Unity School District v. Vaughn Associates, Inc. et al

Filing 118

ORDER granting 106 Excel's Motion to Strike or Vacate Entry of Default. So Ordered by Judge Steven J. McAuliffe.(lat)

UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE

Unity School District,
Plaintiff
v.

Case No. 15-cv-155-SM
Opinion No. 2018 DNH 037

Vaughn Associates, Inc.,
and Scott Vaughn,
Defendants
v.
School Administrative Unit #6,
Excel Mechanical, Inc.,
Superior Walls of Hudson Valley, Inc.,
and Town of Unity,
Third-Party Defendants

O R D E R

In 2010, the Unity School District entered into two
contracts with Vaughn Associates and its principal, Scott Vaughn
(collectively, “Vaughn”), to design and oversee construction of
a new elementary school in Unity, New Hampshire.
go as planned.

Things did not

What was originally expected to be a $4.7

million project ballooned into one exceeding $9 million.

Prior

to the project’s completion, the contracts between Unity School
District and Vaughn were terminated and the School District
secured the services of a new architect and a new construction
manager.

Construction was completed and the school eventually

opened - nearly two years later than planned and at a cost
almost twice that which was originally budgeted.

Perhaps not surprisingly, the school district brought this
action against Vaughn, advancing claims of architectural
malpractice, breach of contract, negligent misrepresentation,
and unfair and deceptive trade practices in violation of New
Hampshire’s Consumer Protection Act.

Vaughn, in turn, brought

third-party claims against several defendants, including Excel
Mechanical Systems.
otherwise defend.

But, Excel failed to answer, plead, or

Accordingly, the court entered default

against it.

Eventually, Vaughn settled the claims advanced against it
by the Unity School District.

Vaughn then moved the court to

enter default judgment against Excel, in the amount of $1.3
million.

Counsel appeared on behalf of Excel and now moves the

court to strike the entry of default.

For the reasons

discussed, that motion is granted.

Background
The material facts are undisputed.

In June of 2015,

William Souza, the president and owner of Excel, was served with
Vaughn’s third-party complaint and immediately forwarded it to

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corporate counsel, Michael Murphy, Esq.

Although Murphy agreed

to represent Excel in this matter, he neglected to file an
appearance or otherwise plead.

After Souza learned that a

default had been entered against Excel, he confronted Murphy,
who assured him that he was working on getting the default
lifted.

See Email from Murphy to Souza (dated June 16, 2016)

(document no. 106-8) (assuring Souza that he was “finalizing” a
motion to vacate the entry of default and expected to file it
the following week).

Subsequently, Murphy (falsely) represented

to Souza that Vaughn wished to settle its claims against Excel,
but Murphy counseled against settlement, saying Vaughn’s claims
were weak (thus conveying the false impression that he had cured
the default and litigation was proceeding apace).

So, in February of 2017, believing that the default had
been set aside and the case was on a typical trajectory toward
trial, Souza dutifully appeared for his deposition and was
examined by Vaughn’s counsel.

When counsel asked Souza if he

was aware that Excel was in default, Souza replied that he was
not.
9.

See Deposition of William Souza (document no. 117-2) at 8-

Immediately after his deposition, Souza spoke with Murphy

about the default.

Murphy assured him that it was “just a paper

issue” and that he would take care of it.

Souza says that

because Murphy had ably represented the company for 15 years,

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and because he had been a personal friend of the family for 30
years, he had no reason to doubt that Murphy would resolve the
issue.

In May of 2017, the default remained and Vaughn filed a
motion for the entry of default judgment against Excel.

Then,

in October of 2017, the Massachusetts Board of Bar Overseers
contacted Souza (a professional misconduct investigation into
Attorney Murphy’s practices was underway).

Souza says a BBO

representative informed him that Excel needed to secure the
services of a new attorney.

According to Souza, “until that

time, I thought, based on the representations of Attorney Murphy
and the pending BBO investigation against him, that the matter
was being rectified.

Excel promptly retained new counsel.”

Souza Affidavit (document no. 117-1) at para. 17.

Less than a

month later, counsel appeared on behalf of Excel and filed the
pending motion to strike the entry of default.

Discussion
Rule 55(c) of the Federal Rules of Civil Procedure provides
that the court may “set aside an entry of default for good
cause.”

In determining whether a movant has shown good cause,

the court considers the totality of the circumstances, see,

4 

e.g., Coon v. Grenier, 867 F.2d 73, 76 (1st Cir. 1989),
including the following factors:

(1)
(2)
(3)
(4)
(5)
(6)
(7)

whether the default was willful;
whether setting it aside would prejudice the
adversary;
whether a meritorious defense is presented;
the nature of the defendant’s explanation for the
default;
the good faith of the parties;
the amount of money involved; [and]
the timing of the motion [to set aside entry of
default].

KPS & Assocs. v. Designs by FMC, Inc. 318 F.3d 1, 12 (1st Cir.
2003) (quoting McKinnon v. Kwong Wah Restaurant, 83 F.3d 498,503
(1st Cir.1996)).

Here, virtually all (if not all) of the relevant factors
counsel in favor of granting Excel’s motion to vacate the entry
of default.

First, its default can hardly be said to have been

willful - indeed, Souza attended his deposition, he never gave
any indication that he planned to do anything other than defend
the action of its merits, and never showed disrespect toward the
court or its authority.

See, e.g., Snyder v. Talbot, 836 F.

Supp. 26, 29 (D. Me. 1993) (citing Shepard Claims Service, Inc.
v. William Darrah & Associates, 796 F.2d 190, 194 (6th Cir.
1986)).

Default was entered against Excel because counsel

failed to file an appearance and then repeatedly lied to Excel

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about that fact.

Second, notwithstanding Vaughn’s vague claims

of prejudice, setting aside the default would not prejudice it.
Excel has represented that it has maintained all relevant
records of its work on the Unity School District elementary
school and there is no suggestion that any relevant witnesses
have died or moved out of reach of the court’s subpoena power.

Also relevant is the fact that Excel has articulated viable
defenses to the various claims Vaughn advances against it.
Excel’s Memorandum (document no. 106-1) at 9-14.

See

See also

Excel’s Reply Memorandum (document no. 117) at 7-9.
Additionally, Excel’s explanation for the default is entirely
plausible and the amount of money at issue is substantial: in
excess of $1.3 million.

Finally, Excel appears to have acted

promptly in retaining new counsel and seeking to vacate the
entry of default, after the BBO examiner contacted Souza and
told him that Excel needed to retain new counsel.

Conclusion
For the foregoing reasons, as well as those set forth in
Excel’s legal memoranda, the court concludes that Excel has
shown good cause to set aside the entry of default.

Given the

unique circumstances of this case, setting aside the default is
fair, just, and reasonable.

It is also consistent with both the

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provisions of Rule 55 and the general preference to resolve
parties’ disputes on the merits.

See generally Coon, 867 F.2d

at 76 (“Allowing an entry of default to be set aside on a
showing of reasonable justification is in keeping both with the
philosophy that actions should ordinarily be resolved on their
merits, and with the command of the Civil Rules themselves.”)
(citations omitted).

Accordingly, Excel’s Motion to Strike or Vacate the Entry
of Default (document no. 106) is granted and the default is set
aside.

SO ORDERED.

____________________________
Steven J. McAuliffe
United States District Judge
February 23, 2018
cc:

George T. Dilworth, Esq.
Keriann Roman, Esq.
Demetrio F. Aspiras, III, Esq.
Melissa A. Hewey, Esq.
Kenneth B. Walton, Esq.
Lindsey D. Smith, Esq.
Jason P. Rogers, Esq.
Michael P. Sams, Esq.
Matthew V. Burrows, Esq.
Samantha D. Elliott, Esq.
Andrew B. Livernois, Esq.

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