Berthelsen v. Kane
| Decision Date | 10 September 1990 |
| Docket Number | Nos. 89-2281,89-2353,s. 89-2281 |
| Citation | 907 F.2d 617 |
| Parties | Calvin BERTHELSEN, Plaintiff-Appellee, v. Maurice KANE, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Sept. 10, 1990.
Sheryl A. Laughren (argued), Barbara Urlaub, Berry, Moorman, King, Cook & Hudson, Detroit, Mich., for plaintiff-appellee.
William W. Webb (argued), Birmingham, Mich., for defendant-appellant.
Before GUY and NELSON, Circuit Judges; and EDWARDS, Senior Circuit Judge.
Defendant, Maurice Kane, appeals from the entry of both a default and a default judgment by the district court in favor of plaintiff, Calvin Berthelsen. Default was entered because of the defendant's failure to respond to service of process in a timely manner. On appeal, the defendant argues: (1) the entry of default should be vacated when service allegedly was accomplished on the defendant's wife, who had been dead for three years, and when the defendant did not learn of the action until after entry of default; (2) the plaintiff failed to demonstrate that the person allegedly served was residing within the defendant's residence within the meaning of Fed.R.Civ.P. 4(d)(1); (3) the defendant has a meritorious defense to the plaintiff's claim, because the alleged damages are based on an unenforceable statement of intent; and (4) the district court should have granted a jury trial on the issue of damages. Because we find that the district court failed to employ the proper analysis before entering the default, we reverse the judgment of the district court and remand for a trial on the merits.
This lawsuit is the third to arise out of a series of business dealings and agreements between the defendant and the plaintiff regarding the ownership of the stock of Mountain Gas Company. Berthelsen and Kane entered into a number of agreements providing for the transfer of ownership of the stock to Kane. In April 1986, the parties signed a "Statement of Intent," in which they stated their intentions to live up to all agreements and extensions previously executed in relation to Mountain Gas Company, and they further agreed as follows:
1. That each party hereto will use their best efforts to see that the agreements and all extensions thereto shall be fulfilled by the parties thereto. The parties hereto specifically agree that it is in the best interest of all parties to have 2. That in the event no extension or extensions are granted to said extension agreement or other agreements executed by the various parties in relationship to Mountain Gas Company then it is the intentions of Kane and Berthelsen to negotiate an agreement for the operation of said company.
those agreements fulfilled with the payment of said sums of money called for under the agreements and extensions thereto by the various parties involved.
3. In the event that all payments as called for under any agreements or extensions thereto executed by various parties, including the parties to this Statement of Intent, are not made, and Kane thereby becomes the owner of all the stock of Mountain Gas Company, then in said event, Kane hereby agrees to transfer to Berthelsen a percentage of said stock equal to the amount of Berthelsen's debt in the company against the total value of Berthelsen's debt plus Kane's investment and debt therein. Any transfer of said stock shall be in conjunction with a detailed agreement for operation of said company.
The payments required by the agreements have not been made, nor have the contracts been fulfilled. These failures spawned the litigation between the plaintiff and the defendant. In the first action, originally filed in federal district court in Kentucky and later transferred to the Eastern District of Michigan, the plaintiff's brother sued Kane, and Kane countersued against both the plaintiff and his brother for recovery on a $500,000.00 promissory note. The second case mirrors Kane's counterclaim against the Berthelsens in the first case, and both cases are still pending before Judge Hackett of the Eastern District of Michigan.
The complaint that led to the judgment now on review was filed by the plaintiff, Calvin Berthelsen, on March 31, 1989. He named Kane, Mountain Gas Company, and 3D Coal Company of Michigan as defendants, 1 and he alleged breach of contract by the defendants as to the April 1986 "Statement of Intent."
In April, the plaintiff attempted to serve the defendant with motions for preliminary injunctions in both the instant case and its companion case by mailing these papers to Kane's attorney, William Webb. Mr. Webb informed counsel for the plaintiff that he had not been retained in the instant suit, and that he would have to serve Kane personally. On May 2, 1989, Mr. Webb and counsel for plaintiff attended a status conference in Judge Hackett's chambers to discuss one of the companion cases. At this conference, the judge instructed the plaintiff's attorney to serve Kane personally in the instant suit.
The complaint was never served on Kane personally, although the plaintiff hired a process server who, on May 2, 1989, left a copy of the summons and complaint at the defendant's residence with a woman who identified herself as Mrs. Kane. Kane maintains that he never received the papers that were left at his home that day. Moreover, the person who accepted service of process could not have been the defendant's wife, as she has been deceased for over three years.
The district judge concluded that the defendant was willfully evading service of process, and there is ample evidence to support her conclusion. At a hearing on defendant's motion to set aside the entry of default, the process server testified that he had been unable to find Kane either at home or at work, and that he had been given contradictory statements as to Kane's whereabouts. For example, he was told by persons at Kane's place of business that he was out of town. When he went to the defendant's home, the woman who answered the door said that Kane was at work. These statements led the process server to believe he was being evaded, and he left the papers with the person who identified herself as Mrs. Kane, pursuant to Fed.R.Civ.P. 4(d)(1). 2
On May 31, 1989, default was entered due to the defendant's failure to respond to service of process. On June 16, 1989, Mr. Webb informed the plaintiff's attorney that he had been retained in this matter and that he could accept service of process. The plaintiff mailed a copy of the clerk's entry of default to Mr. Webb on June 21, 1989. On June 29, 1989, Mr. Webb entered his appearance on behalf of the defendant. A motion to set aside the entry of default was filed with the court on July 3.
The district court conducted a hearing on the defendant's motion in August 1989, at which time it heard the testimony of both the defendant and the process server. The court concluded that the defendant's testimony was not credible and that he had attempted to evade service of process. The court further concluded that the defendant was a sophisticated man and that he had actual knowledge of the lawsuit, and it denied his motion to set aside the entry of default.
The defendant then attempted to appeal to the Sixth Circuit from the court's entry of default, but this court declined jurisdiction on the grounds that an entry of default is not a final judgment.
The plaintiff moved for entry of a default judgment, and the defendant filed opposing papers. The district court entered a default judgment against the defendant in the amount of $1,184,311.64. No hearing was conducted to determine the amount of damages and the only evidence admitted on this issue was the plaintiff's affidavit. This appeal followed.
Trials on the merits are favored in the federal courts, and "a 'glaring abuse' of discretion is not required for reversal of a court's refusal to relieve a party of the harsh sanction of default." United Coin Meter v. Seaboard Coastline Railroad, 705 F.2d 839 (6th Cir.1983) (quoting Keegel v. Key West & Caribbean Trading Co., 627 F.2d 372, 373-74 (D.C.Cir.1980)). In this appeal, the defendant challenges both the entry of default and the default judgment. Although the default was reduced to a final judgment, we will apply the standards for setting aside entry of default, as the defendant was denied leave to appeal from the entry of default. The same considerations exist when deciding whether to set aside either an entry of default or a default judgment, but they are to be applied more liberally when reviewing an entry of default. While a default judgment may be vacated only by satisfying the stricter standards applied to final, appealable orders under Fed.R.Civ.P. 60(b), an entry of default may be set aside for "good cause shown." Fed.R.Civ.P. 55(c). Shepard Claims Serv., Inc. v. William Darrah & Assoc., 796 F.2d 190, 194 (6th Cir.1986). As this court held in United Coin, courts are required to weigh three factors. First, the court must determine whether the plaintiff will be prejudiced from reopening the case. Then the inquiry turns to whether the defendant has a meritorious defense. Finally, the court must examine whether culpable conduct of the defendant led to the default. United Coin, 705 F.2d at 845.
The district judge in this case conducted a hearing on the defendant's motion to set aside the entry of default, but she held no hearing on the defendant's subsequent challenges to the plaintiff's motion for entry of default judgment. In neither instance did the district judge go through the requisite analysis set forth above. Instead, she considered only the third factor. She was persuaded that the defendant consciously and wilfully evaded service of process, and she entered the default against the defendant for his failure to defend the action. We will employ the United Coin standards in our review of the district court's actions to determine...
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...a default judgment. Even if one of the elements is weak, this is not fatal to the motion. This court held in Berthelsen v. Kane, 907 F.2d 617 (6th Cir.1990) (per curiam), that a default judgment may be vacated even if fewer than all three factors weigh in favor of the moving party. The Bert......
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Wash. Metro. Area Transit Comm'n v. Reliable Limousine Serv., LLC, s. 13–7072
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