Envirogen Technologies, Inc. v. Maxim Construction Corporation, Inc.
Filing
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MEMORANDUM Opinion and Order. Signed by the Honorable James B. Zagel on 9/30/2016. Mailed notice(ep, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ENVIROGEN TECHNOLOGIES, INC.,
Plaintiff,
v.
No. 14 C 2090
Judge James B. Zagel
MAXIM CONSTRUCTION
CORPORATION, INC. and CITY OF
CRYSTAL LAKE,
Defendants.
MEMORANDUM OPINION AND ORDER
Before the Court is Defendant City of Crystal Lake’s Motion for Default Judgment
Against Maxim Construction Corporation and for Dismissal of Maxim’s Cross-Claim for Want
of Prosecution. For the following reasons, Defendant City of Crystal Lake’s Motion is granted.
I. PROCEDURAL BACKGROUND
The conflict between Plaintiff Envirogen Technologies, Inc. (“Envirogen”) and
Defendant Maxim Construction Corporation (“Maxim”) arises from a subcontract between the
two corporations to supply a water treatment system for the City of Crystal Lake (“the City”). In
2014 Envirogen filed its suit against Maxim in this Court, eventually adding the City as a
defendant in its Second Amended Complaint (“SAC”). The SAC alleged that Maxim breached
the subcontractor agreement by failing to pay Envirogen for the ion exchange water treatment
system and sought a declaratory judgment stating that the City has “no claim, cause of action,
remedy, or right of any kind” under the Purchase Order between Envirogen and Maxim. The
City filed a Cross-Claim against Maxim for breach of the construction contract and a
Counterclaim against Envirogen for breach of contract based on the City’s status as third party
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beneficiary to the Purchase Order.
On May 9, 2016, while in the midst of discovery, this Court granted Maxim’s
attorneys’ motions to withdraw based on Maxim’s unpaid legal fees. At the next two status
hearings on May 12 and June 23, no attorneys appeared for Maxim and neither opposing counsel
nor the Court was contacted regarding Maxim’s failure to appear. For reasons explained on the
docket, Envirogen moved for and was granted default against Maxim on July 7, 2016. At this
point, Maxim reappeared in the case with new counsel. After a hearing, Envirogen won default
judgment against Maxim on September 6, 2016. That same day, the City moved for default
judgment against Maxim and for dismissal of Maxim’s counterclaim for want of prosecution and
it is this motion that is before the Court now.
II. LEGAL STANDARD
Under Federal Rule of Civil Procedure 55, a court may enter a default judgment when a
defendant fails to plead or otherwise defend. Fed. R. Civ. P. 55(a). On a motion for default
judgment, a court takes all well-pleaded allegations as to liability as true. Black v. Lane, 22 F.3d
1395, 1399 (7th Cir. 1994). The decision to enter a default judgment lies within the district
court’s discretion. O'Brien v. R.J. O'Brien & Assocs., 998 F.2d 1394, 1398 (7th Cir. 1993).
Rule 55(c) allows a court to “set aside a default judgment under Rule 60(b).” FED. R.
CIV. P. 55(c). Rule 60(b) provides that “[o]n motion and just terms, the court may relieve a party
... from a final judgment [due to] (1) mistake, inadvertence, surprise, or excusable neglect.” FED.
R. CIV. P. 60(b). Excusable neglect “encompasses ‘all relevant circumstances surrounding the
party’s omission,’” including such factors as “the reason for the default, whether it was within
the movant’s control, the danger of prejudice to the non-movant, and the interests of judicial
administration.” Tygris Asset Finance, Inc. v. Szollas, No. 09 C 4488, 2010 WL 2610652, at *1
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(N.D. III. June 21, 2010) (quoting Casio Comp. Co. v. Noren, 35 Fed. Appx. 247, 250 (7th Cir.
2002)). See also Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. Partnership, 507 U.S. 380,
389 (1993). Despite this “flexible understanding,” however, “‘[i]nadvertence, ignorance of the
rules, or mistakes construing the rules’ are not ordinarily recognized as forms of excusable
neglect,”’ and “negligent handling of a case, by itself, will not excuse untimely behavior or
satisfy the showing required by Rule 60(b).” Casio Comp. Co., 35 Fed. Appx. at 250 (citing
Pioneer, 507 U.S. at 391-32 and Norgaard v. DePuy Orthopaedics, Inc., 121 F.3d 1074, 1075
(7th Cir. 1997)). The rule instead “establishes a high hurdle for parties seeking to avoid default
judgments,” Jones v. Phipps, 39 F.3d 158, 162 (7th Cir. 1994), and relief is proper only in
“exceptional circumstances.” Swaim v. Moltan Co., 73 F.3d 711, 722 (7th Cir. 1996).
To set aside a default judgment, “a specialized three-part standard has evolved which
squarely places the burden on the moving party to show: (1) ‘good cause’ for the default; (2)
quick action to correct the default; and (3) the existence of a meritorious defense to the original
complaint.” Jones, 39 F.3d at 162; Yash Techs., Inc. v. Prospeed Trading, Inc., No. 07 C 4054,
2009 WL 2928095, at *4 (C.D.III. Sept. 9, 2009). “Failure to make any of the three showings
warrants denial of a motion to vacate.” Wells Fargo Equip. Fin., Inc. v. PMRC Servs., LLC, No.
10 C 2438, 2011 WL 635861, at *2 (N.D.III. Feb. 11, 2011).
III. DISCUSSION
Maxim argues that the default should be vacated because extenuating circumstances
provide good cause for their absence from the case. Specifically, Maxim explains that its
commercial liability insurer, Westfield Insurance Company (“Westfield”) initially refused to
indemnify Maxim for the defense fees and costs in this case and filed a lawsuit in October 2015
seeking a declaration that it owed no duty to defend or indemnify Maxim. Westfield Ins. Co. v.
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Maxim Construction Corp., Inc., et al., 1:15-cv-09358 (N.D. Ill. 2015). Finding that it could not
afford to defend itself against both the Envirogen and the Westfield lawsuits, Maxim decided to
devote its resources to defending itself against Westfield with the hope that a victory in that case
would afford them indemnification in the Envirogen case. At some undisclosed time after Maxim
effectively disappeared from the case, Westfield agreed to provide Maxim with a defense in the
Envirogen case and retained Leahy, Eisenberg & Fraenkel attorneys to represent Maxim. Those
attorneys entered their appearances on July 20, 2016 and explained to the Court for the first time
Maxim’s behind-the-scenes efforts to straighten out their representation issues.
In the briefing of this motion, Maxim added that it did not contact the Court or its
opponent to inform them of the situation or request a continuance because of the prohibition
against corporations appearing in court pro se. See e.g., In re IFC Credit Corp., 663 F.3d 315,
318 (7th Cir. 2011) (“Corporations unlike human beings are not permitted to litigate pro se.”).
Maxim apparently interprets that rule to include a prohibition on contacting the clerks, courtroom
deputy, or opposing party to explain that a corporation has found itself unrepresented and needs
time to find counsel. In fact, such communications would not only be allowed but would be
vastly preferable to disappearing from the case without a word of explanation. Maxim has
offered a belated explanation but the prohibition on pro se representation for corporations is not
good cause for Maxim’s prolonged silence in this matter. Moreover, to the extent Maxim argues
that it misunderstood the scope of the prohibition, “‘[i]nadvertence, ignorance of the rules, or
mistakes construing the rules’ are not ordinarily recognized as forms of excusable neglect,” and
“negligent handling of a case, by itself, will not excuse untimely behavior or satisfy the showing
required by Rule 60(b).” Casio Comp. Co., 35 Fed. Appx. at 250 (citing Pioneer, 507 U.S. at
391-32 and Norgaard v. DePuy Orthopaedics, Inc., 121 F.3d 1074, 1075 (7th Cir. 1997)).
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Maxim also raises the issue of the City’s belated filing of its motion for default. But the
City explained at earlier proceedings and in the most recent hearing that a default judgment
against Maxim was not initially advantageous for the City and became necessary only after the
default judgment sought by Envirogen was entered.
Finally, Maxim argues that this second default judgment will result in inconsistent
judgments because Envirogen’s and the City’s well-pleaded allegations are mutually exclusive,
yet the defaults require that both sets of allegations are accepted as true. For example, the City
(and Maxim) allege the water treatment system did not satisfy the contractual performance
requirements, while Envirogen contends that it did. Without citing any law, Maxim argues that to
be found doubly liable on the basis of inconsistent theories is unjust.
The Court is mindful of the fact that, in these convoluted circumstances, a double
default that raises questions about internal consistency may seem to be particularly harsh. While
the Seventh Circuit has disfavored entry of inconsistent default judgments where the
inconsistency arises between multiple defendants, it has not addressed the issue of entering two
possibly inconsistent default judgments against a single defendant. Even with regard to
inconsistent judgments between multiple defendants, the Seventh Circuit has construed that
restriction narrowly, suggesting that it is not interested in broadly curtailing the entry of default
judgments beyond the specific set of circumstances it has already recognized. State Farm Mut.
Auto. Ins. Co. v. Jackson, 736 F. Supp. 958, 961 (S.D. Ind. 1990) (citing Marshall & Ilsley Trust
Co. v. Pate, 819 F.2d 806, 812 (7th Cir.1987); In re Uranium Antitrust Litigation, 617 F.2d
1248, 1257-58 (7th Cir.1980)). In short, there is no precedent in this Circuit mandating that a
default judgment cannot be entered in the context of this case.
Additionally, the Court recognizes that if the loss does not fall on Maxim it will be
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shifted to the City, which has patently done nothing wrong. The only equitable solution in this
situation is to allocate the loss to the defaulting party rather than the active and compliant party.
IV. CONCLUSION
For the foregoing reasons, Defendant City of Crystal Lake’s Motion is granted.
ENTER:
James B. Zagel
United States District Judge
DATE: September 30, 2016
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