Jones v. Phipps

• Decision Date: 02 November 1994
• Docket Number: No. 93-3157,93-3157
• Citation: 39 F.3d 158
• Parties: Gregory C. JONES, Executor for the Estate of Barbara S. McEwen, Plaintiff-Appellee, v. Sandra Lee PHIPPS, a/k/a Sandra R. Phipps, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 158

39 F.3d 158

30 Fed.R.Serv.3d 41

Gregory C. JONES, Executor for the Estate of Barbara S McEwen, Plaintiff-Appellee, v. Sandra Lee PHIPPS, a/k/a Sandra R. Phipps, Defendant-Appellant.

No. 93-3157.

United States Court of Appeals Seventh Circuit.

Argued April 7, 1994.

Decided Nov. 2, 1994.

Julia D. Mannix (argued), Laura Beth Miller, Davis, Mannix & McGrath, Chicago, IL, for plaintiff-appellee.

Ronald L. Bell (argued), Ronald L. Bell & Associates, Deerfield, IL, for defendant-appellant.

Before POSNER, Chief Judge, BAUER, Circuit Judge, and TINDER, District Judge. ^*

TINDER, District Judge.

This appeal raises the single question of whether the district court's denial of a motion to vacate a default judgment was an abuse of discretion.

I. Background

Gregory C. Jones, as executor of Barbara McEwen's estate, filed a multi-count complaint against Sandra Phipps in the district court alleging, among other things, that Phipps stole cash and personal property from John and Barbara McEwen while she worked for them as a private nurse. The heart of Jones' complaint was a claim for recovery under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Sec. 1962(c), accompanied by multiple state law claims. Federal jurisdiction rested on both the presence of a federal question, RICO, and the diversity of the parties. 28 U.S.C. Secs. 1331, 1332(a)(1). After Phipps failed to respond to discovery requests, Jones filed a motion to compel discovery. During a conference on the motion, Phipps (and her attorney) told the court she lacked assets and was, therefore, essentially judgment proof. Apparently believing the case was not likely to be a fruitful one for the estate to pursue, and in an effort to effectuate an early resolution, the district court ordered Phipps to submit to an assets deposition and to produce documentation verifying her financial condition. Phipps failed to appear for the deposition and did not provide the financial documentation as ordered. Jones then filed a motion for a rule to show cause why Phipps should not be held in contempt. This prompted Phipps to respond by filing a detailed financial statement, listing major as well as trivial assets, purporting to demonstrate Phipps' penurious status. The bottom line of Phipps' financial statement was that, if believed, a judgment against her would be virtually uncollectible. At a hearing before a magistrate judge, to whom the district judge assigned this case upon consent of the parties pursuant to 28 U.S.C. Sec. 636(c)(1), Phipps represented that her financial statement disclosed all her assets, reiterating to the court that she was judgment proof.

Several months later, Phipps was arrested in Wisconsin for allegedly selling stolen jewelry. Jones heard about the arrest and also learned police had searched Phipps' home and discovered jewelry, china, furniture, silverware, art work, and other valuable items not listed on her financial statement, some of which allegedly belonged to the McEwen estate. Accordingly, Jones filed a motion under Rules 16(f) and 37 of the Federal Rules of Civil Procedure seeking a default judgment as a sanction against Phipps for her willful failure to disclose assets and her failure to participate in pretrial proceedings in good faith. Shortly thereafter, Phipps' attorney in this matter at the time, Robert Carrane asked to withdraw from the case because he was under criminal investigation for purportedly selling jewelry Phipps had given him. Carrane's attorney filed an affidavit in the district court on November 6, 1992, stating she had informed Phipps' counsel in the Wisconsin criminal matter of the default motion and of Carrane's motion to withdraw, and that she had been assured by the Wisconsin counsel that the motions were brought to Phipps' attention sometime around November 5, 1992. On November 9, 1992, the district court allowed Carrane to withdraw on the condition he provide Phipps with a copy of an order which directed her to respond to the default motion by November 30, 1992, and setting a status hearing for December 3, 1992. Although Carrane mailed a copy of the order to Phipps on November 17, 1992, Phipps neither responded to the default motion by November 30 nor appeared for the December 3 status hearing. Likewise, she failed to appear for a January 4, 1993, "prove-up" hearing at which damages were to be established in preparation for the entry of a default judgment. See FED.R.CIV.P. 55(b)(2). At no time did Phipps contact the court or seek a continuance of the hearings. An evidentiary hearing was held before the district court in Phipps' absence on January 4 at which Jones presented evidence on the merits of the case and on damages. On January 11, 1993, the court entered a default judgment against Phipps in the amount of $932,974.20, representing assessed damages in the amount of $310,991.40 which were trebled pursuant to the RICO statute, see 18 U.S.C. Sec. 1964(c). Approximately five weeks later, on February 17, 1993, Phipps (by her new counsel in this case) filed a motion to vacate the default judgment under Federal Rule of Civil Procedure 60(b) and submitted the response to the default motion Phipps would offer if the default judgment would be set aside. Phipps attributed her failure to respond timely to the default motion to her attorney's unexpected withdrawal and to her detention in solitary confinement with limited access to either a telephone or documents necessary to formulate a response. She also offered excuses for her failure to list certain valuables (such as the jewelry and other items discovered by the police during the search of Phipps' residence) on her financial statement. In a detailed ruling, the district court rejected Phipps' excuses for failing to report her assets and for failing to respond to Jones' default motion, and denied Phipps' motion to vacate the default judgment. Phipps appeals that decision.

II. Analysis

A. Motion to Vacate the Default Judgment

Phipps' appeal demonstrates the often misunderstood relationship among default judgments, Federal Rule of Civil Procedure 60(b), and appellate review--a misunderstanding usually, as here, involving an unsuccessful attempt to secure review of a default judgment by appealing the denial of a motion to vacate the judgment. As many litigants do, Phipps chose to ask the district court to vacate the January 11, 1993, default judgment (as allowed under Rule 60(b)(1)) rather than immediately appealing the judgment. She did not file a notice of appeal of the judgment itself within the allowed thirty day period following entry of the default judgment, FED.R.APP.P. 4(a)(1), but instead waited until the motion to vacate was denied to file a notice of appeal which stated merely that she appealed from the district court's order "denying Defendant's motion to vacate the default judgment made pursuant to Rule 60(b)(1) entered on August 13, 1993." Appellant's App. at 1. This maneuver has repeatedly been held to allow review only of the denial of the motion to vacate the default judgment, not to raise the propriety of the underlying judgment itself. Lee v. Village of River Forest, 936 F.2d 976, 979 (7th Cir.1991); Kagan v. Caterpillar Tractor Co., 795 F.2d 601, 607 (7th Cir.1986). Support for this conclusion is derived both from the lateness and the content of Phipps' notice of appeal. As for the former, because she waited more than thirty days to file the notice of appeal, and took no action which might have tolled the running of that time period, see, e.g., FED.R.APP.P. 4(a)(4)(F), Phipps forever lost the right to appeal the merits of the underlying default judgment. Besides the timing problem, the content of Phipps' notice of appeal is simply insufficient to include the underlying default judgment as part of the appeal. Though Federal Rule of Appellate Procedure 3(c), which requires the notice of appeal to "designate the judgment, order, or part thereof appealed from," FED.R.APP.P. 3(c), is to be liberally construed, Smith v. Barry, 502 U.S. 244, ----, 112 S.Ct. 678, 681, 116 L.Ed.2d 678 (1992), designating merely the denial of the Rule 60(b) motion as the order appealed from in a notice of appeal has consistently been held insufficient to raise the propriety of the underlying default judgment. Browder v. Director, Dep't of Corrections of Ill., 434 U.S. 257, 263 n. 7, 98 S.Ct. 556, 560 n. 7, 54 L.Ed.2d 521 (1978); Ellingsworth v. Chrysler, 665 F.2d 180, 183 (7th Cir.1981). Despite purportedly disavowing a desire to question the underlying default judgment, Phipps proceeds to argue issues surrounding that judgment, such as the proportionality of the sanction to her conduct, the choice of a default judgment over other available sanctions and whether the default judgment violates the Eighth Amendment. Whether grounded in the untimeliness of the notice of appeal or the truncated content of the notice, appellate review of the denial of a Rule 60(b) motion simply does not "reach the merits of the underlying judgment." Soler v. Waite, 989 F.2d 251, 253 (7th Cir.1993). We decline to consider Phipps' criticisms of the default judgment as being well beyond our jurisdiction, instead narrowing our analysis to the district court's ruling on Phipps' motion to vacate that judgment under Rule 60(b)(1).

Rule 60(b)(1) provides that "[o]n a motion and upon such terms as are just, the court may relieve a party ... from a final judgment, order, or proceeding" upon a showing of "mistake, inadvertence, surprise, or excusable neglect." FED.R.CIV.P. 60(b)(1). Our review of district court orders denying this relief is exceedingly deferential, Zuelzke Tool & Eng'g Co., Inc. v. Anderson Die Castings, Inc., 925 F.2d 226, 228-29 (7th Cir.1991), and is limited to discerning whether the district court abused its discretion. Pretzel & Stouffer v. Imperial Adjusters, 28 F.3d 42, 45 (7th Cir.1994). Only if no reasonable person could agree with the district...