Fleet v. United States Consumer Council

United States District Court for the Eastern District of Pennsylvania · 1987 · Contracts

ContractsDefault judgmentMotion to set aside default judgmentRule 60(b)Bankruptcy procedureSanctionsdefault judgmentset aside default

Facts

Plaintiffs brought an adversary proceeding against United States Consumer Council, Jack Rhode, and others, alleging deceptive conduct and seeking relief under 11 U.S.C. § 329 and state unfair trade practice laws. Rhode and USCC, through counsel, failed to respond to expedited discovery, failed to appear at later proceedings, and default judgment on liability was entered against Rhode and USCC on June 12, 1986. The bankruptcy court found that notices had been sent to counsel of record, were not returned, and that Rhode and his counsel knew of the proceedings and later of the default judgment but made a calculated decision to ignore them. Rhode moved to set aside the default judgment only after plaintiffs sought to prevent disposition of certain real estate.

Issue

Whether the default judgment against Jack Rhode should be set aside and he should be permitted to file a responsive pleading. Also, whether sanctions should be imposed on defense counsel under Bankruptcy Rule 9011.

Rule

A motion to set aside a default judgment will not be granted unless the moving party shows that reopening will not substantially prejudice the nondefaulting party, that the defaulting party has a meritorious defense, and that the default was not the result of inexcusable or gross negligence or a willful act. In addition, under Rule 60(b), the motion must be made within a reasonable time.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In a contract fraud suit in Philadelphia, Lakeview Debt Relief, Inc. obtained a default judgment on liability against Owen Mercer after his lawyer stopped responding to court notices. The lawyer indisputably learned of the judgment on April 1, but Owen did not move to set it aside until July 20, after Lakeview sought to restrain the sale of his cabin in the Poconos.

How should the court most likely rule on Owen's motion to set aside the default judgment?

Explanation. The majority opinion treated timeliness as an independent requirement under Rule 60(b): a motion to set aside a default judgment must be made within a reasonable time. It specifically concluded that a delay of over three months after counsel knew of the judgment, combined with a calculated decision to act only when the plaintiff moved against specific property, was not reasonable. That alone justified denial.