Lolatchy v. Arthur Murray, Inc.
| Decision Date | 18 June 1987 |
| Docket Number | 83-1945,Nos. 83-1862,s. 83-1862 |
| Citation | 816 F.2d 951 |
| Parties | Shahram LOLATCHY, Now & Then Dance Studio, Appellee, v. ARTHUR MURRAY, INC., and George Theiss and Nicholas Theiss and Sam Costello, Appellants. Shahram LOLATCHY, Now & Then Dance Studio, Appellant, v. ARTHUR MURRAY, INC., and George Theiss and Nicholas Theiss and Sam Costello, Appellees. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Nancy E. Gregor, Baltimore, Md. (James M. Kramon, Kramon & Graham, on brief), for appellants and cross-appellees.
James G. Kolb, Rockville, Md., for appellee and cross-appellant.
Before WIDENER, PHILLIPS, and WILKINSON, Circuit Judges.
The defendants, Arthur Murray, Inc., George Theiss, Nicholas Theiss, and Sam Costello, appeal from a default judgment. They contend that the district court abused its discretion by refusing to set aside the default. We agree and vacate the judgment.
In June 1979, the plaintiff, Shahram Lolatchy, filed this suit in federal district court. The substance of Lolatchy's complaint is that the defendants breached an agreement to grant him an Arthur Murray Studio franchise.
The case was handled by three judges. The first died in April 1980. The case was then assigned to a second judge, and finally to the judge who entered the orders complained of. The case was set for trial twice. The first trial date was on February 9, 1981. The trial was not held on this date, and the record provides no explanation of its cancellation.
The next trial date was set for April 27, 1981 by letter from the court, with the pretrial order due March 23, 1981, and the pretrial conference to be held March 27, 1981. On March 23, 1981, the pretrial conference was rescheduled for April 1, 1981. On March 23 and March 24, 1981, the plaintiff served on the defendants twelve discovery requests consisting of 46 pages, whereupon the defendants filed their motion for a protective order on the ground that a rule of court required discovery to be completed prior to the pretrial conference and that the late filing of the plaintiffs' discovery requests apparently had made compliance difficult or impossible before the date of the pretrial conference. The defendants, in the meantime, had proceeded with discovery.
Discovery had commenced in this case in late 1980. In March 1981, plaintiff served interrogatories, requests for production of documents, and requests for admission of facts (the requests for discovery above referred to) on each of the four defendants. In April, the district court granted the defendants an extension of time to respond to these discovery requests. Defendants agreed to file responses by May 15, 1981.
On May 14, 1981, defendants' counsel was appointed to a state judgeship. Therefore, he turned his practice over to his brother, who entered an appearance in this case on June 20, 1981. Because of defendants' change in counsel, discovery cutoff was left open. However, after plaintiff's informal attempts to obtain discovery failed, the district court, by letter dated November 20, 1981, required response to the discovery requests within 15 days. When this order was not complied with, the plaintiff moved for default judgment, as well as other sanctions.
In January 1982, the defendants' counsel moved for and was granted an extension of time to respond to the plaintiff's motion. This motion, which was filed late, was the first paper filed with the district court by the new attorney since entering the case seven months earlier. Thereafter, the attorney filed twelve untimely responses to Lolatchy's discovery requests, the first of which was filed January 21, 1982 and the last February 27, 1982.
On March 3, 1982, the district court conducted a hearing on plaintiff's motions and on April 14, 1982 entered the default as to liability against the defendants. Although the district court noted the severity of such a sanction, it stated that the defendants had shown a "continuous disregard of court rules and orders." Defendants' counsel, in a supplemental memorandum opposing plaintiff's motion, had accepted complete blame for the delays in responding to discovery requests. In September 1982, he was replaced as attorney for the defendants by current counsel.
In February 1983, defendants moved, pursuant to Federal Rule of Civil Procedure 55(c), to set aside the default as to liability. The district court denied this motion and rejected the argument that the default judgment should not stand because the parties defendant themselves, as opposed to their past counsel, did not contribute to the delays.
In March 1983, the issue of damages was tried before the district court. Following this trial, the district court entered its money judgment, including costs, in favor of Lolatchy. The defendants appealed, taking issue with the lower court's entry of default on liability, as well as its damage determination. Lolatchy then cross-appealed, also challenging the district court's damage award.
There can be little doubt that the delay in this case was caused in significant part by defendants' second attorney. The death of the first judge, however, and the cancellation of the two trial dates cannot be laid off to that attorney. Indeed, if fault must be laid off with respect to the second trial date, it must be to the plaintiff. There is nothing in the record to contradict the district court's finding that the defendants' themselves, as contrasted with their attorney, were blameless for the delay.
Other facts bear particular attention. There was no missing witness in the case whose testimony was made unavailable by the delay; there was similarly no dead witness; neither were there any records made unavailable by the delay, nor was there any evidence for the plaintiff which could have been presented earlier, the presentation of which was prevented by the delay. Prior to the time of the hearing on the motion for default in the district court on March 3, 1982, and of course the time a month later that the order was entered granting default as to liability on April 14, 1982, the defendants had responded to all discovery requests made by the plaintiff, and, as far as the record shows, the case was ready for trial. So the record shows without contradiction that the plaintiff suffered no prejudice on account of the delay. We grant that the plaintiff had been somewhat frustrated in his efforts to bring the case to trial, but a part of that delay was of his own making. And, on the day the default judgment was entered as to liability, the only thing remaining to be done was to set a trial date. Instead of setting the case for trial, the court entered its default as to liability.
In this circuit's most recent case on this question, we said that "justice demands that a blameless party not be disadvantaged by the errors or neglect of his attorney which cause a final, involuntary termination of proceedings." United States v. Moradi, 673 F.2d 725, 728 (4th Cir.1982). In Moradi, a naturalized American citizen attempted to enter the United States with carpets obtained in his native country of Iran. The United States customs service denied duty-free entry and seized the rugs. Moradi retained counsel to negotiate with the United States. After negotiations proved unsuccessful, the United States filed suit in federal district court. After service of the complaint, Moradi's attorney timely served an answer on the federal government's counsel and the clerk of the court. However, citing non-compliance with local rules, the clerk of the court refused to accept the answer and returned the answer to the office of Moradi's attorney.
When the answer was returned to Moradi's attorney's office, he was absent and the return of the answer by the clerk did not come to his attention. Thereafter, counsel for the United States, pursuant to instructions of the district court, notified Moradi's attorney's office that a pre-trial conference had been scheduled for a certain date. Again, Moradi's attorney apparently was not apprised of this message by his staff and consequently he failed to appear. The government then moved for and was granted a default judgment. Moradi appealed after his motion for Rules 55(c) and 60(b) relief was denied.
We reversed. We reasoned that "[t]raditionally, we have held that relief from a judgment of default should be granted where the defaulting party acts with reasonable diligence in seeking to set aside the default and tenders a meritorious defense." 1 Id. at 727. We based our reversal in Moradi largely on the lack of the party's personal responsibility for the failures of his counsel to answer punctually or to appear at the pre-trial conference. Moradi, 673 F.2d at 728.
In Moradi, we also set out considerations to be taken into account in deciding whether or not to set aside judgment by default in such a case: the personal responsibility of the party, the prejudice to the party, whether there is a history of dilatory action, and the availability of sanctions less drastic. 673 F.2d at 728.
In the case at hand, the defendants are blameless. There has been no prejudice to the plaintiff. Any dilatory action was on the part of the attorney, not the defendants, it was not drawn out, and continued at the most for a time span of only a few months. No sanctions short of default were attempted by the district court. The only sanction it ever imposed was default as to liability.
In these circumstances, we are of opinion the district court abused its discretion. The attorney, for example, could have been charged with all costs and expenses attendant to the delay, including attorneys' fees, or even held in contempt of court. There is nothing in the record to suggest that either of these actions would not have promptly cured his failure to respond. Indeed, the motion for judgment by default brought forth...
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