v. International Islamic Trading, Ltd., 572 So.2d 979, 982 (Fla.Dist.Ct.App. 1990); Wiggins v. Todd, 296 S.C. 432, 373 S.E.2d 704, 705-06 (S.C.Ct.App. 1988); Rauscher v. Albert, 145 Ill.App.3d 40, 99 Ill.Dec. 84, 495 N.E.2d 149, 151 (Ill.App.Ct. 1986); Darnell v. Denton, 137 Ariz. 204, 669 P.2d 981, 983-84 (Ariz.Ct.App. 1983).

As explained in Sheet Metal Workers' Nat. Pension Fund v. Frank Torrone Sons, Inc., 2005 WL 1432786, 7-8 (E.D.Va. 2005):

This Rule operates to protect a defendant who chooses to default:

The theory of this provision is that the defending party should be able to decide on the basis of the relief requested in the original pleading whether to expend the time, effort, and money necessary to defend the action. It would be fundamentally unfair to have the complaint lead defendant to believe that only a certain type and dimension of relief was being sought and then, should defendant attempt to limit the scope and size of the potential judgment by not appearing or otherwise defaulting, allow the court to give a different type of relief or a larger damage award . . . If defendant chooses not to proceed, liability cannot be increased. This principle seems applicable whether or not defendant appears at the damage hearing and therefore should not turn on when the default occurs.

10 Fed. Prac. Proc. Civ.3d § 2663. In considering the scope of Rule 54(c), the U.S. Court of Appeals for the Fourth Circuit has held that in default cases, there can be no recovery over the amount pled in the complaint, and that the complaint must pray for a specific monetary amount. See Eddins v. Medlar, Nos. 87-2602, 89-2910, 881 F.2d 1069, 1989 WL 87630 at *1, 3 (4^th Cir. July 21, 1989) ("[Rule 54(c)] expressly protects a defaulting party from a judgment in excess of that demanded in the complaint.") (unpublished opinion); Compton v. Alton Steamship Co., 608 F.2d 96, 105 (4^th Cir. 1979) ("[T]he relief available on default [should] be such as is within the fair scope of the allegations of the complaint and, when money judgment is sought, the specific amount demanded.") (internal citations omitted) (emphasis added).

Furthermore, Fed.R.Civ.P. 5(a)(2) requires that an amended pleading that adds a new claim be served (and not merely mailed) on a party in default: "(2) If a Party Fails to Appear. No service is required on a party who is in default for failing to appear. But a pleading that asserts a new claim for relief against such a party must be served on that party under Rule 4."

Rule 5(a) generally excuses the plaintiff from having to serve anything but the summons and complaint on a non-appearing defendant. The rule makes an important exception, however. Under the rule, "pleadings asserting new or additional claims for relief" against the defendant-such as an amended complaint under Rule 15(a) or a supplemental complaint under Rule 15(d) "shall be served upon [the defendant] in the manner provided for service of summons in Rule 4." Fed.R.Civ.P. 5(a).

Trustees of the St. Paul Elec. Const. Indus. Fringe Benefit Funds v. Martens Elec. Co., 485 F.Supp.2d 1063, 1066 (D.Minn. 2007).

A. Claimants Under the FLSA

Plaintiffs state they bring this action individually and as a collective action under the FLSA . . . on behalf of a class of similarly situated employees of Defendants. . . ." (Paper 1, ¶ 4; Paper 15, ¶ 4). Under § 216(b), claimants under the FLSA are required to file consent forms stating that he or she "opts in" to a collective action filed on behalf of numerous employees. Id. Plaintiffs' motion for entry of default does not specify which claims — or claimants — are to be included in the entry of default. A defendant is, as noted above, entitled to notice of the claims prior to entry of default. And a default judgment may later only be entered if the factual allegations of a complaint provide a sufficient basis.

Neither the United States Court of Appeals for the Fourth Circuit nor the United States District Court for the District of Maryland has addressed whether filing a written consent form is sufficient to add plaintiffs as parties in an FLSA lawsuit. In Harkins v. Riverboat Servs., Inc., No. 99 C 123, 2002 WL 32406581 (N.D.Ill. May 17, 2002) (unreported), Plaintiffs' counsel, after discovery closed, filed written consent forms signed by parties consenting to join in the matter. Plaintiffs' counsel did not include any allegations in the Fourth Amended complaint concerning any of the consenting Plaintiffs or request leave to file a Fifth Amended complaint to add the consenting plaintiffs and their claims. The district court did not allow the addition of former employees who filed consent forms but had not been added to the amended complaint. The court noted

. . . Section 216(b) is phrased in the negative, i.e. no individual may be a party plaintiff to a collective action unless he or she files a written consent with the court; the act of filing a written consent alone does not automatically join an individual to a lawsuit. Rather, Section 216(b) operates in conjunction with Rule 8 of the Federal Rules of Civil Procedure and requires the employee to name the individual plaintiff and allege his or her cause of action in the complaint and that individual plaintiff must file a written consent with the court. . . . The filing of a written consent in and of itself is insufficient to join this lawsuit

Harkins, 2002 WL 32406581, at *5 (emphasis added).

Although this case is at a much earlier stage in the litigation than Harkins, the above-quoted passage is instructive. Plaintiffs have not taken any steps to add the additional parties who were not named in the original complaint to the lawsuit. Indeed, Plaintiffs filed an amended complaint after filing the First Notice, but did not add the 16 newly consenting claimants to the amended complaint. Moreover, Plaintiffs' Third Notice, which added three more claimants, and Fourth Notice, adding two more, were filed after Plaintiffs moved for entry of default.

Furthermore, Plaintiffs have submitted a total of 30 "opt-in" consent forms, but have only effected Rule 4 service for 23 of the "opt-in" forms on Defendants on MTXCELL, Viega, XTEL, Bahmani, and Pascu. Plaintiffs served the complaint, "First Notice," and Supplement to the First Notice on MTXCELL, LLC, MTXCELL, Viega, XTEL, and Bahmani via certified mail on July 25, 2008. (Paper 22, Ex. A). On September 6, 2008, Pascu was properly served, in personam, the First Amended Complaint with attachments thereto, as well as all of the pleadings filed on or before September 6, 2008. After filing the Second, Third, and Fourth Notices, Plaintiffs sent the notices to Viega, Bahmani, and Pascu via first class mail, which is not a method of service under the Maryland Rules.

Plaintiffs will be given an opportunity to comment on these circumstances, and to clarify as to which claimants, and which claims, the proposed entry of default will apply.

B. Defendant MTXCELL, LLC

Plaintiffs state that Defendant MTXCELL, LLC is a forfeited Maryland corporation. (Paper 15, ¶ 16). Plaintiffs served process on MTXCELL, LLC via certified mail to its registered agent Tomas Viega on July 25, 2008. (Paper 22, Ex. A). Plaintiffs also served MTXCELL, LLC through the Maryland State Department of Assessments and Taxation by certified mail on August 6, 2008. ( Id. Ex. B).

Under Maryland law, a forfeited corporation is considered non-existent. Md. Code Ann., Corps Ass'ns § 3-503(d); Presidents and Directors of Georgetown College v. Madden, 505 F.Supp. 557, 602 (D.Md. 1980) ( citing In re Hare, 205 F.Supp. 881, 884 (D.Md. 1962)). "[A]ll powers granted to [a corporation] by law, including the power to sue or be sued, [are] extinguished generally as of and during the forfeiture period." Mintec Corp. v. Miton, 392 B.R. 180, 185 (D.Md. 2008) ( quoting Dual Inc. v. Lockheed Martin Corp., 383 Md. 151, 162 (2004)). "When the charter of a Maryland corporation has been forfeited, until a court appoints a receiver, the directors of the corporation become the trustees of its assets for purposes of liquidation." Dual Inc., 383 Md. at 163 ( quoting Md. Code Ann., Corps. Ass'ns, § 3-515(a)). "[T]he trustee may only be sued if there is a 'rational relationship' between the suit and a legitimate 'winding up' activity of the corporation." Id. at 164 ( quoting Patten v. Bd. of Liquor License Comm'rs, 107 Md.App. 224, 233-34 (1995)).

Neither Plaintiffs' complaint, amended complaint, nor motion for entry of default allege that Viega is the director-trustee of MTXCELL, LLC. Plaintiffs also do not allege that this action is related to the winding up activity of MTXCELL, LLC. Before a default will be entered as to this defendant, Plaintiffs will have to explain why it is appropriate, given its status.

C. Prejudice Upon Remaining Defendant NTI, Inc.

In its opposition to entry of default, Defendant NTI argues that an entry of default against all other defendants is prejudicial to NTI because it would be the only remaining Defendant in this case. (Paper 25, ¶ 2). NTI notes that it "is prepared to defend the case, pursue discovery, and present evidence . . . that will show that the case has no merit. . . ." ( Id. at ¶ 5). NTI does not explain how its ability to carry out these objectives would be prejudiced by an entry of default against the remaining Defendants.

The cases cited by NTI are distinguishable from this action. In Dow v. Jones, 232 F.Supp.2d 491 (D.Md 2002), the court held that entry of default was inappropriate where the defendants missed a filing deadline by three days. In U.S. Commodity Futures Trading Comm'n v. Calvary Currencies, LLC, No. 2004-1021, 2004 WL 2330725 (D.Md. Oct. 15, 2004) (unreported), entry of default was inappropriate where a pro se defendant untimely responded in a manner that was not prejudicial to the plaintiff's case. Here, neither Dow nor Calvary Currencies is applicable. The non-NTI Defendants have not responded at all. Finally, NTI cites Lolatchy v. Arthur, 816 F.2d 951, 953 (4^th Cir. 1987), in which entry of default was set aside due to "dilatory action . . . on the part of the attorney, not the defendants." Here, there is no indication that Defendants are represented by counsel, let alone their attorney has failed to file any responsive pleadings. The non-NTI Defendants have completely ignored all of the pleadings filed in this case, therefore, entry of default may be proper, depending on Plaintiffs' response to the questions raised by the court.

III. Conclusion

For the foregoing reasons, Plaintiffs' motion for entry of default will be deferred. A separate order will follow.