On Appeal from the United States District Court for the Western District of Pennsylvania
Adams and Garth, Circuit Judges, and Cohen, District Judge*fn*
In this appeal we are called upon to determine whether the trial court abused its discretion in entering a default judgment after repeated failure on the part of the defendant to respond to a district court proceeding. For the reasons set forth below, this case will be remanded to the district court to insure the conformity of the default judgment to this Court's recent decisional law.
On May 2, 1978, William Hritz was grievously injured in a mining accident. A pressure hose that was an integral part of a mine pumping machine blew off its fitting and struck Hritz in the groin area. He suffered severe penile lacerations, the loss of one testicle, impaired urinary and sexual functioning, grave emotional harms, stress to his marriage, despondency, and social humiliation. His attorney collected the trademark, model, and serial numbers from the machine responsible for Hritz" injuries and traced them to the defendant Woma Corporation, the American distributor of this type of equipment. On January 17, 1979, Woma was informed by letter from counsel of the claims, including one asserted by Hritz" wife, against the corporation for the injuries suffered and ongoing harm and treatment. Woma never responded.
After waiting considerably more than a year to hear from Woma, Mr. and Mrs. Hritz, on May 1, 1980, filed the present action in federal district court seeking compensation for the harm they suffered as a result of the accident. The complaint specified that the cause of the injuries was the "failure of a coupling on a high-pressure hydraulic hose" and gave the serial numbers of the machine responsible for the injuries. Plaintiffs were only able to allege that the machine was either manufactured by Woma or sold and distributed by Woma for a West German manufacturer, since the precise manufacturing and distribution history of the machine was not available because of defendant's earlier failure to reply. Woma never responded.
More than three months went by without response. On August 8, 1980, plaintiffs filed a petition for entry of default judgment against Woma pursuant to Fed. R. Civ. P. 55. Notice was mailed on September 8, 1980, advising all parties that a hearing would be held on October 1, 1980 to set damages to be awarded to plaintiffs under the default judgment. Woma never responded.
On December 11, 1980, the district judge entered judgment against Woma for $168,691.45 for the injuries suffered by both plaintiffs as a result of the mine accident. The judge made as detailed an inquiry as possible into the facts, given defendant's failure to provide records concerning the machine, and reviewed the specific claims for damages sought by the plaintiffs. Judgment was awarded based on the documented medical expenses of Mr. Hritz, his lost wages, his pain and suffering, and the loss of consortium by Mrs. Hritz.*fn1 Woma never responded.
On or about January 19, 1981, plaintiffs' counsel called Woma to inform it that execution would be issued on the judgment. A letter subsequently confirmed the telephone call. Woma never responded.
Finally on January 30, 1981 -- more than two-and-a-half years after the injury, more than two years after plaintiffs' counsel first wrote to Woma, more than eight months after the district court complaint was filed, and more than four months after the default judgment was entered -- Woma presented a motion to set aside the judgment.
The question presented on appeal is whether under these facts, the district court's refusal to countenance this delay and further postpone the recovery of two concededly innocent people for the injuries they suffered was an abuse of discretion.
It is well settled in this Circuit that the entry of a default judgment is left primarily to the discretion of the district court. Tozer v. Charles A. Krause Milling Co., 189 F.2d 242, 244 (3d Cir. 1951). As Justice Harlan explained in the parallel context of sanctions for failure to prosecute a claim, a trial court's discretion to dismiss a complaint is a power of "ancient origin" that
has generally been considered an "inherent power," governed not by rule or statute but by the control necesssarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.
Link v. Wabash Railroad Co., 370 U.S. 626, 629-31, 8 L. Ed. 2d 734, 82 S. Ct. 1386 (1962); see also Roadway Express, Inc. v. Piper, 447 U.S. 752, 765, 65 L. Ed. 2d 488, 100 S. Ct. 2455 (1980). This discretion is not without limits, however, and we have repeatedly stated our preference that cases be disposed of on the merits whenever practicable. United States v. $55,518.05 in U.S. Currency, No. 82-2758, slip op. at 6 (3d Cir. Feb. 21, 1983); Gross v. Stereo Component Systems Inc., 700 F.2d 120, 122 (3d Cir. 1983); Feliciano v. Reliant Tooling Co., 691 F.2d 653, 656 (3d Cir. 1982); Farnese v. Bagnasco, 687 F.2d 761, 764 (3d Cir. 1982).
Between the extremes of repeated contumacious conduct and innocent procedural error are the manifold instances of neglect and inadvertence that require trial courts to weigh the equities of the situation and the need for the efficacious resolution of controversies. The exercise of such judgment does not lend itself to a rigid formula or to a per se rule. Rather, in exercising its discretion, the trial court must consider three factors: 1) whether the plaintiff will be prejudiced if the default is lifted; 2) whether the defendant has a meritorious defense; and 3) whether the default was the result of the defendant's culpable misconduct. U.S. v. $55,518.05, supra at 6. These factors inform both the district court's initial determination regarding a default judgment as well as appellate review of that decision.
The threshold issue in opening a default judgment is whether a meritorious defense had been asserted. In the present case, Woma claims that the machine that injured Hritz may have been marketed directly in this country by its West German manufacturer, rather than through the customary distributor, Woma. Were this so, Woma asserts, it would have a defense to plaintiffs' claims, at least for purposes of opening the default judgment. Woma need not establish the actual liability of the manufacturer beyond doubt in its pleading; a meritorious defense is presumptively established when the "allegations of defendant's answer, if established on trial would constitute a complete defense to the action." Tozer, supra, 189 F.2d at 244.
For purposes of this appeal, therefore, we can assume that a defense to the complaint has been averred.*fn2
Plaintiffs filed suit on May 1, 1980, one day before the statute of limitations would have expired. In deciding whether plaintiffs had been prejudiced by defendant's conduct, the district court noted that, regardless of defendant's failure to answer the complaint, plaintiffs would have been time barred one day later from proceeding against any other party: "thus it might be argued that plaintiffs' own inaction for two years after the plaintiff husband's accident, and not Woma's failure to plead, precipitated this particular prejudice." The district court concluded that, "for the purposes of this motion, we assume the plaintiffs' problem with the statute of limitations is of their own making." Hritz v. Woma, No. 80-582, mem. op. at 4 (W.D. Pa., July 14, 1981) (emphasis added).
It is clear from the foregoing that the trial judge did not fully address the prejudice issue because he found the defendant's conduct to be so irresponsible as to preclude opening the default judgment. It was therefore unnecessary for the district judge to reach the question of prejudice. This is clearly reflected in the choice of words employed by him: "it might be argued" and "for the purposes of this motion, we assume. . . ." Even this assumption, it must be noted, must be judged against the delay occasioned by Woma's failure to answer the original complaint letter.
Thus in deciding the issue of prejudice, Woma's failure to answer the complaint must be viewed in the context of its failure over an extended period of time to answer any claim or correspondence from the plaintiffs. It is true that, as of the day after filing, Hritz may have been time barred against the West German manufacturer of the malfunctioning machine. However, the claim had been presented to Woma considerably more than one year before the suit was initiated, and Woma's participation in the sale or handling of the specified machine could have been quickly verified in the company's files. By failing to answer, Woma in effect forced plaintiffs to allege Woma's responsibility for the machine. Given Woma's conduct, it would have mattered little whether plaintiff filed suit one day or six months prior to the expiration of the statute of limitations; Woma's failure to answer any communication would have created a time bar to proceeding against ...