Fingerhut Corp. v. Ackra Direct ( 1996 )

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No. 95-2463
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Fingerhut Corp., *
*
Appellee, * Appeal from the United States
* District Court for the
v. * District of Minnesota.
*
Ackra Direct Marketing *
Corp. and Michael *
Ackerman, individually, *
*
Appellants. *
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Submitted: December 14, 1995
Filed: June 26, 1996
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Before MCMILLIAN and BEAM, Circuit Judges and PERRY, District Judge.*
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PERRY, District Judge.
Ackra Direct Marketing Corp. and Michael Ackerman appeal the district
court's1 entry of default judgment. We affirm.
I. BACKGROUND
Appellee Fingerhut Corp. filed a lawsuit against Ackra Direct
Marketing Corp. and Weyee Investment Co. Ltd. d/b/a Random Enterprises in
Minnesota state court on July 1, 1992. The dispute
*
The HONORABLE CATHERINE D. PERRY, United States District
Judge for the Eastern District of Missouri, sitting by designation.
1
The Honorable James M. Rosenbaum, United States District
Judge for the District of Minnesota, adopting the Report and
Recommendation of United States Magistrate Judge Franklin L. Noel.
arose out of the sale of 82,050 steam irons by Ackra to Fingerhut, which
Fingerhut alleges were defective in that they caused fires and resulted in
burn injuries and electrical shock to several consumers. Ackra removed the
case to federal court pursuant to 28 U.S.C. § 1441(a). Over the course of
the next one and one-half years, Fingerhut amended its complaint three
times, and added defendants Ackerman, Ira Smolev, Marc Platt and Esther
Wong.2 Ackerman and Smolev each own 50% of Ackra, which is currently
defunct and insolvent but which has not been formally dissolved. Fingerhut
alleged claims for breach of contract, breach of warranty, fraud and alter
ego liability.
From July 1992 to April 1994, appellants were represented by legal
counsel. During that twenty-two month period, appellants delayed the
discovery process by submitting late and non-responsive discovery answers
and by failing to produce some discovery altogether. Pretrial motions were
referred to a magistrate judge, who granted Fingerhut's three motions to
compel discovery. On March 24, 1994, appellants' counsel moved to withdraw
from their representation of Ackra, Ackerman and Smolev, stating that a
conflict had developed in their representation of multiple defendants and
that the defendants had refused to pay legal expenses. The magistrate
judge granted counsel's motion to withdraw on April 28, 1994, in an order
that stated:
All three defendants are ordered to have separate counsel enter
an appearance on or before May 16, 1994. If new counsel have
not appeared by that date, the case will proceed and all
unrepresented defendants will be expected to comply with their
discovery obligations and with all of the Federal Rules of
Civil Procedure and the local rules of this court.
After their counsel were allowed to withdraw, appellants did not
obtain substitute counsel and did not participate in any manner
2
Default judgment was entered only as to defendants Ackra and
Ackerman, the sole appellants in this action.
2
in the litigation until November 22, 1994. Between April 28, 1994 and
November 22, 1994, Fingerhut's counsel were unable to contact Ackerman by
telephone or mail, and an investigative service hired by Fingerhut was
likewise unable to locate Ackerman. By order of May 17, 1994, the
magistrate judge found that appellants had still failed to comply with the
court's orders regarding discovery and ordered Ackerman to produce
discovery by June 1, 1994 or pay the Clerk of Court $100.00 for every day
thereafter that he failed to comply.
On July 1, 1994, the magistrate judge ordered discovery closed as to
defendants Ackra and Ackerman, and ordered the parties to complete all
outstanding discovery no later than July 15, 1994. Appellants never
produced any additional discovery responses. Appellants also ignored the
final pretrial/settlement conference requirements ordered in the case, and
failed to attend that final conference on November 21, 1994. The very next
day, November 22, 1994, Ackerman telephoned Fingerhut's counsel -- this was
the first contact appellees had had with appellants since counsel withdrew
in April 1994.
Fingerhut filed a motion for default judgment on December 5, 1994,
and submitted affidavits and a supporting memorandum on December 16, 1994.
Ackerman filed an affidavit opposing the motion for default on January 11,
1995, in which he stated that he had been financially unable to secure new
legal counsel and that he had been spending significant time in California
dealing with a pending lawsuit in that state. Ackerman requested a 60-day
continuance to obtain new legal counsel. A hearing on the motion for
default judgment was held on January 13, 1995. Neither Ackerman nor any
counsel acting on his behalf appeared at the hearing. On January 17, 1995,
the magistrate judge issued his report, and recommended that the motion for
default judgment should be granted in its entirety. Ackerman then, finally
represented by counsel, filed objections to the report and recommendation
on February 2, 1995.
3
The district court entered default judgment against defendants Ackerman and
Ackra in the amount of $1,266,659.20 on May 4, 1995. Appellants timely
filed their notice of appeal of the court's order granting default
judgment.
II. DISCUSSION
The parties disagree on the standard we are to apply in reviewing the
district court's grant of default judgment. Appellants contend that the
"good cause" standard of Rule 55(c), Fed. R. Civ. P., for setting aside the
clerk's entry of default under Rule 55(a) applies. Appellee argues that
we should consider the district court's entry of default judgment as
default pursuant to either Rule 55 or Rule 37, and that the Rule 60(b)
standards governing relief from a judgment apply.3 We believe both parties
are incorrect.
The "good cause" standard applicable to setting aside the clerk's
entry of default does not apply here. Appellants argue that this court
should apply the "good cause" standard because the clerk did not enter
default under Rule 55(a) in this case, thereby depriving appellants of the
opportunity to avoid default based on "good cause." However, nothing in
Rule 55 guarantees a party the right to seek setting aside a clerk's entry
of default before a default judgment is entered for failure to defend. In
addition, the entry of default by the clerk under Rule 55(a) is an
interlocutory order that is not appealable. Enron Oil Corp. v. Diakuhara,
10 F.3d 90, 95 (2d Cir. 1993). Therefore, appellants
3
Appellants did not file a motion under Rule 60(b), Fed. R.
Civ. P., to set aside the default judgment because it would have
been duplicative of the objections they filed to the magistrate
judge's report and recommendation. Appellants' decision not to
file a Rule 60(b) motion does not hinder their appeal to this Court
because a Rule 55(b) default judgment is a final judgment and may
be appealed immediately. See, e.g., Enron Oil Corp. v. Diakuhara,
10 F.3d 90, 95 (2d Cir. 1993).
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have no right to the "good cause" standard on appeal because they had no
right to review under that particular standard by the district court, even
if the clerk had entered default.
Appellee's argument that review should be conducted in the context
of a Rule 60(b) motion to set aside a default judgment is likewise without
merit. Rule 60(b) does not apply to our review because that rule does not
provide substantive law. See Fed. R. Civ. P. 60 advisory committee's note.
Rather, Rule 60(b) defines the procedure for analyzing motions for relief
from judgment. Id. In this case, we are not reviewing the district
court's denial of a Rule 60(b) motion because appellants never sought
relief under Rule 60(b), and therefore those procedures are not relevant.4
Our review is simply whether the district court abused its discretion in
entering default judgment under Rule 55(b)(2). United States v. Harre, 983
F.2d 128, 130 (8th Cir. 1993); FTC v. Packers Brand Meats, Inc., 562 F.2d
9, 10 (8th Cir. 1977) (per curiam).
Default judgment for failure to defend is appropriate when the
party's conduct includes "willful violations of court rules, contumacious
conduct, or intentional delays." Harre, 983 F.2d at 130. On the other
hand, default judgment is not an appropriate sanction for a "marginal
failure to comply with time requirements." Id. None of the allegedly
mitigating factors relied on by appellants excuse the fact that their
dilatory conduct significantly delayed the discovery process during the 22-
month period that they were represented by counsel, nor do the mitigating
4
We also reject appellee's contention that we should consider
the default judgment as a sanction for discovery abuse under Rule
37. The district court ordered default judgment against appellants
pursuant to the "failure to defend" standard under Rule 55.
Although default judgment under both Rule 37 and Rule 55 are
reviewed for abuse of discretion, Comiskey v. JFTJ Corp., 989 F.2d
1007, 1009 (8th Cir. 1993), the underlying review may differ in a
case such as this where the court relied on factors other than
discovery abuses in granting default judgment.
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factors excuse their total failure to participate in the litigation after
their counsel withdrew. The latter conduct included complete failure to
respond to the magistrate judge's discovery order and other orders, failure
to comply with pretrial requirements, and failure to attend the final
pretrial/settlement conference; these actions are certainly grounds for
default judgment. See, e.g., Comiskey v. JFTJ Corp., 989 F.2d 1007, 1009
(8th Cir. 1993) (default appropriate for failure to comply with numerous
court orders and discovery requests); Hoxworth v. Blinder, Robinson & Co.,
Inc., 980 F.2d 912, 918 (3d Cir. 1992) (failure to comply with court order
to obtain substitute counsel, file a pretrial memorandum and respond to
discovery); McGrady v. D'Andrea Elec., Inc., 434 F.2d 1000, 1001 (5th Cir.
1970) (failure to appear at pretrial conference).
Appellants' excuses for their conduct do not warrant a finding that
the district court abused its discretion in granting default judgment.
Appellants contend that they received inadequate notice of default
judgment. Under Rule 55(b), a party seeking default judgment must notify
the party against whom judgment is sought, at least three days prior to the
hearing on the motion, if that party has appeared in the action. Fed. R.
Civ. P. 55(b)(2). Fingerhut served its notice of motion for default
judgment on Ackerman at his last known address on December 5, 1994, and
Ackerman filed an affidavit opposing default on January 11, 1995. The
hearing on the motion for default judgment was held on January 13, 1995.
Appellee met its burden of providing notice under Rule 55(b) by serving the
motion approximately one month prior to the hearing. In addition, we
reject appellants' argument that they were not warned by the district court
of the possibility of default judgment. Although there is no requirement
that a court warn a party that default may occur, the district court had
imposed lesser sanctions on appellants before entering default judgment.
6
Appellants' attempt to hide behind their pro se status is equally
unavailing. Appellants' pro se status certainly does not forgive their
dilatory tactics before their counsel withdrew. In general, pro se
representation does not excuse a party from complying with a court's orders
and with the Federal Rules of Civil Procedure. Jones v. Phipps, 39 F.3d
158, 163 (7th Cir. 1994); see also Anderson v. Home Insurance Co., 724 F.2d
82, 84 (8th Cir. 1983) (upholding district court's grant of default
judgment against pro se defendant for failure to respond to discovery
requests and failure to provide full information after a court order). The
magistrate judge specifically encouraged appellants to obtain substitute
counsel, and warned them that failure to do so would not excuse them from
complying with discovery obligations or the relevant rules of procedure.
Finally, although it was not addressed by the district court, the law does
not allow a corporation to proceed pro se. See 28 U.S.C. § 1654; United
States v. Van Stelton, 988 F.2d 70, 70 (8th Cir. 1993) (per curiam); Eagle
Associates v. Bank of Montreal, 926 F.2d 1305, 1308 (2d Cir. 1991).
Therefore, appellant Ackra Direct Marketing Corp. was technically in
default beginning on April 28, 1994.
Appellants argue that default judgment was particularly inappropriate
because of the large monetary judgment entered. In light of appellants'
conduct, we do not find that the district court abused its discretion in
entering a default judgment in the amount of $1.2 million. Appellants'
argument that Fingerhut and its counsel contributed to the delayed
proceedings is likewise without merit. That Fingerhut amended its
complaint four times and engaged in some disputes during the discovery
process does not excuse appellants' dilatory tactics nor their total
failure to participate in the litigation from April 1994 to November 1994.
Finally, appellants contend that the existence of a meritorious defense to
the merits of the case should prohibit default judgment. However, where
the conduct of a party amounts to willful misconduct, the existence of a
meritorious defense does not
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prohibit default judgment. Pretzel & Stouffer v. Imperial Adjusters, Inc.,
28 F.3d 42, 46 (7th Cir. 1994); Hoxworth, 980 F.2d at 922 ("We decline to
require the district court to have a mini-trial before it can impose a
default"). The mitigating factors relied on by appellants do not excuse
their conduct in this case, and the district court did not abuse its
discretion by entering default judgment.
Appellants also contend that the district court abused its discretion
by not articulating the reasons for its decision. Specifically, appellants
argue that the court was required to analyze the "widely accepted factors"
that are relevant in determining whether default judgment is appropriate.
Courts are not normally required to make findings of fact or conclusions
of law in ruling on motions. Fed. R. Civ. P. 52(a); see also DeShane v.
Deere & Co., 726 F.2d 443, 446 (8th Cir. 1984). However, we may remand
when the lack of findings by the district court would substantially hinder
our review. DeShane, 726 F.2d at 446. This is not a case in which further
findings would aid our review.
This Circuit has not articulated specific factors that must be
considered in determining whether a Rule 55(b) motion for default judgment
for failure to defend should be granted. Rather, this Court has noted
generally that default judgment is appropriate if the conduct is willful,
contumacious or intentional. Harre, 983 F.2d at 130. In the report and
recommendation, which the district court adopted in its entirety, the
magistrate judge found that appellee had established twenty-six alleged
"acts or omissions by Defendants" as evidence of appellants' failure to
defend. The magistrate judge implicitly found that appellants' conduct was
willful by rejecting appellants' proffered justifications for their failure
to defend. The magistrate judge held that appellants' conduct "plainly
constitutes a 'failure to defend' as contemplated by Rule 55 of the Federal
Rules of Civil Procedure." This decision was based on the pleadings, the
motion for default judgment, and
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all evidence submitted in support of and in opposition to the motion. We
find that the district court sufficiently articulated its reasons for
granting appellee's motion for default judgment for failure to defend under
Rule 55(b).
Finally, appellants contend that we should reverse the default
judgment at least with respect to the amount of damages because appellee
offered insufficient evidence of those damages. In light of the evidence
in the record, the district court did not abuse its discretion in awarding
damages of approximately $1.2 million, which included $19,300 in sanctions
imposed by the magistrate judge's May 19, 1994 order. Appellee's evidence
supports a judgment in the amount as entered.
For the reasons set out above, we affirm the judgment of the district
court.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT
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