Subotich et al v. Liuyang Dun Pai Fireworks Mfg et al

Filing 27

ORDER signed by Judge J P Stadtmueller on 7/31/15: denying 16 Plaintiffs' Motion for Default Judgment as to Certain Underwriters at Lloyd's, London; granting 18 Certain Underwriters at Lloyd's, London's Motion for Extension of Time; and accepting 17 Certain Underwriters at Lloyd's, London's late-filed Answer nunc pro tunc. See Order. (cc: all counsel)(nm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
MICHAEL SUBOTICH and
JENNIFER SUBOTICH,
Plaintiffs,

Case No. 15-CV-219-JPS

v.
LIUYANG DUN PAI FIREWORKS MFG.,
TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA, and CERTAIN
UNDERWRITERS AT LLOYD’S, LONDON,

ORDER

Defendants.
The plaintiffs, Michael and Jennifer Subotich, filed their complaint in
this case on February 26, 2015, and later filed an amended complaint on
March 20, 2015. (Docket #1, #5). The Subotiches allege that Mr. Subotich
was injured by a particular firework manufactured by Liuyang Dun Pai
Fireworks Mfg. (“Dun Pai”). (See Docket #5). The Subotiches also sued
Certain Underwriters at Lloyd’s, London (“Lloyd’s”), contending that Dun
Pai held an insurance policy with Lloyd’s. (See Docket #5).
On April 14, 2015, the Subotiches served their amended complaint on
Lloyd’s. (Docket #16, Ex. 1 ¶ 4). Lloyd’s did not waive service of process,
meaning that Lloyd’s responsive pleading was due on May 5, 2015 (21 days
after being served). See Fed. R. Civ. P. 12(a)(1)(A)(i).
Unfortunately, Lloyd’s did not meet that deadline. At the time,
Lloyd’s was represented by Ms. Barbara Demosthene of the New York office
of Mendes & Mount LLP, which had accepted service on Lloyd’s behalf. (See,
e.g., Docket #16, Ex. 1 ¶ 3; Docket #20 ¶ 3). Apparently, Lloyd’s was unsure
at the time of service whether it had actually issued an insurance policy to
Dun Pai. (See, e.g., Docket #21 at 3; Docket #20 ¶ 4). Thus, Ms. Demosthene,

on Lloyd’s behalf, asked Timothy M. Trecek, of Habush Habush & Rottier SC
(“Habush”), who serves as the Subotiches’ counsel, to agree to an extension
of the time for Lloyd’s to answer. (Docket #20 ¶ 4).
It is unclear whether Mr. Trecek agreed to this extension. Heidi Vogt,
the current attorney for Lloyd’s, who is affiliated with von Briesen & Roper,
s.c. (“von Briesen”), asserts that Mr. Trecek stated that Ms. Demosthene had
earlier advised him that Lloyd’s would “complete its investigation either the
week of June 15th or the following week” (Docket #20 ¶ 4); Mr. Trecek
disputes that assertion (Docket #23, Ex. 1 ¶ 8). However, one thing is clear:
Lloyd’s and the Subotiches never memorialized any agreement with the
Court, whether through a stipulation or unopposed motion. In other words,
Lloyd’s was operating on borrowed time: as soon as May 5, 2015, rolled
around, Lloyd’s was technically in default, because it had not received a
formal extension of time to answer from the Court. It was operating at the
mercy of Mr. Trecek, who, at any moment, could have filed a motion for
entry of default, abruptly ending the de facto extension.
But Mr. Trecek did not do so, at least for several weeks. While there
may not have been any formalized agreement between the parties, Mr.
Trecek was not pressing Lloyd’s to timely file a responsive pleading. Instead,
it appears that he and his office took no action with regard to Lloyd’s status
between April 20, 2015, and June 16, 2015. (Docket #23, Ex. 1 ¶ 5 Docket #23,
Ex. 5 ¶¶ 5–6).
On June 16, 2015, Mr. Trecek had a paralegal in his office call Ms.
Demosthene to follow up on the status of the investigation into whether
Lloyd’s had actually issued a policy to Dun Pai. (Docket #23, Ex. 1 ¶ 5;
Docket #23, Ex. 5 ¶ 7). Ms. Demosthene called the paralegal back, and
explained that Lloyd’s could not find a Dun Pai policy. (Docket #23, Ex. 5
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¶ 7). Mr. Trecek’s paralegal “then advised [Ms. Demosthene] that Lloyd's
was more than six weeks late on answering the amended complaint and was
in default, and that they needed to formally answer the amended complaint,
stating their position as to coverage.” (Docket #23, Ex. 5 ¶ 7). Ms.
Demosthene stated that she would call Lloyd’s to determine which course of
action they would like to take and call the paralegal back by Thursday, June
18, 2015. (Docket #23, Ex. 5 ¶ 7). The paralegal “advised [Ms. Demosthene]
that [the Subotiches] would wait until Monday (6/22/2015) before moving
forward with the Court.” (Docket #23, Ex. 5 ¶ 7). The paralegal memorialized
this agreement in an email to Mr. Trecek: “I told her we would wait until
Monday b4 moving forward w/ the court.” (Docket #23, Ex. 8). Mr. Trecek
sees things a bit differently, stating that he discussed with his paralegal “the
fact that we would move for default judgment on June 22, 2015 if we did not
hear back from Ms. Demosthene by June 18, 2015.” (Docket #23, Ex. 1 ¶ 5). In
other words, Mr. Trecek is implying that he and his paralegal
understood—though did not communicate to Ms. Demosthene—that they
would file for default judgment on June 22, 2015, if Ms. Demosthene did not
get back in touch with them by June 18, 2015, regardless of what occurred
between those two dates. (Docket #23, Ex. 1 ¶ 5). Ms. Demosthene clearly
disputes Mr. Trecek’s (second-hand) understanding of these events. (Docket
#25 ¶ 11).
Ms. Demosthene did not get back in touch with Mr. Trecek or his
paralegal on June 18, 2015; instead, on Friday, June 19, 2015, Lloyd’s retained
Ms. Vogt and von Briesen, who immediately attempted to contact Mr.
Trecek. (Docket #20 ¶ 5; Docket #20, Ex. 1). Unfortunately for Ms. Vogt,
neither Mr. Trecek or his paralegal were in the office on the afternoon of June
19, 2015. (Docket #23, Ex. 1 ¶ 6; Docket #23, Ex. 5 ¶ 9). So, von Briesen’s
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attorneys scheduled a conference call with Mr. Trecek to take place on
Monday, June 22, 2015. (Docket #20 ¶ 6). But, when Monday, June 22, 2015,
came, Mr. Trecek’s legal assistant cancelled the conference call, stating that
Mr. Trecek would be out of the office that day and asked to reschedule the
call to the following day. (Docket #20, Ex. 1). Mr. Trecek’s assistant made
clear that Mr. Trecek was “aware of the issue.” (Docket #20, Ex. 1).
No matter how “aware of the issue” Mr. Trecek may have been, his
actions underscore the appearance of having no intention of attempting to
work with von Briesen’s attorneys: he moved for default judgment on June
23, 2015. (Docket #16). This prompted Lloyd’s, through Ms. Vogt, to file its
answer (which was, of course, several weeks late at this point) and to
simultaneously move for an extension of time to allow them to file their
answer late, instanter. (Docket #17, #18). The Subotiches, through Mr. Trecek,
oppose that request and demand that Lloyd’s be held in default as a result
of their late filing of their answer. (Docket #23).
To be sure, Lloyd’s and their original attorney, Ms. Demosthene, are
not without fault. Unfortunately, in retrospect, Ms. Demosthene ought not
have relied on the goodwill of Mr. Trecek. But that fault is extensively
mitigated by three important considerations: (1) from April 20, 2015, through
June 16, 2015, Mr. Trecek and his staff took no action to compel Lloyd’s to
answer; (2) Mr. Trecek’s paralegal seems to have told Ms. Demosthene that
Mr. Trecek would not take any action until June 22, 2015, and von Briesen
made several attempts to contact Mr. Trecek before that date, only to be
rebuffed by Mr. Trecek’s absence from the office; and (3) despite being aware
of von Briesen’s efforts to get in touch with him to discuss the issue, Mr.
Trecek moved for default judgment. To be sure, Ms. Demosthene should
have gotten Mr. Trecek to agree to an extension in writing. But Mr. Trecek’s
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course of action implied that he would allow Lloyd’s time to investigate.
Then, all of a sudden, Mr. Trecek decided that period of investigation was
over—dissing any effort of von Briesen to right the ship—and moved for
default, even though it was clear that, with the benefit of new local counsel,
Lloyd’s was ready to move forward.
But, even taking into account the minor fault of Lloyd’s and Ms.
Demosthene, Mr. Trecek’s position clearly is not supported for a number of
very cogent reasons.
First, the Seventh Circuit expressly favors rulings on the merits over
default judgments. E.g., Cracco v. Vitran Exp., Inc., 559 F.3d 625, 631 (7th Cir.
2009) (citing C.K.S. Eng’rs, Inc. v. White Mountain Gypsum Co., 726 F.2d 1202,
1205 (7th Cir. 1984)).
Second, in moving for entry of default, Mr. Trecek did not follow the
proper procedures. Rather than moving for entry of default, he moved for
entry of default judgment, which may not be granted until after entry of
default. See Fed. R. Civ. P. 55; In re Catt, 368 F.3d 789, 793 (7th Cir. 2004).
Moreover, he did not cite to the correct rule of civil procedure in his motion.
(See Docket #16 (citing to “Fed. R. Civ. P. 12(1)(A)(i),” which of course does
not exist; presumably, he meant Fed. R. Civ. P. 12(a)(1)(A)(i), but that Rule
deals with service of process rather than default judgment)). More to the
point, Mr. Trecek failed to file an accompanying memorandum of law or
certificate stating that no memorandum would be filed, contrary to the
provisions of Civil L.R. 7(a). (See Docket #16). Standing alone, this lack of
attention to detail proves fatal, as the failure to file a memorandum or
certificate “is sufficient cause for the Court to deny the motion.” Civil L.R.
7(d). But the reasons for denying Mr. Trecek’s motion do not end there.

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Third, even if the Court deemed that entry of default was appropriate,
it could set default “aside before entry of judgment upon [a] showing [of]
good cause for the defendant’s inaction, prompt steps to correct the default,
and an arguably meritorious defense to the lawsuit.” Parker v. Scheck
Mechanical Corp., 772 F.3d 502, 505 (7th Cir. 2014). Lloyd’s clearly meets each
of those three requirements. To begin, good cause for the default exists: it
was spurred along by Mr. Trecek’s own inaction. Next, upon learning that
Mr. Trecek expected them to file an answer, Lloyd’s took prompt action: it
engaged von Briesen, whose prompt efforts were rebuffed by Mr. Trecek’s
absence from the office. Finally, Lloyd’s has an arguably meritorious defense:
it may not have issued an insurance policy to Dun Pai. (See Docket #26).
Fourth, Lloyd’s is entitled to an extension of time to file its answer.
Under Fed. R. Civ. P. 6(b)(1)(B), “[w]hen an act may or must be done within
a specified time, the court may, for good cause, extend the time…on motion
made after the time has expired if the party failed to act because of excusable
neglect.” The confusion regarding when Lloyd’s should have filed its answer
was attributable, at least in part, to Mr. Trecek’s inaction between April 20,
2015, and June 16, 2015. That inaction encouraged Lloyd’s to rely on an
assumption that time was not of the essence in filing a responsive pleading.
Indeed, Mr. Trecek allowed more than a month to pass between the due date
and his firm’s June 16, 2015 follow-up with Ms. Demosthene. In short, Mr.
Trecek’s own inaction leads to the inescapable conclusion that Lloyd’s had
reasonable cause for not timely filing its answer and, further, that its neglect
is entirely excusable.
Fifth, Lloyd’s delay in responding to the Subotiches’ complaint was
entirely harmless. Indeed, the Court recently granted the Subotiches an
extension of time to serve the primary defendants in this case. (Docket #15).
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Those defendants—without whose presence Lloyd’s, as the purported
insurer , may not have any exposure—have not yet been served. “[A] district
court's decision to tolerate a defendant's harmless delay in answering a
complaint cannot be an abuse of discretion.” Johnson v. City of Kankakee, Ill.,
397 F. App’x 238, 239-40 (7th Cir. 2010) (citing Mommaerts v. Hartford Life &
Accident Ins. Co., 472 F.3d 967, 968 (7th Cir. 2007)).
Significantly, those five reasons weigh mightily against Mr. Trecek’s
position. Frankly, it is a position that is not well taken—indeed one that, in
the view of the Court, is all but disingenuous and unbecoming to an officer
of the court, not to mention an experienced trial lawyer.
Thus, the Court is obliged to deny the Subotiches’ motion for default
judgment and at the same time grant Lloyd’s motion for an extension of time
and accepts Lloyd’s late-filed answer nunc pro tunc.
Accordingly,
IT IS ORDERED that the Subotiches’ motion for default judgment
(Docket #16) be and the same is hereby DENIED; and
IT IS FURTHER ORDERED that Lloyd’s motion for an extension of
time (Docket #18) be and the same is hereby GRANTED, and the Court
hereby ACCEPTS Lloyd’s late-filed answer nunc pro tunc (Docket #17).
Dated at Milwaukee, Wisconsin, this 31st day of July, 2015.
BY THE COURT:

J.P. Stadtmueller
U.S. District Judge

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