HANCOCK et al v. A&R FLAG CAR SERVICE, INC. et al

Filing 33

MEMORANDUM AND/OR OPINION. SIGNED BY CHIEF JUDGE LAWRENCE F. STENGEL ON 8/24/17. 8/24/17 ENTERED AND COPIES E-MAILED.(mbh, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
CHRISTIAN HANCOCK, et al.,
Plaintiffs
vs.
A&R FLAG CAR SERVICE, et al.,
Defendants

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CIVIL ACTION

NO. 13-6596

MEMORANDUM
STENGEL, C. J.

August 24, 2017

The defendants have filed a motion to set aside and vacate the entry of default and
default judgment in the above-captioned case. The plaintiffs have responded. For the
following reasons, I will deny the motion.
I. BACKGROUND
The plaintiffs filed a five count collective action against the defendants for unpaid
overtime compensation, unpaid minimum wage compensation, and unlawful deductions,
alleging violations of the Fair Labor Standards Act, the Pennsylvania Minimum Wage
Act, the Pennsylvania Wage Payment and Collection Law, and Pennsylvania’s common
law. It also claims that the defendants failed to implement a system to track the number
of hours worked each workweek. The defendants further allegedly forced the plaintiffs to
pay for business expenses without reimbursement.
The complaint alleges that Defendant A&R Flag Car Service operates an escort
driving service. The plaintiffs operate what are called “flag cars” which “escorted” oversized wide load trucks on the highway. Defendant John Flagler had control over the

plaintiffs’ employment including processing payment and implementing/enforcing the
above policies and practices. There are ten John Doe defendants who allegedly directed,
aided, abetted, and/or assisted with creating and/or executing the other defendants’
policies and practices which resulted in the failure to pay the plaintiffs proper
compensation. Five of these ten defendants allegedly had control over processing
payroll.
The complaint further alleges that the plaintiffs regularly worked more than forty
hours per week. The defendants compensated the plaintiffs by paying them $0.85 per
mile for the miles that they drove while escorting oversized loads. The defendants also
paid the plaintiffs $10.00 per hour for time spent sitting during delays, and paid them
approximately $25.00 and $55.00 per day for trips which required the plaintiffs to stay
overnight in motels. The plaintiffs were required to transport their flag cars to and from
the locations where each escort trip began and ended. They were compensated for the
miles driven and hours worked while transporting the flag cars. The plaintiffs also had to
pay for gasoline for their flag cars and were not reimbursed. The plaintiffs allege that
they were not paid at least $7.25 per hour, and no overtime compensation was paid for
hours worked in excess of forty in a work week.
The plaintiffs filed this action on November 13, 2013. A Summons was returned
and filed on January 2, 2014, indicating that service had been accepted by Authorized
Agent John Flagler on behalf of Defendant A&R Flag Car Service on December 19,
2013. See Document #2. Federal Rule of Civil Procedure 12(a)(1)(A)(i) required the

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defendant to file a responsive pleading with the court within twenty-one days after being
served with the summons and complaint, i.e., January 9, 2014.
A Summons was returned and filed on January 2, 2014, indicating that Defendant
John Flagler had been personally served on December 19, 2013. See Document #3.
Federal Rule of Civil Procedure 12(a)(1)(A)(i) required the defendant to file a responsive
pleading with the court within twenty-one days after being served with the summons and
complaint, i.e., January 9, 2014.
On February 4, 2014, because the defendants did not file an Answer, the plaintiffs
requested the Clerk of Court to enter a default against the defendants pursuant to Federal
Rule of Civil Procedure 55(a) for failure to respond to the complaint. See Document #5.
On the same day, the Clerk of Court entered such a default.
On May 7, 2014, the plaintiffs filed an application for default judgment against the
defendants pursuant to Rule 55(b) of the Federal Rules of Civil Procedure. See
Document #6. At that point, the defendants had not filed a responsive pleading to the
complaint, or a response to the application for default judgment. Further, no attorney had
filed an entry of appearance on behalf of the defendants.
On June 4, 2014, I ordered the defendants to show cause on or before June 16,
2014, as to why the court should not grant the relief sought in the plaintiffs’ Application
for Entry of Default Judgment. See Document #7. The defendants neither responded nor
attended the hearing.
Following the hearing, I entered default judgment in favor of the plaintiffs and
against the defendants in this case, for an amount of $70,894.20. In attempting to collect
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on the judgment, the plaintiffs filed praecipes for writs of execution, which the Clerk’s
Office entered. Writs of garnishment were also entered as to two banks.
Because the defendants did not provide the plaintiffs with any answers, the
plaintiffs filed a motion to compel post-judgment discovery, which I granted on May 13,
2015. In addition, I ordered the defendants to answer the plaintiffs’ interrogatories in aid
of execution within fifteen days. On July 17, 2015, the plaintiffs filed a motion for
sanctions against the defendants for failure to comply with your Order. I scheduled a
hearing for September 9, 2015, giving the defendants yet another chance to appear and
show cause why an Order should not have been entered finding them in contempt of
court for failure to comply with my Order dated May 13, 2015. I also ordered the
defendants to file a written response to the Order to Show Cause by August 28, 2015.
The defendants chose not to respond to that Order, and chose not to attend the hearing.
The plaintiffs filed a brief informing the court that Defendant John Flagler had filed for
bankruptcy under Chapter 13 of the U.S. Bankruptcy Code in this district on August 26,
2015.
Following the argument of plaintiffs’ counsel at the hearing, I granted the
plaintiffs’ motion for sanctions, and found the defendants to be in contempt 1 of court for

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Civil contempt is a severe remedy, and requires a movant to demonstrate: (1) that a valid Order
of the court existed; (2) that the defendants had knowledge of the Order; and (3) that the
defendants disobeyed the Order. F.T.C. v. Lane Labs-USA, Inc., 624 F.3d 575, 582 (3d Cir.
2010). These elements must be proven by clear and convincing evidence, and ambiguities must
be resolved in favor of the party charged with contempt. John T. v. Del. Cty. Intermediate Unit,
318 F.3d 545, 552 (3d Cir. 2003). Here, there were no ambiguities. The plaintiffs proved all
three of the elements by clear and convincing evidence. I issued an Order on May 13, 2015,
compelling the defendants to answer the plaintiffs’ post-judgment discovery. The plaintiffs
proved that the defendants were served with copies of the Order by regular and certified mail on

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failure to comply with my Order dated May 13, 2015. I further requested that the
plaintiffs file an affidavit of costs and attorney’s fees for their attempt at post-judgment
discovery, and for the preparation of the motions to compel and for sanctions.
After a review of that affidavit, I ordered the defendants to pay attorney’s fees and
costs of $1,125.00 to the plaintiffs on October 26, 2015. I also ordered them to provide
full, complete, and verified responses to the plaintiffs’ discovery without objection,
within ten days of the date of that Order. Finally, I stayed the Order only as to Defendant
John Flagler pending his individual bankruptcy proceeding.
On January 15, 2016, the plaintiffs filed a second motion for sanctions, asking that
I issue a bench warrant for the arrest of Defendant John Flagler as president of Defendant
A&R, and that I keep Mr. Flagler in custody until he complied with my Orders and fully
responded to the plaintiffs’ post-judgment discovery requests. Almost two months later,
defense counsel entered his appearance on behalf of the defendants, filed the motion to
set aside the default judgment against the defendants, and also filed a response to the
plaintiffs’ second motion for sanctions. On August 29, 2016, I denied the motion for
sanctions, finding that the issuance of a bench warrant was a drastic measure and one
which I found was hardly warranted by the circumstances of this case.
II. LEGAL STANDARD
Rule 55(c) provides that “for good cause shown the court may set aside an entry of
default and, if a judgment has been entered, may likewise set it aside in accordance with

May 15, 2015. The defendants did not comply with the Order. Accordingly, I found the
defendants to be in contempt of court, and granted the plaintiffs’ motion for sanctions.

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Rule 60(b).” FED.R.CIV.P. 55(c). Rule 60(b) provides, in pertinent part: “on motion and
upon such terms as are just, the court may relieve a party or a party’s legal representative
from a final judgment, Order, or proceeding for the following reasons: (1) mistake,
inadvertence, surprise, or excusable neglect....or for ‘any other reason that justifies
relief.’” FED.R.CIV.P. 60(b)(1), (6). The Court has broad discretion in deciding whether
to set aside a default judgment. Clement Momah, M.D. v. Albert Einstein Med. Ctr., 161
F.R.D. 304, 307 (E.D. Pa. 1995). In general, defaults are not favored because the
interests of justice are best served by reaching a decision on the merits. Id. The Third
Circuit has explicitly stated it “does not favor default judgments and in a close case,
doubts should be resolved in favor of setting aside the default and reaching the merits.”
Zawadski de Bueno v. Bueno Castro, 822 F.2d 416, 420 (3d Cir. 1987). Thus, motions to
set aside default judgments are construed in favor of the movant. Brokerage Concepts,
Inc., v. Nelson Med. Group, No. 99-cv-5214, 2000 U.S. Dist. LEXIS 2848 (E.D. Pa. Mar.
15, 2000).
The Third Circuit has articulated the following four-part test that courts must
consider in deciding whether to set aside a default judgment: (1) whether the plaintiff will
be prejudiced if the default judgment is set aside; (2) whether the defendant has a
meritorious defense; (3) whether the default was the product of defendant’s culpable
conduct; and (4) whether alternative sanctions would be effective. Emcasco Ins. Co. v.
Sambrick, 834 F.2d 71, 73 (3d Cir. 1987); Blue Ribbon Commodity Traders, Inc. v.
Quality Foods Distributors, No. 07-cv-4037, 2007 U.S. Dist. LEXIS 90813 (E.D. Pa.
December 11, 2007).
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III. DISCUSSION
The defendants correctly point out that default judgments are strongly disfavored
within the Eastern District of Pennsylvania and Third Circuit because “the interest of
justice are best served by reaching a decision on the merits.” Natasha C. v. Vision Quest,
Ltd., No.03-cv-0193, 2003 U.S. Dist. LEXIS 14631, at 3-4 (E.D. Pa. August 26, 2003).
As such, the district courts have broad discretion in determining whether to set aside a
default judgment. Momah, M.D. v. Albert Einstein Med. Ctr., 161 F.R.D. 304, 307 (E.D.
Pa. 1995); Harad v. Aetna Casualty and Surety Co., 839 F.2d 979, 982 (3d Cir. 1988). A
standard of “liberality” rather than “strictness” should be used so that “any doubt should
be resolved in favor of the petition to set aside the judgment so that cases may be decided
on their merits.” City of Philadelphia v. Stone Int’l Resources, 1996 U.S. Dist. LEXIS
14964,*10 (E.D. Pa. 1996) (quoting Medunic v. Lederer, 533 F.2d 891, 893-894 (3d Cir.
1976)).
Here, the defendants argue that each of the four factors necessitates vacating and
setting aside the entry of default and default judgment against them. The plaintiffs
respond that the motion should be denied.
A. Prejudice to Plaintiff
The first factor to be considered is whether granting the motion to vacate the
default would prejudice the plaintiffs. A plaintiff is prejudiced by the setting aside of a
default judgment when “plaintiff’s claim would be materially impaired because of the
loss of evidence, an increased potential for fraud or collusion, substantial reliance on the
entry of default, or other substantial factors.” Dizzley v. Friends Rehab. Program, 202
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F.R.D. 146, 147-48 (E.D. Pa. 2001); see also Blue Ribbon Commodity Traders, Inc. v.
Quality Foods Distributors, No. 07-4037, 2007 U.S. Dist. LEXIS 90813 (E.D. Pa.
December 11, 2007).
The defendants argue that the plaintiffs will not be prejudiced by the setting aside
of the judgment because none of the evidence that existed at the time of the complaint’s
filing has been tampered with, destroyed or lost, or will become unavailable. Further,
according to the defendants, there is no reason to suspect any fraud or collusion by the
defendants.
While the defendants’ allegations might be true, it cannot be ignored that the
plaintiffs have been diligently attempting to secure the relief sought in the complaint
since the inception of this case, much to the indifference of the defendants. It is possible
that the plaintiffs may be prejudiced by reopening this action, and starting afresh.
However, whatever prejudice results would not be sufficient enough to weigh in favor of
denying the motion to set aside and vacate the judgment. At best, this factor is neutral.
B. Meritorious Defense
Next, I must consider whether the defendants have presented a meritorious defense
to the plaintiffs’ claims. The defendants insist that they do, in fact, possess a complete
defense to the plaintiffs’ claims. They indicate that the plaintiffs were not employees, but
independent contractors and are therefore exempt from the Fair Labor Standards Act
overtime provisions.
The Fair Labor Standards Act broadly defines an employee as “any individual
employed by an employer.” 29 U.S.C. § 203(e)(1). The Act defines an “employer” as
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“any person acting directly or indirectly in the interest of an employer in relation to an
employee.” 29 U.S.C. § 203(d). To make the determination of whether a plaintiff is an
employee or an independent contractor, courts should consider “whether, as a matter of
economic reality, the individuals are dependent upon the business to which they render
service.” Id.; see also Tony & Susan Alamo Found v. Sec’y of Labor, 471 U.S. 290, 301
(1985) (In determining whether an individual is an employee or a contractor, courts must
assess the “economic reality” to determine if the worker is economically dependent on
the business to which he or she renders service). The Third Circuit Court of Appeals has
embraced the economic realities analysis for determining whether workers are employees
under the FLSA. Martin v. Selker Bros., Inc., 949 F.2d 1286, 1293 (3d Cir. 1991) (“In
accordance with [the FLSA’s] expansive definitions, the Supreme Court has emphasized
that the courts should look to the economic realities of the relationship in determining
employee status under the FLSA.”) The worker’s economic dependence on the
employer, considering the entirety of the economic realities of the working relationship,
is the touchstone of employment under the FLSA. Martin, 949 F.2d at 1293. The Third
Circuit has suggested that the following six factors are relevant in determining the
“economic reality” of a relationship:
[T]he determination of the employment relationship does
not depend on isolated factors but rather upon the
circumstances of the whole activity... Although neither
the presence nor the absence of any particular factor is
dispositive, we have held that there are six factors to
determine whether a worker is an ‘employee:’ (1) the
degree of the alleged employer’s right to control the
manner in which the work is to be performed; (2) the
alleged employee’s opportunity for profit or loss
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depending upon his managerial skill; (3) the alleged
employee’s investment in equipment or materials
required for his task, or his employment of helpers; (4)
whether the service rendered requires a special skill; (5)
the degree of permanence of the working relationship;
[and] (6) whether the service rendered is an integral part
of the alleged employer’s business.
Martin v. Selker Bros., Inc., 949 F.2d 1286, 1293 (3d Cir. 1991) (citing Donovan v.
DialAmerica Marketing, Inc., 757 F.2d 1376, 1382 (3d Cir.), cert. denied, 474 U.S. 919
(1985)). “[N]either the presence nor absence of any particular factor is dispositive and . . .
courts should examine the ‘circumstances of the whole activity.’” DialAmerica, 757 F.2d
at 1382 (3d Cir. 1985).
Without discovery, it is difficult to make the determination of whether the
plaintiffs were independent contractors or employees of the defendants. I must rely on
allegations in the Complaint and the defendants’ responses in their proposed Answer.
Most of these allegations, however, address the manner in which the defendants
compensated the plaintiffs, with no insight into the degree of the defendants’ right to
control the manner in which the actual work was performed, or into the plaintiffs’
opportunity for profit or loss depending upon their managerial skills.
Further, the plaintiffs allege that, as escort drivers, their primary duty was
escorting trucks carrying oversized loads by operating a “flag car.” It is unclear from the
allegations who owned these pick-up trucks known as flag cars. The ownership of the
flag cars would assist in considering the plaintiffs’ investment in equipment or materials
required for their tasks. For example, in Paragraph #42 of the complaint, the plaintiffs
allege, “Defendants required Named Plaintiffs to transport their flag car to and from the
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locations . . .” Does the possessive adjective relate to “Defendants,” or to “Plaintiffs?”
But, in Paragraph #53, the plaintiffs allege that “Named Plaintiff Hancock also spent
around $175 on fuel needed to operate his flag car . . .” Does the possessive adjective
suggest that Mr. Hancock owns the flag car, or just that it was the particular flag car he
was driving on that particular day? Without specific information, it is difficult to
determine whether the plaintiffs were required to invest in equipment or materials to
perform their tasks for the defendants.
Next, the service the plaintiffs provided to the defendants was to drive a pick-up
truck known as a flag car and escort wide-load trucks to their destinations. I will
consider that service a special skill under these circumstances.
The Complaint alleges specifically that Named Plaintiff Hancock worked for the
defendants as an escort driver for approximately five and a half months. Named Plaintiff
Lanyon worked for them as an escort driver for approximately two years and five
months. These allegations reveal more of a steady working relationship than a shorter,
less permanent one.
Finally, if a worker performs work that serves the primary purpose of the business,
that work is an integral part of the business. DialAmerica, 757 F.2d at 1385; Martin, 949
F.2d 1295. “The critical consideration in assessing the integral relationship factor is the
nature of the work performed by the workers: does that work constitute an ‘essential part’
of the alleged employer’s business? In other words, regardless of the amount of work
done, workers are more likely to be ‘employees’ under the FLSA if they perform the
primary work of the alleged employer.” DialAmerica, 757 F.2d at 1385.
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Here, the defendants have admitted that the plaintiffs worked as escort drivers for
Defendant A&R Flag Car Services, which the defendants admitted is an escort driving
service provider. See Document #27, Exhibit A at ¶¶ 9, 20-21. These admissions
undermine the defendants’ defense that the plaintiffs were independent contractors under
the FLSA. Therefore, the defendants cannot dispute that the work the plaintiffs
performed was integral to the defendants’ business.
Accordingly, while the defendants have asserted the defense that the plaintiffs
were independent contractors and thus exempt from the FLSA, there is insufficient
evidence to support that assertion. I must find that the defendants have failed to establish
that they have a meritorious defense to plaintiffs’ claims under the FLSA.
C. Culpable Conduct
Rule 60(b) of the Federal Rule of Civil Procedure allows a court to set aside a
default judgment for mistake, inadvertence, surprise, excusable neglect or for any other
reason that justifies relief.” FED.R.CIV.P. 60(b). I must therefore determine whether the
defendants’ failure to respond to the complaint and my Orders amounted to culpable
conduct or excusable neglect. Culpable conduct is found when the defendant has acted
with willfulness or bad faith. GMAC Bank v. HTFC Corp., 2013 U.S. Dist. LEXIS
120261 at 26 (E.D. Pa. August 13, 2013). It is found when there is “a reckless disregard
for repeated communications from the Plaintiff or the Court.” Id. In this Circuit, “[e]ven
where neglect is inexcusable, and where the court cannot condone a defendant’s failure to
respond to a lawsuit for an extended period of time, culpable conduct warranting the
refusal to set aside default must rise to the level of ‘flagrant bad faith,’ and ‘callous
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disregard of responsibility.’” Blue Ribbon, 2007 U.S. Dist. LEXIS 90813, *9 (quoting
Griffen v. Alpha Phi Alpha, Inc., 2006 U.S. Dist. LEXIS 82435 (E.D. Pa. Nov.9, 2006)).
Here, the defendants argue that their failure to file a timely response to the
plaintiffs’ complaint was not the result of bad faith but the unfortunate consequence of
Defendant Flagler’s illness. They indicate that in 2011, Defendant Flagler suffered a
massive heart attack, has not worked since then, is now collecting Social Security
Disability Benefits, and continues to suffer severe health complications.
While these allegations may be truthful, I am not persuaded that the defendants’
continued lack of respect for our adversarial process can be blamed on Defendant
Flagler’s illness. The defendants repeatedly chose to forgo participation in this action.
Instead, they preferred to shirk their responsibility of filing responsive pleadings to the
plaintiffs’ complaint and motions, to ignore several court Orders, and to refuse to
participate in post-judgment discovery. They were even found to be in contempt of court.
I also note that the defendants failed to provide any medical evidence to support
their allegation that Mr. Flagler’s ill health prevented him from defending this action, or
even contacting the court to explain his situation. As the plaintiffs observed, the
defendants’ excuse of ill health is belied by the fact that the defendants employed
Attorney Mark Sigmon in July 2014, a month after the entry of default judgment, to
evaluate the default judgment entered against them. See Document #30, Exhibit A.
Notwithstanding Attorney Sigmon’s review of the case, the defendants waited until
March 4, 2016 to begin to participate in this action. I cannot help but correlate that
development with the filing of the plaintiffs’ second motion for sanctions requesting that
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Mr. Flagler be incarcerated until he complied with my Orders requiring him to respond to
the plaintiffs’ interrogatories. I also note, as the plaintiffs point out, that Mr. Flagler’s
health problems did not prevent him from hiring Mr. Sigmon to file for bankruptcy on
August 26, 2015.
Accordingly, I must find that the defendants’ failure to respond to the complaint,
to other motions, and to my Orders amounted to culpable conduct. The defendants
willfully disregarded repeated communications from the plaintiffs and this court. The
defendants acted in bad faith and with callous disregard of their responsibility to defend
this action.
D. Alternative Sanctions
Finally, I must consider the appropriateness of alternative sanctions. The
defendants argue that courts in our district have held that punitive sanctions are
inappropriate where a defendant has a meritorious defense, and has not acted in bad faith.
Royal Insurance Co. of America v. Packaging Coordinators, Inc., 2000 U.S. Dist. LEXIS
15471, *3 (E.D. Pa. October 24, 2000). Thus, they argue, because they have a
meritorious defense to the claims, and there is no evidence that they acted with willful
conduct or in bad faith, the sanction of permitting the default judgment to lie is
inappropriate.
Despite their arguments, the truth is that the defendants chose to ignore this action
until they were faced with the possibility of Mr. Flagler’s incarceration. By then, over
two years had passed since the inception of this case. They were given many
opportunities to respond to the plaintiffs, and to come into court to show cause why
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default judgment should not be entered against them, and why they should not be held in
contempt of court. All of that fell on deaf ears. Thus, I can think of no other sanctions
which would be appropriate here.
In conclusion, after consideration of the four factors courts must review in
deciding whether to set aside a default judgment, especially the lack of a meritorious
defense and the finding of culpable conduct, I will deny the defendants’ motion to set
aside and vacate the entry of default and default judgment.
An appropriate Order follows.

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