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December 8, 2020 By Nancy J. Goodiel

The United States District Court for the Western District of Virginia recently found that a Defendant who did not respond to proper service and appear for trial failed to show sufficient evidence of excusable neglect and the Court denied the Defendant’s motion to set aside a $7.5 million default judgment. Russell v. N. Mgmt. Servs., 2020 U.S. Dist. Lexis 199744 (W. D. Va. October 27, 2020).

Plaintiff was devastatingly injured when he fell through a grate purportedly maintained by the Defendant. Plaintiff filed suit in the U.S. District Court of Virginia and properly served the Defendant through it’s registered agent. The registered agent forwarded the suit papers by email to the corporation. The receiving individual timely forwarded the pleadings to officers of the corporation and the insurance broker. At that point, the Defendant made no further inquiries for a year. The Defendant assumed the broker would forward the pleadings to the liability insurance carrier. The insurance carrier, however, did not receive notice of the suit and counsel was not retained to represent the Defendant.

Plaintiff’s service of the Complaint on the Defendant occurred on May 29, 2019. There was no Answer to the Complaint or Entry of Appearance filed by the Defendant, therefore the Plaintiff moved for entry of default as to liability on June 24, 2019. The clerk entered the default for liability on June 26, 2019. A one day jury trial was conducted on November 5, 2019, on damages only. The jury awarded Plaintiff $6,000,000. Judgment was entered. The Plaintiff provided notice f the judgment to the Defendant by registered letter sent to the Defendant’s registered agent.

Defendant filed a Motion to Vacate Judgment on July 17, 2020. Fed. R. Civ. P. 60(b) provides relief from a default judgment, but the moving party MUST satisfy three threshold conditions, as well as at least one of the six grounds of relief stated in the Rule. Specifically, the moving party must establish that:

  1. The motion for relief is timely,
  2. It has a meritorious defense to the action, and
  3. The non-moving party will not be unfairly prejudiced.

If the moving party is able to establish all three of the threshold conditions, the moving party must then prove that one of the following conditions exist:

  1. mistake, inadvertence, surprise, or excusable neglect;
  2. newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b);
  3. fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;
  4. the judgment is void;
  5. the judgment has been satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or
  6. any other reason that justifies relief.

Generally, Rule 60(b) should be “liberally construed in order to provide relief from the onerous consequences of defaults and default judgments.” Tolson v. Hodge, 411 F.2d 123, 130 (4th Cir. 1969). The Court ruled that while default judgments are not favored, “of equal importance” is the notion that parties “should not be permitted to flout . . . time limitations with impunity.” Trueblood v. Grayson Shops of Tenn., Inc., 32 F.R.D. 190, 196 (E.D. Va. 1963). The Defendant sought relief from judgment pursuant to Rule 60(b)(1) for excusable neglect. The granting of relief based on excusable neglect falls within the District Court’s discretion. The Court noted that not all negligence is excusable and The Court sited the standard thus “A party that fails to act with diligence will be unable to establish that his conduct constituted excusable neglect pursuant to Rule 60(b)(1).” Robinson v. Wix Filtration Corp., 599 F.3d 403, 413 (4th Cir. 2010). The case presented a choice between upholding the finality of judgments and affording both sides a chance to try the case on the merits.

The key factor was the company’s failure to follow up with its insurer to confirm pursuit of a defense. Courts in the Fourth Circuit have previously held that the failure of a party to follow-up with their insurer is not considered to be excusable neglect. See Lewitzke v. W. Motor Freight, 2006 U.S. Dist. LEXIS, *26 (D. S.C. 2006). In the present case, the Court found that Defendant failed to follow-up with its insurer to confirm whether the Complaint and Summons were received or that an Answer had been filed. The Court noted the importance that various agents and high ranking executives of the Defendant company were aware of the suit but still failed to follow-up with their liability insurer for a year’s time. Based on what the Court referred to as a “complete lack of follow-up until a year later,” Federal Judge Jones refused to set aside the jury’s verdict worth at least $7.5 million with interest.