Lesnik v.Eisenmann SE

Background

The plaintiffs alleged that D2N Tehnologije d.o.o. (“D2N”), a Slovenian corporation with its principal place of business in Slovenia, helped supply international workers for construction and equipment-installation work in the United States. The plaintiffs alleged that workers were brought to the United States on B-1 visas even though they would perform unskilled construction work, and that D2N and other defendants submitted false statements to obtain the visas.

The relevant claim against D2N was brought under the False Claims Act. The clerk entered default against D2N after the plaintiffs filed proof of service and requested default. The plaintiffs later sought default judgment against D2N. D2N specially appeared and moved under Federal Rule of Civil Procedure 55(c) to set aside the entry of default.

Service of Process

The court first considered whether D2N had been properly served in Slovenia. Service on a foreign corporation is governed by Federal Rule of Civil Procedure 4(h), which incorporates the methods in Rule 4(f) for serving parties abroad. Because Slovenia is a signatory to the Hague Service Convention, that Convention governed service on D2N.

The plaintiffs relied on postal service and an attempted personal-service visit to a person they believed was D2N’s legal representative. The court found that Slovenia had objected to personal service under Article 10(c). Slovenia also permitted postal service under Article 10(a) only when the documents were sent by registered letter with acknowledgment of receipt and were written in, or accompanied by a translation into, Slovenian. The plaintiffs did not provide evidence that the complaint had been sent by registered letter with acknowledgment of receipt. The court therefore found that the plaintiffs had not shown proper service under the applicable federal rules and the Hague Service Convention.

Because improper service was independently sufficient to set aside the entry of default, the court granted D2N’s motion on that ground.

Good Cause Under Rule 55(c)

The court also held that D2N showed good cause to set aside the default. Rule 55(c) permits a court to set aside an entry of default for good cause. The court considered three factors: whether D2N’s culpable conduct caused the default, whether D2N had a potentially meritorious defense, and whether setting aside the default would prejudice the plaintiffs.

First, the court found that D2N’s failure to respond did not appear willful, deliberate, or in bad faith. D2N maintained that it had not received proper service and had only recently become aware of the litigation. Its special appearance to contest the claims supported its position.

Second, D2N offered a possible defense. D2N alleged that any of its employees who entered the United States had the correct visas and that D2N had not made false statements to the United States government. The court held that, if true, those facts would constitute a defense to the plaintiffs’ claim. The court did not decide whether those allegations were true.

Third, the court found no sufficient prejudice to the plaintiffs. The plaintiffs argued that D2N’s absence had delayed obtaining judgment, but the court held that delay alone was not enough. The plaintiffs identified no additional prejudice that would hinder their ability to pursue their claim.

Disposition

The court granted D2N’s motion to set aside the clerk’s entry of default. It also denied as moot the plaintiffs’ pending amended motion for default judgment as to D2N, because default judgment is available only against a defendant who has defaulted. The order did not resolve the merits of the plaintiffs’ False Claims Act allegations.