Free Order on Motion to Amend/Correct - District Court of Arizona - Arizona

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WO

IN THE UNITED S TATES DIS TRICT COURT FOR THE DIS TRICT OF ARIZONA

an) ) ) Plaintiff, ) ) ) vs. ) ) Bristol Inns, LLC, a Tennessee limited) ) liability company; and Desiree Keithan, ) Defendants. ) ) ) Best Western Internat ional, Arizona non-profit corporation,, Inc.,

No. 04-0661-PHX-DGC ORDER

Defendants Bristol Inns, LLC and D es iree Keithan have filed an Amended M otion for Relief from Judgment. See Doc. #15. P laint iff has filed a response and Defendants have filed a reply. See Doc. ##17, 20. The Court has also considered documents filed by

Defendants under seal. See Doc. #19. The Court p reviously entered a default judgment in favor of Plaintiff on the basis of Defendants' failure to respond to the complaint. See Doc. #12. D efendant s explain in their Amended M otion that D efendant K eithan failed to respond to the complaint because she was informed by her boss, M ack Trammell, that the company would hire an attorney to defend the action. Defendants as sert that M r. Trammell and Bristol failed to respond to the complaint because M r. Trammell suffers from medical problems that affect his memory, and he simply has no memory of receiving the complaint. Defendants have filed medical

documents under seal in support of M r. Trammell's medical condition.

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Defendants rely in part on Rule 60(b)(1) of the Federal Rules of Civil Procedure, which grants district courts discretion to relieve a party from a judgment on the basis of "mistake, inadvertence, surprise, or excusable neglect." D efendants also seek relief under

Rule 60(b)(3) (fraud) and 60(b)(6) (any other reason justifying relief). The Court's decision in this matter is guided by TCI Group L ife Ins . Plan v. Knoebber, 244 F.3d 691 (9th Cir. 2001). T he N int h Circuit explained in TCI that "default judgments are disfavored." Id. at 694. Whether a party is entitled t o relief under Rule

60(b)(1) turns on three factors: "'whether the defendant's culpable conduct led to the default; whether the defendant has a meritorious defens e; and whether reopening the default judgment would p rejudice the plaintiff." Id. at 696. The Ninth Circuit explained that this three-part inquiry comports with the factors identified by the Supreme Court in Pioneer Inv. Servs. Co. v. Brunswich Assocs. Ltd. P'ship, 507 U.S. 380, 395 (1993). TCI, 244 F.3d at 696. The Court concludes t hat t he default judgment in this case was not the result of Defendants' culpable conduct . The Ninth Circuit has explained that "'a defendant's

conduct is culp able if he has received actual or constructive notice of the filing of the action and intentionally failed t o ans wer.'" Id. 697 (quoting Allen Newman Prods., Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988)) (emphasis in original). The court noted that the word "neglect" in the "excusable neglect" standard of Rule 60(b)(1) "'encompasses simp le, faultless omissions to act and, more commonly , omissions caused by carelessness.'" Id. (quoting Pioneer, 507 U.S. at 388). Based on facts submitted by Defendants and not disputed by P laint iff, the Court concludes that the default judgment in this case was not the result of Defendant s ' culpable conduct. Defendant Keithan relied on assurances by her bos s t hat t he action would be Defendant Bristol's failure to resp ond was based on M r.

defended by corporate counsel. Trammell's medical condition.

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The second consideration under TCI as ks whether Defendants have a meritorious defense. "A defendant seeking to vacate a default judgment must present specific facts Id. at 700. If the "defendant presents no meritorious Id. at

that would constitute a defense."

defense, then nothing but pointless delay can result from reopening the judgment." 697.

D efendants articulate a defense only with respect to the portion of the Court 's default judgment that awarded $506,514.61 in liquidated damages. Defendants have

presented specific facts to suggest they have a meritorious defense to this claim. Defendants have not made such a showing, how ever, w it h respect to the other portions of the Court's judgment: (1) the award of $3,563.82 under Counts I and II of the Complaint, plus interest at the rate of 1.5% per month from J une 1, 2004 until paid in full; (2) the award of injunctive relief related to Defendants' use of Plaintiff's trademarks and service marks ; and (3) the award of $4,441.55 in at t orney s ' fees and costs. Therefore, assuming each of the factors set forth in TCI is satisfied, the Court will set aside only that portion of the default judgment related to liquidated damages. T he third consideration under TCI addresses prejudice to the plaintiff. "T o be

prejudicial, t he setting aside of a judgment must result in greater harm than simply delaying resolution of the case." Id. at 701. The standard is whether Plaintiff's ability to pursue its claim will be hindered. Id. Plaintiff argues that it is prejudiced by t he delay due to M r. Trammell's loss of memory and his consequent inability to provide relevant evidence. The medical evidence provided by Defendants, however, demonstrates that M r. Trammell's medical condition has existed since at least 2000, and possibly s ince 1997. See Doc. #19. Thus, Defendants' delay in responding t o t he complaint has not caused the loss of any evidence in the possession of M r. Trammell. The Court has identified no additional

prejudice to Plaintiff that will result from reopening the judgment.

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Applying the three-part analysis s et forth in TCI, the Court concludes that the portion of the default judgment awarding liquidat ed damages of $506,514.61 should be vacated. All other portions of the judgment shall remain in effect.1 Defendants argue that Plaint iff's motion should be denied because of the almost one-year delay between entry of the default judgment and filing of the Amended M otion. Defendants have provided evidence suggesting that they first learned of the default judgment on August 10, 2005. Plaintiff asserts that a let t er regarding the default judgment was sent t o D efendants in October of 2004, but the supporting affidavit fails to attach copies of the letter and Defendants deny receiving such notice. M oreover, Rule 60(b)

specifically states that a motion for relief under Rule 60(b)(1) may be filed within one year of judgment. Consistent with the Ninth Circuit's teaching that default judgments are not

favored, the Court w ill not deny the Amended M otion that was filed within this one-year time period. In light of the Court's ruling, it appears that three issues now remain in the cas e: (1) whether Plaintiff is entitled to recover liquidated damages ; (2) if so, the proper amount of liquidated damages; and (3) if liquidated damages cannot be recovered, whether Plaintiff has suffered actual damages that are compens able in this case. On or before November 4, 2005, the parties shall file a joint case management report setting forth a proposal for the prompt resolution of these questions. A cas e management conference will be held on

November 16, 2005 at 4:00 p.m. to establish a schedule for completing this litigation.

D efendants also argue that the default judgment should be set aside under Rule 60(b)(3). The only evidence present ed in s up port of this argument, however, concerns allegedly incorrect information related to the amount of liquidated damages. Thus, the only portion of the judgment that would be set aside under Rule 60(b)(3) would be the award of liquidated damages. Defendant s p rovide no basis for setting aside any other portion of the judgment under Rule 60(b)(6). -4Filed 10/26/2005

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IT IS HEREBY ORDERED: 1. D efendants' Amended M otion for Relief from Judgment (Doc. #15) is gran te d in part and denied in part as set forth above. 2. 3. Defendants' M otion to Set Aside Judgment (Doc. #13) is denied as moot. The Court's Default Judgment (Doc. #12) and Order (Doc. #11) are modified to eliminate the award of liquidated damages under Count III of the Complaint in the amount of $506,514.61. All other terms of the Default

Judgment (Doc. #12) and Order (Doc. #11) remain in effect. 4. A case management conference will be held on November 16, 2005 at 4:00 p.m. DATED this 19th day of October, 2005.

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