PRN PHARMACEUTICAL SERVICES, LP v. ALPHA HOME ASSOCIATION OF GREATER INDIANAPOLIS (INDIANA) INC.
Filing
26
ORDER denying 17 Motion to Set Aside Judgment. The stay on enforcement of the Default Judgment pending the resolution of Alpha Home's Motion to Set Aside Default Judgment is lifted. Having denied Alpha Home's Motion to Set Aside Default Judgment, PRN may proceed with its proceeding supplemental. Signed by Judge Tanya Walton Pratt on 1/26/2015. (CBU)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
PRN PHARMACEUTICAL SERVICES, LP,
Plaintiff,
vs.
ALPHA HOME ASSOCIATION OF
GREATER INDIANAPOLIS, INC.,
Defendant.
)
)
)
)
)
)
)
)
)
)
Case No. 1:13-cv-01938-TWP-DKL
ORDER ON MOTION TO SET ASIDE DEFAULT JUDGMENT
AND FOR LEAVE TO FILE AN ANSWER
This matter is before the Court on Defendant Alpha Home Association of Greater
Indianapolis, Inc.’s (“Alpha Home”) Motion to Set Aside Default Judgment and for Leave to File
an Answer (Filing No. 17). Plaintiff PRN Pharmaceutical Services, LP (“PRN”) filed a Complaint
against Alpha Home, and after Alpha Home failed to respond, an Entry of Default and a Default
Judgment were entered. Alpha Home then moved to set aside the Default Judgment. For the
following reasons, the Court DENIES Alpha Home’s Motion to Set Aside Default Judgment and
for Leave to File an Answer.
I. Background
On December 9, 2013, PRN filed a Complaint against Alpha Home, asserting various
contract and equitable claims (Filing No. 1). Alpha Home accepted service of the Summons and
Complaint on December 11, 2013 (Filing No. 7). Alpha Home’s responsive pleading was due on
January 2, 2014, but it failed to respond. Because Alpha Home did not respond to the Complaint,
an Entry of Default was entered by the Clerk on January 23, 2014 (Filing No. 9). On February 12,
2014, PRN filed a request for entry of default judgment which certified that a copy was sent via
U.S. Certified Mail to Alpha Home. (Filing No. 10). Again, Alpha Home did not respond and a
default judgment was entered against Alpha Home in the amount of $150,115.91 on March 17,
2014 (Filing No. 12).
On April 4, 2014, PRN initiated proceedings supplemental (Filing No. 13), and on April
29, 2014, an order to appear on May 27, 2014, in connection with the proceedings supplemental
was served on Alpha Home (Filing No. 14). On May 15, 2014, Alpha Home appeared by counsel,
Mr. Gregory P. Gadson (Filing No. 16). Then four days later, on May 19, 2014, Alpha Home
moved to set aside the Default Judgment and requested leave to file an Answer (Filing No. 17). In
light of the Motion to Set Aside Default Judgment, the Court vacated the hearing on the
proceedings supplemental (Filing No. 21), and stayed the enforcement of the Default Judgment
pending the resolution of the Motion to Set Aside (Filing No. 25).
II. Legal Standard
Federal Rule of Civil Procedure 60(b) provides that “[o]n motion and just terms, the court
may relieve a party or its legal representative from a final judgment, order, or proceeding for the
following reasons: (1) mistake, inadvertence, surprise, or excusable neglect . . . .” “A motion under
Rule 60(b) must be made within a reasonable time—and for reasons (1), (2), and (3) no more than
a year after the entry of the judgment or order or the date of the proceeding.” Fed. R. Civ. Pro.
60(c)(1).
A party seeking to vacate an entry of default prior to the entry of final judgment
must show: (1) good cause for the default; (2) quick action to correct it; and (3) a
meritorious defense to the complaint. While the same test applies for motions
seeking relief from default judgment under both Rule 55(c) and Rule 60(b), the test
is more liberally applied in the Rule 55(c) context.
Cracco v. Vitran Express, Inc., 559 F.3d 625, 630–31 (7th Cir. 2009) (internal citations and
quotation marks omitted). In this case, Rule 60(b) applies because default judgment was entered,
2
and “relief from a default judgment requires a stronger showing of excuse than relief from a mere
default order.” Connecticut Nat’l Mortg. Co. v. Brandstatter, 897 F.2d 883, 885 (7th Cir. 1990).
A stronger showing is required under Rule 60(b) because of the “strong presumption against the
reopening of final decisions.” Id. “Relief from a judgment under Rule 60(b) is an extraordinary
remedy and is granted only in exceptional circumstances.” United States v. One 1979 Rolls-Royce
Corniche Convertible, 770 F.2d 713, 716 (7th Cir. 1985). Rule 60(b) “establishes a high hurdle
for parties seeking to avoid default judgments and requires something more compelling than
ordinary lapses of diligence or simple neglect to justify disturbing a default judgment.” Jones v.
Phipps, 39 F.3d 158, 162 (7th Cir. 1994).
“[T]he language of our case law is mandatory, stating that a party seeking to vacate a
default judgment must make the required showings.” Yong-Qian Sun v. Bd. of Trs., 473 F.3d 799,
811 (7th Cir. 2007). The standard to set aside a default judgment “squarely places the burden on
the moving party” to make each of the required showings of good cause, quick action, and a
meritorious defense. Jones, 39 F.3d at 162.
III. Discussion
1. Good Cause for the Default
In order to establish good cause, a defaulted defendant must show “something more
compelling than ordinary lapses of diligence or simple neglect to justify disturbing a default
judgment.” Id.
It is true that where exceptional circumstances demonstrate that the events
contributing to a default judgment were not within the meaningful control of the
defaulting party, Rule 60(b) relief may be warranted. However, where a party
willfully, albeit through ignorance or carelessness, abdicates its responsibilities,
relief from judgment under Rule 60(b) is not warranted.
3
Zuelzke Tool & Engineering Co. v. Anderson Die Castings, Inc., 925 F.2d 226, 229 (7th Cir. 1991)
(internal citations omitted).
Alpha Home explains that in February 2012, its long-time office manager, who had the
responsibility of receiving, opening, and delivering mail, left her employment with Alpha Home.
Throughout the remainder of 2012 and all of 2013, Alpha Home had five successive, temporary
officer managers who were responsible for the mail. Alpha Home asserts that none of its
management were aware of this litigation until after the Default Judgment was entered and the
Order was received in the mail.
After receiving the Default Judgment in the mail and learning of the lawsuit, Alpha Home
discovered a box of documents, which had been placed by the office manager in one of the rooms
at Alpha Home. The Summons and Complaint for this lawsuit were among the documents in the
box. Management at Alpha Home were unaware that their temporary office manager had not
delivered the mail with the Summons and Complaint to management despite instructions to deliver
the mail appropriately and expeditiously. Simply put, Alpha Home’s default was “due to
inadvertence.” (Filing No. 18 at 6.) Because Alpha Home seeks to set aside a default judgment, it
must make a “stronger showing of excuse” than if it were requesting to set aside an entry of default.
In opposing the Motion to Set Aside Default, PRN responds that Alpha Home admitted it
was served with the Summons and Complaint on December 11, 2013. PRN explains that, contrary
to Alpha Home’s assertions, a member of Alpha Home’s management signed for the certified mail
containing the Summons and Complaint, thus Alpha Home management was aware of the
litigation on December 11, 2013. PRN asserts that the evidence suggests mishandling of the
Summons and Complaint by a temporary office manager was not the reason for Alpha Home’s
default.
4
In reply, Alpha Home explains that its manager who signed for the certified mail containing
the Summons and Complaint did not open, sort, or distribute mail. He simply signed for the mail
on December 11, 2013, and then left the mail on the officer manager’s desk.
In the Seventh Circuit, “[w]e have held that ‘routine back-office problems . . . do not rank
high in the list of excuses for default . . .’ Connecticut National Mortgage Co. v. Brandstatter, 897
F.2d 883, 884–85 (7th Cir. 1990). Counsel’s mistake regarding the date of the hearing, and
communication problems with his clients, were just such ‘routine’ problems. They do not establish
good cause for defaulting.” Pretzel & Stouffer v. Imperial Adjusters, 28 F.3d 42, 46 (7th Cir. 1994)
(emphasis added).
Also “we have previously found specifically that lack of communication between attorney
and client was not a basis for showing of good cause . . . . Mere lack of communication does not
excuse compliance with the rules, or from the penalties for failing to do so.” Id. at 45 (emphasis
added). Additionally, “[d]ifficulty finding an attorney [] is not a valid excuse for [a] delay . . . [and]
does not constitute ‘good cause’ to vacate a default judgment.” Wells Fargo Equip. Fin., Inc. v.
PMRC Servs., LLC, 2011 U.S. Dist. LEXIS 13957, at *5 (N.D. Ill. Feb. 11, 2011).
Alpha Home, as the party seeking to set aside the Default Judgment, has the burden of
showing good cause for its default. It has failed to do so. Alpha Home has shown only that it
experienced routine back-office problems, a lack of communication, and carelessness and lapses
of diligence among its employees. This is not enough to establish good cause to set aside the
Default Judgment.
If the defaulted defendant fails “to clear the first hurdle when it [does] not show good cause
for its default,” refusal to set aside the default judgment is appropriate, “even if [the defendant]
had a meritorious defense.” Pretzel & Stouffer, 28 F.3d at 46 (citing Zuelzke Tool & Engineering,
5
925 F.2d at 230 (in Rule 60(b) context, even if a meritorious defense exists, it cannot excuse
carelessness)). Alpha Home has not shown good cause for its default, and this alone is sufficient
to deny its Motion to Set Aside Default.
2. Quick Action to Correct the Default
In order for the Court to set aside the Default Judgment, Alpha Home also must show that
it took quick action to correct the default. Alpha Home asserts that this prong is circumstantial and
then, without any analysis, claims that it acted quickly because it filed its Motion within the oneyear limitation for Rule 60(b) motions.
PRN responds by asserting that waiting four months after the entry of Default and two
months after entry of Default Judgment (which was less than two weeks before a hearing on the
proceedings supplemental) to file a motion to vacate is not quick action. PRN notes that the oneyear limitation to file Rule 60(b) motions is the “outer limit for a court to even consider a motion
for relief under Rule 60(b)” and is not the “test for quick action.” (Filing No. 22 at 6.) PRN cites
to two cases where approximately the same amount of time elapsed and where the court determined
that the action taken was not “quick”: Wells Fargo Equip. Fin., Inc., LLC, 2011 U.S. Dist. LEXIS
13957 (failure to take action for ten weeks after a default judgment was entered was not “quick
action;” also collecting cases where even shorter passages of time were deemed “not quick
action”); Leadership Council for Metro. Open Cmtys. v. Quality Realty, Inc., 1999 U.S. Dist.
LEXIS 18056 (N.D. Ill. Nov. 9, 1999) (failure to take action until approximately three months
after entry of default and two months after the default judgment was not “quick action”).
Alpha Home failed to even mention this prong in its reply brief and did not address PRN’s
case law and argument. Alpha Home did not put forth any evidence or argument to show that it
acted quickly to correct the Default Judgment. Because Alpha Home failed to do so, the Court
6
cannot assess the expeditiousness of Alpha Home’s corrective actions. Therefore, denial of Alpha
Home’s Motion to Set Aside Default is proper solely on this prong of the test.
3. A Meritorious Defense to the Complaint
Assuming Alpha Home had met its burden with respect to the first two prongs, Alpha
Home also must establish a meritorious defense to the Complaint before the Court can set aside
the Default Judgment. “[A] defendant’s response to a motion for default judgment [is] insufficient
if it lack[s] a grounding in facts which would support a meritorious defense of the action.” Pretzel
& Stouffer, 28 F.3d at 46 (citing Merrill Lynch Mortg. Corp. v. Narayan, 908 F.2d 246, 252 (7th
Cir. 1990)). Furthermore, “a meritorious defense requires more than a ‘general denial’ and ‘bare
legal conclusions.’” Id. (quoting Breuer Electric Manuf. Co. v. Toronado Systems of America, 687
F.2d 182, 186 (7th Cir. 1982)). A meritorious defense must be “supported by a developed legal
and factual basis.” Jones, 39 F.3d at 165.
The two primary bases for Alpha Home’s meritorious defense argument are (1) when
Alpha Home reviewed its records in 2007, it determined that it did not owe payments to PRN for
outstanding invoices exceeding one hundred thousand dollars, so it now views PRN’s 2013 claim
as unfounded, and (2) in 2013, the federal and Indiana state governments recouped Medicaid
payments from Alpha Home, some of which were for goods and services provided by PRN, thus
causing a commercial frustration of the parties’ contract. Alpha Home also lists other potential
defenses in its proposed, tendered Answer, but it failed to develop and support these defenses.
PRN responds by explaining that it is seeking to recover $144,393.14, plus interest, from
Alpha Home for goods and services that it sold to Alpha Home between January 2003 and October
2013. Alpha Home argues that it has a meritorious defense to PRN’s Complaint because in 2007
Alpha Home determined that payment was not due to PRN for an amount exceeding one hundred
7
thousand dollars. PRN, however, explains that the portion of the principal balance it seeks to
recover from Alpha Home as of December 31, 2007, is only $8,206.66. This assertion is supported
by PRN’s Exhibit 1 which is attached to the complaint. (See Filing 1-1). Alpha Home failed to
provide any argument regarding the outstanding principal balance on its accounts with PRN after
2007, thus there is no factual basis to support Alpha Home’s argument regarding a meritorious
defense to the contractual claim in 2013.
Regarding the commercial frustration defense, PRN responds that this defense is not
recognized in Indiana and cites to three cases supporting its position.
In its reply brief, Alpha Home provides only two sentences about “meritorious defenses”:
Even if the Plaintiff is correct, for the sake of argument, that the Defendant may not
avail itself of the doctrine of commercial frustration, the Defendant has clearly
demonstrated other meritorious defenses, including a steadfast denial of the sums
of money claimed to be owed. This is surely enough to meet that prong of the
Defendant’s requirements.
(Filing No. 24 at 3.) Alpha Home has not “demonstrated” anything to the Court. It has listed some
potential defenses in a proposed Answer and then has done nothing to develop those defenses.
Having missed its opportunity to respond to the Complaint, and with Default Judgment already
entered, Alpha Home cannot rely on only general denials and bare legal conclusions. To have the
Default Judgment set aside, Alpha Home must establish a meritorious defense that is supported by
a developed legal and factual basis. It has failed to do so.
Because Alpha Home does not provide analysis to support its legal conclusions and its
factual denials, which appear to be contrary to the evidence, it has not done enough to show a
meritorious defense to the Complaint.
8
IV. Conclusion
As the party seeking to set aside the Default Judgment, Alpha Home had to establish good
cause for its default, quick action to correct it, and a meritorious defense to the Complaint. Alpha
Home did not satisfy any of the three requirements. Having failed to do so, the Court DENIES
Alpha Home’s Motion to Set Aside Default Judgment and for Leave to File an Answer (Filing No.
17).
The stay on enforcement of the Default Judgment pending the resolution of Alpha Home’s
Motion to Set Aside Default Judgment (Filing No. 25) is lifted. Having denied Alpha Home’s
Motion to Set Aside Default Judgment, PRN may proceed with its proceedings supplemental.1
SO ORDERED.
01/26/2015
Date: _____________
Distribution:
Darren A. Craig
FROST BROWN TODD LLC
dcraig@fbtlaw.com
Michele Lorbieski Anderson
FROST BROWN TODD LLC
mlanderson@fbtlaw.com
Gregory P. Gadson
LEE FAIRMAN LLP
ggadson@nleelaw.com
1
Although no notice was filed in this case, it has come to the Court’s attention that Alpha Home filed a voluntary
Chapter 11 Petition for Bankruptcy under Case No. 14-BR-7997 JJG-11 on August 26, 2014. The Court has no
knowledge as to whether PRN was listed as a creditor. Regardless, the Petition was dismissed on January 22, 2015
therefore the automatic stay required by 11 U.S. Code §362 is not in effect and PRN may proceed with its collection
efforts.
9
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?