Opinion
Civil No. 3:18-CV-414
09-24-2018
RSK FABRICATIONS, LLC, Plaintiff v. ASA PRECISION COMPANY, INC., Defendants
(Judge Mariani)
( ) REPORT AND RECOMMENDATION
I. Introduction
This case, which comes before us for consideration of motions to enter, or set aside, a default judgment, (Docs. 7 and 11), presents dueling tales of delay. From the plaintiff's perspective this case is about a delay in answering the complaint, a delay which would now justify the entry of a $625,361.99 against the defendant in this commercial contractual dispute. From the defendant's point of view, entry of a default judgment would be inappropriate because the defendant has a defense on the merits which is premised upon the plaintiff's delay, a claim that many of the invoices which the plaintiff seeks to recover are now barred by the statute of limitations.
Recognizing that this court has long "require[d] doubtful cases to be resolved in favor of the party moving to set aside the default judgment 'so that cases may be decided on their merits,' " United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 194-95 (3d Cir. 1984), for the reasons set forth below, we recommend that the motion for entry of default be denied and the motion to set aside default be granted.
II. Statement of Facts and of the Case
This commercial dispute began its life in federal court on February 19, 2018, when the plaintiff, RSK, filed a complaint against ASA Precision. (Doc. 1.) That complaint alleged that beginning in May 2011 RSK entered into a continuing contract with ASA in which RSK sold goods to ASA, periodically invoicing ASA for the price of goods sold. (Id.) According to RSK, ASA did not make full payment on these invoices, resulting in a principal debt owed by ASA to RSK of $265,219.51. (Id.) On the basis of these averments, RSK brings breach of contract, accounting, quantum meruit and unjust enrichment claims against ASA. (Id.)
The invoices which RSK attaches to its complaint, (Id., Ex. A), present a number of unanswered questions relating to the diligence of all parties, and the timeliness of the complaint. The invoices appear to relate to sales made by RSK beginning in June 2011, but are actually dated by RSK for delivery to ASA beginning in July 2012. Thus, there appears to have been a year's delay in billing these invoices. Notations on the invoices then suggest that there may have been as much as 3 years' delay by ASA in making partial payments on these invoices beginning in November 2015. (Id.) Thus, with respect to these invoices which form the basis of RSK's February 2018 complaint, the complaint appears to allege that RSK delivered goods and invoiced ASA for those goods well beyond the 4-year statute of limitations that applies to contract actions, see 42 Pa. Con. Stat. Ann. § 5525 (a), but ASA only began making partial payments within the past 3 years. Not surprisingly, at the very outset of this litigation we are not in a position to assess what accounts for this protracted, and seemingly dilatory and casual billing and collections practice. Rather, the answer to these questions rests in the development of the facts in this lawsuit.
RSK's complaint was served upon ASA on March 16, 2018. (Doc. 4.) Therefore, ASA was required to respond to this complaint on or before April 6, 2018. (Id.) While it is evident that the principals at RSK and ASA engaged in some discussions aimed at resolving this dispute, (Doc. 11, Exhibits), ASA did not respond to the complaint by April 6, 2018, within the time frame prescribed by the rules. Accordingly, four days later, on April 10, 2018, RSK requested that the clerk enter a default in its favor. (Doc. 5.) The clerk entered this default on April 11, 2018. (Doc. 6.)
On April 20, 2018, RSK then filed a motion for a default judgment which sought a judgment against ASA in the amount of $625,361.99, consisting of principal, interest and service charges. (Id.) Five days later, on April 25, 2018, ASA responded to this motion and filed its own motion to set aside default. (Docs. 10 and 11.) In these pleadings, ASA opposed the entry of this default judgment, arguing in part that default judgment would be inequitable in this case since it had defenses based upon the merits and the statute of limitations. These motions are fully briefed and ripe for resolution. For the reasons set forth below, it is recommended that the plaintiff's motion for default judgment (Doc. 7) be denied, ASA's motion to set aside default (Doc. 11) be granted, and this case be scheduled for prompt resolution on its merits, including early mediation if appropriate.
III. Discussion
A. Default Judgments: Governing Legal Standards
Default judgments are governed by Rule 55 of the Federal Rules of Civil Procedure. Under Rule 55 a default judgment may only be entered when the party against whom the default judgment is sought was served and "has failed to plead or otherwise respond." Fed. R. Civ. P. 55(a). In ruling upon requests to set aside default judgments it is well-settled that these decisions are:
[L]eft primarily to the discretion of the district court. Tozer v. Charles A. Krause Milling Co., 189 F.2d 242, 244 (3d Cir.1951). We recognize, however, that this court does not favor entry of defaults or default judgments. We require doubtful cases to be resolved in favor of the party moving to set aside the default judgment "so that cases may be decided on their merits." Id. at 245. See also Gross v. Stereo Component Systems, Inc., 700 F.2d 120, 122 (3d Cir.1983); Feliciano v. Reliant Tooling Company, Ltd., 691 F.2d 653, 656 (3d Cir.1982); Farnese v. Bagnasco, 687 F.2d 761, 764 (3d Cir.1982). Nevertheless, we do not set aside the entry of default and default judgment unless we determine that the district court abused its discretion. We require the
district court to consider the following factors in exercising its discretion . . . : (1) whether the plaintiff will be prejudiced; (2) whether the defendant has a meritorious defense; (3) whether the default was the result of the defendant's culpable conduct. Gross v. Stereo Component Systems, Inc., 700 F.2d at 122; Feliciano v. Reliant Tooling Company, Ltd., 691 F.2d at 656; Farnese v. Bagnasco, 687 F.2d at 764.United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 194-95 (3d Cir. 1984).
"Because a motion for default judgment is addressed to the court's discretion, Hritz v. Woma Corp., 732 F.2d 1178, 1180 (3d Cir.1984), the movant is not entitled to a default judgment as of right, even 'when the defendant is technically in default.' 10 Charles A. Wright, Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure § 2685 (1983) (quoted in Stevens v. Wiggins, No. 90 Civ. 7038, 1991 WL 152960, at *1 (E.D.Pa. Aug. 6, 1991))." Duncan v. Speach, 162 F.R.D. 43, 45 (E.D. Pa. 1995). In practice the strong preference for resolution of disputes on their merits rather than through default judgments is voiced in many ways by the courts. For example, "[t]he judicial hostility to foreclosing a review on the merits also finds expression in the context of motions to set aside the entry of default, where courts are to apply a 'standard of liberality' and 'resolv[e] all doubts in favor of the defaulting party.' Metlife Capital Credit Corp., 1992 WL 346772, at *2; In re Arthur Treacher's Franchisee Litig., 92 F.R.D. 398, 415 (E.D.Pa.1981)." Duncan v. Speach, 162 F.R.D. 43, 45 (E.D. Pa. 1995)
With respect to this first element we must consider when examining motions to enter, or set aside, default judgments—the potential prejudice to the plaintiff who has sought entry of the default judgment—it is clear that "[d]elay in realizing satisfaction on a claim rarely serves to establish the degree of prejudice sufficient to prevent the opening a default judgment entered at an early stage of the proceeding." Feliciano v. Reliant Tooling Co., 691 F.2d 653, 656-57 (3d Cir. 1982). Instead, the party moving to enforce a contested default judgment typically must show, "asserted loss of available evidence, increased potential for fraud or collusion, or substantial reliance upon the judgment to support a finding of prejudice." Feliciano v. Reliant Tooling Co., 691 F.2d 653, 657 (3d Cir. 1982).
The second guiding benchmark we must consider in the analysis of a motion to re-open a default judgment is whether the defaulting party has a meritorious defense to this action. United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 194-95 (3d Cir. 1984). On this score:
A meritorious defense is one which, " 'if established at trial, would completely bar plaintiff['s] recovery.' " Momah v. Albert Einstein Medical Center, 161 F.R.D. 304, 307(E.D. Pa.1995) (citing Foy v. Dicks, 146 F.R.D. 113, 116 (E.D. Pa.1993). To fulfill this requirement, the defendant's answer and pleadings must raise specific facts which would allow him to advance a complete defense. Momah, 161 F.R.D. at 307; see $55,518 in U.S. Currency, 728 F.2d at 196. These specific facts must go beyond a general denial so that the court has some basis for determining whether the defendant can make out a complete defense. Momah, 161 F.R.D. at 307 (citing $55,518.05 in U.S. Currency, 728 F.2d at 195.)Mike Rosen & Associates, P.C. v. Omega Builders, Ltd., 940 F.Supp. 115, 118 (E.D.Pa.1996). Consideration of this questions, however, does not require a full resolution of the merits of the lawsuit at the inception of the litigation. Instead, a meritorious defense is presumptively established whenever the defendant's allegations, if established on trial, would constitute a complete defense to the action. Hritz v. Woma Corp., 732 F.2d 1178, 1181 (3d Cir. 1984).
As for the third and final factor we are cautioned to consider in exercising our discretion with respect to default judgments—the defendant's culpability—it is well-settled that:
[T]he standard for "culpable conduct" in this Circuit is the "willfulness" or "bad faith" of a non-responding defendant. . . . [T]he words "willfulness" and "bad faith" are not talismanic incantations which alone resolve the issue on appeal. These are simply terms to guide the district court by expressing this Court's preference for avoiding default judgments where the circumstances do not justify such a result.Hritz v. Woma Corp., 732 F.2d 1178, 1182-83 (3d Cir. 1984).
B. Entry of a Default Judgment is Not Appropriate in this Case
Judged against these legal guideposts we submit that entry of a default judgment in favor of RSK is the amount of $625,361.99, as requested by the plaintiff, is not appropriate in this case at this time. However, mindful of the concerns which motivate this motion, a prompt schedule for resolution of the merits of this case should be set by the court, including perhaps directing early and mandatory mediation of this dispute.
When we consider this case against the three-part paradigm defined by the courts, we conclude that the three discretionary factors we are called upon to consider do not so clearly outweigh the presumption in favor of resolving cases on their merits. See United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 194-95 (3d Cir. 1984). Our conclusion on this score is driven in large measure by the fact that the apparently protracted and seemingly casual nature of this business relationship presents a murky factual picture and raises questions of timeliness which fall in equal measure on all parties, factors which strongly suggest that a merits-based consideration in appropriate here before a judgment in the amount of more than $625,000 in entered in this case.
Turning initially to consideration of the first discretionary factor we must examine, the prejudice to the plaintiff, we find that while there has been a significant delay in pursuing these contractual claims which commenced in 2011 or 2012, much of that delay seems to stem from the plaintiff's choice to first file this lawsuit nearly seven years after this commercial relationship began, in February of 2018. While RSK would attribute this pre-filing delay to culpable lulling conduct by ASA, and insists that the delay in responding to the complaint is of a piece with this intentionally dilatory conduct, this is a matter which is better considered in terms of merits evaluation of any statute of limitations defenses or tolling arguments. This assertion should not, however, be a bar to any merits litigation, particularly in a case where the defendant's allegedly prejudicial delay in responding to the lawsuit spans days and weeks, while the plaintiff's alleged delay in pursuing these claims may span months or years.
Likewise, when we consider the second discretionary factor which we are enjoined to examine—whether meritorious defenses exist in this case—the plaintiff's allegations suggest some measure of delay in bringing this action, a delay which may potentially implicate the statute of limitations and laches. The defendant has stated that it will assert these defenses in this lawsuit. On the limited information which we now possess, and recognizing that an adequately stated defense with some factual basis is presumed to have merit when we are considering whether entry of default is appropriate, Hritz v. Woma Corp., 732 F.2d 1178, 1181 (3d Cir. 1984), we simply cannot say that this defense is wholly without merit. Therefore, any assessment of the merits of this defense does not reveal it to be so wholly lacking in merit that entry of a default is an appropriate exercise of discretion. Instead, the availability, or unavailability, of these defenses should be tested through merits litigation.
Finally, when we assess the third relevant discretionary factor, the degree of the defendant's culpability for the delay, we find that this factor also does not clearly compel entry of a default judgment. As to these considerations of culpability, the parties present two very different and contrasting narratives regarding their respective conduct prior to the filing of this lawsuit, competing narratives which are best tested through discovery and merits analysis. Moreover, while there has doubtless been some delay, and default, by the defendant once it was served with this complaint in March of 2018, there is also at least some indication that the principals were engaging in some halting discussion aimed at resolving this dispute at that time. Further, once the defendant's default was highlighted by the entry of a clerk's default, and RSK's motion for entry of a default judgment, ASA acted with alacrity, opposing the motion for entry of default judgment and filing its own motion to set aside the clerk's default within days. On these facts, it cannot be said with certainty that ASA's behavior displays the type of "willfulness" or "bad faith" which would justify entry of a default judgment, particularly given the "Court's preference for avoiding default judgments where the circumstances do not justify such a result." Hritz v. Woma Corp., 732 F.2d 1178, 1182-83 (3d Cir. 1984).
Finding that an evaluation of these discretionary factors does not clearly outweigh the oft-stated judicial preference for resolution of cases on their merits, rather than through default judgments, we recommend that RSK's motion for default judgment (Doc. 7) be denied and ASA's motion to set aside default (Doc. 11), be granted, and this case be scheduled for prompt resolution on its merits. As part of this early merits resolution, we also recommend that the court and the parties consider the value of early settlement and mediation efforts in this litigation.
IV. Recommendation
Accordingly, for the foregoing reasons, IT IS RECOMMENDED that RSK's motion for default judgment (Doc. 7) be DENIED, and ASA's motion to set aside default (Doc. 11) be GRANTED.
The parties are further placed on notice that pursuant to Local Rule 72.3:
Any party may object to a magistrate judge's proposed findings, recommendations or report addressing a motion or matter described in 28 U.S.C. § 636 (b)(1)(B) or making a recommendation for the disposition of a prisoner case or a habeas corpus petition within fourteen (14) days after being served with a copy thereof. Such party shall file with the clerk of court, and serve on the magistrate judge and all parties, written objections which shall specifically identify the portions of the proposed findings, recommendations or report to which objection is made and the basis for such objections. The briefing requirements set forth in Local Rule 72.2 shall apply. A judge shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made and may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge. The judge, however, need conduct a new hearing only in his or her discretion or where required by law, and may consider the record developed before the magistrate judge, making his or her own determination on the basis of that record. The judge may also receive further evidence, recall witnesses or recommit the matter to the magistrate judge with instructions.
Submitted this 24th day of September, 2018.
S/Martin C . Carlson
Martin C. Carlson
United States Magistrate Judge