Orum et al v. Liberty Mutual Insurance Company

Filing 21

MEMORANDUM OPINION AND ORDER DENYING DEFENDANT'S 12 MOTION FOR DEFAULT JUDGMENT ON ITS COUNTERCLAIM, GRANTING PLAINTIFFS' 13 MOTION TO SET ASIDE CLERK'S ENTRY OF DEFAULT AND GRANTING PLAINTIFFS' 19 MOTION FOR LEAVE TO FILE ANSWER TO DEFENDANT'S COUNTERCLAIM. Signed by Senior Judge Frederick P. Stamp, Jr. on 2/15/18. The plaintiffs are DIRECTED to file their answer to the counterclaim within seven (7) days of entry of this order. (lmm)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
ROBERT ORUM and CONNIE ORUM,
Plaintiffs,
v.

Civil Action No. 5:17CV142
(STAMP)

LIBERTY MUTUAL INSURANCE COMPANY,
Defendant.
MEMORANDUM OPINION AND ORDER
DENYING DEFENDANT’S MOTION FOR DEFAULT
JUDGMENT ON ITS COUNTERCLAIM,
GRANTING PLAINTIFFS’ MOTION TO SET
ASIDE CLERK’S ENTRY OF DEFAULT AND
GRANTING PLAINTIFFS’ MOTION FOR LEAVE TO
FILE ANSWER TO DEFENDANT’S COUNTERCLAIM
I.

Background

The defendant removed this civil action to this Court after
the plaintiffs originally filed their complaint in the Circuit
Court of Ohio County, West Virginia.

The complaint arises out of

a fire that burned the plaintiffs’ house to the ground.

The

plaintiffs allege that the defendant, in bad faith, failed to pay
the plaintiffs’ homeowners claim even though there have not been
any criminal charges filed against the plaintiffs.
filed an answer and counterclaim in this Court.

The defendant

The defendant’s

counterclaim seeks a declaration from the Court that it properly
rescinded an insurance policy, such that the defendant has no
further duty to investigate and potentially pay for the plaintiffs’
underlying insurance claim.

The defendant served its counterclaim on the plaintiffs on
September 18, 2017.

The plaintiffs failed to respond within the

time provided by the Federal Rules of Civil Procedure.

Thus,

pursuant to Federal Rule of Civil Procedure 55(a), the Court
entered default against the plaintiffs on the counterclaim on
October 12, 2017. On October 16, 2017, after the entry of default,
the plaintiffs filed their answer to the counterclaim.

On October

30, 2017, the defendant filed a motion to strike the plaintiffs’
answer to the defendant’s counterclaim.
represented

that

the

defendant

has

The motion to strike

been

plaintiffs’ disregard and unresponsiveness.

prejudiced

by

the

The motion further

represented that, by not striking the untimely answer, the Court
would further prejudice the defendant by requiring it to continue
to defend this action against the plaintiffs who have, to date,
cost the defendant much time and resources due to their inaction.
This Court found that the defendant would be unfairly prejudiced if
it did not enforce the entry of default.

Accordingly, the Court

granted the defendant’s motion to strike the plaintiffs’ answer to
the defendant’s counterclaim and directed the Clerk to strike the
plaintiffs’ answer to the defendant’s counterclaim from the docket.
The defendant has now filed a motion for default judgment on
its counterclaim pursuant to Federal Rule of Civil Procedure
55(b)(2). The plaintiffs have also filed a motion to set aside the
clerk’s entry of default and a motion for leave to file an answer

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to the defendant’s counterclaim.

All three of the motions are

fully briefed and ripe for review. For the following reasons, this
Court denies the defendant’s motion for default judgment on its
counterclaim, grants the plaintiffs’ motion to set aside entry of
default, and grants the plaintiffs’ motion for leave to file answer
to defendant’s counterclaim
II.
A.

Applicable Law

Motion for Default Judgment
To obtain a default judgment, a party must first seek an entry

of default under Federal Rule of Civil Procedure 55(a). Under Rule
55(a), an entry of default is appropriate “[w]hen a party against
whom a judgment for affirmative relief is sought has failed to
plead or otherwise defend . . . .”

Fed. R. Civ. P. 55(a).

Once

default is entered by the clerk, the party may seek a default
judgment under Rule 55(b)(1) or (2), depending on the nature of the
relief sought.

If the plaintiff’s claim is for “a sum certain” or

a “sum that can be made certain by computation,” the plaintiff may
seek entry of default judgment from the clerk under Rule 55(b)(1).
However, in cases in which the plaintiff seeks a form of relief
other than liquidated damages, Rule 55(b)(2) requires plaintiff to
seek an entry of default judgment from the court.
It is well-established in the United States Court of Appeals
for the Fourth Circuit that default judgments are to be granted
sparingly.

See, e.g., Lolatchy v. Arthur Murray, Inc., 816 F.2d

3

951,

954

(4th

Cir.

1987).

“[T]rial

judges

are

vested

with

discretion, which must be liberally exercised, in entering such
judgments and in providing relief therefrom.”

United States v.

Moradi, 673 F.2d 725, 727 (4th Cir. 1982).
B.

Motion to Set Aside Entry of Default
Federal Rule of Civil Procedure 55(c) provides that a court

may set aside an entry of default for good cause or pursuant to
Rule 60(b).

The United States Court of Appeals for the Fourth

Circuit has established the following factors for district courts
to consider when ruling on motions to set aside an entry of
default: “whether the moving party has a meritorious defense,
whether

it

acts

with

reasonable

promptness,

the

personal

responsibility of the defaulting party, the prejudice to the party,
whether there is a history of dilatory action, and the availability
of sanctions less drastic.”

Payne ex rel. Estate of Calzada v.

Brake, 439 F.3d 198, 204-05 (4th Cir. 2006) (citing Consol. Masonry
& Fireproofing, Inc. v. Wagman Constr. Corp., 383 F.2d 249, 251
(4th Cir. 1967); Lolatchy v. Arthur Murray, Inc., 816 F.2d 951, 953
(4th Cir. 1987)).
The Fourth Circuit “has also ‘repeatedly expressed a strong
preference that, as a general matter, defaults be avoided and that
claims and defenses be disposed of on their merits.’”

Redden v.

Monitoronics Int’l, Inc., No. 5:14-CV-27757, 2015 WL 12859350, at

4

*1 (S.D. W. Va. Feb. 19, 2015) (quoting Colleton Preparatory Acad.,
Inc. v. Hoover Universal, Inc., 616 F.3d 413, 417 (4th Cir. 2010)).
III.
A.

Discussion

Motion for Default Judgment
As the plaintiffs state, default should not be entered under

Rule 55(a) when a party has shown an intention to actively defend
against the suit.

See Johnson v. Warner, No. 7:05CV00219, 2009 WL

586730, at *4 (W.D. Va. Mar. 6, 2009).

Additionally, this Court

agrees that “strong public policy favors resolving disputes on the
merits and not by default judgment.”

Id. (quoting Pecarsky v.

Galaxiworld.com Ltd., 249 F.3d 167, 172 (2d Cir. 2001)).
It is clear from the plaintiffs’ delayed answer to the
defendant counterclaim, their response to the defendant’s motion
for default judgment, and their motion to set aside the entry of
default that they intended to actively defend the counterclaim.
Further, it is also clear that the plaintiffs’ untimely answer was
the result of their counsel inadvertently mis-calendaring the
deadline for the answer. The plaintiffs represent by their counsel
that they mistakenly calendared the deadline for thirty days from
the filing of the counterclaim rather than twenty-one days from the
filing of the counterclaim.

Furthermore, plaintiffs’ counsel

remedied their error by filing an answer six days late, after the
entry of default.

Based on these facts, this Court denies the

defendant’s motion for default judgment.

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B.

Motion to Set Aside Entry of Default
As the plaintiffs argue, the law favors deciding a case on its

merits.

Additionally, the plaintiffs are correct that a motion to

set aside an entry of default is subject to a less rigorous
standard than that applied to a motion to set aside an entry of
default judgment.

“[A movant’s] motion to set aside [an] entry of

default is governed by the liberal ‘good cause’ standard rather
than by the more restrictive standard of [Rule] 60(b) [that governs
motions to set aside default judgment].”

Rasmussen v. Am. Nat’l

Red Cross, 155 F.R.D. 549, 550 (S.D. W. Va. 1994).
This Court also agrees with the plaintiffs that the six-factor
analysis

for

setting

plaintiffs’ position.

aside

an

entry

of

default

favors

the

First, the plaintiffs maintain that they

have a meritorious cause of action for first party bad faith by the
defendant because the defendant failed to pay the plaintiffs’
homeowners claim after the plaintiffs’ house burned to the ground.
Second, the plaintiffs’ answer to the defendant’s counterclaim was
only six days late and, thus, was reasonably prompt.

Third,

counsel for the plaintiffs have acknowledged that their untimely
answer to the counterclaim was the result of them mis-calendaring
the deadline by nine days.
As to the fourth factor, this Court acknowledges that, in its
earlier

order

granting

the

defendant’s

motion

to

strike

the

plaintiffs’ answer to the counterclaim, it previously found that

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the defendant would be unfairly prejudiced if the Court did not
enforce the entry of default.

ECF No. 11.

The Court reached that

conclusion based on the defendant’s representation in its motion to
strike the answer that the defendant had been prejudiced by the
plaintiffs’ disregard and unresponsiveness.

However, based on the

briefing of the present motion, this Court now finds that the risk
of unfair prejudice to the defendant is outweighed by the other
relevant factors in light of the liberal good cause standard for
setting aside an entry of default and the law favoring deciding a
case on the merits.
Fifth, this Court finds that the plaintiffs have not had a
history of dilatory action. Specifically, the plaintiffs’ delay in
filing their answer to the defendant’s counterclaim was the first
time the plaintiffs missed a deadline in this civil action.
Lastly, this Court agrees with the plaintiffs that refusing to
grant the motion to set aside the entry of default would be too
drastic

a

sanction

under

the

circumstances.

Thus,

having

considered all of the relevant factors, this Court finds that there
is good cause to grant the plaintiffs’ motion to set aside the
entry of default.
IV.

Conclusion

For the reasons stated above, the defendant’s motion for
default judgment on its counterclaim (ECF No. 12) is DENIED and the
plaintiffs’ motion to set aside entry of default (ECF No. 13) is

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GRANTED.

Accordingly, the plaintiffs’ motion for leave to file

answer to defendant’s counterclaim (ECF No. 19) is GRANTED and the
plaintiffs are DIRECTED to file their answer to the counterclaim
within seven (7) days of entry of this order.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of this memorandum
opinion and order to counsel of record herein.
DATED:

February 15, 2018

/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE

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