The opinion of the court was delivered by: BRODERICK
The defendant, Liberty Consumer Discount Company of Pennsylvania, has moved, pursuant to Fed.R.Civ.P. 55(c), to open a default judgment which this Court granted against it and in favor of the plaintiff, Delores Reid, on November 16, 1977. For the reasons hereinafter set forth, the defendant's motion will be denied.
The record in this case establishes the following: The defendant's home office is in St. Louis, Missouri, but it does business in Pennsylvania. On May 8, 1974, the plaintiff and her husband signed and executed a loan agreement with the defendant. The total amount to be repaid by the plaintiff and her husband to the defendant under this agreement was $ 4,140.00. As collateral for this loan, the defendant took a security interest in the "real estate used as the Borrowers' principal residence," the "household furnishings and appliances on the Borrowers' premises," and "all after-acquired property of the same character." The defendant secured a confession of judgment from the plaintiff and her husband, which by its terms "would constitute a lien on Borrowers' real property other than their principal residence." In addition, the defendant charged the plaintiff and her husband $ 132.53 for insurance covering the secured household goods.
The plaintiff instituted this legal action on August 10, 1977, alleging that the defendant had violated 15 U.S.C.A. § 1635(b) in that it failed to effectuate the termination of its security interest and withdraw any claim for finance charges within ten days of the plaintiff's letter of rescission of March 9, 1977. The complaint was served on the defendant's registered agent in Pennsylvania, C. T. Corporation System, on October 4, 1977. On October 26, 1977, the Clerk of this Court entered a default against the defendant "for failure to appear, plead or otherwise defend." On November 18, 1977, this Court entered a default judgment against the defendant which ordered: (1) that the contract between the parties is hereby rescinded; (2) that the defendant not collect any finance charges from the plaintiff; (3) that the defendant terminate any security interest it had in the plaintiff's property; (4) that the defendant pay the sum of $ 1,000.00 statutory damages to the plaintiff; and (4) that the defendant pay the sum of $ 300.00 to plaintiff's counsel as attorney's fees. The docket in this case shows that this judgment was entered and copies of it were mailed to the parties on November 18, 1977.
On December 1, 1977, plaintiff's counsel wrote to the defendant, in care of its registered agent in Pennsylvania, and inquired as to when the defendant would comply with the default judgment. In response to his letter of December 1, 1977, plaintiff's counsel received a telephone call on December 13, 1977 from a Mr. James Plack of the defendant's home office in St. Louis. In a letter dated January 4, 1978, plaintiff's counsel wrote to Mr. Plack and again requested that the judgment in this case be satisfied. On January 6, 1978, counsel for the defendant telephoned plaintiff's counsel and requested a copy of the complaint, entry of default, and judgment order, which was mailed to defendant's counsel on January 9, 1978. Defendant's counsel was not heard from again in this matter until May 23, 1978, when he filed the motion to open the default judgment in this case.
It is well established that a motion to set aside a default judgment will not be granted unless the moving party shows:
(1) that the nondefaulting party will not be substantially prejudiced by the reopening, (2) that the defaulting party has a meritorious defense, and (3) that the default was not the result of inexcusable or gross negligence or willful act.
Trachtman v. T.M.S. Realty and Financial Services, 393 F. Supp. 1342, 1347 (E.D.Pa.1975); Wokan v. Alladin International, Inc., 485 F.2d 1232 (3d Cir. 1973); Tozer v. Charles A. Krause Milling Co., 189 F.2d 242 (3d Cir. 1951). Furthermore, to set aside a default judgment, the Court, in accordance with Fed.R.Civ.P. 60(b), must determine whether the motion was made "within a reasonable time." Central Operating Co. v. Utility Workers of America, 491 F.2d 245, 253 (4th Cir. 1974); Thorpe v. Thorpe, 124 U.S.App.D.C. 299, 364 F.2d 692 (D.C.Cir. 1966); Nicholson v. Allied Chemical Corp., 200 F. Supp. 206 (E.D.Pa.1961); 10 Wright & Miller, Federal Practice and Procedure § 2698 (1973). This Court is well aware that "a standard of "liberality,' rather than "strictness' should be applied in acting on a motion to set aside a default judgment." Medunic v. Lederer, 533 F.2d 891, 893-94 (3d Cir. 1976). Applying this standard to the defendant's motion to set aside the default judgment in this case, it is our determination that the defendant has not carried the burden applicable to motions to open default judgments.
In connection with the issue of excusable neglect, the defendant admits that the complaint which was served on the defendant's registered agent in Pennsylvania was forwarded to the defendant's home office in St. Louis. The defendant claims that an answer was not filed "due to an administrative error, involving the transfer of papers within the St. Louis office and the Philadelphia office, which was in a state of flux because of a change of management of the Philadelphia office, and because of a change in counsel representing the Philadelphia office." The failure of the defendant to file an answer in this case led to the entry of default on October 26, 1977, and the entry of the default judgment on November 18, 1977. The defendant, whose burden it is to show "excusable neglect," has provided no explanation concerning the alleged "administrative error" accounting for the defendant's delay, from October 4, 1977 to January 6, 1978, in retaining counsel. Furthermore, no explanation has been offered to the Court as to why the defendant's motion to open the default judgment was not filed until May 23, 1978, more than six months after the defendant was notified of the entry of the default judgment.
On the basis of the defendant's inadequate explanation of its failure to answer the complaint, its failure to offer an explanation for its three month delay in retaining counsel, and its greater than six month delay in moving to open the default judgment, the Court concludes that the defendant has not carried its burden of proving that its neglect was excusable. Baez v. S.S. Kresge Co., 518 F.2d 349 (5th Cir. 1975) (per curiam), cert. denied, 425 U.S. 904, 96 S. Ct. 1495, 47 L. Ed. 2d 754 (1976); Central Operating Co. v. Utility Workers of America, 491 F.2d 245 (4th Cir. 1974); Thorpe v. Thorpe, 124 U.S.App.D.C. 299, 364 F.2d 692 (D.C. Cir. 1966); International Corporate Enterprises, Inc. v. Toshoku, Ltd., 71 F.R.D. 215 (N.D.Tex.1976); Robinson v. Bantam Books, Inc., 49 F.R.D. 139 (S.D.N.Y.1970); Nicholson v. Allied Chemical Corp., 200 F. Supp. 206 (E.D.Pa.1961). See Greenspun v. Bogan, 492 F.2d 375 (1st Cir. 1974). Furthermore, the Court must conclude that the defendant's motion has not been made "within a reasonable time" as required by Rule 60(b). Central, supra; Thorpe, supra; Nicholson, supra.
In addition, a defendant seeking to open a default judgment must offer a meritorious defense. In this case, the defendant has alleged four defenses which it claims are meritorious. We conclude, however, that the defendant has not shown a meritorious defense to the plaintiff's complaint.
The first defense alleged by the defendant is that the plaintiff did not have the right to rescind the loan agreement she entered with the defendant. An examination of the defendant's proposed answer to the plaintiff's complaint, however, shows that there is no issue as to either the plaintiff's right to rescind the loan agreement or the timeliness of the plaintiff's rescission of the loan agreement under the Act. In her complaint, the plaintiff initially alleged that she verbally rescinded the loan agreement with the defendant within three days of May 8, 1974, the date of the execution of the agreement. The loan agreement could have been rescinded within this period regardless of whether the defendant provided the plaintiff with all of the material disclosures required by the Act. 15 U.S.C.A. § 1635(a) (1976). In its proposed answer, the defendant specifically denied that the plaintiff communicated a notice of rescission to it within this three day period. As hereinafter pointed out, however, regardless of whether the plaintiff rescinded the loan agreement ...