Gibson v. Professional Account Management, LLC
ORDER granting 6 Motion to Vacate 5 Clerks Entry of Default ; vacating 5 Default; and denying as moot 10 Motion for Extension of Time to File Reply. Signed by District Judge Thomas L. Ludington. (SGam)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
Case Number 11-12920-BC
Honorable Thomas L. Ludington
PROFESSIONAL ACCOUNT MANAGEMENT,
OPINION AND ORDER GRANTING
DEFENDANT’S MOTION TO VACATE DEFAULT
This case presents the question of what showing is necessary to set aside an entry of
default in federal court. The case began on July 6, 2011, when Plaintiff Edith Gibson filed a
complaint against Defendant Professional Account Management in this Court, alleging violations
of the Fair Credit Reporting Act and Fair Debt Collection Practices Act.
ECF No. 1.
Specifically, Plaintiff alleged that Defendant, a furnisher of information to consumer credit
bureaus, had misreported to two credit rating agencies that Plaintiff was delinquent on an $80
debt incurred as a result of a parking ticket — a ticket that Plaintiff maintains she paid. Also on
July 6, 2011, Plaintiff’s attorney served a copy of the complaint and summons on Defendant’s
registered agent. See ECF No. 3.
Twenty-one days passed. Defendant did not respond to the complaint. More days
passed. On August 16, 2011, Plaintiff requested entry of default against Defendant. ECF No. 4.
That day, the clerk entered the default. ECF No. 5. One week later, on August 23, Plaintiff’s
attorney served notice of the entry of default on Defendant’s registered agent. See Pl.’s Am.
Answer to Def.’s Mot. Ex. 3, at 2, ECF No. 9 (“Pl.’s Br.”). On October 4, 2011, Plaintiff wrote
to Defendant asking that the debt be removed from her credit report. Id. Ex. 4.
Defendant did not respond.
On November 2, 2011, Defendant filed the motion to vacate the default now before the
Court. ECF No. 6. Acknowledging that its “registered agent was served with the complaint and
summons on July 6,” Defendant explains “the registered agent forwarded the complaint to [an]
employee who no longer was employed with [Defendant], and it did not get to the proper
individuals at [Defendant].” Def.’s Br. Supp. Mot. to Vacate 1, ECF No. 6 (“Def.’s Br.”). For
the following reasons, Defendant’s motion will be granted and the default will be vacated.
“The court may set aside an entry of default for good cause,” Federal Rule of Civil
Procedure 55(c) provides. Although “Rule 55(c) leaves to the discretion of the trial judge the
decision whether to set aside an entry of default,” the discretion to refuse to vacate a default has
been sharply limited in the Sixth Circuit by “a strong preference for trials on the merits.”
Shepard Claims Serv., Inc. v. William Darah & Assoc., 796 F.2d 190, 193 (6th Cir. 1986).
Accordingly, three factors “determine the outcome of such a motion: [1.] Whether the plaintiff
will be prejudiced; [2.] Whether the defendant has a meritorious defense; and [3.] Whether
culpable conduct of the defendant led to the default.” Id. at 192 (quoting United Coin Meter Co.
v. Seaboard Coastline R.R., 705 F.2d 839, 845 (6th Cir. 1983)). “All three factors must be
considered in ruling on a motion to set aside entry of default,” the Sixth Circuit instructs, while
also cautioning that “when the first two factors militate in favor of setting aside the entry, it is an
abuse of discretion for a district court to deny a Rule 55(c) motion in the absence of a willful
failure of the moving party to appear and plead.” Id. at 194.
In this case, Plaintiff concedes that she will not be prejudiced by vacating the default; she
argues, however, that Defendant lacks a meritorious defense and acted recklessly. See Pl.’s Am.
Answer to Def.’s Mot. 3–6, ECF No. 9 (“Pl.’s Br.”). Each argument is addressed in turn.
Consistent with the “strong preference for trials on the merits in federal courts,”
establishing a “meritorious defense” is not a particularly onerous burden for a defendant.
Shepard Claims Serv., 796 F.2d at 193; but cf. Martin H. Redish, Summary Judgment And
The Vanishing Trial: Implications Of The Litigation Matrix, 57 Stan. L. Rev. 1329 (2005);
Ashby Jones, Why Have Federal Civil Jury Trials Basically Disappeared?, Wall St. J. L. Blog
(Sept. 21, 2010, 10:35 AM), http://blogs.wsj.com/law/2010/09/21/why-have-federal-civil-jurytrials-basically-disappeared (noting that “[i]n 1962, 11.5% of federal civil cases went to trial,
compared with 6.1% in 1982, 1.8% in 2002 and 1.2% in 2009”).
A defendant need not establish a “likelihood of success” on the merits to establish a
“meritorious defense.” INVST Fin. Grp., Inc. v. Chem-Nuclear Sys., Inc., 815 F.2d 391, 399 (6th
Cir. 1987). Rather, “A defense is sufficient if it contains even a hint of a suggestion which,
proven at trial, would constitute a complete defense.” Smith v. Comm’r of Internal Revenue, 926
F.2d 1470, 1480 (6th Cir. 1991) (internal alteration omitted) (quoting INVST, 815 F.2d at 399).
In this case, Defendant asserts that it has meritorious defenses to Plaintiff’s claims under
both the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA).
First, Defendant contends that it has a defense to the FDCPA claim because municipal parking
tickets are not covered “debts” under the FDCPA. Def.’s Br. 4. Second, Defendant argues it has
a defense to the FCRA claim because the parking ticket that Plaintiff claims that she paid is not
the same ticket that Defendant reported to the credit bureaus: “[Defendant] furnished the bureaus
with information regarding a different ticket Plaintiff received in Detroit.” Id. Defendant’s
arguments are persuasive.
First, Defendant is correct that “a hint of a suggestion” to Plaintiff’s FDCPA claim exists.
This consumer protection act does not broadly apply to all debts; rather, it applies only to
specific types of debts — those arising out of “consensual transactions.” See, e.g., DIRECTV,
Inc. v. Cavanaugh, 321 F. Supp. 825, 837 (E.D. Mich. 2003) (citing Bass v. Stolper, Koritzinsky,
Brewster & Neider, S.C., 111 F.3d 1322, 1326 (7th Cir. 1997)); see generally Wayne Hill,
Annotation, What Constitutes “Debt” for Purposes of Fair Debt Collection Practices Act, 159
A.L.R. Fed. 121 (2000). As defined by the FDCPA: “The term ‘debt’ means any obligation or
alleged obligation of a consumer to pay money arising out of a transaction in which the money,
property, insurance, or services which are the subject of the transaction are primarily for
personal, family, or household purposes.” 15 U.S.C. § 1692a(5). And “consumer transaction”
implies consent — thus, “the FDCPA limits its reach to those obligations to pay arising from
consensual transactions, where parties negotiate or contract for consumer-related goods or
services.” DIRECTV, 321 F. Supp. at 837 (quoting Bass, 111 F.3d at 1326). A parking ticket
(even one which the vehicle owner settles with the municipality for less than the standard fine)
does not rest comfortably within this definition of “consensual transaction.” See Graham v. ACS
State and Local Solutions, Inc., No. 06-2708, 2006 WL 2911780, at *2 (D. Minn. Oct. 10, 2006)
(holding that a debt arising from unpaid parking tickets is not covered by the FDCPA because it
is not “a consensual consumer transaction”). Accordingly, Defendant is correct that it has a
“meritorious defense” to Plaintiff’s FDCPA claim.
Second, Defendant is likewise correct that “a hint of a suggestion” to Plaintiff’s FCRA
claim exists. “The FCRA, 15 U.S.C. § 1681 et seq., originally enacted in 1968, is designed to
protect consumers from inaccurate information in consumer reports.” Nelski v. TransUnion,
LLC, 86 F. App’x 840, 843–44 (6th Cir. 2004). The act imposes different obligations on three
types of entities: “(1) consumer reporting agencies: (2) users of consumer reports; and (3)
furnishers of information to consumer reporting agencies.” Id. (citing Carney v. Experian Info.
Solutions, Inc., 57 F. Supp. 2d 496, 500 (W.D. Tenn. 1999)). Here, Defendant is the third type
of entity — a furnisher. To hold a furnisher liable under the FCRA,
a plaintiff must prove: (1) the defendant reported inaccurate information about the
plaintiff; (2) the defendant either negligently or willfully failed to follow
reasonable procedures to assure maximum possible accuracy of the information
about the plaintiff; (3) the plaintiff was injured; and (4) the defendant’s conduct
was the proximate cause of the plaintiff's injury.
Nelski, 86 F. App’x at 844 (citing Morris v. Credit Bureau of Cincinnati, Inc., 563 F. Supp. 962,
967 (S.D. Ohio 1983)). Thus, “a showing of inaccuracy is an essential element of a claim.” Id.
Here, Defendant raises a question of fact as to whether it reported inaccurate information.
Defendant explains that it “does not dispute that Plaintiff paid the ticket for violation number
ending in 5404, as identified in Plaintiff’s complaint. However, [Defendant] did not furnish any
information to the credit bureaus on this debt. Rather, [Defendant] furnished the bureaus with
information regarding a different ticket Plaintiff received in Detroit.” Def.’s Br. 4. If true,
Defendant may not have reported inaccurate information. Accordingly, Defendant is correct that
it has a “meritorious defense” to Plaintiff’s FCRA claim.
The standard for evaluating “culpable conduct” is similarly weighted, perhaps
surprisingly, in favor of vacating a default.
“To be treated as culpable, the conduct of a
defendant must display either an intent to thwart judicial proceedings or a reckless disregard for
the effect of its conduct on those proceedings.”1 Shepard Claims Serv., Inc. v. William Darah &
Assoc., 796 F.2d 190, 193 (6th Cir. 1986). Consequently, “mere negligence or failure to act
reasonably is not enough to sustain a default.” United States v. $22,050.00 U.S. Currency, 595
F.3d 318, 327 (6th Cir. 2010). And, crucially, “when the first two factors militate in favor of
setting aside the entry, it is an abuse of discretion for a district court to deny a Rule 55(c) motion
in the absence of a willful failure of the moving party to appear and plead.” Shepard Claims
Serv., 796 F.2d at 194.
In this case, Plaintiff does not allege that Defendant’s lack of timely response to the
complaint was willful; rather, Plaintiff argues that “this Court should rule that its error was
reckless.” Pl.’s Br. 4. Recklessness, however, is insufficient to uphold the default when the
defendant has established the first two factors, as in this case. As noted above, Plaintiff concedes
she will not suffer prejudice if the default is set aside. And, as discussed above, Defendant has
established the existence of meritorious defenses. Thus, Defendant is entitled to have the default
Accordingly, it is ORDERED that Defendant’s motion to vacate the default (ECF No. 6)
It is further ORDERED that the default entered against Defendant (ECF No. 5) is
In Southern Electrical Health Fund v. Bedrock Services, 146 F. App’x 772 (6th Cir. 2005), for example,
the trial court concluded the defendant acted recklessly when he ignored the judicial proceedings for eight months
despite being “served with a complaint, a motion for entry of default, the entry of default, the motion for temporary
injunction, the grant of the temporary injunction, and the motion for a show cause hearing.” Id. at 777. Affirming,
the Sixth Circuit wrote: “Appellant’s culpable conduct led to the default entry, appellant does not have a meritorious
defense, and appellees would be prejudiced if the entry of default was set aside.” Id. at 778.
It is further ORDERED that Defendant’s motion for extension of time to file a reply to
the motion to vacate the default (ECF No. 10) is DENIED as moot.
It is further ORDERED that the hearing scheduled for Thursday, December 8, 2011, at
2:00 p.m. is cancelled because the parties’ papers provide the necessary factual and legal
information to decide the motion. See E.D. Mich. L.R. 7.1(f)(2).
s/Thomas L. Ludington
THOMAS L. LUDINGTON
United States District Judge
Dated: December 1, 2011
PROOF OF SERVICE
The undersigned certifies that a copy of the foregoing order was served
upon each attorney or party of record herein by electronic means or first
class U.S. mail on December 1, 2011.
s/Tracy A. Jacobs
TRACY A. JACOBS
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