The opinion of the court was delivered by: Magistrate Judge Sharon L. Ovington
District Judge Thomas M. Rose
On February 23, 2006, the Court directed the Clerk of Courts to enter a default against Defendant American Federation of Government Employees ("AFGE"), AFL-CIO Women's-Fair Practices Department due to its failure to Answer or otherwise plead to Plaintiff's Complaint. (Doc. #27).
This case is before the Court upon Motion of Defendant AFGE's Motion to Set Aside Entry of Default ("AFGE'S") (Doc. #32), Plaintiff's Response in Opposition (Doc. #39), and AFGE's Reply (Doc. #40).
The procedural posture of the present case is highly significant, because Fed. R. Civ. P. 55 distinguishes between entry of default and default judgment. As explained in the prior Order (Doc. #27), "[w]hen a party 'has failed to plead or otherwise defend, entry of default under Rule 55(a) must precede grant of default judgment under Rule 55(b)." Johnson v. Dayton Elec. Mfg. Co., 140 F.3d 781, 783 (8th Cir. 1998); see Shepard Claims Service v. William Darrah & Assoc., 796 F.2d 190, 193 (6th Cir. 1986)("entry of default is just the first procedural step on the road to obtaining a default judgment....").
"[I]t is important to distinguish between an entry of default and a default judgment. That is, a stricter standard of review applies for setting aside a default once it has ripened into a judgment. Specifically, once the court has determined damages and a judgment has been entered, the district court's discretion to vacate the judgment is circumscribed by public policy favoring finality of judgments and termination of litigation as reflected in Rule 60(b)." Frontier Ins. Co. v. Blaty, 454 F.3d 590, 595 (6th Cir. 2006)(citations omitted).
At this point in the present case, although an entry of AFGE's default has occurred (Doc. #28), default judgment against AFGE has not. A good-cause standard thus applied under Fed. R. Civ. P. 55(c), which provides, "[f]or good cause shown, the court may set aside an entry of default...." See Frontier, 454 F.3d at 595.
"[T]hree equitable factors are considered to determine if 'good cause' has been shown under ... Rule 55(c)...: '(1) whether culpable conduct of the defendant led to the default, (2) whether the defendant has a meritorious defense, and (3) whether the plaintiff will be prejudiced.'" Burrell v. Henderson, 434 F.3d 826, 831-32 (6th Cir. 2006) (quoting in part Waifersong, Ltd. v. Classic Music Vending, 976 F.2d 290, 292 (6th Cir. 1992) (other citation omitted).
"The district court enjoys considerable latitude under the 'good cause shown' standard of Rule 55(c) to grant a defendant relief from a default entry." O.J. Distributing, Inc. v. Hornell Brewing Co., Inc., 340 F.3d 345, 353 (6th Cir. 2003) (quoting in part United States v. Real Property & All Furnishings Known, 195 F.3d 819, 820 (6th Cir.1999)). Indeed, "[i]t has been found that a district court abuses its discretion in denying a motion to set aside an entry of default when two of the three factors have been demonstrated by the defendant: the defendant had a meritorious defense and no prejudice would result to the plaintiff if the matter were to go forward." O.J. Distributing, Inc., 340 F.3d at 353 (citing Shepard Claims Serv., Inc. v. William Darrah & Assoc., 796 F.2d 190, 193-94 (6th Cir. 1986)).
AFGE contends that good cause exists to set aside the entry of default. AFGE explains as follows:
[T]he failure of Defendant AFGE to respond timely to the First Amended Complaint resulted from the envelope containing that document and the summons being lost or misdirected in some unknown way by temporary employees, both of whom had worked in AFGE's Women's/Fair Practices Department for two and a half months or less....
Had the envelope in question been opened and directed to either the National President's Office or the General Counsel's Office of AFGE, as it should have been, AFGE would have filed a responsive pleading. Hence, because AFGE's failure to timely file a responsive pleading was the result of mistake, inadvertence and/or excusable neglect, the default did not result from any 'culpable conduct.' (Doc. #32 at 4)(citation omitted). AFGE also contends that is has a meritorious defense because Plaintiff's claims amount to an assertion that AFGE violated its duty of fair representation and such claims can only be raised with the Federal Labor Relations Authority, not in the United States District Court. AFGE is further prepared to show that it did not violate its duty to fairly represent Plaintiff.
Plaintiff maintains that he will suffer prejudice if the entry of default is set aside because "he has noticed his potential witnesses have become 'more hesitant' in assisting him, and he has noticed that the Union stewards have been interfering with his ability to prosecute his lawsuit. (See Affidavit of Richard Fowlkes)." (Doc. #39 at 2-3). Plaintiff further identifies prejudice in the fact that AFGE has filed a Motion to Dismiss, which if granted "Plaintiff will obviously suffer prejudice to his claim." Id. at 3. Plaintiff further argues that AFGE has failed to show that its failure to respond to the First Amended Complaint occurred without culpable conduct. Plaintiff characterizes AFGE's explanation regarding the temporary worker as "the equivalent of the school excuse that the dog ate my homework." Id. at 4.
AFGE has established that it has a potentially meritorious defense to Plaintiff's claims, as detailed in its Motion to Dismiss, based on Karahalios v. National Fed'n. of Federal Employees, Local 1263, 489 U.S. 527, 533-34 (1989). See Doc. #38 at 2-3. Although resolution of AFGE's Motion to Dismiss may, or may not, result in dismissal of Plaintiff's claims against AFGE, it is generally preferable to resolve claims and defenses on their merits rather than by default under Rule 55(a) and (b). See INVST Financial Group, Inc. v. Chem-Nuclear Systems, Inc., 815 F.2d 391, 397 (6th Cir. 1987) (identifying a "strong preference for trials on the merits in federal courts...."). Although Plaintiff insists that he will suffer prejudice if AFGE's Motion to Dismiss is granted, this is not the type of prejudice at issue. Prejudice does not refer to the merits of the claims or potential defenses but instead refers to whether AFGE's failure to answer or otherwise respond to Plaintiff's pleadings has hampered Plaintiff's ability to conduct discovery, to marshal his evidence, and to otherwise prepare his case for trial or other adjudication on the merits. Plaintiff also attempts to show such prejudice by alleging that his potential witnesses have become more hesitant in assisting him. Plaintiff's affidavit, however, does not provide a causal connection between the hesitancy of witnesses and the delay caused by AFGE's failure ...