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Mendelsohn, Drucker, & Associates, Pc v. Titan Atlas Manufacturing, Inc.

United States District Court, Third Circuit

May 2, 2013

MENDELSOHN, DRUCKER, & ASSOCIATES, P.C., Plaintiff,
v.
TITAN ATLAS MANUFACTURING, INC., and JEREMY BLACKBURN, Defendants.

MEMORANDUM RE: DEFENDANT TITAN'S MOTION TO VACATE THE DEFAULT JUDGMENT

MICHAEL M. BAYLSON, District Judge.

I. INTRODUCTION

On January 15, 2013, the Court entered a default judgment against the corporate Defendant, [1] Titan Atlas Manufacturing, Inc. ("Titan"), for its failure to be represented by counsel. (ECF No. 64). On January 24, 2013, new counsel for Titan entered an appearance, (ECF No. 73), and filed a Motion to Vacate the Default Judgment (ECF No. 77). The Plaintiff, Mendelsohn, Drucker, & Associates, P.C. ("Mendelsohn"), responded to this motion (ECF No. 78) and Titan filed a reply (ECF No. 82). For the reasons set forth below, the Court will DENY Titan's motion.

II. FACTUAL & PROCEDURAL BACKGROUND

Plaintiff, a law firm, initiated this action against Titan, and its CEO, Jeremy Blackburn, on the basis that Titan's failure to pay Plaintiff for over $400, 000 in legal fees, and Blackburn's misrepresentations about Titan's ability to pay, constituted both breach of contract and fraud.

On February 3, 2011, Titan signed[2] an engagement letter to secure Plaintiff as its counsel for a complex patent action that was soon to be filed in a Virginia court. On November 23, 2011, after months of repeated requests for payment went unheeded, [3] Plaintiff moved to withdraw as Titan's counsel, which Titan opposed.[4] Emergency Mot. to Withdraw, Titan Atlas Mfg. Inc. v. Frank A. Sisk "Virginia Patent Case", No. 11-0012, (W.D. Va. Nov. 23, 2011), ECF No. 113. The Virginia court, which conducted an in camera review, found "good cause" to support Plaintiff's request. Order, "Virginia Patent Case", No. 11-0012, ECF No. 120. On December 5, 2011, the Virginia court granted Plaintiff's motion and ordered Titan to secure new counsel within 30 days. Id.

In January of 2012, the same month Plaintiff initiated the instant action in this Court, Titan entered an agreement with two law firms (Dunlap Weaver, LLC and Zito TLP) to represent Titan in its Virginia litigation. As with Plaintiff, however, these two firms were forced to withdraw when, after more than eight months of litigating the case, it became clear that Titan would not pay them for their representation per the terms of the parties' contractual agreement. After giving Titan "ample notice and opportunity to cure, " DunlapWeaver and Zito TLP filed their motion to withdraw on October 12, 2012. Emergency Mot. to Withdraw, "Virginia Patent Case", No. 11-0012, ECF No. 248. The Virginia court, which conducted an in camera review to assess the merits of the firms' assertions, found that Titan had "failed to pay its counsel fees" and was "in substantial breach of its agreement with counsel." Order, "Virginia Patent Case", No. 11-0012, ECF No. 288. On October 22, 2012, the Virginia court granted the firms' motion to withdraw and warned Plaintiff that it would "not permit any scheduling changes or delays solely to allow new counsel to appear for Titan." Id.

DunlapWeaver and Zito TLP were not the only law firms burned by Titan's failure to pay its substantial legal expenses in 2012. Obermayer Rebmann Maxwell & Hippel LLP ("Obermayer"), the law firm that initially represented Titan in the instant action, experienced the same fate as well. In March, after Titan was placed in default for failing to appear, plead, or otherwise defend, Titan retained Obermayer to represent it and moved for an extension of time to file a response to Plaintiff's Complaint (which the Court granted).[5] (ECF No. 20). Obermayer entered its appearance on March 16, 2012. (ECF No. 10). As with the other firms, Obermayer was forced to withdraw after accumulating significant, uncompensated expenses during the nearly 10 months it represented Titan. In its December 3, 2012 motion to withdraw, Obermayer noted that "the vast majority" of its "substantial" fees and costs had "gone unpaid for more than 120 days, " and that it had "informed Defendants multiple times... that it would be forced to seek leave to withdraw as counsel if the outstanding legal fees and costs were not paid." (ECF. No. 47).

On January 7, 2013, the Court held a hearing on Plaintiff's motion for a temporary restraining order, [6] which the Court granted. (ECF No. 57). A hearing was then scheduled for January 11 to address both Obermayer's motion to withdraw and Plaintiff's motion for a preliminary injunction. In scheduling the hearing on these motions, the Court warned Titan- both at the January 7 hearing and in a written Order issued the following day-that, if Titan did not pay its counsel, the Court might find it in default. At the January 7 hearing, the Court instructed Titan's attorney (Zachary Davis from Obermayer):

You ought to tell your client that we've done some research and it looks to me that if a corporation is unwilling to pay its counsel, then the judge is warranted in holding [it] in contempt. So, if that's where we are Friday, tell your client that if they haven't made arrangements for you to represent them-by arrangements, I mean paying you whatever they owe you so far and paying you to prepare for two days of hearing-that I may hold them in contempt or I may enter a default.... I'm going to put that in the order.

The written Order repeated this warning, stating: "If, by the time of [the] hearing, Defendant Titan has not made arrangements to pay current counsel, or retain other counsel, the Court may exercise its authority to grant the Motion to Withdraw and enter a default judgment against it." (ECF No. 57).

The Court's warnings went unheeded. At the January 11 hearing, Mr. Davis informed the Court that Titan was still refusing to pay any of the fees due under the parties' contractual agreement, and that Obermayer had "received no additional payment beyond the initial retainer." Upon hearing this, the Court reiterated to Titan, via its CEO Mr. Blackburn, that:

Under the law, the law of Pennsylvania, which governs this situation, Mr. Blackburn, a corporation must be represented by counsel. And the law allows a judge to enter a default, that is, to enter a finding of liability against a corporation if the corporation refuses to retain counsel to represent it. And the absence of funds is not an excuse. That's well-settled law. And as I made clear at the hearing on Monday-I assume Mr. Davis related this to you- if the Obermayer firm has not been paid, I have no authority to make them work for nothing, and they have a right to withdraw. And that would require me, as I understand the law, to enter a default against the corporation.

Blackburn told the Court that Titan "would love for [Obermayer] to stay in, " but that "financially we don't have the cash in the company to continue to pay their fees." Although Blackburn claimed Titan was exploring the possibility of hiring another law firm, he recognized that "a new firm would require an additional retainer and we'd have to go through that process again." Titan objected to Obermayer's motion to withdraw, therefore, "based on the fact that we don't want to get defaulted." As Blackburn noted, we'd "like to be able to continue to defend ourselves in this, but, you know, it's up to the court to decide."

The Court thereupon granted Obermayer's motion to withdraw and stated that, while it was not going to enter a default "right now, " it was still considering doing so. The Court proceeded to hold the hearing on Plaintiff's preliminary injunction motion, where Plaintiff argued that Titan was liquidating its assets in an attempt to become "judgment proof." To support this, Plaintiff introduced evidence documenting, inter alia, that: (1) Titan had a contractual obligation to pay Plaintiff for its legal services; (2) Titan failed to pay for over 90 percent of the legal expenses Plaintiff incurred; (3) Blackburn resorted to fraudulent conduct to induce Plaintiff to postpone withdrawing at a critical juncture in the case;[7] and (4) Blackburn's current responsibility, as Titan's last remaining ...


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