In re Lomantini
| Decision Date | 03 August 2000 |
| Docket Number | Bankruptcy No. 98-51336-172. Adversary No. 99-4021-172. |
| Citation | 252 BR 469 |
| Parties | In re Patrick Joseph LOMANTINI, Debtor. Louis Payne, Plaintiff, v. Patrick Joseph Lomantini, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Missouri |
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Robert A. Breidenbach, Riezman & Blitz, P.C., St. Louis, MO, for Plaintiff.
E. Rebecca Case, Stone, Leyton & Gershman, Clayton, MO, trustee.
Phillip H. Hamilton, Farrell, Hunter, Hamilton, et al., Godfrey, IL, for Debtor/Defendant.
This matter is before the Court on the "Motion for Entry of Default Judgment" (Motion 10) filed by Louis Payne ("Plaintiff"), and the "Objection to Motion for Default Judgment and Motion to Vacate Entry of Default" (Motion 11) filed by Patrick Joseph Lomantini, Debtor ("Defendant").
This is a core proceeding pursuant to Section 157(b)(2)(I) of Title 28 of the United States Code. The Court has jurisdiction over the parties and this matter pursuant to 28 U.S.C. Sections 151, 157 and 1334, and Rule 9.01 of the Local Rules of the United States District Court for the Eastern District of Missouri.
The Plaintiff's motion will be granted in part and denied in part and the Defendant's motion will be granted in part and denied in part.
The operative facts are not in dispute. (See, Exhibit 1 to File Document No. 10 and Affidavit of Defendant, Attached to File Document No. 16). The Plaintiff engaged the Defendant to sell a car to a third party, entrusting the Defendant with the car and its title and a power of attorney to permit the Defendant to conclude the sale. It was agreed that the Defendant was to receive $300.00 as payment and remit the remainder of the proceeds to the Plaintiff. Shortly after the agreement was made, the Defendant sold the car and received the sale proceeds in the amount of $92,000.00 in the form of a check made out to "L & L Enterprises", a d/b/a used by the Defendant. The Defendant did not turn over the proceeds to the Plaintiff as they had agreed. Instead, the Defendant took the check from the purchaser of the car to the purchaser's bank and obtained a cashier's check made out to L & L Enterprises. The Defendant then negotiated the cashier's check to Mungenast Lexis, St. Louis in payment for a previously purchased car for a customer other than the Plaintiff. Mungenast Lexis issued the Defendant a check for the difference, about $58,000.00, which the Defendant endorsed to DiSalvo Jeep to pay a previous debt owed by the Defendant in the amount of about $22,238.00. DiSalvo issued a check to the Defendant for the difference. The Defendant then endorsed the DiSalvo check over to Suntrup Ford to pay a previous debt of about $32,000.00. The remaining money is unaccounted for in the Defendant's affidavit.
When the Plaintiff demanded the proceeds of the sale of his car, the Defendant did not turn over the proceeds to the Plaintiff.
The Plaintiff filed suit against the Defendant in state court alleging breach of contract, fraud and conversion. On the eve of trial in state court, the Defendant filed for relief under Chapter 7. The Plaintiff then filed this adversary complaint to determine dischargeability and for a money judgment.
The Plaintiff's amended complaint requested that judgment be entered for his actual damages and costs, alleged that punitive damages were warranted, and requested that the debt resulting from said judgment be found not dischargeable under 11 U.S.C. § 523(a)(2), (4), and (6) for false representation, breach of fiduciary duty, and willful and malicious injury (File Document No. 6). The Defendant appeared by Counsel at pre-trial hearings and was granted an extension of time to answer the Amended Complaint. No answer was filed within the extended time to answer. Before the extension of time to answer expired, the Defendant filed a consent to the entry of default and a waiver of additional time to plead (File Document No. 7). The Clerk of the Court entered a default on March 19, 1999. Thereafter, the Plaintiff filed the pending motion for default judgment requesting judgment in the amount of $91,700.00, attorney fees and costs, and punitive damages in an amount equal to the actual damages (File Document No. 10).
The Defendant responded to the Plaintiff's motion for default judgment by filing a request that the Court set aside the default, allow him to file an answer, and allow him to proceed to defend (File Document No. 11). The Defendant objected to any award of punitive damages as being beyond the scope of the pleadings.
The Parties appeared by Counsel at a pretrial hearing and presented brief oral argument with respect to the Defendant's objection to the Plaintiff's motion for default judgment, and the Defendant's motion to vacate the entry of default. The Parties were given additional time to submit legal memoranda and thereafter the matter was taken under submission on the record as a whole.
The Defendant raised the prospect of a meritorious defense to the allegations under 11 U.S.C. § 523(a)(2)(A) as cause to set aside the entry of default. No meritorious defense as to Sections 523(a)(4) or (a)(6) has been suggested in this record. The determination of whether to set aside the entry of default is made under the "good cause shown" standard provided in Rule 55(c). The provisions of Rule 60(b), which applies when a default judgment has been entered, are not applicable here. Fed.R.Civ.P. 55(c), Fed. R. Bankr.P. 9024. Generally, in the Eighth Circuit there is a preference for a determination of disputed issues on the merits, and default judgments are not favored. Marshall v. Boyd, 658 F.2d 552, 554 (8th Cir.1981). However, an entry of default under Rule 55(a) will not automatically be set aside. Greater St. Louis Construction Laborers Welfare Fund v. Little, 182 F.R.D. 592, 595 (E.D.Mo.1998). Under the provisions of Rule 55(c) for setting aside a default, the Defendant must show good cause. Fed.R.Civ.P. Rule 55(c), Fed. R. Bankr.P. Rule 7055. In determining whether to set aside a default, courts typically examine such factors as whether the defaulting party was blameworthy or culpable, whether the defaulting party has a meritorious defense, and whether the other party would be prejudiced if the default were excused. Greater St. Louis Construction Laborers Welfare Fund v. Little, 182 F.R.D. 592, 595 (E.D.Mo.1998) citing Johnson v. Dayton Electric Manufacturing Co., 140 F.3d 781, 783 (8th Cir.1998). Where a party fails to make an initial showing of good cause to set aside a default order, a court does not abuse its discretion by declining to consider the meritoriousness of the defense or the potential prejudice to the plaintiff. Id. citing McMillian/McMillian, Inc. v. Monticello Insurance Co., 116 F.3d 319, 320 (8th Cir.1997).
The Court's review of the case law has failed to discover a case where, after consenting to the entry of default and waiving additional time to plead, the defendant then moved to set aside the default. The Court does not find that the Defendant's conduct rose to the level of "contumacious or deliberate disregard" of the Court's orders. See Ackra Direct Marketing Corp. v. Fingerhut Corp., 86 F.3d 852, 856 (8th Cir.1996). However, the Defendant's consent to the entry of default here, was knowing and intentional and was more than a "marginal failure" to meet a deadline. Id. A defendant's consent to the entry of a default and the waiver of additional time to plead with the expectation that an objection to a motion for default judgment will be filed, may be an economical procedure to attempt to limit the disputed issues. However, in this matter, the Defendant has failed to show good cause for setting aside the entry of default as to two sections of the Bankruptcy Code. Even though the case law in this Circuit does not require further inquiry, in the absence of cause, under the specific facts of this case it is appropriate to examine the Plaintiff's allegations as part of the determination of the motion to set aside the default, and as a basis for the request for default judgment.
In his affidavit opposing the entry of default judgment, the Defendant raised the possibility of a meritorious defense as to one count of nondischargeability regarding false representation under Section 523(a)(2)(A). He also argued that the Plaintiff has not shown that the Plaintiff would be unduly prejudiced by the setting aside of the default as to those allegations. See Johnson v. Dayton Electric Manufacturing Company, 140 F.3d 781, 785 (8th Cir.1998). The Defendant stated that at the time he received the vehicle and power of attorney from the Plaintiff he intended to honor his commitment to pay the balance of the proceeds less the commission agreed upon to the Plaintiff thus raising an affirmative defense to the allegations of intent to defraud at the time the agreement was made, an element of false representation under 11 U.S.C. § 523(a)(2)(A). In this default proceeding, the Plaintiff did not support the existence of the usual badges of fraud as evidence of the Defendant's intent at the time the Defendant agreed to act as agent for the Plaintiff in the sale of the car. The Court has determined that the Plaintiff will not be prejudiced if this portion of the default were to be set aside, and that the Defendant has raised the possibility of a meritorious defense. Therefore, upon the specific facts of this case, the Court will set aside the entry of default as to the allegations under Section 523(a)(2)(A).
Principal/Agent — Section 523(a)(4)
The Plaintiff alleged that he and the Defendant had a principal/agent relationship. An agency relationship is formed when one person agrees to act on behalf of and subject to the control of a second person and the second person agrees that the first person shall act on his...
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