MAPAL Inc. v. Atarsia et al

Filing 16

OPINION AND ORDER GRANTING MOTION TO VACATE ENTRY OF DEFAULT 12 AND GRANTING AMENDED MOTION FOR LEAVE TO FILE INSTANTER 10 . Signed by District Judge Gershwin A. Drain. (TBan)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

MAPAL INC.,
Plaintiff,

Case No. 15-cv-12159

v.

UNITED STATES DISTRICT COURT JUDGE
GERSHWIN A. DRAIN

ABDELATIF ATARSIA,
and
YG-1 USA, INC.,

UNITED STATES MAGISTRATE JUDGE
MICHAEL J. HLUCHANIUK

Defendants.
/
OPINION AND ORDER GRANTING MOTION TO VACATE ENTRY OF DEFAULT [12] AND
GRANTING AMENDED “MOTION FOR LEAVE TO FILE INSTANTER” [10]
I. INTRODUCTION
On June 12, 2015, MAPAL Inc. (“MAPAL” or “Plaintiff”) commenced this action
against Abdeltif Atarsia and YG-1 USA, Inc. (collectively “Defendants”) for breach of contract,
breach of fiduciary duty, conspiracy, and tortious interference. A Clerk’s Entry of Default was
entered against YG-1 USA, Inc. (“YG-1 USA”) on July 15, 2015. See Dkt. No. 8, PageID 73.
Presently before the Court is YG-1 USA’s Motion to Vacate Entry of Default [12], filed
on July 22, 2015. On July 17, 2015, YG-1 USA, Inc. (“YG-1 USA) filed a Motion for Leave to
File Answer Instater [10]. In its Motions, YG-1 USA explains that it received service of the
Complaint, retained counsel, and sought to obtain documentation indicating that Dr. Atarsia was
not employed by YG-1 USA, Inc. See Dkt. No. 12 at 2, PageID 102; see also Dkt. No. 10 at 3,
PageID 89. However, before filing an Answer to the Complaint, counsel for YG-1 USA indicates
that he “became afflicted with an ailment that caused him to seek medical care initially with his

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doctor and subsequently in the hospital.” Id. Counsel for YG-1 claims he did not return to work
until July 17, 2015,1 when he then learned that the entry of default had been entered. See id.
The Court instructed MAPAL to file a response to YG-1 USA’s Motion for Leave to file
Answer Instater by no later than August 4, 2015. See Dkt. No. 11, PageID 100. The Court also
stated that a Reply could be filed as provided in the Local Rules. See id. MAPAL filed its
Response on August 4, 2015, and indicated that it “takes no position with respect to whether
Defendant YG-1 USA Inc. is able to demonstrate excusable neglect.” Dkt. No. 14 at 3, PageID
112. Instead, MAPAL stated that the “determination is for the Court to make based upon the
legal standards[.]” Id. YG-1 USA Inc. failed to file a Reply in accordance with the Court’s Local
Rules. See E.D. Mich. L.R. 7.1(e)(2)(c). After reviewing the Motions and the briefing by the
parties, the Court concludes that oral argument will not aid in the resolution of this matter.
Accordingly, the Court will resolve the pending Motions on the briefs and cancel the hearing
scheduled for August 26, 2015 at 10:30 a.m. See E.D. Mich. L.R. 7.1(f)(2). For the following
reasons, the Court will GRANT YG-1 USA’s Motion to Vacate Entry of Default [12] and
Motion for Leave to File Answer Instater [10].
II. LEGAL STANDARD
Rule 55 of the Federal Rules of Civil Procedure allows for an entry of default to be set
aside for good cause. See FED. R. CIV. P. 55(c). “In determining whether ‘good cause’ exists,
courts consider: (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.” Mertik
Maxitrol Gmbh & Co. Kg v. Honeywell Technologies Sarl, 10-12257, 2011 WL 3714634, at *2

1

In its brief, YG-1 USA indicates that counsel returned to the office “[o]n Friday, June 17 . . . and learned that a
default had been entered.” Dkt. No. 12 at 2, PageID 102 (emphasis added). This appears to be a mistake, as the
Complaint was filed on June 12, 2015 and the entry of default was not entered until July 15, 2015. See Dkt. No. 8,
PageID 73. Moreover, July 17, 2015 was a Friday, while June 17, 2015 was a Wednesday.

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(E.D. Mich. Aug. 24, 2011) (citing United States v. $22,050.00 U.S. Currency, 595 F.3d 318,
324 (6th Cir. 2010)).
The Court must consider all three factors of Rule 55(c) when ruling on a motion to set
aside entry of default. Shepard Claims Serv., Inc. v. William Darrah & Assocs., 796 F.2d 190,
193 (6th Cir. 1986). However, when a defendant has presented a meritorious defense and a
plaintiff fails to demonstrate prejudice, it is an abuse of discretion to deny a Rule 55(c) motion
absent culpable conduct. See Kaufman Payton & Chapa, P.C. v. Bilanzich, 11-15563, 2013 WL
1278192, *2 (E.D. Mich. Mar. 27, 2013). Ultimately, the decision to set aside an entry of default
is within the Court’s discretion. See Shepard Claims Serv., 796 F.2d at 193.
Federal courts strongly favor trials on the merits. See Berthelsen v. Kane, 907 F.2d 617,
620 (6th Cir. 1990). The Sixth Circuit applies a “somewhat more lenient standard” to “Rule
55(c) motions where there has only been an entry of default,” as opposed “to Rule 60(b) motions
where judgment has been entered.” Shepard Claims Serv., 796 F.2d at 193. However, even in
Rule 60(b) cases, where a more stringent standard applies, the Sixth Circuit has stated that “[a]ny
doubt should be resolved in favor of the petition to set aside the judgment so that cases may be
decided on their merits.” United Coin Meter Co. v. Seaboard Coastline RR., 705 F.2d 839, 846
(6th Cir. 1983) (internal citations omitted).
III. DISCUSSION
According to the YG-1 USA, good cause exists to vacate the Clerk’s Entry of Default
because YG-1 USA contends (1) it has a meritorious defense; (2) MAPAL will not be
prejudiced; and (3) there was no culpable conduct that led to the default. See Dkt. No. 12 at 4-9.
7, Page ID 104-07. As mentioned, MAPAL takes no position on YG-1 USA’s Motion and
simply “submits that [the] determination is for the Court to make based upon the legal

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standards[.]” Dkt. No. 14 at 3, PageID 112. Pursuant to the framework set forth by the Sixth
Circuit, this Court agrees that good cause exists to vacate the Clerk’s Entry of Default.
1. YG-1 USA has a Meritorious Defense.
In the Sixth Circuit, a defendant must state “a defense good at law” in order to establish a
meritorious defense. INVST Fin. Group, Inc. v. Chem–Nuclear Sys., Inc., 815 F.2d 391, 398–99
(6th Cir. 1987). The asserted meritorious defense will be deemed sufficient so long as it contains
“‘even a hint of a suggestion’ which, [if] proven at trial, would constitute a complete defense.”
Id. A defendant need not demonstrate a likelihood of success on the merits. Berthelsen, 907
F.2d. at 621–22. Finally, all ambiguous or disputed facts must be resolved in the light most
favorable to the defendant. INVST Fin. Group, 815 F.2d at 398.
YG-1 USA states that it “does not employ (and has not employed) Dr. Atarsia.” Dkt. No.
12 at 5, PageID 105. Furthermore, YG-1USA indicates that there is an “employment agreement
between Dr. Atarsia and Minicut International (“Minicut)[, which] indicates that he appears to be
employed with Minicut, not YG-1 USA.” Id. Lastly, YG-1 USA emphasizes that it does not
appear “that [Dr. Atarsia] is or was employed or received any compensation from YG-1 USA.”
Id. The Complaint seems to be predicated on YG-1 USA’s alleged hiring of Dr. Atarsia. See Dkt.
No. 1 at ¶ 24, PageID 8. If Dr. Atarsia never, in fact, worked for YG-1 USA, the Court agrees
that YG-1 has established a meritorious defense.
2. MAPAL has not Demonstrated it will be Prejudiced.
The Sixth Circuit has also indicated that “delay alone is not a sufficient basis for
establishing prejudice.” INVST Fin. Grp., 815 F.2d at 398 (citations omitted). “Rather, it must be
shown that delay will ‘result in the loss of evidence, create increased difficulties of discovery, or
provide greater opportunity for fraud and collusion.’” INVST Fin. Grp., 815 F.2d at 398 (quoting

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Davis v. Musler, 713 F.2d 907, 916 (2d Cir. 1983) (citation omitted)). Here, MAPAL does not
contend that it is prejudiced. Accordingly, the Court finds that MAPAL will not be prejudiced at
this early stage of the litigation.
3. YG-1 USA’s Conduct was not Sufficiently Culpable.
The Court must consider all three factors when ruling on a motion to set aside entry of
default. Shepard Claims Serv., 796 F.2d at 193. “[W]hen 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 absence of a willful failure of the moving party to appear and plead.” Id. The Sixth Circuit
has instructed that when the “party in default satisfies the first two requirements for relief and
moves promptly to set aside the default before a judgment is entered, the district court should
grant the motion if the party offers a credible explanation for the delay that does not exhibit
disregard for the judicial proceedings.” Id. at 195; see also Waifersong, Ltd. v. Classic Music
Vending, 976 F.2d 290, 293 (6th Cir. 1992) (finding that when a defendant has established that
the first two factors weigh in its favor, the defendant’s conduct must be “particularly culpable” in
order to “outweigh those two factors and tip the balance toward denial of relief.”).
“[I]t is not necessary that conduct be excusable to qualify for relief under the ‘good
cause’ standard of Rule 55(c).” Shepard Claims Serv., 796 F.2d at 194. The Sixth Circuit has
made it clear that “[t]o 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.” Id. This being the case, the Court finds there is simply no evidence in the record
indicating that the YG-1 USA deliberately attempted to thwart these proceedings. The Court
finds that the YG-1’s conduct was not sufficiently culpable. See id. at 194 (quoting 6 Moore's
Federal Practice ¶ 55.01[2] at 55–61, 62 (1985 ed.) for the proposition that “[w]here the

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defaulting party and counsel have not shown disrespect for the court, or have given evidence of
respect for the court’s process by their haste in acting to set aside the default, the courts have
been inclined towards leniency. . . .”) (emphasis added). As such, the Court will vacate the
Clerk’s entry of default against YG-1 USA.
IV. CONCLUSION
In conclusion, the Sixth Circuit applies a “more lenient standard” to “Rule 55(c) motions
where there has only been an entry of default.” Shepard Claims Serv., 796 F.2d at 193. The
decision to set aside an entry of default is within the discretion of this Court. Id. Federal courts
strongly favor trials on the merits. Berthelsen, 907 F.2d at 620.
Keeping these standards in mind, the Court HEREBY GRANTS YG-1 USA’s Motion to
Vacate Entry of Default [12]. The Court additionally GRANTS YG-1 USA’s Motion for Leave
to File Answer Instater [10]. IT IS ORDERED that YG-1 USA file its Answer within fourteen
(14) days of the date of this Order.
IT IS SO ORDERED.
Dated: August 18, 2015
/s/Gershwin A Drain
HON. GERSHWIN A. DRAIN
United States District Court Judge

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