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Orum v. Liberty Mutual Insurance Co.

United States District Court, N.D. West Virginia

February 15, 2018

ROBERT ORUM and CONNIE ORUM, Plaintiffs,
v.
LIBERTY MUTUAL INSURANCE COMPANY, Defendant.

         MEMORANDUM OPINION AND ORDER DENYING DEFENDANT'S MOTION FOR DEFAULT JUDGMENT ON ITS COUNTERCLAIM, GRANTING PLAINTIFFS' MOTION TO SET ASIDE CLERK'S ENTRY OF DEFAULT AND GRANTING PLAINTIFFS' MOTION FOR LEAVE TO FILE ANSWER TO DEFENDANT'S COUNTERCLAIM

          FREDERICK P. STAMP, JR. UNITED STATES DISTRICT JUDGE.

         I. Background

         The defendant removed this civil action to this Court after the plaintiffs originally filed their complaint in the Circuit Court of Ohio County, West Virginia. The complaint arises out of a fire that burned the plaintiffs' house to the ground. The plaintiffs allege that the defendant, in bad faith, failed to pay the plaintiffs' homeowners claim even though there have not been any criminal charges filed against the plaintiffs. The defendant filed an answer and counterclaim in this Court. The defendant's counterclaim seeks a declaration from the Court that it properly rescinded an insurance policy, such that the defendant has no further duty to investigate and potentially pay for the plaintiffs' underlying insurance claim.

         The defendant served its counterclaim on the plaintiffs on September 18, 2017. The plaintiffs failed to respond within the time provided by the Federal Rules of Civil Procedure. Thus, pursuant to Federal Rule of Civil Procedure 55(a), the Court entered default against the plaintiffs on the counterclaim on October 12, 2017. On October 16, 2017, after the entry of default, the plaintiffs filed their answer to the counterclaim. On October 30, 2017, the defendant filed a motion to strike the plaintiffs' answer to the defendant's counterclaim. The motion to strike represented that the defendant has been prejudiced by the plaintiffs' disregard and unresponsiveness. The motion further represented that, by not striking the untimely answer, the Court would further prejudice the defendant by requiring it to continue to defend this action against the plaintiffs who have, to date, cost the defendant much time and resources due to their inaction. This Court found that the defendant would be unfairly prejudiced if it did not enforce the entry of default. Accordingly, the Court granted the defendant's motion to strike the plaintiffs' answer to the defendant's counterclaim and directed the Clerk to strike the plaintiffs' answer to the defendant's counterclaim from the docket.

         The defendant has now filed a motion for default judgment on its counterclaim pursuant to Federal Rule of Civil Procedure 55(b)(2). The plaintiffs have also filed a motion to set aside the clerk's entry of default and a motion for leave to file an answer to the defendant's counterclaim. All three of the motions are fully briefed and ripe for review. For the following reasons, this Court denies the defendant's motion for default judgment on its counterclaim, grants the plaintiffs' motion to set aside entry of default, and grants the plaintiffs' motion for leave to file answer to defendant's counterclaim.

         II. Applicable Law

         A. Motion for Default Judgment

         To obtain a default judgment, a party must first seek an entry of default under Federal Rule of Civil Procedure 55(a). Under Rule 55(a), an entry of default is appropriate “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend . . . .” Fed.R.Civ.P. 55(a). Once default is entered by the clerk, the party may seek a default judgment under Rule 55(b)(1) or (2), depending on the nature of the relief sought. If the plaintiff's claim is for “a sum certain” or a “sum that can be made certain by computation, ” the plaintiff may seek entry of default judgment from the clerk under Rule 55(b)(1). However, in cases in which the plaintiff seeks a form of relief other than liquidated damages, Rule 55(b)(2) requires plaintiff to seek an entry of default judgment from the court.

         It is well-established in the United States Court of Appeals for the Fourth Circuit that default judgments are to be granted sparingly. See, e.g., Lolatchy v. Arthur Murray, Inc., 816 F.2d 951, 954 (4th Cir. 1987). “[T]rial judges are vested with discretion, which must be liberally exercised, in entering such judgments and in providing relief therefrom.” United States v. Moradi, 673 F.2d 725, 727 (4th Cir. 1982).

         B. Motion to Set Aside Entry of Default

         Federal Rule of Civil Procedure 55(c) provides that a court may set aside an entry of default for good cause or pursuant to Rule 60(b). The United States Court of Appeals for the Fourth Circuit has established the following factors for district courts to consider when ruling on motions to set aside an entry of default: “whether the moving party has a meritorious defense, whether it acts with reasonable promptness, the personal responsibility of the defaulting party, the prejudice to the party, whether there is a history of dilatory action, and the availability of sanctions less drastic.” Payne ex rel. Estate of Calzada v. Brake, 439 F.3d 198, 204-05 (4th Cir. 2006) (citing Consol. Masonry & Fireproofing, Inc. v. Wagman Constr. Corp., 383 F.2d 249, 251 (4th Cir. 1967); Lolatchy v. Arthur Murray, Inc., 816 F.2d 951, 953 (4th Cir. 1987)).

         The Fourth Circuit “has also ‘repeatedly expressed a strong preference that, as a general matter, defaults be avoided and that claims and defenses be disposed of on their merits.'” Redden v. Monitoronics Int'l, Inc., No. 5:14-CV-27757, 2015 WL 12859350, at *1 (S.D. W.Va. Feb. 19, 2015) (quoting Colleto ...


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