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In St. Claire v. Ensurelink, 2001 WL 1568749, at *3 n.7 (N.D. Tex. 2001), the court awarded attorneys' fees after finding that the defendant failed to respond even though it was aware of the lawsuit.
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CIVIL ACTION NO 3:01-CV-1548-G
December 4, 2001
MEMORANDUM ORDER
Before the court is the motion of the defendant EnsureLink Corporation ("EnsureLink") to set aside a default entered against it and for relief from the judgment rendered as a result of the default. For the following reasons, EnsureLink's motion is granted.
I. BACKGROUND
Plaintiff Frank A. St. Claire ("St. Claire") served as Chief Executive Officer ("CEO") of EnsureLink from approximately May 1, 2001 until his employment was terminated on August 8, 2001. Motion to Vacate Default Judgment and Brief in Support ("Motion to Vacate") ¶ 1; Plaintiffs First Amended Original Complaint and Jury Demand ("Complaint") ¶ 12. According to St. Claire, his employment agreement with EnsureLink guaranteed him an annual base salary of $90,000, as well as deferred salary, stock options, medical and dental benefits, and severance pay in the event that EnsureLink fired him without cause. Complaint ¶ 12. In his complaint, St. Claire alleged that he was wrongfully terminated and that EnsureLink refused to pay him, pursuant to the employment agreement, the balance of his base salary and severance pay. Complaint ¶ 15. St. Claire filed this suit on August 10, 2001 and amended his complaint a month later, asserting causes of action for breach of contract, declaratory judgment, indemnification, and attorneys' fees. See generally Complaint. The Texas Secretary of State's Office forwarded service of process by certified mail to EnsureLink on August 29, 2001. Plaintiff's Response to EnsureLink's Motion to Vacate Default Judgment ("Response") ¶ 2. On September 4, 2001, the Secretary of State's Office received the return receipt of the service of process bearing the signature of EnsureLink's agent. Id. EnsureLink failed to answer St. Claire's complaint. See generally Brief in Support of Plaintiff's Request for Entry of Default by Clerk ("Motion for Default") at 1. On September 19, 2001, the clerk of court entered default against EnsureLink, and this court thereupon rendered judgment, awarding St. Claire $213,197.02. Judgment by Default, filed on September 20, 2001, at 1-2. EnsureLink filed this motion to vacate the default judgment on September 28, 2001.
II. ANALYSIS
The decision to set aside an entry of default under Federal Rule of Civil Procedure 55(c) or to grant relief from a default judgment under Federal Rule of Civil Procedure 60(b) is within the discretion of the district court. See CJC Holdings, Inc. v. Wright Lato, Inc., 979 F.2d 60, 63 (5th Cir. 1992). Under either rule, the court considers the same factors: (1) whether the default resulted from excusable neglect; (2) whether setting aside the entry of default or the default judgment would prejudice the adversary; and (3) whether a meritorious defense is presented. See id. at 64. "The ultimate inquiry remains whether the defendant shows `good cause' to set aside the default." Id.A. Excusable Neglect
EnsureLink asserts that its conduct was not so culpable as to disqualify it from relief under Rule 60(b). Motion to Vacate ¶ 15. In support of this claim, EnsureLink contends that it did not become aware of St. Claire's suit until late August and that it was in negotiations with St. Claire to settle the suit up to the moment that St. Claire obtained a default judgment. Id. ¶¶ 4-7. In response, St. Claire argues "that there is abundant evidence that EnsureLink had actual knowledge of the lawsuit but chose to ignore it and not accept the responsibilities created thereby."Response ¶ 2. EnsureLink does not address whether it has any procedures in place to assure that all suits against it are timely answered and defended. In fact, EnsureLink concedes that it had knowledge of St. Claire's suit prior to entry of the default judgment. Motion to Vacate ¶ 4. Nonetheless, in support of its claim that its failure to answer was not intentional, EnsureLink asserts that it took steps to correct its default by filing a motion to set aside the default within four days after judgment was entered. Motion to Vacate ¶ 8. While EnsureLink has yet to answer St. Claire's amended complaint, the court finds that, on balance, EnsureLink's prompt response to the entry of default helped to avoid further delay in this action. See Matter of Dierschke, 975 F.2d 181, 184 (5th Cir. 1992) (holding that, in deciding a motion to set aside a default, a court may consider whether the defendant acted expeditiously to correct its default).
B. Prejudice to St. Claire
Nowhere in his response does St. Claire contend that he will be prejudiced if the court grants EnsureLink's motion to vacate the default judgment. By contrast, EnsureLink argues that St. Claire would not be prejudiced by setting aside the default judgment because not much time has elapsed since it was entered; there has been no material change in circumstances; and St. Claire would be no worse off than he was before the default judgment was entered. Motion to Vacate ¶ 12.
Arguably, granting EnsureLink's motion to vacate the default judgment would cause St. Claire to suffer prejudice by delaying him from collecting any judgment to which he may be entitled. Delaying collection of a judgment by a plaintiff, however, is insufficient prejudice to allow a default to stand. See United States v. One Parcel of Real Property, 763 F.2d 181, 183 (5th Cir. 1985). Moreover, "the mere possibility of prejudice from delay, which is inherent in every case, is insufficient to require denial of a 60(b)(1) motion." Hibernia National Bank v. Administracion Central Sociedad Anonima, 776 F.2d 1277, 1280 (5th Cir. 1985).
Finally, as discussed below, EnsureLink has alleged a meritorious defense. If the court were to grant EnsureLink's motion to vacate the default judgment, St.
Claire would be required to litigate his case on its merits. Requiring a plaintiff to litigate the merits of his claims is insufficient prejudice to require the default judgment to stand. See One Parcel of Real Property, 763 F.2d at 183. Therefore, any prejudice St. Claire will suffer is not sufficient to justify denying EnsureLink's motion to set aside the default judgment.
C. EnsureLink's Meritorious Defense
EnsureLink asserts that it has presented a meritorious defense to St. Claire's claims. See Motion to Vacate ¶¶ 13-14. Specifically, EnsureLink contends that it had a legitimate reason for terminating St. Claire' employment: "that [St. Claire] did not perform his responsibilities under the Employment Agreement, and that he was terminated for Cause." Id. ¶ 14. As further evidence in support of this defense, EnsureLink directs the court's attention to its Answer and the appendix to the motion to vacate. Id. Based on the parties' submissions, the court concludes that if the default judgment is set aside, there is some possibility that EnsureLink could prevail on the merits. See Declaration of Aaron Jarson, located in Motion to Vacate Appendix, at 00003, ¶ 4 (detailing reasons for St. Claire's termination). Cf. Federal Savings and Loan Insurance Corporation v. Kroenke, 858 F.2d 1067, 1070-71 (5th Cir. 1988) (finding defendant's potential defenses to be meritless and denying defendant's motion for relief from default). Given that EnsureLink has presented a colorable defense to St. Claire's claims, it should be allowed to defend itself on the merits. See Dierschke, 975 F.2d at 183 (noting that "courts `universally favor trial on the merits'"); see also Hibernia National Bank, 776 F.2d at 1279 (FED. R. ClV. P. 60(b)(1) is to be liberally construed so that doubtful cases may be resolved upon the merits).
Based on the court's review of the docket sheet, and as noted previously, EnsureLink has yet to file an answer to St. Claire's complaint. See generally Docket Sheet. As a result, the court is unsure why EnsureLink directed the court's attention to its non-existent answer. See Motion to Vacate ¶ 14 ("As the Court can see from EnsureLink's Answer and the appendix to this motion. . . .") (emphasis added). Notwithstanding this conundrum, in light of the other documents referenced in EnsureLink's appendix to the motion to vacate, see Declaration of Aaron Jarson, located in Appendix in Support of Motion to Vacate Default Judgment and Brief in Support ("Motion to Vacate Appendix"), at 00003, ¶ 4, the court finds EnsureLink has raised a potentially viable defense to St. Claire's claims.
III. CONCLUSION
EnsureLink's failure to answer St. Claire's complaint was the result of excusable neglect. EnsureLink has presented a meritorious defense to St. Claire's claims, and St. Claire would not be significantly prejudiced if the default judgment rendered against EnsureLink were set aside. Therefore, EnsureLink's motion to set aside the default entered against it and for relief from the judgment rendered as a result of its default is GRANTED.
The default entered against EnsureLink by the clerk on September 19, 2001 is hereby VACATED. The final judgment entered in this case on September 20, 2001 is SET ASIDE and VACATED. This civil action is hereby REINSTATED. EnsureLink shall file its responsive pleadings to the Amended Complaint within twenty days of the date of this memorandum order.
Furthermore, EnsureLink shall pay the reasonable and necessary attorneys' fees St. Claire incurred in seeking and taking the default judgment, and in seeking to collect that judgment.
While the court grants EnsureLink's motion to vacate the default judgment, it also finds, given EnsureLink's admission that it was aware of St. Claire's suit, that EnsureLink should be required to pay any reasonable and necessary attorneys' fees incurred by St. Claire's counsel in seeking and taking the default judgment in this case. See McGarrah v. KMart Corporation, No. 3:97-CV-2386-G, 1998 WL 760275, at *3 (N.D. Tex. Oct. 22, 1998) (Fish, J.) (ordering the payment of reasonable and necessary attorneys' fees plaintiff incurred in seeking and taking default judgment); Forte v. East Harlem Block Schools, Inc., No. CIV. 6942 (MBM), 1993 WL 7577, at *4 ("Although the prejudice to plaintiff here does not require denial of defendant's motion, plaintiff is entitled to recover any costs and fees he incurred in obtaining the default judgment and in opposing this motion. A court in the exercise of its discretion may impose conditions on granting relief from a default.") (internal citations omitted). Counsel are directed to confer for the purpose of reaching agreement, if possible, on the amount of attorneys' fees St. Claire incurred in seeking default. If agreement cannot be reached, the court will refer that issue to the magistrate judge assigned to this case for a determination of the amount.
SO ORDERED.