Opinion
Civil Action 2:12-cv-01203
02-05-2015
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 3, 2014 and January 9, 2015 motions to set aside entries of default (doc. 487 & 525).
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.
Arguments of the Parties. Plaintiffs seek to set aside the entries of default against putative class members entered by the Clerk of Court in docket entries 486 and 498.
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.
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 3, 2014 and January 9, 2015 motions to set aside entries of default (doc. 487 & 525) are GRANTED.
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