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Garnier-Theibaut, Inc. v. Castello 1935 Inc.

United States District Court, D. Maryland, Southern Division

December 6, 2019

GARNIER-THIEBAUT, INC. Plaintiff,
v.
CASTELLO 1935 INC., et al., Defendants.

          MEMORANDUM OPINION REGARDING DEFAULT JUDGMENT

          Stephanie D. Thacker United States Circuit Judge.

         On November 23, 2019, Plaintiff filed a Motion to Strike Defenses and Enter Judgment by Default (“Default Motion”). ECF No. 51. Following the November 25, 2019 pretrial conference in this case, the Court issued an Order to Show Cause ordering Defendants to show cause by noon on December 2, 2019 as to why entry of default judgment should not be entered as to the issue of liability and ordering Plaintiff to provide additional reasoning for its Default Motion. ECF No. 53. On December 2, 2019, Defendant Campbell filed a purported response to the November 25, 2019 Order to Show Cause, which although docketed as a response to the Order to Show Cause is, in fact, merely a listing of supposed stipulations. ECF No. 56.

         The Court has reviewed Plaintiff's Default Motion, Plaintiff's response to the November 25, 2019 Order to Show Cause (ECF No. 55), and Defendant Campbell's response to the November 25, 2019 Order to Show Cause (ECF No. 56). For the reasons contained herein, the Court GRANTS Plaintiff's Motion for Default Judgment and ORDERS Defendant Campbell's answer stricken from the docket and entry of default judgment against Defendants as to the issue of liability on Counts I, III, and IV of the Amended Complaint.

         I. Default Judgment

         A. Federal Rule of Civil Procedure 55

         1.

         Federal Rule of Civil Procedure 55 provides that upon a showing that “a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defen[d], . . . the clerk must enter the party's default.” Fed.R.Civ.P. 55(a). Once the clerk enters the party's default, a party may then seek a default judgment against the defaulting party. Id. at 55(b). The Court has discretion to enter default judgment, Balt. Line Handling Co. v. Brophy, 771 F.Supp.2d 531, 540 (D. Md. 2011) (citation omitted), although the Fourth Circuit “has a strong policy that cases be decided on the merits.” Int'l Painters & Allied Trades Indus. Pension Fund v. Capital Restoration & Painting Co., 919 F.Supp.2d 680, 684 (D. Md. 2013) (quoting United States v. Shaffer Equipment Co., 11 F.3d 450, 453 (4th Cir. 1993)) (internal quotation marks omitted). However, “default judgment is appropriate when the adversary process has been halted because of an essentially unresponsive party.” Id. (quoting S.E.C. v. Lawbaugh, 359 F.Supp.2d 418, 421 (D. Md. 2005) (concluding that entry of a default judgment was proper where “[d]efendant has been unresponsive for more than a year”)); see, e.g., Home Port Rentals, Inc. v. Ruben, 957 F.2d 126, 133 (4th Cir. 1992) (finding entry of default judgment pursuant to Federal Rule of Civil Procedure 55 was proper against the unresponsive parties who did not participate in discovery when they “did not appear at the show cause hearing” and “they did not respond to certified notices sent by the court”).

         2.

         Here, the Amended Complaint was filed on January 26, 2018. ECF No. 16. Thereafter, on February 16, 2018, Defendants filed a motion to dismiss for failure to state a claim. ECF No. 17. Counsel for Defendants later filed a motion for leave to withdraw as counsel. ECF No. 20.[1] On May 17, 2018, the Court issued an Order denying Defendants motion to dismiss and granting counsel for Defendants' motion for leave to withdraw as counsel. ECF No. 21. At that point, the Court ordered Defendants to file an answer to Plaintiff's Amended Complaint by June 7, 2018. Id. The Court also specifically ordered, “Defendant Castello must retain counsel as this case proceeds.” Id. at 13 (citing McGowan v. Cross, Nos. 92-1480, 92-1584, 1993 U.S. App. LEXIS 9134, at *1 n.1 (4th Cir. 1993) (“Corporations and partnerships, as artificial entities, may not appear pro se but must instead appear through counsel.”) (citations omitted)). Neither Defendant filed an answer by the time designated by the court. Particularly, Defendant Castello 1935 Inc. could not file an answer due to its failure to retain counsel.

         On July 2, 2018, the Court issued an Order to Show Cause directing Defendant Castello 1935 Inc. to show cause as to why default judgment should not be entered against it for failing to have new counsel enter an appearance in this case. ECF No. 22 (citing D. Md. Loc. R. 101.2(b) (a corporation “must have new counsel enter an appearance or be subject to . . . default judgment on claims against it”)). Defendant Campbell answered the Order to Show Cause and requested the Court refrain from entering default judgment. ECF No. 23. Defendant Campbell, pro se, explained, “[Defendants] have been trying to secure a new attorney to take over this case; however as of this date we have been unable to find one. We will certainly have new counsel in place when the assigned court date comes up.” Id.

         As a result, on July 24, 2018, the Court issued an Order directing Defendants to each file an answer to Plaintiff's Amended Complaint by August 23, 2018. ECF No. 24. The Court cautioned Defendants that “[f]ailure to file a timely answer and for corporate counsel to enter his or her appearance may subject the defendant failing to do so to a default judgment on the claims against him or it.” Id. On August 23, 2018, Defendant Campbell answered the Amended Complaint. ECF No. 25. Defendant Campbell also notified the Court, “[W]e have been unable to retain counsel in this case. We continue to try and will inform the courts [sic] the moment we have counsel secured. Please accept our sincere apologies in this delay.” ECF No. 26.

         After Defendant Castello 1935 Inc. failed to file an answer, Plaintiff moved for the entry of default against Defendant Castello 1935 Inc pursuant to Federal Rule of Civil Procedure 55. ECF Nos. 33, 35. Thereafter, on March 28, 2019, pursuant to Federal Rule of Civil Procedure 55(a), [2] the Clerk entered default against Defendant Castello 1935 Inc. ECF No. 38.

         On August 7, 2019, the Court denied Plaintiff's motion for default judgment against Defendant Castello 1935 Inc. without prejudice. ECF No. 45. The Court reasoned that Frow v. De La Vega, 82 U.S. 552 (1872) “declared that, in a case where joint liability is alleged, it would [be] both unlawful and ‘absurd' to issue a default judgment against one defendant, individually, while the same claims proceed against other, non-defaulting defendants.” Id. at 3 (citing Frow, 82 U.S. at 554 (1872)). The Court further noted, “The Fourth Circuit has extended the Frow rule to cases where the plaintiff alleges defendants are liable not jointly, but jointly and severally.” Id. (citing United States ex rel. Hudson v. Peerless Ins. Co., 374 F.2d 942, 944 (4th Cir. 1967)). The Court concluded that because this case alleges that Defendants are jointly and severally liable, “default judgment against [Defendant Castello 1935 Inc.] would risk producing inconsistent judgments . . . until the matter has been adjudicated as to Mr. Campbell.” Id. at 5 (citing Frow, 82 U.S. 552 (1872)).

         B. Federal Rules of Civil Procedure 16 and 37

         1. Notice

         a.

         Federal Rule of Civil Procedure 16 provides that a court may issue a discovery sanction. Fed.R.Civ.P. 16(f)(1). And Federal Rule of Civil Procedure 37(b)(2)(A) specifically provides for “rendering a default judgment against the disobedient party.” Fed.R.Civ.P. 37(b)(2)(A)(vi). In reviewing a district court's order of default judgment against defendants pursuant to Federal Rules of Civil Procedure 16(f)(1) and 37(b)(2)(A)(vi), the Fourth Circuit has concluded that there is “no reason to treat misconduct during the pretrial process as different from misconduct during the discovery process.” Young Again Prods. v. Acord, 495 F. App'x. 294, 301 (4th Cir. 2011) (citing Newman v. Metro. Pier & Exposition Auth., 962 F.2d 589, 590-91 (7th Cir. 1992) (holding that failure to participate in the pretrial process is a ground for default judgment)). Notably, the Fourth Circuit has “emphasized the significance of warning a defendant about the possibility of default before entering such a harsh sanction.” Hathcock v. Navistar Int'l Transp. Corp., 53 F.3d 36, 40 (4th Cir. 1995); see RDLG, LLC v. Leonard, 649 Fed.Appx. 343, 347-48 (4th Cir. May 23, 2016) (holding that a district court's sanction of default judgment pursuant to Federal Rule of Civil Procedure 16(f) did not violate appellant's due process rights when the court repeatedly issued oral and written warnings that it would enter default judgment).

         b.

         In this case, the Court twice issued orders directing the parties to file their pretrial pleadings by November 8, 2019. ECF Nos. 44, 47. On April 24, 2019, the Court's pretrial Order ordered the parties to submit their pretrial pleadings by November 8, 2019. ECF No. 44. And, again, on October 21, 2019, the Court ordered the parties to submit their pretrial pleadings by November 8, 2019. ECF No. 47. Specifically, the Court ordered the parties to submit the following pretrial pleadings:

• joint stipulation of facts;
• witness list;
• joint pretrial order;
• statement of legal authority;
• binder of exhibits; and
• any motions in limine.

ECF No. 47. Even after the Court repeatedly reminded the parties to submit their pretrial pleadings by November 8, 2019, Defendants failed to comply at all. Therefore, on November 15, 2019, the Court issued an order noting, in part, “despite having a 6 1/2-month notice of the pretrial filing deadline and a subsequent 2 1/2-week reminder of the same, [Defendants] Campbell and Castello 1935 Inc. failed to meet the November 8, 2019 pretrial filing deadline.” ECF No. 50. Thereafter, the Court cautioned Defendants that they were in danger of being sanctioned for failure to comply with prior Orders. ECF No. 53. The Court also warned Defendants that continued failure to participate in the adversary process may result in an Order to Show Cause as to why a default judgment should not be entered against them. Id.

         Nonetheless, the Court gave Defendants one last chance to submit their pretrial filings. Id. On November 15, 2019, the Court ordered Defendants to file their pretrial filings by noon on November 22, 2019. Id. The Court also ordered Defendants to advise the Court whether or not they are represented by counsel by noon on November 22, 2019. Id. Additionally, the Court ordered any counsel for Defendants to note their appearance by noon on November 22, 2019. Id.

         However, Defendants failed to comply with any of the Court's Orders set out in the November 15, 2019 Order. Id. Following the November 22, 2019 pretrial filings deadline, on November 23, 2019, Plaintiff filed its Default Motion pursuant to Federal Rules of Civil Procedure 16 and 37 against both Defendants, arguing “[D]efendants have engaged in a pattern of ignoring the duties and obligations imposed by the Rules and the prior orders of this Court.” ECF No. 51 (emphasis in original).

         c.

         The Court concludes that consideration of default judgment is appropriate here because Defendants had ample notice of the consequences of their inaction. See Hathcock, 53 F.3d at 40 (“[A] party is entitled to be made aware of the drastic consequences of failing to meet the court's conditions at the time the conditions are imposed, when he still has the opportunity to satisfy the conditions and avoid the sanction”) (citation and internal quotation marks omitted). This Court has repeatedly warned Defendants that their actions may result in default judgment. See ECF No. 50 (outlining an overview of Defendants' conduct in this case).

         For the reasons that follow, this Court concludes default judgment is appropriate in this case because Defendants have failed to participate in the adversary process at nearly every turn despite being given repeated opportunities to do so.

         2. Discovery Sanction

         To determine if default judgment is appropriate as a discovery sanction, the Fourth Circuit has instructed courts to apply the four Wilson v. Volkswagen of Am., Inc., 561 F.2d 494 (4th Cir. 1977) factors. Mut. Fed. Sav. & Loan Ass'n v. Richards & Assocs., Inc., 872 F.2d 88, 92 (4th Cir. 1989) (citing Wilson, 561 F.2d at 503-06). The four Wilson factors are:

(1) whether the noncomplying party acted in bad faith;
(2) the amount of prejudice his noncompliance caused his adversary, which necessarily includes an inquiry into the materiality of the evidence he failed to produce;
(3) the need for deterrence of the particular sort of noncompliance; and (4) the effectiveness of less drastic sanctions.

Id. (citing Wilson, 561 F.2d at 503-06). The four Wilson factors “insure that only the most flagrant case, where the party's noncompliance represents bad faith and callous disregard for the authority of the district court and the Rules, will result in the extreme sanction” of default judgment. Id. (citing Wilson, 561 F.2d at 504). Therefore, if the four Wilson factors weigh in favor of sanctioning defendants with default judgment pursuant to Federal Rules of Civil Procedure 16(f)(1) and 37(b)(2)(A), this Court may so sanction. See, e.g., Id. at 302.

         Here, Defendants have unquestionably “fail[ed] to obey” the pretrial order -- among several others. Fed.R.Civ.P. 16(f)(1)(C).

         a. Bad Faith

         i.

         Defendants have acted in bad faith in their repeated failure to comply with prior Orders. See Mut. Fed. Sav. & Loan Ass'n, 872 F.2d at 93. An overview of Defendants' lack of ...


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