United States District Court, M.D. Pennsylvania
June 13, 2005.
UNITED STATES OF AMERICA ex rel. B.K. ENGINEERS & CONSTRUCTORS, INC., Plaintiff
FEDERAL INSURANCE COMPANY, Defendant.
The opinion of the court was delivered by: YVETTE KANE, District Judge
MEMORANDUM AND ORDER
THE PROCEDURAL BACKGROUND OF THIS ORDER IS AS FOLLOWS:
The above-captioned action was commenced by complaint filed
December 18, 2003. Defendant was served with a summons on July 1,
2004. (Doc. No. 4.) When, after more than five months had passed
without Defendant Federal Insurance Company filing an to answer
the complaint, entering an appearance, assisting in the
preparation of a joint case management plan, or communicating in
any way with the Court regarding any negotiations or other
discussions with Plaintiff regarding this dispute, Plaintiff
moved this Court to enter default against Defendant. On November
22, 2003, the Clerk of Court entered default and the Court
entered judgment on behalf of Plaintiff in the amount of
$274,537.86. (Doc. Nos. 12, 13.) On December 3, 2004, Plaintiff
filed a motion seeking attorneys' fees and costs pursuant to
Rules 16(f) and 54(d)(2).
Several weeks later, Defendant's counsel entered its
appearance.*fn1 (Doc. No. 15.) On December 14, 2004, the parties submitted a stipulation to afford
Defendant a period of time to contest the entry of default
judgment and to otherwise "attempt to negotiate an amicable
resolution of this matter." (Doc. No. 16.) By order dated
December 15, 2004, the Court approved the terms of the
stipulation. (Doc. No. 17.) On January 10, 2005, Defendant filed
a motion to set aside the entry of default judgment and seeking
leave to file an answer to the complaint. (Doc. No. 18.)
Thereafter, Plaintiff moved to strike Defendant's motion to set
aside the default. (Doc. No. 23.)
In summary, the following motions each of which of which were
filed after entry of default in this case have been fully
briefed and are ripe for disposition: (1) Plaintiff's motion for
attorneys' fees and costs (Doc. No. 14); (2) Defendant's motion
to set aside the entry of default judgment and requesting leave
to answer the complaint (Doc. No. 18); and (3) Plaintiff's motion
to strike (Doc. No. 23). On March 11, 2005, the Court held a
telephone conference with counsel for each party to discuss the
pending motions and the current posture of the litigation.
I. Factual Background
Plaintiff asserts causes of action against Defendant for breach
of contract and quantum meruit arising out of Defendant's alleged
failure to pay Plaintiff under the terms of a payment bond
provided by Defendant, as surety, and Eichelberger Construction,
Inc. ("ECI"), as principal on a construction project for the
Defense Distribution Center ("DDC") at the New Cumberland Army
Depot. Plaintiff was one of ECI's subcontractor's on the project.
In particular, ECI performed as the general prime contractor on
the Underground Heat Distribution Project ("Project") for the
Army Depot. (Doc. No. 18, Ex. 3, Aff. of Eichelberger, ¶ 2)
("Eichelberger Aff."). ECI entered into a subcontract agreement
with Plaintiff, by which Plaintiff agreed to furnish and install
the underground heat distribution system for the Project. (Eichelberger Aff., Ex. A.) Pursuant to the
subcontract, ECI would make payments to Plaintiff after receiving
payment for the work from the DDC. (Id., ¶ 1.) ECI did not
remit any payment to Plaintiff when DDC did not pay ECI for the
services rendered. (Eichelberger Aff., ¶ 5.)
Over the course of the project, disputes arose between
Plaintiff and DDC regarding the scope and appropriateness of
various services Plaintiff allegedly provided for the project.
(Eichelberger Aff., Ex. B.) Plaintiff claimed that it incurred
certain expenses for additional work that it purportedly
performed on the Project. These claims form the basis for
Plaintiff's complaint against Defendant. It is apparently
undisputed that DDC has not paid Plaintiff for the additional
claims, and DDC may in fact have questioned the appropriateness
of the amounts Plaintiff claimed for the work. (Id.)
A. Defendant's Motion to Set Aside Default
Defendant moves the Court to set aside the default judgment
entered in Plaintiff's favor, and for leave to file an answer to
the complaint, claiming that (1) lifting the default would not
prejudice Plaintiff; (2) Defendant has meritorious defenses to
Plaintiff's claims; and (3) Defendant's conduct prior to the
entry of default wa "excusable as a matter of law." (Doc. No. 19,
at 1.) Plaintiff generally disputes each of these arguments.
Rule 55(c) of the Federal Rules of Civil Procedure provides
that "[f]or good cause shown the court may set aside an entry of
default and, if a judgment by default has been entered, may
likewise set it aside in accordance with Rule 60(b)."
Fed.R.Civ.P. 55(c). Rule 60(b) authorizes a court to set aside default
judgment "upon such terms as are just" for "mistake,
inadvertence, surprise or excusable neglect" or "for any other
reason justifying relief from the operation of the judgment."
In considering whether to exercise discretion in vacating a
default under Rule 55(c), courts are to consider whether vacating
the default will cause prejudice to the plaintiff, whether the
defendant has proffered a meritorious defense, and the
defendant's culpability in allowing the default to be entered.
Farnese v. Bagnasco, 687 F.2d 761, 764 (3d Cir. 1982);
Feliciano v. Reliant Tooling Co., LTD., 691 F.2d 653, 656 (3d
Cir. 1982) (holding that three factors enumerated in Farnese
applicable where default judgment has been entered).*fn2 The
Third Circuit has emphasized that it does not favor defaults and
that "in a close case doubts should be resolved in favor of
setting aside the default and obtaining a decision on the
merits." Farese, 687 F.2d at 764.
In order to establish prejudice sufficient to preclude a court
from vacating a default judgment, a plaintiff must show its
"ability to pursue [its] claim has been hindered since the entry
of the default judgment by loss of evidence or otherwise."
Feliciano, 691 F.2d at 657; see also Emcasco Ins. Co. v.
Sambrick, 834 F.2d 71, 74 (3d Cir. 1987) (loss of relevant
evidence may establish prejudice). In this case, the Court finds
insufficient evidence to support a finding that Plaintiff will be
unduly prejudiced by setting aside the default judgment entered
in this case. Indeed, in Plaintiff's response to Defendant's
motion to set aside the judgment, Plaintiff does not offer any
substantial argument to support its claim that it would be
prejudiced if the judgment is vacated. Instead, Plaintiff merely
claims that to "allow a defendant with such unclean hands to set aside a default judgment
under the equitable principles of Rule 60(b) would have the
effect of awarding FIC a second, unwarranted bite at the apple."
(Doc. No. 24, at 13-14.) This assertion is irrelevant to the
question of whether Plaintiff faces prejudice if the default
judgment is vacated. The Court does not find that Defendant
delayed unreasonably in moving the Court to vacate the default,
and there is no indication that Plaintiff's ability to litigate
this action has been compromised.*fn3 Finally, the Court
notes that Defendant is a member of the Chubb Group of Insurance
Companies, and the Court therefore does not find cause for
concern over Plaintiff's ability to collect upon a judgment in
the event Plaintiff prevails on the merits of this case.
With respect to the second consideration, the Court finds that
Defendant has proffered meritorious defenses to Plaintiff's
claims. A meritorious defense is one which, if proven at trial,
will bar plaintiff's recovery. Emcasco, 834 F.2d at 74. The
defendant is not required to prove that the defense proffered
will necessarily prevail at trial, but is merely required to show
that it has a defense to the action which as merit on its face.
Defendant contends that the payment bond it issued in this case
is governed by the Miller Act, 40 U.S.C. § 3131 et seq. The
Miller Act requires claimants to file all payment bond claims
within "one year after the day on which the last of the labor was
performed or material was supplied." 40 U.S.C. § 3133(b)(4).
Defendant has pointed the Court to cases holding that the failure
to bring an action against a surety within the one-year limitations period exempts the
surety from liability. See United States. ex rel. Flynn's
Camden Elec. Supply Co. v. Home Indem. Ins. Co.,
246 F. Supp. 27, 30 (E.D. Pa. 1965) (citing United States ex rel. Use of Soda
v. Montgomery, 253 F.2d 509 (3d Cir. 1953)). Defendant has
further argued that the majority of courts have held that
"remedial or corrective work or materials, or inspection of work
already completed, falls outside the meaning of `labor' or
`materials' under Section 270b(b)."*fn4 United States ex
rel. Interstate Mech. Contractors, Inc. v. Int'l Fidelity Ins.
Co., 200 F.3d 456, 460 (6th Cir. 2000); see also United
States ex rel. Billows Elec. Supply Co. v. E.J.T. Constr. Co.,
Inc., 517 F. Supp. 1178, 1181 (E.D. Pa. 1981), aff'd,
688 F.2d 827 (3d Cir. 1982), cert. denied, 459 U.S. 856 (1982).
Accordingly, Defendant argues that Plaintiff's alleged
performance of "additional work" does not toll the Miller Act's
one-year statute of limitations and it should be exempt Defendant
from liability for Plaintiff's claims under the payment bond.
Additionally, Defendant claims that it is entitled to assert any
defenses available to its principal, and further contends that
the need for an accounting constitutes a meritorious defense for
the purposes of vacating a default judgment. NuMed
Rehabilitation, Inc. v. TNS Nursing Homes of Pa.,
187 F.R.D. 222, 224 (E.D. Pa. 1999). On the basis of this proffer, the Court
finds that Defendant has adequately demonstrated the existence of
meritorious defenses to the action.
Finally, the Court must evaluate Defendant's own culpability in
allowing the default judgment to be entered in this case. Courts
have held that only willful or "flagrant bad faith" conduct is
sufficient to preclude setting aside a default judgment.
Emcasco, 834 F.2d at 75 (citations omitted) (holding that defendant's inexcusable neglect and delinquency did not
constitute "flagrant bad faith" necessary to deny setting aside
default). Defendant asserts that its conduct in this case was
neither willful nor in flagrant bad faith.
In support of this position, Defendant notes that it took
initiative to advise Plaintiff's initial counsel, Powell
Trachtman Logan Carrle & Bowman LLP ("Powell Trachtman"),
regarding an "obvious conflict of interest" posed by the firm's
representation of Plaintiff, as well as its defense that the
Miller Act's statute of limitations barred Plaintiff's claims.
(Doc. No. 18, Ex. 2, Aff. of Ellen M. Cavallaro, ¶ 6) ("Cavallaro
Aff."). According to Ellen Cavallaro, Defendant's in-house
counsel, Powell Trachtman informed Defendant "that it need not
file any response to the Complaint." (Id., ¶ 10.) Aside from
attorney Cavallaro's representation, Defendant has provided no
documentation to support its claim that Plaintiff's counsel
agreed to an open-ended extension of time to answer or otherwise
respond to the complaint in this case. Plaintiff's substitute
counsel, Susan M. Zeamer of Smigel, Anderson & Sacks, has
submitted an affidavit in which she attests that she was not
advised of an alleged extension to answer the complaint until
Defendant's current outside counsel entered its appearance in
December 2004. (Doc. No. 24, Ex. A, Aff. of Susan M. Zeamer, ¶¶
10, 11) ("Zeamer Aff."). Attorney Zeamer found no documentation
regarding the alleged extension, and attests that attorney Kelly
Decker of Powell Trachtman "unequivocally denied that an
extension had been offered, requested, or granted." (Id., ¶¶
12, 13-14.) Moreover, attorney Decker allegedly informed attorney
Zeamer that had Powell Trachtman agreed to an extension, its
terms would have been memorialized in writing. (Id., ¶ 15.)
Finally, attorney Zeamer attested that Defendant at no time
sought to renew or confirm the purported extension with
Plaintiff's substitute counsel. (Id., ¶ 16.) According to
attorney Cavallaro, Plaintiff's counsel never advised her that it would request entry of default
judgment, and that she learned about such action only after
Plaintiff filed its motion. (Cavallaro Aff., ¶ 20-21.)
Although the parties clearly disagree about the procedural
history of this case, and about what agreements may or may not
have been entered into regarding Defendant's obligation to answer
or otherwise respond to the complaint and participate even
minimally in the pretrial litigation, the Court cannot find that
Defendant's conduct was willful or in flagrant bad faith.
Defendant clearly was negligent in failing to memorialize its
purported agreements with Plaintiff's counsel, and in seemingly
disregarding its obligation to, at minimum, notice its appearance
in the litigation. The Court finds that by failing to comply with
the most basic obligations of civil procedure (including, without
limitation, to participate in preparing a joint case management
plan), or to document alleged agreements to suspend or disregard
such obligations, Defendant has contributed substantially and
unnecessarily to the current posture of this case.
Nevertheless, the Court does not conclude that Defendant's
inattention to this matter constitutes the sort of willful or
flagrant conduct necessary to preclude vacation of the default
For the foregoing reasons, the Court will grant Defendant's
motion to set aside the default judgment and will grant Defendant
leave to answer the complaint. Accordingly, Plaintiff's motion to
strike (Doc. No. 23) will be denied as moot.
B. Plaintiff's Motion for Attorneys' Fees and Costs
Plaintiff has moved the Court to sanction Defendant with fees
and costs pursuant to Rules 16(f) and 54(d)(2) of the Federal
Rules of Civil Procedure for "frivolously requiring this
litigation to be brought and then failing to defend, including
its failure to adhere to this Court's Order setting the scheduling conference and setting a due date for the Joint Case
Management Plan[.]" (Doc. No. 21, at 4.) Defendant objects to
this request, contending that it has committed no act or omission
sufficient to justify sanctions, and further alleging that it is
Plaintiff that has violated Local Rule 16.3 and caused
unnecessary delay in this litigation.
Rule 16(f) provides as follows:
If a party or party's attorney fails to obey a
scheduling or pretrial order, or if no appearance is
made on behalf of a party at a scheduling or pretrial
conference, or if a party or party's attorney is
substantially unprepared to participate in the
conference, or if a party or party's attorney fails
to participate in good faith, the judge, upon motion
or the judge's own initiative, may make such orders
with regard thereto as are just, and among others any
of the orders provided in Rule 37(b)(2)(B), (C), D).
In lieu of or in addition to any other sanction, the
judge shall require the party or the attorney
representing the party or both to pay the reasonable
expenses incurred because of any noncompliance with
this rule, including attorney's fees, unless the
judge finds that the noncompliance was substantially
justified or that other circumstances make an award
of expenses unjust.
Fed.R.Civ.P. 16(f). Attorneys' fees imposed as a sanction
under Rule 16(f) are "limited to those fees incurred as a result
of the Rule violation." Chambers v. NASCO, Inc., 501 U.S. 32
43 n. 8 (1991). Where a court finds that Rule 16(f) has been
violated, the court "must award fees." Id.
Notwithstanding the dilatoriness Plaintiff's initial counsel
exhibited with respect to this case prior to withdrawing in the
fall of 2004, the Court concludes that Defendant unreasonably
failed to take any action with respect to its obligation to
assist in the preparation of a joint case management plan.
Defendant's in-house counsel, Ellen Caravallo, complains that no
one contacted her about preparing a case management plan.
(Cavallaro Aff., ¶ 18.) However, it appears undisputed that
attorney Caravallo was aware of an impending joint case management
deadline and scheduling conference as early as November 2, 2004,
as she concurred in Plaintiff's request to extend these
deadlines. (Doc. No. 7; Caravallo Aff., ¶ 14.) It is difficult to
understand how attorney Caravallo can reasonably complain that
she was entirely unaware of Defendant's obligations to
participate in preparing a case management plan when she
concurred in seeking an extension of deadlines associated with
this obligation and was provided a copy of Plaintiff's motion for
a continuance. Furthermore, attorney Caravallo received
Plaintiff's proposed case management plan (which Plaintiff
prepared without Defendant's assistance) on November 17, 2004.
(Caravallo Aff., ¶ 17.) Nothing in attorney Caravallo's affidavit
suggests that she took any action whatsoever after receiving this
document. Instead, attorney Caravallo complains that she was not
contacted regarding various pretrial obligations:
26. No one ever contacted me to discuss a proposed
discovery plan for this case.
27. No one ever contacted me to discuss any initial
disclosures for discovery for this case.
28. No one ever contacted me to request that Federal
file any response to the complaint.
29. No one ever indicated that B.K. Engineers would
try to enter a default judgment against Federal.
(Id., ¶¶ 26-29.) Attorney Caravallo's contention that she was
never contacted regarding these matters is contradicted by
attorney Zeamer's testimony that she attempted to call attorney
Caravallo subsequent to filing the motion to continue the case
management deadlines, but that her calls were neither received
(Zeamer Aff., ¶ 5.) On the basis of these
conflicting representations, together with the uncontroverted fact that attorney Caravallo was
made aware of the case management deadlines and the parties'
joint obligations in connection therewith, the Court finds that
Defendant's failure to participate to be seriously negligent and
grounds for sanctions under Rule 16(f). To the extent Plaintiff
seeks additional costs pursuant to Rule 54(d)(2), the Court finds
that request unwarranted and it is summarily denied. An
appropriate order follows this opinion. III. Order
AND NOW, this 13th day of June 2005, for the reasons set
forth in the within memorandum, IT IS HEREBY ORDERED THAT:
1. Defendant's Motion to Set Aside Default Judgment and for
Leave to File an Answer to the Complaint (Doc. No. 18) is
2. Plaintiff's Motion to Strike (Doc. No. 23) is DENIED.
3. Plaintiff's First Motion for Attorneys' Fees and Costs
Pursuant to Rules 16(f) and 54(d)(2) (Doc. No. 14) is GRANTED
in part. The Court finds that Defendant's failure to participate
in the preparation of a joint case management plan as ordered by
this Court on October 7, 2004 and on November 3, 2004 to be
sanctionable pursuant to Rule 16(f) of the Federal Rules of Civil
Procedure. Within twenty days from the date of this Order,
Plaintiff shall file with the Court and serve upon Defendant an
affidavit of the costs (including attorneys' fees) incurred in
the preparation of its proposed case management plan filed with
the Court on November 17, 2004. Thereafter, Defendant shall file
any objections to such costs within ten days from the date on
which such costs are filed. After the Court has reviewed
Plaintiff's affidavit of costs and Defendant's objections (if
any) thereto, the Court will direct Defendant to pay Plaintiff
such sanctions as the Court finds appropriate. To the extent
Plaintiff seeks costs under Rule 54(d)(2), that request is