HUDSON HOSPITAL OPCO, LLC v. REGENCY HERITAGE NURSING AND REHABILITATION CENTER LIMITED LIABILITY COMPANY et al
OPINION filed. Signed by Judge Freda L. Wolfson on 10/30/2017. (km)
*NOT FOR PUBLICATION*
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
HUDSON HOSPITAL OPCO, LLC
d/b/a CHRIST HOSPITAL,
Civ. Action No. 16-5673(FLW)
REGENCY HERITAGE NURSING
CENTER, LLC., et al.,
WOLFSON, U.S. District Judge:
Plaintiff Hudson Hospital OPCO LLC, d/b/a Christ Hospital (“Christ
Hospital” or “Plaintiff”) filed this action against defendant Regency Heritage
Nursing and Rehabilitation Center, LLC 1 (“Regency” or “Defendant”), for recovery
of medical expenses that it provided to a patient (“Patient 1”), who was insured
by Regency’s health plan. Plaintiff’s Complaint asserts four causes of action: (1)
claim for benefits under the Employee Retirement Income Security Act (“ERISA”)
pursuant to § 502(a)(1)(B) and 28 U.S.C. § 1132; (2) violation of fiduciary duties
of loyalty and due care in pursuant to 29 U.S.C. § 1132(a)(3); (3) violation of §
503 by denying Plaintiff a “full and fair review” of denied claims pursuant to 29
U.S.C. § 1133; and (4) declaratory judgment pursuant to 28 U.S.C. § 2201. On
Plaintiff also named United Healthcare Services, Inc., as a defendant;
however, Plaintiff voluntarily dismissed that defendant on December 23, 2016.
See Notice of Voluntary Dismissal, dated December 23, 2017.
February 16, 2017, the Clerk of the Court entered default judgment against
Defendant in the amount of $1,045,909, after Defendant failed to answer or
otherwise defend this action. In the instant mater, Regency moves to vacate
default judgment, arguing that the service of the Summons and Complaint was
improper, and in alternative, the judgment should be set aside pursuant to Fed.
R. Civ. P. 60(b). For the reasons set forth below, Regency’s motion is GRANTED.
Defendant must file its answer or otherwise move within fourteen days from the
date of the Order accompanying this Opinion. The parties are directed to file,
simultaneously, as to the propriety of sanctions in this matter, by no later than
November 6, 2017.
A hearing on the issue of sanctions shall be held on
November 16, 2017.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Regency is a company engaged in the business of operating nursing homes
and rehabilitation centers in the state of New Jersey. Compl.,¶ 7. Patient 1,
insured by Regency’s employer-sponsored health plan (“Regency Health Plan”),
was admitted to Christ Hospital on February 6, 2014, through the emergency
room. Id. at ¶¶ 1, 17. Patient 1 remained at Christ Hospital for 55 days after his
admission, and was diagnosed with, and treated for, various medical conditions,
including carcinoma prognosis of the abdomen and pelvis with nausea and
vomiting. Id. at ¶ 18. When he was admitted to the hospital, Patient 1 signed an
Assignment of Benefits (“AOB”), by which, he authorized the “direct payment to
[Christ Hospital] and/or to any physician of any insurance benefits otherwise
payable to [Patient 1] for [his] hospitalization at a rate not to exceed the hospital’s
approved rate.” Id. at ¶ 19. Upon admission, Christ Hospital confirmed with
Regency that Patient 1 had insurance and was eligible for coverage, and
treatment. Id. at ¶¶ 20, 21. Ultimately, Patient 1 was diagnosed with, inter alia,
The total cost of his stay and treatment at Christ
Hospital was $1,045,559.00. Id. at ¶¶ 23, 24. Pursuant to the AOB, Christ
Hospital sought benefits payment under the Regency Health Plan.
Regency employed United Healthcare Services, Inc. (“UHS”), to administer
claims under the Regency Health Plan as the third-party administrator. Id. at ¶
26. On November 10, 2014, UHS and Regency denied the reimbursement claim
from Christ Hospital for Patient 1’s treatment, reasoning that his illness was
work-related and should be paid by Patient 1’s workers’ compensation carrier,
Tristar Risk Management (“Tristar”). Id. at ¶ 27. However, on January 29, 2015,
Regency allegedly informed Christ Hospital that Regency’s risk management
department had no documentation regarding Patient 1’s illness being workrelated, no report of first injury on file, and further, that Regency could not
determine when Patient 1’s illness began after reviewing his disability
application. Id. at ¶ 29. As such, Christ Hospital appealed Regency and UHS’s
denial of benefits for Patient 1’s medical expenses, and to date, Regency has not
paid for any part of Patient 1’s treatment. Id. at ¶¶ 31, 34.
Based on the denial, on September 16, 2016, Christ Hospital filed the
instant suit against Regency and UHS. As such, Regency’s deadline to file its
Answer to the Complaint was November 14, 2016. On January 18, 2017, without
an answer or motion practice from Regency, Christ Hospital requested, and the
Clerk of the Court entered, default against Regency. Christ Hospital, by FedEx,
sent the request for entry of default, with a supporting declaration, to Regency.
After entry of default and notice to Regency of the request for default, on
February 14, 2017, Christ Hospital requested the Clerk to enter default
judgment against Regency in the sum certain amount of $1,045,909. At the
same time, Regency submitted a letter to the Court requesting that the Clerk not
enter judgment, to which Christ Hospital responded. Nevertheless, default
judgment was entered on February 16, 2017. Thereafter, on March 1, 2017,
Regency moved to set aside default judgment before this Court pursuant to Fed.
R. Civ. P. 60(b). The bases for Regency’s instant motion are as follows: 1) that
Plaintiff’s service of process was defective; and 2) even if service is proper,
judgment should nonetheless be set aside pursuant to the standard set forth by
Rule 60(b). Since the motion presented factual disputes, to properly evaluate
the parties’ arguments, the Court held an evidentiary hearing on June 13, 2017,
wherein the Court heard testimony from various witnesses.
constitutes my findings of facts and conclusions of law following that hearing.
Standard of Review
Service of Process
Federal Rule of Civil Procedure 4(h) provides two methods by which a
defendant corporation may be served with a copy of the summons and complaint
absent a valid waiver of service. One of the permissible methods of service under
Rule 4(h) requires “delivering a copy of the summons and of the complaint to an
officer, a managing or general agent, or to any other agent authorized by
appointment or law to receive service of process.” Fed. R. Civ. P. 4(h)(1). 2
Alternatively, Rule 4(h)(1) provides that service upon a corporation may be
made “in a judicial district of the United States in the manner prescribed for
individuals by subdivision (e)(1).” Fed. R. Civ. P. 4(h)(1). Correspondingly, Rule
4(e)(1) states that service may be made “pursuant to the law of the state in which
the district court is located, or in which service is effected, for the service of a
summons upon the defendant in an action brought in the courts of general
jurisdiction of the State.” Fed. R. Civ. P. 4(e)(1). In other words, service upon a
corporation, or unincorporated associations, may be made in accordance with
the New Jersey Rules of Court relating to service of process.
New Jersey Court Rule 4:4-4 governs service of process in New Jersey state
courts. New Jersey Court Rule 4:4-4(a)(6) provides that personal jurisdiction can
be obtained over a defendant corporation by:
[S]erving a copy of the summons and complaint in the manner
prescribed by paragraph (a)(1) of this rule on any officer, director,
trustee or managing or general agent, or any person authorized by
appointment or by law to receive service of process on behalf of the
corporation, or on a person at the registered office of the corporation
in charge thereof, or, if service cannot be made on any of those
persons, then on a person at the principal place of business of the
corporation in this State in charge thereof . . .
Rule 4(h)(1)(B) states that a summons and complaint on “a domestic or
foreign corporation, or a partnership or other unincorporated association that is
subject to suit under a common name must be served on an “officer manager or
general agent or any other agent authorized by appointment or law.” Fed. R. Civ.
P. 4(h)(1)(B). Limited liability companies, such as Defendant, fall under the
category of “unincorporated associations.” Erwin v. Waller Capital Partners, LLC,
No. 10-03283, 2010 U.S. Dist. LEXIS 109384, at *14 (D.N.J. Oct. 14, 2010).
N.J. Ct. R. 4:4-4(a)(6).
The New Jersey Supreme Court, in O’Connor v. Altus, 67 N.J. 106 (1975),
applied a two-pronged test in determining whether service of process was
properly effectuated under Rule 4:4. Specifically, in making this consideration,
the Supreme Court held that service may be effectuated upon an individual who
is not a corporate executive or managing agent if (a) the representative upon
which service is made is “so integrated with the organization that [s]he will know
what to do with the papers” and (b) if the representative “should stand in a
position as to render it fair, reasonable and just to imply the authority to receive
service.” Altus, 67 N.J. at 128 (internal citation omitted) (holding that service was
proper upon the receptionist, because “the receptionist was sufficiently
integrated with the small organization . . . to know what to do with the papers
and it was reasonable for the deputy sheriff to assume she had authority to
receive service”); see Davis v. DND/Fidoreo, Inc., 317 N.J. Super. 92, 98 (App.
Div. 1998) (citing Altus for the proposition that “[d]elivery of process need not be
accomplished during a face-to-face meeting with the person upon whom service
is to be effected; it is sufficient if the sheriff's officer serves a person whom he
can reasonably expect will deliver the process to the appropriate person.”).
Moreover, service was found to be properly effectuated where a
representative of a corporation, i.e., a receptionist or secretary, explicitly stated
that he or she is authorized to receive service, regardless of whether that
representative was so integrated within the corporation. See Trustees of Local
478 Trucking and Allied Industries Pension Fund v. Baron Holding Corp., 224 N.J.
Super. 485, 490 (App. Div. 1988) (“In this case, the deputy did not have ‘to imply’
that [the receptionist] had authority to receive service. The unrebutted proof
shows that [the receptionist] represented to the deputy that she was authorized
to accept service.”).
Motion to Vacate Default Judgment
Even if service is proper, default may nonetheless be vacated. Federal
Rules of Civil Procedure 55 and 60(b) authorize a district court to enter default
and default judgment when the defendant does not contest an action, but the
party against whom default judgment has been entered may move to vacate the
judgment “within a reasonable time.” Mrs. Ressler's Food Prods. v. KZY Logistics
LLC, 675 Fed. Appx. 136, 139 (3d Cir. 2017). A district court may grant a motion
to set aside the judgment for “good cause” pursuant to Rules 55(c) and 60(b). Id.
“A judgment setting aside the entry of default is within a district court’s
discretion, and may only be made ‘for good cause.’” Doe v. Hesketh, 828 F.3d
159, 174–75 (3d Cir. 2016) (quoting Fed. R. Civ. P. 55(c)). “In exercising that
discretion and determining whether ‘good cause’ exists, [the Third Circuit] ha[s]
instructed district courts to consider the following factors: ‘(1) whether the
plaintiff will be prejudiced; (2) whether the defendant has a meritorious defense;
[and] (3) whether the default was the result of the defendant's culpable conduct.’”
Hesketh, 828 F.3d at 175 (quoting United States v. $55,518.05 in U.S. Currency,
728 F.2d 192, 195 (3d Cir. 1984)). “This discretion is not without limits, however,
and [the Third Circuit] ha[s] repeatedly stated [its] preference that cases be
disposed of on the merits whenever practicable.” Hritz v. Woma Corp., 732 F.2d
1178, 1181 (3d Cir. 1984); see $55,518.05 in U.S. Currency, 728 F.2d at 194–95
(“this court does not favor entry of defaults or default judgments. We require
doubtful cases to be resolved in favor of the party moving to set aside the default
judgment so that cases may be decided on their merits.”) (quotation omitted).
In that regard, the Third Circuit has “emphasiz[ed] the extreme nature of
a . . . default judgment,” Poulis v. State Farm Fire and Cas. Co., 747 F.2d 863,
867 (3d Cir. 1984), and “repeatedly [has] stated [its] preference that cases be
disposed of on the merits whenever practicable,” Hritz, 732 F.2d at 1181.
Because entry of a default judgment is an “extreme sanction,” Scarborough v.
Eubanks, 747 F.2d 871, 875 (3d Cir. 1984), it is generally disfavored. Gross v.
Stereo Component Sys., Inc., 700 F.2d 120, 122 (3d Cir. 1983). “[I]n a close case
doubts should be resolved in favor of setting aside the default and reaching a
decision on the merits.” Gross, 700 F.2d at 122. Nevertheless, while the circuit
has "adopted a policy disfavoring default judgments and encouraging decisions
on the merits, . . . the decision to vacate a default judgment is left to the sound
discretion of the trial court.” Harad v. Aetna Cas. and Sur. Co., 839 F.2d 979,
982 (3d Cir. 1988) (citing Tozer v. Charles A. Krause Milling Co., 189 F.2d 242,
245 (3d Cir. 1951)).
In considering the three-prong test, whether a defendant can articulate a
meritorious defense is a threshold matter. Resol. Trust Corp. v. Forrest Grove
Inc., 33 F.3d 284, 288 (3d Cir. 1994).
To establish a meritorious defense,
defendant’s "allegations, if established at trial, would constitute a complete
defense.” $55,518.05 in U.S. Currency, 728 F.2d at 195; see Hritz, 732 F.2d at
1181. But, a defendant seeking to vacate a default judgment must “allege
specific facts beyond simple denials or conclusionary statements.” $55,518.05 in
U.S. Currency, 728 F.2d at 195. This standard is “more stringent” and exacting
than that normally required for an answer to a complaint, because it “requires
that a defendant . . . set forth with some specificity the grounds for [its] defense.”
Harad, 839 F.2d at 982. However, such a standard does not require that a
defendant's allegations of defense be in such detail that it meets "summary
judgment standards.” Poulis, 747 F.2d at 869.
Relevant to this case, the Third Circuit has recognized the following
allegations as sufficient to set forth meritorious defenses in order to vacate
default judgment: (1) an insurer’s claim that its insurance policy on which a
recovery was being sought did not provide coverage in the underlying action,
Feliciano v. Reliant Tooling Co., Ltd., 691 F.2d 653, 657 (3d Cir. 1982); (2) a
potential lack of involvement of a defendant in the distribution chain in a
products liability suit, Hritz, 732 F.2d at 1181; and (3) a defendant-insurer’s
reliance on the application of a one-year limitations provision for claims in its
policy, even though the plaintiffs disputed that provision’s applicability. Poulis,
747 F.2d at 870.
Based on the disputes in the parties’ submissions, the Court held a
hearing to determine whether service was properly effectuated. I heard testimony
from Mr. Carlos Perez, the process server hired by Plaintiff, Ms. Shirley Escobar,
the former receptionist at Regency, and Mr. David Gross, President of Regency.
As I commented on the record, I find that Mr. Perez properly served Regency by
effectuating service upon Ms. Escobar. Because I have given my conclusions on
the record, I will briefly set forth my reasons below.
On October 24, 2016, Mr. Perez, a process server for DGR, served the
Summons and Complaint on Ms. Escobar at Regency’s Somerset, New Jersey,
facility. 3 See Declaration of Carlos Perez (“Perez Dec.”), ¶ 2, Transcript of Hearing
dated June 13, 2017 (“Tr.”) at T170:18-24. There is no dispute that Ms. Escobar,
who was employed at Regency as a part-time receptionist at the time the
Complaint and Summons were served, was seated at the reception desk when
Mr. Perez entered that facility. Id. at ¶ 3. According to Mr. Perez, after entering
the facility, he asked Ms. Escobar if she was a managing agent authorized to
accept service of the Summons and Complaint, and based on Mr. Perez
testimony, Ms. Escobar “grabbed the documents. She skimmed maybe three,
four pages, and then asked where to sign.” Tr., T9:24-T10:3. Mr. Perez then
handed Ms. Escobar his work order, and Mr. Perez testified that Ms. Escobar
placed her signature on that document. Id. Mr. Perez also wrote certain physical
characteristics of Ms. Escobar on the work order.
Regency has two facilities in New Jersey which are located in Lakewood
and Somerset. Mr. Gross’s main office is located at the Lakewood facility. While,
typically, proper service on an unincorporated organization should be effectuated
upon an officer or agent of the company, because the Court finds that service
was proper based upon apparent authority of a Regency receptionist, see infra,
the fact that Defendant was not served in its Lakewood facility is not relevant in
my analysis, here.
However, Ms. Escobar claimed that she did not recall receiving a copy of
the Summons and Complaint, and further, that she has never been authorized
to accept such a delivery, and would have made this known to any process server
who asked. Escobar Cert., ¶¶ 3, 7. In that regard, Ms. Escobar testified that as
a part of her training at Regency, she was instructed as to the procedures she
should follow when she is approached at the reception area with legal papers.
Tr. 44:19-24. She further testified that if she is approached with legal papers
while sitting at the reception desk, she must report that to the administrator
present at Regency on that day. Tr. 45:2-5; 71:13-16. Ms. Escobar insisted that
she was trained on, and knew exactly the proper procedure regarding handling
the delivery of legal papers at Regency, and that a large part of her
responsibilities was to accept incoming packages. Tr. 42:13-15; 43:20-23. And,
it was Ms. Escobar’s testimony, and indeed, Regency’s position, that Mr. Perez
never approached Ms. Escobar to effectuate service. See Tr. 158:8-25. I do not
find Ms. Escobar’s testimony in that respect credible.
There is no doubt that Mr. Perez was present at the facility on October 24,
2016. He describes Regency’s Somerset facility in great detail, and indeed, Ms.
Escobar corroborated those descriptions. See Tr. 21:2-22:2. While the physical
descriptions of Ms. Escobar that Mr. Perez placed on the work order, i.e., height,
age and race, do not reflect Ms. Escobar actual attributes, I find that a
reasonable person making visual observations would characterize Ms. Escobar
in a similar manner, particularly since I had the opportunity to observe Ms.
Escobar at the hearing. Next, I do not find Ms. Escobar’s testimony regarding
her signature on the work order credible. When Ms. Escobar was asked to review
her print signature on the work order, she responded that she did not print her
name on that document. See Tr. 78:19-79:7. However, glaringly, Ms. Escobar
did not dispute such an issue with her print signature in the certifications
submitted in connection with Regency’s motion to vacate. When questioned
about this discrepancy, Ms. Escobar’s answer was vague and unresponsive, see
Tr. 89:14-91:14, and the only answer she gave emphatically was that she did not
sign the work order. But, compellingly, when asked whether she signed the
FedEx package containing the notice of default, Ms. Escobar also stated that she
did not sign the FedEx’s confirmation receipt. Her testimony in this regard lacks
indicia of truthfulness, because not only is the signature on the FedEx receipt
similar to her signature on her certifications, there is no testimony that anyone
else in the Somerset facility besides Ms. Escobar accepted the FedEx package,
and there is no dispute that it was received. See Tr. 96:16-20; 97:8-11. Her
consistent refusal to acknowledge any signature on any documents put into
doubt her testimony regarding her print signature on the work order. Indeed, I
had the opportunity to observe Ms. Escobar’s demeanor on the stand when she
answered questions from counsel and from the Court. In my view, the witness’
answers sounded rehearsed, and in that regard, it does not appear that those
answers reflected what actually occurred.
Significantly, at times during the
examination, Ms. Escobar provided inconsistent statements, and clearly seemed
to be uncomfortable at providing certain responses. In totality, I cannot find Ms.
Escobar’s version of the event to be entirely credible.
Rather, I find more credible Mr. Perez’s testimony of what occurred when
he served the Summons and Complaint — that Ms. Escobar accepted the legal
documents, quickly browsed through them, and asked where to sign. While it is
my belief that Ms. Escobar did not affirmatively and explicitly state to Mr. Perez
that she was a managing agent of Regency, I do find that Ms. Escobar accepted
service and affixed her print signature on the work order, which led Mr. Perez to
believe that Ms. Escobar, a receptionist, had the authority to accept service of
process. Indeed, Mr. Perez, a professional process server for many years, has no
incentive to provide false information regarding what occurred. His testimony is
consistent with his certifications, and his responses on the stand were not vague,
unlike Ms. Escobar’s answers, which sounded more coached than the truth.
Applying my factual findings to the law, I hold that Christ Hospital’s
service of process upon Regency was proper.
To reiterate, the New Jersey
Supreme Court in O’Connor, held that service may be properly effectuated on an
individual who is not a managing agent if (a) the representative upon which
service is made is “so integrated with the organization that [she] will know what
to do with the papers;” and (b) if the representative “should stand in a position
as to render it fair, reasonable and just to imply the authority to receive service.”
Altus, 67 N.J. at 128.
As to the first factor, based on Ms. Escobar’s own
testimony, Ms. Escobar, having been employed at Regency for over two years at
the time when service of process in question took place, was apparently aware
what she must do when she accepted packages, including legal documents. 4 See
Tr. 44:19-45:5. In that regard, she understood, as a receptionist, what Regency
required of her when she was presented with legal documents, i.e., refuse service
and immediately inform an administrator. Id. Thus, I find that Ms. Escobar was
sufficiently integrated with Regency such that she knew the steps to take when
Mr. Perez presented her with the Summons and Complaint. Of course, because
I already found that Ms. Escobar signed for the Summons and Complaint on
behalf of Regency, she clearly did not follow those steps.
Defendant argues that even if service was proper, the default judgment
must nonetheless be vacated because Regency’s established policy prohibited
Ms. Escobar from accepting service of any process or other legal documents. In
that connection, Regency’s President, David Gross, testified to having instituted
some unwritten procedure for accepting service of process at Regency. Tr.
134:11-22. This company policy, according to Mr. Gross, would have prevented
Ms. Escobar from accepting service and that only his administrators could
accept service on Regency’s behalf. Mr. Gross also testified that these
administrators knew that they must transmit important legal papers to him. See
Tr. 134:11-19; 134:20-135:4. Other than Mr. Gross’s testimony in this regard,
there is no other corroborating evidence, documentary or otherwise, to support
the existence of this policy and procedure. Indeed, having made my findings of
fact, Ms. Escobar did not follow such an alleged procedure when she received
the Summons and Complaint from Mr. Perez, and similarly, the FedEx package
for which she signed also was not transmitted to administrators, including Mr.
Gross. In addition, in at least one other instance, another Regency employee,
Frumy Rappaport, appeared to have accepted service of process in an unrelated
case, which purportedly would have violated the company policy about which
Mr. Gross testified. See Tr. 145:14-146:4. Based on all these instances, without
more evidentiary support, I cannot find Mr. Gross’s testimony regarding an
established company policy credible. Rather, while there may be occasions
where the administrators have provided some instructions to Regency employees
regarding acceptance of packages in general, based on the record before me, I do
not find that an established procedure regarding service of process existed at
the time Regency was served by Christ Hospital. Based on this finding, I reject
Defendant’s argument in this regard.
Next, I further find that by signing the work order on behalf of Regency,
Ms. Escobar gave Mr. Perez the impression that she had authority to accept
service. Stated differently, this type of conduct on Ms. Escobar’s part renders it
fair, reasonable and just to imply that she had the authority to receive service.
On this point, as I have set forth supra, New Jersey courts have found service
proper when a receptionist holds herself out as having the authority to receive
service, even if that employee does not have such authority. Trustees of Local
478, 224 N.J. Super. at 490; Altus, 67 N.J. at 128. Having met both factors, the
Court finds that Plaintiff properly served Regency when Mr. Perez delivered the
Summons and Complaint to Ms. Escobar. Although Ms. Escobar was not a
managing agent, by signing the work order and accepting the legal documents,
Ms. Escobar held herself out as a representative of Regency who was authorized
to accept service. Accordingly, I find that service was properly effectuated on
October 24, 2016. However, even if service was proper, I still have to examine
whether vacating default is appropriate under Rule 60(b).
Motion to Vacate Default Judgment
In evaluating a motion to vacate default judgment, “[t]he threshold
question . . . is whether [defendant] has established a meritorious defense. . . .
The showing of a meritorious defense is accomplished when ‘allegations of
defendant’s answer, if established on trial, would constitute a complete defense
to the action.’” $55,518.05 in U.S. Currency, 728 F.2d at 195 (quoting Tozer v.
Charles A. Krause Mill. Co., 189 F.2d 242, 244 (3d Cir. 1951)). The defendant
must “set forth with some specificity the grounds for his defense,” so the court
may determine its substantive merit. Harad, 839 F.2d at 982.
On the element of meritorious defense, Regency has arguably presented
meritorious defenses to Plaintiff’s claims. The fundamental issue in this case is
insurance coverage, and according to the Complaint, there is a dispute as to
which of Regency’s insurance carriers is responsible for Patient 1’s claims, based
on whether his diagnosed illnesses were work-related. Compl., ¶ ¶ 26-29. Indeed,
according to Regency, its Controller, Aaron Stefansky, identified Patient 1 as a
former Regency employee, who worked his last day at Regency on January 30,
2014. See Aaron Stefansky Certification (“Stefansky Cert.”), ¶ 4. On March 7,
2014, Patient 1 signed a temporary disability benefits claim form, which stated,
“I am working in a nursing home in Somerset so I think that’s where I get [sic]
it.” Id. at ¶ 5. During this time period, Regency carried Workers’ Compensation
insurance for its employees at the facility where Patient 1 worked. That
insurance provided coverage for bodily injury by accident and by disease. Id. at
¶ 6. Thus, Regency has sufficiently articulated that Patient 1’s coverage could
be made under Regency’s Worker’s Compensation insurance, rather than its
health insurance plan. While Plaintiff argues, with some evidentiary support,5
that Defendant’s Worker’s Compensation carrier, Tristar Risk Management, had
In connection with this motion to vacate, I permitted the parties to
exchange limited discovery on the issue of meritorious defense. While Plaintiff
has presented some evidence to rebut Defendant’s defenses, Defendant also
responded with its own evidence to further support its position. At best, there
are issues of facts that I cannot resolve here, and guided by the Third Circuit’s
preference for disposing matters on the merits, the prudent course is to vacate
default and allow these issues to proceed on the merits.
previously denied a reimbursement claim based on worker’s compensation,
Defendant disputes Plaintiff’s position in this regard. In evaluating Defendant’s
defenses, my task here is not to examine the parties’ evidence; Plaintiff’s injuries
may or may not have been work-related, but the ultimate question on causation
is to be resolved at later stages of this litigation — not on a motion to vacate
default judgment. See, e.g., Farrell v. Cty. Van & Storage, Inc., No. 96-1174, 1996
U.S. Dist. LEXIS 23178, at *5-6 (E.D.N.Y. Nov. 25, 1996); NuMed Rehab., Inc. v.
TNS Nursing Homes of Pennsylvania, Inc., 187 F.R.D. 222, 224 (E.D. Pa. 1999).
Instead, I find, at this stage, that Regency’s coverage defense could completely
absolve it from liability.
Moreover, Regency also raises a timeliness defense. The health plan under
which Plaintiff alleges Patient 1 was entitled to benefits stipulates that health
insurance benefits are terminated on the first of the month following a member’s
termination of employment with Regency. Id. at ¶ 7. Patient 1’s last day of work
for Regency was January 30, 2014. Id. at ¶ 4. Thus, Regency argues that Patient
1’s health benefits may have terminated February 1, 2014, five days prior to
Patient 1 entering Christ Hospital for treatment. I also find this defense to be
Finally, Regency further argues that there is substantial doubt whether,
under Third Circuit law, Plaintiff has standing to pursue its ERISA Claims based
on the “Assignment of Benefits.” In that connection, it is Regency’s defense that
the Assignment of Benefits only provides Plaintiff to “direct payment,” which,
Regency argues, is not sufficient to confer standing upon Plaintiff to pursue the
full range of ERISA claims that Plaintiff has brought in this case.
Defendant raises issues with Plaintiff’s standing to bring all or some of its claims,
I find that Defendant’s position, if proven true during litigation, would be a
meritorious defense to liability.
Based on Defendant’s positions concerning the applicability of Regency’s
Workers Compensation insurance, Patient 1’s eligibility for benefits at the time
of hospitalization, and the sufficiency of Christ Hospital’s submission of its
claims for payment, the Court finds that Regency has sufficiently demonstrated
— with the requisite specificity — that it has meritorious defenses to Plaintiff’
Prejudice to the Plaintiff
“Prejudice to the plaintiff exists where a defendant is judgment-proof or
where ‘there has been a loss of available evidence, increased potential for fraud
or collusion, or substantial reliance upon the judgment.’” Alliots v. Meat House
Franchising, LLC, 2014 WL 3517777, at *3 (D.N.J. July 14, 2014); see Julaj v.
Tau Assocs. LLC, 2013 WL 4731751, at *4 (D.N.J. 2009) (vacating default
judgment because “the inconvenience and expense to a plaintiff of having to
litigate on the merits do not rise to the level of prejudice.”). Further, prejudice
can be established when a plaintiff’s “ability to pursue the claim has been
hindered….” Nationwide Mut. Ins. Co. v. Starlight Ballroom Dance Club, Inc., 175
Fed. Appx. 519, 524 (3d Cir. 2006) (citing Feliciano v. Reliant Tooling Co., 691
F.2d 653, 657 (3d Cir. 1982)).
Plaintiff’s arguments concerning prejudice are based solely on Defendants’
delay in responding to the Summons and Complaint. Plaintiff contends that this
delay, taken in consideration with Defendant’s alleged lack of a meritorious
defense and culpable conduct, warrant upholding the judgment. However,
nowhere does Plaintiff argue that if the Court were to vacate default judgment,
there would be a loss of available evidence, or any increased potential for fraud.
More importantly, there is no evidence that Plaintiff would be hindered from
prosecuting its claims against Defendant if judgment were to be vacated. Indeed,
delay in litigating does not constitute prejudice sufficient to allow default to
stand. See Caruso v. Occhiogrosso, No. 11-1951, 2013 U.S. Dist. LEXIS 95265,
at *6 (D.N.J. Jul. 9, 2013); Feliciano v. Reliant Tooling Co., 691 F.2d 653, 656-57
(3d Cir. 1982). And, Plaintiff has conceded that point by stating in its brief that
delay alone may not be a sufficient degree of prejudice to warrant upholding
default judgment. Thus, I do not find that Plaintiff would be prejudiced.
The standard for “culpable conduct” in the Third Circuit requires evidence
of “willfulness” or “bad faith” on the part of the non-responding defendant. Hritz,
732 F.2d at 1182. “[T]he words ‘willfulness’ and “bad faith’ are not talismanic
incantations which alone resolve the issue” but rather “are simply terms to guide
the district court by expressing [the Third Circuit’s] preference for avoiding
default judgments where the circumstances do not justify such a result.” Id. at
1182-183. “Appropriate application of the culpable conduct standard requires
that as a threshold matter more than mere negligence be demonstrated.” Id. at
1183. Certainly, “willfulness” and “bad faith” include acts intentionally designed
to avoid compliance with court notices. The case law, however, is bereft of
precedent limiting the availability of default judgment to this narrow band of
“knowing” disregard for court-mandated procedures. Id. Rather, a finding of
reckless disregard for repeated communications from the plaintiff and the court,
combined with the failure to investigate, can satisfy the culpable conduct
Here, Regency, through the testimony of Mr. Gross, claims that it was
unaware that Christ Hospital had filed suit until on or about February 14, 2017,
approximately five months after the Complaint was filed. Without admitting that
Ms. Escobar was, in fact, served, Regency contends that if she were, she never
provided the documents to anyone at Regency. As such, no one with authority
to respond was made aware of the case until February 14, 2017. David Gross
Certification (“Gross Cert.”), ¶ 5. After learning that default had been entered,
Mr. Gross retained counsel, on February 17, 2017, to participate in the litigation.
Gross Cert., ¶ 8.
To put it succinctly, it is Regency’s position that because
neither Mr. Gross, nor any administrator, was aware that Regency had been
served by Plaintiff, its lack of knowledge absolves the company of any culpable
conduct. However, based on the record before me, it is certainly undisputed that
Mr. Gross and other administrators at Regency had notice of this lawsuit being
filed prior to the entry of default, but they chose to ignore it. And, in that regard,
there are instances during Mr. Gross’s testimony where he offered half-truths or
misrepresentations to the Court.
On the day of the evidentiary hearing, it was Mr. Gross’s testimony that
he did not receive a copy of the Complaint in this case until February 2017, after
he retrieved the FedEx package containing the Notice of Default sent by Plaintiff.
The following is counsel’s exchange with Mr. Gross on direct-examination:
Q. Did anyone email or fax [the Complaint] to you?
A. My attorney originally, Richard Feldman.
Q. When was that?
A. When I called him up and I said: hey, I got a FedEx here that’s a
default judgment, so he looked into the case.
Q. And that was the first time?
Q. Can you approximate when that was?
A. In February .
See Tr. 109:09-110:8. Subsequent to the hearing, this Court instructed counsel
to submit additional certifications regarding a facsimile, containing the
Complaint, sent by United Health’s Attorney, Francis X. Manning, to Regency.
The certifications reveal that Regency received a copy of the Complaint in this
case on November 8, 2016. Chaya Schiff, Payroll and HR Manager for Regency,
received these documents and handed them to her supervisor, Aaron Stefansky,
Regency’s Controller, who, in turn, handed them to David Gross. See, e.g., Chaya
Schiff Certification (“Schiff Cert.”). Mr. Gross also submitted a certification —
after having given his testimony — “clarifying” that he did in fact receive a copy
of the Complaint in November 2016, which names Regency as a defendant in
this suit. This admission is clearly at odds with his testimony under oath.
Mr. Gross further testified that in November 2016, he also spoke to an
attorney representing former co-defendant United Healthcare, who informed Mr.
Gross that United Healthcare was being sued, and that Regency was a party to
that suit as well. See Tr. 110:19-22. Mr. Gross communicated with David
Rubenstein, his contact at United Healthcare, who told Mr. Gross that he had
no information about the suit. Tr. 111:1-15. Without investigating further, Mr.
Gross decided, that since Regency had not been served, to his knowledge, the
call from United Healthcare could have been a mistake. Tr. 110:16-18. But,
around the same time frame, Mr. Gross indeed received a copy of the Complaint
naming Regency as a defendant from United Health’s attorney, and he sent an
email to his controller acknowledging receipt of the Complaint, but deliberately
chose to ignore the Complaint because Regency had not been formally served.
These facts belie Mr. Gross’s testimony that “[n]obody knew what was going on”
at the time he spoke with Mr. Rubenstein. Tr. 126:25-127:16. While Mr. Gross
may not have known that Regency had been served through Ms. Escobar in
October 2016, he knew for a fact that Regency was the subject of a lawsuit
brought by Plaintiff as early as November 2016.
Even after receiving the actual complaint that had been filed against
Regency, Mr. Gross continued to exhibit a cavalier attitude towards a federal
lawsuit against his company. I find extremely troubling that Mr. Gross would
deliberately bury his head in the sand and refuse to take any investigative steps
to inquire about the lawsuit or engage an attorney. In fact, it was not until Mr.
Gross retrieved the FedEx package containing the notice of default, in February
2017, that he finally took any action to respond to the lawsuit. 6
And, at that
time, it was already excessively tardy. Indeed, it is not difficult for this Court to
find that Mr. Gross’s careless approach led to the unnecessary motion practice
and the evidentiary hearing that ensued after Regency responded to the lawsuit.
Those findings aside, however, the applicable standard is culpable
conduct. As I review the precedents in this legal context, I have not been able to
locate a case, and Plaintiff has not cited any, where a defendant was found to be
culpable when that defendant did not have actual knowledge or notice that
service had been effectuated. Indeed, Mr. Gross stated that he did not take any
action with regards to the copy of the Complaint he received by fax, because in
his view, Regency had not been formally served. There is no evidence that Mr.
Gross was aware that Plaintiff had delivered the Complaint to Regency through
Ms. Escobar in October 2016. Mr. Gross’s testimony in this regard — that he
did not have that requisite knowledge — is uncontroverted by Plaintiff or the
record. Therefore, I cannot find, based on this record, that Mr. Gross ignored a
complaint that was delivered by Plaintiff to Regency. See, e.g., Glashofer v. New
Jersey Manufacturers Ins. Co., No. 15-3601, 2016 WL 4204549, at *4 (D.N.J.
I also take issue with Mr. Gross’s testimony that he does not regularly
check his mail at the Somerset facility, to which the FedEx package was sent
from Plaintiff’s law firm in mid-January 2017. On one hand, Mr. Gross boasts
about the policy and procedures implemented at Regency regarding how
employees, including himself, should handle mail in the office. But, on the other
hand, the record is clear that Mr. Gross had failed to adhere to his own alleged
policies by ignoring his mail in Somerset for weeks at a time. And, more
importantly, none of his employees alerted him to the package. If Mr. Gross
receives legal documents at Regency, as he has so testified, his behavior in this
respect demonstrates extreme carelessness.
Aug. 9, 2016)(finding negligent conduct when defendant was not aware that the
summons and complaint were served when the pleadings were “never scanned
into the system and it was never forwarded in any form to the claims department
for appropriate handling.”); Acevedo v. Cool Power, LLC, No. 14- 0253, 2015 WL
1014392, at *6–10 (E.D.N.Y. Mar. 9, 2015); Llolla v. Karen Gardens Apartment
Corp., No. 12-1356, 2016 WL 233665, at *2–3 (E.D.N.Y. Jan. 20, 2016); see also
Tozer v. Charles A. Krause Milling Co., 189 F.2d 242, 246 (3d Cir.1951)(holding
no gross neglect where the defendant, a Wisconsin corporation, did not receive
notice of the suit).
Thus, while I find Mr. Gross’s behavior extremely troubling, the Court is
constrained to hold that Mr. Gross’s conduct, viewed under the relevant
culpability standard in the context of a motion to vacate default judgment, does
not rise to the level of willful or bad faith behavior, albeit it certainly teeters on
the line of recklessness. Finally, I note that once Mr. Gross was aware that a
default has been entered, Regency’s counsel, within a matter of days, filed a
response to the request for default judgment, as well as the motion to vacate
default judgment. Because the evidence does not support the kind of reckless
or willful conduct required to be present on the part of Regency in order to find
culpability, and having analyzed the other factors, the Court vacates default
While Mr. Gross’s behavior does not constitute culpable conduct, his
actions may still very well be sanctionable pursuant to this Court’s inherent
powers “to achieve orderly and expeditious disposition of cases,” including “the
ability to fashion an appropriate sanction for conduct which abuses the judicial
process.” Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1186 (2017).
As I explained previously, the manner in which Regency has decided to approach
this case has not only necessitated motion practice by opposing counsel, but it
has multiplied proceedings in this case, wasting this Court’s valuable judicial
resources and time. Accordingly, a hearing will be scheduled to address the
issue of sanctions.
For the reasons set forth in this Opinion, Defendant’s motion to vacate
default judgment is granted. Defendant shall file its answer or otherwise move
within fourteen days from the date of the Order accompanying this Opinion. The
parties are directed to file, simultaneously, briefs as to the propriety of sanctions
in this matter, by no later than November 6, 2017. A hearing on the issue of
sanctions shall be held on November 16, 2017, at 11:00 a.m.
Dated: October 30, 2017
/s/ Freda L. Wolfson
Freda L. Wolfson
United States District Judge
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