SURRICK, District Judge.
Presently before the Court are Defendant Title Resources Guaranty Company's Motion to Dismiss (ECF No. 28), Plaintiff Stout Street Funding LLC's Motion for Default Judgment (ECF No. 60), and Defendants Otis Johnson, Mabstract, LLC, and Mabstract Management, LLC's Petition to Set Aside Entry of Default and Seeking Leave to File Answer (ECF No. 64). For the following reasons, Title Resources Guaranty Company's Motion will be granted in part and denied in part, Stout Street Funding's Motion will be denied, and Otis Johnson, Mabstract, and Mabstract Management's Petition will be denied.
This lawsuit arises from an alleged fraudulent real estate transaction in which Plaintiff Stout Street Funding lost $480,000. Plaintiff brings this action against a number of individuals and entities involved in the transaction. Defendants include Otis Johnson, Mabstract, Mabstract Management, Dorian Mitchell, John Glenn, Jr., doing business as International Small Business Network ("ISBN"),
Plaintiff provides commercial loans to real estate investors. Glenn, as a principal of ISBN, submitted a loan application to Plaintiff for the purpose of purchasing a residential property located at 818 Waverly Road, Bryn Mawr, Pennsylvania. (Compl. ¶ 45 & Ex. 1, ECF No. 1.) On June 28, 2010, Plaintiff advised ISBN that it was willing to provide a $480,000 loan, subject to the receipt of certain documents, including a title insurance policy and a closing protection letter. (Id. at ¶¶ 52-53.)
On July 19, 2010, Mabstract and Johnson conducted a closing of the real estate transaction. The HUD-1 settlement statement was signed by Shannen Kurz, a principal of ISBN; Michael and Karen Meehan, owners of the 818 Waverly Road property; and Johnson. (Id. at ¶ 78 & Ex. 11.) During the closing, or shortly thereafter, Mabstract misappropriated the escrow funds deposited by Plaintiff and used this money to pay off debts arising from previous transactions. (Id. at ¶ 83.) Specifically, Mabstract used the loan proceeds to pay $191,691.53 to Bank of America/Countrywide on account of a loan held by Ebert Estrada, $119,331.03 to JP Morgan Chase on account of a loan held by John and Darlene Weller, $24,000 to AMJ Hoagie Hut, and $14,400 to K & R Marketing. (Id. at ¶ 84.) Plaintiff alleges that the entire 818 Waverly Road transaction was fraudulent.
After providing this background to the transaction in the Complaint, Plaintiff discusses the relationship between Mabstract and TRGC. On April 8, 2010, TRGC and Mabstract entered into an Issuing Agency Contract, pursuant to which Mabstract would serve as a title insurance agent. (Id. at ¶ 96 & Ex. 13.) In relevant part, the Issuing Agency Contract provides that the "Principal appoints Agent as its agent solely for the purpose of issuing on Principal's forms, title insurance commitments, binders, guarantees, policies, and endorsements." (Id. at Ex. 13 at ¶ 1.) Notwithstanding any other provision, Mabstract's "authority under this Agreement is expressly limited to the issuance of Policies and the collection of premiums as set forth herein." (Id. at ¶ 2.) Mabstract was not authorized to "[r]eceive in the name of Principal any funds or things of value, including escrow and settlement funds, except premiums." (Id. at ¶ 2(I).) Under the "Duties of Agent" section of the Contract, Mabstract is instructed to "[k]eep all funds received by Agent from any source in connection with transactions in which Principal's title insurance is involved in a federally insured financial institution in escrow accounts." (Id. at ¶ 3(F).) Moreover, Plaintiff shall "[c]onduct or participate in any settlements or closings of title insurance transactions in which Policies of Principal are to be issued in an ethical manner." (Id. at ¶ 3(K).) The Issuing Agency Contract provides that Mabstract shall be liable to TRGC for expenses incurred by TRGC arising from the "handling of any escrow, sub-escrow or the closing of any transaction." (Id. at ¶ 6(A).)
On October 26, 2010, Plaintiff commenced the instant litigation. Plaintiff's Complaint alleges Fraud/Intentional Misrepresentation (Count I), Conspiracy (Count II), Conversion (Count III), Unjust Enrichment (Counts IV, XI, XIII), Breach of Fiduciary Duty (Count V), Negligence (Counts VI, VIII), Piercing of the Corporate Veil (Count VII), Enabler Liability (Count IX), Vicarious Liability/Respondeat Superior (Count X), Fraudulent Transfers (Count XII), Nominal Relief (Count XIV), and Breach of Contract (Count XV). On December 6, 2010, TRGC responded with a Motion to Dismiss. (Mot. Dismiss, ECF No. 28.) On January 21, 2011, Plaintiff filed a Motion for Default Judgment as to Defendants Johnson, Mabstract, Mabstract Management, Glenn, Kurz, Michael Meehan and AMJ Hoagie House. (Mot. Default, ECF No. 60.) On February 1, 2011, Johnson, Mabstract, and Mabstract Management filed a Petition to Set Aside Default. (Pet. Set Aside, ECF No. 64.)
Under Federal Rule of Civil Procedure 8, a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Federal Rule of Civil Procedure 12(b)(6) provides that a complaint may be dismissed for "failure to state a claim upon which relief can be granted." "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A complaint that merely alleges entitlement to relief, without alleging facts that show entitlement, must be dismissed. See Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d Cir.2009). This "`does not impose a probability requirement at the pleading stage,' but instead `simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of' the necessary elements." Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir.2008) (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955).
Federal Rule of Civil Procedure 55(b)(2) authorizes the entry of a default judgment upon application to the court by a party. In determining whether to grant a default judgment, courts examine three factors: 1) prejudice to the plaintiff if default is denied; 2) whether the defendant appears to have a litigable defense; and 3) whether the defendant's delay is due to culpable conduct. Chamberlain v. Giampapa, 210 F.3d 154, 164 (3d Cir.2000). "[T]he factual allegations of the complaint, except those relating to the amount of damages, will be taken as true." Comdyne I, Inc. v. Corbin, 908 F.2d 1142, 1149 (3d Cir.1990) (citations omitted).
Plaintiff brings four claims against TRGC. These claims include negligence
TRGC argues that all of Plaintiff's claims fail because TRGC never issued a closing protection letter. A closing protection letter is provided by a title insurance underwriter, such as TRGC, to "verify the agent's authority to issue the underwriter's policies and to make the financial resources of the national title insurance underwriter available to indemnify lenders and purchasers for the local agent's errors or dishonesty with escrow or closing funds." New Freedom Mortg. Corp. v. Globe Mortg. Corp., 281 Mich.App. 63, 761 N.W.2d 832, 842 (Mich.Ct.App.2008) (quoting 2 Palomar, Title Ins. Law § 20:11). Closing protection letters have seldom been the subject of litigation in the Third Circuit or Pennsylvania. Accordingly, we look to other courts for guidance.
Insurance industry practice "generally requires" the issuance of a closing protection letter "before title insurance companies can be liable for the actions of their independent title insurance agents when those agents are conducting closings." Bergin Fin., Inc. v. First Am. Title Co., 397 Fed.Appx. 119, 125 (6th Cir.2010); see First Am. Title Ins. Co. v. First Alliance Title, Inc., 718 F.Supp.2d 669, 680 (E.D.Va.2010) ("[C]losing protection letters function to protect lenders when settlement agents engage in fraud or other misconduct, and are issued precisely because the lender cannot typically hold a title insurer liable in their absence."); Proctor v. Metro. Money Store Corp., 579 F.Supp.2d 724, 738 (D.Md.2008); Resolution Trust Corp. v. Am. Title Ins. Co., 901 F.Supp. 1122, 1124 (M.D.La.1995); see also James Bruce Davis, The Law of Closing Protection Letters, 36 Tort & Ins. L.J. 845, 847 (2011) ("A substantial majority of courts hold that if a title insurance company has not issued a closing protection letter, the title insurer has no liability for fraud or other misconduct by a settlement agent in connection with a real estate closing."). Lenders request these letters as an additional source of protection because agents who are authorized to issue policies are often not authorized to conduct closings on behalf of the title insurance company. See Bergin, 397 Fed.Appx. at 125.
TRGC extracts from these cases a strict rule in which a title insurance underwriter can never be liable for an agent's defalcations at closing if no closing protection letter was issued. We disagree with this reading. A closing protection letter is ordinarily, but not exclusively, the means by which underwriter liability may be imposed. Courts also may inquire into the scope of the principal-agent relationship to determine whether the agent acted with actual or apparent authority to close the transaction on behalf of the principal. Nat'l Mortg. Warehouse, LLC v. Bankers First Mortg. Co., 190 F.Supp.2d 774, 779 (D.Md.2002) ("[L]ike other courts called upon to determine the authority of an issuing agent where no valid closing protection letter exists, the court will examine the Agency Agreement between Security Title and Title Express to define the scope of Trikeriotis's authority."); Bergin Fin., 397 Fed.Appx. at 125, 127 (engaging in apparent agency analysis after finding no closing protection letter); Proctor, 579 F.Supp.2d at 738 n. 23 (noting that absent applicable closing protection letter, court could find liability if the agent was acting under apparent authority from the principal); Resolution Trust, 901 F.Supp. at 1124. The issuance of a closing protection letter demonstrates the need for additional protection for the lender because of the general absence of agency liability. Proctor, 579 F.Supp.2d at 738. If, however, there is
TRGC contends that it cannot be liable for Mabstract's malfeasance because Mabstract did not have actual or apparent authority to serve as TRGC's closing agent. Pennsylvania law recognizes both actual and apparent agency. See Garczynski v. Countrywide Home Loans, Inc., 656 F.Supp.2d 505, 511 (E.D.Pa.2009). Actual authority may be express or implied. Richardson v. John F. Kennedy Mem'l Hosp., 838 F.Supp. 979, 985 (E.D.Pa.1993). Express actual authority is that which has been expressly granted to an agent by his principal. Implied actual authority is that which is necessary, proper, and usual in the exercise of the agent's express authority. Volunteer Fire Co. of New Buffalo v. Hilltop Oil Co., 412 Pa.Super. 140, 602 A.2d 1348, 1352 (Pa.Super.Ct.1992). Apparent authority is "the power to bind the principal where the principal has not actually granted authority but which he leads persons with whom his agent deals to believe that he has granted." Reading Co. v. Dredge Del. Valley, 468 F.2d 1161, 1163 (3d Cir.1972). A court may only find apparent authority if it is reasonable for the third party to believe that the agent is authorized in its actions. Fields v. Horizon House, Inc., No. 86-4343, 1987 WL 26652, at *4 (E.D.Pa. Dec. 9, 1987).
Plaintiff argues that Mabstract had actual and apparent authority to act as a closing agent for TRGC. It is clear from the face of the pleadings, however, that Mabstract did not have actual authority to perform services on behalf of TRGC at the time of the 818 Waverly Road closing. The closing occurred on July 19, 2010. Plaintiff concedes that TRGC terminated its contract with Mabstract on July 12. (Compl. ¶ 109.) Moreover, on July 15, TRGC obtained an injunction barring Mabstract from engaging in any business on behalf of TRGC. Plaintiff identifies no authority, and we are aware of none, that supports the argument that an agent may act with actual authority after the principal has expressly terminated its relationship with the agent and has secured an injunction prohibiting the agent from engaging in business on behalf of the principal.
Termination of actual authority, however, does not terminate an agent's apparent authority. "Once apparent authority has been created, it does not terminate until the third person has reason to know that the principal has revoked the authority, or that the agent has renounced it, or that such time has elapsed or such events have happened after the authorization as to require the reasonable inference that the agent's authority has terminated." Reading Co., 468 F.2d at 1163; see D & G Equip. Co. v. First Nat'l Bank of Greencastle, Pa., 764 F.2d 950, 955 (3d Cir.1985); Restatement (Third) of Agency § 3.11 (2006) ("Apparent authority ends when it is no longer reasonable for the third party with whom an agent deals to believe that the agent continues to act with actual authority.").
Plaintiff argues that it reasonably believed that Mabstract continued to have actual authority at the time of the closing. Plaintiff contends that prior to Mabstract's termination, it had actual authority to conduct escrow and closing services on behalf of TRGC. In determining whether a title insurance agent had actual authority, courts generally look to the express terms of the issuing agency contract. Fid. Nat'l Title Ins. Co. v. Mussman, 930 N.E.2d 1160, 1164-69 (Ind.Ct.App.2010) (summarizing cases). Plaintiff argues that
TRGC argues that the Issuing Agency Contract does not authorize Mabstract to serve as its closing agent. TRGC points to the provision that reads, "Principal appoints Agent as its agent solely for the purpose of issuing on Principal's forms, title insurance commitments, binders, guarantees, policies, and endorsements." (Compl. Ex. 13 at ¶ 1.) It argues that this contractual limitation, which defines the scope of the principal-agent relationship, does not include closing or escrow services. TRGC maintains that the references to closing and escrow services in the Issuing Agency Contract are meant to limit TRGC's exposure and do not broaden the explicit grant of authority. See Fid. Nat'l, 930 N.E.2d at 1168-69. Moreover, TRGC attempts to harmonize its ostensibly inconsistent arguments in the two litigations by contending that Mabstract only had authority to serve as TRGC's closing agent when a closing protection letter was issued. None was issued here.
We conclude that it would be premature to make a determination as to the scope of the principal-agent relationship prior to discovery. The cases relied upon by the parties had developed factual records. See, e.g., Fid. Nat'l, 930 N.E.2d at 1168 (granting summary judgment where no evidence supports actual or apparent authority to conduct closing and escrow services); Bergin, 397 Fed.Appx. at 124, 127 (same); Pal Props. LLC v. Ticor Title Ins. Co., No. 280389, 2008 WL 5158894, at *4-10 (Mich. Ct.App. Dec. 9, 2008) (same).
Plaintiff must be afforded an opportunity to present evidence that supports its argument that TRGC consented to Mabstract conducting closings and escrow services on its behalf. Plaintiff sufficiently alleges that it had no actual notice of Mabstract's termination and that there were no red flags that would have placed Plaintiff on inquiry notice. See Johnson v. Nationwide Gen. Ins. Co., 971 F.Supp. 725, 731 (N.D.N.Y.1997) ("[Apparent authority] lasts until a third party has actual notice of an agent's termination or until the third party has enough information to put that individual on inquiry."). Moreover, Plaintiff alleges that TRGC failed to take appropriate affirmative steps to prevent Mabstract from continuing to commit fraud against third parties. (Compl. ¶ 124.) At this stage of the litigation, we cannot, as TRGC would have it, make findings of fact.
Plaintiff alleges in Count VIII that TRGC was negligent in hiring Mabstract as its title agent because it should have known that Mabstract had a history of misappropriating money. (Compl. ¶¶ 199-206.) Plaintiff also alleges that TRGC provided no training, supervision or control over the operations of Mabstract. (Id. at ¶ 208.)
TRGC argues that this claim must be dismissed because there can be no cause of action for negligent hiring and supervision if the tort is committed after the employment relationship is terminated. See Hutchison ex rel. Hutchison v. Luddy, 560 Pa. 51, 742 A.2d 1052, 1059 (1999) (suggesting that terminating an individual's employment shields an employer from liability in a negligent hiring and retention case); Phillips v. TLC Plumbing, Inc., 172 Cal.App.4th 1133, 91 Cal.Rptr.3d 864, 872 (Cal.Ct.App.2009) (finding that the "great weight of case authority" does not recognize negligent hiring claims for harm inflicted by former employee); Coleman & Co. Sec., Inc. v. Giaquinto Family Trust, 236 F.Supp.2d 288, 304 (S.D.N.Y.2002) (barring negligent supervision claim after employment ended); Rehm v. Lenz, 547 N.W.2d 560, 567 (S.D.1996) ("It is illogical to contend West River negligently supervised or retained Lenz after Lenz left its employment; once Lenz left West River had no right to supervise or direct Lenz.").
Notwithstanding this concession, Plaintiff argues that the close proximity between the termination date and the misappropriation date distinguishes these facts from the cases relied upon by TRGC. See, e.g., Phillips, 91 Cal.Rptr.3d at 870 (denying negligent supervision claim where tort committed two years after employment ended). Plaintiff also argues that the termination of actual authority does not by itself sever a principal's liability. Plaintiff contends that in our application of the Restatement (Third) of Agency § 7.05, which deals with negligent supervision claims, we should be guided by the vicarious liability precept that generally controls the principal-agent relationship.
We agree with TRGC that Plaintiff's negligent supervision claim must be dismissed. Plaintiff has not identified a single authority that deviates from the black-letter law developed in the cases cited by TRGC. Although it was only a matter of days between the termination and the commission of the tort, courts have uniformly held that an employer cannot be liable under a negligent supervision theory for torts committed by a former employee after the relationship ended. Plaintiff conflates the negligent supervision provision of the Restatement with those relating to vicarious liability. A claim for negligent supervision is a claim for direct liability, rather than vicarious liability under a respondeat superior theory. The case law and the Restatement are unequivocal in that they hold that principals may be vicariously liable for the acts of their agents after the principal-agent relationship terminates. See, e.g., Reading Co., 468 F.2d at 1163. This is not so for a negligent supervision claim. Once an employee or agent is terminated, the employer or principal is no longer capable of negligently selecting, training, retaining or supervising that individual; the end of the relationship must cut off liability. Plaintiff has not directed our attention to a single case that indicates otherwise. Mabstract misappropriated the funds after its Contract with TRGC terminated. Plaintiff admits as much. (See Pl.'s Sur-Reply 11.) This is fatal to the negligent supervision claim. Accordingly, that claim must be dismissed.
In Count XI, Plaintiff asserts an unjust enrichment claim against TRGC. This claim arises out of the following facts. Mabstract issued TRGC title insurance commitments in the Weller and Estrada real estate transactions and received money
To recover under the equitable doctrine of unjust enrichment, a plaintiff must demonstrate: (1) benefits conferred on defendant by plaintiff; (2) appreciation of such benefits by defendant; and (3) acceptance and retention of such benefits under such circumstances that it would be inequitable for defendant to retain the benefit without payment of value. Mitchell v. Moore, 729 A.2d 1200, 1203-04 (Pa.Super.Ct.1999) (citations omitted). A plaintiff must show that "the party against whom recovery is sought either wrongfully secured or passively received a benefit that would be unconscionable for the party to retain without compensating the providers." Brown & Brown, Inc. v. Cola, 745 F.Supp.2d 588, 625 (E.D.Pa.2010) (citations omitted). Whether unjust enrichment applies "depends on the unique factual circumstances of each case." Styer v. Hugo, 422 Pa.Super. 262, 619 A.2d 347, 350 (Pa.Super.Ct.1993). Courts must focus "not on the intention of the parties, but rather on whether the defendant has been unjustly enriched." Stoeckinger v. Presidential Fin. Corp. of Del. Valley, 948 A.2d 828, 833 (Pa.Super.Ct.2008). Moreover, "[p]laintiffs need not have directly dealt with each defendant in order to allege a claim of unjust enrichment against them." Baker v. Family Credit Counseling Corp., 440 F.Supp.2d 392, 420 (E.D.Pa.2006).
TRGC relies on the cases of D.A. Hill Co. v. CleveTrust Realty Investors, 524 Pa. 425, 573 A.2d 1005 (1990), and Goldsmith Assocs., Inc. v. Del Frisco's of Phila., Inc., No. 09-1359, 2009 WL 3172752 (E.D.Pa. Oct. 1, 2009), in support of its request for dismissal. In D.A. Hill, subcontractors furnished services on a construction project but were not paid for all of their work. 573 A.2d at 1006. The subcontractors brought an unjust enrichment claim against the lending institution that foreclosed on the project after the owner defaulted. The court denied this claim and held that "a third party is not unjustly enriched when it receives a benefit from a contract between two other parties where the party benefitted has not requested the benefit or misled the other parties." Id. at 1010. Similarly, in Goldsmith, a subcontractor, who performed work and was owed money, sought to recover not from the general contractor, but from the owner of the building. 2009 WL 3172752, at *1. The court, applying D.A. Hill, rejected the subcontractor's unjust enrichment theory. Id. at *5 ("[T]he controlling case of D.A. Hill stands for the proposition that subcontractors may not recover from owners on a theory of unjust enrichment unless (1) the owner requested the benefit or (2) the owner misled the subcontractor.").
The D.A. Hill rule is based on the business realities of subcontracting. See D.A. Hill, 573 A.2d at 1010 ("It would be manifestly unfair for this Court to restructure these contractual arrangements in such a way as to place all of the risk on Clevetrust [the defendant lender], thus insulating the subcontractors from any responsibility
TRGC argues that Plaintiff's unjust enrichment claim fails because Plaintiff does not allege that TRGC requested the benefit or misled Plaintiff in any way. TRGC states matter-of-factly that an unjust enrichment claim brought by a third party who benefits from a contract between two other parties must allege that the defendant requested the benefit or misled the plaintiff. This extrapolation from D.A. Hill and Goldsmith ignores the narrow context in which those cases were decided. The rule promulgated in D.A. Hill has been confined to unjust enrichment cases in the construction industry. See, e.g., Buttonwood Co. v. E. Clifford Durell & Sons, Inc., 34 Phila.Co.Rptr. 193, 201, 1997 WL 1433767 (Pa.Comm.Pl.1997) ("There is specific case law [D.A. Hill] in this Commonwealth discussing the criteria for application of an unjust enrichment theory in the context of claims being asserted for unpaid construction services.").
The policy undergirding the D.A. Hill rule accounts for the particular contractual arrangement between contractors and subcontractors, as well as a legislative framework that provides for mechanics' liens. D.A. Hill, 573 A.2d at 1010 & n.5. Outside the realm of the construction industry, courts flexibly apply the unjust enrichment doctrine based on the "unique factual circumstances of each case." See Kia v. Imaging Scis. Int'l, Inc., 735 F.Supp.2d 256, 269 (E.D.Pa.2010). Plaintiff must still demonstrate that it would be unconscionable for TRGC to retain its benefit without compensation. See Brown & Brown, 745 F.Supp.2d at 625. However, TRGC's only argument in favor of dismissal is based on the D.A. Hill line of cases. Accordingly, we reject TRGC's argument. Plaintiff is not required to allege that TRGC misled Plaintiff or requested its benefit.
On January 21, 2011, Plaintiff filed a Motion for Default Judgment against Otis Johnson, Mabstract, Mabstract Management, John Glenn, Shannen Kurz, Michael Meehan and AMJ Hoagie House ("Defaulting Defendants"). (ECF No. 60.) The Defaulting Defendants were served with a copy of the Summons and Complaint. (ECF Nos. 8, 9, 18, 30, 41-43.) The Clerk of Court has entered default against these Defendants for failure to appear, plead or otherwise defend. On February 1, 2011, Johnson, Mabstract, and Mabstract Management submitted a Petition to Set Aside Default. (Pet. Set Aside, ECF No. 64.)
Johnson, Mabstract, and Mabstract Management ("Mabstract Defendants") responded to Plaintiff's Motion for Default with a petition to set aside the entry of default under Federal Rule of Civil Procedure 60, and requested permission to file answers to Plaintiff's Complaint.
The Mabstract Defendants have failed to show good cause to justify setting aside the entries of default. They offer no meritorious defense. The Mabstract Defendants argue that they were not properly served with a copy of the Summons and Complaint. The executed returns of service state that Johnson was served on November 3, 2010, and Mabstract and Mabstract Management were served on December 2, 2010. (ECF Nos. 9, 41, 42.) The Mabstract Defendants were provided with a standard summons form from this District, which listed all of the parties in the litigation. The Summonses received by the Mabstract Defendants, however, did not separately identify their names or addresses.
This argument must be rejected. The omissions in the Summonses were technical violations that did not prejudice the Mabstract Defendants. "The fundamental purpose for requiring proper service of process is to ensure that the defendant receives notice of the commencement of the legal action and is afforded an opportunity to present his objections." Perlberger v. Caplan & Luber, LLP, 152 F.Supp.2d 650, 653 (E.D.Pa. 2001). Although a party may not ignore the rules, when "there is actual notice, every technical violation of the rule or failure of strict compliance may not invalidate the service of process." Stranahan Gear Co. v. NL Indus., Inc., 800 F.2d 53, 56 (3d Cir.1986) (citations omitted). The Summonses received by the Mabstract Defendants named the court and all parties involved, listed the plaintiff's attorney and his address, directed Defendants to respond within twenty-one days, and was
Mabstract and Mabstract Management argue that service was improper for an additional reason. The server's declaration advises that he served Mabstract by serving the Summons and Complaint upon Johnson at 411 Doylestown Road. (ECF No. 41.) The server's declaration states that he served Mabstract Management by serving the Summons and Complaint upon Johnson, "Person in Charge," at 411 Doylestown Road. (ECF No. 42.) Mabstract and Mabstract Management argue that 411 Doylestown Road is the address of Defendant AMJ Hoagie House. They contend that there is no allegation in the Complaint that Johnson was an officer, agent, or person in charge of AMJ Hoagie House.
Defendants' arguments are without merit. A corporation, partnership or association may be served in the manner required by the law of the state in which the district court is located. Fed.R.Civ.P. 4(h)(1)(A). Pennsylvania Rule of Civil Procedure 424 provides, in relevant part, that service upon a corporation shall be made on (1) an executive officer, partner or trustee of the corporation, or (2) the manager, clerk or other person for the time being in charge of any regular place of business or activity of the corporation. The Complaint alleges that Johnson is the president of Mabstract and that Mabstract Management is an alter ego of Johnson and Mabstract. Mabstract and Mabstract Management do not dispute in their response that Johnson is their president. Nor do they provide any affidavits that contest Johnson's position with respect to these two entities.
Plaintiff will be prejudiced if entry of default is set aside. The Mabstract Defendants have not asserted any substantive defense in this matter, and no obvious defense exists from the face of the Complaint. See Duehr ex rel. Steelworkers Pension Trust v. Marriott Hotel Mgmt. Co. VI Inc., No. 10-4342, 2011 WL 554140, at *2 (E.D.Pa. Feb. 14, 2011) (finding
A district court has the discretion to enter a default judgment against less than all defendants in a matter. Fed. R.Civ.P. 54(b).
Plaintiff brings this lawsuit against sixteen separate Defendants. There are a total of seven Defaulting Defendants, including Johnson, Glenn, Kurz, Mabstract, Mabstract Management, Meehan, and AMJ Hoagie House. Plaintiff alleges that defaulting and non-defaulting Defendants participated in the closing of the 818 Waverly Road real estate transaction. Plaintiff further alleges that both defaulting and non-defaulting Defendants committed fraud, misrepresentation, conversion and conspiracy against Plaintiff. As a result, there is a danger of logically inconsistent determinations as to liability of the non-defaulting defendants on the one hand, and defaulting defendants on the other hand. The liability of one of the Defaulting Defendants cannot be adjudicated
We are satisfied that there is just reason to delay entering default judgment against the Defaulting Defendants. Accordingly, Plaintiff's Motion for Default Judgment is denied without prejudice. Plaintiff may later request default judgment against the Defaulting Defendants after the matter has been adjudicated with regard to all Defendants.
For the foregoing reasons, Defendant Title Resources Guaranty Company's Motion to Dismiss will be granted in part and denied in part, Plaintiff Stout Street Funding's Motion for Default Judgment will be denied, and Defendants Otis Johnson, Mabstract, and Mabstract Management's Petition to Set Aside Entry of Default and Seeking Leave to File Answer will be denied.
An appropriate Order follows.
Mabstract's insurance company, Max Specialty Insurance ("Max"), has filed a separate action against the Mabstract Defendants, in which it seeks declaratory relief. Max Specialty Ins. Co. v. Mabstract LLC, No. 11-2384 (E.D. Pa. filed Apr. 6, 2011). Upon learning of the instant action brought by Plaintiff in connection with the 818 Waverly Road transaction, Max unsuccessfully attempted to reach out to the Mabstract Defendants. Id. at ECF No. 1 at ¶¶ 20-26. After all of its attempts were ignored, Max hired the law offices of Sweeney & Sheehan to represent the interests of the Mabstract Defendants in this litigation. The Mabstract Defendants have also failed to answer Max's complaint in its declaratory judgment action. The Clerk of Court has entered a default in that action.
Fed.R.Civ.P. 54(b).
