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Benchmark Electrical Solutions, Inc. v. National Specialty Insurance Co.

United States District Court, D. New Mexico

July 16, 2019

BENCHMARK ELECTRICAL SOLUTIONS, INC., Plaintiff,
v.
NATIONAL SPECIALTY INSURANCE COMPANY, et al., Defendants.

          PROPOSED FINDINGS AND RECOMMENDED DISPOSITION

          HONORABLE CARMEN E. GARZA CHIEF UNITED STATES MAGISTRATE JUDGE

         THIS MATTER is before the Court on Plaintiff Benchmark Electrical Solutions, Inc.'s (“Benchmark”) Motion for Default Judgment on First Cause of Action Against Defendant DanCar Energy Construction, LLC. (“Motion for Default Judgment”), (Doc. 36), filed May 21, 2019; Defendant National Specialty Insurance Company's (“NSIC”) Response in Opposition to Plaintiff's Motion for Default Judgment on First Cause of Action Against Defendant DanCar Energy Construction, LLC. (“NSIC's Response”), (Doc. 39), filed June 4, 2019; Defendant DanCar Energy Construction LLC's (“DanCar”) Response in Opposition to Plaintiff's Motion for Default Judgment on First Cause of Action Against Defendant DanCar Energy Construction LLC. (“DanCar's Response”), (Doc. 40), filed June 4, 2019; Benchmark's Reply to National Insurance Company's Response in Opposition to Plaintiff's Motion for Default Judgment on First Cause of Action Against Defendant DanCar Energy Construction, LLC. (“Reply to NSIC's Response”), (Doc. 44), filed June 18, 2019; and Benchmark's Reply to DanCar Energy Construction LLC's Response in Opposition to Plaintiff's Motion for Default Judgment on First Cause of Action Against Defendant DanCar Energy Construction, LLC. (“Reply to DanCar's Response”), filed June 18, 2019.

         In addition, this matter is also before the Court on Defendants' DanCar Energy Construction LLC and National Specialty Insurance Company's Motion to Vacate Default (“Motion to Vacate Default”), (Doc. 41), filed June 4, 2019; Benchmark's Response in Opposition to Defendant's DanCar Energy Construction LLC and National Specialty Insurance Company's Motion to Vacate Default (“Response to Motion to Vacate Default”), (Doc. 43), filed June 18, 2019; and Defendants DanCar Energy Construction LLC and National Specialty Insurance Company's Reply in Further Support of Motion to Vacate Default, (Doc. 48), (“Reply to Motion to Vacate Default”), filed July 2, 2019.

         On June 5, 2019 and June 21, 2019, United States District Judge Martha Vazquez referred both pending motions to the undersigned to make findings of fact, conduct legal analysis, and recommend an ultimate disposition. (Doc. 42); (Doc. 47). After considering the parties' filings, the record, and the relevant law, the Court RECOMMENDS that Plaintiff Benchmark Electrical Solutions, Inc.'s Motion for Default Judgment on First Cause of Action Against Defendant DanCar Energy Construction, LLC., (Doc. 36), be DENIED and Defendants' DanCar Energy Construction LLC and National Specialty Insurance Company's Motion to Vacate Default, (Doc. 41), be GRANTED.

         I. Factual Background

         In late 2016, Trailhead Engineering, LLC (“Trailhead”) entered into a construction agreement with Sendero Carlsbad Midstream, LLC to build a cryogenic natural gas plant in Loving, New Mexico. (Doc. 41 at 3). Trailhead, as the original contractor on the project, subcontracted with Defendant DanCar for labor, equipment, and materials to be used on the construction project. Id. In preparation for this project, DanCar entered into an indemnity agreement in favor of Defendant NSIC, wherein NSIC agreed to issue payment bonds to assist DanCar with financing for the construction project. Id. at 2.

         In 2017, DanCar entered into a subcontractor agreement with Plaintiff Benchmark to provide electrical contracting services for the construction project. (Doc. 36 at 2). After disputes regarding Benchmark's work on the project, DanCar terminated the contract with Benchmark. (Doc. 41 at 4). DanCar and Benchmark entered into a settlement agreement for the amount owed to Benchmark for labor and materials furnished in connection with the construction project. (Doc. 36 at 2). In total, DanCar agreed to the payment of $1, 645, 470 for Benchmark's contributions. Id.

         In early 2018, Trailhead terminated DanCar from the construction project. (Doc. 41 at 5). To date, DanCar claims it is owed over $8 million for its work on the construction project. Id. at 6. Since being terminated from the project, DanCar has ceased business operations because of insolvency. Id. Benchmark now alleges DanCar still owes $548, 495 on the parties' settlement agreement. (Doc. 36 at 2).

         II. Procedural Posture

         On May 9, 2018, Benchmark filed its Complaint alleging breach of contract against DanCar and “debt and money due on payment bonds” against both DanCar and NSIC. (Doc. 1 at 2-4). On May 15, 2018, a summons was returned executed by DanCar, the date of service reflecting May 11, 2018 and an answer due date set for June 1, 2018. (Doc. 4). Over three months later, with no further action taken in the case, the Court entered an Order to Show Cause, instructing Benchmark to “notify the Court in writing why this case should not be dismissed for want of prosecution.” (Doc. 5). Benchmark filed a Response explaining that DanCar had been served but it could not locate NSIC's principle office and it therefore intended to effectuate service upon the Superintendent of Insurance. (Doc. 6 at 1). In addition, Benchmark filed a Motion for Entry of Default, requesting the Clerk of Court enter default against DanCar for its “failure to timely respond to [Benchmark's] Complaint in this action.” (Doc. 7 at 1).

         On August 31, 2018, the Clerk entered default against DanCar and shortly thereafter the Court quashed its Order to Show Cause. (Doc. 9); (Doc. 10). On October 11, 2018, the Court entered an Order to Notify the Court of Status of Service, explaining that the docket reflects “no further action has been taken by [Benchmark] regarding the remaining Defendant [NSIC], since the Court's first Order to Show Cause issued on August 20, 2018.” (Doc. 12 at 1). In response, Benchmark filed an Application for Alias Summons, requesting the “Clerk issue alias summons to Defendant [NSIC].” (Doc. 13 at 2). In addition, Benchmark's counsel explained that “while [other matters] unfortunately diverted [his] attention, ” NSIC would soon be served after the Court renders its decision on the Application for Alias Summons. (Doc. 14 at 2). Shortly thereafter, the Court granted Benchmark's request for an alias summons and the Clerk's office issued the summons to NSIC. (Doc. 15); (Doc. 16); (Doc. 17); (Doc. 18). On January 15, 2019, NSIC filed its Answer. (Doc. 19). On May 30, 2019, after the Court conducted its Rule 16 scheduling conference and Benchmark filed its Motion for Default Judgment, DanCar filed its Answer. (Doc. 38).

         III. Analysis

         In its Motion for Default Judgment, Benchmark argues it is entitled to a default judgment on the breach of contract claim against DanCar because DanCar did not answer its Complaint and “there is no just reason for delay in entry of final judgment against DanCar, ” pursuant to Federal Rule of Civil Procedure 54(b). (Doc. 36 at 6). In support of this argument, Benchmark contends DanCar's default “was not minor or technical, ” DanCar “cannot show excusable neglect, ” Benchmark is “potentially prejudiced by the delay, ” and DanCar “cannot establish any meritorious defenses to [the claim].” (Doc. 45 at 1-3). DanCar responds by rebutting each of Benchmark's conclusions and adding that “a substantial amount of money [is] at stake.” (Doc. 40 at 1-5). In their cross-Motion to Vacate Default, DanCar and NSIC argue the Clerk's entry of default should be vacated because it was not willful, Benchmark will not suffer prejudice by setting aside the default, and DanCar has meritorious defenses which it should be allowed to substantively present before the Court. (Doc. 41 at 1).

         Federal Rule of Civil Procedure 55 sets forth a two-step process for securing a default judgment. First, a party must obtain a Clerk's entry of default. Fed.R.Civ.P. 55(a); see also Watkins v. Donnelly, 551 Fed.Appx. 953, 958 (10th Cir. 2014) (unpublished) (“Entry of default by the clerk is a necessary prerequisite that must be performed before a district court is permitted to issue a default judgment.”). Second, the party may either motion the Clerk to enter a default judgment if the claim is for a ...


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