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Elliott v. Specialized Loan Servicing

United States District Court, N.D. Georgia, Atlanta Division

November 8, 2017

NANCY ELLIOTT, Plaintiff,
v.
SPECIALIZED LOAN SERVICING, Defendant Third Party Plaintiff,
v.
MCCURDY & CANDLER, LLC, Third Party Defendant.

          NON-FINAL REPORT AND RECOMMENDATION

          JOHN K. LARKINS, III UNITED STATES MAGISTRATE JUDGE

         In this wrongful foreclosure case, Plaintiff Nancy Elliott alleges that Defendant Specialized Loan Servicing LLC (“SLS”) wrongfully foreclosed on her property and failed to timely distribute excess proceeds from the foreclosure sale to her. [Doc. 2.] On August 31, 2017, SLS filed a third-party complaint against its foreclosure counsel, Third Party Defendant McCurdy & Candler, LLC (“McCurdy & Candler”), asserting claims for indemnification and contribution pursuant to a legal services agreement between SLS and McCurdy & Candler that governed, among other things, McCurdy & Candler's responsibilities as foreclosure counsel. [Doc. 53.] McCurdy & Candler was served with process on August 31, 2017; however, it failed to answer or otherwise respond to the third-party complaint by September 21, 2017. [See Doc. 54.] On September 27, 2017, the Clerk entered default against McCurdy & Candler upon SLS's motion for entry of default. [See Doc. 56, Doc. Entry dated Sept. 27, 2017.] On October 4, 2017, McCurdy & Candler moved to set aside the default under Federal Rule of Civil Procedure 55(c). [Doc. 59.] SLS opposes the motion. [Doc. 60.] Elliott has not filed a response to the motion, and the time for McCurdy & Candler to file a reply has passed.

         For the reasons that follow, I RECOMMEND that McCurdy & Candler's motion to set aside the default be GRANTED.

         I. Standard for Setting Aside Entry of Default

         Under Federal Rule of Civil Procedure 55, when a defendant fails to “plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.” Fed.R.Civ.P. 55(a). However, “[t]he court may set aside an entry of default for good cause.” Fed.R.Civ.P. 55(c). Whether “good cause” exists is a liberal standard, highly dependent on the circumstances of the particular case at bar. Perez v. Wells Fargo N.A., 774 F.3d 1329, 1337 n.7 (11th Cir. 2014); Compania Interamericana Exp.-Imp., S.A. v. Compania Dominicana de Aviacion, 88 F.3d 948, 951 (11th Cir. 1996). In determining whether to set aside an entry of default, courts consider (1) the reason for the default, and whether the default was culpable or willful, (2) whether setting aside the default would prejudice the nonmoving party, (3) whether the defaulting party has presented a meritorious defense, and (4) whether the defaulting party acted promptly to correct the default. Id.[1] The Rule 55(c) “good cause” standard “utilized in setting aside an entry of default” is less rigorous than “[t]he excusable neglect standard that courts apply in setting aside a default judgment.” E.E.O.C. v. Mike Smith Pontiac GMC, Inc., 896 F.2d 524, 528 (11th Cir. 1990). “[D]efaults are seen with disfavor because of the strong policy of determining cases on their merits, ” Fla. Physician's Ins. Co., Inc. v. Ehlers, 8 F.3d 780, 783 (11th Cir. 1993), and courts in this district have repeatedly emphasized that “defaults are not favored in federal court and trials on the merits are the preferred method for resolving disputes” see, e.g., Ritts v. Dealers Alliance Credit Corp., 989 F.Supp. 1475, 1480 (N.D.Ga. 1997) (citation omitted); Scottsdale Ins. Co. v. BPS Intl., Inc., 4:15-CV-0180-HLM, 2016 WL 9455171, at *7 (N.D.Ga. Apr. 29, 2016); Life Ins. Co. of N.A. v. Williams, 1:15-CV-00062-ELR, 2015 WL 10961833, at *2 (N.D.Ga. May 22, 2015); see also Blau v. Bill Heard Chevrolet Corp.-Orlando, 422 B.R. 293, 302 (N.D. Ala. 2009) (collecting circuit court opinions regarding the “universally recognized principle that defaults are not favored in the law”).

         II. Discussion

         A. The Parties' Arguments

         McCurdy & Candler argues that good cause exists to set aside the entry of default because it was improperly named in this action. According to McCurdy & Candler, a separate entity, “McCurdy & Candler, Bankruptcy/Foreclosure LLC, ” which is now defunct, performed the foreclosure that gave rise to this case. [Doc. 59 at 4; Doc. 59-1 at 2-3.] Michael Dugan, a member of both McCurdy & Candler and McCurdy & Candler, Bankruptcy/Foreclosure LLC, has submitted a declaration in which he states that because SLS served McCurdy & Candler's registered agent instead of alerting him to the third-party complaint against McCurdy & Candler, Bankruptcy/Foreclosure LLC, the latter's reporting of the claim to its insurance carrier and that appointment of defense counsel was delayed. [Id. at 5.]

         McCurdy & Candler also argues that McCurdy & Candler, Bankruptcy/Foreclosure LLC has a meritorious defense to the third-party claims because it sent all the foreclosure sale proceeds to SLS within days of the foreclosure sale, and, therefore, it was SLS's failure to timely distribute the proceeds that damaged Elliott, not any act on its own part. [Doc. 59 at 5-6; Doc. 59-1 at 3.]

         SLS responds that McCurdy & Candler's failure to respond or otherwise answer the complaint was intentional or reckless because it is a law firm and therefore is familiar with the rules of civil procedure, its obligations to respond to a lawsuit, and the consequences of failing to respond. [Doc. 60 at 7.] The fact that McCurdy & Candler believes that it is not the proper defendant is no basis for completely failing to respond to the lawsuit. [Id.] SLS further argues that McCurdy & Candler's assertion that it is not a proper party is without merit because the legal services agreement pursuant to which SLS is asserting its third-party claims is between “McCurdy & Candler, LLC” and SLS. [Id. at 60; see Doc. 60-1 (legal services agreement naming “McCurdy & Candler, LLC” as a party).]

         SLS additionally argues that McCurdy & Candler's argument that it is not liable because it remitted the foreclosure proceeds to SLS “misses the point” that “SLS is entitled to indemnification from McCurdy & Candler precisely because McCurdy & Candler remitted the funds to SLS.” [Doc. 60 at 9.] SLS explains that McCurdy & Candler was required to disburse the excess proceeds of the foreclosure sale and not simply remit them the SLS. [Id.] Further, when SLS returned the excess proceeds of the sale to McCurdy & Candler for distribution, McCurdy & Candler refused to do so. [Id.]

         SLS also notes that McCurdy & Candler was responsible for sending foreclosure notices that complied with Georgia law. [Doc. 60 at 10.] In the event that the notice of the foreclosure sale was wrongful, SLS would be entitled to indemnification with respect to the claim. [Id. at 10.] McCurdy & Candler, however, fails to address that basis for indemnification. [Id.]

         Finally, SLS argues that it would be prejudiced by the opening of the default given the lack of a meritorious defense. [Doc. 60 at 10.]

         B. ...


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