Commerce and Industry Insurance Company v. WMS Solutions, LLC

Filing 29

MEMORANDUM OPINION. Signed by Judge Theodore D. Chuang on 3/26/2015. (rss, Deputy Clerk)

UNITED STATES DISTRICT COURT
DISTRICT OF MARYLAND

COMMERCE AND INDUSTRY
INSURANCE COMPANY,

PlaintiiT,
Civil Action No. TDC- 14- 1182

v.
WMS SOLUTIONS, LLC,

Defendant.

MEMORANDUM
Before the court in this breach-of-contract
Motion to Vacate Default, Eel" No. 15.

OPINION
action is Defendant WMS Solutions,

Having reviewed

the pleadings,

the

LLC's

Court finds no

hearing necessary. See Local Rule 105.6 (D. Md. 2014). For the following reasons, the Motion
is GRANTED.
BACKGROUND
On March 3D, 2012, Plaintiff Commerce and Industry Insurance Company ("Commerce")
issued a workers' compensation

insurance policy for Defendant WMS Solutions,

LLC ("WMS")

for the period from March 30, 2012 through about March 30, 2013. Am. Compl.

9, ECF No.9;

id, Ex. A (2012-2013 Policy), ECF No.9-I.

On April 14, 2013, Commerce issued a second

policy, covering the period from April 14,2013 to about April 14,2014.
2014

Policy),

ECF No. 9-2.

premium" at the beginning
would bc determined

Under the terms of these policies,

Id ~ 10; Ex. II (2013-

WMS paid an "estimated

of each policy period on the understanding

that its final premium

after the policy expired and would be based on WMS's

information for the coverage period.

ld. ~ II, 14.

actual payroll

The policies also provided that the actual

payroll information would be determined by Commerce during a post-policy audit of WMS's

"payroll and disbursement records." [d.
estimated premium of $352,508.00.

1 12-13.

For the 2012-2013 policy, WMS paid an

[d., Ex. C (invoice), ECF No. 9-3. For the 2013-2014

policy, WMS paid an estimated premium of $195,947.00. [d., Ex. D (invoice), ECF No. 9-4.
Based on its audit of WMS's records, Commerce determined that WMS's final premium for the

2012-2013 policy was $773,528.00, which left WMS with an outstanding balance of
$421,030.00. [d., Ex. C. Commerce determined that WMS's final premium for the 2013-2014

policy was $429,636.00, which left WMS with an outstanding balance of $233,689.00. Id.,
18.1 WMS was billed for both outstanding premium balances, totaling $654,719.00. but, to date,
has not remitted any payment. Id.

21, Exs. C & D.

On April 10, 2014, Commerce filed a Complaint with this Court, ECF No. I, which it
amended on May 18, 2014. alleging breach of contract and unjust enrichment and seeking
payment of the outstanding insurance premiums, pre-judgment and post-judgment interest, and
reimbursement for all costs and fees associated with this litigation. Am. CampI. at 6.
30,2014,

On May

WMS's accountant and resident agent, Kevin McNally, was served with a copy of the

Amended Complaint. Mot. Vacate at 4,

1

2-3 (Affidavit of Kevin McNally).

Based on that

service date, WMS's Answer was due on June 20, 2014.
According to McNally, at the time the summons was served, Edward Woodings, WMS's
principal, was out of the country, so McNally was "unable to speak with him regarding the
service." Id. ~ 4. Woodings returned to the country on or about June 9, 2014, but then left to\VTI
again for a family vacation. Jd. The day that Woodings returned from that vacation, McNally

I

In the Complaint, the outstanding balance for 2013-2014 is listed as $233,689.00, while on the

bill sent to WMS it is $233,709.00. Am. Compl. Ex. D. Because $233,689.00 is the figure
alleged in the Complaint, the Court takes that as the operative outstanding balance.
2

left on his own vacation. During the period that Woodings was traveling, McNally "'forgotlJ to
deliver the papers" served by Commerce to anyone at WMS. Id.

5. It was not until July 7,

2014 that McNally delivered Commerce's Complaint to WMS. Id.
Meanwhile, on June 27, 2014, one week aftcr WMS's Answer was due, Commerce filed
a Motion for Clcrk's Entry of Default. ECF No. 12. That default was entered on June 30, 2014.
On July 10,2014, three days after McNally delivered the papers, WMS filed the present Motion
to Vacate the Entry of Default. In that Motion, WMS explains that its default was not "'willful,"
but was "'simply a failure ufthe resident agent to forward the papers to the Defendant promptly."
Mot. Vacate at 2,

4. WMS also asserts that it has a meritorious defense to the action because

''the alleged audit that produced the balance claimed did not happen:'

Id. As to this defense,

McNally in his Affidavit asserts that "'lijf an audit was going to be conducted I would have
provided the financial documents for the audit, however, no audit was ever conducted." Id at 5,

6.
WMS's appearance in the case prompted settlement discussions between the parties, and
Commerce accordingly asked, with the consent of WMS, to extend its deadline to respond to
WMS's Motion to Vacate. July 22, 2014 Mot. for Extension

2, ECF No. 16. That extension

and a subsequent unopposed extension request were granted. See Jul. 23, 2014 and Aug. 7,2014
Orders, ECF Nos. 17 & 19. On September 3, 2014, the parties submitted a joint motion to stay
the case in which they informed the Court that they wished to proceed to private mediation, that
they had agreed on a mediator. and that they "anticipate(d] that they could complete mediation
by October 31."

Sept. 3,2014

Joint Mot. to Stay

requested stay on September 15,2014.

8, ECl' NO.2!.

The Court grantcd the

ECF No. 22. On October 31, 2014, the day the stay was

to expire, the parties submitted a second motion to stay the proceedings, explaining that they had

3

previously agreed on November 6, 2014 as a mediation date and that "Iiln advance of the
mediation," WMS was supposed "to produce documents related to its payroll" to enable
Commerce to "further evaluate the case." Oct. 31, 2014 Joint Mot. to Stay ~ 3, ECF No. 24.
WMS, however, was still "in the process of obtaining the documents," so the parties were
rescheduling their mediation session to December. ld.
continue the stay until December 31, 2014. Id.

7.

4. They thus asked the Court to
The Court granted that Motion on

November 4, 2014. ECF No. 25.
On November 6,11,18,

and 20, 2014, Commerce "followed up" with WMS about the

documents. Uec. 31, 2014 Joint Mot. to Extend Stay

5, ECF No. 26. WMS still did not

produce the requested records. On November 25, 2014, the parties' attorneys conferred and
WMS agreed to produce by December 9, 2014 various tax and financial records for the period
from March 30, 2012 to March 30, 2014. [d.

6. On Uecember 4, 2014, WMS informed

Commerce that it would provide the documents during the week of December 8, 2014, but it
failed to meet that deadline. Id.

7. On December 15, 2014, WMS informed Commerce that it

would provide the documents by December 18, 2014, but WMS again missed the deadline. Id.
8. On December 30, 2014, WMS's counsel informed Commerce's counsel that he had "cmailed
WMS's owner again asking for documents and that the documents could be produced within the
next two weeks." Id.

9. Based on those representations, on December 31, 2014, the parties

filed a third joint motion seeking to extend the stay to January 1S, 2015, which the Court granted
the same day. ECF Nus. 26 & 27.
On January 13,2015, Commerce filed its Response in Opposition to WMS's Motion to
Vacate in which it argued that the entry of default should not be vacated because WMS has
engaged in a pattern of dilatory tactics that indicate it "is not taking these proceedings seriously

4

and is instead just putting off Commerce & Industry and the Court." Resp. in Opp'n at 6, ECF
No. 28. WMS has not filed a Reply to Commerce's Response.
DISCUSSION
In federal court, there is a "strong policy that cases be decided on their merits." United
Stales v. Shaffer Equip. Ca., II FJd 450, 453 (4th Cir. 1993). Accordingly, Federal Rule of
Civil Procedure 55(c) provides that "[tJhe court may set aside an entry of default for good
cause." Determining whether to vacate an entry of default is "a matter which lies largely within
the discretion of the trial judge."
(4th Cic. 2006).
reasonable

"Generally, a default should be set aside where a moving party acts with

promptness

fireproofing,

Payne ex reI. Estate of Calzada v. Brake, 439 F.3d 198, 204

and alleges

a meritorious

defense."

Consolidated

Masonry

&

Inc. v. Wagman Consl. Corp., 383 F.2d 249, 251 (4th Cir. 1967). A court may also

look to "'the personal responsibility of the defaulting party, the prejudice to the party, whether
there is a history of dilatory action, and the availability of sanctions less drastic" when deciding
whether to vacate a default. Payne, 439 F.3d at 204-05.
Here, WMS acted with reasonable promptness and appears to have alleged a meritorious
defense.

As to reasonable promptness, WMS filed its Motion to Vacate 10 days after the entry

of default was entered.

This relatively short period between the entry of default and WMS's

motion is in line with what the Fourth Circuit has held to be reasonable promptness.

See

Colleton Preparatory Academy, Inc. v. Hoover Universal, Inc., 616 F.3d 413, 418 (4th Cir.
2010) (nine days); Tazco, Inc. v. Dir. Office of Workers Compo Program, Us. Dept. of Labor,
895 F.2d 949, 950 (4th Cir. 1990) (eight days). As for WMS's defense, to allege a meritorious
defense, a defendant must "proffer ... evidence which would permit a finding for the defaulting
party or which would establish a valid counterclaim." Augusta Fiberglass Coatings, Inc. v.

5

Fodor Contracting Corp., 843 F.2d 808, 812 (4th CiT. 1988); see also United States v. Moradi,
673 F,2d 725, 727 (4th CiT. 1982) ("[AlII that is necessary 10 cstahlish the exislence of a
'meritorious defense' is a presentation or proffer of evidence, which, if believed, would permit
either the Court or the jury to find for the defaulting party. "). lIere, WMS submitted an affidavit
from its accountant, McNally, in which McNally asserts that if an audit had been done, he
"would have provided the [relevant] financial documents," Mot. Vacate

6.

His assertion

suggests. although does not specifically state, that Commerce never requested, and McNally
therefore never provided, any records on which an audit could be based.

Jd. If, for purposes of this Motion, the Court

concludes that '"no audit was ever conducted."
takes McNally's
Commerce's

affidavit

Id. McNally thus

as true, then WMS has a potentially

claim, namely that Commerce

never conducted

meritorious

defense

to

the audit that purportedly

established that WMS had an outstanding premium balance.
Because WMS alleges a potentially meritorious defense and moved to vacate the default
with reasonable promptness, its motion to vacate should, generally, be granted.

Consolidated

Masonry, 383 F.2d at 251. Commerce, however, points to other factors, see Payne, 439 F.3d at
204-05, in particular WMS's allegedly dilatory tactics in failing to tum over financial records as
part of the parties' private settlement negotiations, and urges the Court to deny the Motion on
that basis.

These dilatory tactics are beyond the scope of the present Motion.

discovery was conducted outside and apart from this Court's oversight.

This informal

While Commerce may

reasonably believe that WMS handled that process in bad faith, WMS was under no legal
obligation to provide the records requested. Instead, the parties, by mutual consent, chose not to
resolve the Motion to Vacate, but rather to stay their proceedings before this Court in order to
pursue a parallel, private course of action.

The present motion, which was filed before that

6

informal settlement process began, therefore does not raise the question whether WMS engaged
in that parallel process in good faith. It raises only the question whether WMS, as a threshold
matter, has promptly moved to vacate the entry of default and has provided an adequate reason to
allow it to defend against this claim. As explained above, WMS has carried that burden. WMS
therefore has 14 days to file an Answer to Commerce's Complaint. Because the Court is mindful
that WMS may not have been conscientious in its handling of this case, if WMS fails to timely
file a responsive pleading, Commerce need not seek a second Entry of Default, but may instead
file a Motion for Default Judgment.
CONCLUSION
For the reasons stated above, the Motion to Vacate the Entry of Default is GRANTED.

Date: March 26,2015

THEiDORED:C

~~

United States District Judge

7