Telma Retarder, Inc. v. Balish

Filing 40

OPINION AND ORDER granting 32 Motion to set aside entry of default and finding moot 30 Motion for default judgment. Signed by District Judge Stephen J. Murphy, III. (DPer)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
TELMA RETARDER, INC.,
Case No. 2:17-cv-11378
Plaintiff,
HON. STEPHEN J. MURPHY, III
v.
MICHAEL BALISH and INDUSTRIAS
ZELU, S.L.,
Defendants.
/
OPINION AND ORDER
GRANTING DEFENDANT INDUSTRIAS ZELU, S.L.'S
MOTION TO SET ASIDE ENTRY OF DEFAULT [32] AND
FINDING MOOT PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT [30]
Plaintiff Telma Retarder, Inc. filed suit against a former employee, Defendant
Michael Balish, and Balish's new employer, Defendant Industrias Zelu, S.L. ("KLAM").
Plaintiff alleges that Balish breached a non-compete covenant, and that Balish and
KLAM tortiously interfered with Plaintiff's business relationships. Plaintiff also claims that
KLAM tortiously interfered with Balish's non-compete covenant. KLAM initially refused to
participate in the litigation, so the Clerk of the Court filed an entry of default. ECF 20.
Plaintiff then filed a motion for default judgment. ECF 30. On the same day Plaintiff
moved for default judgment, KLAM appeared and filed a motion to set aside the Clerk's
entry of default. ECF 32. The Court has reviewed the briefs, and finds that a hearing is
unnecessary. E.D. Mich. LR 7.1(f). For the reasons set forth below, the Court will grant
KLAM's motion to set aside entry of default and find Plaintiff's motion for default
judgment moot.

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DISCUSSION
KLAM seeks to set aside the entry of default under Federal Rule of Civil
Procedure 55(c). ECF 32, PgID 606. Rule 55(c) provides that a Court may set aside an
entry of default for good cause. Fed. R. Civ. P. 55(c). To determine whether good cause
exists, the Sixth Circuit requires courts to consider three factors: (1) whether the plaintiff
will be prejudiced by the setting aside of an entry of default; (2) whether the defendant
has a meritorious defense; and (3) whether the defendant's culpable conduct led to the
entry of default. United Coin Meter Co. v. Seaboard Coastline R.R., 705 F.2d 839, 845
(6th Cir. 1983). When analyzing the three factors, the Sixth Circuit is "extremely
forgiving" and favors resolving cases on the merits. United States v. $22,050.00 U.S.
Currency, 595 F.3d 318, 322 (6th Cir. 2010). The Court will address each factor in turn.
I.

Whether Plaintiff will be Prejudiced
The Court finds that Plaintiff will not be prejudiced by the setting aside of the

entry of default. Plaintiff first argues it will be prejudiced because KLAM's actions
delayed the case. ECF 35, PgID 664. Specifically, Plaintiff asserts that KLAM's alleged
tortious interference with Plaintiff's customers makes "time [] of the essence." Id. The
nature of the case does not warrant a finding of prejudice because the case itself is
about remedying the alleged harm caused by Defendants' actions. The Court has
already entered a preliminary injunction, ECF 26, and Plaintiff may pursue monetary
damages if an injunction proves to be an insufficient remedy. Although it will now be
more difficult for Plaintiff to obtain additional remedies because it must prove its case on
the merits, that difficulty does not warrant a finding of prejudice when the Sixth Circuit's
preference is to decide cases on the merits.

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Plaintiff next presumes that KLAM did not put a litigation hold in place and argues
that consequently some evidence may have been destroyed. ECF 35, PgID 665.
Plaintiff is correct that spoliation of evidence, in certain circumstances, may warrant a
finding of prejudice. See INVST Fin. Grp., Inc. v. Chem-Nuclear Sys., Inc., 815 F.2d
391, 398 (6th Cir. 1987). But Plaintiff admits that its position is based on a presumption,
ECF 35, PgID 665, and KLAM provided evidence that it was advised to place a litigation
hold on all relevant documents, ECF 38-1, PgID 693, ¶ 3. Moreover, KLAM has
participated in the discovery process since October 2017. ECF 29, 33. The Court
therefore finds that there is insufficient evidence of spoliation or frustration of discovery
to support a finding of prejudice.
Plaintiff finally argues that KLAM's delay has increased Plaintiff's litigation costs.
ECF 35, PgID 665. But setting aside an entry of default will always increase litigation
costs. $22,050.00 U.S. Currency, 595 F.3d at 325. Because Plaintiff has not provided
sufficient evidence showing why setting aside the entry of default here would increase
litigation costs to a greater extent than would naturally occur when an entry of default is
set aside, the Court finds Plaintiff's argument unpersuasive.
II.

Whether KLAM has a Meritorious Defense
The Court finds that KLAM has a meritorious defense. To determine whether a

defense is meritorious, the test is not whether a defense is likely to succeed on the
merits but rather whether there is "some possibility" that the defense will affect the
outcome of the suit. Dassault Systemes, SA v. Childress, 663 F.3d 832, 843 (6th Cir.
2011). KLAM asserts that its actions are not the "but for" cause of Plaintiff's lost sales.
ECF 32, PgID 615. When deciding Plaintiff's motion for a preliminary injunction, the

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Court found that Plaintiff provided insufficient evidence that Balish's actions caused
some of Plaintiff's alleged damages. ECF 23, PgID 473. Because KLAM's liability, if
any, is likely to be derived from Balish's actions shortly before or after he joined KLAM,
the causation defense may have an effect on the outcome of the suit. Consequently,
KLAM has a meritorious defense.
III.

Whether KLAM's Culpable Conduct led to the Default
The Court finds that KLAM's culpable conduct led to the default. A defendant's

conduct is culpable if it displays either: (a) an intent to thwart judicial proceedings, or (b)
a reckless disregard for the conduct's effect on judicial proceedings. Shepard Claims
Serv., Inc. v. William Darrah & Assocs., 796 F.2d 190, 194 (6th Cir. 1986). KLAM admits
that it had knowledge of the lawsuit. ECF 32, PgID 611. KLAM refused to participate,
however, because it was unsure whether it had been properly served and whether it
was subject to the Court's jurisdiction. Id. KLAM's knowledge of the suit coupled with its
conscious decision not to participate indicates that KLAM intended to thwart the judicial
proceedings. KLAM could have affirmatively challenged service and jurisdiction, but
instead chose to remain silent while the Court spent months adjudicating the case—
including a contentious preliminary injunction dispute—in KLAM's absence. KLAM then
brazenly filed its motion to set aside the entry of default on the same day that Plaintiff
sought to convert the entry of default into a default judgment. ECF 30, ECF 32. And to
top it off, KLAM audaciously retained Balish's counsel—which suggests that the
Defendants were colluding during KLAM's intentional silence. ECF 31. KLAM's dilatory
and disruptive tactics are egregious and condemnable.

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IV.

Conclusion
Although KLAM's culpable conduct led to the default, the Court is required to

balance all three factors. Shepard, 796 F.2d at 194. And because the first two factors so
strongly favor setting aside the entry of default, the Court finds that the balance favors
granting KLAM's motion. Id.; Berthelsen v. Kane, 907 F.2d 617, 622 (6th Cir. 1990).
Consequently, the Court will also find moot Plaintiff's motion for default judgment.
ORDER
WHEREFORE it is hereby ORDERED that KLAM's Motion to Set Aside Default
[32] is GRANTED. The Clerk of the Court shall set aside the entry of default filed on
July 27, 2017.
IT IS FURTHER ORDERED that Plaintiff's Motion for Default Judgment [30] is
found MOOT.
SO ORDERED.
s/ Stephen J. Murphy, III
STEPHEN J. MURPHY, III
United States District Judge
Dated: January 29, 2018
I hereby certify that a copy of the foregoing document was served upon the parties
and/or counsel of record on January 29, 2018, by electronic and/or ordinary mail.
s/ David Parker
Case Manager

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