Paradise v. Commonwealth Financial Systems, Inc.
MEMORANDUM (Order to follow as separate docket entry).Signed by Honorable Matthew W. Brann on 9/22/14. (km)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
COMMONWEALTH FINANCIAL :
FIDELITY DEPOSIT & DISCOUNT :
Case No. 3:13-cv-00001
September 22, 2014
Before the Court are Defendant Commonwealth Financial Systems, Inc.’s
(“Defendant”) Motion to Vacate Default Judgment (ECF No. 25) and third-party
Garnishee Fidelity Deposit & Discount Bank’s Motion for Interpleader (ECF No.
33). As elaborated below, the Defendant’s Motion is denied because it failed to
demonstrate that it has a meritorious defense to Plaintiff’s claims and that it was
not derelict in its duty to litigate. The Motion for Interpleader is denied without
Plaintiff Alexandra Paradise (“Plaintiff” or “Paradise”) filed a Complaint
(ECF No. 1) on January 1, 2013, alleging inter alia violations of the Telephone
Consumer Protection Act, 47 U.S.C. § 227 (“TCPA”) for debt collection phone
calls that Defendant placed to Plaintiff’s phone number. Plaintiff was not the
intended recipient of the calls.
Defendant accepted service of Plaintiff’s Complaint via electronic mail to
Matthew Healey (“Healy”), its compliance officer, on January 3, 2014. Pl.’s Br.
Opp’n 1, July 22, 2014, ECF No. 36 [hereinafter Pl.’s Br.]. The Parties then
engaged in informal discovery and an email exchange, in which Defendant made a
settlement offer. After Plaintiff rejected the settlement offer, Healey wrote: “[t]hen
proceed with judgment.” Pl.’s Br., Ex. C.
Plaintiff filed an Amended Complaint on January 24, 2013 (ECF No. 5).
The Defendant did not respond. Plaintiff then filed a Request for Entry of Default
(ECF No. 8) and certificate of service, and the Clerk entered Default on March 21,
2013 (ECF No. 9). The Court held a hearing on October 1, 2013 to assess
damages, which it fixed at $63,000 (ECF Nos. 19, 20) and subsequently entered
Default Judgment in favor of the Plaintiff on October 21, 2013(ECF No. 21).
Despite eleven months of silence after its initial communications in this case,
Defendant then filed the Motion to Vacate Default Judgment that is now before the
Court (ECF No. 25). Defendant seeks to vacate the Default Judgment and litigate
Motion to Set Aside Default Standard
Federal Rule of Civil Procedure 55(c) allows a court to “set aside an entry of
default for good cause, and . . . set aside a default judgment under Rule 60(b).”
FED. R. CIV. P. 55(c). Rule 60(b) grants courts broad authority to provide relief
from judgment for reasons including: 1) mistake, inadvertence, surprise, or
excusable neglect; . . . or (6) any other reason that justified relief.” FED. R. CIV. P.
Default judgments and “default [are] generally disfavored and [courts] have
long indicated [the] strong preference that cases be decided on the merits.” Ruhle
v. Hous. Auth. of City of Pittsburgh, 54 Fed. Appx. 61, 62 n.1 (3d Cir. 2002); see
also Lai v. Garrubbo, Capece, D’Arcangelo, P.C., 233 Fed. Appx. 201, 201 (3d
Cir. 2007); Harad v. Aetna Cas. & Sur. Co., 839 F.2d 979, 982 (3d Cir. 1988). “If
there is any doubt as to whether the default should be set aside, the court should err
on the side of setting aside the default and reaching the merits of the case.” AccuWeather, Inc. v. Reuters Ltd., 779 F. Supp. 801, 802 (M.D. Pa. 1991) (McClure, J.)
(citing Zawadski de Bueno v. Bueno Castro, 822 F.2d 416, 420 (3d Cir. 1987)).
Where default judgment has been granted, however, courts do consider motions to
set aside the judgment less liberally than to set aside a mere entry of default. See,
e.g., Schartner v. Copeland, 59 F.R.D. 653, 656 (M.D. Pa. 1973) aff’d, 487 F.2d
1395 (3d Cir. 1973).
The Court has discretion in determining whether there is a reason justifying
relief, and evaluates a number of factors to that end including: “(1) whether the
plaintiff will be prejudiced; (2) whether the defendant has a meritorious defense;
(3) whether the default was the result of the defendant’s culpable conduct.” U.S. v.
$55,518.05 in U.S. Currency, 728 F.2d 192, 195 (3d Cir. 1984).1 The Defendant
bears the burden to demonstrate sufficient good cause. See, e.g., Grow Tunneling
Corp. v. Conduit & Found. Co., Inc., 96-cv-3127, 1996 WL 411658, * 2 (E.D. Pa.
July 16, 1966).
Defendant Does Not Offer A Facially Meritorious Defense
The primary dispositive issue is whether the Defendant can establish a
meritorious defense to the Plaintiff’s claims. This inquiry is critical because,
The United States Court of Appeals for the Third Circuit has also considered a fourth
factor, “the effectiveness of alternative sanctions,” when applicable. Emcasco Ins. Co. v.
Sambrick, 834 F.2d 71, 73 (3d Cir. 1987).
without a meritorious defense, the Defendant could not prevail at trial and there
would be little purpose in setting aside the default judgment. See, e.g., $55,518.04
in U.S. Currency, 728 F.2d at 194–95.
“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.’” Id. (quoting Tozer v. Charles A. Krause Mill. Co., 189 F.2d 242, 244
(3d Cir. 1951)). While a defendant need not establish “beyond a shadow of a
doubt” that he or she will prevail at trial, “it is not enough for a defendant to allege
only simple denials or conclusory statements.” Ewing & Kreiser, P.C. v. Stephens,
08-cv-5490, 2009 WL 1183347, *2 (E.D. Pa. May 1, 2009) (citing and quoting
$55,518.05 in U.S. Currency, 728 F.2d at 195) (internal citations omitted).
Nevertheless, a defendant must merely “show that it has a defense to the action
which at least has merit on its face.” Accu-Weather, Inc., 779 F. Supp. at 803.
In the case at bar, the Defendant asserts two affirmative defenses to
Plaintiff’s claims. The first defense alleges that the Defendant was exempt from
TCPA restrictions on calling cellular telephones because the Defendant had proper
prior consent to do so. See Def.’s Br. Supp. 5–6, Nov. 4, 2013, ECF No. 26
[hereinafter Def.’s Br.]. The second defense asserts that the TCPA does not apply
to calls made for the purpose of debt collection that are not telemarketing. See id.
at 6–7. Neither of these assertions are availing.
Defendant Lacked Prior Consent From the Called Party
The Defendant asserts that the TCPA provides an exemption from its
restrictions on calling cellular telephones when the “called party” has obtained
prior consent to call. The pertinent statutory language reads:
It shall be unlawful for any person within the United States, or any
person outside the United States if the recipient is within the United
States—(A) to make any call (other than a call made for emergency
purposes or made with the prior express consent of the called party)
using any automatic telephone dialing system or an artificial or
prerecorded voice . . . (iii) to any telephone number assigned to a . . .
cellular telephone service, . . . or any service for which the called
party is charged for the call . . . .
47 U.S.C. § 227(b)(1).
Defendant alleges that it did retain consent from the debtor it was attempting
to contact, who used the phone number at the time the Defendant obtained consent.
The Defendant argues that consent is sufficient to invoke the exception to the
statute’s restriction, despite the fact that the Plaintiff, the party who used that
phone number during the events of the instant litigation, did not provide her
express consent. This argument is unavailing in light of both the statutory text and
persuasive precedent to the contrary.
Chief Judge Frank H. Easterbrook of the United States Court of Appeals for
the Seventh Circuit examined this very issue writing for the court, which held that
a “called party” for the purposes of the exemption to the TCPA’s restriction on
making automated calls to a cell phone is the person subscribing to the called
number at the time the call was made. Soppet v. Enhanced Recovery Co., LLC,
679 F.3d 637, 641–42 (7th Cir. 2012).2 Judge Easterbrook engaged in a rigorous
statutory analysis to discern the meaning of a “called party” within the context of
the TCPA. See id. at 639–642. Judge Easterbrook compared the use of the term
among several different sections of the act in which it is used. See id.
Notably, there is a distinction between the “called party” and the “intended
recipient” of the call, as the terms are used in the TCPA. See id. “[T]here is a
natural presumption that identical words used in different parts of the same act are
intended to have the same meaning.” Atl. Cleaners & Dryers, Inc. v. United States,
286 U.S. 427, 433 (1932) (Sutherland, J.). Similarly, when a document uses a
certain term in one place, namely “called party,” and a materially different term in
another place, namely “intended recipient,” the context creates the presumption
that the different term denotes a different idea. The “intended recipient,” in this
case the Defendant’s debtor, is not the “called party,” in this case
Many courts have subsequently embraced the Seventh Circuit’s analysis of this issue.
See, e.g., Osorio v. State Farm Bank, F.S.B., 746 F.3d 1242 (11th Cir. 2014); Sterling v.
Mercantile Adjustment Bureau, LLC, 2014 WL 1224604 (W.D.N.Y. Mar. 25, 2014); Page v.
Regions Bank, 917 F. Supp. 2d 1214, 1219 (N.D. Ala. 2012).
Paradise—consequently the prior consent defense appears unavailing for the
Defendant. See id.
The TCPA Exemption for Debt Collection Applies to
Calls Made to Land Lines, Not Cellular Telephones
The Defendant’s second asserted defense is that the TCPA’s prohibitions do
not apply to calls made for the purpose of debt collection that do not qualify as
telemarketing. Def.’s Br., at 6. To assert this argument, the Defendant relies on a
case decided by Judge Caputo of this Court, who found that “the FCC has
determined that all debt-collection circumstances are excluded from the TCPA’s
coverage.” Roy v. Dell Financial Servs., LLC, 3:13-CV-738, 2013 WL 3678551,
*3 (M.D. Pa. July 12, 2013), appeal dismissed (May 14, 2014) (citing Meadows v.
Franklin Collection Serv., Inc., 414 F. App’x 230, 235 (11th Cir. 2011).
Nevertheless, shortly after Judge Caputo’s ruling, the United States Court of
Appeals for the Third Circuit unequivocally stated that the TCPA’s exemptions for
debt collection calls “do not apply to cellular phones; rather, these exemptions
apply only to autodialed calls made to land lines.” Gager v. Dell Fin. Servs., LLC,
727 F.3d 265, 273 (3d Cir. 2013).
The Court wrote at length:
At first glance, [the defendant’s] argument appears correct: the FCC
regulations implementing the TCPA permit certain types of autodialed debt
collection calls . . . . See, e.g., 47 C.F.R. § 64.1200(a)(2)(iii), (iv)
(exempting calls “made to any person with whom the caller has an
established business relationship” and calls “made for a commercial purpose
[that do] not include or introduce an unsolicited advertisement or constitute a
telephone solicitation.”). However, [the defendant] fails to recognize that
these these exemptions do not apply to cellular phones; rather, these
exemptions apply only to autodialed calls made to land-lines. See 47 C.F.R.
§ 64.1200(a)(2). Therefore, the debt collection exemption invoked by [the
defendant] is not applicable in this case.
Looking to the provisions of the TCPA that apply to autodialed calls to
cellular phones and the exemptions promulgated by the FCC, it is clear that
[the defendant’s] argument is without merit. The statutory provisions under
which [the plaintiff] brought her claim bans the use of “any automatic
telephone dialing system” to call “any . . . cellular telephone service.” 47
U.S.C. § 227(b)(1)(A)(iii) (emphasis added). The only exemptions in the
TCPA that apply to cellular phones are for emergency calls and calls made
with prior consent. See id. 47 C.F.R. § 64.1200(a)(1)(iii). Unlike the
exemptions that apply exclusively to residential lines, there is no established
business relationship or debt collection exemption that applies to autodialed
calls made to cellular phones. Thus, the content-based exemptions invoked
by [the defendant] are inapposite.
Gager, 727 F.3d at 273.
In the wake of this opinion, courts within the Third Circuit have adopted this
result as the definitive statement of the law on the issue. See, e.g., Fenescey v.
Diversified Consultants, Inc., 3:14-CV-347, 2014 WL 2526571 (M.D. Pa. June 4,
2014) (Conaboy, J.); Forrest v. Genpact Servs., LLC, 962 F. Supp. 2d 734, 736
(M.D. Pa. 2013) (Nealon, J.). Accordingly, the Defendant’s assertion that the
TCPA does not apply to its debt collection calls placed to the Plaintiff’s cellular
telephone is not a facially viable defense.
Defendant’s Culpable Conduct
In addition to the fact that Defendant lacks a facially meritorious defense,
there is evidence in the record to suggest the Defendant’s may have acted with
callous disregard of this lawsuit. First, the Defendant argues that its failure to file
an answer to the Plaintiff’s Complaint was simply a result of poor communication
with its counsel. Def.’s Br., at 7–8. The evidence of record casts a dubious pall
over the Defendant’s contention in this respect.
The Plaintiff filed her Complaint against the Defendant on January 1, 2013;
summons was issued electronically to Defendant on January 2, 2013; and the
Defendant’s compliance officer, Matthew Healey, accepted service of the
Complaint on January 3, 2013.
On January 8, 2013, Defendant offered to settle the matter in an e-mail
exchange; the Plaintiff rejected the offer, and the Defendant responded: “[t]hen
proceed with judgment.” Pl.’s Br., Ex. C. Even viewing the facts in a favorable
light for the Defendant, this exchange demonstrates awareness of the instant suit
and draws into question the Defendant’s subsequent failure to litigate.
Defendant’s second argument asserting that it is not culpable for the default
judgment concerns Plaintiff’s Request for Default (ECF No. 8). Defendant asserts
that Plaintiff filed the Request, but served Defendant at an incorrect address. As
such, the Defendant asserts it did not realize an Answer was necessary, or had not
been filed, or that the matter had proceeded beyond the filing of a complaint, a fact
the Defendant alleges it did not discover until after Default Judgment was entered.
Def.’s Br., at 7–8.
The certificate of service filed that Plaintiff filed on the record with the
Court did contain an incorrect address for Defendant, by Plaintiff’s own admission.
Pl.’s Br., at 9. Nevertheless, the Plaintiff asserts that, despite the erroneous address
on the Request filed with the Court, the notice of default was mailed to
Defendant’s correct mailing address and Defendant received it on March 21, 2013.
Plaintiff submits proof of mailing and delivery to corroborate this assertion. See
Pl.’s Br., Ex. B.
In sum, this evidence may not unequivocally demonstrate “[r]eckless
disregard for repeated communications from plaintiffs and the court,” when
viewing the facts most favorably for Defendant. Hritz v. Woman Corp., 732 F.2d
1178, 1183 (3d Cir. 1984). Nevertheless, the Defendant’s dubious delays, coupled
with its lack of a meritorious defense, militate in favor of denying Defendant’s
No Prejudice to Plaintiff
“Prejudice exists if circumstances have changed since entry of the default
such that plaintiff’s ability to litigate its claim is now impaired in some material
way or if relevant evidence has become lost or unavailable.” Accu-Weather, Inc.,
779 F. Supp. at 803. Requiring a plaintiff to litigate and establish the merits of its
claim does not constitute prejudice in this context, “even though such a
requirement may suggest impairment in common parlance.” Griffin v. Lockett, 08cv-01120, 2009 WL 179780, *2 (M.D. Pa. Jan. 26, 2009) (Rambo, J.).
In the instant case, it does not appear that the Plaintiff would suffer any
prejudice from the removal of the default judgment.3 Despite the Plaintiff’s lack of
prejudice, however, the other more prominent factors weigh against granting the
Fidelity Deposit and Discount Bank (“Fidelity”), the third-party Garnishee
in this action, filed a Motion for Interpleader alleging that it holds a first priority
security interest on all the accounts that the Defendant maintains at Fidelity that are
subject to the Plaintiff’s judgment. See Mot. Interpleader, Dec. 11, 2013, ECF No.
33. Fidelity seeks an order dissolving the Writ of Execution and corresponding
attachment on the Defendant’s accounts. See id.
The Plaintiff asserted a caveat that it reserves the right to argue it suffered prejudice
from spoliation of some evidence in the event the Defendant reneged on agreements and
admissions concerning that evidence. This is not currently at issue.
In its two page motion, however, Fidelity has offered little information
besides its own averment that it holds a first priority security interest. The brief is
devoid of any law or strongly supported facts that satisfy the Court to a degree
sufficient to grant Fidelity’s requested relief. Fidelity has neither alleged a basis
for subject matter jurisdiction over its claim, nor provided the Court with legal
citation and sufficiently probative evidence to corroborate its claims.
Consequently, Fidelity’s motion is denied without prejudice.
Recently, on September 18, 2014, Fidelity filed another motion requesting
the same relief and attaching exhibits in support of its claims. When the motion is
ripe because it has been briefed by the pertinent parities, or the time in which they
are allowed to file briefs has expired, the Court will address Fidelity’s claims.
The Defendant’s Motion to Vacate Default Judgment is denied, primarily
because the Defendant fails to assert a facially meritorious defense, and the record
demonstrates the Defendant was aware of this suit and failed to litigate. Thirdparty Garnishee Fidelity’s Motion for Interpleader is denied without prejudice.
An appropriate Order follows.
BY THE COURT:
s/ Matthew W. Brann
Matthew W. Brann
United States District Judge
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