Summary of Opinion
In this case defendants Earl and Betty Van Pemberton sought relief from a default judfment of $350,000. Plaintiff Dr. Senu-Oke had placed three horses in the Pembertonsí care. When Senu-Oke wanted to remove the horses the Pembertons refused claiming they had not been paid. The Pembertons claimed they knew nothing of the suit until the sought to refinance their house and discovered a lien. In a separate Kentucky case the Pembertons had filed against Dr. Senu-Oke, both parties appeared. All claims were settled and the matter dismissed. During the time Senu-Oke was trying to perfect service on the Pembertons he was in contact with them in another case. This court granted the Pembertons the relief sought and imposed sanctions against Senu-Oke finding that his conduct in proceeding in the two separate jurisdictions while failing to inform each court was unreasonable.
Text of Opinion
This matter is before the Court on Defendants' Motion for Relief from Judgment (Doc. 26). Plaintiff has filed both a Response in Opposition to the Motion for Relief from Judgment (Doc. 28), and an Objection to the Motion for Relief from Judgment (Doc.31). For the reasons that follow, the Court grants Defendants' Motion for Relief from Judgment.
On March 15, 2002, Plaintiff initiated this case against Defendants Earl and Betty Van Pemberton. There was some difficulty serving the complaint upon Defendants, however, on August 20, 2002, service was returned executed.
The Return of Service (Doc. 8) is signed by the server Cynthia Conner on August 19, 2000. With respect to method of service, Ms. Conner checked the other box and wrote the following: "Two copies left on Defendants dwelling and one copy left to the Defendants' Attorneys Mr. H. Vincent Pennington, III at 114 South Fourth Street Danville, Kentucky 48423."
Then on December 27, 2002, Plaintiff moved for default judgment. On September 11, 2003, the Court granted Plaintiff's motion for default judgment and referred this matter to the United States Magistrate Judge to conduct a hearing and to issue a report and recommendation addressing the amount of damages to which Plaintiff was entitled. Fed.R.Civ.P. 55(b)(2); 28 U.S.C. § 636(b)(1)(B). The Magistrate Judge conducted a hearing on October 9, 2003, and issued a report and recommendation the same day. The Magistrate Judge recommended that Plaintiff be awarded judgment against Defendants in the amount of $350,000. The Court adopted the Magistrate Judge's October 9, 2003 report and recommendation in its entirety on October 20, 2003 and final judgment was entered. 28 U.S.C. § 636(b)(1)(C); Fed.R.Civ.P. 72(b).
On July 20, 2006, close to three years after the default judgment was entered, Defendants filed a Motion for Relief from Judgment (Doc. 26). Defendants move pursuant to Rules 55(c) and 60(b) of the Federal Rules of Civil Procedure that the default judgment be set aside. Defendants also seek attorneys' fees and costs, damages arising from the judgment, and any other relief deemed by this Court to be just and equitable.
Defendants, the Pembertons, set forth additional facts in their Motion that this Court was not made aware of at the time the Complaint was filed. On March 25, 2002, Earl Pemberton filed an action against Dr. Senu-oke in the Boyle County, Kentucky Circuit Court. Mr. Pemberton perfected service upon Dr. Senu-oke and both parties appeared for the proceedings in that court. In February 2003, the parties settled all claims and the Kentucky case was dismissed. Therefore, while Dr. Senu-oke filed his claim in this Court first, on March 15, 2002, he did not perfect service until five months later. During the time he was attempting to perfect service he was in contact with the Pembertons through the Kentucky litigation. The Pembertons assert that both cases arose out of the same transactions and occurrences and involved the same causes of action.
Plaintiff Dr. Senu-oke's Complaint in this case asserts that he entered into an agreement with the Defendants, the Pembertons, to put his three horses in their care and in return he would pay them $300 a month, $100 for each horse. Plaintiff claims that Defendants have prevented him from taking possession of his horses to prepare them for breeding. Plaintiff seeks immediate release of his three horses and also requested compensatory and punitive damages. No where in the pleadings does Dr. Senu-oke state that he has paid the Pembertons for their services.
Defendant Earl Pemberton asserted in his complaint in the Kentucky litigation essentially the same issues presented before this Court. Specifically, that there was an agreement for the Pembertons to board Dr. Senu-oke's three horses for $300 per month, plus expenses incurred for feed, veterinarian services and other out-of-pocket expenses. Mr. Pemberton initiated the suit asserting that Dr. Senu-oke was refusing to pay them. The Pembertons obtained a lien on the horses and sought to enforce that lien pursuant to KRS 37.410. The complaint also asserted claims of breach of contract and unjust enrichment.
In January 2003, the parties entered into an agreement whereby Dr. Senu-oke
would pay the Pembertons the money he owed for boarding his horses, $3750,
and the Pembertons would then release the horses to Dr. Senu-oke. The final
order dismissing the case as settled was entered September 8, 2003, and specifically
all claims between the Parties, regardless of whether said claims arose from the events giving rise to or were asserted in the Complaint and the Counterclaim and whether known or unknown, which arose or occurred on or before the date of settlement, specifically February 25, 2003, have been settled and, therefore, said claims be, and hereby are, released, satisfied and waived by this settlement and dismissal.
(Ex. D to Defs' Mot.).
At no time during the course of the Kentucky litigation or the settlement was the subject of this pending case raised. The Pembertons were therefore unaware of this litigation until they attempted to refinance their house recently and were advised that a lien had been put on their house as a result of a judgment
Interestingly, Dr. Senu-oke knew the correct home address of the Pembertons to secure a lien on their property, but did not use that address when attempting the serve the Pembertons with a copy of the complaint in this case.
.(See Exs. E & F to Defs' Mot.).
A. Default Judgment
Rule 55(c) of the Federal Rules of Civil Procedure provides that: "[f]or
good cause shown the court may set aside an entry of default and, if a judgment
by default has been entered, may likewise set it aside in accordance with
Rule 60(b)." The sections of Rule 60(b) of the Federal Rules of Civil
Procedure provides under which the Defendants seek relief specifically provides:
On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (3) fraud (whether heretofore denominated intrinsic or extrinsic, misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; or (6) any other reason justifying relief from the operation of the judgment.
When making a determination whether relief under Rule 60(b)(1) is warranted, the court should look to the following three factors: "(1) whether the party seeking relief is culpable; (2) whether the party opposing relief will be prejudiced; and (3) whether the party seeking relief has a meritorious claim or defense." Patterson v. Irwin Mortg. Corp. (In re Patterson), 330 B.R. 631, 636 (Bankr.D.Tenn.2005), citing Williams v. Meyer, 346 F.3d 607, 612-13 (6th Cir.2003).
Defendants argue that they were not properly served with a copy of the summons and complaint in this action and without any proof of proper and lawful service, it is not permissible to enter a judgment against them. The Pembertons assert that they did not reside nor have any contacts with the Danville, Kentucky address where Dr. Senu-oke attempted to serve them. The Pembertons state that Dr. Senu-oke knew that they did not reside in Danville because he has been to their residence in Junction City, Kentucky to board his horses. Additionally, the Pembertons argue that the attorney Dr. Senu-oke claims to have served, did not receive a copy of the complaint (see Ex.G), that he only served as counsel during the beginning of the Kentucky litigation, and that he was not authorized to receive service on the Pembertons' behalf.
Plaintiff Dr. Senu-oke argues, in his Objection to the Motion for Relief from Judgment, that service was perfected on Defendants at their Junction City residence. Plaintiff states that the copy of the complaint was posted on their house entrance by Cynthia Conner in the presence of Betty Van Pemberton. There is, however, no evidence that service was attempted, nor perfected at the Junction City residence. Other than the statement by Plaintiff that cannot be confirmed, there is no evidence that the Defendants, who are seeking relief in this action, are culpable.
The Court must next look to whether the party opposing relief will be prejudiced. Plaintiff, in this case, has been awarded judgment in the amount of $350,000 and has attempted to collect on this judgment by placing a lien on Defendants' property. Typically, when a defendant seeks relief from a default judgment, courts enjoy "considerable latitude under the 'good cause shown' standard. But once the court has determined damages and a judgment has been entered, the ... court's discretion to vacate the judgment is circumscribed by public policy favoring finality of judgments and termination of litigation." Waifersong, Ltd. v. Classic Music Vending, 976 F.2d 290, 292 (6th Cir.1992).
While the Court is mindful of the public policy favoring finality of judgments, there is greater concern that an invalid judgment was entered. The Plaintiff was not forthcoming with either this Court or the state court regarding the litigation in the other court. The Court will therefore turn to the final factor, whether the party seeking relief has a meritorious claim or defense.
"In determining whether a defaulted defendant has a meritorious defense, 'likelihood of success is not the measure' ... rather, if any defense relied upon states a defense good at law, then a meritorious defense has been advanced [.]' ... Instead, the key consideration is 'to determine whether there is some possibility that the outcome of the suit after a full trial will be contrary to the result achieved by the default.' " INVST Fin. Group, Inc. v. Chem-Nuclear Sys., Inc., 815 F.2d 391, 398-99 (6th Cir.1987).
Defendants assert that this case and the judgment are barred by the doctrine of res judicata because claims in this case and the Kentucky state court case arise from the same transaction and occurrence. A claim is barred by res judicata when: (1) there is a final decision on the merits by a court of competent jurisdiction; (2) a subsequent action between the same parties or their 'privies' is brought; (3) regarding an issue in the subsequent action which was litigated or which should have been litigated in the prior action; and (4) an identity of the causes of action. See Browning v. Levy, 283 F.3d 761, 771 (6th Cir.2002).
The Court agrees with Defendants that res judicata applies in this case. The final order dismissing the Kentucky state court case was filed on September 8, 2003, before default judgment was awarded in the case at bar. That order specifically stated that "all claims between the parties ... which arose or occurred on or before the date of settlement, specifically February 25, 2003, have been settled and, therefore, said claims be, and hereby are, released, satisfied and waived by this settlement and dismissal." (Ex. D to Defs' Mot.). Therefore, based on the terms of the final order of settlement, any claims arising between the parties before February 25, 2003 are barred. The claims Plaintiff has asserted in the case at bar arose before February 25, 2003, and in fact are the exact same claims that were at issue in the Kentucky state court litigation which have been resolved. Therefore, the default judgment in this case was improper. Plaintiff's claims are barred by res judicata.
A judgment may also be set aside if it is void. Fed.R.Civ.P. 60(b)(4). Improper service of process renders a judgment obtained thereby void. See Ruehle v. Educ. Credit Mgmt. Corp. (In re Ruehle), 307 B.R. 28, 33 (B.A.P. 6th Cir.2003).
Rule 4 of the Federal Rules of Civil Procedure sets for the procedure by
which service shall be made upon individuals within the United States. Rule
4(e) specifically provides:
Unless otherwise provided by federal law, service upon an individual from who a waiver has not been obtained and filed, other than an infant or an incompetent person, may be effected in any judicial district of the United States:
(1) pursuant to the law of the state in which the district court is located, or in which service is effected, for the service of a summons upon the defendant in an action brought in the courts of general jurisdiction of the State; or
(2) by delivering a copy of the summons and of the complaint to the individual personally or by leaving copies thereof at the individual's dwelling house or usual place of abode with some person of suitable age and discretion then residing therein or by delivering a copy of the summons and of the complaint to an agent authorized by appointment or by law to receive service of process.
The Court is concerned that despite the language set forth above, Plaintiff's process server simply left two copies of the complaint and summons at what Dr. Senu-oke must have informed the server was the Pembertons' home in Danville, Kentucky. While the rule provides for leaving copies, they must be left with some person of suitable age and discretion residing therein (emphasis added). There is no evidence that anyone even resides at this Danville address.
Further, there is no evidence as to what type of structure exists at the Danville address. We do know that all mail that has been sent to that address has been returned because there is no mail receptacle there. Dr. Senu-oke, however, had knowledge and had in fact been to the Pembertons home in Junction City, Kentucky, yet did not instruct the server to deliver the complaint and summons to that address. In addition, the server claims to have served the Pembertons' former attorney Mr. H. Vincent Pennington, III, however, he declares in an affidavit that he did not receive any such documents, nor was he authorized to do so. Therefore, for this additional reason, the Court finds the default judgment in this case void based on improper service.
The Court is, however, concerned that Rule 60(b) requires a timely filing for relief from a default judgment. The Pembertons have filed this Motion approximately three years after default judgment was entered against them. However, what constitutes a reasonable time depends on the facts of each case. See Days Inns Worldwide, Inc. v. Patel, 445 F.3d 899, 906 (6th Cir.2006). In this case, the reason for the delay is because the Pembertons were not made aware of this lawsuit until they recently went to refinance their home and were advised that a lien had been put on their house as a result of a judgment. There is no proof that the Pembertons ever saw the summons and complaint in this case. Further, Dr. Senu-oke never made the Pembertons or the state court aware of this action during the course of the state court proceeding. Based on Dr. Senu-oke's actions during the state case, the Pembertons argue that Dr. Senu-oke knowingly used an incorrect address and provided false testimony to prove service to procure the default judgment.
The Court finds that based on Rules 60(b)(1) and (b)(4) of the Federal Rules of Civil Procedure that default judgment in this case was not proper and should be set aside. Defendants' Motion for Relief from Judgment is therefore granted. Further, based on the res judicata analysis, the Court finds that this case is not proper and should be dismissed with prejudice.
Defendants seek sanctions in this action for two reasons. First, Defendants argue that Plaintiff Dr. Senu-oke represented during the state court litigation that he was an attorney. Regardless of Dr. Senu-oke's actions in the state court, this is not the proper forum to raise them, that should have been addressed at the state court. Second, Defendants argue that Dr. Senu-oke's persistence in seeking default judgment in this case should be sanctioned because the dispute between the parties had already been resolved in state court. The Court agrees that sanctions are appropriate under Rule 11 based on Defendants' second argument.
The test for imposition of Rule 11 sanctions as set forth by the Sixth Circuit is "whether the individual's conduct was reasonable under the circumstances." Pittman v. Mich. Corr. Org., SEIU, Local 526, 123 Fed. Appx. 637, 641 (6th Cir.2005). Plaintiff, Dr. Senu-oke was well aware that the same claims he asserted in this case were being litigated in Kentucky state court. While Plaintiff may have initiated this case first, it was the Kentucky case where both parties appeared and came to a resolution. If Dr. Senu-oke would have mentioned to the Kentucky court or even to Defendants during the course of that litigation that he filed this suit, default judgment would not have been awarded and the Court would not be addressing this Motion. Accordingly, the Court finds that Plaintiff, Dr. Senu-oke's conduct in proceeding with the litigation in two separate jurisdictions while failing to inform each court about the other was unreasonable. The Court therefore imposes sanctions against Plaintiff, Dr. Senu-oke. Plaintiff shall pay to Defendants their actual attorney's fees incurred in seeking relief from default judgment in this case only. Defendants shall file their statement of attorney's fees with the Court no later than December 15, 2006. Plaintiff shall then file any response no later than December 29, 2006. The Court will then consider the reasonableness of the attorney's fees and enter final judgment with the amount Plaintiff owes Defendants.
Based on the aforementioned, the Court GRANTS Defendants' Motion for Relief from Judgment (Doc. 26).
The Clerk shall remove Doc. 25 (the first Motion for Relief from Judgment) and Doc. 26 (the amended motion) from the Court's pending motions list.
The Clerk shall remove this case from the Court's pending cases list. The Clerk shall refrain from entering final judgment in this matter until the amount of sanctions Plaintiff shall pay Defendants has been determined.
IT IS SO ORDERED.