Munger v. Financial Credit Services, Inc. a/k/a Asset Recovery Services

Filing 20

OPINION and ORDER Granting 15 MOTION to Vacate 12 Clerks Entry of Default AND Setting Deadline: Answer due by 9/16/2016. Signed by District Judge Laurie J. Michelson. (JJoh)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
MICHAEL MUNGER,
Plaintiff, on behalf of himself and
others similarly situated,

Case No. 16-11008
Honorable Laurie J. Michelson
Magistrate Judge R. Steven Whalen

v.
FINANCIAL CREDIT SERVICE, INC.,
d/b/a ASSET RECOVERY ASSOCIATES,
INC. (“ARA, Inc.”),
Defendant.
OPINION AND ORDER GRANTING DEFENDANT’S MOTION
TO VACATE ENTRY OF DEFAULT [15]
This putative class action, alleging that Defendant Financial Credit Service, Inc. (FCS)
violated a host of federal and state consumer credit provisions, is before the Court on FCS’s
motion to set aside the Clerk’s entry of default. After careful consideration of the briefs and
thorough review of the record, the Court finds that oral argument will not aid in resolving the
pending motion. See E.D. Mich. LR 7.1(f)(2). Because the Court finds good cause to set aside
the default, FCS’s motion will be granted.
Plaintiff Michael Munger filed this case on March 18, 2016. (See R. 1.) FCS’s registered
agent was served with summons on April 13, 2016. (R. 9.) But no answer or other response
followed. So on May 5, 2016, the day after the response deadline, the Clerk entered default at
Munger’s request. (See R. 11–12.)
FCS contends that a miscommunication with its registered agent caused the default.
FCS’s Secretary, Mario Bianchi, avers that in the rare times that FCS is served via its registered
agent, the agent will mail a copy of the summons to FCS. (R. 15–1, PID 69.) In this case,

however, Bianchi says the registered agent did not mail a copy. (R. 15–1, PID 70.) Instead, the
registered agent uploaded the summons into an online account for FCS and sent FCS an
electronic notice about the upload, but no one from FCS viewed the upload. (Id.) After the agent
called FCS to inquire, an FCS representative instructed the agent to FedEx the summons and said
that the representative would call back with a FedEx account number. (Id.) But neither FCS’s
representative nor the registered agent followed up, so the registered agent never mailed a copy
of the summons. (Id.)
As a result, Bianchi says that FCS did not realize it had been sued by Munger until May
19, 2016—when Munger’s counsel served FCS’s record keeper with a subpoena for a deposition
relating to class certification discovery. (R. 15–1, PID 69; see also R. 18–1.) According to
Bianchi, he then investigated whether FCS had received the summons, and FCS retained counsel
to assist with the case. (Id.) FCS’s motion to set aside the default followed shortly afterward, on
June 3, 2016. (R. 15.)
Under Federal Rule of Civil Procedure 55(c), the Court “may set aside an entry of default
for good cause.” The Sixth Circuit has characterized its Rule 55(c) precedent as “extremely
forgiving to the defaulted party and favor[ing] a policy of resolving cases on the merits instead of
on the basis of procedural missteps.” United States v. $22,050.00 U.S. Currency, 595 F.3d 318,
322 (6th Cir. 2010) (citing cases). The Court must consider three factors to determine whether to
set aside a default: (1) “[w]hether the plaintiff will be prejudiced”; (2) “[w]hether the defendant
has a meritorious defense”; and (3) “[w]hether culpable conduct of the defendant led to the
default.” United Coin Meter Co. v. Seaboard Coastline RR., 705 F.2d 839, 845 (6th Cir. 1983)
(citations omitted).

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Here, each factor weighs in favor of setting the default aside. To start, Munger has failed
to demonstrate that he will suffer any prejudice if the default is set aside. Shortly after
discovering the default, FCS moved to set it aside—a mere month after its answer was initially
due. See Weiss v. St. Paul Fire & Marine Ins. Co., 283 F.3d 790, 795 (6th Cir. 2002) (finding no
prejudice where defaulting party “moved to vacate . . . judgment immediately upon discovering
the default, and that motion was filed less than 30 days after the date the answer to the complaint
was due”). Munger’s response seems to assert that he would be prejudiced if the default were set
aside simply because it would delay his motion for class certification by several months. (R. 18,
PID 82.) But “delay alone is not a sufficient basis for establishing prejudice.” INVST Fin. Grp.,
Inc. v. Chem-Nuclear Sys., Inc., 815 F.2d 391, 398 (6th Cir. 1987) (citation omitted).
Regarding the second factor, FCS has pointed to several defenses. First, FCS says that to
the extent Counts I and III complain of a collection letter FCS sent Munger allegedly in violation
of the federal Fair Debt Collection Practices Act and the Michigan Collection Practices Act,
Munger’s allegations do not meet the injury-in-fact requirement for Article III standing. (R. 15,
PID 63–65 (citing Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1549 (2016) (noting that a “bare
procedural violation, divorced from any concrete harm” does not satisfy Article III standing)).)
Second, as a defense to Count II, FCS argues that any violation of the FDCPA’s bar from
communicating directly with debtors represented by counsel, see 15 U.S.C. § 1692c(a)(2), was a
bona fide error due to its internal policies and procedures prohibiting such practices. (R. 15, PID
65 (citing 15 U.S.C. § 1692k(c) (setting forth bona fide error defense)).) Third, FCS argues that
all of Munger’s Counts are deficient because Munger “makes no allegation regarding why the
underlying debt accrued” and thus whether it is within the scope of the Michigan and federal
statutes protecting consumer debtors. (R. 15, PID 65–66.)

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In response, Munger disputes the merits of FCS’s first two defenses. He does not appear
to mention the third, though the Court notes that the defense appears at odds with the complaint,
which indeed alleges the relevant debt was consumer debt, (see R. 1, PID 10). In any event,
despite Munger’s lengthy arguments against FCS’s defenses, Munger never acknowledges the
low bar for establishing a meritorious defense for purposes of this inquiry: “to establish a
‘meritorious defense,’ the defendant must state ‘a defense good at law’ which is sufficient if it
contains ‘even a hint of a suggestion which, proven at trial, would constitute a complete
defense.’” Thompson v. Am. Home Assur. Co., 95 F.3d 429, 434 (6th Cir. 1996) (quoting INVST
Financial Grp., 815 F.2d at 398–99). The Court finds that FCS has, at the very least, created “a
hint of suggestion” of a defense to Munger’s claims.
As for the final factor, Munger has failed to persuade the Court that FCS’s default
resulted from culpable conduct. Munger cites a host of authority under different rules of
procedure to urge that FCS’s shortcomings cannot be deemed “excusable neglect.” (R. 18, PID
80.) But that is not the standard under Rule 55(c). As the Sixth Circuit has made clear, “it is not
necessary that conduct be excusable to qualify for relief under the ‘good cause’ standard of Rule
55(c).” Shepard Claims Serv., Inc. v. William Darrah & Associates, 796 F.2d 190, 194 (6th Cir.
1986). “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.” Id. The Court finds no reason to believe that FCS intended to thwart or had
reckless disregard for these proceedings. As discussed, FCS appears to have had a
communications or procedural lapse with its registered agent. Once FCS realized it had been
sued, it retained counsel and promptly filed this motion.

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Moreover, when, as here, “a defendant has a meritorious defense and the plaintiff would
not be prejudiced, ‘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.’” $22,050.00 U.S.
Currency, 595 F.3d at 324 (alteration in original) (quoting Shepard Claims Serv., Inc., 796 F.2d
at, 194). Nothing suggests FCS has willfully failed to appear.
Accordingly, as all three factors weigh in favor of setting aside the default, the Court
finds good cause to do so.
Finally, Munger asks the Court to award costs and fees if the default is set aside. The
Court declines to do so. Munger has suggested that he had to retain an investigator to be able to
serve the subpoena on FCA for class certification discovery. But Munger makes no mention of
the investigator’s cost. Nor does he explain how any of the other actions taken in connection
with the subpoena—hiring a court reporter for the deposition, for instance—were amplified by
the default.
Accordingly, IT IS ORDERED that Defendant’s Motion to Vacate the Default (R. 15) is
GRANTED. Defendant’s Answer to the Complaint is due September 16, 2016.
SO ORDERED.

s/Laurie J. Michelson
LAURIE J. MICHELSON
UNITED STATES DISTRICT JUDGE
Dated: September 2, 2016

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CERTIFICATE OF SERVICE
The undersigned certifies that a copy of the foregoing document was served on the attorneys
and/or parties of record by electronic means or U.S. Mail on September 2, 2016.
s/Jane Johnson
Case Manager to
Honorable Laurie J. Michelson

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