The Court of Appeals for the Seventh Circuit recently affirmed the importance of paying close attention to procedural rules.
In Central Illinois Carpenters Health & Welfare Trust Fund v. Con-Tech Carpentry, LLC, No. 15-1269, __ F.3d __ (7th Cir. Nov. 24, 2015), the plaintiffs, several multiemployer health and welfare benefit funds, sought roughly $70,000 in delinquent contributions from the defendant employer. The defendant failed to answer the complaint within 21 days. The plaintiffs then requested a default judgment, and the defendant again failed to respond. When the company failed to appear at the hearing on the default motion, the district court entered a default judgment. The funds then submitted proof of their damages and the court awarded nearly $100,000 in total damages. Defendant responded by filing a motion under Rules 60(b) and 55(c) of the Federal Rules of Civil Procedure. The district court denied the motion, and the company appealed.
Writing for a three judge panel, Judge Frank Easterbrook affirmed the lower court’s judgment. The company could not rely on Rule 55(c) because it did not seek to set aside the entry of default until after the court entered judgment. The company’s arguments also could not satisfy the Rule 60(b) standard of “excusable neglect.” It first argued that it believed answering was unnecessary because the parties were already discussing settlement. The court responded that a party can both answer a complaint and work towards settlement simultaneously. Defendant also contended that filing a substantive response would waive its right to arbitration. The court held, however, that nothing prevents a party from answering with a demand for arbitration. The defendant thus failed to show excusable neglect and instead decided “to march to the beat of its own drum.”
While this case offers nothing groundbreaking in terms of legal doctrine, it serves as a reminder of the options available to defendants seeking to avoid a default judgment. Once a judgment is entered, a defendant’s only recourse is to seek to avoid the judgment under the difficult Rule 60(b) standard. A right to arbitration does not excuse a default. As Judge Easterbrook said, the governing procedural rules require an answer to the complaint that demands arbitration.