Elite Labor Services, Ltd. v. PCIJVKY, Inc. et al

Filing 50

MEMORANDUM OPINION AND ORDER by Judge Greg N. Stivers on 2/22/2018 granting 41 Motion to Set Aside Order for Entry of Default, re 36 Order on Motion for Entry of Default, filed by Defendants Andrzej Zaniewski and Polish Connection, Inc. Defendants shall file their responses to the Second Amended Complaint within thirty (30) days of the entry of this order. cc: Counsel; Defendants Joseph Morra, Pawel Lach, and Templar Global Solutions (CDF) Modified to edit distribution on 2/22/2018 (CDF).

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
BOWLING GREEN DIVISION
CIVIL ACTION NO. 1:17-CV-00056-GNS

ELITE LABOR SERVICES, LTD.

PLAINTIFF

v.

PCIJVKY, INC., et al.

DEFENDANTS

MEMORANDUM OPINION AND ORDER
This matter is before the Court upon Defendants Andrzej Zaniewski (“Zaniewski”) and
Polish Connection, Inc.’s (“PCI”) Motion to Set Aside Order for Entry of Default (DN 41). The
motion has been fully briefed by the parties and is ripe for adjudication. For the reasons outlined
below, the motion is GRANTED.
I.

BACKGROUND

This action arises out of a staffing agreement (“Agreement”) which was allegedly
breached by Defendants. After filing this action, Plaintiff amended the Complaint and has
asserted claims against ten defendants including Andrzej Zaniewski (“Zaniewski”) and Polish
Connection, Inc. (“PCI”) (collectively “these Defendants”).
Following service of process, Plaintiff moved for and was granted an entry of default
against these Defendants pursuant to Fed. R. Civ. P. 55(a).1 (Order Entry Default, DN 36).
Defendants move to set aside that entry of default.
III.
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DISCUSSION

Default judgment, however, has not been entered against these Defendants. See generally
Shepard Claims Serv., Inc. v. William Darrah & Assocs., 796 F.2d 190 (6th Cir. 1986)
(explaining the difference between entry of default and default judgment and the lower legal
standard for the former).

Under Fed. R. Civ. P. 55(c), “[t]he court may set aside an entry of default for good
cause . . . .” “When a defendant seeks relief from a default . . . the district court enjoys
considerable latitude under the ‘good cause shown’ standard.” Waifersong, Ltd. v. Classic Music
Vending, 976 F.2d 290, 292 (6th Cir. 1992). “What constitutes good cause for setting aside an
entry of default is within the discretion of the court.” Seye v. Cmty. Yellow Cab NK Mgmt., LLC,
2011 U.S. Dist. LEXIS 94477, at *6 (E.D. Ky. Aug. 2, 2011) (citing 10A Charles Alan Wright et
al., Federal Practice and Procedure § 2696 (2011)); see also Krowtoh II LLC v. ExCelsius Int’l,
Ltd., 330 F. App’x 530, 534 (6th Cir. 2009) (“This Court reviews a district court’s decision to
deny a motion to set aside an entry of default for an abuse of discretion.” (citation omitted)). In
exercising this discretion, the Sixth Circuit has instructed courts to consider three equitable
factors: “(1) whether culpable conduct of the defendant led to the default, (2) whether the
defendant has a meritorious defense, and (3) whether the plaintiff will be prejudiced.” Burrell v.
Henderson, 434 F.3d 826, 831-32 (6th Cir. 2006) (internal quotation marks omitted) (quoting
Waifersong, Ltd., 976 F.2d at 292); see also United Coin Meter Co. v. Seaboard Coastline R.R.,
705 F.2d 839, 844-46 (6th Cir. 1983) (setting forth the “good cause” standard in the Sixth Circuit
and finding that the district court erred in reaching a determination of no good cause without
considering all three factors)). These factors are to be balanced and will be addressed in turn.
Waifersong, Ltd., 976 F.2d at 292.
Under the first factor, the Court must consider these Defendants’ behavior “in the general
context of determining whether a petitioner is deserving of equitable relief.”

Id.

For a

defendant’s conduct to be treated as culpable, “mere carelessness is not enough; rather, there
must be ‘either an intent to thwart judicial proceedings or a reckless disregard for the effect of its
conduct on those proceedings.’” S. Elec. Health Fund v. Bedrock Servs., 146 F. App’x 772, 777

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(6th Cir. 2005) (quoting Shepard Claims Serv., Inc. v. William Darrah & Assocs., 796 F.2d 190,
194 (6th Cir. 1986)).
In this case, these Defendants have filed an affidavit by Zaniewski that states, inter alia,
that Zaniewski contacted Defendant Templar Global Solutions, LLC (“Templar”) immediately
upon receipt of the First Amended Complaint naming these Defendants and that Defendant
Joseph Morra (“Morra”) told him “that Templar had hired counsel who was representing the
entire Defendant group” and assured Zaniewski that these Defendants would be dismissed from
the lawsuit “and therefore would not have to take any further actions.”2 (Defs.’ Mot. Set Aside
Order Entry Default Ex. 1 ¶¶ 13-14, DN 41-2). The affidavit disproves any intent to thwart
judicial proceedings or reckless disregard for the effect of these Defendants’ conduct on those
proceedings; this factor therefore weighs in favor of setting aside the default. See, e.g., Ticketron
v. Greene, 92 F.R.D. 6, 7 (E.D. Pa. 1981) (finding that an individual defendant who turned over
the complaint to codefendant’s counsel and assumed counsel would also represent him was
reasonable “and did not evidence a disregard for the judicial process).
Concerning the second factor, to assert a “meritorious defense” these Defendants do not
have to demonstrate a likelihood of success, but simply must state a defense that is “good at
law . . . .” S. Elec., 146 F. App’x at 777 (citing United Coin Meter Co., 705 F.2d at 845). The
key to this inquiry focuses on “the determination of ‘whether there is some possibility that the
outcome of the suit after a full trial will be contrary to the result achieved by the default.’” Id.
(quoting INVST Fin. Grp., Inc., 815 F.2d at 399). “[T]he test is not whether the defendant will
2

Plaintiff avers that this claim is “unreliable” and has submitted its own Affidavit of Counsel
that such a conversation never took place. (Pl.’s Resp. Opp. Defs.’ Mot. Set Aside Order Entry
Default 2, DN 45 [hereinafter Pl.’s Resp.]; Pl.’s Resp. Opp. Defs.’ Mot. Set Aside Order Entry
Default Ex. 1, DN 45-1). In this context, however, the Court views any disputed facts in favor of
the defendant. Berthelsen v. Kane, 907 F.2d 617, 621 (6th Cir. 1990) (“[W]e must resolve all
ambiguous or disputed facts in light most favorable to the defendant.” (citing INVST Fin. Grp.,
Inc. v. Chem-Nuclear Sys, Inc., 815 F.2d 391, 398 (6th Cir. 1987))).
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win at trial, but rather whether the facts alleged by the defendant would constitute a meritorious
defense if true.” In re Park Nursing Ctr., Inc., 766 F.2d 261, 264 (6th Cir. 1985).
These Defendants allege several potential defenses, including improper service of process
upon PCI, lack of subject matter jurisdiction due to incomplete diversity, and a defense on the
merits of Plaintiff’s claim, namely that these Defendants were not parties to the Agreement.
(Defs.’ Mem. 7-9).

Although Plaintiff disputes at least these Defendants’ subject matter

jurisdiction argument (Pl.’s Resp. 3), the facts alleged by these Defendants would constitute one
or more meritorious defenses if true. This factor therefore weighs in favor of setting aside the
default.
Under the third factor, mere delay is insufficient to establish prejudice. INVST Fin. Grp.,
Inc., 815 F.2d at 398 (6th Cir. 1987). For prejudice to occur, the setting aside of an entry of
default “must ‘result in tangible harm such as loss of evidence, increased difficulties of
discovery, or greater opportunity for fraud or collusion . . . .’” S. Elec., 146 F. App’x at 778
(quoting Thompson v. Am. Home Assurance Co., 95 F.3d 429, 433-34 (6th Cir. 1996)). Plaintiff
has not claimed that it would be prejudiced by the setting aside of the entry of default against
these Defendants. Based on the Court’s review of the record, the opposite appears to be true
given that the Answer of Defendants Morra and Templar was only filed on December 28, 2017.
(DN 49).
Even if all three factors weighed in favor of keeping the default in place, the Court may
still choose to overturn the default “because these three factors are to be considered equitably . . .
as this Circuit highly favors giving each party its turn in court.” New London Tobacco Market,
Inc. v. Ky. Fuel Corp., No. 12-91-GFVT, 2017 U.S. Dist. LEXIS 97338, at *13 (E.D. Ky. June
23, 2017) (citing United States v. $22,050.00 U.S. Currency, 595 F.3d 318, 322 (6th Cir. 2010));

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see also Shepard, 796 F.2d at 192 (noting our courts have a “policy of favoring trials on the
merits . . . .”); United Coin, 705 F.2d at 845 (“Judgment by default is a drastic step which should
be resorted to only in the most extreme cases.”). Given the balance of the factors and general
preference for disposition on the merits, the Court finds that setting aside the entry of default
against these Defendants is proper.
V.

CONCLUSION

For the reasons outlined above, IT IS HEREBY ORDERED that Defendants’ Motion to
Set Aside Order for Entry of Default (DN 41) is GRANTED. Defendants shall file their
responses to the Second Amended Complaint within thirty (30) days of the entry of this order.

Greg N. Stivers, Judge
United States District Court
February 22, 2018

cc:

counsel of record

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