Opinion
Case No. 01-33937-T; Adv. Proc. No. 01-3170-T
August 2, 2002
MEMORANDUM OPINION AND ORDER
Educational Credit Management Corporation (ECMC) moves the court to set aside the default judgment entered by the court on December 20, 2001.
The motion will be granted.
Facts.
Debtor plaintiff Shirley S. Holman filed this chapter 7 case on June 28, 2001. Debtor's complaint in this adversary proceeding was filed on September 28, 2001, seeking to discharge an education loan pursuant to 11 U.S.C. § 523 (a)(8)
The court's default order entered December 20, 2001, found that 1)debtor had made proper service on the named defendant, 2) defendant had failed to answer the complaint, and 3) by virtue of the default debtor's repayment of the subject education loan in the amount of $29,000.00 would constitute an undue hardship on debtor and her dependents. Accordingly, the court ordered that the loan was discharged pursuant to 11 U.S.C. § 523(a)(8).
On January 8, 2002, ECMC filed a motion to vacate the judgment entered on December 20, 2001.
Motion To Vacate.
ECMC seeks relief from the judgment order pursuant to Federal Rules of Civil Procedure 55(c) and 60(b) (made applicable by Bankruptcy Rules 7055 and 7060).
The motion alleges that ECMC is the present holder of debtor's education loan note that is the subject of this proceeding. The loan was assigned to ECMC by the named defendant Educaid on April 19, 2001, and the "transfer of this claim was not effectuated until on or about December 21, 2001, at which time ECMC became aware of this action. . . ."
ECMC argues first that Educaid is not the proper party defendant because it was not the holder of debtor's loan when the complaint was filed. Thus the judgment against Educaid is not binding on ECMC. In the alternative, ECMC argues that the default should be set aside because its failure to file a timely answer to the complaint was "excusable."
Conclusions of Law.
The court rejects ECMC's first argument. Based upon ECMC's recital of the facts in its motion, the assignment of the loan to it by Educaid was "not effectuated" until several months after the complaint was filed and Educaid properly served. Therefore, the court considers that the complaint named the proper party defendant. The problem seems to have been caused by a failure of communication between Educaid and ECMC.
Alternatively, ECMC requests the court to vacate the default judgment pursuant to Bankruptcy Rule 7055 and Federal Rule of Civil Procedure 55 (c) which provide that "[f]or good cause shown the court may set aside an entry of default and, if a judgment by default has been entered, may likewise set it aside in accordance with Rule 60(b)." Fed.R.Civ.P. 55 (c).
The decision on setting aside a default judgment rests in the discretion of the court. The rules are to be liberally construed to provide relief to the defaulting party, and doubt on the issue should be resolved in favor of allowing a case to proceed on the merits. Tolson v. Hodge, 411 F.2d 123, 130 (4th Cir. 1969); see also Lolatchy v. Arthur Murray, Inc., 816 F.2d 951, 954 (4th Cir. 1987).
A default may be set aside where it was not the result of the party's gross negligence, the party has acted promptly and has a meritorious defense, and the non-defaulting party will not suffer unfair prejudice. Augusta Fiberglass Coatings, Inc. v. Fodor Contracting Corp., 843 F.2d 808, 810, 812 (4th Cir. 1988); Town and Country Kids, Inc., v. Protected Venture Inv. Trust #1. Inc., 178 F.R.D. 453, 454 (E.D. Va. 1998) (stating that good cause for setting aside a default "is shown where the moving party (i) acts with reasonable alacrity to set aside the entry of default, and (ii) alleges a meritorious defense.").
A meritorious defense may be shown when the party proffers evidence "which would permit a finding for the defaulting party. . . ." Id.; see also Merrill Lynch Mortgage Corp. v. Narayan, 908 F.2d 246, 252 (7th Cir. 1990) (requiring "(1)good cause for their default; (2)quick action to correct it; and (3)a meritorious defense to the plaintiff's complaint").
In this case, the court finds that there was good cause for ECMC's default and that it moved promptly to set aside the default. In its motion, ECMC proffers that it has a meritorious defense to the complaint. Finally, the court finds that plaintiff debtor will not suffer unfair prejudice if the default judgment is vacated. IT IS THEREFORE ORDERED that the court's default judgment order entered December 20, 2001, is vacated.
IT IS FURTHER ORDERED that ECMC may file an answer to the complaint within 30 days of the entry of this order.
The clerk will schedule a pre-trial conference.