Motion to Set Aside Default Where Defendant Waited Too Long to Obtain New Counsel

by Jeffer Mangels Butler & Mitchell LLP

Plaintiff Fleet Engineers, Inc. ("Fleet") develops, manufactures, and sells after-market products for the trucking industry. Defendant Tarun Surti, the president of Mudguard Technologies, LLC ("Mudguard"), owns a mud flap patent on which this lawsuit is focused. Fleet filed a complaint which asserted three claims: (1) a request for a declaratory judgment of non-infringement, (2) a request for a declaratory judgment of patent invalidity, and (3) tortious interference with a business relationship. Defendants answered the complaint and filed three counterclaims: (1) patent infringement, (2) breach of contract, and (3) misappropriation of trade secrets.

After the Court held a claim construction hearing, counsel for the defendants requested leave to withdraw from the lawsuit. On September 24, 2013, the Court granted the motion and ordered the defendants to retain new counsel within 30 days. Defendants requested an extension until December 20. On October 25, 2013, this Court gave Defendants an additional 28 days to find new counsel, extending the deadline to November 25, 2013. On November 22, Defendants again requested additional time to hire counsel, which the district court granted but warned Defendants that if counsel did not enter an appearance by December 20, default would enter against Mudguard.

Despite the warning, Defendant Mudguard did not retain new counsel by December 20. Instead, on December 26, Defendants filed a third motion for an extension of time to find a new attorney to represent Mudguard. On December 31, 2013, the district court denied Defendants' third motion for extension of time and entered default against Defendant Mudguard.

On January 17, 2014, counsel entered an appearance on behalf of both defendants. The motion to set aside the default was filed on February 5, 2014.

As the district court, explained "[a] decision granting or denying a motion to set aside a default falls within the district court's discretion. United States v. $22,050.00 United States Currency, 595 F.3d 318, 322 (6th Cir. 2010) (citation omitted). Ordinarily, district courts should be "extremely forgiving to the defaulted party and favor a policy of resolving cases on the merits instead of on the basis of procedural missteps." Id. Under Rule 55(c) of the Federal Rules of Civil Procedure, a court may set aside a default for good cause. In determining whether good cause exists, the court must consider (1) whether the defendant's culpable conduct led to the entry of default, (2) whether the defendant has a meritorious defense, and (3) whether the plaintiff would be prejudiced by setting aside the default. Id. at 324 (citing Waifersong, Ltd. v. Classic Music Vending, 976 F.2d 290, 292 (6th Cir. 1992)).

The district court then concluded that "[n]one of the three factors weigh in favor of setting aside the default. As is detailed above, Defendants' failure to secure new counsel was the culpable conduct that led to the entry of default. . . . Here, Defendants' failure to obtain counsel at least constitutes reckless disregard for its effect on the judicial proceedings. Two extensions of time were granted. This Court warned Defendants that unless counsel entered an appearance by December 20, Mudguard would be defaulted. Six days after that deadline passed, Defendants sought yet a third extension of time. Simply put, Defendants inaction delayed the prosecution of this case from the end of October through the middle of January the following year and included the disregard of at least one court order. Not lost on the Court is the reason that prior counsel requested leave to withdraw: Defendants failed to render payment for services provided. (ECF Nos. 38 and 41). The situation is one entirely of Mudguard's own making."

Accordingly, the district court denied the motion to set aside the default judgment.

Fleet Engineers, Inc. v. Mudguard Technologies, LLC, Case No. 1:12-cv-1143 (W.D. Mich. July 11, 2014)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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