Jiang et al v. Hannon Group Ltd et al

Filing 56

ORDER signed by Judge J P Stadtmueller on 2/10/15: granting 43 Hannon Group's Motion to vacate entry of default; granting 41 Todd Hannon's Motion to vacate entry of default; Plaintiffs shall file an affidavit outlining the itemized total for all of the expenses noted within 14 days of the entry of this order; granting 54 Attorney Krokosky's Motion to Withdraw as Counsel for Plaintiffs; and, Plaintiffs shall inform the Court within 14 days whether the firm of Weiss Berzowski Brady LLP will continue to represent them or they will seek new counsel. See Order. (cc: all counsel) (nm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
YAN FANG JIANG and
REEDIGROUP, LTD.,
Plaintiffs,

Case No. 14-CV-309-JPS

v.
HANNON GROUP, LTD., and
TODD J. HANNON,

ORDER

Defendants.
Before the Court are three motions: (1) Hannon Group, Ltd.’s motion
to vacate entry of default; (2) Todd Hannon’s motion to vacate entry of
default; and (3) Neal S. Krokosky’s Local Rule 7(h) non-dispositive motion
to withdraw as attorney for the plaintiffs (See Docket #41, #43, #54).1 The facts
leading up to the Court ordering the clerk to enter default against Hannon
Group, Ltd. (“Hannon Group”) and Todd Hannon (“Mr. Hannon”) are laid
out in full in the Court’s prior order (Docket #40); for the sake of brevity,
then, the Court will not reiterate those facts, instead referring to the prior
order as necessary.
The Court will address each motion in turn.
1.

HANNON GROUP’S MOTION TO VACATE DEFAULT
Hannon Group’s motion asserts two separate grounds for vacatur of

the Clerk of Court’s entry of default. First, Hannon Group argues that “the
service of process asserted to obtain the default was constitutionally defective

1

The title of Hannon Group, Ltd’s motion requests that the Court “vacate
default and [its] order striking [the defendant’s] answer.” (Docket #43 at 1). The
title of Todd Hannon’s motion requests that the Court “reconsider [its] order of
September 16, 2014[,] and…vacate default.” (Docket #41 at 1).

on due process grounds, rendering void the order of default and any
judgment entered.” (Docket #43 at 1). Second, Hannon Group argues that it
“can demonstrate good grounds…for vacating the default.” Id. at 10.
Namely, that it has: (1) good cause for default; (2) taken quick action to
correct it; and (3) a meritorious defense to the plaintiff’s complaint. Id. at 10
(citing Mirbeau of Geneva Lake, LLC v. City of Lake Geneva, 746 F. Supp. 2d 1000,
1019 (E.D. Wis. 2010)); see also Federal Rule of Civil Procedure 55(c).
The first objection—that service of process was defective on due
process grounds—is a nonstarter. The Court previously ruled that Hannon
Group was properly served (see Docket #40 at 4), and Hannon Group has not
raised any new arguments or asserted any new facts proving otherwise.
Even if the Court were to entertain Hannon Group’s arguments, it
would reach the same result. In its initial brief, Hannon Group averred that
“the certified mailing [to Hannon Group’s address on file with the Wisconsin
Department of Financial Institutions (“WDFI”)] was in fact returned to
Plaintiff without delivery, stating a new address.” (Docket #43 at 11)
(emphasis added). However, in its reply—after the plaintiffs disproved that
theory, (see Docket #46 at 11 & n.15) (pointing out delivery
occurred)—Hannon Group concedes that the mailing was delivered to a
forwarding address (see Docket #52 at 4) (stating that “[t]he only possible
conclusion was that the letter was delivered to that unknown address”), but
argues that one cannot assume that “the signatory located at the wrong
address was an ‘agent’ of Hannon Group, without a shred of proof other
than the existence of a signature.” Id. at 5. Hannon Group goes on to repeat
the point that the forwarding address—421 Broad Street, Lake Geneva,
WI—was “an address that has no connection to the defendant.” Id.
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“[A]u contraire (or, to be more Wagnerian, im Gegenteil),” Minnesota v.
Carter, 525 U.S. 83, 98 (1998) (Scalia, J. concurring), the Court finds that 421
Broad Street is an address known to Hannon Group and has a connection to
the defendants. Specifically, Mr. Hannon's declaration states that on April 18,
2014, “at [his] direction a form was mailed to the [WDFI] to change the
registered office of Hannon Group, Ltd…to the office of Chamberlain &
Henningfield, an accounting firm…that had agreed to act as the registered
office.” (Docket #43-4 at 3). The WDFI returned that letter to the accounting
firm on May 2, 2014, rejecting the application on various grounds; Mr.
Hannon received this rejection letter (albeit a few weeks later), id., presumably
because as he stated, the accounting firm “had agreed to act as the registered
office.” Id.
And, the Court takes judicial notice, see Gen. Elec. Capital Corp. v.
Lease Resolution Corp., 128 F.3d 1074, 1081 (7th Cir. 1997), of the fact
that Chamberlain & Henningfield is located at 421 Broad Street, Lake
Geneva, WI. See, e.g., Contact Us, Chamberlain & Henningfield, CPAs, LLC,
http://www.cchcpas.com/contact_us.html (last visited Jan. 27, 2015)
(listing address as 421 Broad Street, Lake Geneva, WI); Chamberlain
& Henningfield, Official Site of Lake Geneva, WI, http://www.
lakegenevawi.com/m/ Chamberlain_-and-_Henningfield.aspx (last visited
Jan. 27, 2015) (same). This revelation collapses every single service of process
argument that Hannon Group has made.
On the second ground—that the Court should vacate the
default—Hannon Group argues that it has met the requirement to vacate the
entry of default and, further, that sanctions involving a “lesser penalty than
a multi-million dollar judgment” are a proper exercise of the Court’s
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discretion. (See Docket #43 at 14); (see also Docket #52 at 6) (stating that “[i]f
required, [Hannon Group] respectfully suggests compensation for Plaintiff
for all attorney fees, private investigator expense and other costs incurred in
attempting to procure service”).
The plaintiffs summarily ignore Hannon Group’s latter suggestion
—the proposal to sanction Hannon Group with something less than a
judgment in excess of three million dollars—arguing only that Hannon
Group is not entitled to relief from the entry of default. It is not entitled to
relief, the plaintiffs argue, because Hannon Group: (1) “has not identified a
factual or legal basis from which the Court can conclude that there is ‘good
cause’ to grant relief”; and (2) has “failed to identify any facts that suggest
that [it] used ‘quick action’ to correct the default.” (Docket #46 at 12, 13).
To begin, the Court will outline the standard for vacating entry of
default. “Relief from entry of a default requested prior to entry of judgment
is governed by Fed. R. Civ. P. 55(c).” Pretzel & Stouffer v. Imperial Adjusters,
Inc., 28 F.3d 42, 44-45 (7th Cir. 1994). In order for a court to order that entry
of default should be set aside, defendants must show: “(1) good cause for
their default; (2) quick action to correct it; and (3) a meritorious defense to the
plaintiff’s complaint.” United States v. Di Mucci, 879 F.2d 1488, 1495 (7th Cir.
1989). A less stringent standard is applied to motions for relief from an entry
of default than those requesting relief from a default judgment. See Cracco v.
Vitran Express, Inc., 559 F.3d 625, 631 (7th Cir. 2009) (noting “the lenient
standards that [the Seventh Circuit] ha[s] established for the application of
Rule 55(c)”); Pretzel & Stouffer, 28 F.3d at 47; Sims v. EGA Products, Inc., 475
F.3d 865, 868 (7th Cir. 2007); C.K.S. Eng’rs, Inc. v. White Mountain Gypsum Co.,

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726 F.2d 1202, 1206 (7th Cir. 1984); Breuer Elec. Mfg. Co. v. Tornado Sys. of Am.,
Inc., 687 F.2d 182, 187 (7th Cir. 1982).
Judge Easterbrook took a different approach to the first requirement
in Sims, stating that “Rule 55(c) requires ‘good cause’ for the judicial action,
not ‘good cause’ for the defendant’s error.” 475 F.3d at 868. “Damages
disproportionate to the wrong afford good cause for judicial action, even
though there is no good excuse for the defendant’s inattention to the case.”
Id. And, where the only harm to the plaintiff is “delay that imposes slight
injury,” such conduct “does not call for multimillion-dollar awards.” Id.
Thus, the better path is to penalize the defendant for their missteps—as long
as the conduct is not willful, see Ellingsworth v. Chrysler, 665 F.2d 180, 185 (7th
Cir. 1981) (vacating default where “[t]he record…reveal[ed] no willful
pattern of disregard for the court’s orders and rules”)—commensurate with
the gravity and harm of those missteps. See Sims, 475 F.3d at 868-69; cf.
Mirbeau, 746 F. Supp. 2d at 1020 (“Sustaining the entry of default and
allowing the defendant to be subject to liability is an extremely harsh penalty
for a relatively minor mistake that was quickly rectified”).
The Court now turns to applying the three requirements to vacate
entry of default. To begin, the Court finds the approach taken by Judge
Easterbrook in Sims to be appropriate when analyzing whether good cause
exists. Here, like the defendant in Sims, Hannon Group has not shown good
cause for its default,2 but that finding alone is insufficient to let default stand

2

Indeed, the Court previously described in detail the neglectful conduct
which precipitated the Court's order directing entry of default. (See Docket #40 at
2) (“Defendants’ failure to follow the local rules of this district and the Federal
Rules of Civil Procedure do not stop with the July 14, 2014 motion, however. By this
Court’s estimation, almost none of Defendants’ filings have been timely.”).

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where the plaintiff has shown little if any prejudice and the overall harm
appears minor. The Court does not condone negligent disregard for
litigation; that said, the Court also does not find it equitable to punish such
negligence by leaving in place “entry of default [when that] would be
overkill.” Sims, 475 F.3d at 869; cf. Robb v. Norfolk & W. Ry. Co., 122 F.3d 354,
359 (7th Cir. 1997) (discussing the Rule 60(b) standard—which as noted
above is higher than that of Rule 55(c)—and noting that “the determination
of what amounts to ‘excusable neglect’ under Rule 60(b) is . . . ‘at bottom an
equitable one’”) (quoting Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd.
P’ship, 507 U.S. 380, 395 (1993)). Thus, while the Court finds no “good excuse”
for Hannon Group’s conduct, the significant claim for damages, when
compared with the small amount of harm “afford good cause for judicial
action.” Sims, 475 F.3d at 868; see also Sun v. Bd. of Trs. of Univ. of Ill., 473 F.3d
799, 811 (7th Cir. 2007) (cautioning against “[bringing] out the heavy artillery
too soon”3 and entering default to punish defendants, thereby “giving the
plaintiff a windfall,” when “impos[ing] increased monetary sanctions”
remains a viable option). Accordingly, the Court finds that the “good cause”
requirement for vacating entry of default has been met given the relatively
low amount of harm caused by the defendant’s conduct measured against
the overkill of a multimillion dollar judgment. The Court will address the

3

Here, to be clear, the Court did not “[bring] out the heavy artillery too
soon.” Sun, 473 F.3d at 811. The Court did not enter default as a sanction in this
case. It did so because, as stated in its prior order, Hannon Group filed an untimely
brief in opposition to the plaintiff’s motion for entry of default; thus, after the Court
granted the plaintiffs’ motion to strike the untimely brief, the Court was obliged to
grant the plaintiffs’ now unopposed motion for entry of default. (See Docket #40 at
4) (“What the court is left with, then, is Plainttiffs’ now unopposed ‘Motion for
Default…”) (emphasis added).

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matter of appropriate sanctions it will impose against Hannon Group
—which will replace entry of default—below.
As to the second requirement, while the plaintiffs argue that Hannon
Group failed to take quick action to correct entry of default, they misstate
when quick action is to be measured from. The plaintiffs appear to be
arguing that Hannon Group’s repeated late filings prior to entry of default
disprove any quick action argument Hannon Group has made. (See Docket
#46 at 13) (arguing that Hannon Group’s late answer defeats its quick action
argument and the Court’s prior order “rejected the ‘quick action’ argument”
as well). To be sure, the Court did reject Hannon Group’s quick action
argument prior to the entry of default. (See Docket #40 at 2). But, under Rule
55(c), the Court is to analyze whether a party took “quick action to correct [the
default].” Di Mucci, 879 F.2d at 1495 (emphasis added). To state the foregoing
in a different way: It is not the defendant’s neglectful conduct prior to entry
of default that the Court is concerned with under Rule 55(c), it is the postentry of default conduct that controls. See Mirabeau, 746 F. Supp. 2d at 1019
(finding quick action requirement met when the defendant “took quick
action to remedy the default…[by] promptly [filing] a motion to the court to
set aside entry of default”).
Here, in response to the Court’s order directing entry of default,
Hannon Group timely filed a motion to vacate entry of default. (See Docket
#43) (filed sixteen (16) days after the Court’s order). As such, the quick action
requirement has been met.
After having found good cause to vacate entry of default—despite no
good excuse for the defendant’s conduct that precipitated it—and quick
action to correct default, the Court turns to the final requirement that the
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defendant have “a meritorious defense to the plaintiff’s complaint.” Id. Here,
Hannon Group alleges that its answer—the answer the Court struck as
late—demonstrates it “holds meritorious defenses” to the plaintiffs’
complaint. (Docket #43 at 12). Specifically, that in its answer it “alleges the
facts underlying the true course of events, which completely rebut
Reedigroup’s claims of liability for breach of contract.” Id. And, the
defendant continues, it has filed affirmative defenses based on those facts
and has alleged various counterclaims. Id.
The Seventh Circuit has stated that “[w]hen we say the defendant
must show a ‘meritorious defense’ to the lawsuit, we mean more than bare
legal conclusions,…but less than a definitive showing that the defense will
prevail.” Parker v. Scheck Mech. Corp., 772 F.3d 502, 505 (7th Cir. 2014)
(internal citations omitted); see also Wehr v. Wells, 688 F.3d 886, 890 (7th Cir.
2012) (“A meritorious defense need not, beyond a doubt, succeed in
defeating a default judgment, but it must at least “raise[] a serious question
regarding the propriety of a default judgment and…[be] supported by a
developed legal and factual basis.”) (quoting Jones v. Phipps, 39 F.3d 158, 165
(7th Cir. 1994)); Pretzel & Stouffer, 28 F.3d at 46 (“[A] meritorious defense
requires more than a ‘general denial’ and ‘bare legal conclusions.’”) (quoting
Breuer Elec. Mfg. Co., 687 F.2d at 186).
The Court finds that Hannon Group has demonstrated it has a
meritorious defense to the breach of contract claim asserted by the plaintiffs.
This is so because: (1) Hannon Group alleges facts as well as legal arguments
in support of its affirmative defenses and answers to the plaintiffs claims; and
(2) the plaintiffs do not contest that Hannon Group may have a meritorious
defense. Given that the breach of contract claim was the only claim the
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plaintiffs requested entry of default on (see Docket #40 at 1, 4), the Court need
not analyze the remainder of the claims for a meritorious defense.
In light of the foregoing, then, the Court finds it well within its
discretion to grant Hannon Group’s motion (Docket #43) and vacate the
entry of default against it.
As noted above, however, Hannon Group will not walk away from
the fray unscathed. Hannon Group itself suggested sanctions in lieu of entry
of default (see Docket #52 at 6), and such a result is part and parcel of
proceeding under the holding in Sims. See 475 F.3d at 868-69. The plaintiffs
do not suggest a proper sanction; on the other hand, Hannon Group
“suggests compensation for Plaintiff for all attorney fees, private investigator
expense and other costs incurred in attempting to procure service…[would
be] an appropriate sanction.” (Docket #52 at 6).
The Court finds that the sanction proposed by Hannon Group is
necessary, but not sufficient to remedy its conduct in this case; conduct which
caused unnecessary delay and precipitated numerous motions to strike.
Thus, in addition to the “attorney fees, private investigator expense and
other costs incurred in attempting to procure service,” Hannon Group shall
pay all reasonable attorneys’ fees and costs associated with all motions to
strike that resulted from Hannon Group’s failure to timely file documents
before this Court. Specifically, Hannon Group shall reimburse the plaintiffs
for attorneys’ fees and costs associated with Docket #18 (plaintiffs’ motion to
strike the defendants’ answer), Docket #28 (plaintiffs’ motion to strike the
memorandum of law in opposition to default judgment), and Docket #39
(motion to strike Docket #34 & #34-1, which was an untimely response to
Docket #28).
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The plaintiffs are directed to file an affidavit with the Court outlining
the itemized total for all of the expenses noted above. The plaintiffs shall do
so within fourteen (14) days of the entry of this order. After the affidavit is
filed, the parties are encouraged to meet and confer to reach a final
settlement regarding the total amount payable to the plaintiffs. Failure to
reach an agreement will result in the Court requesting the parties fully brief
the issue and perhaps referring the issue to a magistrate judge for resolution
of the total sanction amount.
2.

MR. HANNON’S MOTION TO VACATE DEFAULT
Mr. Hannon’s arguments for vacatur of entry of default are somewhat

similar to those of Hannon Group. First, Mr. Hannon argues that entry of
default was not proper because “[n]o request for a judgment against
[Mr.]Hannon was ever made to this Court.” (Docket #41 at 2). Second, Mr.
Hannon argues that he was not properly served by mailing and publication,4
see Wis. Stat. § 801.11(1)(c),5 because the plaintiffs did not exercise due
diligence in attempting to serve him. See Lavine v. City of Hayward, No. 04-CV0201, 2004 WL 2110753, at *2 (W.D. Wis. Sept. 20, 2004) (“Reasonable
diligence requires a plaintiff to ‘exhaust with due diligence any leads or

4

Mr. Hannon also raises a due process argument in his reply. (See Docket #49
at 5) (stating that “Plaintiff’s attempt at publication was constitutionally invalid
under federal principles of due process under the Fifth and Fourteen [sic]
Amendments.”). Because the Court resolves Mr. Hannon’s motion on other
grounds, it need not wade into this swamp.
5

Mr. Hannon also relies in part on the fact that the Court’s prior order
involved a clerical error, (see Docket #41 at 2-3), which referred to the statute as §
801.11(5)(c) instead of § 801.11(1)(c). (See Docket #40 at 4) (“Despite Defendants’
wrangling to the contrary, the Court finds that Defendants were properly served
under Wis. Stat. §§ 801.11(5)(c) and 180.0504(2).”). A substantive argument a clerical
error does not make.

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information reasonably calculated to make personal service possible.’”)
(quoting West v. West, 262 N.W.2d 87, 90, 82 Wis.2d 158 (1978)). Third, Mr.
Hannon argues that, even if entry of default was proper, “he meets the
requirements of federal law for vacatur[] of the default.” Id. at 4.
Mr. Hannon’s first argument is simply wrong. While the normal route
by which the Clerk of Court enters default is upon motion of a party, the
Seventh Circuit has stated that “[a]lthough Rule 55(a) refers to entry of
default by the clerk, it is well-established that a default may also be entered
by the court.” Breuer, 687 F.2d at 15 (citing 6 Moore’s Federal Practice P
55.03(1) at 55-31 (1976 ed.)). This makes sense, given the Seventh Circuit has
referred to default judgment (and thus entry of default) as within a court’s
“arsenal of sanctions.” C.K.S. Engr’s, 726 F.2d at 1206. Given that the Court
has the power to direct the clerk to enter default sua sponte, the fact that
neither plaintiff requested entry of default against Mr. Hannon is therefore
irrelevant.
Mr. Hannon’s second argument—relating to defects in service of
process—will be rejected for the same reason that Hannon Group’s argument
was: the Court has already ruled that Mr. Hannon was properly served and
Mr. Hannon has not raised any arguments that compel the Court to revisit
its prior ruling. See, e.g., In re Ski Train Fire, 224 F.R.D 543, 546 (S.D.N.Y. 2004)
(“The district court’s discretion to reconsider a non-final ruling is…limited
by the law of the case doctrine and subject to the caveat that where litigants
have once battled for the court's decision, they should neither be required,
nor without good reason permitted, to battle for it again.”) (quotation marks
omitted).

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Again, if the Court were to entertain Mr. Hannon’s service of process
arguments, it would not reach a different result. Mr. Hannon attempts to
analogize the instant case to Haselow v. Gauthier, 569 N.W.2d 97, 212 Wis.2d
580 (Ct. App. 1997), but that case does not help his cause. In Haselow, the
court found the plaintiff had not exercised due diligence because the
defendant did not attempt to effect personal service in Hawaii, the place the
defendant had moved (and the plaintiff was aware of that fact); nor, in
Haselow, was there any “indication of attempt[s] to contact the postmaster,
or to determine if [the defendant] had other relatives, friends, neighbors or
business associates who had relevant information.” Id. at 101. That is not the
case here, as the plaintiffs spoke with Mr. Hannon’s father, searched all
available records, and attempted service via various methods—including
attempting to serve Mr. Hannon at a federal courthouse in New York. (See
Docket #7, #8).
Mr. Hannon also ignores that in Haselow the Court stated: “‘[t]he
diligence to be pursued and shown by the affidavit is that which is
reasonable under the circumstances and not all possible diligence which may
be conceived.’” Id. (quoting Parker v. Ross, 217 P.2d 373, 379 (Utah 1950)). The
plaintiffs had no known address for Mr. Hannon and no reasonable way to
find it; they were aware he may be in China, but were also told by Mr.
Hannon’s father that he may be in Europe. (See Docket #7, #8). To the extent
that Mr. Hannon is arguing that to exercise due diligence before resorting to
service by publication a plaintiff must search every nook and cranny of the
earth for a defendant, he grossly misapprehends what due diligence requires.
Nor has he cited a case supporting this position.

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Notwithstanding the foregoing, however, the Court will grant Mr.
Hannon’s motion (Docket #41) and vacate entry of default for the same
reasons noted above regarding Hannon Group. While Mr. Hannon does not
face a multimillion dollar judgment personally, it would be quite odd indeed
to vacate default for Hannon Group—the defendant who is arguably more
at fault for the events that have transpired—than Mr. Hannon himself.
Additionally, it would be equally odd to leave in place entry of default for
Mr. Hannon when the plaintiffs’ original motion requested default only
against Hannon Group. Thus, the Court will vacate entry of default against
Mr. Hannon.
That said, after considering the equities of this case, the Court finds it
proper to order that Mr. Hannon share in the sanction against Hannon
Group above, but only in the portion attributable to the defendants’ filing of
a late answer. Specifically, Mr. Hannon shall share in the reimbursement of
the plaintiffs for attorneys’ fees and costs associated with Docket #18
(plaintiffs’ motion to strike the defendants’ answer). The remainder of the
sanctions are the sole responsibility of Hannon Group. The parties are to
follow all of the procedures already outlined above (regarding Hannon
Group) to determine the sanction attributable to Mr. Hannon.
3.

NEAL S. KROKOSKY’S RULE 7(H) MOTION TO WITHDRAW
Attorney Neal S. Krokosky (“Krokosky”) filed a motion to withdraw

as counsel for plaintiffs on January 19, 2015. (Docket #54). In his declaration
he avers that he no longer works for the firm retained by the
plaintiffs—Weiss Berzowski Brady LLP (“WBB”)— and also no longer lives
in Milwaukee, Wisconsin. (Docket #55 at 1). However, Krokosky does state

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that “it was [his] understanding that WBB was willing to continue
representing the plaintiffs in the above-captioned matter.” Id.
In light of the foregoing, the Court will grant Krokosky’s motion.
(Docket #54). The plaintiffs shall inform the Court within fourteen (14) days
whether WBB will continue to represent them or whether they will seek new
counsel.
Accordingly,
IT IS ORDERED that Hannon Group’s motion to vacate entry of
default (Docket #43) be and the same is hereby GRANTED;
IT IS FURTHER ORDERED that Mr. Hannon’s motion to vacate
entry of default (Docket #41) be and the same is hereby GRANTED;
IT IS FURTHER ORDERED that the plaintiffs shall file an affidavit
with the Court outlining the itemized total for all of the expenses noted
above within fourteen (14) days of the entry of this order; and
IT IS FURTHER ORDERED that Attoney Krokosky’s Rule 7(h) nondispositive motion to withdraw as counsel for the plaintiffs (Docket #54) be
and the same is hereby GRANTED; the plaintiffs shall inform the Court
within fourteen (14) days whether WBB will continue to represent them or
they will seek new counsel.
Dated at Milwaukee, Wisconsin, this 10th day of February, 2015.
BY THE COURT:

J.P. Stadtmueller
U.S. District Judge

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