Veterans Brothers No. 126, L.L.C. v. 7-Eleven, Inc., No. 2:2016cv00272 - Document 114 (E.D. La. 2016)

Court Description: ORDER & REASONS denying 69 Motion for Default Judgment; granting 73 Motion to Set Aside Default; SEI Fuel's motion for summary judgment is DENIED WITHOUT PREJUDICE. Signed by Judge Sarah S. Vance on 12/27/2016. (Reference: 16-272)(mmm)

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Veterans Brothers No. 126, L.L.C. v. 7-Eleven, Inc. Doc. 114 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA VETERANS BROTHERS NO. 126, L.L.C., ET AL. CIVIL ACTION VERSUS NO. 16-272 7-ELEVEN, INC., ET AL. SECTION “R” (2) APPLIES TO: NO. 16-434 NO. 16-20 34 ORD ER AN D REASON S Before the Court is Third-Party Defendants Im ad Ham dan, Brothers Veterans, LLC, Brothers Avondale, LLC, and Brothers Lapalco, LLC’s (ThirdParty Defendants) consolidated m otion to set aside the default entered against them on September 9, 20 16. 1 Also before the Court is Third-Party Plaintiff SEI Fuel Services, Inc.’s m otion for default judgm ent against thirdparty defendants, or in the alternative, m otion for partial sum m ary judgm ent. 2 Because the Court finds that third-party defendants’ failure to respond to the com plaint was not willful, that third-party plaintiff will not be prejudiced, and that the defendants present potentially m eritorious defenses, the Court GRANTS the third-party defendants’ m otion to set aside 1 R. Doc. 73. All docket entries refer to case 2:16-cv-0 0 272 unless otherwise specified. 2 R. Doc. 69. Dockets.Justia.com the entry of default. For the sam e reasons, the Court DENIES third-party plaintiff’s m otion for default judgm ent and for partial summ ary judgm ent. I. BACKGROU N D This case is a consolidation of three lawsuits, and the procedural history of the cases can be hard to follow due to the nam es and corporate identities of all of the players. On Decem ber 7, 20 15, Veterans Brothers No. 126, LLC filed suit against 7-Eleven, Inc., in the 24 th J udicial District Court for the Parish of J efferson, Louisiana. 3 The suit alleges that despite 7Eleven’s claims that it has the exclusive contractual right to sell and distribute m otor fuel to Veterans Brothers, Veterans Brothers is not, and has never been, a party to the alleged contract. 4 In the sam e court on the sam e day, Lapalco Brothers No. 125, LLC filed an identical suit against 7-Eleven, m aking the same allegations as the Veterans Brothers suit. 5 rem oved both suits to this Court on J anuary 11, 20 16. 6 3 4 5 6 R. Doc. 1. R. Doc. 1-1 at 1. R. Doc. 1-1 at 1 in 2:16-cv-0 0 454. R. Doc. 1; R. Doc. 1 in 2:16-cv-0 0 454. 2 7-Eleven On J anuary 26, 20 16, Avondale Brothers No. 128, LLC filed a lawsuit in state court identical to those filed by Veterans Brothers and Lapalco Brothers, except this suit was against SEI Fuel rather than 7-Eleven. 7 On February 2, 20 16, Veterans Brothers and Lapalco Brothers substituted SEI Fuel for 7-Eleven, 8 and on March 10 , 20 16, SEI Fuel rem oved the Avondale Brothers suit to this Court. 9 On March 15, the Court consolidated the three cases. 10 On March 11, SEI Fuel filed its answer to the Veteran Brothers lawsuit, and filed counterclaim s against Veteran Brothers, but also nam ed Brothers Veterans, LLC, and Im ad Ham dan, as third-party defendants. 11 On the sam e day, it answered the Lapalco Brothers suit, and filed counterclaim s not only against Lapalco Brothers, but also against Brothers Lapalco, LLC, and Ham dan. 12 On March 28, 20 16, SEI Fuel filed its answer to the Avondale Brothers suit and filed counterclaim s against Avondale Brothers, Brothers Avondale, LLC, and Ham dan. 13 7 8 9 10 11 12 13 R. Doc. 1-1 at 1 in 2:16-cv-0 20 34. R. Doc. 13. R. Doc. 1 in 2:16-cv-0 20 34. R. Doc. 21. R. Doc. 18. R. Doc. 19. R. Doc. 23. 3 SEI Fuel’s counterclaim s alleged that despite the difference in names of the corporate entities (e.g. Avondale Brothers vs. Brothers Avondale), the entities operated as a single business enterprise. SEI Fuel sought a declaratory judgment that the corporate entities (no m atter how they are nam ed) are obligated to com ply with the alleged fuel contracts. SEI Fuel also brought claim s for anticipatory breach of contract and for unfair trade practices under the Louisiana Unfair Practices and Consum er Protection Law. SEI Fuel served Brothers Lapalco 14 and Brothers Veterans 15 on May 24, 20 16, and served Brothers Avondale 16 and Ham dan on May 25. 17 Neither Brothers Lapalco, Brothers Veterans, Brothers Avondale, nor Ham dan answered the counterclaim s in a tim ely m anner, and on September 9, 20 16, SEI Fuel sought an entry of default as to those third-party defendants. 18 On the sam e day, the Clerk of Court issued an Entry of Default against those third-party defendants. 19 On October 12, 20 16, SEI Fuel m oved the Court to 14 R. Doc. 38. R. Doc. 40 . 16 R. Doc. 37. 17 R. Doc. 39. 18 R. Doc. 48 (Veterans); R. Doc. 52 (Avondale); R. Doc. 55 (Lapalco); R. Doc. 49, 51, and 53 (Ham dan). Veterans Brothers, Lapalco Brothers, and Avondale Brothers answered SEI Fuel’s counterclaim s. 19 R. Doc. 57 (Veterans); R. Doc. 60 (Avondale); R. Doc. 62 (Lapalco); R. Doc. 58, 59, and 61 (Hamdan). 4 15 enter a default judgm ent against the third-party defendants. 20 Two days later, Brothers Veterans, Brothers Avondale, Brothers Lapalco and Ham dan filed a m otion to set aside the entry of default. 21 The third-party defendants did not file their answers to SEI Fuel’s counterclaim s until November 30 , 20 16. 22 II. LEGAL STAN D ARD Federal Rule of Civil Procedure 55(c) provides that a district court m ay set aside an entry of default “for good cause shown.” Fed. R. Civ. P. 55(c). Good cause, for purposes of Rule 55(c), “is not susceptible of precise definition, and no fixed, rigid standard can anticipate all of the situations that m ay occasion the failure of a party to answer a com plaint tim ely.” Dierschke v. O’Cheskey , 975 F.2d 181, 183 (5th Cir. 1992). In determ ining whether good cause exists to set aside an entry of default, the Court considers “(1) whether the failure to act was willful; (2) whether setting the default aside would prejudice the adversary; and (3) whether a m eritorious claim has been presented.” Effjohn Int’l Cruise Holdings, Inc. v. A & L Sales, Inc., 346 F.3d 552, 563 (5th Cir. 20 0 3). These factors are, however, nonexclusive, and 20 21 22 R. Doc. 69. R. Doc. 73. R. Doc. 10 3; R. Doc. 10 4; R. Doc. 10 5. 5 the Court should consider all relevant circum stances against the background principles that cases should be resolved on the merits. See Lacy v. Sitel Corp., 227 F.3d 290 , 292 (5th Cir. 20 0 0 ) (“[F]ederal courts should not be agnostic with respect to the entry of default judgm ents, which are generally disfavored in the law and thus should not be granted on the claim , without m ore, that the defendant had failed to m eet a procedural tim e requirem ent.”) (internal citation om itted); see also Am berg v. Fed. Deposit Ins. Corp., 934 F.2d 681, 686 (5th Cir. 1991) (“Federal Rules are diametrically opposed to a tyranny of technicality; . . . [s]trict enforcement of defaults has no place in the Federal Rules. . . .”). Further, setting aside an entry of default is not subject to the strict standards of setting aside a final judgm ent under Rule 60 . See 20 15 Amendm ent to Fed. R. Civ. P. 55 (“The dem anding standards set by Rule 60 (b) apply only in seeking relief from a final judgm ent.”). Though resolution of cases on the m erits is preferable, the willful failure of a party to answer the com plaint m ay provide sufficient justification to deny a m otion to set aside an entry of default. See Dierschke, 975 F.2d at 184; CJC Holdings, Inc. v. W right & Lato, Inc., 979 F.2d 60 , 63 (5th Cir. 1992); Hargray v. City of N ew Orleans, 12 F.3d 10 99 (5th Cir. 1999) (stating that a willful failure to answer indicates a lack of good cause). A failure to file an answer that results from excusable neglect is not willful. 6 See Am erican Airlines, Inc. v. Reinis, 21 F.3d 110 7 (5th Cir. 1994); see also CJC Holdings, 979 F.2d at 64; Parker v. Bill Melton Trucking, Inc., No. 15-2528, 20 16 WL 570 4172, at *2 (N.D. Tex. Oct. 3, 20 16) (“Willfulness is determ ined by applying the excusable neglect standard.”) (citation omitted). III. D ISCU SSION In support of their m otion to set aside, third-party defendants argue that their failure to respond to SEI Fuel’s counterclaim s was the product of receiving an inform al extension of tim e to respond, com bined with an overseas emergency in Israel that Ham dan had to attend to. 23 The thirdparty defendants further argue that SEI Fuel will not be prejudiced if the Court sets aside the entry of default and that the third-party defendants possess a m eritorious defense. 24 SEI Fuel contends that third-party defendants willfully failed to plead and did not expeditiously m ove to set aside the entry of default. 25 Further, it contends that SEI Fuel will be prejudiced if the default is set aside and that third-party defendants do not possess a m eritorious defense. 26 Though the 23 24 25 26 R. Doc. 73-1 at 5. Id. at 6-7. R. Doc. 83 at 4. Id. at 7-8. 7 Court acknowledges that third-party defendants would be well-served by paying m ore attention to deadlines and filing requirements, because the requirement of good cause is “interpreted liberally,” Am berg, 934 F.2d at 685, the Court finds that third-party defendants have m et their burden to set aside the entry of default against them . A. Th ird -Party D e fe n d an ts H ave Sh o w n Go o d Cau s e 1. Third-party defendants’ failure to respond w as not w illful The Court finds that the third-party defendants have shown good cause to set aside the entry of default against them . Fed. R. Civ. P. 55(c). First, the Court finds that the third-party defendants’ failure to file a tim ely answer in this m atter am ounts to excusable neglect rather than willful conduct. See Bona Fide Dem olition & Recovery , LLC v. Crosby Const. Co. of Louisiana, No. 0 7-3115, 20 0 9 WL 40 60 192, at *3 (E.D. La. Nov. 20 , 20 0 9) (setting aside default where failure to respond was product of excusable neglect). The determ ination of whether neglect is excusable is “at bottom an equitable one, taking account of all relevant circum stances surrounding the party’s om ission, including the danger of prejudice to the non-movant, the length of the delay and its potential im pact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the m ovant, and whether the movant acted in good faith.” In re FEMA Form aldehy de 8 Products Liability Litigation, MDL No. 0 7-1873, 20 12 WL 458821, at *6 (E.D. La. Feb 13, 20 12) (internal quotation and punctuation m arks om itted) (quoting Pioneer Inv. Servs. Co. v. Brunsw ick Assocs Ltd. P’ship, 50 7 U.S. 380 , 395 (1993)). In Im ad Ham dan’s declaration attached to third-party defendants’ m otion, he states that he is responsible for m anagement and litigation strategy decisions for Brothers Veterans, Brothers Lapalco, and Brothers Avondale, and therefore their failure to respond is attributable to him . 27 Further, he declares that during the sum m er of 20 16, third-party defendants received at least one informal extension of tim e to respond to SEI Fuel’s counterclaim s. 28 Finally, he declares that he was in Israel from J uly 7, 20 16 to August 9, 20 16 attending to business, and from Septem ber 7, 20 16 to September 27, 20 16 dealing with the dam age caused by a fire at one of his properties. 29 Ham dan and third-party defendants did not obtain counsel until late September, 20 16. 30 SEI Fuel correctly points out that answers were due in m id-J une, and that Ham dan did not go to Israel until J uly 7, and the fire did not occur until 27 28 29 30 R. Doc. 73-3. Id. at 2 ¶ 5. Id. ¶ 6, ¶ 9. Id. ¶ 10 . 9 August. 31 This ignores Ham dan’s assertion that third-party defendants received an informal extension of time to respond. Not only does SEI Fuel not point to any evidence indicating that Ham dan’s assertion is false, but Ham dan’s assertion is also supported by the record. 32 Although litigants before this Court should not rely on inform al extensions of pleading deadlines, which are without legal effect and can lead to disagreem ents and unnecessary m otion practice, the Court finds that there was an inform al extension of tim e to respond. Additionally, although there is some evidence suggestive of willfulness, Ham dan’s declaration that he was in Israel for m ost of the sum mer of 20 16, and m uch of that tim e was spent addressing an em ergency, as well as the fact that third-party defendants were without counsel, supports the finding that when taking into account all of the relevant circumstances, the failure to respond was not willful. See Jenkens & Gilchrist v. Groia & Co., 542 F.3d 114, 123 (5th Cir. 20 0 8) (finding that even though “there is evidence suggestive of willfulness . . . we do not believe the record shows conclusively that [defendant’s] default was willful”). Even if the Court doubted the truth 31 R. Doc. 83 at 4. Counsel for SEI Fuel sent two letters, dated J une 21, 20 16 and J uly 14, 20 16, respectively, both of which indicated an extension of tim e to answer SEI Fuel’s claim s. See R. Doc. 83-1; R. Doc. 83-2. 10 32 of Ham dan’s explanation, “any doubt should, as a general proposition, be resolved in favor . . . of securing a trial upon the m erits.” Id. (citation om itted). Therefore, the Court finds that third-party defendants’ failure to answer the counterclaim s was not willful. 2. SEI Fuel w ill not be prejudiced The Court finds that SEI Fuel will not be prejudiced by setting aside the entries of default. To establish prejudice, plaintiffs “must show that the delay will result in the loss of evidence, increased difficulties in discovery, or greater opportunities for fraud and collusion.” Lacy , 227 F.3d at 293 (internal quotations and citation om itted). SEI Fuel contends that thirdparty defendants’ delay in responding has deprived SEI Fuel of needed discovery and that setting aside the default will increase the risk of fraud and collusion. 33 Since the scheduling order in this case has been am ended and the current discovery deadline is J uly 5, 20 17, the Court finds that SEI Fuel will not be prejudiced by setting aside the entries of default. 34 Further, while the intertwined relationship between Ham dan and the other third-party defendants m ay m ake the resolution of this case less straightforward, neither the nature of their relationship nor the record supports a finding that setting 33 34 R. Doc. 83. R. Doc. 96. 11 aside the entries of default will create greater opportunities for fraud and collusion. 3. Third-party defendants have potentially m eritorious defenses Finally, the Court finds that the third-party defendants have potentially m eritorious defenses to SEI Fuel’s counterclaim s. To present a m eritorious defense to set aside an entry of default, it is sufficient to show “some possibility that the outcom e of the suit after a full trial will be contrary to the result achieved by the default.” In re OCA, Inc., 551 F.3d 359, 373 (5th Cir. 20 0 8) (citation om itted). SEI Fuel and third-party defendants vigorously dispute the factual and legal predicates of the underlying claims in this litigation. Additionally, third-party defendants have subm itted evidence that the agreem ents at the heart of this litigation contain arbitration provisions. 35 While SEI Fuel argues that third-party defendants have waived any right to compel arbitration, 36 the m ere existence of these provisions provides the requisite possibility that the outcome will be different than the result achieved by a default. Id. Because the Court finds that third-party defendants have shown good cause for lifting the default against them , the Court will grant their 35 36 See, e.g., R. Doc. 73-4 at 14. R. Doc. 83 at 10 . 12 consolidated m otion to set aside the entries of default. SEI Fuel’s m otion for sum m ary judgment relies on the assum ption that third-party defendants have defaulted and adm itted SEI Fuel’s factual allegations, and thus it was not fully briefed. Therefore the m otion for summ ary judgm ent is denied without prejudice. IV. CON CLU SION For the foregoing reasons, the Court GRANTS third-party defendants’ m otion to set aside the defaults entered against them , and DENIES SEI Fuel’s m otion for default judgm ent. SEI Fuel’s m otion for sum mary judgm ent is DENIED WITHOUT PREJ UDICE. 27th New Orleans, Louisiana, this _ _ _ _ _ day of Decem ber, 20 16. _____________________ SARAH S. VANCE UNITED STATES DISTRICT J UDGE 13

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