The Eleventh Circuit reversed a lower court’s entry of a default judgment against Acosta Tractors, Inc., that was based solely on Acosta’s default in the underlying arbitration. Julio Hernandez had filed a claim for unpaid wages against Acosta under the Fair Labor Standards Act, and Acosta compelled arbitration. However, the arbitration did not “proceed as planned,” as the arbitrator refused to consolidate Mr. Hernandez’s case with two similar actions and allowed “extensive discovery,” including 29 depositions, across the three separate arbitrations. Arbitration fees quickly added up to over $100,000, far exceeding the amount of the plaintiffs’ claims. Acosta refused to pay the arbitration fees and sought to return to the trial court. Instead, the trial court entered a default judgment against Acosta, based on its admission that it had refused to pay the costs of the arbitration and the lack of evidence establishing its inability to do so.

On appeal, the Eleventh Circuit vacated the trial court’s ruling. The Eleventh Circuit noted that it was within the lower court’s inherent power to enter a default judgment against Acosta, but held that it was error to do so “solely because a party defaulted in the underlying arbitration.” In order to impose a sanction against a party pursuant to its inherent power, the court “must make a finding that the sanctioned party acted with subjective bad faith.” The case was remanded to the District Court to determine whether the requisite bad faith existed. Hernandez v. Acosta Tractors, Inc., Case Nos. 17-13057; 17-13673 (11th Cir. August 8, 2018).