Employee Painters' v. Ethan Enterprises

• Decision Date: 16 March 2007
• Docket Number: No. 05-35270.,05-35270.
• Citation: 480 F.3d 993
• Parties: EMPLOYEE PAINTERS' TRUST; Resilient Floorcovering Pension Fund; Western Washington Floor Covering Apprenticeship Fund; Western Washington Floor Covering Industry Promotion Fund; Rebound Trust; Carpet Linoleum & Soft Tile Layers Local Union 1238 IUPAT, Plaintiffs-Appellees, v. ETHAN ENTERPRISES, INC., a Washington corporation; Rebecca Johnson, individually; Gregory S. Tift, individually, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

480 F.3d 993

EMPLOYEE PAINTERS' TRUST; Resilient Floorcovering Pension Fund; Western Washington Floor Covering Apprenticeship Fund; Western Washington Floor Covering Industry Promotion

Fund; Rebound Trust; Carpet Linoleum & Soft Tile Layers Local Union 1238 IUPAT, Plaintiffs-Appellees, v. ETHAN ENTERPRISES, INC., a Washington corporation; Rebecca Johnson, individually; Gregory S. Tift, individually, Defendants-Appellants.

No. 05-35270.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 16, 2006.

Filed March 16, 2007.

Randolph W. Urmston, Hendricks & Lewis, Seattle, WA, for the appellants.

Robert A. Bohrer, Ekman, Bohrer & Thulin, Seattle, WA, for the appellees.

Appeal from the United States District Court for the Western District of Washington; Ricardo S. Martinez, District Judge, Presiding. D.C. No. CV-03-02904-RSM.

Before: RYMER, BERZON, and TALLMAN, Circuit Judges.

BERZON, Circuit Judge:

Several trusts that administer employee benefit plans sued for delinquent contributions. Appellants, Ethan Enterprises and two of its officers, failed to participate in much of the litigation, and a default judgment was entered against them for roughly a million dollars. The district court denied Ethan and the individually-named defendants relief from the judgment. We affirm, albeit for a different reason with respect to each: The company violated a local rule requiring it to be represented by counsel, and it was proper to enter judgment against it. The individually-named defendants failed to answer an amended complaint properly served pursuant to Rule 5 of the Federal Rules of Civil Procedure,¹ so default was proper against them. The applicability of Rule 5 in determining proper service of an amended complaint escaped both the parties and the district court. We therefore take this opportunity to clarify that an amended complaint can often be served in the same manner as any other pleading if the original complaint is properly served and the defendants appeared in the first instance.

BACKGROUND

Appellant corporation Ethan Enterprises ("Ethan") is a commercial floor covering company. Rebecca Johnson and Greg Tift serve as its officers. Johnson was the president and sole shareholder of Ethan from its incorporation in 2001 until 2004, while Tift managed the company from 2002 onward. Appellee trusts ("trusts") are joint labor-management trust funds that administer four separate employee benefit plans, see 29 U.S.C. § 1002(3), created and maintained pursuant to the terms of a Collective Bargaining Agreement (CBA) and the provisions of § 302(c) of the Labor-Management Relations Act (LMRA), 29 U.S.C. § 186(c).²

The instant appeal is limited to the propriety of the default judgment, so we do not review the underlying facts except to report that they grow out of a long-running dispute, over unfair labor practices and broken agreements, between Ethan and the Carpet, Linoleum and Soft Tile Layers Local Union No. 1238 IUPAT ("union"). See NLRB v. Ethan Enter., Inc., No. 04-74905, 154 Fed.Appx. 23 (9th Cir.2005) (affirming a decision of the National Labor Relations Board (NLRB) holding that Ethan had committed an unfair labor practice by failing to honor an agreement with the union).

While the case before the NLRB was in process, the trusts filed the present action in district court seeking allegedly delinquent contributions. Ethan and the individually-named defendants filed an answer and added a counterclaim against the union, alleging that it had breached the settlement agreement at issue in the NLRB proceeding. The district court dismissed the counterclaim and set the present matter for trial.

Two months later, defendants' attorney J. Patrick Brown lodged with the court a stipulation and proposed order for withdrawal as counsel. In it, Brown certified that he had served a copy of the document on his clients, which included Ethan and both individually-named defendants. He further certified, as required by the local rules, see W.D. Wash. Local Rule GR 2(f)(4)(B),³ that he

informed Defendant Ethan Enterprises, Inc. that as a corporation it is required by law to be represented by an attorney admitted to practice before this court and that failure to obtain a replacement counsel by the date the withdrawal is effective may result in dismissal of the corporation's claims for failure to prosecute and/or entry of default against the corporation as to any claims of other parties.

(emphasis added). The court accepted the stipulation and filed the order, which became effective immediately.

Three days after Brown withdrew as defense counsel, the trusts filed a motion to amend their complaint, which the district court granted. Between the time this motion was filed and granted, the clerk of the court received notice that a copy of the withdrawal order served on Johnson via mail had been returned as undeliverable. That notice was only the beginning of a series of failed attempts at service. A month later, mailed copies of the court's Order to Compel Inspection of Records were returned as undeliverable to both Johnson and Tift, as was the order allowing the trusts' amended complaint. Mail was but one unsuccessful avenue of contact with the individual defendants; the trusts also attempted to serve Johnson and Tift with the amended complaint in person but could not locate them.

A month after these unsuccessful attempts to serve the amended complaint in person, the trusts asked the court for permission to serve the amended complaint via publication. A summons was subsequently published in a local commercial paper six times the next month. The defendants never responded to either the summons or to the court orders issued months before. The trusts therefore moved for an entry of default, which the clerk of the court granted. Notice of the order was mailed to the defendants and, again, was returned undelivered. The district court therefore entered a default judgment against all defendants in the amount of $1,030,344.95.

According to an affidavit he filed with the district court, Tift learned of the default judgment after speaking with a union representative one month later. Two weeks after that, the defendants filed a Rule 60(b)(4) motion seeking to set aside the order and judgment of default. They argued that the judgment was void because the amended complaint was not properly served. According to defendants, service by publication was improper because insufficient efforts were made to locate them and the trusts knew where they could be found.

The district court denied the motion. It agreed with the trusts that Ethan violated W.D. Wash. Local Rule GR 2(f)(4)(B), which requires that a corporation be represented by counsel throughout litigation, thereby subjecting Ethan to default without regard to its failure to answer the amended complaint. The court upheld the default against Tift and Johnson on similar grounds, holding that their violation of W.D. Wash. Local Rule CR 41(b)(2),⁴ which requires pro se litigants to update their mailing address with the court, justified default. Even if reliance on the local rules were not sufficient, the court went on to hold, the trusts complied with the rules for service by publication in Washington and, thus, the default judgment was warranted by defendants' failure to answer the amended complaint.

In response, the defendants filed a motion for reconsideration as well as a renewed Rule 60(b) motion, this time on grounds of excusable neglect and misrepresentation. Tift alleged that he never received a copy of the withdrawal order signed by the court and that he believed there had to be a hearing before the Court would allow Brown to withdraw. He and the other defendants also argued that substantial evidence supported their defense and that the trusts misrepresented information upon which the default judgment was based. In particular, the defendants alleged that the employment data relied upon by the trusts for calculating the judgment was that of Tift & Young, Inc., a company it asserted had "no relationship" to Ethan.⁵

The district court denied the motion for reconsideration and subsequent Rule 60(b) motions. Appellants now appeal. Notably, after both parties filed their briefs, a panel of this court affirmed the decision of the NLRB requiring Ethan to execute a collective bargaining agreement with the union and comply with its terms, which include payment to the plaintiff trusts for benefit contributions. Ethan Enter., Inc., 154 Fed.Appx. at 23.

ANALYSIS

We review the district court's entry of the default judgment and decisions not to set aside that judgment for an abuse of discretion. TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 695-96 (9th Cir. 2001); Haw. Carpenters' Trust Funds v. Stone, 794 F.2d 508, 511-12 (9th Cir.1986). Although we analyze the claims of the corporate defendant and the individually-named defendants separately, we agree with the district court that default was a proper sanction against both.

A. Default Against Ethan Enterprises

Ethan concedes that it violated Local Rule GR 2(f)(4)(B), which requires a corporation to be represented by counsel before the court. This failure suffices to support the default judgment against the corporation.

Local Rule GR 2(f)(4)(B) is explicit that "failure to obtain a replacement attorney by the date the withdrawal [of counsel] is effective may result in . . . entry of default against the corporation as to any claims of other parties." Ethan's attorney provided it with actual notice of the rule before he withdrew, yet Ethan never retained replacement counsel. As Ethan concedes, we have recognized default as a permissible sanction for failure to comply with local rules requiring representation by counsel. See United States v. High Country Broadcasting Co., Inc., 3 F.3d 1244, 1245 (9th Cir.1993) (per curiam). We find no reason to distinguish the present case.

Ethan nonetheless argues that the default...