Zuelzke Tool & Engineering Co., Inc. v. Anderson Die Castings, Inc.

• Decision Date: 22 February 1991
• Docket Number: No. 90-1691,90-1691
• Parties: ZUELZKE TOOL & ENGINEERING CO., INC., Plaintiff-Appellee, v. ANDERSON DIE CASTINGS, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 226

925 F.2d 226

18 Fed.R.Serv.3d 1127

ZUELZKE TOOL & ENGINEERING CO., INC., Plaintiff-Appellee, v. ANDERSON DIE CASTINGS, INC., Defendant-Appellant.

No. 90-1691.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 14, 1990.

Decided Feb. 22, 1991.

Michael Cramer, Wolfgram & Cramer, Cedarburg, Wis., for plaintiff-appellee.

William S. Porter, Fox, Carpenter, O'Neill & Shannon, Milwaukee, Wis., for defendant-appellant and intervenor-appellant.

Before CUDAHY, RIPPLE and KANNE, Circuit Judges.

KANNE, Circuit Judge.

In this case we determine that the district court, 129 F.R.D. 532, correctly declined to vacate a default judgment under Federal Rule of Civil Procedure 60(b).

I. FACTS

The underlying facts concern a dispute over the amount owed to Zuelzke Tool & Engineering Co., Inc., a Wisconsin corporation, for services rendered to Anderson Die Castings, Inc., an Illinois corporation, for the design and installation of die casting equipment in 1987. Correspondence regarding the contractual dispute was carried on between counsel for Zuelzke and the president of Anderson Die Castings, Inc. during November of 1988.

In March of 1989 a series of unexplained corporate maneuvers took place. First, on March 24, 1989, a company called Anderson Continuation Corporation was incorporated. Then, seven days later, on March 31, 1989, Anderson Die Castings, Inc., amended its articles of incorporation and changed its name to First Wheeling, Inc. Finally, on the same date, Anderson Continuation Corporation amended its articles of incorporation and changed its name to Anderson Die Castings, Inc. Thus, Anderson Die Castings, Inc. became First Wheeling, Inc., and Anderson Continuation Corporation became Anderson Die Castings, Inc.

On April 28, 1989, Zuelzke brought suit against Anderson Die Castings, Inc. alleging that it owed Zuelzke $106,402.60 plus interest for the work done in 1987. The action was filed in the Eastern District of Wisconsin under diversity jurisdiction. Service of the summons and complaint was made on May 5, 1989, by delivery to Kate Anderson, ¹ then an employee of the reconstituted Anderson Die Castings, Inc.

Neither Anderson nor anyone on its behalf filed an answer or other responsive pleading in the case pending in the Eastern District of Wisconsin. On May 31, 1989, Zuelzke submitted a request to the court for an entry of default against Anderson. On the same date the clerk entered the requested default.

On June 23, 1989, the district court found that the complaint and summons had been served on Anderson and no answer or responsive pleading had been filed within the time required by the Federal Rules of Civil Procedure. The court directed that a default judgment be entered in favor of Zuelzke and against Anderson in the sum of $113,964.74. That judgment was entered on July 5, 1989.

More than four months later, on November 29, 1989, Anderson filed a motion to vacate the default judgment pursuant to Rule 60(b) and a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Also on that date, First Wheeling, Inc. sought leave to intervene and file an answer to Zuelzke's complaint. Both Anderson and First Wheeling, Inc. contended that Wheeling, not Anderson, was responsible for any amount due Zuelzke for the work done in 1987. The gist of its argument was that "old" Anderson Die Castings, Inc. sold its name and approximately sixty percent of its assets to Anderson Continuation Corporation, Inc., and that the Continuation Corporation, then reconstituted as Anderson Die Castings, Inc., did not assume any outstanding liabilities of the "old" Anderson Die Castings, Inc. Rather, First Wheeling, Inc. became the successor to the business interests of "old" Anderson Die Castings, Inc., retaining approximately forty percent of its predecessor's corporate assets and assuming any liability incurred prior to the sale.

In September of 1989, while the Anderson and Wheeling motions were pending in district court, Zuelzke sought to register its federal judgment with the Circuit Court of Cook County, Illinois. Seeking to avoid execution of the judgment, Anderson and Wheeling filed a motion in state court to set aside the registration of the federal judgment. On January 26, 1990, Wheeling offered and the Cook County Circuit Court accepted a pledge of collateral consisting of $50,000 cash and $500,000 equity in real estate. Execution was stayed pending disposition of Anderson's motion in federal district court to vacate the default judgment.

On February 23, 1990, the district court in a memorandum of decision and order denied Anderson's motion for relief from the default judgment. ² Anderson sought reconsideration which likewise was rejected on April 3, 1990, because Anderson divested the district court of jurisdiction by filing a simultaneous notice of appeal.

II. ANALYSIS

The district courts are given wide latitude in deciding motions under Rule 60(b), and the denial of a Rule 60(b) motion to vacate a judgment is reviewed by this court under an abuse of discretion standard. Williams v. Hatcher, 890 F.2d 993, 995 (7th Cir.1989). Parties seeking to set aside default judgments face a formidable task as recent cases disclose. See, e.g., In re State Exchange Finance Co., 896 F.2d 1104 (7th Cir.1990); North Cent. Illinois Laborer's Dist. Council v. S.J. Groves & Sons Co., 842 F.2d 164 (7th Cir.1988); Hal Commodities Cycles Management Co. v. Kirsh, 825 F.2d 1136 (7th Cir.1987); Dimmitt & Owens Financial, Inc. v. United States, 787 F.2d 1186, 1192 (7th Cir.1986).

The entry of a default judgment can be vacated under Rule 60(b) if a party shows (1) good cause for its default; (2) quick action to correct it; and (3) a meritorious defense. United States v. Di Mucci, 879 F.2d 1488, 1495 (7th Cir.1989).

In asking us to vacate the district court's denial of relief from the default judgment, Anderson raises a number of issues. Primarily, however, it argues that its failure to respond to Zuelzke's complaint constituted excusable neglect. Anderson also contends that it was entitled to notice of the motion for default judgment because it had made a de facto appearance in the case--and thus the entry of default judgment without notice was improper.

EXCUSABLE NEGLECT UNDER RULE 60(b)

1. Good Cause

Anderson concedes that it received the summons and complaint filed by Zuelzke. However, it contends that it notified an unidentified official of First Wheeling, Inc. of the pending litigation and was advised to take no further action because "efforts were being made to have First Wheeling, Inc. substituted and served as the sole defendant." Anderson therefore asserts that the events leading to entry of the default judgment against it were beyond its meaningful control, claiming that it did not respond to the complaint because of its reliance on the representations of Wheeling.

In an apparent effort to show that its reliance was justified, Anderson states that on two occasions in May, 1989, counsel for Wheeling contacted Zuelzke's attorney, representing that Wheeling was the proper defendant and that Wheeling's counsel attempted to negotiate a settlement.

If Anderson relied on the assurances of Wheeling that it would obtain a substitution of parties, Anderson voluntarily chose not to exercise control over its own fate in the pending litigation. Regardless of any reliance on Wheeling, Anderson continued to have the legal authority and responsibility to directly assert any and all defenses or objections to the claims made by Zuelzke.

It is true that where exceptional circumstances demonstrate that the events contributing to a default judgment were not within the meaningful control of the defaulting party, Rule 60(b) relief may be warranted. S.J. Groves, 842 F.2d at 167 (citing C.K.S. Engineers, Inc. v. White Mountain Gypsum Co., 726 F.2d 1202, 1205 (7th Cir.1984)). However, where a party willfully, albeit through ignorance or carelessness, abdicates its responsibilities, relief from judgment under Rule 60(b) is not warranted. Id. at 167.

Anderson's conduct may be fairly described, at best, as careless. But careless reliance by Anderson on Wheeling to remove Anderson from the case was no less than a deliberate and willful abdication of Anderson's legal responsibility to protect its own interests in the litigation. Anderson was not diligent in protecting its interests and there is no showing that it was misled by Zuelzke into believing that no harm would come to it through its failure to act. A careless attitude or even a genuine misunderstanding between the corporate entities, Anderson and Wheeling, is insufficient to describe Anderson's abdication of control over its own fate as "excusable" neglect. It is not simply neglect which warrants relief under Rule 60(b) but rather "excusable" neglect. Anderson did not show good cause for the invocation of Rule 60(b) relief.

2. Prompt Action

Even if we had found good cause for Anderson's abdication of its duty to respond to the complaint, there is no indication that it acted promptly to set aside the default judgment. While Anderson argues that it responded promptly with "informal" efforts to settle the dispute, the only conduct it offers in this regard are attempts by Wheeling to accept liability and negotiate with Zuelzke. Anderson does not offer any examples of its own "prompt" efforts to obtain relief from the default judgment. Anderson learned of the judgment against it sometime in July of 1989 but...