Eitel v. McCool, 84-4230
| Decision Date | 10 January 1986 |
| Docket Number | No. 84-4230,84-4230 |
| Parties | Gary R. EITEL, Plaintiff-Appellant, v. William D. McCOOL, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Gary R. Eitel, Lindale, Tex., pro se.
Tom Scribner, Minnick, Hayner & Zagelow, P.S., Walla Walla, Wash., for defendant-appellee.
Appeal from the United States District Court for the Eastern District of Washington.
Before WRIGHT, CANBY and WIGGINS, Circuit Judges.
This action arose out of the breakdown in an attorney-client relationship between Eitel and McCool late in 1983. Eitel filed a complaint against McCool with the Washington State Bar Association in 1984. Eitel rejected an initial offer to settle for $10,000 and threatened civil action. In April 1984, attorney Scribner, acting on behalf of McCool, offered Eitel $40,000 if he would execute a release of "any and all complaints, whether presently known or anticipated against Bill McCool for any and all legal activities he performed, was to perform or failed to perform" for Eitel. Eitel rejected this offer.
Scribner later renewed this offer. Eitel responded by filing a malpractice suit against McCool in federal district court seeking $2.9 million in damages. On June 18, 1984, attorney Boundy, acting on behalf of McCool's insurer, called Eitel by telephone to offer $40,000 for a settlement of all claims against McCool. According to his affidavit, Boundy told Eitel that all settlement details, including a general release, would have to be arranged with Scribner. Eitel contends that he agreed to accept $40,000 for a stipulated dismissal On June 20, a draft for $40,000 from McCool's insurer was received by attorney White, Eitel's "advisor." 1 White endorsed the draft and sent it and accompanying stipulation and release forms to Eitel. On June 22, Eitel acknowledged receipt of the $40,000 and returned to Scribner his proposed "mutual" stipulation of dismissal form to be cosigned by Scribner and sent to the district court. Eitel did not execute the "Release of all Claims" form.
with prejudice of the district court action. He claims he did not agree to execute a general release.
On July 5, Scribner notified Eitel that he would not execute the stipulation of dismissal until Eitel signed the general release. On July 11, Eitel filed a motion for default judgment. On July 18, McCool filed an answer to the complaint and a counterclaim for unpaid legal services in the amount of $22,500. On July 19, McCool moved to strike Eitel's motion for default, to compel Eitel to execute a general release, to dismiss Eitel's complaint, and to obtain attorney's fees.
On July 20, the district court denied Eitel's motion for a default judgment. In August, the district court held a telephone conference with McCool, Scribner and Eitel.
In September, the district court, 602 F.Supp. 126, dismissed with prejudice Eitel's malpractice action and McCool's counterclaim "pursuant to the parties' agreement."
Eitel timely appealed.
(1) Did the district court properly deny the motion for default judgment?
(2) Did the district court properly dismiss the action based on the parties' agreement?
We review the denial of a default judgment under Rule 55(b), Fed.R.Civ.P., for abuse of discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092-93 (9th Cir.1980). A voluntary dismissal under Rule 41(a)(2), Fed.R.Civ.P., is not subject to reversal unless the district court abused its discretion. Sams v. Beech Aircraft Corp., 625 F.2d 273, 277 (9th Cir.1980).
Eitel contends that because McCool failed to answer within 20 days of service of the complaint, the court was required under Rule 55, Fed.R.Civ.P., to enter a default judgment. Eitel apparently fails to understand the two-step process required by Rule 55. See 6 Moore's Federal Practice p 55.02, at 55-8. Here, the entry of default pursuant to Rule 55(a) was proper. However, because McCool had filed a notice of appearance, entry of judgment by the clerk under Rule 55(b)(1) as requested by Eitel would have been improper. Because of McCool's appearance, the district court, not the clerk, was required to enter the default judgment.
McCool argues that the district court's refusal to enter the default judgment was proper because Eitel failed to note the motion for a hearing, failed to provide McCool with proper notice of the application for judgment, and failed to move the court to enter the judgment. We need not decide whether these technical requirements were satisfied here. The denial of a default judgment here was within the court's discretion.
The district court's rationale for denying the default judgment was that McCool had filed an answer and a counterclaim, but we need not agree with the district court's reasoning to affirm. We may affirm on any ground finding support in the record. Islamic Republic of Iran v. Boeing Co., 771 F.2d 1279, 1288 (9th Cir.1985).
Factors which may be considered by courts in exercising discretion as to the entry of a default judgment include: (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material Our starting point is the general rule that default judgments are ordinarily disfavored. Cases should be decided upon their merits whenever reasonably possible. Pena v. Seguros La Comercial, S.A., 770 F.2d 811, 814 (9th Cir.1985). Second, the district court could have had serious reservations about the merits of Eitel's substantive claim, based upon the pleadings. Aldabe v. Aldabe, 616 F.2d 1089, 1092-93 (9th Cir.1980). Third, because Eitel was seeking almost $3 million in damages from McCool and because the parties disputed material facts in the pleadings, we cannot say that the district court abused its discretion in denying the default judgment.
facts; (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. 6 Moore's Federal Practice p 55-05, at 55-24 to 55-26. We find that several of these factors support the district court's denial of the default judgment.
Finally, McCool's failure to answer appears to have been excusable neglect. The record shows that the parties engaged in earnest settlement negotiations after the complaint was served and in fact reached what appeared to be a final settlement agreement prior to the deadline for McCool's answer. McCool reasonably believed that the litigation was at an end based on the June 18 agreement. The district court apparently recognized this background of negotiation. It concluded that McCool's answer and counterclaim, filed soon after the settlement agreement dissolved, justified denying the default judgment. Even though beyond the 20 day period for answering a complaint, McCool's prompt response after negotiations failed supports the conclusion that McCool was reasonably relying on the apparent settlement of the litigation.
We find that the district court did not abuse its discretion in denying the default judgment.
Eitel contends that the district court's dismissal of his malpractice action against McCool was improper as a dismissal by stipulation under Rule 41(a)(1)(ii). He argues that there was no mutual agreement or "meeting of the minds" as to the terms and conditions of the proposed settlement between Eitel and Boundy on June 18, 1984. He argues that (1) because he "fully rescinded and revoked" his June 22 stipulation on July 9, and (2) because McCool, through counsel, by letter dated July 5, disagreed with Eitel's understanding of the June 18 agreement, the district court had no basis for finding a mutual stipulation to dismiss the action. We disagree.
The court reasonably concluded that the parties had the...
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