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Ohio Casualty Insurance Co. v. R3F General Contractors

United States District Court, D. New Mexico

September 5, 2018

OHIO CASUALTY INSURANCE COMPANY, Plaintiff,
v.
R3F GENERAL CONTRACTORS, et al., Defendants.

          ORDER ADOPTING IN PART AND REJECTING IN PART MAGISTRATE JUDGE'S PROPOSED FINDINGS AND RECOMMENDED DISPOSITION

         THIS MATTER is before the Court on Magistrate Judge Steven Yarbrough's Proposed Findings and Recommended Disposition (“PFRD”) recommending that Plaintiff's Motion for Default Judgment as to R3F General Contractors, LLC, be denied. Doc. 26. On May 31, 2018, Plaintiff filed objections to the PFRD (Doc. 27) and supplemental objections on June 5, 2018 (Doc. 28).[1] Having reviewed Plaintiff's objections, the Court adopts Magistrate Judge Yarbrough's factual findings but declines to adopt Magistrate Judge Yarbrough's recommendation that the Court deny Plaintiff's Motion. As explained below, the Court will GRANT Plaintiff's Motion for Default Judgment.

         I. Background

         As explained more fully in Magistrate Judge Yarbrough's PFRD, Plaintiff brought suit against Defendant R3F to recover losses it alleges it suffered due to Defendants' failure to perform its obligations pursuant to a construction contract with West Las Vegas Schools (WLVS). Plaintiff's Complaint, Doc. 1 at ¶ 6. Plaintiff alleges that following Defendant R3F's failure to perform its obligations under the contract, WLVS demanded that Plaintiff, as surety of the performance and payment bonds, undertake and perform Defendant R3F's obligations. Doc. 1 at ¶ 6.

         Prior to the issuance of the bonds, Defendant R3F agreed to exonerate and indemnify Plaintiff from all loss costs, expenses, and attorneys' fees suffered in connection with any bonds issued by Plaintiff on behalf of Defendants. Doc. 1 at ¶ 11. Pursuant to that agreement, Plaintiff issued a written demand to Defendant R3F after it defaulted on its obligations under the construction contract but Defendant R3F rejected that demand. Doc. 1 at ¶ 18. Plaintiff alleges that Defendant R3F has failed to honor its obligation to indemnify, provide collateral, or otherwise exonerate Plaintiff pursuant to its obligations under the indemnity agreement. Doc. 1 at ¶ 20.

         On June 13, 2017, Plaintiff filed suit against Defendant R3F and Ruben and Maria Acosta (Acosta Defendants). Doc. 1. The Acosta Defendants entered pro se appearances. No. appearance was entered on behalf of Defendant R3F. On August 24, 2017, Plaintiff moved for a clerk's entry of default against Defendant R3F on August 24, 2017. Doc. 13. The clerk's entry of default was entered on August 25, 2017. Doc. 14. Plaintiff subsequently filed the instant Motion for default judgment on January 5, 2018. Doc. 16. Doc. 16. The Court referred the matter to Magistrate Judge Yarbrough on January 25, 2018. Doc. 19.

         Magistrate Judge Yarbrough entered his PFRD on May 23, 2018. In the PFRD, Magistrate Judge Yarbrough recommended denying Plaintiff's Motion without prejudice pursuant to Frow v. DeLaVega, 82 U.S. 552 (10th Cir. 1872). Frow holds that default judgment should not be entered against one defendant in multi-defendant cases when it is alleged that the defendants are jointly liable “until the matter has been adjudicated with regard to all defendants, or all defendants have defaulted.” See Hunt v. Inter-Globe Energy, Inc., 770 F.2d 145, 147 (10th Cir. 1985) (citing 10 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 2690, at 455-56 (1983)). Magistrate Judge Yarbrough found the rule applicable in this case because Plaintiff is alleging that Defendant R3F and the Acosta Defendants are jointly and severally liable for its losses as signatories to the indemnity agreement. Magistrate Judge Yarbrough accordingly recommended that the proper procedure was to deny Plaintiff's Motion with leave to re-file once the matter has been adjudicated as to all Defendants. Doc. 26 at 4, 6 (citing Applied Capital, Inc. v. Gibson, 05-98 JB/ACT, 2008 WL 5689322, *9 (D.N.M. Sept. 27, 2007) (unpublished) (stating that the “proper procedure is to enter default but not enter default judgment against the defaulter unless the plaintiff prevails against the appearing defendants[.]”)).

         Plaintiff raises three objections to Magistrate Judge Yarbrough's PFRD. Doc. 27. First, Plaintiff contends that the Frow rule is inapplicable here because the matter will not be adjudicated against the Acosta Defendants because they have been discharged in bankruptcy. Second, Plaintiff contends that the Frow rule is inapplicable because Defendant R3F does not share a common defense with the Acosta Defendants. Third, Plaintiff contends that the Court should join with other circuits and no longer apply the Frow rule.

         II. Analysis

         The Court will begin with Plaintiffs' second and third objections. As for Plaintiffs' second objection, the fact that Defendant R3F and the Acosta Defendants do not share a common defense does not render the Frow rule inapplicable. As Magistrate Judge Yarbrough explained, the main point of Frow is that default judgment should not be entered in multi-defendant cases in which it is alleged that the defendants are jointly liable until the matter has been adjudicated as to all the defendants. See PFRD, Doc. 26 at 4. The Tenth Circuit's decision to extend this general rule to include instances in which the defendants may not be alleged to be jointly liable but instead have “closely related defenses” does not mean the general rule is no longer applicable. Id. In the present case, Plaintiff alleged that Defendant R3F and the Acosta Defendants are liable “jointly and severally.” Doc. 1 at 7. Accordingly, the Frow rule is applicable regardless of whether there is a separate finding that the Defendants have closely related defenses.

         As for Plaintiffs' third objection, the fact that other circuits do not follow Frow is immaterial. The Court is bound to follow Tenth Circuit precedent. Magistrate Judge Yarbrough raised and considered this argument in the PFRD and appropriately concluded that the Tenth Circuit, as well as courts in this district, continue to apply Frow.

         With those two objections aside, Plaintiff's first objection presents a more complicated issue. Plaintiff contends that the Court should enter default judgment because there will be no trial on the merits against the Acosta Defendants as their liabilities have been discharged in bankruptcy. Doc. 27 at 5; Doc. 27-2. Plaintiff accordingly argues that there is no longer the risk of an inconsistent judgment. See Wilcox v. Raintree Inns of America, Inc., 76 F.3d 394, 1996 WL 48857, *3 (Feb. 2, 1996 (unpublished) (stating that the “key aim of the [Frow] rule is the avoidance of inconsistent judgments.”).

         The current posture of this case is somewhat similar to that in Hartford Fire Ins. Co. v. Vista Contracting, Inc., Civ. No. 16-285, 2016 WL 6892730 (D.D.C. Nov. 22, 2016). The plaintiff in Hartford underwrote surety bonds on behalf of defendant Vista Contracting and defendants Stjepan and Nancy Sostaric signed indemnity agreements in exchange for issuance of the bonds. Id. at *1. Defendants ultimately defaulted on their obligations under the bonds and plaintiff filed suit. Id. Like the present case, only the individual defendants entered appearances in the lawsuit. Plaintiff thereafter moved for default judgment against defendant Vista Contracting based on its failure to appear and defend. Id. at *2. The court ultimately entered default judgment against Vista Contracting despite Frow based on an implicit determination that the claims against the defendants were severable.

         Like Hartford, the parties' potential liabilities in this case, although initially pled as joint, are severable because the Acosta Defendants' potential liabilities have been discharged in bankruptcy. Under these circumstances, the Court agrees that the interests sought to be protected by Frow rule are no longer applicable. That is, default judgment can be entered against Defendant R3F without prejudice to the Acosta Defendants as their liabilities have been discharged. The Court will accordingly enter default judgment against Defendant R3F.

         Federal Rule of Civil Procedure 55 sets out a two-step process for a party seeking a default judgment. A party seeking such a judgment must first obtain the clerk's entry of default against the opposing party. Fed.R.Civ.P. 55(a). See Garrett v. Seymour, 217 Fed. App'x. 835, *2 (10th Cir. 2007) (stating that the clerk's entry of default is a prerequisite for obtaining a default judgment under Fed. R. Civ. P 55(b)). The clerk will issue an entry of default when the moving party shows the Court through an affidavit or otherwise that the opposing party “has failed to plead or otherwise defend.” Fed. R. Civ. P 55(a). The clerk's entry of default in this case was entered on August 25, 2017. Doc. 14. Second, the party must move the ...


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