Passarella v. Hilton Intern. Co.

• Decision Date: 18 February 1987
• Docket Number: No. 86-1032,86-1032
• Citation: 810 F.2d 674
• Parties: Diane PASSARELLA, Plaintiff-Appellee, v. HILTON INTERNATIONAL CO., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 674

810 F.2d 674

6 Fed.R.Serv.3d 1322

Diane PASSARELLA, Plaintiff-Appellee, v. HILTON INTERNATIONAL CO., Defendant-Appellant.

No. 86-1032.

United States Court of Appeals, Seventh Circuit.

Argued June 11, 1986.

Decided Jan. 26, 1987.

Rehearing and Rehearing In Banc

Denied Feb. 18, 1987.

Francis J. Leyhane, Condon, Cook, Roche, Chicago, Ill., for plaintiff-appellee.

Michael B. Cohen, Chicago, Ill., for defendant-appellant.

Before WOOD and COFFEY, Circuit Judges, and SWYGERT, Senior Circuit Judge.

COFFEY, Circuit Judge.

Hilton International Company (Hilton International) appeals from the district court's denial of Hilton's motion to vacate a default judgment entered against it pursuant to Federal Rule of Civil Procedure Rule 60(b). We reverse and vacate the default judgment.

I

This case arose out of the appellee Passarella's loss of her diamond engagement ring valued at $18,000 during a stay at the Caribe Hilton Hotel in Puerto Rico. Passarella filed a complaint against the Hilton Hotels Corporation on May 3, 1985 seeking a recovery of $18,000 for the lost ring. The district court dismissed the complaint sua sponte for failure to properly allege diversity of citizenship. Counsel for Hilton Hotels then informed Passarella that the Hilton International Company, not the Hilton Hotels Corporation, was the proper defendant. Passarella filed an amended complaint two weeks later, on May 17, 1985, substituting appellant Hilton International as the defendant. On May 20, Passarella served Hilton International's Vice President and General Counsel Melvin Milligan with a copy of the complaint, and Milligan executed the Acknowledgment of Receipt of Summons and Complaint and returned it to the plaintiff. Upon receipt of the complaint, Milligan forwarded it to the Continental Insurance Company, Hilton International's liability carrier via U.S. mail. Milligan mailed another letter to Continental on June 3 containing additional information concerning Passarella's claim. A search of Continental's records revealed that it did not receive either of Milligan's two letters and consequently took no action to represent Hilton International.

The district court granted Passarella's motion for a default judgment against Hilton International on July 3, after Passarella demonstrated that Hilton International had been properly served. On August 5, the district court heard evidence concerning Passarella's damages and entered judgment in the amount of $18,000 plus interests and costs against Hilton International. Passarella filed an affidavit of garnishment on August 22 directed to the Chase Manhattan Bank, alleged to be Hilton International's debtor. Milligan received a telephone call on September 18 from a representative of Chase Manhattan informing him of the pending garnishment proceeding. Attorneys for Hilton International filed appearances in the district court on September 20 and moved to vacate the default judgment entered against Hilton International. The district court denied Hilton International's motion to vacate default judgment pursuant to Federal Rule of Civil Procedure Rule 60(b), 108 F.R.D. 421, and Hilton International appeals.

II

Hilton International contends that the trial court abused its discretion in denying its motion to vacate the default judgment pursuant to Federal Rule of Civil Procedure Rule 60(b). Rule 60(b) states:

"(b) Mistakes; Inadvertence; Excusable Neglect; Newly Discovered Evidence; Fraud, etc. On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order or proceeding was entered or taken. A motion under this subdivision (b) does not affect the finality of a judgment or suspend its operation. This rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment, order or proceeding, or to grant relief to a defendant not actually personally notified as provided in Title 28, U.S.C., Sec. 1655, or to set aside a judgment for fraud upon the court."

In C.K.S. Engineers, Inc. v. White Mountain Gypsum Company, 726 F.2d 1202, 1205 (7th Cir.1984), we noted that "[t]his circuit has a well-established policy favoring a trial on the merits over a default judgment." See also United States v. An Undetermined Quantity of Article of Drug Labeled as Benylin Cough Syrup, 583 F.2d 942, 946 (7th Cir.1978). In A.F. Dormeyer Company v. M.J. Sales & Distributing Co., 461 F.2d 40, 43 (7th Cir.1972), we stated that "[t]he philosophy of modern federal procedure favors trials on the merits, and default judgments should generally be set aside where the moving party acts with reasonable promptness, alleges a meritorious defense to the action and where the default has not been willful." See also Inryco, Inc. v. Metropolitan Engineering Company, Inc., 708 F.2d 1225, 1230 (7th Cir.1983). In Ellingsworth v. Chrysler, 665 F.2d 180, 184 (7th Cir.1981), we stated that "[i]n order to qualify for relief from a judgment under Rule 60(b)(1), the defendants must demonstrate that the default judgment resulted from mistake, inadvertence, surprise or excusable neglect and that they have meritorious defense." See also Ben Sager Chemicals International Inc. v. E. Targosz & Co., 560 F.2d 805, 809 (7th Cir.1977). Other cases from this circuit addressing motions to vacate default judgments pursuant to Rule 60(b) articulate tests similar to that stated in Ellingsworth. In United States v. One 1979 Rolls-Royce Corniche, 770 F.2d 713, 716 (7th Cir.1985), we stated that "[i]n order for the claimant to obtain relief he must show (1) 'good cause' for the default, (2) 'quick action to correct it,' and (3) a 'meritorious defense' to the complaint" (quoting Breuer Electric Manufacturing Co. v. Toronado Systems of America, Inc., 687 F.2d 182, 185 (7th Cir.1982)).

Hilton International contends that it has a meritorious defense to Passarella's claim because it does not own or operate the Caribe Hilton and furthermore, Puerto Rico's Inkeeper's Act of 1955 bars Passarella's claim. The district court agreed that Hilton International demonstrated that it had a meritorious defense, but the court denied Hilton International's motion to vacate default judgment because Hilton International failed to establish that its failure to answer Passarella's complaint resulted from excusable neglect. 108 F.R.D. at 425. In Ellingsworth v. Chrysler, 665 F.2d 180, 185 (7th Cir.1981), we stated that "[a] default judgment, like a dismissal, is a harsh sanction which should usually be employed only in extreme situations, or when less drastic sanctions have proven unavailing."

In Ellingsworth, we vacated a default judgment entered against the defendants when their attorney failed to appear on the date the district court had set for the trial. We noted in Ellingsworth that "[t]he defendants have been burdened with a $175,000 judgment with no opportunity to present their defenses because their attorney misunderstood the court when it orally announced the date of trial." Id. at 185. In A.F. Dormeyer Company v. M.J. Sales & Distributing, 461 F.2d 40 (7th Cir.1972), we vacated a default judgment entered by the district court after the defendant failed to file an answer. The defendant's attorney in A.F. Dormeyer mistakenly failed to file an answer because he "had practiced law for 37 years in New York where, unless the summons set forth the necessity for filing the appearance and answer with the Clerk of the court, it was not necessary to file an answer until the date of trial." Id. at 42.

The case at bar is similar to Ellingsworth and A.F. Dormeyer in that the defendant Hilton International mistakenly assumed that the Continental Insurance Company had received its two letters containing Passarella's complaint and information about the suit and that Continental had answered the complaint.

We have upheld the entry of default judgment in cases where parties have repeatedly failed to appear at status calls or otherwise have blatantly hindered the district court's efficient handling of the case. In Inryco, Inc. v. Metropolitan Engineering Co., Inc., 708 F.2d 1225 (7th Cir.1983), this court upheld the district court's denial of a motion to vacate default judgment after stating that counsel for the defendants "showed a callous disregard for the procedures in this circuit." Id. at 1231. We stated:

"The district court in this case did not base its default judgment merely on Royce's failure to file an appearance. Instead, it found even construing the evidence in a light most favorable to the defendants, a record 'replete with inexcusable omissions, deceits, and irresponsibilities.' The court found that Royce never filed an appearance; never paid any filing fees; never answered the original or amended complaints, even after a reminder from Inryco's counsel; never counterclaimed, even after being directed to do so by his client; never responded to interrogatories; failed for months to inform his clients of outstanding discovery requests; misrepresented to Inryco that he was having trouble getting documents from his clients; and failed to appear at five...