Jack Gray Transport, Inc. v. Shaw

Citations: 105 F.R.D. 485; 1984 U.S. Dist. LEXIS 21642Docket: No. 84 C 1030

Court: District Court, N.D. Illinois; November 28, 1984; Federal District Court

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On June 27, 1984, a default judgment of $23,437.05 was entered against Herbert L. Shaw in favor of Jack Gray Transport, Inc. (Gray). Shaw subsequently filed a motion under Rule 60(b) to vacate this judgment, which the court denied. The background involves a lease agreement from November 1980 in which Shaw agreed to lease a tractor to Gray, including provisions for workers’ compensation and public liability insurance coverage for Shaw's employees loaned to Gray. The agreement required Shaw to indemnify Gray for any damages or losses, along with obtaining insurance endorsements. 

On May 19, 1981, an employee of Shaw, Henry M. Haskell, was injured while working for Gray and sought workers' compensation, leading to a $21,032.54 award jointly against Shaw and Gray. Gray's insurer paid this amount and sought reimbursement from Shaw under the indemnification terms. After Shaw failed to provide indemnification, Gray filed a complaint on February 1, 1984. Shaw was served the complaint via certified mail on February 9, 1984, and again personally on March 21, but he did not respond. The court subsequently entered a default judgment due to Shaw's lack of response. Although Shaw did not receive notice of the judgment, he had been informed of the motion for default judgment prior to its entry. Shaw's motion for relief from judgment was based on claims of mistake and neglect under Rule 60(b), but did not meet the criteria for relief as specified in the rule.

A Rule 60(b) motion must be made within a reasonable time and can be granted on just terms, as interpreted by the Court of Appeals in multiple cases. The modern federal procedural philosophy encourages trials on the merits, and default judgments should typically be vacated if the moving party acts promptly, presents a valid defense, and demonstrates that the default was not willful. The movant must also establish one of the six grounds for relief under Rule 60(b), with only the first—mistake, inadvertence, surprise, or excusable neglect—being potentially relevant in this case.

Shaw's default was attributed to the actions of his attorney, Anthony B. Bruno, who engaged in other pressing matters and inadvertently failed to file a timely answer due to a secretary's oversight. While this could indicate excusable neglect, Shaw's failure to respond to the motion for default judgment further complicates the situation. After being served, Shaw did not consult with Bruno and failed to act upon receiving a motion indicating he was in default. His inaction during the four months following the default judgment, despite having received clear notification, undermines his claim of excusable neglect. Consequently, Shaw did not meet the burden of demonstrating excusable neglect for the period leading up to his late motion filing.

Shaw failed to act with reasonable promptness in moving to vacate a default judgment, violating Rule 60(b), which requires a motion to be filed within a "reasonable time." The outer limit of one year does not excuse inaction, and the determination of what constitutes a reasonable time varies based on individual case circumstances, including the interest in finality and potential prejudice to other parties. Shaw's delay was deemed unreasonable, particularly since he provided no explanation for his inaction. While his first default was not willful, Shaw's neglect regarding the notice of default judgment was considered deliberate and justified a finding of willfulness. His overall conduct was characterized as unjustifiable carelessness, precluding relief under Rule 60(b)(1). 

Shaw does have a potentially meritorious defense related to a prior oral modification of a lease agreement concerning workers' compensation insurance coverage. However, the opposing party, Gray, asserts entitlement to recovery based on an indemnification clause that is independent of Shaw's insurance obligations. The specific language in the Supplement regarding insurance provision and its implications for payment reduction is central to the dispute.

The provision under consideration has an ambiguous interpretation regarding risk-shifting since Haskell was compensated by Gray's insurer, which now seeks reimbursement as Gray's subrogee. This ambiguity qualifies Shaw's defense as "meritorious" in the context of Rule 60(b). However, a potentially meritorious defense is insufficient for vacating the default judgment against Shaw, as he has failed to demonstrate prompt action or excusable neglect. Shaw did not account for his inaction from June 27 to November 6 and has not justified Bruno's neglect of the case after late May. Consequently, Shaw has not established a basis for relief from the default judgment issued on June 27, 1984, leading to the denial of his motion and the affirmation of Gray's judgment.

Shaw failed to appear despite proper notice, analogous to his neglect of other proceedings in the case. Count I of Gray's Complaint alleges a reimbursement claim under Section 138.1(a)(4), which holds loaning employers liable for benefits due to an injured employee when the borrowing employer fails to provide such benefits. This statute ensures that employees are not burdened by disputes over liability between employers. The statute allocates primary responsibility to the borrowing employer unless otherwise agreed, which Shaw and Gray did, shifting ultimate liability to Shaw. Thus, Count I effectively mirrors Count II, which claims contractual indemnification.

Per General Rule 12(a), a movant must notify the opposing party seven days in advance of any motion, but since Shaw was already in default and did not appear, Gray was not obligated to provide notice. General Rule 12(a) does not apply where Federal Rules of Civil Procedure dictate otherwise; Rule 55(b)(2) mandates notice only when a defendant has appeared. Therefore, Gray's attorney's notice to Shaw was unnecessary and cannot be challenged by Shaw, who has not attempted to do so. The one-year provision referenced is not a statute of limitations. Relief from a default judgment under Rule 60(b) is considered more exceptional than relief from an entry of default under Rule 55(c), with the criteria for relief from default judgment being more rigorously applied than for entry of default.