Opinion
Case No.: 2:08-CV-001162.
September 1, 2010
OPINION AND ORDER
This matter is before the Court on two motions: a motion to set aside entry of default pursuant to Fed.R.Civ.P. 55(c) filed by Defendant Aeon Group, LLC (Aeon) (doc. 14) and a motion for default judgment filed by Plaintiffs Thomas Shaw, Wayne Glasgow, Dwight Layton, Barbara Overmeyer, and Melanie Smith (collectively, "plaintiffs") (doc. 12).
I. FACTS
Plaintiffs bring this action on behalf of themselves and other similarly situated for alleged violations of the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. § 201, et seq, Ohio's Minimum Wage Act (OMWA), Ohio Rev. Code § 4111.01 et seq., breach of contract and Ohio Rev. Code § 4113.15. Plaintiffs allege that over a five month period, Aeon wilfully failed to compensate its employees for work performed.
Plaintiffs filed their complaint against Aeon on December 9, 2008. Plaintiff's first attempt at service was returned unexecuted on February 23, 2009. Two ailas summons were issued in early 2009. As of March 16, 2009, defendant was on notice that a complaint had been filed and specifically requested a continuance from plaintiffs' counsel of 30 days in which to file an Answer. Defendant's president and CEO, Shirin Javid, also informed plaintiffs' counsel of the identity of their Agent for Service of Process, Mark K. Ameli, and noted that service was not perfected until Mr. Ameli was served. By letter dated April 3, 2009, Mr. Javid confirmed an understanding with plaintiffs that defendant would file an Answer within thirty days after receiving a "thirty day notice" from plaintiffs. In this letter, Mr. Javid expressly stated that defendant would not file a responsive pleading until it had been provided with a 30 day notice from plaintiffs. The letter also expressed defendant's interest in continuing settlement discussions and to receiving plaintiffs' settlement proposal. Plaintiffs obtained service on April 8, 2009.
The court assumes that the "30 day notice" was an attempt to refer to an agreed order granting defendant a thirty day extension to answer.
The proof of service was not docketed until October 30, 2009.
On July 14, 2009 plaintiffs sent a settlement demand to Mr. Javid who plaintiffs' counsel believed to be unrepresented. A counter-offer sent by counsel for defendant was received by plaintiffs' counsel on or about July 24, 2009. Plaintiffs' counsel is unsure whether he responded to the counter-offer and has provided no documentation indicating that any further correspondence was had between the parties. Plaintiffs do not contest defendant's understanding that it would not have to answer until it received a thirty day notice from plaintiffs and there is no evidence that plaintiffs provided any such notice to defendant.
On November 4, 2009, pursuant to plaintiffs' request, the clerk entered default against Aeon and on December 16, 2009, plaintiffs filed a motion for default judgment. On January 25, 2010, defendant filed a memorandum in opposition to plaintiffs' motion for default judgment as well as a motion to vacate the court's entry of default. Defendant also filed its Answer on January 25, 2010.
II. LEGAL STANDARD
Under Fed.R.Civ.P. 55(c), the court "may set aside an entry of default for good cause, and it may set aside a default judgment under Rule 60(b)." The Sixth Circuit has articulated the standard by which courts are to consider a motion to set aside an entry of default. See Waifersong, Inc. v. Classic Music Vending, 976 F.2d 290 (6th Cir. 1992). In order to determine "good cause" for purposes of a motion to vacate an entry of default, the court is to consider the following three factors: "(1) Whether culpable conduct of the defendant led to the default, (2) Whether the defendant has a meritorious defense, and (3) Whether the plaintiff will be prejudiced." Id. at 292 (citing United Coin Meter Co. v. Seaboard Coastline R.R., 705 F.2d 839, 845 (6th Cir. 1983)).
Fed.R.Civ.P. 55(c) leaves the decision whether to set aside an entry of default to the discretion of the trial judge. Shepard Claims Service, Inc. v. William Darrah Associates, 796 F.2d 190, 193 (6th Cir. 1986). However, "judgment by default is a drastic step which should be resorted to only in the most extreme cases." United Coin Meter Co., 705 F.2d at 845. In addition "any doubt should be resolved in favor of the petition to set aside the judgment so that cases may be decided on their merits." Id. at 846 (quoting Rooks v. American Brass Co., 263 F.2d 166, 169 (6th Cir. 1959) (citations omitted)). All three United Coin Meter Co. factors must be considered in ruling on a motion to set aside entry of default.
III. LEGAL ANALYSIS
A. Whether Plaintiff Will Be Prejudiced
"Delay alone is not a sufficient basis for establishing prejudice. Rather, it must be shown that delay will result in the loss of evidence, create increased difficulties in discovery, or provide greater opportunity for fraud and collusion." INVST Fin. Group, Inc. v. Chem-Nuclear Sys., Inc., 815 F.2d 391, 398 (6th Cir. 1987) (quoting Davis v. Musler, 713 F.2d 907, 913 (2d Cir. 1983)). The mere fact that a plaintiff will have to litigate the action on its merits, rather than proceed by default, does not constitute prejudice. Amari v. Spillan, No. 2:08-cv-829, 2009 U.S. Dist. LEXIS 120851 (S.D. Ohio Dec. 29, 2009).
The plaintiffs do not assert that they have been or will be prejudiced by the granting of defendant's motion to vacate. Plaintiffs may have been inconvenienced by the defendant's failure to answer, there is no allegation that they were prejudiced by the defendant's failure to respond to the complaint once served. Plaintiffs do assert that the failure to respond to the complaint hampered their ability to "conduct discovery, to marshal his evidence and to otherwise prepare his case for trial or other adjudication on the merits." Id. But plaintiffs have not shown that evidence was lost, or that it would have increased difficulties obtaining relevant discovery by virtue of defendant's delay. See, Krowtoh II LLC v. ExCelsius Int'l Ltd, 330 Fed. Appx. 530, 535 (6th Cir. 2009).
Accordingly, the court finds that the plaintiffs have not provided any evidence that they have been substantially prejudiced by the defendants failure to file a timely answer and therefore the first factor weighs in favor of vacating the entry of default.
B. Whether Defendant's Conduct Was "Culpable"
The next factor to consider is whether the defendant "can show a lack of culpability for the professed inadvertence, surprise, or excusable neglect." Simmons, 259 F. Supp. 2d at 685. For a defendant's actions to reach the level of culpable conduct, the "defendant must display either an intent to thwart judicial proceedings or a reckless disregard for the effect of its conduct on those proceedings." Shepard Claims Service, Inc., 796 F.2d at 194. Furthermore, "it is not absolutely necessary that the neglect or oversight offered as reason for the delay in filing a responsive pleading be excusable." Id.
Attached to its motion to vacate, the defendant provided an affidavit from its President and CEO, Shirin Javid, setting forth the circumstances surrounding the failure to move or plead. Defendant has also provided the court with two letters from Mr. Javid to plaintiffs' counsel. According to Mr. Javid, it was defendant's understanding that the plaintiffs would provide a "30 day notice" to the defendant and that defendant was only obligated to file an answer within thirty days of receiving that notice. (Javid Aff at ¶ 4). Inasmuch as no such notice was received, no answer was filed by defendant. (Id. at ¶ 5).
The defendant was entitled to rely on its understanding with plaintiffs that it would not have to file an answer until plaintiffs had provided it with a thirty day notice. Defendant clearly informed plaintiffs that this was its understanding based on conversations between the parties and plaintiffs made no attempt to dispute this understanding. Moreover, it was clear from defendant's letter that part of the reason for seeking additional time to answer was to enable settlement discussions to continue. Plaintiffs did not provide an initial demand for settlement until nearly three months after service of the complaint and correspondence between the parties. Plaintiffs also failed to respond to defendant's counter-offer and failed to provide the thirty day notice. Although it may have been the wiser course of action for defendant to answer the complaint when it realized negotiations were not continuing and no response had been received from plaintiffs, defendant was reasonably entitled to rely on its agreement with the plaintiffs' counsel. Accordingly, the second factor weighs in favor of vacating the entry of default.
C. Whether Defendant Has A Meritorious Defense
The final factor the court must consider is whether the defendant has a meritorious defense to the plaintiffs' complaint. A meritorious defense is "simply one that would be a viable legal defense if there is any possibility that the facts will ultimately support the defendant's version of events." DeFrank v. Roth, No. 1:98CV1597, 1998 U.S. Dist. LEXIS 23307 (N.D. Ohio Oct. 2, 1998); see also, United Coin Meter, 705 F.2d at 845 ("if any defense relied upon states a defense good at law, then a meritorious defense has been advanced"). The likelihood of defendant's success is not considered in determining whether defendant has a meritorious defense. United Coin Meter, 705 F.2d at 845; see also In re Park Nursing Ctr., Inc. v. Creditors Comm. of Park Nursing Ctr., Inc., 766 F.2d 261, 264 (6th Cir. 1985) (the test is not whether defendant will win at trial but "rather whether the facts alleged by the defendant would constitute a meritorious defense if true").
The defendant bears the burden of demonstrating that it has meritorious defenses. River Trading Co. v. High Ridge Mining, 179 F.R.D. 214 (E.D. KY 1998). A "general assertion that [it] has meritorious defenses is simply not enough." Id at 216. Rather, the moving party on a motion to vacate an entry of default "must support its general denials with some underlying facts." Sony Corp. v. Elm State Electronics, Inc., 800 F.2d 317, 320-321 (2d Cir. 1986); Found-Structures, Inc. v. Safeco Ins. Co. of Am., No. 08-4763, 2009 U.S. Dist. LEXIS 75970 (E.D. Pa Aug. 25, 2009) (no meritious defense could be determined where the purported defense is "bereft of factual allegations" and did not contradict plaintiff's evidence). Defendant asserts that it has a meritorious defense because it challenges the amount owed to plaintiffs and whether anything is in fact owed. According to defendant, it has documentation proving plaintiffs' calculations as to what they are owed to be incorrect. (Affidavit of Shirin Javid, doc 14-1 ¶ 7). However, defendant did not provide any additional information and did not provide any documentation to the court for consideration. Defendant alleges no facts in support of its general denials and cites to no evidence in support of any defense in its motion to vacate.
In order to establish a meritorious defense, defendant should have come forward with "specific defenses and/or disputed some of the material facts in the case" but has not done so. River Trading Co. 179 F.R.D. at 216. As defendant has failed to do so, the court finds that defendant does not have a meritorious defense to plaintiff's complaint. See, Alliance Mall Co v. Suit Rack, Inc., No. CA-6609, 1985 Ohio App. LEXIS 8301 (Ct. App. Ohio July 1, 1985) (no meritorious defense where defendant failed to submit any evidence to a defense of the monies owed); Safeco Ins., 2009 U.S. Dist. LEXIS 75970 (without any evidence presented, court could not determine whether a meritorious defense existed and for purposes of vacating default entry, determined that there was no meritorious defense). Accordingly, the third factor weighs against defendant in considering its motion to vacate the entry of default.
Thus, the first two factors favor setting aside the default and the third factor does not. A very similar situation was presented in Found. Structures, Inc. v. Safeco Ins. Co. of Am., No. 08-4763, 2009 U.S. Dist. LEXIS 75970 (E.D. Pa Aug. 25, 2009). In that case, the court noted that "though some courts have considered the `meritorious defense' factor to be a threshold consideration, the absence of which is dispositive, that type of analysis has more often been employed when the defendant's motion is to set aside a default judgment, rather than merely a clerk's entry of default." Id (citing, United States v. $55.518.05 in U.S. Currency, 728 F.2d 192 (3d Cir. 1984); Gold Kist, Inc. v. Laurinburg Oil Co., 756 F.2d 14 (3d Cir. 1985)). Observing that relief from default entry rather than default judgment is more easily granted, the court concluded that the absence of a meritorious defense was not determinative of the issue. Id. Accordingly, the court considered a fourth factor: the effectiveness of sanctions. Id (citing Foy v. Dicks, 146 F.R.D. 113 (E.D. Pa. 1993) (finding that the defendants had not stated a meritorious defense but lifting default and imposing monetary sanction instead)); see also, Amari v. Spillan, No. 2:08-cv-829, 2009 U.S. Dist. LEXIS 120851 (S.D. Ohio December 29, 2009) (conditioning the setting aside of default entry on the payment of atorneys fees and costs incurred in having to file a motion to strike and motion for summary judgment in a 55(c) case). Consequently, the court in Safeco, followed other courts in conditionally ruling on the motion to set aside an entry of default by offering the moving party another opportunity to provide the prima facie evidence required to establish a meritorious defense. Id (citing, among others, Mike Rosen Assocs., P.C. v. Omega Builders, 940 F. Supp. 115, 121 (E.D. Pa. 1996) (conditionally granting the motion on pain of re-entry of default if facts not developed in 90 days); Atlas Comm., Ltd. v. Waddill, 1997 U.S. Dist. LEXIS 17049, 1997 WL 700492, *4 (E.D. Pa. 1997) (conditionally denying motion to set aside default subject to reconsideration if facts constituting a complete defense were provided in 20 days)).
This court agrees with the analysis of the court in Safeco and the cases cited therein. Therefore the court will conditionally deny the motion to set aside default, and will conditionally grant the motion for default judgment, subject to reconsideration if the defendant presents facts to this court, via affidavit and evidence, within thirty (30) days of this order, that would constitute a defense to plaintiffs' claims.
IV. CONCLUSION
Based on the foregoing, the court DENIES defendant's motion to vacate and set aside the clerk's entry of default (doc. 14) and GRANTS plaintiffs' motion for default judgment (doc. 12) on liability only on the CONDITION that defendant be allowed to file an amended motion to vacate, setting forth the facts and evidence that would establish a meritorious defense. Defendant's failure to file the amended motion within thirty (30) days of this ORDER will result in the court entering a final order denying the motion to vacate and granting the motion for default judgment. In the event that default judgment on liability is entered, the court will schedule a hearing on damages.
IT IS SO ORDERED.
Date: September 1, 2010