A default judgment entered against a corporation that owes more than $400,000 to its former law firm still stands, a federal judge has ruled.
U.S. District Senior Judge Michael Baylson of the Eastern District of Pennsylvania entered the judgment against Titan Atlas Manufacturing earlier this year and stood by it after he was presented with a motion to vacate the judgment by the company’s new counsel.
The plaintiff in this action, Philadelphia-based intellectual property firm Mendelsohn, Drucker & Associates, is one of four firms that has represented Titan without being paid, according to the opinion. In January, Baylson excused Obermayer Rebmann Maxwell & Hippel from its representation of the company.
"Titan, which professed to having no ability to pay Obermayer on January 11, and which had refused numerous pleas for payment from three other firms for the greater part of two years, acted quickly when the court entered default judgment," Baylson said, referring to his order requiring the company to pay Mendelsohn Drucker just over $400,000 plus interest and costs.
"By January 13, 2013, Titan had secured new counsel, and on January 29, 2013, its counsel filed the motion to vacate that is presently before the court," he said in Mendelsohn, Drucker & Associates v. Titan Atlas Manufacturing.
The company is now represented by the law firm of Courter, Kobert & Cohen in Hackettstown, N.J.
Titan had argued that Baylson’s entry of default judgment had violated Rule 55(b)(2) of the Federal Rules of Civil Procedure, which govern the way those judgments are to be handled, as well as neglecting to apply a six-factor test as required by U.S. Court of Appeals for the Third Circuit precedent.
"Neither of these arguments, however, is availing," Baylson said. "The court finds that default judgment was properly entered and defendant’s lack of a plausibly meritorious defense counsels against vacating it."
The case stems from a complex patent suit over a panel manufactured by Titan for prefabricated construction that was brought in the Western District of Virginia, according to court documents.
Mendelsohn Drucker represented Titan in that action for about nine months, according to the opinion, and the company paid it a total of approximately $40,000. The Virginia court granted Mendelsohn Drucker’s emergency motion to withdraw in December 2011 and the following month the firm filed suit in the Eastern District of Pennsylvania seeking the fees it was owed.
Titan then hired two law firms, DunlapWeaver and Zito TLP, to represent it in the Virginia litigation and it hired Obermayer to represent it in the case filed by Mendelsohn Drucker.
After representing Titan for nearly nine months, DunlapWeaver and Zito TLP filed an emergency motion to withdraw when it became clear that they wouldn’t be paid for their work, according to the opinion.
"DunlapWeaver and Zito TLP were not the only law firms burned by Titan’s failure to pay its substantial legal expenses in 2012," Baylson said. "Obermayer Rebmann Maxwell & Hippel LLP, the law firm that initially represented Titan in the instant action, experienced the same fate as well."
Obermayer represented Titan for about 10 months without compensation, Baylson said.
Discussing the default judgment that he had issued earlier this year, Baylson noted that he had denied Mendelsohn Drucker’s motion for punitive damages and that he had narrowed the scope of the preliminary injunction the firm had sought.
Mendelsohn Drucker had asked that the court require Titan to put the proceeds of any sale into a court-supervised escrow account, according to a footnote in the opinion, but the court had instead enjoined Titan from selling assets over $10,000 without giving at least 10 days’ notice to Mendelsohn Drucker.
Answering the arguments made by Titan against the default judgment, Baylson cited the "inherent power" of district courts to levy sanctions.
"Although the Third Circuit has yet to squarely address the impact of Rule 55 on inherent powers, it has cited approvingly to the prevailing rule in other circuits," Baylson said.
Also, he noted that Titan’s lack of representation for a period of time constituted a failure to defend under Rule 55(a), which could mean that an examination of the six factors laid out by the Third Circuit in its 1984 opinion in Poulis v. State Farm Fire & Casualty isn’t required. However, he went through each anyway and found that all weighed in favor of the default judgment.
Kevin Drucker of Mendelsohn Drucker said, "The judge’s opinion speaks for itself."
Richard Wills Wenner of Courter Kobert, who represented Titan, couldn’t be reached for comment.
(Copies of the 17-page opinion in Mendelsohn, Drucker & Associates v. Titan Atlas Manufacturing, PICS No. 13-1052, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •