Free Motion to Set Aside - District Court of Arizona - Arizona

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BEAUGUREAU, ZUKOWSKI & HANCOCK, P.C. 2111 East Highland Avenue Suite 255 Phoenix, Arizona 85016 (602) 956-4438

Terrance L. Sims (#009566) E-mail: [email protected] Attorney for Defendants Bristol Inns, L.L.C. and Desiree Keithan

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

Best Western International, Inc., an Arizona non-profit corporation, Plaintiff,

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vs. Bristol Inns, L.L.C., a Tennessee limited, liability company; and Desiree Keithan, Defendants.

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No. CV-04-661-PHX-DGC

MOTION FOR RELIEF FROM JUDGMENT

(Oral Argument Requested)

(Assigned to Hon. David G. Campbell)

Pursuant to Fed. R. Civ. P. 60(b), Defendants Bristol Inns, L.L.C. ("Bristol Inns") and Desiree Keithan ("Keithan"), by and through their counsel undersigned, move the

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Court for relief from the order and default judgment obtained by Plaintiff Best Western International, Inc. ("Best Western") dated September 16, 2004. (Docket Entries 11 and 12.) The grounds for this motion are stated in the following Memorandum of Points and Authorities. ...

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MEMORANDUM OF POINTS AND AUTHORITIES I. STATEMENT OF CASE AND FACTS Defendants Bristol Inns and Keithan seek relief from the default judgment in this

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case for two principal reasons. First, the judgment is the result of "mistake, inadvertence, . . . or excusable neglect" within Fed. R. Civ. P. 60(b)(1). Second, the judgment is the result of "misrepresentation . . . of an adverse party" within Fed. R. Civ. P. 60(b)(3). Defendants therefore ask the Court to vacate the judgment and to permit them to defend the case on the merits. This case involves a "Membership Application and Agreement" dated July 10,

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1998, between Best Western and Bristol Inns. Among other things, the Agreement authorized Bristol Inns to operate as a Best Western motel and to use Best Western marks. The complaint alleges that Best Western terminated the Agreement on October 22, 2003, and that Bristol Inns failed to remove its Best Western sign and other marks within 15 days as required by the Agreement.

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The complaint names Bristol Inns and Keithan as defendants. At the time the complaint was filed, Bristol Inns had changed its name to Bristol Lodging Services, L.L.C. ("Bristol Lodging"). This change of name was public information available

through the Tennessee Secretary of State website, www.tennesseeanytime.org. Keithan is a salaried employee of the motel. She was named as an additional defendant based on a document she signed to become the "Voting Member" under the

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Agreement. The complaint alleges that a Voting Member is jointly and severally liable for the obligations of the motel. 2
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On April 12, 2004, the complaint was served on Desiree Keithan in Virginia. On April 14, 2004, the complaint was served on Don Cooper, registered agent for Bristol Inns and later Bristol Lodging, in Tennessee.

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For the reasons explained below, neither defendant filed responsive pleadings as required by Rule 12. Fed. R. Civ. P. 12(a)(1)(A) and (Bb). As a result, Best Western moved for a default judgment. (Docket Entry 8.) In support of its motion, Best Western submitted an affidavit from Deborah Wesson, a representative of Best Western, stating that the Agreement had been terminated and that the motel was continuing to use the Best Western marks. (Docket Entry 8.) Best Western provided no evidence, however,

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establishing the amount of its damages. The Court ordered Best Western to submit evidence establishing the amount of its damages. See Order dated June 28, 2004. (Docket Entry 9.) Best Western was directed to provide support for the $2,469.13 allegedly owed on an account, as well as the facts necessary to adjudicate Best Western's claim for liquidated damages. Because the

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liquidated damages provision in the Agreement is based on the "mean" rate for rooms, Best Western was ordered to submit evidence showing the mean rate. Through a second affidavit from Ms. Wesson, Best Western informed the Court that one of its publications showed that the motel had published rates ranging from $69 per night to $210 per night. (Docket Entry 10.) However, nowhere in the Agreement is the mean rate stated to be a published rate, as opposed to the actual rate. See ¶ 24

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of Agreement attached as Exhibit A to first Wesson affidavit. (Docket Entry 8.) Wesson then stated, "Using such rates, the mean rate would be $137.25." (Id.) Best 3
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Western did not inform the Court that the actual average rate for the motel was approximately $94 less than the average published rate stated in the Wesson affidavit. Based on the Wesson affidavit, the Court used $137.25 as the mean room rate in

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calculating plaintiff's claim for liquidated damages. See Order dated September 16, 2004. (Docket Entry 11.) This resulted in a judgment of $506,514 in Count III of the complaint (15% times $137.25 per room times 177 rooms times 139 days). Using the actual mean rate, the judgment would have been $159,501 (15% times $43.22 per room times 177 rooms times 139 days). The judgment entered by the Court on September 16, 2004, granted Best Western

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the following relief: 1. 2. 3. 4. A judgment for $3,563.82 for amounts due on an account. A judgment for $506,514.61 for liquidated damages. An injunction against use of Best Western marks. A judgment in the amount of $4,441.55 for attorney's fees and costs.

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While Best Western submitted invoices and records in support of its claim on the account and its claim for attorney's fees, it submitted no evidence of the amount of any actual damages from the unauthorized use of its marks. The judgment for $506,514.61 was based entirely on the liquidated damage provision of the Agreement. In August 2005, defendants learned of the default judgment. Thereafter,

defendants retained counsel to file a motion for relief from the judgment under Rule
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60(b).

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With the motion for relief, defendants have submitted a declaration from Desiree Keithan, General Manager of Operations for the motel. Ms. Keithan is a salaried

employee and has no ownership interest in the motel. Ms. Keithan believed that the
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defense of the suit was being handled by Don Cooper, the attorney who was served with the complaint as registered agent for Bristol Inns. See Keithan Declaration at ¶ 6, attached as Exhibit 1. This belief was based on a conversation that Keithan had with her boss, Mack Trammell, who told Keithan that Cooper was handling the matter. Id.

However, Mr. Trammell did not in fact hire Mr. Cooper to defend the case, nor ask him to take any further action in regard to it. See Declaration of Don W. Cooper

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attached as Exhibit 2, at ¶ 5. Defendants have also submitted a declaration from Mack Trammell. Mr.

Trammell is chief manager of the LLC that operates the motel. Mr. Trammell is 78 years old and has been in poor health. Unfortunately, Mr. Trammell has no memory of service of the complaint or arrangements to defend it. See Declaration of Mack Trammell

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attached as Exhibit 23. In addition, defendants have submitted a declaration from Carol P. Trammell, wife of Mack Trammell. In this declaration, Carol Trammell explains why her husband

cannot remember the events in question. A medical report is attached to the declaration. Because this declaration and report contain confidential information concerning the mental and physical health of Mr. Trammell, defendants have submitted these documents

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for filing under seal. See Motion to Seal Certain Documents and Memorandum in Support. 5
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II.

ARGUMENT A. The Standards for Relief Under Rule 60(b).

Under Rule 60(b), the Court is authorized to relieve a party from a final judgment
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on a number of grounds. These include "mistake" or "excusable neglect" by the party seeking relief from the judgment (subparagraph 1); "misrepresentation" or "other misconduct" by the party who obtained the judgment (subparagraph 3); and "any other reason justifying relief from the operation of the judgment" (subparagraph 6). The motion must be made within "a reasonable time," and, in case of mistake or excusable neglect or misrepresentation, not more than one year from the date of the judgment.

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The Supreme Court of the United States has identified a number of factors that should be considered in determining whether to grant relief for excusable neglect. In Pioneer Investment Services Co. v. Brunswick Associates Limited Partnership, 507 U.S. 380 (1993), the Court considered "excusable negligent" in the context of Federal Rule of Bankruptcy Procedure 9006(b)(1), which parallels Federal Rule of Civil Procedure

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60(b)(1). The Court held that excusable neglect is an equitable concept that takes into account all the facts and circumstances of a party's failure to act. "These include . . . [1] the danger of prejudice to the [respondent], [2] the length of the delay and its potential impact on judicial proceedings, [3] the reason for the delay, including whether it was within the reasonable control of the movant, and [4] whether the movant acted in good faith." Id. at 395.

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The Court of Appeals for the Ninth Circuit has held that the four factors listed in Pioneer also apply to cases under Rule 60(b)(1). Briones v. Riviera Hotel & Casino, 116 6
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F.3d 379, 381 (9th Cir. 1997). "These four enumerated factors, while not an exclusive list, provide a framework with which to determine whether missing a filing deadline constitutes `excusable' neglect." Id.

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In determining whether to vacate a default judgment, the Court of Appeals has also considered "whether the defendant's culpable conduct led to the default; whether the defendant has a meritorious defense; and whether reopening the default judgment would prejudice the plaintiff." TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir. 2001) (denominating these considerations as "Falk factors" based on Falk v. Allen, 739 F.23d 461, 463 (9th Cir. 1984), a decision that predates Pioneer).

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Correspondingly, under Rule 60(b)(3), a judgment may be set aside for fraud or misrepresentation. This provision is directed at judgments that are "unfairly procured." De Saracho v. Custom Food Machinery, Inc., 206 F.3d 874, 880 (9th Cir. 2000). While fraud or misrepresentation must be shown by clear and convincing evidence, id., the movant does not have to show that the representation was intentionally false. Lonsdorf v.

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Seefeldt, 47 F.3d 893, 897 (7th Cir. 1995). Rule 60(b)(3) "applies to both intentional and unintentional misrepresentation." Id. Where a party applies for an ex parte order such as an order granting a default judgment, the party must take care that all material facts are presented, "whether or not the facts are adverse." Rules of Prof. Conduct E.R. 3.3(d), Rules of Ariz. Sup. Ct. 42. With respect to default judgments, the Court of Appeals has emphasized that the

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Rule is remedial in nature and should must be liberally applied. TCI Group, 244 F.3d at 696. Default judgments are "appropriate only in extreme circumstances; a case should, 7
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whenever possible, be decided on the merits." Id. (quoting Falk, 739 F.23d at 463.) "Put another way, where there has been no merits decision, appropriate exercise of district court discretion under Rule 60(b) requires that the finality interest should give way fairly

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readily, to further the competing interest in reaching the merits of a dispute." Id. B. The Default Judgment Should Be Vacated.

The Pioneer factors weigh in favor of defendants. First, Best Western will not be prejudiced by vacation ofvacating the judgment. Best Western retains the full right and ability to prosecute its claims on their merits. Losing the default judgment is not

"prejudice" under Rule 60(b)(1). Bateman v. United States Postal Service, 231 F.3d
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1220, 1224-25 (9th Cir. 2000). Otherwise, a default judgment could never be overturned. Second, while it has been almost a year since the default judgment was entered, there have been no judicial proceedings in the meantime. Vacating the default judgment will not adversely impact any judicial proceedings. It will simply allow the case to go forward on its merits.

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Third, the defendants have offered a reasonable explanation for their failure to act. Ms. Keithan took no action because she was told by her boss, Mr. Trammell, that the company lawyer would be handling the case. Mr. Trammell himself has been in poor health and simply has no memory of the events in question. His mental and physical health are addressed in the declaration of Carol Trammell and the medical report attached to the declaration.

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Fourth, Defendants have acted in good faith. They promptly hired counsel and filed this motion after learning of the default judgment. 8
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Defendants ask only for

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permission to contest the merits of plaintiff's claims. They have not sought or obtained any advantage by not answering the case within the time normally allowed. Likewise, the defendants should have relief under the Falk factors. The

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defendants' failure to answer is excusable, not culpable.

Rule 60(b)(1) expressly

contemplates that the failure to answer may be the result of some "neglect." The word "neglect" includes "carelessness." Pioneer, 507 U.S. at 388. The Rule does not condone a devious, deliberate, or bad faith failure to respond, but there is no evidence of that that is not what happened in this case. TCI Group, 244 F.3d at 697-98. The second Falk factor examines whether the defendant has a meritorious defense.

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Id. at 696. At this point, defendants do not seek to contest the claim on the open account, but they do seek to contest the other claims, particularly the claim for liquidated damages. The claim for liquidated damages not only vastly overstates Plaintiff's actual damages;, it vastly overstates the liquidated amount allegedly due under the contract. Defendants intend to show that the liquidated damages are unreasonable and constitute a

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voidable penalty, and that, theyeven if the liquidated damages provision is enforceable, they those damages have been misrepresented. The recent decision in In re Vantage Investments, Inc., 328 B.R. 137, 2005 Bankr. LEXIS 1482 (Bankr. W.D. Mo. 2005), proves the point. Although the Court upheld Best Western's liquidated damage provision in that case, it declared that the provision requires Best Western to use the actual average daily room rate charged by the motel ­ not some

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hypothetical rate from Best Western publications. Id., 328 B.R. 145-46; 2005 Bankr. LEXIS 1482 at **20-21. 9
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The final Falk factor assesses the prejudice to the defendantrespondent, plaintiff here. As discussed earlier, there is none in this case. For the reasons already discussed, the defendants are also entitled to relief under

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Rule 60(b)(3). As noted, the actual mean room rate for the motel was not $137.25 as represented by Best Western. Instead, the actual mean rate was $43.22. Best Western knew the actual rate was much less than the rate it represented to the Court. Finally, to the extent that defendants are not relieved from the default judgment under Rule 60(b)(1) and 60(b)(3), defendants seek relief under the catch-all provision of Rule 60(b)(6), "any other reason justifying relief from the operation of the judgment."

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When all the facts are considered, the judgment is not equitable, and it should be vacated. III. CONCLUSION WhereforeFor all the foregoing reasons, defendants ask the Court to vacate the judgment and to permit it them to defend Plaintiff's claims on their merits. RESPECTFULLY SUBMITTED this _____ 13th day of September, 2005.

BEAUGUREAU, ZUKOWSKI & HANCOCK, P.C. By: __ Terrance L. Sims 2111 East Highland Avenue Suite 255 Phoenix, Arizona 85016 Attorneys for Defendants Bristol Inns, L.L.C. and Desiree Keithan ... /s/ Terrance L. Sims

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... CERTIFICATE OF SERVICE I hereby certify that on September 13th ___, 2005, I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system which will send notification of such filing to: Michael G. Helms, Esq., Kothe & Helms, P.C., 3200 North Central Avenue, Suite 1260, Phoenix, Arizona 85012, counsel for Plaintiff. I also

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mailed on said date a paper copy of the foregoing to said attorney at the foregoing address. By: /s/ Terrance L. Sims Terrance L. Sims

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