United States District Court, E.D. Michigan, Southern Division
OPINION AND ORDER GRANTING DEFENDANT INDUSTRIAS ZELU,
S.L.'S MOTION TO SET ASIDE ENTRY OF DEFAULT  AND
FINDING MOOT PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT
STEPHEN J. MURPHY, III UNITED STATES DISTRICT JUDGE.
Telma Retarder, Inc. filed suit against a former employee,
Defendant Michael Balish, and Balish's new employer,
Defendant Industrias Zelu, S.L. ("KLAM"). Plaintiff
alleges that Balish breached a non-compete covenant, and that
Balish and KLAM tortiously interfered with Plaintiff's
business relationships. Plaintiff also claims that KLAM
tortiously interfered with Balish's non-compete covenant.
KLAM initially refused to participate in the litigation, so
the Clerk of the Court filed an entry of default. ECF 20.
Plaintiff then filed a motion for default judgment. ECF 30.
On the same day Plaintiff moved for default judgment, KLAM
appeared and filed a motion to set aside the Clerk's
entry of default. ECF 32. The Court has reviewed the briefs,
and finds that a hearing is unnecessary. E.D. Mich. LR
7.1(f). For the reasons set forth below, the Court will grant
KLAM's motion to set aside entry of default and find
Plaintiff's motion for default judgment moot.
seeks to set aside the entry of default under Federal Rule of
Civil Procedure 55(c). ECF 32, PgID 606. Rule 55(c) provides
that a Court may set aside an entry of default for good
cause. Fed.R.Civ.P. 55(c). To determine whether good cause
exists, the Sixth Circuit requires courts to consider three
factors: (1) whether the plaintiff will be prejudiced by the
setting aside of an entry of default; (2) whether the
defendant has a meritorious defense; and (3) whether the
defendant's culpable conduct led to the entry of default.
United Coin Meter Co. v. Seaboard Coastline R.R.,
705 F.2d 839, 845 (6th Cir. 1983). When analyzing the three
factors, the Sixth Circuit is "extremely forgiving"
and favors resolving cases on the merits. United States
v. $22, 050.00 U.S. Currency, 595 F.3d 318, 322 (6th
Cir. 2010). The Court will address each factor in turn.
Whether Plaintiff will be Prejudiced
Court finds that Plaintiff will not be prejudiced by the
setting aside of the entry of default. Plaintiff first argues
it will be prejudiced because KLAM's actions delayed the
case. ECF 35, PgID 664. Specifically, Plaintiff asserts that
KLAM's alleged tortious interference with Plaintiff's
customers makes "time  of the essence."
Id. The nature of the case does not warrant a
finding of prejudice because the case itself is about
remedying the alleged harm caused by Defendants' actions.
The Court has already entered a preliminary injunction, ECF
26, and Plaintiff may pursue monetary damages if an
injunction proves to be an insufficient remedy. Although it
will now be more difficult for Plaintiff to obtain additional
remedies because it must prove its case on the merits, that
difficulty does not warrant a finding of prejudice when the
Sixth Circuit's preference is to decide cases on the
next presumes that KLAM did not put a litigation hold in
place and argues that consequently some evidence may have
been destroyed. ECF 35, PgID 665. Plaintiff is correct that
spoliation of evidence, in certain circumstances, may warrant
a finding of prejudice. See INVST Fin. Grp., Inc. v.
Chem-Nuclear Sys., Inc., 815 F.2d 391, 398 (6th Cir.
1987). But Plaintiff admits that its position is based on a
presumption, ECF 35, PgID 665, and KLAM provided evidence
that it was advised to place a litigation hold on all
relevant documents, ECF 38-1, PgID 693, ¶ 3. Moreover,
KLAM has participated in the discovery process since October
2017. ECF 29, 33. The Court therefore finds that there is
insufficient evidence of spoliation or frustration of
discovery to support a finding of prejudice.
finally argues that KLAM's delay has increased
Plaintiff's litigation costs. ECF 35, PgID 665. But
setting aside an entry of default will always increase
litigation costs. $22, 050.00 U.S. Currency, 595
F.3d at 325. Because Plaintiff has not provided sufficient
evidence showing why setting aside the entry of default here
would increase litigation costs to a greater extent than
would naturally occur when an entry of default is set aside,
the Court finds Plaintiff's argument unpersuasive.
Whether KLAM has a Meritorious Defense
Court finds that KLAM has a meritorious defense. To determine
whether a defense is meritorious, the test is not whether a
defense is likely to succeed on the merits but rather whether
there is "some possibility" that the defense will
affect the outcome of the suit. Dassault Systemes, SA v.
Childress, 663 F.3d 832, 843 (6th Cir. 2011). KLAM
asserts that its actions are not the "but for"
cause of Plaintiff's lost sales. ECF 32, PgID 615. When
deciding Plaintiff's motion for a preliminary injunction,
the Court found that Plaintiff provided insufficient evidence
that Balish's actions caused some of Plaintiff's
alleged damages. ECF 23, PgID 473. Because KLAM's
liability, if any, is likely to be derived from Balish's
actions shortly before or after he joined KLAM, the causation
defense may have an effect on the outcome of the suit.
Consequently, KLAM has a meritorious defense.
Whether KLAM's Culpable Conduct led to the
Court finds that KLAM's culpable conduct led to the
default. A defendant's conduct is culpable if it displays
either: (a) an intent to thwart judicial proceedings, or (b)
a reckless disregard for the conduct's effect on judicial
proceedings. Shepard Claims Serv., Inc. v. William Darrah
& Assocs., 796 F.2d 190, 194 (6th Cir. 1986). KLAM
admits that it had knowledge of the lawsuit. ECF 32, PgID
611. KLAM refused to participate, however, because it was
unsure whether it had been properly served and whether it was
subject to the Court's jurisdiction. Id.
KLAM's knowledge of the suit coupled with its conscious
decision not to participate indicates that KLAM intended to
thwart the judicial proceedings. KLAM could have
affirmatively challenged service and jurisdiction, but
instead chose to remain silent while the Court spent months
adjudicating the case- including a contentious preliminary
injunction dispute-in KLAM's absence. KLAM then brazenly
filed its motion to set aside the entry of default on the
same day that Plaintiff sought to convert the entry of
default into a default judgment. ECF 30, ECF 32. And to top
it off, KLAM audaciously retained Balish's counsel-which
suggests that the Defendants were colluding during KLAM's
intentional silence. ECF 31. KLAM's dilatory and
disruptive tactics are egregious and condemnable.
KLAM's culpable conduct led to the default, the Court is
required to balance all three factors. Shepard, 796
F.2d at 194. And because the first two factors so strongly
favor setting aside the entry of default, the Court finds
that the balance favors granting KLAM's motion.
Id.; Berthelsen v. Kane, 907 F.2d 617, 622