Veterans Brothers No. 126, L.L.C. v. 7-Eleven, Inc.

Filing 114

ORDER & REASONS denying 69 Motion for Default Judgment; granting 73 Motion to Set Aside Default; SEI Fuel's motion for summary judgment is DENIED WITHOUT PREJUDICE. Signed by Judge Sarah S. Vance on 12/27/2016. (Reference: 16-272)(mmm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
VETERANS BROTHERS NO. 126,
L.L.C., ET AL.

CIVIL ACTION

VERSUS

NO. 16-272

7-ELEVEN, INC., ET AL.

SECTION “R” (2)
APPLIES TO: NO. 16-434
NO. 16-2034

ORDER AND REASONS
Before the Court is Third-Party Defendants Imad Hamdan, Brothers
Veterans, LLC, Brothers Avondale, LLC, and Brothers Lapalco, LLC’s (ThirdParty Defendants) consolidated motion to set aside the default entered
against them on September 9, 2016.1 Also before the Court is Third-Party
Plaintiff SEI Fuel Services, Inc.’s motion for default judgment against thirdparty defendants, or in the alternative, motion for partial summary
judgment. 2 Because the Court finds that third-party defendants’ failure to
respond to the complaint was not willful, that third-party plaintiff will not be
prejudiced, and that the defendants present potentially meritorious
defenses, the Court GRANTS the third-party defendants’ motion to set aside

R. Doc. 73. All docket entries refer to case 2:16-cv-00272 unless
otherwise specified.
2
R. Doc. 69.
1

the entry of default. For the same reasons, the Court DENIES third-party
plaintiff’s motion for default judgment and for partial summary judgment.

I.

BACKGROUND
This case is a consolidation of three lawsuits, and the procedural

history of the cases can be hard to follow due to the names and corporate
identities of all of the players. On December 7, 2015, Veterans Brothers No.
126, LLC filed suit against 7-Eleven, Inc., in the 24th Judicial District Court
for the Parish of Jefferson, Louisiana. 3 The suit alleges that despite 7Eleven’s claims that it has the exclusive contractual right to sell and
distribute motor fuel to Veterans Brothers, Veterans Brothers is not, and has
never been, a party to the alleged contract. 4 In the same court on the same
day, Lapalco Brothers No. 125, LLC filed an identical suit against 7-Eleven,
making the same allegations as the Veterans Brothers suit. 5
removed both suits to this Court on January 11, 2016. 6

3
4
5
6

R. Doc. 1.
R. Doc. 1-1 at 1.
R. Doc. 1-1 at 1 in 2:16-cv-00454.
R. Doc. 1; R. Doc. 1 in 2:16-cv-00454.
2

7-Eleven

On January 26, 2016, Avondale Brothers No. 128, LLC filed a lawsuit
in state court identical to those filed by Veterans Brothers and Lapalco
Brothers, except this suit was against SEI Fuel rather than 7-Eleven.7 On
February 2, 2016, Veterans Brothers and Lapalco Brothers substituted SEI
Fuel for 7-Eleven,8 and on March 10, 2016, SEI Fuel removed the Avondale
Brothers suit to this Court. 9 On March 15, the Court consolidated the three
cases. 10
On March 11, SEI Fuel filed its answer to the Veteran Brothers lawsuit,
and filed counterclaims against Veteran Brothers, but also named Brothers
Veterans, LLC, and Imad Hamdan, as third-party defendants.11 On the same
day, it answered the Lapalco Brothers suit, and filed counterclaims not only
against Lapalco Brothers, but also against Brothers Lapalco, LLC, and
Hamdan.12 On March 28, 2016, SEI Fuel filed its answer to the Avondale
Brothers suit and filed counterclaims against Avondale Brothers, Brothers
Avondale, LLC, and Hamdan.13

7
8
9
10
11
12
13

R. Doc. 1-1 at 1 in 2:16-cv-02034.
R. Doc. 13.
R. Doc. 1 in 2:16-cv-02034.
R. Doc. 21.
R. Doc. 18.
R. Doc. 19.
R. Doc. 23.
3

SEI Fuel’s counterclaims alleged that despite the difference in names
of the corporate entities (e.g. Avondale Brothers vs. Brothers Avondale), the
entities operated as a single business enterprise.

SEI Fuel sought a

declaratory judgment that the corporate entities (no matter how they are
named) are obligated to comply with the alleged fuel contracts. SEI Fuel also
brought claims for anticipatory breach of contract and for unfair trade
practices under the Louisiana Unfair Practices and Consumer Protection
Law.
SEI Fuel served Brothers Lapalco14 and Brothers Veterans 15 on May 24,
2016, and served Brothers Avondale 16 and Hamdan on May 25.17 Neither
Brothers Lapalco, Brothers Veterans, Brothers Avondale, nor Hamdan
answered the counterclaims in a timely manner, and on September 9, 2016,
SEI Fuel sought an entry of default as to those third-party defendants. 18 On
the same day, the Clerk of Court issued an Entry of Default against those
third-party defendants.19 On October 12, 2016, SEI Fuel moved the Court to

R. Doc. 38.
R. Doc. 40.
16
R. Doc. 37.
17
R. Doc. 39.
18
R. Doc. 48 (Veterans); R. Doc. 52 (Avondale); R. Doc. 55
(Lapalco); R. Doc. 49, 51, and 53 (Hamdan). Veterans Brothers, Lapalco
Brothers, and Avondale Brothers answered SEI Fuel’s counterclaims.
19
R. Doc. 57 (Veterans); R. Doc. 60 (Avondale); R. Doc. 62
(Lapalco); R. Doc. 58, 59, and 61 (Hamdan).
4
14
15

enter a default judgment against the third-party defendants.20 Two days
later, Brothers Veterans, Brothers Avondale, Brothers Lapalco and Hamdan
filed a motion to set aside the entry of default. 21 The third-party defendants
did not file their answers to SEI Fuel’s counterclaims until November 30,
2016. 22

II.

LEGAL STANDARD
Federal Rule of Civil Procedure 55(c) provides that a district court may

set aside an entry of default “for good cause shown.” Fed. R. Civ. P. 55(c).
Good cause, for purposes of Rule 55(c), “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). In determining
whether good cause exists to set aside an entry of default, the Court considers
“(1) whether the failure to act was willful; (2) whether setting the default
aside would prejudice the adversary; and (3) whether a meritorious claim has
been presented.” Effjohn Int’l Cruise Holdings, Inc. v. A & L Sales, Inc., 346
F.3d 552, 563 (5th Cir. 2003). These factors are, however, nonexclusive, and

20
21
22

R. Doc. 69.
R. Doc. 73.
R. Doc. 103; R. Doc. 104; R. Doc. 105.
5

the Court should consider all relevant circumstances against the background
principles that cases should be resolved on the merits. See Lacy v. Sitel
Corp., 227 F.3d 290, 292 (5th Cir. 2000) (“[F]ederal courts should not be
agnostic with respect to the 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 citation omitted); see also Amberg v. Fed. Deposit Ins. Corp., 934
F.2d 681, 686 (5th Cir. 1991) (“Federal Rules are diametrically opposed to a
tyranny of technicality; . . . [s]trict enforcement of defaults has no place in
the Federal Rules. . . .”). Further, setting aside an entry of default is not
subject to the strict standards of setting aside a final judgment under Rule
60. See 2015 Amendment to Fed. R. Civ. P. 55 (“The demanding standards
set by Rule 60(b) apply only in seeking relief from a final judgment.”).
Though resolution of cases on the merits is preferable, the willful
failure of a party to answer the complaint may provide sufficient justification
to deny a motion to set aside an entry of default. See Dierschke, 975 F.2d at
184; CJC Holdings, Inc. v. Wright & Lato, Inc., 979 F.2d 60, 63 (5th Cir.
1992); Hargray v. City of New Orleans, 12 F.3d 1099 (5th Cir. 1999) (stating
that a willful failure to answer indicates a lack of good cause). A failure to
file an answer that results from excusable neglect is not willful.
6

See

American Airlines, Inc. v. Reinis, 21 F.3d 1107 (5th Cir. 1994); see also CJC
Holdings, 979 F.2d at 64; Parker v. Bill Melton Trucking, Inc., No. 15-2528,
2016 WL 5704172, at *2 (N.D. Tex. Oct. 3, 2016) (“Willfulness is determined
by applying the excusable neglect standard.”) (citation omitted).

III. DISCUSSION
In support of their motion to set aside, third-party defendants argue
that their failure to respond to SEI Fuel’s counterclaims was the product of
receiving an informal extension of time to respond, combined with an
overseas emergency in Israel that Hamdan had to attend to. 23 The thirdparty defendants further argue that SEI Fuel will not be prejudiced if the
Court sets aside the entry of default and that the third-party defendants
possess a meritorious defense.24
SEI Fuel contends that third-party defendants willfully failed to plead
and did not expeditiously move to set aside the entry of default. 25 Further, it
contends that SEI Fuel will be prejudiced if the default is set aside and that
third-party defendants do not possess a meritorious defense. 26 Though the

23
24
25
26

R. Doc. 73-1 at 5.
Id. at 6-7.
R. Doc. 83 at 4.
Id. at 7-8.
7

Court acknowledges that third-party defendants would be well-served by
paying more attention to deadlines and filing requirements, because the
requirement of good cause is “interpreted liberally,” Amberg, 934 F.2d at
685, the Court finds that third-party defendants have met their burden to set
aside the entry of default against them.
A.

Third-Party Defendants Have Shown Good Cause
1.

Third-party defendants’ failure to respond was not willful

The Court finds that the third-party defendants have shown good cause
to set aside the entry of default against them. Fed. R. Civ. P. 55(c). First, the
Court finds that the third-party defendants’ failure to file a timely answer in
this matter amounts to excusable neglect rather than willful conduct. See
Bona Fide Demolition & Recovery, LLC v. Crosby Const. Co. of Louisiana,
No. 07-3115, 2009 WL 4060192, at *3 (E.D. La. Nov. 20, 2009) (setting aside
default where failure to respond was product of excusable neglect). The
determination of whether neglect is excusable is “at bottom an equitable one,
taking account of all relevant circumstances surrounding the party’s
omission, including the danger of prejudice to the non-movant, the length of
the delay and its potential impact on judicial proceedings, the reason for the
delay, including whether it was within the reasonable control of the movant,
and whether the movant acted in good faith.” In re FEMA Formaldehyde
8

Products Liability Litigation, MDL No. 07-1873, 2012 WL 458821, at *6
(E.D. La. Feb 13, 2012) (internal quotation and punctuation marks omitted)
(quoting Pioneer Inv. Servs. Co. v. Brunswick Assocs Ltd. P’ship, 507 U.S.
380, 395 (1993)).
In Imad Hamdan’s declaration attached to third-party defendants’
motion, he states that he is responsible for management and litigation
strategy decisions for Brothers Veterans, Brothers Lapalco, and Brothers
Avondale, and therefore their failure to respond is attributable to him.27
Further, he declares that during the summer of 2016, third-party defendants
received at least one informal extension of time to respond to SEI Fuel’s
counterclaims. 28 Finally, he declares that he was in Israel from July 7, 2016
to August 9, 2016 attending to business, and from September 7, 2016 to
September 27, 2016 dealing with the damage caused by a fire at one of his
properties.29 Hamdan and third-party defendants did not obtain counsel
until late September, 2016.30
SEI Fuel correctly points out that answers were due in mid-June, and
that Hamdan did not go to Israel until July 7, and the fire did not occur until

27
28
29
30

R. Doc. 73-3.
Id. at 2 ¶ 5.
Id. ¶ 6, ¶ 9.
Id. ¶ 10.
9

August.31

This ignores Hamdan’s assertion that third-party defendants

received an informal extension of time to respond. Not only does SEI Fuel
not point to any evidence indicating that Hamdan’s assertion is false, but
Hamdan’s assertion is also supported by the record.32 Although litigants
before this Court should not rely on informal extensions of pleading
deadlines, which are without legal effect and can lead to disagreements and
unnecessary motion practice, the Court finds that there was an informal
extension of time to respond.
Additionally, although there is some evidence suggestive of willfulness,
Hamdan’s declaration that he was in Israel for most of the summer of 2016,
and much of that time was spent addressing an emergency, as well as the fact
that third-party defendants were without counsel, supports the finding that
when taking into account all of the relevant circumstances, the failure to
respond was not willful. See Jenkens & Gilchrist v. Groia & Co., 542 F.3d
114, 123 (5th Cir. 2008) (finding that even though “there is evidence
suggestive of willfulness . . . we do not believe the record shows conclusively
that [defendant’s] default was willful”). Even if the Court doubted the truth

R. Doc. 83 at 4.
Counsel for SEI Fuel sent two letters, dated June 21, 2016 and
July 14, 2016, respectively, both of which indicated an extension of time to
answer SEI Fuel’s claims. See R. Doc. 83-1; R. Doc. 83-2.
10
31

32

of Hamdan’s explanation, “any doubt should, as a general proposition, be
resolved in favor . . . of securing a trial upon the merits.” Id. (citation
omitted). Therefore, the Court finds that third-party defendants’ failure to
answer the counterclaims was not willful.
2.

SEI Fuel will not be prejudiced

The Court finds that SEI Fuel will not be prejudiced by setting aside
the entries of default. To establish prejudice, plaintiffs “must show that the
delay will result in the loss of evidence, increased difficulties in discovery, or
greater opportunities for fraud and collusion.” Lacy, 227 F.3d at 293
(internal quotations and citation omitted). SEI Fuel contends that thirdparty defendants’ delay in responding has deprived SEI Fuel of needed
discovery and that setting aside the default will increase the risk of fraud and
collusion. 33 Since the scheduling order in this case has been amended and
the current discovery deadline is July 5, 2017, the Court finds that SEI Fuel
will not be prejudiced by setting aside the entries of default. 34 Further, while
the intertwined relationship between Hamdan and the other third-party
defendants may make the resolution of this case less straightforward, neither
the nature of their relationship nor the record supports a finding that setting

33
34

R. Doc. 83.
R. Doc. 96.
11

aside the entries of default will create greater opportunities for fraud and
collusion.
3.

Third-party defendants have potentially meritorious
defenses

Finally, the Court finds that the third-party defendants have
potentially meritorious defenses to SEI Fuel’s counterclaims. To present a
meritorious defense to set aside an entry of default, it is sufficient to show
“some possibility that the outcome of the suit after a full trial will be contrary
to the result achieved by the default.” In re OCA, Inc., 551 F.3d 359, 373 (5th
Cir. 2008) (citation omitted).

SEI Fuel and third-party defendants

vigorously dispute the factual and legal predicates of the underlying claims
in this litigation.

Additionally, third-party defendants have submitted

evidence that the agreements at the heart of this litigation contain arbitration
provisions.35 While SEI Fuel argues that third-party defendants have waived
any right to compel arbitration, 36 the mere existence of these provisions
provides the requisite possibility that the outcome will be different than the
result achieved by a default. Id.
Because the Court finds that third-party defendants have shown good
cause for lifting the default against them, the Court will grant their

35
36

See, e.g., R. Doc. 73-4 at 14.
R. Doc. 83 at 10.
12

consolidated motion to set aside the entries of default. SEI Fuel’s motion for
summary judgment relies on the assumption that third-party defendants
have defaulted and admitted SEI Fuel’s factual allegations, and thus it was
not fully briefed. Therefore the motion for summary judgment is denied
without prejudice.

IV.

CONCLUSION
For the foregoing reasons, the Court GRANTS third-party defendants’

motion to set aside the defaults entered against them, and DENIES SEI
Fuel’s motion for default judgment.

SEI Fuel’s motion for summary

judgment is DENIED WITHOUT PREJUDICE.

27th
New Orleans, Louisiana, this _____ day of December, 2016.

_____________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE

13