Johnson v. Allied Interstate, Inc.

[David A. Szwak]

Johnson v. Allied Interstate, Inc.,
Not Reported in F.Supp.2d, 2002 WL 1906024, D.Minn., Aug 19, 2002

United States District Court, D. Minnesota.
Laura JOHNSON, Plaintiff,
v.
ALLIED INTERSTATE, INC. and Betty "Doe," Individually, Defendants.
No. Civ. 02-910 (RHKAJB).
Aug. 19, 2002.

MEMORANDUM OPINION AND ORDER

KYLE, J.
*1 This matter arises out of Defendant Allied Interstate, Inc.'s ("Allied") efforts to collect a debt allegedly owed by Plaintiff Laura Johnson to Ford Motor Company ("Ford"). According to Johnson, the alleged debt appeared on her credit report at a time when she was trying to buy a home. While Johnson was attempting to resolve the dispute with Ford, Ford assigned the purported obligation to Allied, a collection agency. Johnson spoke to an employee of Allied, Betty "Doe," regarding the alleged debt on June 6, 2001. Johnson complains that, in the course of that conversation, the Allied employee was rude, demeaning, and uncooperative, threatening that Johnson might lose the house on which she had just closed. Johnson asserts that she was reduced to tears during that conversation and suffered severe emotional distress. This action was commenced April 30, 2002.
Before the Court is the Plaintiff's Motion for a Default Judgment against Allied. For the reasons set forth below, the Court will deny the Motion for Default Judgment against Allied.

Background
A Summons in the above-captioned matter was issued on April 30, 2002. (Doc. No. 1) On May 6, 2002, a copy of the Summons and Complaint was served on Allied at its offices in Palm Beach County, Florida, by handing the documents to an acting managing agent. [FN1] (Slade Aff. Ex. B.) Because no officer of the corporation was present at the Florida office, Johnson caused a second copy of the Summons and Complaint to be served on Allied on May 7, 2002, at its offices in Saint Louis Park, Hennepin County, Minnesota. [FN2] (Slade Aff. Ex. C.)


FN1. According to the process server, the only Florida-based officer of the corporation, Jack Klein, was out of town on that day. (Slade Aff. Ex. B.)



FN2. Counsel for Johnson received a call from John Trautman of the Saint Louis Park, Minnesota office Allied Interstate on May 7, 2002. Trautman asked counsel to call him back. Two days later, counsel spoke with Troutman and provided him with Allied's file reference number and Johnson's social security number. (Slade Aff. ¶¶ 5-6).


On May 13, 2002, when Allied's Director of Compliance and Assistant Secretary, Jack Klein, returned to the company's Florida office after a one-week absence, he reviewed a facsimile transmission that John Trautman, an employee in the company's Saint Louis Park office, had sent him on May 9, 2002. (Klein Aff. ¶ 3.) According to Klein, it is his customary practice upon receiving a summons and complaint to review the pleading and any Allied records pertaining to the case and then forward both the pleading and the company documents to general counsel. (Id. ¶ 4.) On May 14 or May 15, Klein arranged to have the materials regarding Johnson's Complaint forwarded to general counsel. (Id.) Klein avers that he did not have occasion to discuss Johnson's case with general counsel either before or after sending the materials to him; therefore, Klein was unaware that general counsel had not received them until he learned that Johnson had brought a motion for a default judgment. (Id. ¶ 5.)
On July 8, 2002, counsel for Johnson served the Motion for Default Judgment and supporting memorandum and affidavits on Allied by mailing them to Allied's Saint Louis Park office. On July 30, 2002, Allied filed and served an Answer. (Doc. No. 8) Two days later, Allied also filed and served a memorandum and supporting affidavits in response to the default judgment motion. (Doc. No. 9) Johnson filed a reply brief on August 7, 2002. (Doc. No. 12)

Analysis
*2 Rule 55(a) of the Federal Rules of Civil Procedure provides that, if a party against whom affirmative relief is sought fails to plead or otherwise defend as called for by the rules, the Clerk of Court shall enter the party's default once that fact is made to appear "by affidavit or otherwise." Fed.R.Civ.P. 55(a). A judgment by default may be entered after application therefore to the Court has been made. Fed.R.Civ.P. 55(b)(2). "Default judgment is appropriate where the party against whom the judgment is sought has engaged in willful violations of court rules, contumacious conduct, or intentional delays. However, default judgment is not an appropriate sanction for a marginal failure to comply with time requirements." Forsythe v. Hales, 255 F.3d 487, 490 (8th Cir.2001) (internal citations and quotations omitted). Whether to grant or deny a motion for a default judgment is within the Court's discretion. See Harris v. St. Louis Police Dep't, 164 F.3d 1085, 1086 (8th Cir.1998).
This action was commenced on April 30, 2002, see Fed.R.Civ.P. 3 (civil action commenced by filing a complaint with the court), Allied was served with the Summons and Complaint no later than May 7, 2002, and Allied was sixty-four days late in answering the Complaint. [FN3] See Fed.R.Civ.P. 12(a)(1)(A) (directing a defendant to serve an answer within twenty days after being served with a summons and complaint). "When a party 'has failed to plead or otherwise defend' against a pleading listed in Rule 7(a), entry of default under Rule 55(a) must precede grant of a default judgment under Rule 55(b). Johnson v. Dayton Elec. Mfg. Co., 140 F.3d 781, 783 (8th Cir.1998). Although the entry of a default against Allied would have been warranted as of the date Johnson brought her motion for default judgment, no default was entered on the docket pursuant to Rule 55(a), and the Court cannot ignore the fact that an Answer has now been filed and Allied is prepared to defend the lawsuit on the merits.


FN3. Johnson's argument that Allied's delay is inexcusable because it knew in late 2001 that Johnson intended to bring suit (based upon a cease and desist letter that was accompanied by a draft complaint) is unpersuasive. A defendant's duty to answer arises only after a lawsuit is
actually commenced and after the defendant has been properly served with a summons and complaint under the Federal Rules.


Even if a default had been entered by the Clerk of Court after Johnson filed her motion for default judgment, the Court would have ample grounds for vacating it. As the Eighth Circuit has explained,
[e]ntry of default raises no protectable expectation that a default judgment will follow, and a party's belief in the integrity of the system must include, to be reasonable, knowledge that a system of integrity makes exceptions "for good cause shown." As numerous decisions make clear, prejudice may not be found from delay alone or from the fact that the defaulting party will be permitted to defend on the merits.... Setting aside a default must prejudice plaintiff in a more concrete way, such as loss of evidence, increased difficulties in discovery, or greater opportunities for fraud and collusion.
Dayton Elec. Mfg. Co., 140 F.3d at 785 (emphasis added).
The Court concludes that Allied's failure to answer the Complaint in a timely fashion was not a willful violation of the rules and was not done in bad faith. The record establishes that a mis-communication occurred within Allied's organization regarding this lawsuit; furthermore, Allied represents to the Court that such mis-communication is a rare occurrence. The delay relates only to the initial pleading; the Court expects Allied's counsel to comply with all future deadlines in this case, either as established by the Court or as set forth in the Federal Rules and Local Rules. The Answer articulates a defense to the Complaint in that it disputes the Plaintiff's account of the underlying telephone conversation between Johnson and Betty "Doe." Finally, Johnson has demonstrated no prejudice to her, as a result of Allied's delay, that rises to the level discussed in the Dayton Electric case.

Conclusion
*3 Based on the foregoing, and all of the files, records and proceedings herein, IT IS ORDERED that Plaintiff Laura Johnson's Motion for Default Judgment against Allied Interstate, Inc. (Doc. No. 3) is DENIED.
D.Minn.,2002.
Johnson v. Allied Interstate, Inc.
Not Reported in F.Supp.2d, 2002 WL 1906024 (D.Minn.)