United States District Court, E.D. Virginia, Richmond Division
E. PAYNE SENIOR UNITED STATES DISTRICT JUDGE.
matter is before the Court on Defendant's MOTION TO SET
ASIDE ENTRY OF DEFAULT (ECF No. 15), as well as
Plaintiff's MOTION FOR ENTRY OF DEFAULT JUDGMENT (ECF No.
10) and FLOWER ORTHOPEDICS CORPORATION'S MOTION FOR
ENLARGEMENT OF TIME TO FILE AN ANSWER AND COUNTERCLAIM (ECF
No. 17) . Defendant seeks to set aside the Clerk of
Court's Entry of Default (ECF No. 9) for good cause,
asserting that it failed to answer the Complaint because the
parties were engaged in ongoing settlement negotiations when
Plaintiff sought entry of default. For the reasons set forth
below, the MOTION TO SET ASIDE ENTRY OF DEFAULT (ECF No. 15)
will be granted; FLOWER ORTHOPEDICS CORPORATION'S MOTION
FOR ENLARGEMENT OF TIME TO FILE AN ANSWER AND COUNTERCLAIM
(ECF No. 17) will be granted; and the MOTION FOR ENTRY OF
DEFAULT JUDGMENT (ECF No. 10) will be denied as moot.
Medical-Surgical Inc. ("McKesson") is a distributor
of medical supplies, medical equipment, surgical supplies,
and medical lab supplies. Flower Orthopedics Corporation
("Flower Orthopedics") supplies bone-fixation
implants and surgical instruments that are used primarily for
the wrist, hand, shoulder, foot, and ankle. The companies
entered into a distribution agreement ("the Distribution
Agreement") on March 8, 2013, pursuant to which McKesson
would be a non-exclusive authorized distributor of Flower
Orthopedics' products. Compl. (ECF No. 1) ¶ 7;
id., Ex. 1.
around September 1, 2013, the parties agreed to an amendment
to the Distribution Agreement, which, in relevant part,
provided that: (1) McKesson would be the exclusive
distributor of Flower Orthopedics' products to certain
customers; and (2) McKesson would purchase certain minimum
amounts of Flower Orthopedics' products for several
six-month periods beginning in August 2013. Compl. ¶ 8;
id., Ex. 2. Nonetheless, according to Flower
Orthopedics, McKesson failed to meet its minimum purchase
commitment after that point, and, indeed, sold a minimal
amount of Flower Orthopedics' products during the course
of the parties' relationship. Burckhardt Decl. (ECF No.
16-1) ¶¶ 6-7. As a result, Flower Orthopedics took
steps to train McKesson' s sales staff in
selling Flower Orthopedics' products, and also hired a
separate, independent distribution network that would
implement a co-distribution strategy parallel to
McKesson's sales efforts. Id. ¶¶ 8-9.
Flower Orthopedics claims that it suffered financial harm
from having to take these actions because of McKesson's
poor distribution. Id. ¶ 10.
on March 4, 2015, Flower Orthopedics terminated the
exclusivity provision of the amended Distribution Agreement,
effective 120 days from that date. Compl. ¶ 9. The
parties subsequently reached a termination and repurchase
agreement ("the Repurchase Agreement") on May 8,
2015, which required Flower Orthopedics to repurchase its
products from McKesson in accordance with a particular
schedule ("the Repurchase Schedule"). Id.
¶ 10; id., Ex. 3. When Flower Orthopedics was
unable to pay consistent with the Repurchase Schedule, the
parties modified it by agreement on February 1, 2016
("the Repurchase Amendment"). Compl. ¶ 11;
id., Ex. 4.
Orthopedics failed to pay McKesson the full amount required
by the modified Repurchase Schedule in the Repurchase
Amendment. Compl. ¶ 12. As of November 8, 2017, the
amount of principal and late charges owed by Flower
Orthopedics under the Repurchase Amendment was $2, 287,
176.00. Ringberg Aff. (ECF No. 10-1) ¶¶ 9-12.
around March 2017, Flower Orthopedics' CEO, Oliver
Burckhardt ("Burckhardt"), discussed a possible
resolution of the repayment schedule with Erik Ringberg
("Ringberg"), McKesson's Vice President for
Supplier Management. The individuals exchanged proposals but
could not reach any agreement. Ringberg later offered to
settle if Flower Orthopedics would pay a larger amount than
Burckhardt had proposed, but Flower Orthopedics did not agree
to that offer. Burckhardt Decl. ¶ 15.
those negotiations were unsuccessful, McKesson filed its
Complaint here on September 19, 2017. ECF No. 1. It asserted
three claims: FIRST CLAIM FOR RELIEF, Breach of Contract,
related to Flower Orthopedics' failure to pay under the
Repurchase Amendment; and SECOND CLAIM FOR RELIEF and THIRD
CLAIM FOR RELIEF, Account Stated and Open Account,
respectively, for the unpaid amount. Id.
¶¶ 6-22. McKesson then served a summons and a copy
of the Complaint on Flower Orthopedics, through its vice
president, on September 26, 2017. ECF No. 7.
October 12 and 13, 2017, after Flower Orthopedics received
the Complaint, its New Jersey counsel, G. Robert Marcus
("Marcus"), left two voicemails with McKesson's
counsel, Jeffrey Garfinkle ("Garfinkle"). Garfinkle
Decl. (ECF No. 20-1) ¶ 11. When Garfinkle returned those
calls on October 13, Marcus explained why Flower Orthopedics
did not accept Ringberg's last settlement offer, and then
made a counter-proposal. Marcus Decl. (ECF No. 16-2) ¶
3. Garfinkle indicated that any settlement offer would need
to be in writing, Garfinkle Decl. ¶ 12, so Marcus sent
Garfinkle an e-mail later that day confirming the details of
the earlier offer, Marcus Decl. ¶ 3. None of
Marcus's communications referenced the Complaint or this
litigation, although both attorneys expressed a general
desire to avoid litigation in their conversation. Garfinkle
Decl. ¶¶ 12-13; Marcus Reply Decl. (ECF No. 21-1)
apparently found the October 13 offer unacceptable, and
Garfinkle never responded to Marcus. Garfinkle Decl. ¶
14. Having not received any response, Marcus claims that he
called Garfinkle and left a voicemail on October 20, 2017.
Marcus Decl. ¶ 4; Marcus Reply Decl. ¶ 6. Garfinkle
asserts that he never received that message. Garfinkle Decl.
event, Flower Orthopedics did not file an answer or otherwise
respond to the Complaint within the required twenty- one
days. See Fed.R.Civ.P. 12(a) (1) (A) (i) . As a
result, on October 25, 2017, McKesson requested that the
Clerk of Court enter default against Flower Orthopedics. ECF
No. 8. The Clerk then entered default on November 6, 2017.
ECF No. 9.
had left another voicemail with Garfinkle on November 3, but
Garfinkle was unable to respond until November 6. When he
called Marcus on that date, Garfinkle informed him that
McKesson had rejected the October 13 settlement offer, and
that the Clerk had entered default against Flower
Orthopedics. Marcus Decl. ¶ 4; Garfinkle Decl. ¶
17. Garfinkle also rejected Marcus's request to have the
entry of default set aside. Marcus Decl. ¶ 6.
thereafter, on November 8, 2017, McKesson moved to have the
Court enter default judgment against Flower Orthopedics. ECF
No. 10. Flower Orthopedics did not file an opposition to that
motion, but instead moved on November 13 to have the
Clerk's entry of default set aside. ECF No. 15.
Flower Orthopedics also moved to enlarge the time to file an
answer, attaching a proposed Answer and Counterclaim. ECF No.
17; id., Ex. A. McKesson has only responded to
Flower Orthopedics' motion to set aside the entry of
default. See ECF No. 20.
of default is mandatory where, as here, a party "has
failed to plead or otherwise defend, and that failure is
shown by affidavit." Fed.R.Civ.P. 55(a). However,
"[t]he court may set aside an entry of default for good
cause." Id. 55(c). Courts analyze six factors
when deciding whether good cause exists: "whether the
moving party has a meritorious defense, whether it acts with
reasonable promptness, the personal responsibility of the
defaulting party, the prejudice to the party, whether there
is a history of dilatory action, and the availability of
sanctions less drastic." Payne ex rel. Estate of
Calzada v. Brake, 439 F.3d 198, 204-05 (4th Cir. 2006);
see also Consol. Masonry & Fireproofing, Inc. v.
Wagman Constr. Corp., 383 F.2d 249, 251 (4th Cir. 1967)
("Generally a default should be set aside where the
moving party acts with reasonable promptness and alleges a
whether a defaulting party has shown good cause "is a
matter which lies largely within the [Court's]
discretion." Payne, 43 9 F.3d at 204. The
Fourth Circuit, however, has "repeatedly expressed a
strong preference that, as a general matter, defaults be
avoided and that claims and defenses be disposed of on their
merits." Colleton Preparatory Acad., Inc. v. Hoover
Universal, Inc., 616 F.3d 413, 417 (4th Cir. 2010);
see also Tazco, Inc. v. Dir., Office of Workers Comp.
Program, U.S. Dep't of Labor, 895 F.2d 949, 950 (4th
Cir. 1990) ("The law disfavors default judgments as a
general matter . . . ."); Lolatchy v. Arthur Murray,
Inc., 816 F.2d 951, 954 (4th Cir. 1987) (w
[A] n extensive line of decisions has held that [Rule] 55(c)
must be liberally construed in order to provide relief from
the onerous consequences of defaults . . . ." (internal
quotations omitted)). Moreover, the burden on a defendant
seeking relief from entry of default under Rule
55(c) is lower than the burden for relief from default
judgments under Rule 60(b). Although analyses under both