Crop Production Services, Inc. v. G & K Farms, et al
Filing
UNPUBLISHED OPINION FILED. [16-40830 Affirmed ] Judge: RHB , Judge: JEG , Judge: SAH Mandate pull date is 07/11/2017 [16-40830]
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Date Filed: 06/20/2017
IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT
Fifth Circuit
FILED
No. 16-40830
June 20, 2017
Lyle W. Cayce
Clerk
In the Matter of: THOMAS M. GRABANSKI, MARI KAY GRABANSKI,
Debtors
-------------------------------------CROP PRODUCTION SERVICES, INCORPORATED,
Appellee
v.
JOHN KEELEY; DAWN KEELEY,
Appellants
Appeal from the United States District Court
for the Eastern District of Texas
USDC 4:14-CV-559
Before BARKSDALE, GRAVES, and HIGGINSON, Circuit Judges.
PER CURIAM:*
Below, creditors of a farming business obtained a default judgment
relating to unpaid invoices. Liability for the obligations recognized in the
default judgment extends to the business’s former partners, two of whom seek
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
*
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relief in this appeal. The former partners, John and Dawn Keeley, argue that
the default judgment should not have been entered, should not have been
extended to render them personally liable for the damages it recognized, and
should have been vacated. Perceiving no abuse of discretion, we AFFIRM.
BACKGROUND
John and Dawn Keeley, the appellants, were general partners of G&K
Farms from January 1, 2008, until September 2009. G&K Farms is a North
Dakota general partnership, and exists for the purpose of farming land in
Texas. Thomas Grabanski, another general partner, ran G&K Farms’s day-today operations.
Crop Production Services (“CPS”), the appellee, is an agricultural
wholesaler that sold goods and services to G&K Farms. G&K Farms failed to
pay CPS $642,669.55, a figure reflecting goods and services G&K Farms
obtained from January to September 2009. CPS billed portions of the goods
and services it provided across several different invoices. With one exception,
the invoices were due on or before July 31, 2009. The exception relates to an
invoice dated August 17, 2009, which became due on September 5, 2009.
On September 15-16, 2009, the Keeleys assigned their interest in G&K
Farms to another general partner, Thomas Grabanski. About four years later,
on July 29, 2013, Grabanski filed for bankruptcy in the Eastern District of
Texas, and G&K Farms became property of the bankruptcy estate. CPS filed a
lawsuit related to G&K Farms’s unpaid debt against Grabanski and John
Keeley two days later in Texas state court.
In September 2013, John Keeley removed the state court case to the
Eastern District of Texas’s bankruptcy court. In April 2014, CPS amended its
complaint, adding G&K Farms and Dawn Keeley as parties and adding various
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claims. 1 The Keeleys filed a joint answer in their individual capacities on May
6, 2014.
On August 13, 2014, the Keeleys moved for transfer of the case from the
bankruptcy court to the district court. The district court granted that motion
and took over the case on August 26, 2014. In the weeks immediately before
the district court took the case from the bankruptcy court, both the bankruptcy
trustee and the Keeleys filed objections in the bankruptcy court to a “proof of
claim” CPS submitted. CPS’s proof of claim implicated a 2008 credit
application submitted to CPS by Grabanski and John Keeley on behalf of G&K
Farms, and both the trustee and the Keeleys premised their objections at least
in part on the argument that statute of limitations defenses existed.
CPS requested entry of default against G&K Farms on October 16, 2014,
after G&K Farms failed to respond to CPS’s amended complaint. CPS’s request
for entry of default came on the same day that CPS deposed Grabanski. During
the deposition, which the Keeleys’ attorney attended by telephone, Grabanski
acknowledged that he received service on behalf of G&K Farms and said he
“[did] not believe” that G&K Farms intended to retain a lawyer to represent it.
The Keeleys filed no objection to CPS’s request for default, and the court clerk
entered default against G&K Farms on October 27, 2014.
In early November 2014, CPS filed a motion for default judgment against
G&K Farms. The Keeleys filed no objection to CPS’s motion, and on January
8, 2015, the court entered a default judgment against G&K Farms totaling over
$1.3 million.
CPS’s claims included: (1) sworn account; (2) common law action on account; (3)
breach of contract; (4) quantum meruit; (5) suit on guaranty; and (6) fraud, fraudulent
inducement, and fraudulent concealment.
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CPS moved for partial summary judgment on April 30, 2015. In the
motion, CPS argued that (1) the Keeleys were jointly and severally liable for
the default judgment against G&K Farms; and (2) John Keeley was
individually liable as a guarantor of G&K Farms’s obligations.
While CPS’s motion for partial summary judgment remained pending,
the Keeleys moved to vacate the default judgment against G&K Farms. The
district court denied the Keeleys’ motion to vacate on July 24, 2015.
Three weeks later, on August 14, 2015, the district court issued an order
granting, in part, CPS’s motion for partial summary judgment. The district
court found that the Keeleys are “jointly and severally liable for the entire
default judgment against G&K Farms” under Texas general partnership law. 2
CPS’s claims against John Keeley moved forward in a bench trial
conducted on September 22, 2015. 3 On October 14, 2015, the district court
issued findings of fact and conclusions of law concerning those claims, which it
rejected.
The district court issued a final judgment in favor of CPS against the
Keeleys on October 27, 2015. On November 3, 2015, the Keeleys filed a motion
relating to both the default judgment against G&K Farms and the final
judgment against the Keeleys. The motion sought vacatur of the default
judgment under Federal Rules of Civil Procedure 55 and 60, and sought
alteration or amendment of the final judgment under Federal Rule of Civil
Procedure 59. The district court denied the motion on May 12, 2016. This
appeal followed.
The district court applied Texas law after perceiving no conflict between the general
partnership law of Texas and North Dakota.
2
CPS’s claims against John Keeley asserted theories of recovery distinct from the
general partnership obligations on which it had already prevailed against G&K Farms. CPS
maintained claims against John Keeley in his alleged capacity as G&K Farms’s guarantor,
as well as claims alleging Keeley personally engaged in fraud against CPS.
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STANDARD OF REVIEW
This court reviews both the entry of a default judgment and the district
court’s refusal to set aside a default judgment “for abuse of discretion.” Wooten
v. McDonald Transit Assocs., Inc., 788 F.3d 490, 495 (5th Cir. 2015) (citations
omitted). “Because of the seriousness of a default judgment, and although the
standard of review is abuse of discretion, even a slight abuse of discretion may
justify reversal.” Id. (quoting In re Chinese-Manufactured Drywall Prods. Liab.
Litig., 742 F.3d 576, 594 (5th Cir. 2014)).
“Review of a default judgment puts competing policy interests at play.
On one hand, ‘[this court has] adopted a policy in favor of resolving cases on
their merits and against the use of default judgments.’” Id. at 496 (quoting In
re Chinese-Manufactured Drywall, 742 F.3d at 594). “On the other, this policy
is ‘counterbalanced by considerations of social goals, justice and expediency, a
weighing process that lies largely within the domain of the trial judge’s
discretion.’” Id. (quoting In re Chinese-Manufactured Drywall, 742 F.3d at
594).
“The [district] court may set aside an entry of default for good cause, and
it may set aside a final default judgment under Rule 60(b).” 4 Fed. R. Civ. P.
Federal Rule of Civil Procedure 60(b) provides that the district court “may relieve a
party or its legal representative from a final judgment, order, or proceeding for the following
reasons:
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(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence that, with reasonable diligence, could not have
been discovered in time to move for a new trial under Rule 59(b);
(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation,
or misconduct by an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released or discharged; it is based on an
earlier judgment that has been reversed or vacated; or applying it prospectively is no
longer equitable; or
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55(c). “To determine whether or not good cause is present, [this court]
consider[s] three factors: (1) whether the default was willful; (2) whether
setting aside the default judgment would prejudice [the plaintiff]; and (3)
whether
[the
defendant]
presented
a
meritorious
defense.”
In
re
Chinese-Manufactured Drywall, 742 F.3d at 594 (citing Lacy v. Sitel Corp., 227
F.3d 290, 292 (5th Cir. 2000)). “[This court] may also consider other factors,
including whether [the defendant] acted expeditiously to correct the default.”
Id. (citing Lacy, 227 F.3d at 292). “A finding of willful default ends the inquiry,
for when the court finds an intentional failure of responsive pleadings there
need be no other finding.” Id. (quoting Lacy, 227 F.3d at 292).
DISCUSSION
The Keeleys assert that the district court erred by entering a default
judgment against G&K Farms, by applying the default judgment in ways
detrimental to them, and by declining to vacate the default judgment. We hold
that the district court did not abuse its discretion in any respect.
I.
Default judgment against G&K Farms
In support of their argument that the district court erred by entering a
default judgment against G&K Farms, the Keeleys emphasize the fact that
they had already appeared and filed an answer before the default judgment.
In the Keeleys’ view, G&K Farms should benefit from their answer.
We disagree. The district court did not abuse its discretion by entering
the default judgment.
The Keeleys’ reliance upon Frow v. De La Vega, 82 U.S. 552 (1872), is
misplaced. In Frow, a plaintiff alleged several defendants conspired to defraud
him out of title to “a large tract of land in Texas.” Id. at 552–53. One of the
(6) any other reason that justifies relief.”
Fed. R. Civ. P. 60(b).
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alleged co-conspirators defaulted and suffered the entry of a “final decree
absolute against him, adjudging the title of the land to be in the [plaintiff]. . . .”
Id. at 553. “After this final decree,” the remaining co-defendants prevailed at
trial, resulting in dismissal of the plaintiff’s complaint. See id. On appeal, Frow
presented directly inconsistent judgments: the final decree against the
defaulting defendant indicated that the plaintiff rightly held title to the land,
but the remaining defendants had defeated the plaintiff’s allegations that they
fraudulently obtained title. See id. at 552–53.
This appeal presents no similar incongruity. John Keeley successfully
defended himself against a distinct legal claim not advanced against G&K
Farms (the guaranty claim), but his success does not establish that CPS had
no other viable claims against G&K Farms. Cf. Lewis v. Lynn, 236 F.3d 766,
768 (5th Cir. 2001) (per curiam) (observing that when “a defending party
establishes that [the] plaintiff has no cause of action[,] th[e] defense generally
inures also to the benefit of a defaulting defendant”). As the district court
correctly concluded, its finding that John Keeley possessed a winning statute
of limitations defense against CPS’s guaranty claim does not directly conflict
with the default judgment against G&K Farms.
In addition to their argument regarding Frow, the Keeleys invoke a
Texas decision stating that “an answer for all of the individual partners is
equivalent to an answer for the partnership.” See Corsicana Ready Mix v.
Trinity Metroplex Div., Gen., Portland, Inc., 559 S.W.2d 423, 424 (Tex. App.
1977). The Keeleys cite Corsicana in support of their contention that because
“all of the partners of G&K Farms had filed responsive pleadings,” the district
court erred when it deemed G&K Farms to be in default. The Keeleys did not
raise this argument below, and we therefore decline to address it, in “keeping
with our precedent that arguments not raised before the district court are
waived and cannot be raised for the first time on appeal.” In re Deepwater
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Horizon, 857 F.3d 246, 251 (5th Cir. 2017) (quoting LeMaire v. La. Dep’t of
Transp. & Dev., 480 F.3d 383, 387 (5th Cir. 2007)).
II.
The default judgment’s effect
Moving past the entry of default judgment against G&K Farms, the
Keeleys also assert that the district court erred by “extending the effect of the
default judgment” in ways adverse to them. The Keeleys claim that the district
court committed two specific errors in this regard. First, they contend the
district court should have revised the default judgment against G&K Farms
after the bench trial of CPS’s claims against John Keeley. Second, the Keeleys
argue that the district court should not have given the default judgment issuepreclusive effect regarding the amount of CPS’s damages.
With respect to both arguments, we perceive no abuse of discretion. As
previously stated, we agree with the district court’s conclusion that its findings
following the bench trial did not conflict with the default judgment. John
Keeley’s successful statute of limitations defense against CPS’s guaranty claim
establishes neither that statute of limitations defenses barred CPS’s other
claims against G&K Farms nor that any errors exist in the default judgment’s
calculation of CPS’s damages.
III.
Denial of motions to vacate the default judgment
Finally, the Keeleys contend the district court abused its discretion by
denying their motions to vacate the default judgment. We disagree.
Below, the parties disputed whether the district court’s willfulness
inquiry should focus upon only the conduct of the defaulting party (i.e., G&K
Farms) or also the culpability of the Keeleys’ failure to object to the default. At
the Keeleys’ urging, the district court “examin[ed] the culpability of the
Keeleys’ conduct.” The court found that “their failure to act was not justified.”
Assuming the district court did need to consider the culpability of the
Keeleys’ conduct, we agree, for essentially the reasons stated by the district
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court, that the Keeleys’ intentional decision not to object to the default
proceedings was not justified. 5 This finding of willful default “ends the
inquiry.” In re Chinese-Manufactured Drywall, 742 F.3d at 594 (quoting Lacy,
227 F.3d at 292). The district court did not abuse its discretion when it denied
the Keeleys’ motions to vacate the default judgment.
CONCLUSION
For the reasons set forth above, we AFFIRM.
Because we would find no abuse of discretion under either analysis, we express no
opinion on the question of whether the district court could have focused exclusively on the
willfulness of G&K Farms’s default.
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