Anilina Fabrique de Colorants v. Aakash Chemicals and Dyestuffs, Inc.

• Decision Date: 15 September 1988
• Docket Number: No. 87-2599,87-2599
• Citation: 856 F.2d 873
• Parties: ANILINA FABRIQUE de COLORANTS, a Belgian corporation,Plaintiff-Appellee, v. AAKASH CHEMICALS AND DYESTUFFS, INC., an Illinois corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 873

856 F.2d 873

11 Fed.R.Serv.3d 1231

ANILINA FABRIQUE de COLORANTS, a Belgian

corporation,Plaintiff-Appellee, v. AAKASH CHEMICALS AND DYESTUFFS, INC., an Illinois

corporation, Defendants-Appellants.

No. 87-2599.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 26, 1988.

Decided Aug. 31, 1988.

As Amended Sept. 15, 1988.

Thomas C. Dudgeon, Arthur G. Jaros, Jr., Richter & Jaros, Oak Brook, Ill., for defendants-appellants.

Marvin A. Miller, Patrick E. Cafferty, Washlow Chertow & Miller, Chicago, Ill., for plaintiff-appellee.

Before BAUER, Chief Judge, POSNER, Circuit Judge, and PELL, Senior Circuit Judge.

PELL, Senior Circuit Judge.

Aakash Chemicals and Dyestuffs, Inc., appeals from the default judgment against it and the denial of its motion to vacate the default.

BACKGROUND

Anilina Fabrique de Colorants filed this diversity suit ¹ against Aakash on April 10, 1986 claiming that Aakash owed it over $18,000 for goods which had been shipped to but had not been paid for by Aakash. At a court-ordered status hearing in July, the parties notified the judge that they were attempting to negotiate a settlement. Aakash's counsel also informed the court that the exhibits attached to the complaint were not sufficient to verify the accuracy of Anilina's claim and that Aakash might bring counterclaims.

At an October 29 status hearing, Anilina's counsel advised the court that negotiations were continuing but were complicated by the fact that Anilina was located in Belgium and it was therefore difficult to schedule meetings and conference calls between In December, the court set the case for trial on March 5, 1987, after the parties agreed that negotiations had broken down. Both parties indicated that discovery would be necessary. Aakash advised the court that it had not yet filed its answer or any counterclaims because of the negotiations. Late in January, at Aakash's request, its counsel sought and was granted leave to withdraw. Acting without counsel, Aakash continued to communicate with Anilina in efforts to resolve the dispute.

the parties and their principals. The court set another status hearing for November. When a scheduled conference between the parties could not be held, the court, at the request of both parties, rescheduled the hearing to December.

On the scheduled March 5 trial date, Anilina sought entry of default against Aakash, citing its failure to file an answer or other responsive pleading. Aakash claims, and Anilina does not dispute, that prior notice of the motion for default judgment was not given to Aakash and that it never received copies of Anilina's motion and supporting affidavits. An officer of Aakash appeared and requested additional time to obtain counsel. The court granted Aakash until March 17 to "either try to get a lawyer in here to try to persuade me to continue this case, and that's very uphill, or to settle the case." The judge warned Aakash that it was "headed for a default judgment." At the same time, Anilina's counsel expressed his concern that his client would not have sufficient time to make arrangements to travel from Belgium for the trial. The court stated, "There is no way [Aakash] can go to trial [on March 17]" and later, "... I wouldn't bring your client in from Belgium. There can't be a trial." At the close of the hearing, the court reiterated to Aakash's officer that it had "to have a lawyer either come in and try to persuade me to give more time to you, or you have to settle this case." The court's minute order, however, indicates that trial had been reset to March 17. Notices were not sent to the parties. Anilina concedes on appeal that it was clear on March 5 that the case would not go to trial on March 17.

Aakash retained counsel who appeared on its behalf at the March 17 hearing. Counsel requested a continuance, indicating that he had been retained the previous day, had been unable to contact opposing counsel, and had not had an opportunity to review the court file or the files of Aakash's prior attorney. The court indicated to Aakash's new counsel that the case was set for trial that morning. ² Counsel nonetheless asked for a continuance, indicating that Aakash desired to file an answer. Counsel further indicated that the complaint was insufficient because the transactions referred to were not set out in separate counts, calling specific paragraphs of the complaint to the court's attention. At the close of the hearing, the court entered a default judgment, commenting that it would be unfair to the plaintiff to grant another continuance "on the morning of trial" and that the case was a "collection case for $18,000." Although at one point the court expressed the view that Aakash was stalling, the court also stated, "I don't know of any defenses to these claims," and instructed counsel that he had "10 days in which to file a motion to ask me to set it aside.... And what your burden is on asking me to set it aside is to show me that you have a good and meritorious defense."

The default judgment was entered on March 19, 1987.

Within ten days, Aakash filed a motion, purporting to be brought under Rules 59(e), 55(c), and 60(b)(6) of the Federal Rules of Civil Procedure, seeking to vacate the default judgment. Aakash also sought leave to file its answer and counterclaims as well as a motion for a more definite statement pursuant to Rule 12(e). Along with the motion, Aakash tendered to the court a verified answer and counterclaim and the affidavit of Aakash's president Satish Shah. The motion, answer, and counterclaims set out Aakash's defenses to Anilina's claims. The affidavit revealed that Shah was unaware until counsel withdrew in January that his prior counsel had still failed to file an answer to the complaint. ³ In support of his statement that Aakash had not hindered or delayed Anilina, Mr. Shah tendered copies of telexes Aakash had sent to Anilina in January and February which looked for a resolution of the dispute.

On September 2, 1987, the court denied Aakash's motion to vacate the default judgment. The court relied heavily on the fact that no answer had ever been filed and that Aakash was not prepared to go forward on March 17 when its new counsel appeared, maintaining that "[t]he court and the plaintiff were prepared to go forward." The order denying Aakash's motion makes no mention of Mr. Shah's affidavit in which he indicated that he was unaware that an answer had not been filed. ⁴ The order also makes no mention of the defenses raised by Aakash in its proposed answer and counterclaim. Aakash timely filed its notice of appeal on October 2, 1987.

DISCUSSION

A. Jurisdiction.

Aakash's motion seeking to vacate the default was purportedly brought under Rules 59(e), 55(c), and 60(b)(6). This characterization is misleading. See Chrysler Credit Corp. v. Macino, 710 F.2d 363, 364-65 n. 1 (7th Cir.1983) (distinguishing motions under Rules 55, 59, and 60(b)). ⁵ The rule in this circuit is "that all substantive motions served within 10 days of the entry of a judgment will be treated as based on Rule 59, and therefore as tolling the time for appeal." Charles v. Daley, 799 F.2d 343, 347 (7th Cir.1986) (citing Harcon Barge Co. v. D & G Boat Rentals, Inc., 784 F.2d 665 (5th Cir.1986) (en banc)). Thus, the October 2 notice of appeal, filed within 30 days of the denial of Aakash's post judgment motion, is timely as to the March 19 judgment of default as well as the denial of the motion itself. Fed.R.App.P. 4(a)(1) and (4). See, e.g., Vac-Air, Inc. v. John Mohr & Sons, Inc., 471 F.2d 231, 234 n. 1 (7th Cir.1973); cf. Ellingsworth v. Chrysler, 665 F.2d 180, 183 (7th Cir.1981) (citing Browder v. Director, Illinois Dept. of Corrections, 434 U.S. 257, 263 n. 7, 98 S.Ct. 556, 560 n. 7, 54 L.Ed.2d 521 (1978)).

B. Standard of Review.

On a direct appeal from the entry of a default judgment, a district court's decision is reviewed for abuse of discretion. Chrysler Credit Corp., 710 F.2d at 637; see also In re Kilgus, 811 F.2d 1112, 1118 (7th Cir.1987). Similarly, "[a] district court's denial of a Rule 60(b) motion to vacate a default judgment is subject to review only for abuse of discretion." Hal Commodity Cycles Management Co. v. Kirsh, 825 F.2d 1136, 1138 (7th Cir.1987) (citing Tolliver v Northrop Corp., 786 F.2d 316, 318-19 (7th Cir.1986), and Inryco, Inc. v. Metropolitan Engineering Co., 708 F.2d 1225, 1230 (7th Cir.), cert. denied, 464 U.S. 937, 104 S.Ct. 347, 78 L.Ed.2d 313 (1983)). This circuit has acknowledged some movement away from the traditional position strongly disfavoring default judgments, as well as an increasing reluctance to set them aside. See Dimmitt & Owens Financial, Inc. v. United States, 787 F.2d 1186, 1192 (7th Cir.1987). However,

a district court's refusal to set aside a default or vacate a default judgment as a practical matter may not be insulated from appellate review. It is true that these decisions are subject to an abuse of discretion standard, but this discretion of the district court on these matters is not unbounded; a district court abuses its discretion when it enters a default in inappropriate circumstances and then fails to set aside the default or vacate the default judgment.

C.K.S. Engineers, Inc. v. White Mountain Gypsum Co., 726 F.2d 1202, 1206 (7th Cir.1984).

C. Lack of Notice of Default Judgment.

Aakash argues that the lack of notice of Anilina's application to the court for a default judgment requires that the default be set aside. In North Central Illinois Laborers' District Council v. S.J. Groves & Sons Co., 842 F.2d 164 (7th Cir.1988), decided after oral argument in this case, we considered the notice requirement of Federal Rule of Civil Procedure 55(b)(2). The rule requires that a party who "has appeared in the action" be given written notice three days before the hearing on the default judgment. Fed.R.Civ.P. 55(b)(2). In North Central we stated, "Failure to provide such notice is a serious...