McInnis USA Inc. v. AggreCem Mechanical, LLC

Background

McInnis USA Inc. filed a complaint alleging four claims against AggreCem Mechanical, LLC: breach of contract, breach of an express warranty in the contract, breach of the implied warranty of merchantability, and breach of the implied warranty of fitness for a particular purpose. AggreCem’s answer was due March 5, 2021, but it did not respond by that deadline. The Clerk then entered default, meaning that AggreCem was treated as having failed to defend the case.

McInnis moved for default judgment. The court initially denied that motion because McInnis had not properly alleged AggreCem’s citizenship for purposes of federal subject-matter jurisdiction. McInnis renewed the motion after addressing that issue. AggreCem then appeared through counsel, opposed default judgment, submitted a proposed answer and a declaration from its owner, and cross-moved under Federal Rule of Civil Procedure 55(c) to vacate, or set aside, the entry of default. McInnis did not oppose that cross-motion.

Legal Standard

Rule 55(c) allows a court to set aside an entry of default for “good cause.” The court considered three factors: whether the default was willful, whether setting it aside would prejudice McInnis, and whether AggreCem had presented a potentially meritorious defense. Defaults are disfavored because courts generally prefer to resolve disputes on their merits.

Court’s Analysis

The court found that AggreCem’s default was not willful. The owner, Martin Shields, reported that he had contracted COVID-19, experienced long-term effects, and lacked the means to hire an attorney. He also tried to participate in the litigation through communications with McInnis’s counsel and the court and attempted to join the earlier hearing but called the wrong number. After the court noted that he could not represent the limited liability company without counsel, AggreCem promptly retained counsel.

The court found no concrete prejudice to McInnis from setting aside the default. McInnis could still conduct discovery and respond to AggreCem’s answer. By contrast, leaving the default in place would prevent AggreCem from presenting defenses on the merits.

The court also found that AggreCem had shown possible meritorious defenses rather than relying only on general denials. AggreCem asserted that it had fully performed the contract and had not breached the agreement or express warranty. It further argued that any product damage resulted from McInnis’s failure to use and operate the system according to its design parameters, which AggreCem said also defeated the implied-warranty claims. The court did not decide whether those defenses would ultimately eliminate liability; it concluded only that, if proven at trial, they could provide a complete defense.

Ruling and Next Steps

The court GRANTED AggreCem’s cross-motion to vacate the entry of default. It denied McInnis’s motion for default judgment as moot. The court directed AggreCem to file its answer electronically, stated that it would issue a separate order setting an initial pretrial conference, and directed the parties to exchange initial disclosures under Federal Rule of Civil Procedure 26.