McKesson Medical-Surgical Inc. v. Flower Orthopedic Corporation
Filing
22
MEMORANDUM OPINION. Signed by District Judge Robert E. Payne on 2/15/2018. (jsmi, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISRICT OF VIRGINIA
Richmond Division
MCKESSON MEDICAL-SURGICAL,
INC.
Plaintiff,
Civil Action No. 3:17cv631
v.
FLOWER ORTHOPEDICS
CORPORATION,
Defendant.
MEMORANDUM OPINION
This matter is before the Court on Defendant's MOTION TO
SET ASIDE ENTRY OF DEFAULT (ECF No. 15), as well as Plaintiff's
MOTION FOR ENTRY OF DEFAULT JUDGMENT
(ECF No.
10) and FLOWER
ORTHOPEDICS CORPORATION'S MOTION FOR ENLARGEMENT OF TIME TO FILE
AN ANSWER AND COUNTERCLAIM (ECF No. 17). Defendant seeks to set
aside the Clerk of Court's Entry of Default (ECF No. 9) for good
cause, asserting that it failed to answer the Complaint because
the parties were engaged in ongoing settlement negotiations when
Plaintiff sought entry of default.
below,
For the reasons set forth
the MOTION TO SET ASIDE ENTRY OF DEFAULT
will be granted;
(ECF No.
15)
FLOWER ORTHOPEDICS CORPORATION'S MOTION FOR
ENLARGEMENT OF TIME TO FILE AN ANSWER AND COUNTERCLAIM (ECF No.
17)
will
be
granted;
and
the
MOTION
FOR
JUDGMENT (ECF No. 10) will be denied as moot.
ENTRY
OF
DEFAULT
BACKGROUin?
1.
Factual Background
McKesson
distributor
supplies,
Medical-Surgical
medical
of
Inc.
medical
and
supplies,
medical
Corporation
("Flower
implants
surgical
the
and
wrist,
entered
hand,
into
Agreement")
lab
supplies.
Orthopedics")^
instruments
shoulder,
a
("McKesson")
distribution
on March 8,
2013,
Flower
supplies
that
foot,
equipment,
are
and
is
a
surgical
Orthopedics
bone-fixation
used primarily for
ankle.
agreement
The
("the
companies
Distribution
pursuant to which McKesson would
be a non-exclusive authorized distributor of Flower Orthopedics'
products. Compl.
(ECF No. 1) f 7; id., Ex. 1.
On or around
amendment
part,
to
of
amounts
of
Flower
periods
beginning
its
Agreement,
(1)
Flower
and
meet
Distribution
that:
customers;
Nonetheless,
2013,
the
provided
distributor
September 1,
(2)
McKesson
Orthopedics'
August
would
be
in
the
products
purchase
products
2013.
agreed to
which,
would
Orthopedics'
McKesson
in
the parties
for
to
certain
several
Compl. H 8;
id.,
an
relevant
exclusive
certain
minimum
six-month
Ex.
2.
according to Flower Orthopedics, McKesson failed to
minimum
purchase
commitment
after
that
point,
and.
^ The caption of this case incorrectly states Flower Orthopedics'
name as "Flower Orthopedic."
indeed,
sold a
minimal
amount
of
during the course of the parties'
(ECF No.
steps
16-1) nil
to
train
6-7.
As
products,
distribution
network
parallel
and
sales
also
that
to
products
relationship. Burckhardt Decl.
result.
McKesson's
Orthopedics'
strategy
a
Flower Orthopedics'
Flower
staff
hired
would
a
in
sales
selling
separate,
implement
McKesson's
Orthopedics
a
took
Flower
independent
co-distribution
efforts.
Id.
8-9.
\
Flower Orthopedics
having
to
take
claims
these
that
it
actions
suffered financial
because
of
harm from
McKesson's
poor
distribution. Id. H 10.
Then,
on March 4,
exclusivity
effective
provision
120
subsequently
(''the
2015,
of
days
a
the
Repurchase
amended
that
from
reached
Flower Orthopedics
date.
termination
Agreement")
on
May
terminated the
Distribution
Compl. t 9.
and
8,
Agreement,
The
repurchase
2015,
parties
agreement
which
required
Flower Orthopedics to repurchase its products from McKesson in
accordance
with
Schedule").
Id.
unable
parties
to
pay
a
particular
id. ,
H 10;
schedule
When Flower Orthopedics was
consistent
modified
it
by
Ex.
with
3.
the
agreement
on
("the
Repurchase
February
Repurchase
Schedule,
1,
2016
the
("the
Repurchase Amendment"). Compl. H 11; id., Ex. 4.
Flower Orthopedics
failed to pay McKesson the
full
amount
required by the modified Repurchase Schedule in the Repurchase
Amendment.
Compl.
12.
As
of
November
8,
2017,
the
amount
of
principal and late charges owed by Flower Orthopedics under the
Repurchase Amendment was
$2,287,176.00.
Ringberg Aff.
(ECF No.
10-1) nil 9-12.
In or
around March
Burckhardt
the
{'"Burckhardt") /
repayment
McKesson's
schedule
Vice
individuals
exchanged
with
would
for
proposals
Ringberg
Orthopedics
Flower Orthopedics'
discussed
President
agreement.
proposed,
2017,
later
pay
a
a
possible
Erik
Supplier
but
amount
of
(^'Ringberg") ,
Management.
could
to
Oliver
resolution
Ringberg
offered
larger
CEO,
not
reach
settle
than
The
if
any
Flower
Burckhardt
but Flower Orthopedics did not agree
to
had
that offer.
Burckhardt Decl. H 15.
2.
Procedural Background
After those negotiations were unsuccessful,
McKesson filed
its Complaint here on September 19, 2017. ECF No. 1. It asserted
three
claims:
related
to
Repurchase
FIRST
Flower
Amendment;
CLAIM
FOR
Orthopedics'
and
SECOND
RELIEF,
Breach
failure
CLAIM
to
FOR
of
pay
Contract,
under
RELIEF
and
the
THIRD
CLAIM FOR RELIEF, Account Stated and Open Account, respectively,
for
the
summons
unpaid
and
a
amount.
copy
of
Id.
til 6-22.
the
Complaint
McKesson
on
then
Flower
served
a
Orthopedics,
through its vice president, on September 26, 2017. ECF No. 7.
On
October
12
and
received the Complaint,
("Marcus")/
Garfinkle
When
13,
2017,
after
Flower
its New Jersey counsel,
G.
Orthopedics
Robert Marcus
left two voicemails with McKesson's counsel,
("Garfinkle")•
Garfinkle
Garfinkle
returned
those
Decl.
calls
(ECF
on
No.
October
Jeffrey
20-1)
13,
H 11.
Marcus
explained why Flower Orthopedics did not accept Ringberg's last
settlement offer,
(ECF
No.
offer
16-2) % 3.
would
Marcus
and then made a
need
sent
Garfinkle
to
be
Garfinkle
counter-proposal. Marcus Decl.
indicated
in writing,
an
e-mail
that
any
Garfinkle
later
that
settlement
Decl. H 12,
so
day confirming
the
details of the earlier offer, Marcus Decl. H 3. None of Marcus's
communications
although
referenced
both
litigation
attorneys
in
their
Marcus Reply Decl.
McKesson
unacceptable,
the
Complaint
expressed
a
conversation.
(ECF No. 21-1)
apparently
or
general
Garfinkle
this
litigation,
desire
to
avoid
Decl. HH 12-13;
^ 3.
found
the
October
13
offer
and Garfinkle never responded to Marcus. Garfinkle
Decl. K 14. Having not received any response, Marcus claims that
he
called Garfinkle
and
left
a
voicemail
on October
20,
2017.
Marcus Decl. K 4; Marcus Reply Decl. H 6. Garfinkle asserts that
he never received that message. Garfinkle Decl. HH 15-16.
In any event.
Flower Orthopedics did not file an answer or
otherwise respond to the Complaint within the required twenty-
one
days.
October
See
25,
Fed.
2017,
R.
Civ.
P.
McKesson
12(a) (1) (A) (i) .
requested
that
enter default against Flower Orthopedics.
then entered default on November 6,
Marcus
had
left
another
2017.
As
the
a
Clerk
ECF No.
ECF No.
voicemail
result,
8.
of
on
Court
The Clerk
9.
with
Garfinkle
on
November 3,
but Garfinkle was unable to respond until November
6.
called Marcus
When he
on
that
date,
Garfinkle
informed him
that McKesson had rejected the October 13 settlement offer,
and
that the Clerk had entered default against Flower Orthopedics.
Marcus Decl. H 4; Garfinkle Decl. H 17. Garfinkle also rejected
Marcus's request to have the entry of default set aside.
Marcus
Decl, H 6.
Shortly thereafter,
have
the
Court
Orthopedics.
ECF
on November 8,
enter
No.
10.
opposition to that motion,
default
Flower
2017,
McKesson moved to
judgment
against
file
an
instead moved on November 13
but
Orthopedics
did
not
Flower
to
have the Clerk's entry of default set aside.^ ECF No. 15. Flower
Orthopedics also moved to enlarge
attaching a
^ Thus,
the time to
proposed Answer and Counterclaim.
this motion effectively serves as
McKesson's
motion
for
default
judgment,
file
an answer,
ECF No.
17;
id..
an opposition to
which would have
been
analyzed under the same standard as a motion to set aside entry
of
default.
See
Vick v.
Wong,
263
2009).
6
F.R.D.
325,
329
(E.D.
Va.
Ex. A. McKesson has only responded to Flower Orthopedics'
motion
to set aside the entry of default. See ECF No. 20.
DISCUSSION
1.
Legal Standard
Entry of default is mandatory where,
failed to plead or otherwise defend,
by affidavit." Fed.
R.
Civ.
P.
as here,
a party "has
and that failure
55(a). However,
is shown
"[t]he court may
set aside an entry of default for good cause." Id. 55(c). Courts
analyze
six
factors
when
deciding
whether
good
cause
"whether the moving party has a meritorious defense,
acts with reasonable promptness,
the defaulting party,
is
a
history
sanctions
Brake,
of
less
439
drastic."
F.3d 198,
204-05
Masonry & Fireproofing.
249,
251
(4th Cir.
action,
Payne
Inc.
1967)
ex
(4th
v.
whether it
the personal responsibility of
the prejudice to the party,
dilatory
exists:
and
rel.
Cir.
the
Wagman Constr.
("Generally a
availability
Estate
2006);
whether there
of
see
Calzada
also
Corp.,
default
of
v.
Consol.
383
F.2d
should be
set
aside where the moving party acts with reasonable promptness and
alleges a meritorious defense.").
Deciding whether a
"is
a
matter
discretion."
however,
which
Payne,
43 9
defaulting party has
lies
F.3d
largely
at
204.
shown good cause
within
the
[Court's]
The
Fourth
Circuit,
has "repeatedly expressed a strong preference that,
as
a
general
matter,
defaults
be
avoided
and
defenses be disposed of on their merits."
Acad.,
Cir.
Inc.
v.
2010) ;
see
Comp.
Program,
1990)
("The
matter .
954
that
.
Hoover Universal,
also
U.S.
law
.
Tazco,
616
v.
Dir.,
Dep^t of Labor,
disfavors
1987)
[Rule]
(" [A] n
55 (c)
provide
relief
defaults .
.
must
. ."
Office
judgments
.") ; Lolatchy v. Arthur Murray,
(4th Cir.
F.3d 413,
895 F.2d 949,
default
claims
and
Colleton Preparatory
Inc.,
Inc.
that
417
of
950
as
Inc.,
(4th
Workers
(4th Cir.
a
general
816 F.2d 951,
extensive line of decisions has held
be
from
liberally
the
construed
onerous
in
order
consequences
(internal quotations omitted)).
to
of
Moreover,
the
burden on a defendant seeking relief from entry of default under
Rule
55(c)
judgments
is
lower
under
Rule
than
the
60(b).
burden
Although
provisions implicate similar factors,
standard . . . is more
for
relief
analyses
from
default
under
both
"Rule 55(c)'s ^good cause'
forgiving of defaulting parties because
it does not implicate any interest in finality," as no judgment
has been entered. Colleton Preparatory Acad., 616 F.3d at 420.
2.
Motion to Set Aside Entry of Default
The
parties'
arguments
focus
reasons for Flower Orthopedics'
its
personal
meritorious
responsibility,
defense.
They
almost
exclusively
on
the
failure to answer, which bear on
and
largely
the
ignore
availability
the
remaining
of
a
four
Payne factors.^ However,
the factual record before the Court is
developed enough for it to examine all the factors here.
so
leads
to
the
conclusion that
the
entry of
Doing
default against
Flower Orthopedics should be set aside.
A.
To
Meritorious Defense
show
the
existence
of
a
meritorious
defense
only
"requires a proffer of evidence which would permit a finding for
the
defaulting
counterclaim."
party
or
Augusta
which
Fiberglass
Contracting
Corp.,
standard is
"not onerous,"
IT Exp. Corp.,
''all
that
evidence,
the
is
jury to
Moradi,
673
Fiberglass,
843
F.2d
if believed,
find for
F.2d
843
is . . . whether
812
Pinpoint
necessary . . . is
establish
Coatings,
808,
812 F. Supp. 2d 710,
which,
would
(4th
a
727
F.2d
there
v.
Fodor
1988) .
This
L.L.C.
v.
Atlas
2011); indeed,
presentation or proffer
of
would permit either the Court or
(4th
at
Cir.
(E.D. Va.
the defaulting party,"
725,
valid
Inc.
IT Servs.,
724
a
Cir.
812
is
some
1982);
("The
United States v.
see
also Augusta
underlying
possibility
concern
that
the
outcome . . . after a full trial will be contrary to the result
^ McKesson contends that Flower Orthopedics' failure to address
these factors implies that they are either irrelevant or weigh
in McKesson's favor. That argument has effectively been mooted
by Flower Orthopedics' discussion of each factor in its reply.
Moreover,
McKesson also failed to address those factors,
so it
is unclear why they would automatically weigh in its favor even
in the absence of argument.
9
achieved
by
the
added)
(internal
defenses must
default."
(alterations
quotations
'allege
[ ]
factors,
the
proffered
(3d Cir.
Court
defense
has
or
{emphasis
Nonetheless,
''the
specific facts beyond simple denials
Pinpoint IT Servs.,
(quoting United States v.
728 F.2d 192, 195
original)
omitted)).
or conclusionary statements.'"
2d at 724
in
812 F.
$55,518.05 in U.S.
Supp.
Currency,
1984)). As with the other good cause
the
discretion
counterclaim
is
to
decide
whether
meritorious,
id.,
a
but
disputed factual questions should be resolved in the defaulting
party's
263
favor,
F.R.D.
at
Flower
see
Augusta
Fiberglass,
contends
affirmative
defense
prior
Orthopedics'
view,
the
minimum
based
Orthopaedics,
P.C.
prior
Cropscience LP v.
2017)
(same).
that
it
material
when
it
failed
effectively
and
commitments.
McKesson
Orthopedics
Cir.
thereto
purchase
(explaining
of
products
Orthopedics,
812;
Vick,
has
viable
In
breach.
a
Flower
McKesson breached the Distribution Agreement
amendment
Orthopedics'
F.2d at
330.
Orthopedics
and
843
cannot
on
v.
breach
Albemarle Corp.,
Because
any
261
Va.
696 F.
its
says
Flower
against
Flower
142,
see
Countryside
154
and
(2001)
also
App'x 617,
Second
Flower
fulfill
See
doctrine);
McKesson's
10
not
claims
contract.
Peyton,
material
did
distribute
Consequently,
bring
that
to
Bayer
622
Third
(4th
Claims
are derivative of its First Claim for breach of contract,
defense would,
if meritorious,
this
apply to all three of McKesson's
claims.
In response, McKesson argues that the prior material breach
doctrine
cannot
reasons.
the
supply
a
First,
it says,
Repurchase
Agreement
meritorious
defense
here
for
two
that doctrine does not apply because
was
a
novation
of
the
Distribution
Agreement, and thus extinguished any obligations the parties had
under the Distribution Agreement.
breach
of
the
Distribution
As
such,
Agreement
is
McKesson's alleged
irrelevant
validity of its claims under the Repurchase Agreement
extension,
that,
the Repurchase Amendment).
even
if
the
Repurchase
Second,
Agreement
was
to
the
(and, by
McKesson asserts
not
a
novation,
Flower Orthopedics waived the right to assert a prior material
breach
defense
when
Distribution Agreement
it
continued
to
perform
under
the
even after McKesson allegedly breached
that contract.
Neither of McKesson's assertions are compelling here. With
respect to its first argument, a novation is
a mutual agreement . . . for discharge of a
valid
existing
obligation
by
the
substitution of a new valid obligation on
the part of the debtor . . . . To effect a
novation there must be a clear and definite
intention on the part of all concerned that
such is the purpose of the agreement . . . .
Its essential requisites are a
previous
11
valid
obligation,
the
agreement
of
all
parties
to
the
new
contract,
the
extinguishment of the old contract, and the
validity of the new contract.
Honeywell,
Inc. v.
asserting
a
Elliott,
novation
213 Va.
bears
the
86,
89-90
burden
of
(1972) . The party
showing
all
these
elements with "clear and satisfactory" proof. Id.; see also Dere
V.
Montgomery Ward & Co. ,
whether
the
parties
determined from
new
all
agreement.'"
intended
the
277,
281
create
(1982) .
a
and circumstances
S.
Ry.
Co.
v.
In addition,
novation
Drummond
2016 WL 4532411, at *6
"'is
to
incident to
Coal
be
the
Sales,
(W.D. Va. Aug. 29,
(quoting Dillenberg v. Thott, 217 Va. 433, 435
Here,
(1976)).
the parties agree that the Distribution Agreement was
followed
by
the
parties,
but
they dispute
the
to
facts
Norfolk
Inc., No. 7:08cv00340,
2016)
224 Va.
latter
Repurchase
Agreement
and
the
same
the underlying intent and effect of
agreement.
McKesson
contends
Agreement
Repurchase
involved
clearly
shows
that
the
Section
parties'
8
of
the
intent
to
extinguish the Distribution Agreement. That provision states, in
relevant
part,
that:
"The
Distribution
Agreement,
including
without limitation any provisions therein relating to the return
of inventory,
is hereby terminated by mutual consent,
without limitation.
Agreement.
their terms
Section 7
Provisions
survive
in
the
including
(Exclusivity)
of the Distribution
Distribution
Agreement
termination are
12
which
by
incorporated by reference
herein .
.
parties
.
Flower
did
not
Distribution
Agreement
Orthopedics,
intend
to
Agreement
or
the
release
by
however,
claims
executing
Repurchase
asserts
In
the
the
under
arising
either
Amendment.
that
the
Repurchase
fact,
as
Flower
Orthopedics explains, although McKesson initially sought to have
Flower
Orthopedics
Agreement,
release
McKesson
agreement
when
such
removed
Flower
a
claims
in
release
Orthopedics
the
Repurchase
provision
refused
to
from
agree
that
to
it.
Burckhardt Decl. ^ 14; Marcus Reply Decl., Ex. A.
It may turn out to be true that the Repurchase Agreement is
a novation,
after the parties have had a chance to conduct full
discovery. But resolving that issue here would be premature. The
facts
provided
in
the
Burckhardt
Declaration
establish
McKesson may have breached the Distribution Agreement,
such
breach
Agreement
intend
and
to
still
Repurchase
fully
Distribution
might
could
the
the
parties
as
obligations
Burckhardt
arising
Decl. HH 6-14.
under
This
not
the
breach
it
cannot
"presented
no
the
to
statement
of
Flower
underlying
Orthopedics'
did
McKesson under those latter agreements. Based on these facts,
that
Flower
Repurchase
to
said
eliminate
under
and that
liability
be
or
alleged
Amendment,
release
Agreement.
reduce
be
that
Orthopedics
facts . . .
to
has
enable
court
appraise the merits of the claimed defense." Consol. Masonry &
13
Fireproof inq, 383 F.2d at 252; see also Red Light Mgmt. , Inc. v.
Dalton,
315 F.R.D.
65,
70-72
(W.D. Va.
2016)
(defaulting party
failed to establish meritorious defense where he ''rel [ied]
purely legal argument" without any supporting facts,
defenses
were
inconsistent
with
available
on a
and claimed
evidence).
construing these facts in Flower Orthopedics' favor,
Rather,
they are a
sufficient proffer of a meritorious defense.
McKesson's
argument
about
Flower
performance fails for the same reason.
Orthopedics'
continued
As interpreted recently
by the Fourth Circuit,
the prior material breach doctrine does
not
plaintiff
bar
a
breaching
"from
suing
[defendant]
for
[defendant]'s subsequent breaches of contract when both parties
continued to perform under the contract." Bayer Cropscience, 696
F.
App'x at
623.
This
argument
whether Flower Orthopedics
McKesson's
breach
by
has
thus
presents
waived the
continuing
to
the
right
question of
to
perform
challenge
under
the
Distribution Agreement. And waiver is generally a factual issue
that depends on a party's conduct, acts,
or course of dealing.
See Bernsen v. Innovative Legal Mktg., LLC,
833-34
(E.D. Va.
2012).
Burclchardt Declaration,
Considering the facts proffered in the
it is
impossible to conclude with any
certainty that Flower Orthopedics'
breach effected a
885 F. Supp. 2d 830,
waiver of
its
14
continued performance postright
to assert
a
breach of
contract claim against McKesson. Accordingly, Flower Orthopedics
has presented enough evidence to show that its claimed defense
is not ''without any merit," Pinpoint IT Servs. , 812 F. Supp. 2d
at 725, so this factor weighs in its favor here.
B.
Reasonable Promptness
The reasonable promptness factor similarly weighs in favor
of setting aside the entry of default.
taken 'reasonably prompt'
"Whether a party has
action . . . must be gauged in light
of the facts and circumstances of each [case]." Moradi, 673 F.2d
at
727.
Nonetheless,
"courts
routinely
look
at
other
courts'
decisions to determine whether a delay is reasonable." Burton v.
The
TJX
Cos. ,
Inc. ,
No.
3:07-CV-760,
2008
WL
1944033,
at
*3
(E.D. Va. May 1, 2008).
There
promptly
is
little
here.
dispute
The
Clerk
that
entered
Flower
Orthopedics
default
against
acted
Flower
Orthopedics on November 6, 2017, and Flower Orthopedics moved to
set that default aside—and also filed its proposed answer—only
seven days later. The Fourth Circuit has concluded that moving
to set aside entry of default within nine days is reasonably
prompt.
See
Colleton
Preparatory Acad. ,
Tazco, 895 F.2d at 950
answer
"[w]ithin eight
default award").
days
616
F.3d
at
418;
see
(party acted promptly where it filed
of
receiving
notification of
the
Courts have also found reasonable promptness
15
where
defaulting
relief.
parties
See JTH Tax,
3035279,
at
reasonable
*9
waited
Inc. v.
{E.D.
Va.
promptness
much
longer
Callahan,
June
6,
in moving
No.
2013)
to
set
before
seeking
2:12CV691,
2013 WL
(defendant
aside
acted with
default
sixteen
days after default was entered); Burton, 2008 WL 1944033, at *3
("District
defendant
courts
acted
in
the
Fourth
reasonably
Circuit
promptly
when
have
found
waiting
that
a
seventeen,
twenty-one, and thirty-two days after default was entered before
attempting
to
set
it
aside."
(citing
United
States
v.
$10,000.000 in United States Currency, No. 1;OO-CV-0023, 2002 WL
1009734, at *3
(M.D.N.C. Jan.
29,
2002); Esteppe v.
Patapsco &
Back Rivers R.R. Co., No. Civ. H-00-3040, 2001 WL 604186, at *4
(D. Md. May 31,
Airways
Corp.,
2001) ; Wainwright's Vacations,
130
F.
Supp.
2d
712,
718
LLC v.
(D.
Md.
Pan Am.
2001))).
Therefore, this factor weighs in Flower Orthopedics' favor here.
C.
Personal Responsibility
This factor is neutral at worst,
and at best,
weighs in
favor of setting default aside. Courts may decline to set aside
an entry of default "when the party's default was intentional or
the result of negligence." Pinpoint IT Servs., 812 F. Supp. 2d
at 726. At the same time,
negligence,
"when .
.
. default was the result of
the Court may consider whether the negligence was
excusable" in weighing this factor.
16
Id. The pertinent issue is
whether the defaulting party is "ultimately responsible" for the
failure to respond.
Id. Deciding that question requires courts
to "focus on the source of the default" and "distinguish between
the fault of [the defaulting party]'s attorney and the fault,
any,
of
F.2d at
party
[the defaulting party]
811.
not
attorney
"[J]ustice,"
be
itself." Augusta Fiberglass,
after all,
disadvantaged by
which
cause
proceedings." Moradi,
a
the
final,
"demands that a
errors
or
involuntary
if
843
blameless
neglect
of
termination
his
of
673 F.2d at 728.
In recognition of these principles,
courts in the Fourth
Circuit have consistently found that defaulting defendants were
not
to
personally responsible
their attorneys
616
F.3d
at
419-20
for
or agents.
defaults
that
were
attributable
See Colleton Preparatory Acad.,
(defendant's
agent
received
summons
and
complaint but forwarded to third party instead of defendant);
Augusta Fiberglass, 843 F.2d at 811-12 (defendant's attorney was
served with amended complaint but never sent it to defendant);
Lolatchy, 816 F.2d at 952-53
(default followed repeated failure
of
respond
defendants'
attorney
to
to
plaintiff's
discovery
requests); Moradi, 673 F.2d at 727-28 (default occurred because,
after
defendant
retained
counsel,
attorney
failed
to
obtain
local counsel to submit pleadings). In contrast, defendants have
been considered personally responsible where they took minimal
17
steps
to
obtain
counsel
receiving the complaint.
73
(although
defendant
with plaintiff,
communicate
with
See Red Light Mgmt.,
hired
counsel
to
counsel
315 F.R.D.
negotiate
after
at 72-
settlement
defendant did not contact attorney when served
with process);
(defendant
or
Pinpoint IT Servs. ,
only
sent
single
812
e-mail
F.
to
Supp.
try
2d at 726-27
and
obtain
local
counsel despite knowing for weeks that plaintiff would initiate
suit).
Flower Orthopedics'
its
default
was
contention that any neglect leading to
attributable
to
its
attorney
is
persuasive.
Burckhardt and Ringberg had engaged in settlement negotiations
well
before
Orthopedics
Complaint,
counsel,
McKesson
was
its
filed
served
13,
2017,
its
answer pursuant
a
copy
Marcus,
of
Then,
the
reached
after
summons
out
to
Flower
and
the
McKesson's
previous
Marcus and Garfinkle spoke on October
only four days before Flower Orthopedics had to file
any
attempt
Complaint.
seemingly to continue the parties'
settlement negotiations.
reach
with
attorney,
Garfinkle,
its
to Rule
resolution,
to
contact
for
12.
After the
whatever
Garfinkle
again
reason,
until,
attorneys
did not
Marcus
at
the
did
not
earliest,
October 20,^ after the answer deadline had passed. Garfinkle did
^ Marcus
and
Garfinkle
Garfinkle on this date,
dispute
whether
Marcus
ever
called
but that disagreement is immaterial to
18
not
respond
until
November
6,
when
default
was
entered,
and
Flower Orthopedics filed this motion shortly thereafter.
Given
this
Orthopedics
to
background,
received the
determine
if
it
appears
Complaint,
McKesson
would
Marcus
be
that,
after
Flower
contacted Garfinkle
willing
to
resolve
the
parties' contract dispute without litigation. Marcus likely took
these steps at the direction of Flower Orthopedics, particularly
because
he
was
also—as
stated
to
Garfinkle—a
member
of
the
company's board of directors. Garfinkle Decl. K 12. As a result,
it is also reasonable to infer that Marcus was responsible for
notifying Flower Orthopedics of the progress,
or lack thereof,
of the settlement negotiations, and the need to respond to the
Complaint by a certain date. See Burton, 2008 WL 1944 033, at *4
(inferring
answer
that,
[the]
^^since
complaint,
[defendant]'s
she was
attorney was
responsible
for
hired
to
the answer's
lateness"). Thus, Flower Orthopedics' failure to answer was most
likely
caused
Orthopedics
negotiations.
by
of
It
Marcus's
the
is
lack
true
failure
of
that,
to
timely
success
in
apprise
the
unlike in some of
Flower
settlement
the
cases
which the defendants were not personally responsible.
in
Flower
Orthopedics actually received the Complaint, which suggests that
it bears more responsibility than those defendants. However, the
whether Flower Orthopedics or Marcus was
failure to file a timely answer.
19
responsible
for
the
circumstances here do not indicate that Flower Orthopedics was
primarily responsible because it did not simply sit on its hands
after receiving the Complaint,
as
in Red Light Management or
Pinpoint IT Services. See Red Light Mgmt, 315 F.R.D. at 12-12-,
Pinpoint IT Servs. , 812 F. Supp. 2d at 126-21. To the contrary.
Flower Orthopedics enlisted Marcus to take certain actions, and
Marcus did not update the company as he should have when those
actions failed to produce the desired result.
See Burton,
2008
WL 1944033, at *4, Consequently, even if Flower Orthopedics is
not blameless,
it is not the party responsible for the missed
deadline. This factor therefore weighs in favor of setting aside
default.
Furthermore,
there
is
no
question
that
relying
on
settlement negotiations as a basis for not responding to the
Complaint does not excuse Flower Orthopedics' failure to respond
to
the
Complaint.
But
McKesson's
citation
of
establishing that proposition misses the point.
no
attempt
Marcus's,
as
to
the
separate
Flower
Orthopedics'
Fourth Circuit has done,
numerous
cases
McKesson makes
culpability
from
and that distinction
is critical here. Moreover, even if Flower Orthopedics could be
considered personally responsible,
courts should not
"place[]
overarching emphasis on a single Payne factor," especially where
a defaulting party seeks relief from an entry of default instead
20
of a default judgment. Colleton Preparatory Acad.,
419-21.
Therefore,
616 F.3d at
even if this factor weighs against Flower
Orthopedics, it is not dispositive in the good cause analysis.
D.
History of Dilatory Action
McKesson has not shown any evidence that Flower Orthopedics
has a history of dilatory action. In these circumstances, where
a defaulting party has not engaged in delays preceding the entry
of default, courts consider whether the party has acted timely
during the pending litigation. See Red Light Mgmt.,
at
73
(factor weighed in defendant's
315 F.R.D.
favor where he had
^^no
previous history of dilatory action" and his "filings ha[d] been
timely since he entered this action"); Pinpoint IT Servs., 812
F. Supp. 2d at 727 {despite lack of previous history of delay,
factor weighed against defaulting party because it "had more
than one instance of dilatory action in this matter"). Here,
Flower Orthopedics' only other filing since appearing in this
action-its reply in support of the motion to set aside the entry
of default—was timely. Consequently, this factor weighs in favor
of setting aside the entry of default.
E.
Prejudice to the Plaintiff
This factor also weighs in Flower Orthopedics'
favor.
To
assess the prejudice to the non-defaulting party, courts examine
whether the delay: (1) made it impossible for the non-defaulting
21
party
to
present
some
of
its
evidence;
(2)
made
it
more
for the non-defaulting party to proceed with trial;
(3)
hampered the non-defaulting party's ability to complete
discovery; and (4) was used by the defaulting party to collude
or commit a fraud. See Lolatchy, 816 F.2d at 952-53. Courts give
the most weight
to
1944033,
(citing
at
*4
the
first
two factors.
Lolatchy,
816
Burton,
F.2d
at
2008 WL
952-53).
In
addition, mere inconvenience or "delay in and of itself does not
constitute prejudice." Colleton Preparatory Acad.,
616 F.3d at
418; see also Lolatchy, 816 F.2d at 953.
McKesson has not demonstrated that it would be prejudiced
by letting this case proceed on the merits. There are no facts
suggesting that Flower Orthopedics' late response has affected
McKesson's ability to present evidence, proceed with trial, or
complete discovery. Indeed, this action is at such an early
stage, and Flower Orthopedics rectified its error so quickly,
that the scheduling impact of the delay has likely been minimal.
Accordingly,
this
factor
weighs
in
favor
of
setting aside
default.
F.
Availability of Lesser Sanctions
Neither party has identified any lesser sanctions that are
appropriate
here
besides
default,
but
such
lesser
sanctions
undoubtedly exist. For instance, courts have "commonly imposed
22
alternative monetary sanctions on attorneys who are responsible
for a party's default." Vick, 263 F.R.D. at 331 (citing, inter
GNB, Inc. V. Tropex, Inc. , 849 F.2d 605, 1988 WL 60618, at
*2 (4th Cir. June 3, 1988) (alternative sanction of attorney's
fees appropriate); Lolatchy, 816 F.2d at 953-54 (sanctions short
of default such as costs, attorneys' fees, or contempt of court
would have likely cured attorney's failure to respond); Smith v.
Bounds, 813 F.2d 1299, 1304 (4th Cir. 1987)
(contempt sanctions
appropriate as an alternative to default judgment)). Here,
as
discussed,
to
the
delay appears
to be
largely attributable
Marcus's failure to ensure that Flower Orthopedics responded to
the Complaint while he was engaged in settlement negotiations
with Garfinkle. Thus, monetary sanctions on Marcus is a possible
alternative to the drastic sanction of entry of default. And,
even if Flower Orthopedics was more responsible than Marcus for
the delay, the Court could simply require Flower Orthopedics to
pay McKesson's fees and costs associated with seeking entry of
default and default judgment. See Red Light Mgmt., 315 F.R.D. at
"73; Pinpoint IT Servs. , 812 F. Supp. 2d at 728. Therefore, given
the availability of sanctions other than entry of default or
default judgment,
this factor weighs in Flower Orthopedics'
favor.
23
3.
Motion for Enlargement of Time to Answer
The decision to grant Flower Orthopedics'
motion to set
aside the entry of default necessitates consideration of Flower
Orthopedics' request to file an untimely answer. That request is
governed by Rule 6(b);
When
an act
specified
cause,
(A)
may or must be
time,
the
court
done
may,
within a
for
good
motion
or
extend the time:
with
or
without
notice . . . if a request is made,
before
the
original
time
or its
extension expires; or
(B)
on
motion
made
after
the
time
expired if the party failed
because of excusable neglect.
Fed.
R.
Civ.
P.
6(b)(1).
has
to act
Flower Orthopedics was required to
respond to the Complaint within twenty-one days of service—that
is, by October 17, 2017. See id. 12(a) (1) (A) (i) . However, it did
not move to extend the time to answer until November 13, 2017,
well after that deadline had passed. Therefore, the Court may
only grant
Flower Orthopedics'
motion if
it
failed to answer
because of "excusable neglect," and if there is "good cause" to
allow an extension.
Deciding whether
bottom an equitable
a
party's
[inquiry],
neglect
is
excusable
is
"at
taking account of all relevant
24
circumstances surrounding the party's omission."^ Pioneer Inv.
Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 395
(1993). Relevant factors include "the danger of prejudice to the
[non-movant], the length of the delay and its potential impact
on judicial proceedings, the reason for the delay,
including
whether it was within the reasonable control of the movant, and
whether
the
movant
acted
"[a]1though inadvertence,
construing
the
rules
do
in
good
faith.''
Id.
Furthermore,
ignorance of the rules,
not
usually
or mistakes
constitute
'excusable'
neglect, it is clear that 'excusable neglect' under Rule 6(b) is
a somewhat elastic concept."
omitted) .
Nonetheless,
at 392
excusable
demonstrated" under this standard.
(internal quotations
neglect
''is
Thompson v.
not
E.I.
easily
DuPont de
Nemours & Co., 76 F.3d 530, 534 (4th Cir. 1996).
Flower Orthopedics has shown that its neglect in failing to
timely respond to the Complaint
is excusable.
As explained
above, the delay here was insignificant and has not prejudiced
McKesson in any meaningful way. In addition. Flower Orthopedics
appears to have acted in good faith,
believing that McKesson
would not seek entry of default because of ongoing settlement
Although Pioneer interpreted the meaning of "excusable neglect"
in the context of the Federal Rules of Bankruptcy Procedure,
courts have applied its framework in discussing excusable
neglect under Rule 6(b). See, e.g.. Tucker v. Chrysler Credit
Cor^^, 149 F.3d 1170, 1998 WL 276266, at *2-3 (4th Cir. May 29,
1998),
25
negotiations and then filing a proposed answer shortly after
learning
of
the
Orthopedics'
default.
delay-the
Finally,
"most
the
reason
important
of
for
the
Flower
[Pioneer]
factors," id.—indicates that its failure to answer the Complaint
was
an
inadvertent mistake.
Flower Orthopedics must
be
held
accountable in this context for the acts and omissions of its
attorney, Marcus. Pioneer Inv. Servs., 507 U.S. at 396-97. But,
when a defaulting party is not primarily responsible for the
default,
its
neglect.
See
noted.
attorney's
Augusta
Flower
Marcus's
Fiberglass,
Orthopedics'
failure
Complaint
negligence
to
during
have
the
settlement
negotiations.
reasonable,
albeit
reject
Flower
McKesson
sought
account,
and
Flower
mistaken,
entry
of
considering
F.2d
was
at
error
latest
default.
be
Here,
as
primarily
by
respond
to
Orthopedics'
resulted
that
Taking
offer
these
outlined
the
would
before
facts
in
the
view)
from
Garfinkle
settlement
factors
excusable
811.
caused
Flower
assumption
the
still
Orthopedics
(in
This
Orthopedics'
843
default
ongoing
can
into
Pioneer,
Marcus's neglect, and thereby Flower Orthopedics', is excusable.
In
addition,
Orthopedics'
time
there
is
good
to answer the
cause
for
Complaint.
extending
This
Flower
opinion has
already explained at length why there is good cause for setting
aside the entry of default against Flower Orthopedics. See supra
26
Section II. And,
as described above.
Flower Orthopedics has
established that its neglect in responding to the Complaint was
excusable.
Consequently,
extending
its
time
to
answer
the
Complaint under Rule 6(b)(1) is appropriate here.
CONCLUSION
For the foregoing reasons.
ENTRY
OF
DEFAULT
(ECF
No.
Defendant's MOTION TO SET ASIDE
15)
will
be
granted;
FLOWER
ORTHOPEDICS CORPORATION'S MOTION FOR ENLARGEMENT OF TIME TO FILE
AN ANSWER AND COUNTERCLAIM (ECF No. 17) will be granted; and
Plaintiff's MOTION FOR ENTRY OF DEFAULT JUDGMENT (ECF No. 10)
will be denied as moot.
I t is so ORDERED.
/s/
Robert E. Payne
Senior United States District Judge
Richmond, Virginia
Date:
February 15, 2018
27
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