Champaneria v. The Brachfeld Law Group, PC
Filing
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MEMORANDUM AND ORDER denying Defendant's motion to set aside (DE 14 ). An additional award of $3,600 in attorney's fees to Plaintiff will follow.(Signed by Judge Gregg Costa) Parties notified.(arrivera, )
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
GALVESTON DIVISION
ASHESH CHAMPANERIA,
Plaintiff,
VS.
THE BRACHFELD LAW GROUP, PC,
Defendant.
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CIVIL ACTION NO. 3:12-CV-86
MEMORANDUM AND ORDER
Defendant The Brachfeld Law Group, PC seeks to set aside a default
judgment entered against it in this case alleging unlawful debt collection.
The Court has considered the parties’ filings, the applicable law, and, in
particular, the evidence Plaintiff Ashesh Champaneria submitted showing
that Brachfeld was aware of the pending motion to default, and DENIES
Brachfeld’s motion.
I.
BACKGROUND
On March 20, 2012, Champaneria filed suit against Brachfeld, a law
firm specializing in debt collection services, for alleged violations of the
federal Fair Debt Collection Act and the Texas Debt Collection Act. The
complaint alleges misrepresentations Brachfeld made after being contacted
by Champaneria’s counsel.
Specifically, Champaneria claims Brachfeld
attempted to collect a debt by falsely telling his counsel that (i) Citi, his
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original creditor, would delete his account if the debt were paid to Brachfeld,
and (ii) that credit reporting agencies would delete the account from his
credit history if he disputed the account with them. See Docket Entry No. 1
at ¶¶ 28–32. Champaneria also claims that Brachfeld failed to provide him
with the notice of validation of debts required by 15 U.S.C. § 1692g. See id.
at ¶ 1.
Although Brachfeld was properly served, it did not answer
Champaneria’s complaint or make any other appearance.
Champaneria
moved for an entry of default and a default judgment on June 1, 2012. The
Court held a telephone conference on the motion for default on June 18,
2012, but Brachfeld failed to appear. On June 28, 2012, the Clerk of the
Court entered an entry of default, and the Court entered a default judgment
against Brachfeld in the amount of $14,429.00.
With his default judgment in hand, Champaneria obtained a writ of
execution, and, on September 6, 2012, the U.S. Marshalls Service served the
writ on Brachfeld’s Houston Office. Later that day, Brachfeld made its first
appearance in this case by filing a motion to set aside the entry of default
and the default judgment. 1
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Although Brachfeld’s motion is entitled “Defendant’s Motion to Set Aside Default
Judgment,” it requests only that the Court “set aside the entry of default.” Docket Entry
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II.
LEGAL STANDARD
Because the Court has already entered a default judgment, it must
determine whether that judgment should be set aside. Federal Rule of Civil
Procedure 55(c) states that district courts may set aside default judgments
“under Rule 60(b).”
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Fed. R. Civ. P. 55(c). In ruling on a Rule 60(b)
motion, the Court must consider seven factors:
(1) That final judgments should not lightly be disturbed; (2) that
the Rule 60(b) motion is not to be used as a substitute for
appeal; (3) that the rule should be liberally construed in order to
do substantial justice; (4) whether the motion was made within
a reasonable time; (5) whether—if the judgment was a default
or a dismissal in which there was no consideration of the
merits—the interest in deciding cases on the merits outweighs,
in the particular case, the interest in the finality of judgments,
and there is merit in the movant’s claim or defense; (6) whether
there are any intervening equities that would make it
inequitable to grant relief; and (7) any other factors relevant to
the justice of the judgment under attack.
No. 14 at 1, 5. The Court interprets Brachfeld’s motion to be a request to set aside both
the entry of default and the default judgment itself.
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The Fifth Circuit has not yet ruled whether, in the wake of the 2007 restyling of Rule
55(c), Rule 60(b) motions should continue to be evaluated under the “good cause”
standard applicable to Rule 55(c) motions to set aside entries of default. See In re
Marinez, 589 F.3d 772, 777 (5th Cir. 2009) (declining to address the issue). The best
reading of restyled Rule 55(c)’s plain language is that the good cause standard is
inapplicable to Rule 60(b) motions. See Safdar v. AFW, Inc., 279 F.R.D. 426, 430–31
(S.D. Tex. 2012) (holding the 2007 restyling made clear that the good cause standard is
not applied to Rule 60(b) motions). Nonetheless, the Court notes that the outcome in this
case would be the same even if it did apply the good cause standard because the good
cause factors largely overlap with the factors considered in analyzing a Rule 60(b)(1)
motion. See Rogers v. Hartford Life and Accident Ins. Co., 167 F.3d 933, 938–39 (5th
Cir. 1999).
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Edward H. Bohlin Co. v. Banning Co., 6 F.3d 350, 356 (5th Cir. 1993)
(quoting in part Seven Elves, Inc. v. Eskenazi, 635 F.2d 396, 402 (5th Cir.
1981)). However, a defendant making a Rule 60(b) motion must also satisfy
one of the Rule’s enumerated justifications for setting aside a judgment.
Brachfeld’s only asserted justification for defaulting is that it “was unaware
that Plaintiff intended to file or indeed filed a motion for default.” Docket
Entry No. 14 at 4. Thus, the relevant subsection of Rule 60 is that which
allows final judgments to be set aside for “mistake, inadvertence, surprise, or
excusable neglect.” Fed. R. Civ. P. 60(b)(1).
The Court considers three additional factors in determining whether to
exercise its discretion to grant motions filed under subsection (b)(1): “(1) the
extent of prejudice to the plaintiff; (2) the merits of the defendant’s asserted
defense; and (3) the culpability of the defendant’s conduct.” Rogers v.
Hartford Life and Accident Ins. Co., 167 F.3d 933, 938–39 (5th Cir. 1999)
(quotation omitted). “These factors are not talismanic,” id. at 939, and
courts have denied relief on the basis of the “culpability” factor alone. See,
e.g., Safdar v. AFW, Inc., 279 F.R.D. 426, 432–33 (S.D. Tex. 2012) (“The
court begins and ends with the culpability of Defendants’ conduct.” (citing
Rogers, 167 F.3d at 938–39)).
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III.
DISCUSSION
Review of the Rogers factors demonstrates that Brachfeld is not
entitled to relief because it cannot show “mistake, inadvertence, surprise, or
excusable neglect” as required by Rule 60(b)(1).
The uncontroverted
evidence shows that Brachfeld knew Champaneria had sued it and that
Brachfeld had been properly served with the motion for a default judgment.
Brachfeld was served with process on April 12, 2012, several weeks after
Champaneria filed suit. See Docket Entry No. 5. Shortly thereafter, on
April 16, 2012, Brachfeld’s general counsel stated in an e-mail to
Champaneria’s counsel that it had retained outside counsel to file a
responsive pleading and defend against the suit. See Docket Entry No. 16-1.
On June 1, 2012, the day Champaneria moved for a default judgment, his
counsel served the motions by e-mail on Brachfeld’s general counsel and
followed up by sending Brachfeld hard copies of the motions via certified
mail, as required by Southern District of Texas Local Rule 5.5. See Docket
Entry Nos. 16-4; 16-5; 16-9. The return receipt from the U.S. Postal Service
shows that Brachfeld received the certified mailing on June 5, 2012. See
Docket Entry No. 16-5.
Troublingly, Brachfeld’s motion to set aside is based on assertions
that are inconsistent with these incontrovertible facts.
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For example,
Brachfeld claims that it “failed to receive various pleadings filed by
Plaintiff”; that “[a]t no time did Plaintiff serve Defendant with a copy of
Plaintiff’s Motion for Default”; that “Plaintiff’s counsel never mentioned
default to Defendant during e-mail conversations between the two”; and that
“Plaintiff failed to serve Defendant with Plaintiff’s Motion for Default
judgment pursuant to Local Rule 5.5.” Docket Entry No. 14 at 1–5.
Brachfeld is no unsophisticated defendant; it is a law firm, and,
moreover, a provider of debt collection services—a specialty whose
practitioners should be particularly aware of the possibility that they might
end up owing somebody money. Given the evidence that Brachfeld knew of
the suit and was put on notice that the default judgment motion had been
filed, Brachfeld cannot plausibly claim that its default was due to surprise,
mistake, or inadvertence. See Safdar, 279 F.R.D. at 432 (noting that the
defendants were sophisticated businessmen and that a default judgment
entered three months after an abortive settlement attempt “should not have
elicited surprise” “given that none of the defendants had filed an answer”).
Neither can Brachfeld show that its default was due to excusable
neglect. Even if Brachfeld honestly did not realize that a motion for default
had been filed, its “neglect—that is, its failure to establish ‘minimum
internal procedural safeguards’—was at least a partial cause of its failure to
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respond.” Rogers, 167 F.3d 939 (quoting Gibbs v. Air Canada, 810 F.2d
1529, 1537 (11th Cir. 1987)). Furthermore, Brachfeld’s only explanation for
its (asserted) failure to receive Champaneria’s motion is its inaccurate claim
that Champaneria failed to serve the motion. The courts have repeatedly
refused to grant relief even in cases where the defendants offered innocent
explanations for their defaults. See, e.g., Baez v. S. S. Kresge Co., 518 F.2d
349, 350 (5th Cir. 1975) (per curiam) (declining to find the defendant’s
neglect excusable and grant relief where the default was due to a Postal
Service error but the defendant had not instituted internal safeguards against
such a possibility); Gibbs, 810 F.2d at 1357 (holding that a defendant’s
claim that it had defaulted because a mail clerk mislaid the plaintiff’s
complaint was “not a sufficient excuse”). Because the evidence disproves
Brachfeld’s only excuse, Brachfeld cannot show excusable neglect.
The Rogers factors therefore counsel against granting relief. Most
importantly, Brachfeld’s conduct in defaulting was highly culpable—
culpable enough, in fact, that relief could be denied on that ground alone.
See Safdar, 279 F.R.D. at 433–34 (“Even if Defendants have arguably
meritorious defenses and Plaintiff would suffer little prejudice by
reinstituting the lawsuit, these factors cannot overcome culpability, delay,
and lack of good faith to justify a finding of excusable neglect.”). But
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culpability aside, Champaneria would suffer some degree of prejudice if this
Court granted Brachfeld relief, for he has already spent the time and money
necessary to obtain a writ of execution and have the Marshalls Service serve
Brachfeld. And the only defenses asserted in Brachfeld’s proposed original
answer—lack of standing and disqualification of Champaneria’s counsel—
are not strong. 3 Furthermore, the default judgment is for the relatively small
sum of $14,429 and would not cause a “significant financial loss” to
Brachfeld. Jenkins & Gilchrist v. Groia & Co., 542 F.3d 114, 122 (5th Cir.
2008) (internal citation and quotations omitted) (stating that the loss to an
individual defendant of a home valued $1.3 million would be a “significant
financial loss” and weigh in favor of setting aside the default judgment);
Seven Elves, 635 F.2d at 403 (noting that the size of a $250,000 judgment
against defendants weighed in favor of allowing defendants a trial on the
merits). Therefore, Brachfeld is not entitled to have the default judgment set
aside.
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Brachfeld’s standing defense relies on the assertion that all alleged misrepresentations
to Champaneria occurred through counsel. See Docket Entry No. 14-1 at 3. But even if
this did deprive Champaneria of standing to assert his misrepresentation claims, it would
not affect his claim for failure to provide the § 1692g notice, and he could still amend his
complaint to assert a claim under 15 U.S.C. § 1692b(6) because Brachfeld allegedly sent
a letter to his personal address after he filed suit even though it knew he was represented
by counsel. See Docket Entry Nos. 16 at 9–10; 16-7. Finally, Brachfeld’s argument that
Champaneria’s counsel is disqualified does not go to the merits of the case, and even if
successful would only affect one of Champaneria’s two attorneys.
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IV.
CONCLUSION
For the reasons discussed above, Defendant’s Motion to Set Aside
Default Judgment (Docket Entry No. 14) is DENIED. The Court previously
awarded Champaneria a default judgment in the amount of $14,429.00, of
which $8,650.00 constituted attorney’s fees. See Docket Entry Nos. 12
(default judgment); 17 (invoice of attorney’s fees). Champaneria’s counsel
now asks for an additional award of $3,600.00 for his time spent responding
to Brachfeld’s motion, a total which he calculates from eight hours of work
at an hourly rate of $450.00. After considering the facts of the case, the
work that Champaneria’s counsel was required to do in responding to the
motion, and the inaccurate statements that served as the basis for Brachfeld’s
motion, the Court holds that the requested fee award is fair and reasonable.
An order SHALL issue granting Champaneria an additional award of
$3,600.00 in attorney’s fees.
IT IS SO ORDERED.
SIGNED this 22nd day of January, 2013.
______________________________
Gregg Costa
United States District Judge
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