Jackson v. Beech, s. 79-1861
| Decision Date | 19 December 1980 |
| Docket Number | 79-2089,Nos. 79-1861,s. 79-1861 |
| Citation | 205 U.S. App. D.C. 84,636 F.2d 831 |
| Parties | David Nathaniel JACKSON, Appellant, v. Malcolm BEECH et al. David Nathaniel JACKSON v. Malcolm BEECH et al., Appellants. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Appeals from the United States District Court for the District of Columbia (D.C. Civil Action No. 77-0267).
Nelson Deckelbaum, Washington, D.C., for David N. Jackson.
John C. Maginnis, III, Washington, D.C., for Malcolm Beech.
Before TAMM, ROBB and MIKVA, Circuit Judges.
Opinion for the Court filed by Circuit Judge MIKVA.
The defendants appeal the denial of their motions to permit an answer out of time and to set aside the entry of a default judgment against them. The district court considered the negligent failure to file a timely answer unjustifiable and attributed the negligence of the lawyer to the defendants themselves. Because strong policies favor the resolution of genuine disputes on their merits, negligence of a lawyer is not always imputed to his clients on a motion to set aside the entry of a default judgment. A motion for relief from a default judgment should be granted when, as in the case at bar, the defendants have not willfully defaulted, the set-aside of the default will not prejudice the plaintiff, and the defendants have alleged a meritorious defense. We therefore reverse.
In February of 1977, plaintiff David Jackson filed a complaint against Malcolm Beech, William Lindsay, Claude Roxborough, Kenneth Cross, and Melchus Davis seeking compensatory and punitive damages for claims sounding in contract and tort, including charges of mismanagement, misrepresentation, and slander. These claims were the result of a disagreement between Jackson, a limited partner in two partnerships, and the defendants, general and limited partners in the partnerships. 1 Jackson had invested $2,500 in the Fox Investments Limited Partnership (Fox, Ltd.) and $7,000 in the Smoke Investments Limited Partnership (Smoke, Ltd.). In addition, Jackson was a nighttime supervisor at Foxtrappe, Inc., a private club owned and managed by Fox, Ltd., and he received $300 per week for these services.
The dispute between Jackson and the other partners began in September of 1975 when his employment with Foxtrappe, Inc. terminated. According to the defendants, Jackson's employment ended after a pay dispute with defendant Beech, an officer of Foxtrappe, Inc. The defendants allege that shortly after Jackson's employment terminated,
the day manager of the club discovered a discrepancy in the night receipts and that Jackson, when questioned, told defendant Davis that he had merely taken what was owed him. Plaintiff Jackson contends that he demanded an audit of the partnerships and that Beech, Lindsay, and Roxborough fired him in retaliation.
As a result of the dispute between the partners in September of 1975, Jackson filed this action in February of 1977. He charged the defendants 2 with securities act violations, breach of the partnership agreements, mismanagement of the partnership businesses, conversion of partnership funds, failure to account for partnership funds, breach of employment contract, and slander. 3 Because the partnership agreements included an arbitration clause, the defendants responded with a motion to stop the proceedings to permit arbitration. On April 28, 1977, the district judge denied this motion because securities violations were alleged; he explained that this result was dictated by a Supreme Court case, Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), which held that an arbitration clause cannot destroy a federal court's jurisdiction over charges of securities violations. 4
Under rule 12(a) of the Federal Rules of Civil Procedure, the defendant had ten days to file a responsive pleading: an answer was due May 9, 1977. On May 24, 1977, the plaintiff moved for default judgment and, on June 2, 1977, while that motion was still pending, the defendant filed a motion for leave to answer and an answer. This motion stated that the defendants had a meritorious defense and that "the pressure of trials and office work prevented counsel from filing the answer heretofore." The proposed answer was a general denial. The trial judge ordered entry of default judgment on June 6, 1977. No reasons were given for denying the defendants' motion for leave to answer out of time; the judge stated only that he was ordering the entry The first explanation for the entry of the default judgment was given by the trial judge in his August 19, 1977 memorandum denying the defendants' motion to vacate the entry of the default judgment. This motion was accompanied by an affidavit indicating that the defendants had a meritorious defense. The defendants maintained that they were innocent of all charges, and that the plaintiff was suing in retaliation for the defendants' reasonable suspicion that the plaintiff was responsible for certain missing money. In the motion itself, the defendants stated that the default was due to communications difficulties between the lawyer and the several defendants in dealing with the many issues. The judge concluded that this was not a reasonable explanation for the defendants' "dilatory conduct" and serious disregard of "the time requirements of the Federal Rules." The judge indicated that an affidavit or further explanation would be necessary in order to "demonstrate a good faith effort to offer the Court a basis upon which to excuse the procedural violation" under the "applicable standards of F.R.Civ.P. 60(b), F.R.Civ.P. 55(c)."
of the default judgment because the time to answer had expired.
The next significant action in the case was a hearing on damages held before a magistrate on November 10-11, 1977. According to the defendants, it was shortly before the deadline for filing objections to the magistrate's report, issued almost a year later in October 1978, that they discovered they were no longer represented by counsel. Their attorney had apparently closed up shop and left town without informing either them or the court of his withdrawal. On December 5, 1978, the defendants filed a motion for an extension of time to file objections, explaining the situation to the judge. The next day, the court adopted the magistrate's recommendations on damages. This order awarded more than $65,000 in damages, and ordered a further accounting to determine the plaintiff's share of any Smoke, Ltd. revenues after September 30, 1976. Although this order did not resolve all the issues between the parties and did not contain a rule 54(b) certification that any portion of the judgment was final and appealable, it included a statement that the case was dismissed. This error was corrected by a January 19, 1979 order certifying as final and appealable the damage awards on the counts other than those relating to Smoke, Ltd. 5
The last action in the case relevant to the default issue began with the defendants' January 5, 1979 motion to set aside the default judgment. In this motion, the defendants' new lawyer explained that the default was solely attributable to the "total and absolute negligence" of the defendants' original lawyer. The plaintiff's attorney responded with an affidavit alleging that Roxborough, one of the defendants and a lawyer, was responsible for preparing all pleadings and that the defendants' lawyer was only supposed to file them. The plaintiff's lawyer indicated that his information was based on a conversation between himself and the now-missing attorney. Roxborough then submitted an affidavit stating that, although he and the original lawyer were to discuss strategy and defenses, the lawyer was responsible for submitting the pleadings.
Without referring to defendant Roxborough's affidavit, the court denied defendants' motion to vacate the entry of the default judgment. He gave two reasons for his decision. First, he stated that "(u)ncontested facts alleged and attested to by the plaintiff's attorney ... indicate that the reason for the default actually lies with one of the defendants, who, as an attorney, had undertaken personal responsibility for drafting the pleadings." The second reason was that "(i)n any event, the negligence of an attorney is imputed to his clients, so that regardless of the source of the negligent
failure to plead, this court did not err when it refused to set aside the default." We turn now to consider whether these reasons justify the denial of the motion to set aside the default judgment.
Default judgments are not favored by modern courts, perhaps because it seems inherently unfair to use the court's power to enter and enforce judgments as a penalty for delays in filing. Modern courts are also reluctant to enter and enforce judgments unwarranted by the facts. This may be why a court must hold a hearing on damages before entering a judgment on an unliquidated claim even against a defendant who has been totally unresponsive. And, as this court pointed out in H. F. Livermore Corp. v. Aktiengesellschaft Gebruder Loepfe, 432 F.2d 689, 691 (D.C.Cir.1970) (per curiam), modern procedural reforms were aimed at eliminating technicalities that preclude the substantive resolution of disputes: "The policy underlying the modernization of federal procedure ... (was) the abandonment or relaxation of restrictive rules which prevent the hearing of cases on their merits." Id. at 691.
It is true that the decision whether a default judgment should be set aside is one committed to the sound discretion of the trial court. See, e. g., Keegel v. Key West & Caribbean Trading Co., 627 F.2d 372 (D.C.Cir.1980); Moldwood Corp. v. Strutts, 410 F.2d 351 (5th Cir. 1969). Given the strong policies favoring the resolution of genuine disputes on their merits, however, an abuse of discretion in...
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