Seven Elves, Inc. v. Eskenazi
| Citation | 635 F.2d 396 |
| Decision Date | 26 January 1981 |
| Docket Number | No. 79-2845,79-2845 |
| Parties | SEVEN ELVES, INCORPORATED, Plaintiff-Appellee, v. Jack S. ESKENAZI, Esko Industries, Inc., et al., Defendants, Gary Liebman and Jack Riback, Defendants-Appellants. . Unit A |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
Larry Wayne Gabriel, Los Angeles, Cal., Steven K. DeWolf, Houston, Tex., for defendants-appellants.
Will Gray, Houston, Tex., for plaintiff-appellee.
Appeal from the United States District Court for the Southern District of Texas.
Before INGRAHAM, GEE and TATE, Circuit Judges.
This is an appeal from an order denying the appellants' motion to vacate a judgment in damages for malicious prosecution and slander. The judgment was entered in a proceeding at which the appellants did not appear, either personally or through an attorney. Their motion to vacate was brought under Fed.R.Civ.P. 55(c) () and 60(b) (relief from judgment), and was denied by the district court without written reasons. Because we find merit in the appellants' contentions under Rule 60(b), we vacate the challenged order and the judgment entered below. The cause is remanded to the district court for trial on the merits.
In 1975, Seven Elves, Inc., owed the appellants Liebman and Riback some $800. When attempts to collect the debt proved unsuccessful, Liebman and Riback joined with Jack Eskenazi and others in filing an involuntary bankruptcy petition against Seven Elves. Liebman and Riback executed a power-of-attorney authorizing Eskenazi to act as their agent in retaining counsel and in prosecuting the bankruptcy cause, but did not themselves participate directly in that action. The bankruptcy proceeding ended in a judgment in favor of Seven Elves.
Subsequently, Seven Elves brought this action in diversity, seeking to recover $250,000 in damages from the petitioners in the prior bankruptcy proceeding on grounds of malicious prosecution and slander. Liebman and Riback, as well as the other defendants below, retained Charles F. Fitzgerald, a California attorney, to defend them in this action. Fitzgerald was one of the attorneys representing the petitioners in the previous bankruptcy proceeding. Through Fitzgerald, Liebman and Riback answered Seven Elves' complaint, and discovery was commenced. A pretrial conference was held on September 23, 1977, with Fitzgerald appearing for the defendants, and the case was scheduled for docket call on September 1, 1978.
In October of 1977, the business offices of Liebman and Riback were destroyed by fire. A change of address form was filed with the appropriate United States Post Office, and mail addressed to the gutted business offices was forwarded to Riback's home address for approximately six months thereafter. It does not appear that Liebman and Riback directly informed Fitzgerald of this change of address.
On November 28, 1977, Liebman and Riback were deposed by Seven Elves' attorney in Fitzgerald's presence. During the course of those depositions, the fact that the business offices had been totally destroyed and the home mailing addresses of both Liebman and Riback were elicited. Following the depositions, Fitzgerald informed Liebman and Riback that he would keep them informed of any progress in this action, and that no further action on their part would be required unless and until he contacted them. Neither Liebman nor Riback ever communicated with Fitzgerald again.
On December 9, 1977, Fitzgerald and Jack Eskenazi had words. As a result, Eskenazi "fired" Fitzgerald and demanded the return of all his client files, including those pertaining to the present action. Fitzgerald complied, advising Eskenazi to retain new counsel for the defendants in this cause. Because Eskenazi had acted as the agent of Liebman and Riback in the prior bankruptcy action, had paid all Fitzgerald's legal fees in both the prior action and the present one, and had been Fitzgerald's primary contact with the defendants in the present action, Fitzgerald assumed that Eskenazi was acting on behalf of all of the defendants. For this reason, Fitzgerald considered his representation of the defendants, including Liebman and Riback, terminated. Assuming that Eskenazi would inform the defendants of the termination, Fitzgerald did not at any time inform either Liebman or Riback that he no longer represented them, nor did he advise them to retain other counsel. In the ensuing months, Fitzgerald made several attempts to insure that Eskenazi would retain substitute counsel of record for the defendants in the present action, and even attempted to assist Eskenazi in that effort. However, no new counsel was retained, and Liebman and Riback remained unaware of these events.
Around August 20, 1978, the trial court became aware of Fitzgerald's desire to be replaced as counsel of record for the defendants. On September 11, 1978, Fitzgerald wrote the trial judge to explain the difficulties that had arisen, and to inform the court that he did not intend to appear in this action. The court notified Fitzgerald that he would have to appear personally to request that the court relieve him as counsel of record for all defendants. The court mailed Fitzgerald the appropriate notice of trial, with instructions to forward this notice to all defendants. Fitzgerald mailed copies of this notice to the gutted business offices of Liebman and Riback. This notice was not received by Liebman and Riback, and was not returned to Fitzgerald.
Fitzgerald never appeared before the court, and was never relieved as attorney of record for the defendants. On October 2, 1978, the case was called for trial. Neither Fitzgerald nor any of the defendants (including Liebman and Riback) was present. The defendants failing to appear, Seven Elves moved that their pleadings be stricken and that default judgment be entered in favor of the plaintiffs. Both motions were granted, and evidence was taken as to the amount of damages. At the close of the evidence, damages were set at $250,000. The judgment, along with findings of fact and conclusions of law, were drafted by Seven Elves' attorneys and signed by the trial judge.
No notice of application for a default judgment was served upon Fitzgerald or any defendant, as is required by Fed.R.Civ.P. 55(b)(2). Liebman and Riback remained ignorant of the judgment against them until March 23, 1979, when they were ordered to show cause why a writ of execution should not issue. They immediately retained other counsel, and on April 3, 1979, timely filed their motion to set aside the default judgment under the provisions of Fed.R.Civ.P. 55(c) and 60(b). 1 That motion was denied by the district court on June 19, 1979, without written reasons. From that order, Liebman and Riback bring this appeal.
Liebman and Riback give three main reasons why their motion should have been granted: (1) They were not given the three-day written notice of the application for default judgment as required by Fed.R.Civ.P. 55(b)(2); (2) they did not receive jury consideration on the question of the amount of damages as guaranteed by Fed.R.Civ.P. 38(a); and (3) the judgment should be set aside in the interest of justice under Fed.R.Civ.P. 60(b) because they were denied an adequate opportunity to present their case by the gross neglect of their attorney.
In response, Seven Elves contends: (1) That the judgment below was based upon a trial on the merits rather than upon the default of Liebman and Riback, and thus is not subject to the requirements of Fed.R.Civ.P. 55; (2) that if the judgment was entered after a trial on the merits, Liebman and Riback had waived their right to a jury trial by their failure to appear for trial; (3) that if the judgment was by default, Liebman and Riback had received the notice due them under Rule 55(b)(2), and were not entitled to a jury determination on the damages issue; and (4) that regardless of the nature of the judgment below, the trial court did not abuse its discretion in refusing to vacate the judgment under Rule 60(b).
Because we decide the issues before us on the basis of Rule 60(b), which is applicable to both default judgments and judgments entered after trial on the merits, we need not attempt to characterize the judgment at issue on this appeal: 2 whether based on the default of Liebman and Riback or on the evidence adduced at the proceeding below the judgment must be vacated and the cause retried in order to afford the appellants an adequate opportunity to present their case.
Rule 60(b) provides, in part:
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.
The purpose of Rule 60(b) is to delineate the circumstances under which relief may be obtained from the operation of final judgments, whether they are entered by default, see Fed.R.Civ.P. 55(c), or otherwise. By its very nature, the rule seeks to strike a delicate balance between two countervailing impulses: the desire to preserve the finality of judgments and the "incessant command of the...
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