Regent Insurance Co. v. Findlay Roofing & Construction, Inc. et al

Filing 16

OPINION denying 10 Defendant's Motion to Set Aside Entry of Default and Motion to Permit Filing of Responsive Pleadings Out of Time. Granting 11 Plaintiff's Motion for Default Judgment and ORDERS that the Clerk enter Judgment in favor of Plaintiff and against Defendant Findlay Roofing & Construction, Inc. concluding that Plaintiff has no obligation to pay any judgment entered against Findlay in connection with the Blumengolds' underlying lawsuit or any damages sought by Michele Blumengold, individually or as legal guardian and custodian of Adam Blumengold and Seth Blumengold, because Findlay failed to comply with the requirements of O.C.G.A. § 33-7-15 and the Insurance Policy. Signed by Judge Richard W. Story on 1/31/2017. (bdb)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
REGENT INSURANCE CO.,
Plaintiff,
v.
FINDLAY ROOFING &
CONSTRUCTION, INC., and
MICHELE BLUMENGOLD,
Individually and Legal Guardian
and Custodian of ADAM
BLUMENGOLD and SETH
BLUMENGOLD, Minors,
Defendants.

:
:
:
:
:
:
:
:
:
:
:
:
:
:
:

CIVIL ACTION NO.
1:16-CV-02602-RWS

ORDER
This case comes before the Court on Plaintiff’s Motion for Default
Judgment [11] and Defendant’s Motion to Set Aside the Entry of Default and
Motion to Permit Filing of Responsive Pleadings Out of Time [10]. For the
reasons set forth below, the Court GRANTS Plaintiff’s Motion for Default
Judgment and DENIES Defendant’s Motion to Set Aside the Entry of Default and
Motion to Permit Filing Responsive Pleadings Out of Time.
Factual Background
This declaratory judgment action arises out of a previous lawsuit to recover
1

damages from a car accident. On September 28, 2015, James Zuniga, an employee
of Findlay Roofing Inc. (“Findlay”), and Michelle, Adam, and Seth Blumengold
(“the Blumengolds”) were involved in an automobile accident. (Compl., Dkt. [1]
¶ 13.) On January 4, 2016, the Blumengolds filed a lawsuit (“the underlying
lawsuit”) in the Superior Court of Cobb County against Zuniga and Findlay. (Id.
¶ 17.) The summons and complaint were served on Emily Bishop, Findlay’s
registered agent, on January 12, 2016. (Compl. Ex. C, Dkt. [1-5])
Findlay failed to respond to the Complaint, leading the Blumengolds to file
a Motion for Default Judgment on February 29, 2016 and serve Bishop with a
copy of the same. (Compl. Ex. E., Dkt. [1-7] at 4) On April 18, 2016, more than
three months after the original service of process and a month and a half after the
filing of the Motion for Default Judgment, the Blumengolds faxed a courtesy copy
of the complaint to Plaintiff Regent Insurance Company (“Regent”). (Compl.,
Dkt. [1] ¶ 24.) The Superior Court of Cobb County granted the Motion for
Default Judgment on May 24, 2016, and scheduled a damages hearing for July 21,
2016. (Def.’s Mot. to Set Aside Default, Dkt. [10] at 3.) Bishop received notice
of the hearing and this time informed Findlay of the proceedings. (Id.). Findlay
contacted Regent who retained counsel to represent Findlay at the damages
hearing. (Id.) Prior to the hearing, the parties to the underlying lawsuit reached a
2

Consent Judgment resolving the case. (Id.)
On July 14, 2016, Regent sent a Reservation of Rights Letter to Findlay
informing Findlay that Regent reserved the right to challenge coverage for the
claim in the underlying lawsuit because of Findlay’s failure to comply with the
Insurance Policy and O.C.G.A. § 33-7-15. (Compl. Ex. G, Dkt. [1-9] at 3–5.)
Four days later, Regent filed the present suit seeking a declaratory judgment
against Findlay for non-coverage under the Commercial Automobile Policy No.
CBA 09658797 (“the Insurance Policy”). (Compl. Ex. A, Dkt. [1-1].) Regent
alleges that Findlay breached the Insurance Policy and violated O.C.G.A. § 33-715 (Counts I–II), both of which required Findlay to provide Plaintiff with notice of
any summons. (Compl., Dkt. [1] ¶¶ 35–59.)
The Insurance Policy, which comports with the requirements of O.C.G.A.
§ 33-7-15, provides that Regent has no duty to provide coverage under the policy
if there is a failure to immediately send Regent copies of any “request, demand,
order, notice, summons, or legal paper received concerning the claim or suit.” (Id.
¶ 34; Compl. Ex A., Dkt. [1-1] at 23 (internal quotations omitted).)
The Complaint was properly served on Bishop on August 25, 2016, and
Findlay again failed to answer within twenty-one days. (Aff. of Service, Dkt. [5];
Pl.’s Mot. for Default J., Dkt. [11] at 3.) On November 14, 2016, the Clerk
3

entered a default against Findlay for the present suit. (Pl’s Mot. for Default J.,
Dkt. [11] at 3.) That same day, Bishop emailed a copy of Plaintiff’s Motion for
Entry of Default to Findlay. (Def.’s Mot. to Set Aside Default, Dkt. [10] at 4.)
Four days later Findlay filed its first Answer and Counterclaim for either suit as
well as a Motion to Set Aside Default. (Dkt. [9, 10].) Findlay alleges it was not
informed of either suit by its registered agent until after defaults had been entered
and thus could not inform Regent. (Answer, Dkt. [9] ¶¶ 43–60.) Findlay also
contends that the courtesy copy of the complaint sent to Regent by the
Blumengolds served as the necessary notice under O.C.G.A. § 33-7-15 and the
Insurance Policy. (Id.)
Discussion
Under Rule 55(c), the Court may set aside a default if the defaulting party
can show “good cause.” FED. R. CIV. P. 55(c); Insituform Tech. Inc. v. Amerik
Supplies, Inc., 588 F.Supp.2d 1349, 1352 (N.D. Ga. 2008) (burden of proof on
defaulting party). Federal courts treat defaults unfavorably, preferring a trial on
the merits to resolve disputes. Compania Interamericana Exp.-Imp., S.A. v.
Compania Dominicana de Aviacion, 88 F.3d 948, 951 (11th Cir. 1996).
Consequently, “good cause” is a “mutable” standard that is liberally applied “but
not so elastic as to be devoid of substance.” Id.
4

In determining whether “good cause” exists, courts focus on three factors:
“(1) whether the default was culpable or willful; (2) whether setting it aside would
prejudice the non-defaulting party; and (3) whether the party in default has a
meritorious defense.” Ritts v. Dealers Alliance Credit Corp., 989 F.Supp. 1475,
1480 (N.D. Ga. 1997). Courts have also considered “whether the defaulting party
acted promptly to correct the default.” Compania Interamericana, 88 F.3d at 951.
The factors are used to identify the circumstances leading to the default, but when
a party “willfully defaults by displaying either an intentional or reckless disregard
for the judicial proceeding, the court need make no other findings in denying
relief.” Id. at 951–52.
Findlay failed to answer Plaintiff’s complaint as required by the Federal
Rules of Civil Procedure. Rule 12 requires parties to respond within twenty-one
days of being served with a summons and complaint. FED. R. CIV. P. 12(a)(1)(B).
Findlay was served with a copy of the summons and complaint through its
registered agent, Emily Bishop, on August 25, 2016. (Aff. of Service, Dkt. [5].)
The failure to answer by September 15, 2016, led to the entering of default by the
clerk on November 14, 2016, in accordance with Rule 55. Findlay claims this is
when it was informed of the suit, and it subsequently filed an answer,
counterclaim, and motion to set aside the default on November 18, 2016.
5

Findlay argues that it has a meritorious defense based on the Insurance
Policy. Findlay admits it did not provide Regent with a copy of the summons and
complaint before default judgment in the underlying suit. (Answer, Dkt. [9] ¶ 44.)
They instead rely on the courtesy copy of the summons sent to Regent by the
victim of the crash on April 18, 2016, as providing notice. (Id. ¶ 45.) O.C.G.A.
§ 33-7-15(c) allows the insured to forgo notice to the insurer if a third party
provides notice by summons or other process within ten days of filing with the
clerk and at least thirty days before a judgment. Although Regent received notice
thirty-six days before the default judgment was entered on May 24, 2016, the
notice came more than three months after the original complaint was filed in state
court, far exceeding the ten-day limit. Because neither Findlay nor the victim
provided timely notice to Regent regarding the underlying lawsuit, Regent is
relieved from its duty to provide coverage according to the Insurance Policy.1
Without the substitute notice given to Regent by the victim, Findlay’s
defenses in the present action are reduced to general denials. These defenses are
insufficient because “it is well settled that general denials and conclusive
statements are insufficient to establish a meritorious defense; the movant must

1

The Insurance Policy substantially mirrors the requirements of O.C.G.A. § 33-7-15, and
therefore even under the Insurance Policy the third party notice to Plaintiff is insufficient.
6

present a factual basis for its claim.” Turner Broad. Sys., Inc. v. Sanyo Elec. Inc.,
33 B.R. 996, 1002 (N.D. Ga., 1983) (citing Moldwood Corp. v. Stutts, 410 F.2d
351, 352 (5th Cir. 1969)). For these reasons Findlay has failed to carry its burden
to show the Court any meritorious defenses.
Since Findlay does not have a meritorious defense, Regent will be
prejudiced if the default is set aside. Turner Broad., 33 B.R. at 1003 (concluding
that forcing a plaintiff to continue to litigate a suit against a defendant in default
and without any meritorious defenses “unduly prejudices the plaintiff”). When no
meritorious defense exists, the delay in vindicating the plaintiff’s rights and
plaintiff’s expenses in continuing the litigation amount to undue prejudice.
Rasmussen v. W.E. Hutton & Co., 68 F.R.D. 231, 235 (N.D. Ga. 1975). In Turner
Broadcasting, the Court found the defaulting party lacked any meritorious
defenses and thus Turner would be prejudiced by continuing to litigate the suit.
Turner Broad., 33 B.R. at 1003. The same reasoning applies here. To force
Regent to continue litigating this declaratory judgment action while Findlay has no
viable defenses would serve to prejudice Regent.
Findlay relies primarily on the contention that its failure to respond was not
willful because its representatives did not receive notice of the suit until
November 14, 2016. (Def.’s Mot. to Set Aside Default, Dkt. [10] at 4.) The lack
7

of notice was apparently caused by “administrative” errors between Findlay and its
registered agent. (Id.) This argument fails to acknowledge that Findlay’s
representative did in fact receive notice when the summons and complaint were
served on her on August 25, 2016. Rule 4(h)(1)(B) clearly states that service upon
a corporation’s registered agent is a valid method of service. FED. R. CIV. P.
4(h)(1)(B).
Moreover, this is the second time Findlay failed to respond after service of
process on its registered agent. In the underlying lawsuit, Findlay neglected to
make any response until nearly six months had passed from the original service on
January 12, 2016 because its registered agent failed to forward the summons and
complaint to Findlay. In the present case, Findlay’s registered agent again failed
to forward the summons and complaint she received on August 25, 2016. A single
instance of administrative error might be overlooked, but making the same mistake
twice during the same dispute cannot. See also Compania Interamericana, 88 F.3d
951–52 (affirming trial court’s decision to not set aside default where the
defaulting party failed to comply with court orders due to administrative
difficulties within a state-run corporation and political unrest in the Dominican
Republic government). Additionally, the Reservation of Rights letter, sent to
Findlay by Regent on July 14, 2016, explaining the lack of coverage should have
8

alerted Findlay to the possibility of this declaratory judgment action.
The single factor supporting Findlay’s motion is its legal counsel’s quick
filing of responsive pleadings once they were sent a copy of Plaintiff’s Motion for
Entry of Default by the registered agent on November 14, 2016. Nevertheless,
Findlay’s answer was due two months earlier on September 15, 2016. The rapid
response is not enough to overcome Findlay’s lack of any meritorious defenses,
disregard of two services of process on its registered agent, and the prejudice
facing Regent if the default were to be set aside. Therefore, the Court finds that
Findlay has failed to establish good cause to set aside the default and ORDERS
that the Clerk enter Judgment in favor of Plaintiff and against Defendant Findlay
Roofing & Construction, Inc. concluding that Plaintiff has no obligation to pay
any judgment entered against Findlay in connection with the Blumengolds’
underlying lawsuit or any damages sought by Michele Blumengold, individually
or as legal guardian and custodian of Adam Blumengold and Seth Blumengold,
because Findlay failed to comply with the requirements of O.C.G.A. § 33-7-15
and the Insurance Policy.
Conclusion
For the foregoing reasons, Defendant’s Motion to Set Aside Entry of
Default and Motion to Permit Filing of Responsive Pleadings Out of Time [10] is
9

DENIED. Plaintiff’s Motion for Default Judgment [11] is GRANTED.
SO ORDERED, this 31st day of January, 2017.

________________________________
RICHARD W. STORY
United States District Judge

10