Credit Acceptance Corporation v. Thames et al
MEMORANDUM OPINION AND ORDER denying 9 Motion to Set Aside 8 Order on Motion for Default Judgment, as set out herein. Signed by District Judge Tom S. Lee on 8/3/17 (LWE)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF MISSISSIPPI
CREDIT ACCEPTANCE CORPORATION
CIVIL ACTION NO. 3:17CV318TSL-RHW
ROSEMARY THAMES &
MEMORANDUM OPINION AND ORDER
This cause is before the court on the motion of defendants
Rosemary Thames and Walter White to set aside the default judgment
entered against them by the court on June 26, 2017.
Credit Acceptance Corporation (CAC) has responded in opposition to
the motion, and the court, having considered the motion, response
and the record in the case1, concludes that the motion should be
On May 1, 2017, CAC, a Michigan corporation, asserting
diversity subject matter jurisdiction under 28 U.S.C. § 13322,
filed a complaint for arbitration pursuant to § 4 of the Federal
Arbitration Act (FAA), 9 U.S.C. § 1, et seq., against defendants,
According to the complaint, under the
Counsel for defendants failed to file a brief in
support of the motion as required by Uniform Local Rule 7(b)(2);
he further inexplicably failed to file a rebuttal submission to
attempt to explain the numerous deficiencies identified by CAC’s
This section provides that the district court has original
federal jurisdiction “where the matter in controversy exceeds the
sum or value of $75,000.00, exclusive of interest and costs, and
is between ... citizens of different states....”
terms of a purchase and finance agreement executed by White and
Thames in connection with their purchase of a car financed by CAC,
they agreed both to arbitrate “any controversy or claim between
You and US arising out of or in any way related to this Contract,”
and to provide CAC with written notice of any covered dispute.3
Notwithstanding this agreement, on March 30, 2017, White and
Thames filed suit against CAC, Chucks Used Cars, Sharon Seals and
Charles Edward Seals in the Hinds County Chancery Court asserting
claims for conversion, detrimental reliance, unjust enrichment,
deceptive trade practices, conspiracy, bad faith tort, trespass,
breach of fiduciary obligation and emotional distress based on
allegations that even though they made a substantial down payment
and timely made all payments pursuant to their Agreement executed
in connection with their purchase of the vehicle, defendants
wrongfully repossessed the car in December 2016.
As relief, among
other things, White and Thames sought to be provided a new vehicle
valued at $15,000, “general and specific” damages in the amount of
$19,429, punitive damages and an award of attorney’s fees.
By its terms, the arbitration provision applies to any
“Dispute” between the parties, defined as “any controversy or
claim between You and US arising out of or in any way related to
this Contract.” The provision further states that “‘Dispute’
shall have the broadest meaning possible, and includes contract
claims, and claims based on tort, violations of laws, statutes,
ordinances, regulations or any other legal or equitable theories.”
CAC served White and Thames with the summons and complaint in
this cause on May 18, 2017.
Thereafter, on June 14, 2017, when no
answer or other responsive pleading had been filed by White or
Thames, CAC sought and received a clerk’s entry of default
pursuant to Rule 55(a) of the Federal Rules of Civil Procedure.
On June 18, 2107, CAC filed its motion for default judgment, which
the court granted on June 27, 2017.
The court’s judgment required
White and Thames to arbitrate their disputes, stayed the state
court litigation and dismissed the action.
On July 5, 2017, defendants filed the present motion seeking
to set aside the default judgment, strike the entry of default,
lift the stay of the state court proceedings and award $8,000 in
Although it is not altogether clear, White and
Thames appear to urge that the judgment should be set aside
because (1) it is void as the court lacks diversity jurisdiction;
(2) they were not provided proper notice of default under either
the Federal Rules of Civil Procedure or § 4 of the FAA and the
conduct of CAC’s attorneys lulled them into believing that CAC
intended to proceed in state court; and (3) the judgment was
obtained through the use of fraudulent documentation.
Federal Rule of Civil Procedure Rule 55(c) provides that the
court may set aside a default judgment in accordance with Rule
Rule 60(b), in turn, provides, in pertinent part,
On motion and just terms, the court may relieve a party
or its legal representative from a final judgment,
order, or proceeding for the following reasons:
(1) mistake, inadvertence, surprise, or excusable
neglect; . . .
(3) fraud (whether previously called intrinsic or
extrinsic), misrepresentation, or misconduct by an
opposing party; [or]
(4) the judgment is void[.]
Rule 60(b) is a “remedial provision intended to prevent injustice
by allowing parties their day in court even though some technical
error has occurred which would otherwise be grounds for default.”
Greater Baton Rouge Golf Assoc. v. Recreation and Park Comm'n, 507
F.2d 227, 228 (5th Cir. 1975).
As a general proposition, the
decision to grant or deny a motion to set aside a default judgment
under Rule 60(b) rests within the trial court’s discretion and is,
at bottom, an equitable one.
United States v. One Parcel of Real
Property, 763 F.2d 181, 183 (5th Cir. 1985)).
An exception is
“Unlike other Rule 60(b) provisions, relief under
Rule 60(b)(4) is not discretionary; if the judgment is void, the
district court must necessarily set the judgment aside.”
River Parishes Hosp., LLC, 548 Fed. Appx. 954, 957 (5th Cir. Apr.
A void judgment is “one which, from its inception, was
a complete nullity and without legal effect.”
citations and quotation marks omitted).
The Fifth Circuit has
identified two circumstances in which a judgment may be set aside
under Rule 60(b)(4): “1) if the initial court lacked subject
matter or personal jurisdiction; and 2) if the district court
acted in a manner inconsistent with due process of law.”
Petroleum Co. v. Frontier Ins. Co., 351 F.3d 204, 208 (5th Cir.
2003) (citing Carter v. Fenner, 136 F.3d 1000, 1005 (5th Cir.
Here, White and Thames argue that the judgment is void
because the court lacked subject matter jurisdiction.
regard, they appear to argue that diversity jurisdiction is
lacking for two reasons:
(1) CAC failed to join certain
indispensable parties as defendants, and specifically, Chucks Used
Cars, Sharon Seals and Charles Edward Seals, Mississippi citizens
who are defendants in the state court action; and (2) the amount
in controversy is below the $75,000 threshold for federal
Neither position is a basis for releif.
Under Fifth Circuit authority,
a Rule 60(b)(4) challenge to jurisdiction should be
sustained only where there is a “clear usurpation of
power” or “total want of jurisdiction.” Nemaizer v.
Baker, 793 F.2d 58, 64–65 (2d Cir. 1986); see also
United States v. Tittjung, 235 F.3d 330, 335 (7th
Cir.2000) (“Only when the jurisdictional error is
‘egregious' will courts treat the judgment as void.”).
Callon Petroleum Co. v. Frontier Ins. Co., 351 F.3d 204, 208 (5th
See also United Student Aid Funds, Inc. v. Espinosa,
559 U.S. 260, 271, 130 S. Ct. 1367, 1377, 176 L. Ed. 2d 158 (2010)
(observing that “[f]ederal courts considering Rule 60(b)(4)
motions that assert a judgment is void because of a jurisdictional
defect generally have reserved relief only for the exceptional
case in which the court that rendered judgment lacked even an
‘arguable basis’ for jurisdiction.”) (citations omitted).
court’s opinion, even if the referenced Mississippi defendants
were indispensable parties, their nonjoinder would not have
resulted in a total absence of jurisdiction so as to render the
See Kansas City S. Ry. Co. v. Great Lakes Carbon
Corp., 624 F.2d 822, 825–26 (8th Cir. 1980) (alleged failure to
join indispensable party did not render judgment void under Rule
60(b)(4), because the court was vested with power to deal with the
type of case before it and had acquired jurisdiction over the
parties before it”).
However, as CAC correctly points out, “[t]he
fact that [White and Thames] may have asserted claims in the state
court suit against others who had some involvement in the
underlying transaction does not make those others necessary
parties to this action, in which the sole issue is whether the
defendant is to be compelled to arbitrate its claims against
Bank One v. Coates, 125 F. Supp. 2d 819, 822 (S.D. Miss.
Under the above-cited standard applicable under Rule
60(b)(4), the judgment will not be considered void unless the
court had no arguable basis for finding that the amount in
controversy exceeded the $75,000 required for diversity
In the court’s opinion, it is not only arguable,
but rather facially apparent from defendants’ state court pleading
that the jurisdictional minimum is satisfied.
In a suit to compel
arbitration, the amount in controversy “is the amount of the
potential award in the underlying arbitration proceeding.”
Investacorp, 89 F.3d 252, 256 (5th Cir. 1996).
sought an order compelling White and Thames to arbitrate their
state court claims.
In the state court action, White and Thames
alleged in June 2016, Chucks Used Cars sold them a car, which was
financed by CAC.
The complaint explicitly demanded compensatory
damages in excess of $34,000 together with punitive damages and
On this basis, the court concludes that is
facially apparent that the amount in controversy exceeds $75,000.
See S&S Pharmacy, Inc. v. Xerox Audit & Compliance Sols., LLC, No.
1:16CV269-LG-RHW, 2016 WL 4536882, at *2 (S.D. Miss. Aug. 30,
2016) (court may take demand for unspecified punitive damages into
account when determining the amount in controversy).4
White and Thames further appear to contend that the judgment
is void because it was entered without notice as required by Rule
55(b)(2) and/or by 9 U.S.C. § 4.
Their position is without merit
because they were not entitled to notice of the motion for default
judgment under either Rule 55(b) or FAA § 4.
While “[d]ue process does not generally allow punitive
damages more than four times the amount of compensatory damages.”
S&S Pharmacy, Inc. v. Xerox Audit & Compliance Sols., LLC, No.
1:16CV269-LG-RHW, 2016 WL 4536882, at *2 (S.D. Miss. Aug. 30,
2016) (citing Bridges v. Freese, 122 F. Supp. 3d 538, 551 (S.D.
Miss. 2015)), an award of punitive damages slightly more than the
amount demanded in compensatory damages would not begin to
approach the level of constitutional impropriety.
Rule 55(b)(2) states:
“If the party against whom a default
judgment is sought has appeared personally or by a representative,
that party or its representative must be served with written
notice of the application at least seven days before the hearing.”
White and Thames did not appear personally or through their
counsel prior to the motion for default judgment or the court’s
entry of the default judgment.
They were litigating, and were
represented by counsel, in their state court case.
never entered an appearance in this case and thus were not
entitled to notice of default in this case.5
See Sellers v. Osyka
Permian, LLC, 263 F.R.D. 372, 374 n.1 (S.D. Miss. 2009)
(concluding that defense counsel’s appearance in related
bankruptcy proceedings did not entitle defendant to notice of
default under Rule 55(b) in district court litigation).
Section 4 of the FAA provides that a party aggrieved by
another’s alleged failure to arbitrate under a written agreement
may petition the court for an order directing arbitration and that
“[f]ive days' notice in writing of such application shall be
served upon the party in default.”
The “default” referenced in
this provision relates to a party’s failure to arbitrate pursuant
to written agreement, not a party’s failure to answer a complaint
White and Thames’ counsel does not dispute that he had
actual knowledge of the pending complaint for arbitration. CAC
provided him with a courtesy copy of the complaint in this action
after his clients were served.
Accordingly, there are no due process concerns
which would render the default judgment void.
While defendants do not explicitly invoke Rule 60(b)(1) as a
basis for their motion, defendants intimate in their motion that
they failed to answer because they were misled by CAC’s actions in
the state court case into thinking that CAC intended to litigate
(not arbitrate) their claims in the state court case; and
defendants further assert they have presented a meritorious
These arguments are suggestive of a request for relief
grounded on Rule 60(b)(1), which allows for relief from a default
judgment based on “mistake, inadvertence, surprise, or excusable
Rule 60(b)(1) is to be liberally construed to ensure that
doubtful cases are resolved on the merits.
Rogers v. Hartford
Life and Acc. Ins. Co., 167 F.3d 933, 938 (5th Cir. 1999) (citing
Harrell v. DCS Equip. Leasing Corp., 951 F.2d 1453, 1459 (5th Cir.
1992) (“This court applies Rule 60(b) ‘most liberally to judgments
in default ... [because] ... [t]runcated proceedings of this sort
are not favored.’ ”) (internal citations omitted)).
To determine whether a default judgment should be set aside
under Rule 60(b)(1), the Fifth Circuit has directed the district
court to “examine the following factors: ‘whether the default was
willful, whether setting it aside would prejudice the adversary,
and whether a meritorious defense is presented.’”
Gilchrist v. Groia & Co., 542 F.3d 114, 119 (5th Cir. 2008)
(quoting In re Dierschke, 975 F.2d at 183).
[T]wo of [these] factors carry special significance. A
district court has the discretion to refuse to set aside
a default judgment under 60(b)(1) if the defendant
“fails to present a meritorious defense sufficient to
support a finding on the merits for the defaulting
party.” Lacy [v. Sitel Corp.], 227 F.3d 290, 293 (5th
Cir. 2000). Also, if a district court finds a
defendant's default to be willful, then the district
court need not make any other finding. See Dierschke,
975 F.2d at 184.
Jenkens & Gilchrist, 542 F.3d at 119–20.
“A willful default is an
intentional failure to respond to litigation.”
975 F.2d at 184.
In re Dierschke,
Defendants have the burden of showing by a
preponderance of the evidence that their neglect was excusable,
rather than willful.
In re Chinese–Manufactured Drywall Prods.,
742 F.3d at 594.
Defendants have failed to demonstrate that their failure to
answer was the result of excusable neglect and not willful.
Defendants do not contend that service was defective or that they
were unaware of this federal action; and counsel for defendants
has conceded that he had actual notice that CAC’s complaint for
arbitration had been filed and served on his clients.
to serving defendants, by email dated May 22, 2017, counsel for
CAC sent counsel for defendants a courtesy copy of the complaint
for arbitration and advised him of the date on which his clients
Yet defendants did not file an answer to CAC’s
Defendants do not contend that CAC’s counsel
affirmatively represented to them that they were not required to
file an answer in this federal action but they suggest that by
proceeding in the state court action without mentioning or
demanding arbitration, CAC’s counsel somehow led them and their
counsel to believe that CAC did not intend to pursue its complaint
for arbitration, thus obviating the need for them to respond to
the federal court complaint.
Their professed belief in this
regard was not reasonable and does not excuse the failure to
answer the complaint.
Furthermore, defendants have failed to present a meritorious
To present a meritorious defense, defendants must make a
“clear and specific showing ... by [a] definite recitation of
facts” that they have a valid defense.
Jenkens & Gilchrist, 542
F.3d at 121 (citing Moldwood Corp. v. Stutts, 410 F.2d 351, 352
(5th Cir. 1969)).
Their “‘defense is measured not by whether
there is a likelihood that it will carry the day, but whether the
evidence submitted, if proven at trial, would constitute a
Id. (quoting Enron Oil Corp. v. Diakuhara, 10
F.3d 90, 98 (2d Cir. 1993) and citing 10A Charles A. Wright,
Arthur R. Miller, & Mary Kay Kane, Federal Practice & Procedure:
Civil 3d § 2697 (1998) (“The underlying concern is to determine
whether there is some possibility that the outcome of the suit
after a full trial will be contrary to the result achieved by the
Defendants’ motion to set aside the default judgment does not
explicitly put forward a defense to the complaint for arbitration.
Defendants intimate in their motion that they did not enter an
agreement to arbitrate.6
This would be a meritorious defense.
See Webb v. Investacorp., Inc., 89 F.3d 252, 258 (5th Cir. 1996)
(per curiam) (to determine whether to grant motion to compel
arbitration, district court’s “first step is to determine whether
the parties agreed to arbitrate the dispute at issue.”).
the evidence does not support their position.
As best the court can tell, White and Thames claim they did
not sign the July 8, 2016 retail installment contract containing
the arbitration agreement, which document was submitted by CAC as
an exhibit to its complaint for arbitration.
This document, they
say, which purports to be a “copy of the electronic original,”
signed by them electronically, is “falsified.”7
their motion, White and Thames “confirmed the falsity of [CAC’s]
submission only after comparing them to the documents which they
provided to their attorneys in State Court and as they were
previously provided by the Agents of CAC.”
They have attached as
an exhibit to their motion a copy of what they contend to be a
true and correct copy of the documents they received from CAC’s
They say in their “Conclusion” section of the motion
that “this state court matter proceeds on nothing more than state
law claims that are not based on a valid contract.”
On the lines and in the spaces designated for the
buyers’ signatures or initials, this document has what are clearly
computer-generated signatures and initials.
This exhibit consists of both an unsigned and undated
“Review Copy” of a retail installment contract (which, the court
notes, does contain an arbitration agreement), and an executed
copy of defendants’ consent to the use of their electronic
signatures in connection with the execution of the retail
Moreover, in their state court complaint,
White and Thames specifically affirmed that they entered into an
Agreement; even assuming they were referring to the “review copy”
they have provided to this court rather than the electronically
signed version of the Agreement presented by CAC, the fact is,
both documents contain the very same arbitration agreement
requiring arbitration of any dispute between the parties, i.e.,
“any controversy or claim between You and US arising out of or in
any way related to this Contract.”
Clearly, defendants’ claims in
the state court action fall within the purview of this provision.8
Based on the foregoing, the court concludes that defendants
have failed to provide any valid basis to set aside the default
Accordingly, it is ordered that defendants’ motion to
set aside default judgment is denied.
SO ORDERED this 3rd day of August, 2017.
Defendants may also be seeking relief under Rule
60(b)(3) on the basis that the default judgment was obtained by
fraud, i.e., by the submission of a falsified document. To secure
relief under Rule 60(b)(3), defendants must prove their allegation
of fraud “by clear and convincing evidence....” Longden v.
Sunderman, 979 F.2d 1095, 1103 (5th Cir. 1992). For the same
reasons they have failed to present a meritorious defense, White
and Thames have not sustained their burden to prove that CAC
obtained the default judgment by fraud.
/s/ Tom S. Lee
UNITED STATES DISTRICT JUDGE
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