C.K.S. Engineers, Inc. v. White Mountain Gypsum Co.

• Decision Date: 30 January 1984
• Docket Number: No. 83-1609,83-1609
• Citation: 726 F.2d 1202
• Parties: C.K.S. ENGINEERS, INC., Plaintiff-Appellee, v. WHITE MOUNTAIN GYPSUM COMPANY, Defendant, M.S. Riddle and Eryl A. Cummings, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1202

726 F.2d 1202

C.K.S. ENGINEERS, INC., Plaintiff-Appellee, v. WHITE MOUNTAIN GYPSUM COMPANY, Defendant, M.S. Riddle and Eryl A. Cummings, Defendants-Appellants.

No. 83-1609.

United States Court of Appeals,

Seventh Circuit.

Argued Oct. 31, 1983.

Decided Jan. 30, 1984.

Donald J. Kaufman, Schaeffer & Helfand, Chicago, Ill., for defendants-appellants.

Thomas C. Kearns, Mount Prospect, Ill., for plaintiff-appellee.

Before COFFEY, FLAUM, Circuit Judges, and CAMPBELL, Senior District Judge. ^*

FLAUM, Circuit Judge.

This is an appeal from a denial of a motion to vacate a default judgment. For the reasons stated below, we affirm the decision of the district court.

I.

On March 28, 1981, the plaintiff-appellee brought this suit against the corporate defendant and the two individual defendants both corporate directors and officers, alleging that the defendants owed it $661,254.02 for engineering work performed pursuant to an agreement. The action was filed in the Northern District of Illinois, and jurisdiction was found on the basis of diversity of citizenship. The defendants, citizens of New Mexico, had an attorney in Albuquerque, Mark Shoesmith, retain an Illinois attorney, Martin Z. Craig, to represent them in this suit. The defendants claim that they asked Shoesmith to tell Craig to file an appearance in order to challenge the court's personal jurisdiction over them. Craig did not do this. Instead, he moved to transfer the case to the United States District Court in New Mexico and to dismiss the case for lack of subject matter jurisdiction. These motions were denied on October 1, 1981. The defendants then filed an answer to the complaint, denying most of the substance of the plaintiff's allegations. ¹ On November 17, 1981, the plaintiff served several interrogatories on the defendants. The defendants requested an extension of the time in which to answer the interrogatories. This request was granted, and the deadline for providing the answers was set for January 18, 1982.

By January 18, 1982, no answers had arrived at the district court. Later that week, the court received a letter dated January 20, 1982, from James C. Ellis, an Albuquerque attorney. Ellis explained that he had been retained by M.S. "Mike" Riddle, one of the defendants, and he requested the court's permission to contest the court's personal jurisdiction over Riddle. ² He also stated that Riddle wished to dismiss Craig as attorney of record in this case. With respect to the unanswered interrogatories, Ellis stated that should the court refuse to allow Riddle to contest the personal jurisdiction issue, more time would be needed to answer them. Soon thereafter, Craig moved to withdraw as attorney for the defendants. On February 8, 1982, the court granted Craig's motion and also ordered the defendants both to obtain local counsel and to answer the interrogatories by March 1, 1982.

The first of March passed without the appearance of local counsel or the interrogatory answers. On March 16, the plaintiff moved the court to strike the defendants' pleadings and to enter a default judgment. The court entered the order for a default judgment on March 17, but stayed its execution until March 29. On this latter date, with still no contact from the defendants, the stay was lifted. On May 20, 1982, attorney Donald J. Kaufman appeared on the defendants' behalf and moved that the default judgment be vacated pursuant to rule 60(b) of the Federal Rules of Civil Procedure. ³ He also moved that the two individual defendants be given leave to file a motion to dismiss, and that the corporate defendant be given leave to file a motion to stay all proceedings pursuant to federal bankruptcy law, 11 U.S.C. Sec. 362 (1982).

On July 23, 1982, the district court held a hearing on the rule 60(b) motion. At this hearing, Riddle testified as to the events leading up to the default judgment. He stated that a dispute had arisen between himself and Craig over Craig's litigation strategy and over the amount of fees being charged. Craig's firm had billed him for more than he had been led by Shoesmith to believe would be required, and he was unable to pay the full amount. This led to Craig's withdrawal from the case. Riddle stated further that he was unable to answer some of the interrogatories because attorneys for the corporate defendant, White Mountain Gypsum, would not permit him to examine certain corporate records. ⁴ When asked why he did not answer those interrogatories that he could answer from personal knowledge, Riddle stated:

Well, I did not have--first of all, I did not have an attorney here. I didn't have any funding, any means of hiring an attorney here at the time that they were to be answered. I did try to get in touch with this court to no avail. I was told that the judge was on vacation and his secretary also was on vacation. I was trying desperately to explain my circumstance and ask for time. But not being an attorney--I am just a lay person--I don't know very much about that sort of thing. But I felt rather helpless in trying to deal with the court in a state where I was not acquainted nor hadn't been only but about two times in my life.

Tr. at 12. Riddle did not state, nor does the record indicate, whether James C. Ellis, the Albuquerque attorney who had contacted the court on Riddle's behalf in late January 1982, was still being retained by Riddle during February, March, and April of 1982.

Martin Craig also testified at the rule 60(b) hearing. He defended his litigation strategy by stating that he had been instructed to take orders directly from Shoesmith. Both he and Shoesmith had determined that a challenge to the court's personal jurisdiction would have been "inappropriate in light of the fact that Mr. Riddle made the initial contacts to Chicago from New Mexico as well as other considerations that we went through at length." Tr. at 18-19. Craig also stated that he had experienced a "lack of cooperation" with Riddle, particularly with respect to getting answers to the interrogatories. He said, "I never could understand why I wasn't getting the answers to those interrogatories and I kept inquiring as to assisting me in doing just that, answering the interrogatories." Tr. at 22-23. He added that he did not recall being informed of the problems Riddle was having getting the records of the corporate defendant.

Upon the recommendation of a magistrate, the district court denied the defendants' motion to vacate the default judgment under rule 60(b), stating that "[t]he conclusion is irresistible that the individual defendants believed that they could ignore this case and throw themselves upon the mercy of the court by contending that their local counsel was incompetent." C.K.S. Engineers, Inc. v. White Mountain Gypsum Co., No. 81 C 1631, slip op. at 3 (N.D.Ill. Feb. 15, 1983). Only the individual defendants, Riddle and Cummings, appeal from that decision.

II.

The question before us on this appeal is whether the district court erred in refusing to vacate the default judgment under rule 60(b). The general rule in this circuit is that relief from a judgment under rule 60(b) is an extraordinary remedy and is granted only in exceptional circumstances. Planet Corp. v. Sullivan, 702 F.2d 123, 125 (7th Cir.1983); Ben Sager Chemicals International v. E. Targosz & Co., 560 F.2d 805, 809 (7th Cir.1977). The decision to grant relief under rule 60(b) is left to the sound discretion of the trial court, and review of a trial court's decision to grant or deny rule 60(b) relief is subject to an abuse of discretion standard. Inryco, Inc. v. Metropolitan Engineering Co., 708 F.2d 1225, 1230 (7th Cir.1983); Breuer Electric Manufacturing Co. v. Toronado Systems of America, 687 F.2d 182, 187 (7th Cir.1982).

Rule 60(b) is a rule of general application, providing relief from all types of final judgments, including but not limited to default judgments. See generally 11 C. Wright & A. Miller, Federal Practice and Procedure, Secs. 2857-2866 (1973). Whether default judgments are to be treated differently under rule 60(b) than other types of judgments is a matter of some uncertainty in this circuit. ⁵ This circuit has a well-established policy favoring a trial on the merits over a default judgment. United States v. An Undetermined Quantity of Article of Drug Labeled as Benylin Cough Syrup, 583 F.2d 942, 946 (7th Cir.1978) (hereinafter cited as Parke, Davis ); Scarver v. Allen, 457 F.2d 308, 310 (7th Cir.1972). On the basis of this policy, some decisions have spoken of a liberal attitude toward vacating default judgments under rule 60(b). See Ellingsworth v. Chrysler, 665 F.2d 180, 185 (7th Cir.1981); Textile Banking Company v. Rentschler, 657 F.2d 844, 854 (7th Cir.1981); Dormeyer Co. v. M.J. Sales & Distributing Co., 461 F.2d 40, 43 (7th Cir.1972). In Ellingsworth, the court stated:

A default judgment, like a dismissal, is a harsh sanction which should usually be employed only in extreme situations, or when other less drastic sanctions have proven unavailing. Thus, it is appropriate that Rule 60(b)(1) be liberally applied in the context of default judgments, especially where those judgments result from honest mistakes rather than willful misconduct, carelessness or negligence.

665 F.2d at 185 (citations omitted). Although this language suggests that rule 60(b) should be applied differently to default judgments than to other types of judgments, the majority of decisions in this circuit involving default judgments have not made this distinction. These decisions have simply stated the general rule that rule 60(b) relief is an extraordinary remedy and is granted only in exceptional circumstances. See, e.g., Inryco, Inc. v. Metropolitan Engineering Co., 708 F.2d at 1230; United States v. $48,595, 705 F.2d 909, 912 (7th Cir.1983); Breuer Electric Manufacturing Co. v. Toronado Systems of America, 687 F.2d at 187; Ben Sager Chemicals International v. E. Targosz & Co., 560...