Credit Alliance Corp. v. Campbell, 87-1385

• Decision Date: 29 April 1988
• Docket Number: No. 87-1385,87-1385
• Citation: 845 F.2d 725
• Parties: CREDIT ALLIANCE CORPORATION, Plaintiff-Appellant, v. Patricia Ann CAMPBELL, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 725

845 F.2d 725

11 Fed.R.Serv.3d 107

CREDIT ALLIANCE CORPORATION, Plaintiff-Appellant, v. Patricia Ann CAMPBELL, Defendant-Appellee.

No. 87-1385.

United States Court of Appeals Seventh Circuit.

Argued Oct. 26, 1987.

Decided April 29, 1988.

Sol D. Bromberg, New York City, Corneal L. Domeck, III, Louisville, Ky., for plaintiff-appellant.

James F. Flynn, Newman, Trockman, Lloyd, Flynn, & Rheinlander, P.C., Evansville, Ind., for defendant-appellee.

Before BAUER, Chief Judge WOOD, and MANION, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge.

This case is an appeal from the district court's grant of defendant's motion for relief from judgment under Federal Rule of Civil Procedure 60(b). Plaintiff had obtained on October 21, 1980, a default judgment in the Southern District of New York enforcing a guaranty contract against the defendant. The judgment was in the amount of $1,302,954.80. The plaintiff registered the judgment in the District Court for the Southern District of Indiana on December 4, 1980 in accordance with 28 U.S.C. Sec. 1963 (1982). On January 9, 1984, Patricia Campbell filed her motion for relief in the district court in Indiana. The court granted this motion on November 26, 1984. We reverse the district court's grant of relief setting aside the judgment.

I. FACTUAL BACKGROUND

In late 1977 or early 1978 Ralph Douglas Campbell, the defendant's husband, was a heavy equipment salesman for Stockberger Machinery, Inc. Steve Stockberger, Campbell, another salesman, Tom Marshall, and a physician, James Spahn, entered into a partnership they called Indicoal. The partners' intention was to strip-mine coal at a mine in Kentucky, and, to further this purpose, the partners acquired equipment from the Stockberger Company. A Credit Alliance sales representative, Harold Kaplan, sold floor-plan and end-user financing arrangements for Credit Alliance Corporation in the Evansville, Indiana area. Kaplan arranged financing for the business venture through Credit Alliance. The partners executed a conditional sales contract with Stockberger on May 18, 1978; Stockberger assigned the contract to Credit Alliance the same day; and the partners and their wives, including the defendant, signed a guaranty for Indicoal's debts on May 22, 1978. There was undisputed testimony that the wives did not play an active role in Indicoal's operations. The defendant signed the guaranty without reading it, and she did not receive a copy of the document.

Indicoal began to experience financial difficulties soon after its formation, and fell behind in its payments to Credit Alliance. Meanwhile, the defendant and her husband developed serious marital difficulties which led to their separation at the end of 1978 and divorce in March of 1979. On September 29, 1978, Indicoal and Credit Alliance entered into an agreement to extend Indicoal's payment period. Although the original guaranty had provided that the guarantors consented to "any agreement or arrangements whatever with subject or anyone else, including without limitation, agreements and arrangements for payment extension," Credit Alliance customarily executed new extension agreements with all guarantors. The defendant's husband signed the agreement for the defendant without her knowledge or consent. Credit Alliance granted Indicoal a second extension on March 29, 1979, again without the knowledge or consent of the defendant, whose marriage to Campbell had been dissolved two weeks earlier.

On January 15, 1980, Credit Alliance compromised and settled the Indicoal debt with Dr. Spahn and on August 14, 1980, compromised and settled with the Marshalls. A proposed settlement March 6, 1980, between Credit Alliance, Campbell, and Marshall fell through when Campbell's check was dishonored. The defendant was unaware of these events.

On May 2, 1980, the plaintiff filed this action in the United States District Court for the Southern District of New York. In accordance with the terms of the guaranty, summonses were served on Credit Alliance as agent for the defendants. Credit Alliance sent two certified letters to the defendant notifying her of the lawsuit, but both letters were returned.

The defendant remained unaware of the lawsuit, the entry of default judgment October 21, 1980, and the registry of the judgment in the Southern District of Indiana December 4, 1980, until shortly after the United States Marshal attached all the funds in her bank account. The writ of execution was issued, and the defendant became aware of it, in November of 1983.

The defendant filed a motion for relief from judgment pursuant to Federal Rule of Civil Procedure 60(b). The Southern District of Indiana stayed enforcement of the New York judgment. The parties stipulated, contrary to the guaranty language, that Indiana was the proper forum and Indiana law should apply. We find this to be a reasonable stipulation as to the applicable law. Marmon Group, Inc. v. Rexnord, Inc., 822 F.2d 31, 34 n. 2 (7th Cir.1987); Lloyd v. Loeffler, 694 F.2d 489, 495 (7th Cir.1982). On November 10, 1986, the court heard evidence on the motion. The court considered defendant's arguments that the guaranty was unsupported by consideration and that her obligation had been so altered as to discharge her. The court found validity in the latter assertion, and granted defendant's motion.

II. DISCUSSION

Although the parties did not raise the issue, we first consider the propriety of the Indiana courts as a forum for defendant's Rule 60(b) motion.

"The decision to grant or deny relief under Fed.R.Civ.P. 60(b) is committed to the discretion of the trial court." Fuhrman v. Livaditis, 611 F.2d 203, 204 (7th Cir.1979). We therefore need only determine whether the court abused its discretion.

In the Fuhrman case Fuhrman, a citizen of Iowa, sued Livaditis, a citizen of Illinois, in the Northern District of Iowa, based on diversity of citizenship. Process was served by certified mail. The return receipt indicated that Livaditis had received notice of the suit. He did not file an appearance and the court entered a default judgment against him. Notice of the default judgment was sent through certified mail to the defendant.

Fuhrman registered the judgment in the Northern District of Illinois pursuant to 28 U.S.C. Sec. 1963. Almost a year after the judgment was registered in Illinois, Livaditis filed a motion for relief from judgment under Rule 60(b). The Northern District of Illinois denied the motion without prejudice, noting that Livaditis could file his motion in the Northern District of Iowa, the court that rendered the judgment.

As we mentioned on appeal, "[o]rdinarily, a motion for relief from judgment is addressed to the court which rendered judgment." 611 F.2d at 204. Generally, "it is more convenient for motions for relief from judgment to be addressed to the [rendering] court." Id. Two policy considerations support the general rule:

(1) comity among the federal district courts is furthered if the registering court refers the question of relief from judgment to the court which ordinarily entered the judgment; (2) efficient judicial administration is furthered if the registering court defers to the original court, which is likely to be more familiar with the issues raised by the motion for relief from judgment.

Id.

In Fuhrman, as here, there was no litigation with which the rendering court could become familiar. There was simply a default. In Fuhrman, however, Livaditis argued that the rendering court lacked personal jurisdiction over him. This challenge required the court to apply the laws of the state of Iowa, laws with which the district court in Iowa was more familiar than was the district court in Illinois. The federal court in Iowa was thus a more convenient forum for the motion.

The defendant here does not argue that the district court in New York lacked personal jurisdiction over her. The terms of the guaranty provided that an attorney for Credit Alliance would accept service of process for the guarantors, and that they would "agree to the venue and jurisdiction of any court in the State and County of New York." They agreed as well that the guaranty "shall be interpreted according to the laws of the State of New York." The defendant instead asserted that there was no consideration for her guaranty, that she terminated her consent, and that she was discharged. Because the parties stipulated to the application of Indiana law before the court in Indiana there was no reason to defer to the district court in New York on the interpretation of state law. And because the judgment was a default judgment, the rendering court had no more familiarity with the facts than did the registering court. Additionally, when "the creditor seeks to utilize the enforcement machinery of [the registering] district court it is not unreasonable to hold that the [registering] court has the power to determine whether relief should be granted the judgment debtor under 60(b)." 7 Moore's Federal Practice p 60.28, at 60-313 (2d ed. 1987). We therefore believe that the district court for the Southern District of Indiana was an appropriate forum for the defendant's Rule 60(b) motion. There was no abuse of discretion in the court's decision to entertain the motion. As to the merits of the defendant's motion, we cannot reach the same conclusion. We find that the district court abused its discretion in granting defendant's Rule 60(b) motion.

Although "[t]his circuit has a well-established policy favoring a trial on the merits over a default judgment," C.K.S. Engineers, Inc. v. White Mountain Gypsum Co., 726 F.2d 1202, 1205 (7th Cir.1984), a default judgment will not be set aside unless " 'the moving party ... alleges a meritorious defense to the action.' " A.F. Dormeyer Co. v. M.J. Sales & Distrib. Co., 461 F.2d 40, 43 (7th Cir.1972) (quoting Thorpe v. Thorpe, 364 F.2d 692, 694 (D.C.Cir.1966)); see also Passarella v. Hilton Int'l Co., 810 F.2d 674,...