BNB Hana Bank National Association v. Red Mansion LLC

Filing 30

MEMORANDUM (Order to follow as separate docket entry) re 23 MOTION to Vacate 17 Default Judgment filed by Red Mansion LLC. Signed by Honorable A. Richard Caputo on 8/12/15. (jam)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
BNB HANA BANK NATIONAL
ASSOCIATION,
Plaintiff,

CIVIL ACTION NO. 14-cv-1664
(JUDGE CAPUTO)

v.
RED MANSION LLC d/b/a NAOMI
VILLAGE RESORT,
Defendant.
MEMORANDUM
Presently before the Court is Defendant Red Mansion d/b/a Naomi Village Resort’s
(“Red Mansion”) Motion for Relief from Judgment (Doc. 23) pursuant to Federal Rule of Civil
Procedure (“FRCP”) 60(b). Defendant seeks relief from the January 13, 2014 entry of
Default Judgment by the Clerk of Court in favor of Plaintiff BNB Hana Bank National
Association (“BNB”) (Doc. 17). That Default Judgment ordered “that Plaintiff recover of
defendant the sum of $1,549,023.92, plus interest at the rate of 6% per annum . . . . until
date of judgment, and thereafter until paid in full, plus attorney fees and costs, plus costs of
suit.” (Id., 1.)
Because Plaintiff will not be prejudiced by setting aside this default and default
judgment, Defendant has a meritorious defense, and the default was not the result of
Defendant’s culpable conduct, and because default judgments are disfavored, Defendant’s
Motion for Relief from Default Judgment will be granted.

I. Background
Plaintiff BNB initiated this mortgage foreclosure action on August 26, 2014, by filing
a Complaint (Doc. 1), later amended (Doc. 6). BNB alleges that Defendant Red Mansion
defaulted on its loan obligations on a piece of property to Plaintiff, a bank.
On November 26, 2014, Plaintiff filed a motion asking for authorization to file an
Affidavit of Service based on proper service of Defendant pursuant to FRCP 4 (Doc. 10).
Plaintiff requested attorneys’ fees and expenses incurred by Defendant’s failure to waive
service, as well as those incurred in filing the motion. (Id.) On December 17, 2014, I granted
Plaintiff’s motion, deeming that service was proper on Defendant. (Doc. 11.) However, I
denied Plaintiff’s request for attorneys’ fees and cost, because it had not demonstrated that
the sole member of Red Mansion, LLC, had failed to sign and return the waiver of service
request “without good cause,” since she was out of the country. (Doc. 11, 3.)
On January 7, 2015, BNB filed a Request for Entry of Default by Defendant Red
Mansion pursuant to FRCP 55(a), as the time within which Defendant could respond to the
complaint had expired (Doc. 14). On January 8, the Clerk of Court entered a Default as to
Red Mansion for failure to answer, plead, or otherwise respond to the Complaint (Doc. 15).
On January 9, BNB filed an Application for Entry of Default Judgment in its favor against Red
Mansion (Doc. 16), which the Clerk of Court entered on January 13 (Doc. 17).
On January 27, Defendant Red Mansion filed the instant motion to vacate the default
judgment under FRCP 60(b) (Doc. 23). On July 6, BNB responded in opposition (Doc. 24).
On July 10, each party filed a brief in support of its position (Docs. 25, 26). On July 14, in
response to a request from Defendant, I entered an Order staying the execution of judgment
in this action until the instant motion was decided (Doc. 28).
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II. Standard
While a motion to set aside an entry of default is governed by FRCP 55, where a
default judgment has been entered, as in this action, it must be set aside under FRCP 60(b).
Fed. R. Civ. P. 55(c). FRCP 60(b) states that the court may relieve a party from a final
judgment for reasons of mistake, inadvertence, surprise, or excusable neglect; “the judgment
is void” and “any other reason that justifies relief.” Fed. R. Civ. P. 60(b)(1-6).
“According to the Third Circuit, ‘the general purpose of Rule 60, which provides for
relief from judgments for various reasons, is to strike a proper balance between the
conflicting principles that litigation must be brought to an end and that justice must be done.’”
Bidlack v. Chesapeake Appalachia, LLC, 2012 WL 1657934, at *2 (M.D. Pa. May 11, 2012),
(quoting Boughner v. Sec'y of Health, Educ., & Welfare, 572 F.2d 976, 977 (3d Cir. 1978)).
The decision to grant relief under FRCP 60(b) is within the sound discretion of the district
court. Lasky v. Cont’l Prod. Corp., 804 F.2d 250, 256 (3d Cir. 1986).
“Our Court's policy is one ‘disfavoring default judgments and encouraging decisions
on the merits.’” Nationwide Mut. Ins. v. Starlight Ballroom Dance Club, 175 F. App'x 519,
521 (3d Cir. 2006) (citing Harad v. Aetna Cas. & Sur. Co., 839 F.2d 979, 982 (3d Cir. 1988)).
“As a general matter, this court 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)
Petitioner’s present motion requests relief from the entry of default on the grounds of
FRCP 60(b)(4), because “the judgment is void,” based on improper service, and FRCP
60(b)(6), “any other reason that justifies relief.” I will address each in turn.

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III. Analysis
A. Rule 60(b)(4)
Defendant argues that the judgment is void pursuant to Rule 60(b)(4) because service
was not proper upon Defendant. “Where service of a complaint is improper, a default
judgment ‘is void and should be set aside.’” J & J Sports Prods. v. Weiner, 2014 WL
1096171, at *4 (E.D. Pa. Mar. 20, 2014) (quoting Petrucelli v. Bohringer, 46 F.3d 1298,
1303–04 (3d Cir. 1995) (further citations omitted)). However, in my December 17, 2014
order, I analyzed this issue and found that service had been properly effected:
The applicable state law is Pennsylvania Code of Civil Procedure Rule 424: “Service
of original process upon a corporation or similar entity shall be made by handing a
copy to any of the following persons provided the person served is not a plaintiff in the
action: . . . (2) the manager, clerk, or other person for the time being in charge of any
regular place of business or activity of the corporation or similar entity.” Plaintiff’s
process server handed a copy of the required documents to the man he was told on
two separate occasions was in charge at Naomi Resort, Defendant’s place of
business. Thus, BNB effectively served Red Mansion with service by following the
requirements of Pennsylvania Rule 424, as allowed by FRCP 4(h)(1)(a) and (e)(1).
(Doc. 11, 1-2.) This reasoning remains correct. Defendant argues that because the sole
member of Red Mansion, LLC was out of the country when the notice was served, service
was not proper. However, because the process server handed the required documents to
the person in charge at the regular place of business of the LLC, service was proper. It is
not material that the sole member of the LLC was out of the country. Thus, the default
judgment will not be set aside pursuant to FRCP(b)(4), as Plaintiff accomplished service in
accordance with the applicable rules.

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B. Rule 60(b)(6)
Rule 60(b)(6) is the catch-all provision of Rule 60(b) allowing a judgment to be set
aside for “any other reason that justifies relief.” Fed. R. Civ. P. 60(b). A motion for relief
from a default judgment is properly brought pursuant to Rule 60(b)(1) or 60(b)(6),
Sourcecorp Inc. v. Croney, 412 F. App'x 455, 459 (3d Cir. 2011), and here, Defendant brings
its motion pursuant to Rule 60(b)(6).
Plaintiff BNB argues that Defendant did not make its motion in a timely manner.
Under Rule 60(c)(1), “[a] motion under Rule 60(b) must be made within a reasonable
time--and for reasons (1), (2), and (3) no more than a year after the entry of the judgment
or order or the date of the proceeding.” Fed. R. Civ. P. 60 (c)(1). This is a threshold matter.
Given the circumstances, Defendant’s motion was made in a timely manner, as
Defendant asserts that the sole member of the LLC was out of the country for a substantial
period of the pendency of this litigation, and the motion to vacate was filed approximately six
(6) months of the date of entry of default judgment.
“The determination of whether to set aside a default judgment under Rule 60(b) is not
resolved by ‘a rigid formula or [a] per se rule,’ but is within the sound discretion of the court.”
Paluch v. Dawson, 2008 WL 4132960, at *2 (M.D. Pa. Sept. 3, 2008) (quoting Zawadski de
Bueno v. Bueno Castro, 822 F.2d 416, 419 (3d Cir. 1987)).
To determine if setting aside a default or default judgment is appropriate, a court must
consider: “(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.” Sourcecorp Inc., 412 F. App'x at 459 (quoting United States v. $55,518.05 in

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United States Currency, 728 F.2d 192, 195 (3d Cir. 1984)). “As a general matter, this court
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, 822 F.2d at 420.
“Our Court's policy is one ‘disfavoring default judgments and encouraging decisions on the
merits.’” Nationwide Mut. Ins. v. Starlight Ballroom Dance Club, 175 F. App'x 519, 521 (3d
Cir. 2006) (citing Harad v. Aetna Cas. & Sur. Co., 839 F.2d 979, 982 (3d Cir. 1988)).
With respect to whether the plaintiff will be prejudiced by setting aside this default,
there is no indication that any prejudice would result from permitting this matter to be
adjudicated on the merits. As the Third Circuit Court of Appeals has explained,
“[d]elay in realizing satisfaction on a claim rarely serves to establish [a sufficient]
degree of prejudice.” Feliciano v. Reliant Tooling Co., 691 F.2d 653, 656—57 (3d
Cir.1982). Prejudice is established instead when a plaintiff's “ability to pursue the
claim has been hindered . . . [by, for example,] loss of available evidence, increased
potential for fraud or collusion, or substantial reliance upon the judgment.” Id. at 657.
Nationwide Mut. Ins., 175 F. App'x 523-24 (ellipses and brackets in original). There are no
grounds indicated similar to“loss of available evidence, increased potential for fraud or
collusion, or substantial reliance upon the judgment,” and Plaintiff’s ability to pursue the
claim will not be hindered. Id. Additionally, “the costs associated with continued litigation
normally cannot constitute prejudice.” Sourcecorp, 412 F. App'x at 460.
Defendant has a meritorious defense in the underlying action, given that this is a
mortgage foreclosure seeking repayment of funds owned to Plaintiff BNB, and Defendant
asserts that it has the finances to meet its obligations to Plaintiff. While Plaintiff calls this into
question, there is no evidence that it is untrue, doubts are to be resolved in favor of setting
aside the default.

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Defendant also maintains that it has a meritorious defense in that the action was
brought in the incorrect judicial district. However, this is not valid, as Monroe County,
Pennsylvania, where the property at issue is located, is in the Middle District of
Pennsylvania.
Upon review of the record, Defendant’s default does not appear to be the result of the
defendant’s culpable conduct. The complaint in this action was properly filed in September
2014, and the entry of default, and then default judgment, occurred in January 2015. The
record indicates that the sole member of the Defendant LLC was out of the country during
much of the pendency of this action. While process was properly served upon a person in
charge at the business location of Defendant, that person indicated that the sole member
of the LLC was out of the country, and Plaintiff was aware of this. Given that doubts should
be resolved in favor of setting aside the default and reaching the merits of a matter, the
default was not the result of Defendant’s culpable conduct. Therefore, Defendant’s Motion
for Relief from Judgment (Doc. 23) will be granted.

IV. Conclusion
Based on the foregoing, Defendant’s Motion for Relief from Judgment (Doc. 23) will
be granted. An appropriate order follows.

August 12, 2015
Date

/s/ A. Richard Caputo
A. Richard Caputo
United States District Judge

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