In CanCan Development, LLC v. Manno, C.A. No. 6283-VCL (Del. Ch. Sept. 21, 2011), read opinion here, the Court refused to open a default judgment and explained why the defendant was liable for plaintiff’s attorneys’ fees and costs.
A former associate of Eckert Seamans prepared this summary.
CanCan Development filed a motion for a summary determination that defendant Manno had been removed as a manager of CanCan. The night before Manno was required to file an answer to the complaint, her out-of-state attorney sent a letter to CanCan’s counsel and the Court advising that Manno would not be filing an answer. The letter insisted that an unrelated transfer of CanCan’s membership units among non-parties had mooted CanCan’s claims, and confirmed that Manno had been removed.
Before representing to the Court that the issue was moot, Manno’s out-of-state counsel (a Texas lawyer who was also barred in New Jersey), filed a complaint in New Jersey Superior Court seeking to litigate Manno’s removal as manager of CanCan.
Manno did not file an answer in the Delaware action; and within a week, CanCan moved for default judgment for the relief requested in the complaint – which included attorneys’ fees and costs. Manno’s out-of-state counsel informed the Court that Manno had no objection to an entry of default judgment, but argued that awarding attorneys’ fees and costs would be a departure from the American Rule.
The Court held a hearing on the amount of the fee award and granted CanCan’s request in full. Manno (who had finally retained Delaware counsel), filed a motion for relief from judgment pursuant to Rule 60(b)(1) and 60(b)(6). Manno presented her defense to the allegations in the complaint for the first time in her motion for relief from judgment. She argued that CanCan had not properly removed her, but ultimately conceded that the removal was uncontestable.
Rule 60(b)(1) allows the Court to grant relief from a judgment that resulted from “mistake, inadvertence, surprise, or excusable neglect.” To prevail, the defendant must show that (i) the mistake or neglect led to the default judgment; (2) she had a meritorious defense to the action that would have changed the outcome of the litigation; and (3) the plaintiff would not be prejudiced.
Rule 60(b)(6) allows the Court to vacate a judgment for “any other reason justifying relief,” so long as the circumstances presented “could not have been addressed using other procedural methods, that constitute an extreme hardship, or when manifest injustice would occur if relief were not granted.” (Internal quotations omitted).
Manno’s attempt to moot the issue of her removal in Delaware while continuing to litigate the same issue in New Jersey caused the Court to deny the motion to vacate the default judgment. Contrary to Manno’s argument that the default judgment and award of attorneys’ fees resulted from mistake, inadvertence, or excusable neglect, the Court found that “[i]t rather resulted from the litigation strategy that she and her counsel consciously adopted.” In addition, the Court did not believe that Manno’s purported defense would have altered the outcome of the litigation.
The Court also denied Manno’s request to stay the judgment pending the resolution of a separate Delaware action, where she anticipates that her recovery would offset the fee award in the current action. Since any such recovery would be “[a] contingent or unmatured obligation which is not presently enforceable[, it] cannot be the subject of set-off.”