McMillian/McMillian v. Monticello Ins. Co. ( 1997 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 96-2807WA
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McMillian/McMillian, Inc., *
*
Plaintiff-Appellant, *
*
v. *
*
Monticello Insurance Co., * Appeal from the United States
* District Court for the Western
Defendant-Appellee, * District of Arkansas.
*
v. *
*
David McMillian, *
*
Third Party-Appellant. *
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Submitted: March 13, 1997
Filed: June 17, 1997
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Before FAGG and HEANEY, Circuit Judges, and NANGLE,* District Judge.
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FAGG, Circuit Judge.
*
The Honorable John F. Nangle, United States District Judge for the Eastern
District of Missouri, sitting by designation.
A laundromat owned by McMillian/McMillian, Inc. (M/M) burned down.
Believing the fire had been deliberately set, Monticello Insurance Company denied
coverage under a policy exclusion for incendiary fires, and M/M sued Monticello for
breach of contract. Monticello filed a third-party claim for indemnification against
M/M’s president, David McMillian, asserting McMillian set the fire himself. After
McMillian evaded Monticello’s attempts to serve him personally, Monticello served
process by warning order, see Ark. R. Civ. P. 4(f)(1), but McMillian never answered
the third-party complaint. Monticello secured an entry of default by the clerk of court
and then moved for a default judgment. Roused at last, McMillian filed a cross-motion
to set aside the entry of default. The district court denied McMillian’s motion and
entered a default judgment. A few days later, the underlying coverage dispute was
tried. The jury was instructed that McMillian had suffered a default judgment, and as
a result he could not contest the third-party complaint’s assertion that McMillian had
set the fire. The case went to the jury on the sole question of whether McMillian was
acting as M/M’s agent when he burned the laundromat. The jury found in favor of
Monticello, and the district court denied M/M’s and McMillian’s posttrial motions to
set aside the default judgment and for a new trial. McMillian and M/M appeal the
denial of their posttrial motions. McMillian also appeals from the default judgment
itself, assigning error to the denial of his motion to set aside the clerk’s entry of default.
We affirm.
In its default judgment, the district court awarded Monticello “full indemnity
from David McMillian for any and all damages that may be awarded against Monticello
Insurance Company by way of the underlying suit in this matter.” Having prevailed in
the underlying suit, Monticello incurred no liability for McMillian to indemnify. Thus,
the default judgment entered against McMillian would be a moot issue were it not for
the role the judgment played at trial. What McMillian and M/M really want is a new
trial, with no default judgment jury instruction adversely determining the key material
fact. We will reverse the denial of a motion for a new trial only if the denial
“‘represents a clear abuse of discretion or a new trial is necessary to avoid a
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miscarriage of justice.’” Lamb Eng’g & Constr. Co. v. Nebraska Pub. Power Dist.,
103 F.3d 1422, 1430 (8th Cir. 1997) (quoting Farmland Indus., Inc. v. Morrison-Quirk
Grain Corp., 54 F.3d 478, 483 (8th Cir. 1995)). Having reviewed the record and the
parties’ briefs, we conclude the district court properly denied McMillian’s and M/M’s
new trial motion because the district court acted within its discretion in refusing to set
aside both the entry of default and the default judgment. See Canal Ins. Co. v.
Ashmore, 61 F.3d 15, 17 (8th Cir. 1995) (per curiam); Pretzel & Stouffer v. Imperial
Adjusters, Inc., 28 F.3d 42, 44-45 (7th Cir. 1994).
McMillian contends he showed good cause for the district court to set aside
entry of default, see Fed. R. Civ. P. 55(c), because Monticello’s service of process on
McMillian was defective. According to McMillian, Monticello neglected to enclose
a copy of its third-party complaint with the warning order, as it was obliged to do. See
Ark. R. Civ. P. 4(f)(1). By affidavit, counsel for Monticello attested he mailed
McMillian both the warning order and the complaint. The district court believed
counsel for Monticello, and we defer to the district court’s credibility assessment.
McMillian also complains that M/M’s attorney was not notified in June 1995 that the
district court had granted Monticello leave to file its third-party complaint. Failure to
notify counsel for M/M in 1995 is not good cause to set aside McMillian’s default
because M/M’s attorney did not begin representing McMillian until after the clerk
entered the default in April 1996. Because McMillian failed to show good cause for
his default as Rule 55(c) requires, the district court did not abuse its discretion when
it declined to consider the meritoriousness of McMillian’s defense to the third-party
complaint or the potential prejudice to Monticello from setting aside the entry of
default. See Ackra Direct Mktg. Corp. v. Fingerhut Corp., 86 F.3d 852, 857 (8th Cir.
1996); Pretzel & Stouffer, 28 F.3d at 46. Besides, McMillian’s so-called defense was
lame. He claimed that injuries he sustained in a severe beating made it physically
impossible for him to be present at the scene of the fire the night the laundromat
burned. He admitted, however, that he visited the scene the very next morning.
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M/M and McMillian also contend the district court should have vacated the
default judgment and granted a new trial because the default judgment was entered
prematurely and thus the jury never should have heard about it in the first place.
Relying on Frow v. De La Vega, 82 U.S. (15 Wall.) 552 (1872), McMillian and M/M
argue the district court was obliged to wait until the trial was over before entering the
default judgment. In Frow, De La Vega sued Frow and thirteen others, claiming they
had conspired to defraud him of title to property. The court entered judgment against
Frow when Frow defaulted, but then dismissed De La Vega’s claims against the rest
of the defendants. As a result, conflicting judgments declared De La Vega both had
and had not been defrauded of title. To prevent this kind of “absurdity,” Frow, 82 U.S.
at 554, the Supreme Court held that when defendants are sued as jointly liable, and less
than all default, the court may not enter default judgment against the defaulted
defendants until the liability of the nondefaulted defendants has been decided. See
generally In re Uranium Antitrust Litigation, 617 F.2d 1248, 1256-58 (7th Cir. 1980)
(explaining Frow). Frow has no bearing on this case, however. Although McMillian
and M/M share closely related interests, they were not codefendants facing lawsuit on
a theory of joint liability, where “no one defendant may be liable unless all defendants
are liable.” 10 James Wm. Moore et al., Moore’s Federal Practice § 55.25 (3d ed.
1997). McMillian’s responsibility for the fire would not have implicated M/M if
McMillian had acted on his own and not as M/M’s agent. Further, because Monticello
sued McMillian for indemnification, McMillian’s liability hinged on Monticello’s, not
M/M’s.
Finally, although it is unlikely M/M preserved the issue for our review, M/M
contends the district court improperly instructed the jury that the default judgment cut
off McMillian’s right to testify he did not cause the fire. Contrary to M/M’s view,
when a default judgment has been entered, facts alleged in the complaint--here, that
McMillian was responsible for the fire--may not be contested by the defaulted party.
See Black v. Lane, 22 F.3d 1395, 1399 (7th Cir. 1994).
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We thus affirm both the district court’s default judgment and its judgment on the
jury’s verdict in favor of Monticello.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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