United States District Court, D. New Jersey
MEMORANDUM AND ORDER
G. SHERIDAN, U.S.D.J.
before the Court is Defendant Kyle Drake's Motion to
Vacate Default Judgment that was entered against him on April
9, 2018, pursuant Federal Rules of Civil Procedure 55(c) and
60(b), and to file an answer or responsive pleading. (ECF No.
8). For the reasons set forth herein, Defendant's motion
matter stems from allegations of wrongful misappropriation
and theft of trade secrets by Defendant against his former
employer, Plaintiff Phase 3 Media, LLC (hereinafter,
"Phase 3"). According to the Complaint, Phase 3 is
a digital marketing and public relations agency that makes
promotional products for customers. (Complaint at ¶ 7).
A critical aspect of Phase 3's business is the use of
"Quick Base" software, which "is a web-based
rapid application development software." (Id.
at ¶ 9). Defendant, who had worked for Phase 3 for over
ten years, was the company's Quick Base account manager.
(Id. at ¶¶ 6, 11). This being said, on
December 28, 2017, Defendant left Phase 3 to join Diversified
Global Graphics Group (hereinafter, "DG3"), another
business marketing and communications company. (Id.
at ¶ 6). Before leaving Phase 3, however, Defendant
allegedly emailed himself Phase 3's Quick Base account,
using his DG3 email address. (Id. at ¶ 23). As
such, on March 9, 2018 Phase 3 initiated the present matter,
asserting claims of: (1) misappropriation of trade secrets
under the Defend Trade Secrets Act, 18 U.S.C. § 1836;
(2) breach of the duty of loyalty; and (3) conversion. The
following month, April 9, 2018, default was entered against
affidavit in support of vacating default judgment, Defendant
provides an explanation for his failure to respond to Phase
3's Complaint. (ECF No. 8-1, "Drake
Affidavit"). Apparently, after being served with the
Complaint, DG3 agreed to represent him and attempted to
settle this matter with Phase 3. (Id. at ¶ 11).
"Counsel for DG3 and [Phase 3] engaged in substantive
settlement negotiations up to March 30, 2018, " leading
Defendant to believe that "the matter would be resolved,
the lawsuit dismissed, and [he] would not need to retain
counsel." (Id. at ¶¶ 12-13). However,
on March 30, 2018, Defendant was informed that settlement
discussions were not successful, that DG3 would not be
representing him in the lawsuit, and that he had less than a
week to retain counsel to answer the complaint. (Id.
at ¶¶ 14-16). According to Defendant, Phase 3 never
informed him that he was in default or that it intended to
seek default judgment against him. (Id. at ¶
19). On April 25, 2018, Defendant filed the present motion to
vacate default judgment and to assert an answer to Phase
3's Complaint. (ECF No. 8-2).
Standard and Analysis
decision to set aside an entry of default under Federal Rule
of Civil Procedure 60(b) is left to the sound discretion of
the district court. United States v. $55, 518.05 in U.S.
Currency, 728 F.2d 192, 194 (3d Cir. 1984). In deciding
whether to set aside a default, courts must consider the
following factors: "(1) whether lifting the default
would prejudice the plaintiff; (2) whether the defendant has
a prima facie meritorious defense; (3) whether the defaulting
defendant's conduct is excusable or culpable; and (4) the
effectiveness of alternative sanctions." Emcasco
Ins. Co. v. Sambrick, 834 F.2d 71, 73 (3d Cir. 1987).
However, "in a close case doubts should be resolved in
favor of setting aside the default and reaching a decision on
the merits." Gross v. Stereo Component Systems,
Inc., 700 F.2d 120, 122 (3d Cir. 1983). The Court
addresses each factor below.
Prejudice to the Plaintiff
is found where a plaintiffs ability to pursue his or her
cause of action is hindered by the "loss of available
evidence, increased potential for fraud or collusion, or
substantial reliance upon the judgment to support a finding
of prejudice." Feliciano v. Reliant Tooling
Co., 691 F.2d 653, 657 (3d Cir. 1982). Delay in
adjudicating the claim, however, "rarely serves to
establish the degree of prejudice sufficient to prevent the
opening a default judgment entered at an early stage of the
proceeding." Id. Here, Plaintiff points to no
identifiable prejudice. In conclusory fashion, Plaintiff
asserts that lifting the default judgment would result in
delays in discovery and create a risk of potential loss of
evidence. However, there has been no actual allegation that
evidence has been lost or that Defendant poses such a risk.
In fact, in his affidavit, Defendant certifies that he
"authorized [his] current counsel to turn over the hard
drive to a forensic computer specialist of plaintiffs
counsel's choosing so it can be copied an analyzed."
(ECF No. 10-1 at ¶ 9). As such, the risk of losing
evidence seems to be lacking and, therefore, the Court weighs
this factor in favor of vacating the entry of default.
factor two, the Court must consider whether Defendant has
presented a meritorious defense; that is, "when
'allegations of defendant's answer, if established on
trial, would constitute a complete defense to the
action.'" $55, 518.05 in U.S. Currency, 728
F.2d at 195 (quoting Tozer v. Charles A. Krause Milling
Co., 189 F.2d 242, 244 (3d Cir. 1951)). Defendant need
not prove that he will ultimately prevail at trial, but he
must demonstrate that he has a facially meritorious defense,
not one based on mere denials and conclusory language.
Defendant has presented facially meritorious defenses. First,
he contends that he was an at-will employee and, therefore,
did not have an employment contract with Phase 3. Moreover,
he argues that he was not subject to any restrictive
covenants, non-compete or confidentiality agreements. (Drake
Affidavit at ¶¶ 2-5). Second, he contends that any
information or material that he has used with his new
employer was not confidential or otherwise in breach of his
duty of loyalty. As such, the Court is satisfied that
Defendant has presented a meritorious defense to the
the Court must consider whether the default was due to
Defendant's culpable conduct. $55, 518.05 in U.S.
Currency, 728 F.2d at 195. In the Third Circuit,
"culpable conduct" requires a finding of
"willfulness" or "bad faith" on the part
of the non-responding defendant. Hritz v. Woma
Corp.,732 F.2d 1178, 1182 (3d Cir. 1984).
"Reckless disregard for repeated communications from
plaintiffs and the court, combined with the failure to
investigate the source of a serious injury, can satisfy the
culpable conduct standard." Id. at 1183.
However, failure to file an answer to a complaint, though
inexcusable, does not constitute ...