Marsala v. Mayo et al

Filing 70

ORDER & REASONS granting 59 Motion to Set Aside Default & denying 62 Motion for Default Judgment. Signed by Judge Martin L.C. Feldman on 9/8/2014. (caa)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
CHARLES E. MARSALA

CIVIL ACTION

v.

NO. 13-6800

JERRY L. MAYO, MICHAEL GRAY,
JERRY GABET, A&S RECOVERY,
JACKSONVILLE DINING CONCEPTS,
SCIBMATT, LCC

SECTION "F"

ORDER AND REASONS
Before the Court are two motions: (1) the defendants’s motion
to set aside the entry of default, and (2) the plaintiff's motion
for default judgment.

For the reasons that follow, the motion to

set aside the entry of default is GRANTED, and the motion for
default judgment is DENIED.
Background
The

underlying

facts

of

this

case

are

set

forth

more

completely in this Court's rulings on motions in prior, related
litigation commenced in 2006 and in a previous Order and Reasons in
this case.1
In the late 1990s, Charles Marsala, Jerry Mayo, and Jay
Lanners joined together to invest in restaurant franchises through

1

See Marsala v. Mayo, No. 06-3846, 2007 WL 3245434
Nov. 2, 2007) and Order and Reasons dated June 12, 2013,
139 of Civil Action No. 06-3846, aff'd, 551 F. App'x 181
2014). See also Order and Reasons dated August 11, 2014,
56 of this civil action.
1

(E.D. La.
Rec. Doc.
(5th Cir.
Rec. Doc.

their company, Profitable Dining, LLC. Marsala was the only one to
invest $200,000 in capital for the venture.

After the venture

failed, Marsala sued Mayo, Lanners, and Profitable Dining in 2006.
Marsala

alleged

fraud,

breach

of

fiduciary

duty,

and

contribution; he also sought to recover from Profitable Dining a
debt

allegedly

owed

pursuant

to

a

promissory

note.

After

discovery, the defendants moved for summary judgment, which was
granted in part. The parties then settled, and the Court dismissed
the claims against Mayo without prejudice.

Later, the Court

dismissed the claims with prejudice.
More than five years later, Mr. Marsala moved to reopen the
2006

litigation

against

Mayo,

Lanners,

and

Profitable

Dining

pursuant to Rule 60 of the Federal Rules of Civil Procedure.
motion was denied, and the Fifth Circuit affirmed the denial.

This
See

Marsala v. Mayo, 551 F. App'x 181 (5th Cir. 2014) (per curiam).
On December 30, 2013, Mr. Marsala, pro se, filed this lawsuit
against Mayo, Michael Gray, A&S Recovery, Jacksonville Dining
Concepts, and SCIBMATT, LLC. In a complaint that overlaps with his
2006 lawsuit, Mr. Marsala alleges that the $200,000 he invested in
1998 and the $250,000 he loaned in 2001 to Profitable Dining were
transferred without his knowledge to SCIBMATT, LLC, A&S Recovery,
"and other companies owned by Jerry Mayo, Mike Gray, and Jerry
Gabet, plus his funds ($65,000) directly paid to GE Finance in 2005
were used to pay for the FF&E in Jacksonville Dining Concepts'

2

Copeland

Restaurant."

Mr.

Marsala

asserts

various

claims,

including claims for securities fraud, conspiracy, fraudulent
concealment, unjust enrichment, and constructive trust.

On August

11, 2014, this Court granted a motion to dismiss the claims against
Michael Gray, A&S Recovery, and SCIBMATT, LLC. Jacksonville Dining
and Mr. Gabet did not join that motion.
On August 4, 2014, Mr. Marsala filed a request for entry of
default against Jacksonville Dining. He asserted that Jacksonville
Dining had failed to plead or otherwise answer his complaint.

Mr.

Marsala submitted an affidavit in support of the request, in which
he stated that service of process was had on defendant Jacksonville
Dining on April 24, 2014.

The Clerk of Court entered a default

against Jacksonville Dining that day.
Two weeks later on August 19, Defendant Jerry Gabet retained
counsel to represent him in the suit. Mr. Gabet requested that his
counsel represent Jacksonville Dining, of which he is a managing
member, as well.

At this point, counsel for Jacksonville Dining

discovered the entry of default against Jacksonville Dining.

Mr.

Gabet claims that he learned of the purported service of process
and the entry of default only when his lawyer discovered them.
Mr.
Dining,

Marsala
a

North

claims

that

Carolina

he

LLC,

properly

through

served

its

Corporation Services Company on April 24, 2014.

Jacksonville

registered

agent,

Throughout 2014,

however, Jacksonville Dining has been registered in the state of

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Florida, and its registered agent has been Mr. Gabet, at an address
in Florida. Jacksonville Dining was previously organized under the
laws of North Carolina, but that entity was dissolved on April 16,
2012, more than two years before the purported service of process.
I.
A.
Federal Rule of Civil Procedure 55(c) authorizes the Court to
“set aside an entry of default for good cause.”
55(c).

Fed. R. Civ. P.

The Fifth Circuit has observed that good cause “is not

susceptible of precise definition, and no fixed, rigid standard can
anticipate all of the situations that may occasion the failure of
a party to answer a complaint timely.” Dierschke v. O’Cheskey, 975
F.2d 181, 183 (5th Cir. 1992).

Thus, “the requirement of ‘good

cause’ . . . ha[s] generally been interpreted liberally.”

Effjohn

Int’l Cruise Holdings, Inc. v. A&L Sales, Inc., 346 F.3d 552, 563
(5th Cir. 2003) (alteration in original) (quoting Amberg v. Fed.
Deposit Ins. Corp., 934 F.2d 681, 685 (5th Cir. 1991)).
To determine whether good cause has been shown, the Court
considers three nonexclusive factors: (1) whether the failure to
act was willful; (2) whether setting the default aside would
prejudice the adversary; and (3) whether a meritorious defense has
been presented by the defaulting party.

Id.

Other factors, such

as whether the party acted expeditiously in correcting the default,
whether there was a significant financial loss to the defendant,

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and whether the public interest may be implicated by the default,
may also be considered. Dierschke, 975 F.2d at 184. These factors
should be applied consistent with the principle that defaults are
generally disfavored and that resolving cases on the merits is
preferable.

See Lacy v. Sitel Corp., 227 F.3d 290, 292 (5th Cir.

2000)(“[F]ederal courts should not be agnostic with respect to
entry of default judgments, which are generally disfavored in the
law and thus should not be granted on the claim, without more, that
the defendant had failed to meet a procedural time requirement.”
(internal quotation marks omitted)); see also Amberg, 934 F.2d at
686 (“The Federal Rules are diametrically opposed to a tyranny of
technicality and endeavor to decide cases on the merits.

Strict

enforcement of defaults has no place in the Federal Rules.”).
B.
The defendant has shown that there is good cause to set aside
the entry of default entered against it.
Applying the first factor, the Court finds that there is
insufficient evidence to support a conclusion that Jacksonville
Dining's failure to respond was intentional.
properly

served,

Jacksonville

Dining

responsive pleading requirements.

was

not

Not having been
aware

of

any

Its failure to respond was not

a willful failure to act.
As to the second factor, the Court finds that the plaintiff
would not be prejudiced by setting aside the entry of default.

5

This case is in the early stages of litigation; no trial date has
been set, and discovery has not commenced.

The mere fact that

setting aside the default would require the plaintiff to litigate
the dispute is insufficient prejudice, indeed not any prejudice, to
require the default to stand.

See C&G Boats, Inc. v. Tex. Ohio

Servs., Inc., 164 F.R.D. 57, 59 (E.D. La. 1995).
Although the defendant's counsel has only recently learned of
the

lawsuit,

the

defendant

seeks

to

defend

the

plaintiff’s

allegations by showing that none of the plaintiff's claims has
merit; thus, under the third factor, the defendant has shown that
they could have a meritorious defense.
Other considerations weigh in favor of relieving the defendant
from the entry of default.

The defendant acted expeditiously in

correcting the default: this motion was filed two days after
defendant's counsel discovered the entry of default. The defendant
will also likely incur significant financial loss if the default
entry stands, because the plaintiff’s claim amounts to hundreds of
thousands of dollars.
Accordingly, the Court finds that the defendant has shown good
cause for setting aside the entry of default against it. The Court
now considers plaintiff's motion for default judgment.
II.
"Default judgments are a drastic remedy, not favored by the
Federal

Rules

and

resorted

to

6

by

courts

only

in

extreme

situations."

Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir. 2001)

(citing Sun Bank of Ocala v. Pelican Homestead and Savings Ass'n,
874 F.2d 274, 276 (5th Cir. 1989)).

Federal courts disfavor

default judgments and prefer to resolve disputes on the merits.
Harper Macleod Solicitors v. Keaty & Keaty, 260 F.3d 389, 393 (5th
Cir. 2001) (citing Lindsey v. Prive Corp., 161 F.3d 886, 892 (5th
Cir. 1998)).
A moving party "is not entitled to a default judgment as a
matter of right, even where the defendant is technically in
default." Lewis, 236 F.3d at 767 (citing Ganther v. Ingle, 75 F.3d
207, 212 (5th Cir. 1996)).

"There must be a sufficient basis in

the pleadings for the judgment [of default to be] entered."
Nishimatsu Const. Co. v. Houston Nat'l Bank, 515 F.2d 1200, 1206
(5th Cir. 1975).
Because the Court finds that the service of the complaint on
Jacksonville Dining was defective, this alone prevents the entry of
a default judgment against Jacksonville Dining.

Harper Macleod,

260 F.3d at 393.

Defendant's motion is GRANTED.

motion is DENIED.

Plaintiff's

The default is hereby set aside.

New Orleans, Louisiana, September 8, 2014

______________________________
MARTIN L. C. FELDMAN
UNITED STATES DISTRICT JUDGE

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