Opinion
No. 99 C 7241.
March 23, 2001.
ORDER
Professional Breaktime Alternatives, Inc. ("PBA"), Richard Ross, and Gail Ross moved to vacate a $306,533.95 judgment entered against them on February 2, 2000. PBA filed for bankruptcy and has withdrawn its motion to vacate. For the reasons set forth herein, the motion of Richard Ross and Gail Ross is denied.
This case, alleging non-payment of an equipment lease by PBA and breach of guarantees by the other defendants, was filed on November 5, 1999. Service was effected on Sunbelt on November 16 and on the other defendants on November 23. On February 2, 2000, no appearance or answer having been filed as far as the court was aware, plaintiff moved for and was granted a default judgment. However, on December 13, 1999, within the time to answer or appear, the defendants had faxed a letter to the court denying that PBA was in default, asserting that PBA was ahead of its payment schedule and contending that plaintiff was improperly charging PBA sales tax and seeking to collect on the lease more than the contract allowed. As far as the court can determine, it was unaware of this letter at the time of the motion for a default judgment. The letter was also faxed to counsel for the plaintiff who did not advert to it in the motion for a default judgment. It appears that during the time between the filing of the complaint and the motion for default judgment, the parties were in contact relating to the dispute.
Defendants claim that they called the court's chambers and were instructed that they could fax their response to the complaint; while the court has expressed skepticism that anyone on its staff would have told defendants that a faxed letter would suffice as an answer, it is not impossible that defendants were told that they could fax a copy of whatever they filed to chambers, given that their time to answer was running out.
Rule 55(b)(2) requires that if a party against whom a judgment of default is sought has appeared in the action, the party shall be served with written notice of the application. Before addressing the disputed issue of whether written notice was adequately served, it is first necessary to decide whether defendant's letter to the court should be deemed an appearance. The Seventh Circuit strictly applies the requirement of an appearance, rejecting the view of some courts that mere contact between the parties making clear that the defendant disputes the complaint is sufficient to entitle the defendant to written notice of the motion for a default judgment. See Zuelzke Tool Engineering Co., Inc. v. Anderson Die Castings, Inc., 925 F.2d 226, 230 (7th Cir. 1991). Compare Key Bank of Maine v. Tablecloth Textile Company Corp., 74 F.3d 349, 353 (1st Cir. 1996). Even in the Seventh Circuit, however, the court may find that a defendant has appeared when the defendant has made "some presentation or submission to the court." Zuelzke, 925 F.2d at 230. Defendants' faxed letter to the court, while not in compliance with the court's rules for appearing or answering, was sufficient, in the court's view, to put the court and plaintiff on notice that defendants wished to contest the complaint and to entitle the defendants to written notice of the motion for a default judgment.
The court recognizes, as plaintiff has pointed out, that the letter, signed by Gail Ross, could not technically serve as an appearance by PBA, since Ross is not a lawyer. It could certainly, however, serve as an appearance for Gail Ross herself and, under all the circumstances, the court, had it been aware of the letter, would have allowed it to serve as a sufficient appearance for Richard Ross.
Plaintiff contends that it gave the defendants adequate written notice of its motion for a default judgment. Both Gail Ross and Richard Ross, however, have submitted affidavits asserting that neither they nor PBA received notice of the motion. While there is no question that plaintiff sent notices to PBA and the Rosses, the addresses to which the notices were sent contained errors. The notice to PBA was sent to 3211 So. Justin Road, rather than 3211 B. Justin Road. (Pl. Resp., Exh. 5.) The notices to the Rosses were sent to zip code 75067, rather than to the correct zip code, 75077. (Id.)
The parties have argued at considerable length as to whether the mistakes in the addresses to which the notices were sent were sufficiently serious to have caused the letters to miscarry. Where an address is erroneous in a minor way, the normal presumption of receipt of a properly mailed and properly addressed letter is weakened. See In re Longardner Assocs., Inc., 855 F.2d 455, 460 (7th Cir. 1988); In re Petroleum Prod. Mgmt., Inc., 240 B.R. 407, 412 (D.Kan. 1999). Further, at least with respect to PBA, plaintiff has offered its counsel's affidavit averring that this incorrect address worked for some past communications, and this is some evidence of receipt of the communication in question. Moreover, the incorrect address for PBA utilized by plaintiff is the address set forth on the lease agreement (unfortunately, the copy of the lease provided to the court is reduced to the extent that the court is unable to determine whether the lease specifies a notice address for PBA). The record is silent as to the effect of the incorrect zip codes on the likelihood that the notices addressed to the Rosses reached them, although if notice reached PBA, Gail Ross would presumably have been aware of it. In order to resolve this issue definitively, an evidentiary hearing would be necessary.
As the court sees it, however, this factual dispute need not be resolved, because there is no dispute that PBA and Gail Ross learned of the judgment shortly after it was entered through a telephone conversation with plaintiff's president. (Aff. of Gail Ross, ¶ 12, attach. to Mem. in Sup. of Mot. to Vac. Def. Judg.). The court will assume, therefore, as contended by the Rosses, that they received no notice of the application for the default prior to its entry, but that they learned of the default sometime in early or mid-February. Although there is some decisional law suggesting that when notice is required under Rule 55(b)(2) and it is not given, any judgment entered is void, the better approach, in this court's judgment, is to consider the criteria normally applicable to a Rule 60 motion. See Martha Stewart Living Omnimedia, LLC v. Beers Flower Shop, Inc., 1998 WL 646648, *4 (S.D.N.Y. Sept. 21, 1998).
Rule 60(b)(1) permits the court to vacate a default judgment if requested within a year of the judgment's entry if the default was due to "mistake, inadvertence, surprise, or excusable neglect." The moving party has the burden of showing (1) good cause for the default; (2) quick action to correct it; and (3) the existence of a meritorious defense to the complaint. Jones v. Phipps, 39 F.3d 158, 162 (7th Cir. 1994). Other factors which the court should consider are the danger of prejudice to the defendant, the length of the delay and its potential impact on judicial proceedings, the reasons for the delay, including whether it was within the movant's reasonable control and whether the movant acted in good faith. Robb v. Norfolk Western Ry., 122 F.3d 354, 358 (7th Cir. 1997).
As the court assumes the facts to have been, defendants had good cause for their default. They were in contact with plaintiff attempting to resolve the dispute and, before the time their answer was due, faxed a letter to the court and opposing counsel making clear their intent to contest the plaintiff's claims. They received no advance notice of the motion for a default judgment, even though they were entitled to notice. Further, it appears that defendants may have a meritorious defense to this action. The court recognizes that the merits of defendants' defenses are disputed, and some of the matters raised in defense appear far-fetched. Still, defendants have made substantial payments on the lease, the judgment appears to be for more than the value of the leased equipment and defendants are, and have consistently been, disputing the claim that PBA was in default. The issue, then, is whether defendants have shown excusable neglect and, as that requirement applies in the context of this case, quick action to correct the default.
Within a few days of the entry of the default judgment, Gail Ross was informed of it by plaintiff's president in a telephone conversation. According to Gail Ross, she thereafter continued to attempt to resolve the dispute with plaintiff, although the court notes that plaintiff asserts that many of its calls to defendants during this time period were ignored. Then, on May 1, 2000, plaintiff served citation depositions on defendants, followed by a bank garnishment on May 18 and a stock levy in early June. Not until June 9, approximately four months after Gail Ross was informed that the default judgment had been entered, did defendants, through counsel, move to vacate the default. Defendants' explanations of why they did nothing in response to being notified that a judgment had been entered, until such time as they became aware of plaintiff's collection efforts, was that they had been in negotiations with the plaintiff to settle the case and that a lawyer employed by a prepaid legal services provider told them that a judgment was not final for a year.
Numerous cases hold that a four month delay between learning of a default judgment and moving to vacate it, in the absence of some good explanation for the delay, fails the "quick action" requirement. See, e.g., Jones v. Phipps, 39 F.3d 158, 165 (7th Cir. 1994); Zuelzke Tool Eng. Co., Inc. v. Anderson Die Castings, Inc., 925 F.2d 226, 230 (7th Cir. 1991); Leadership Council for Metro. Open Communities, Inc. v. Quality Realty, Inc., 1999 WL 1046431, *1 (N.D.Ill. Nov. 10, 1999); Alonzi v. Budget Constr. Co., 1994 WL 445446, *2 (N.D.Ill. Aug. 12, 1994). The Rosses explain that they delayed action because they were in settlement negotiations with the plaintiff. The Seventh Circuit, however, has held that participation in settlement negotiations is no excuse for inaction or delay in seeking to vacate default judgment. See Zuelzke, 925 F.2d at 229. The Rosses also assert that they failed to take action because a prepaid legal services provider told them that the judgment would not be final for a year. But they have not provided competent evidence of this conversation, either in the form of an affidavit of the attorney involved (whom they have identified) or their own affidavit. If a party had diligently attempted to obtain legal advice and obtained incorrect legal advice, that might be sufficient to show a good faith reliance on legal advice and cause the court to give serious consideration to a tardy motion to vacate, but at a minimum, the court would have to be persuaded, with proof, that the party adequately explained the issue to a lawyer and that the lawyer gave her incorrect advice. Defendants have not provided sufficient evidence to show that this occurred. Defendants' inaction is particularly incomprehensible in view of the fact that they had gone to the trouble of learning the court's fax number and had sent their December 13 letter; surely, once notified that a judgment had been entered against them, it was unreasonable for them to do nothing.
The court is not unsympathetic to the situation of the Rosses. It appears that PBA was in financial difficulty and presumably reluctant to spend money to hire a lawyer. The Rosses may well have a meritorious defense to the claim. But there are two sides to this dispute, and both sides are entitled to fair consideration of this motion under the relevant legal standards. Resolving all the disputes about misdirected notices and misdirected letters in the Rosses' favor, it is still undisputed that they had learned that a judgment had been entered against them in February 2000, within a few days after it was entered. They took no responsible action to deal with that judgment until approximately four months later, after plaintiff instituted collection proceedings. That they had the wherewithal to seek legal counsel is obvious from the fact that eventually they did so. The Rosses' Motion to Vacate Judgment must be denied.