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IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

EFMC INTERNATIONAL, INC., :

:

Plaintiff, : No. 4:05-CV-1289

:

v. : (Judge McClure)

:

LEEP, INC., :

:

:

Defendant. :

M E M O R A N D U M

December 12, 2006

BACKGROUND:

On June 28, 2005, plaintiff, EFMC International, Inc. (“EFMC”), instituted

this civil action against defendant, Leep, Inc. (“Leep”). In its amended complaint,

plaintiff alleges that defendant failed to fulfill its obligations under a contract that

was entered into in June, 2002. The amended complaint seeks recovery under

various contract theories including breach of contract (Count I), promissory

estoppel (Count II), unjust enrichment (Count III), quantum meruit (Count IV),

breach of settlement agreement (Count V), and fraud in the inducement (Count

VI). 

This order stems from a pattern of nonparticipation in this case by the

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defendant and its counsel. The first instance of this conduct occurred when the

parties voluntarily agreed to mediation in this case. After a mediator was selected

and the mediation was scheduled, defendant decided that it would not send an

agent to the mediation who had any authority to resolve the dispute, thus rendering

the mediation useless. Thereafter, the mediation was cancelled.

The next instance of nonparticipation came during discovery. Plaintiff

served requests for admission upon defendant. Defendant did not respond to these

requests. Plaintiff then filed a motion for summary judgment, arguing that the

failure to respond resulted in each request being deemed admitted. (Rec. Doc. No.

14.) It relied on these deemed admissions to show that there was no disputed

material fact. Defendant failed to reply to this motion within the ten days set forth

by the local rules. Yet, prior to a decision by us on plaintiff’s motion, the

defendant was finally heard from. It filed a declaration in opposition to plaintiff’s

motion for summary judgment (Rec. Doc. No. 17), a motion to enlarge time for

responding to request for admissions and to allow withdrawal of admissions

deemed made for failure to respond in thirty days (Rec. Doc. No. 18), and provided

responses to the original requests for admissions. 

In an order dated September 19, 2006, this court allowed the defendant to

withdraw its deemed admissions. In doing so, we noted that we had complete

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discretion whether to allow the admissions to stand or allow defendant to withdraw

the admissions and cure any prejudice to plaintiff by other means. Because we felt

it important to decide the case on the merits, we allowed the defendant to withdraw

the admissions. To cure prejudice to the plaintiff, we extended the discovery

deadline and ordered defendant’s counsel to pay to the plaintiff’s attorney fees

incurred in the filing of the various motions and briefs associated with defendant’s

lack of participation in the case. Furthermore, the order stated that if the parties

agreed to the amount to be paid by defendant’s counsel within ten days, that

amount shall be paid within thirty days of the date of the order.

Both parties agreed to the amount of $25,003.80 within the ten-day period. 

Yet, defendant’s counsel did not pay the amount by October 19, 2006, which was

required by the September 19, 2006 order. On October 27, 2006, the plaintiff filed

a motion for contempt for defendant’s failure to adhere to the court order., and the

same day filed a supporting brief. As usual, the defendant and its counsel did not

reply to this motion. We scheduled a hearing on plaintiff’s motion, which was

conducted on December 8, 2006. Counsel for plaintiff and local counsel for

defendant were both present at the hearing.

During the hearing, local counsel for defendant conceded that both parties

agreed to the amount of $25,003.80. He also conceded that he was in violation of

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the court’s September 19, 2006 order. He attempted to justify his conduct by

stating that defendant’s primary counsel operates out of Washington state, and that

he had been retained as local counsel for the sole purpose of filing documents with

the court.

The hearing produced yet more evidence of defendant’s dilatory conduct. As

already discussed, the court’s September 19, 2006 order extended the discovery

deadline until December 1, 2006. Plaintiff attempted to depose several employees

of the defendant prior to this new deadline, but these requests went unanswered. 

Plaintiff argued that this new violation of the discovery rules, coupled with the past

violations and nonparticipation in the case, entitled plaintiff to entry of judgment by

default as the only meaningful sanction available to the court.

When the court asked defendant’s local counsel why judgment by default

should not be entered against his client, he had very little to argue. He conceded

that defendant consistently failed to participate in the case and that plaintiff had

been prejudiced by this failure. He did allude to the fact that defendant may be

experiencing financial difficulties as a reason for the failure to pay the money owed

pursuant to the court order. Finally, he stated that his client has indicated that it has

a meritorious defense, and this should be considered when deciding whether to

enter default judgment.

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At the hearing, counsel for both parties were able to agree to several things. 

Both parties agreed that the original $25,003.60 must be paid pursuant to the court

order. They also agreed that interest at a rate of six percent from October 19, 2006

should be added to this amount. They agreed that this amount should be reduced by

a payment of $8,500.00 received by plaintiff’s counsel from defendant’s

Washington state counsel on December 7, 2006. Finally, the parties agreed to the

amount of $10,000.00 for plaintiff’s expenses in bringing the motion for contempt. 

This amount represents payment for time spent preparing the original contempt

motion and supporting brief, preparing for the hearing, traveling to and from the

courthouse, and the time actually spent at the hearing.

Thus, the court has before it plaintiff’s unopposed motion for contempt. 

Now, for the following reasons, the court confirms its finding in open court that 

local counsel for defendant is in contempt of the court’s September 19, 2006 order. 

Furthermore, the court will grant the extreme sanction of entering default judgment

in favor of plaintiff and against defendant.

DISCUSSION:

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I. Plaintiff’s Motion for Contempt

In order to show civil contempt, the party seeking contempt must establish

the following by clear and convincing evidence: (1) that a valid order of the court

existed; (2) that the defendant had knowledge of the order; and (3) that the

defendants disobeyed the order. Roe v. Operation Rescue, 54 F.3d 133, 137 (3d

Cir. 1995). 

In the present case, the court finds that all of the elements are present by clear

and convincing evidence. On September 19, 2006, this court ordered counsel for

defendant to pay plaintiff’s attorney fees incurred in the filing of the various

motions and briefs listed in the order. Furthermore, the order stated that if the

parties agreed to the amount to be paid by defendant’s counsel within ten days, that

amount shall be paid within thirty days of the date of the order. This order clearly

satisfies the first element of a claim for civil contempt. At the evidentiary hearing,

local counsel for defendant readily conceded that the parties were able to agree to

the amount of $25,003.80 within the ten-day period. This shows the court that

defense counsel had knowledge of the court’s order, satisfying the second element. 

Finally, defense counsel conceded that it failed to pay the amount due within the

thirty-day period required by the court order. This satisfies the third element. Thus,

all elements of a civil contempt charge are present. Furthermore, it is worth noting

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It is noted that Washington state counsel was admitted pro hac vice on

September 21, 2006.

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that defendant’s local counsel readily admitted he was in contempt at the hearing.

The next issue before the court is how to remedy the contempt. At the

hearing, the parties were able to agree on the amount owed, and this amount is

outlined in the order that accompanies this memorandum. Local defense counsel

appears reluctant to pay this money out of his own pocket. He claims that he was

counsel of record solely to file documents with the court, and he has no knowledge

of what those documents contain or what the case is even about. Still, local counsel

accepted responsibility for this case by becoming the sole counsel of record. Quite

frankly, this court does not care where the money comes from, whether it be from

himself and his firm, Washington state counsel, or the defendant itself. The court

will hold him responsible because he was the only counsel of record when this court

entered its September 19, 2006 order requiring the payment of attorney’s fees by

defense counsel.1

 Therefore, we will order local counsel to pay those attorney’s

fees outlined in the accompanying order on or before December 29, 2006. If local

counsel is unable to obtain the money from Washington state counsel or defendant

itself by this date, then he will either have to pay the money out of his or his firm’s

own pocket or prove the affirmative defense of inability of himself and his firm to

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pay the amount due.

II. Entry of Default Judgment

Rule 37 of the Federal Rules of Civil Procedure governs the imposition of

sanctions for the failure to cooperate during discovery. Specifically, Rule 37©

authorizes the court to enter default judgment against a disobedient party. Fed. R.

Civ. P. 37© & 37(b)(2)©.

The Third Circuit has set out a test to determine whether the extreme sanction

of default judgment is appropriate. Poulis v. State Farm and Fire Casualty Co., 747

F.2d 863, 868 (3d Cir. 1984). This case sets out six factors to consider when

deciding whether to enter default judgment as a sanction: (1) the extent of the

party’s personal responsibility; (2) the prejudice to the adversary caused by the

failure to meet scheduling orders and respond to discovery; (3) a history of

dilatoriness; (4) whether the conduct of the party or attorney was willful or in bad

faith; (5) the effectiveness of sanctions other than dismissal [or entry of default

judgment]; and (6) the meritoriousness of the claim or defense. Id. at 868; see also

Comdyne I, Inc. v. Corbin, 908 F.2d 1142, 1148 (3d Cir. 1990) (discussing

sanctions, Poulis factors, and authority of entering default judgment under Rule 55

for failure to answer or otherwise defend).

The first factor requires the court to determine whether defendant itself is

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responsible for the dilatory comment. At the contempt hearing, local counsel for

defendant conceded that defendant itself is responsible for a large part of the

dilatory conduct. Local counsel stated that it was the defendant itself that refused to

send an agent with authority to the mediation and thus caused it to be cancelled. 

Additionally, it was the defendant who did not offer several of its employees for

depositions, causing a violation of the discovery rules. Thus, the first factor of the

Poulis test is clearly satisfied.

The second factor requires the court to determine whether plaintiff has been

prejudiced by defendant’s conduct. Again, local counsel also conceded at the

hearing that plaintiff has been prejudiced. Indeed, the discovery deadline has

passed once again without plaintiff obtaining discovery to which it is rightfully

entitled. Additionally, the failure to attend the mediation caused both

embarrassment and the loss of a chance to resolve the dispute. Finally, the failure

to pay the monetary sanction imposed by this court is also clear prejudice. Thus,

the second factor appears to be satisfied as well.

The third factor requires a determination as to whether defendant has

displayed a history of dilatoriness in the case. We need not restate all of the

defendant’s conduct. It is clear that defendant has been dilatory since the beginning

of this case and continues to be so while this order is being written. Thus, the third

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factor is satisfied.

The fourth factor requires the court to determine whether the conduct of the

party or attorney was willful or in bad faith. Local counsel’s only argument to

show that this factor might not be present was the fact that defendant is

experiencing financial difficulties and may not be able to pay the sanctions imposed

by the court. This explanation offers absolutely no excuse why defendant failed to

reply to requests for admission, offer its employees for depositions, or to show up

for the mediation to which it had previously agreed. Thus, the fourth factor is

satisfied as well.

The fifth factor requires the court to consider the effectiveness of sanctions

other than entry of judgment. The defendant’s conduct nearly caused it to lose this

case when it refused to respond to plaintiff’s request for admissions. In that

situation, we reluctantly allowed defendant to withdraw those deemed admissions. 

This allowed defendant to show a disputed material question of fact and avoid the

grant of summary judgment. Despite this favorable ruling for defendant, it

continued to fail to participate in this case. Again, it refused to comply with the

discovery rules, failed to pay monetary sanctions pursuant to the court’s order, and

failed to respond to plaintiff’s motion for contempt. The court has only so much

patience, and it is clear that other sanctions are not effective against this defendant. 

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Thus, the fifth factor is satisfied as well.

Finally, the sixth factor requires the court to examine the meritoriousness of

the claim or defense. While local defense counsel stated that his client says it has a

meritorious defense, we do not find this simple statement to be enough to avoid a

grant of default judgment. If simply saying one has a meritorious defense was

enough, a court would never be able to grant default judgment. A defendant could

always state at the last minute that it has a meritorious defense and avoid the default

judgment. Furthermore, we believe defendant’s failure to participate is evidence

that it might not have a meritorious defense. Indeed, Rule 37(c)(1) of the Federal

Rules of Civil Procedure, which governs sanctions for violations of the discovery

rules, contains informing the jury of a party’s disobedience as a possible sanction

for such disobedience. Thus, we find that the sixth factor is satisfied.

All six factors set forth in Poulis for imposing the extreme sanction of

judgment by default have been satisfied. Therefore, the court finds it appropriate to

grant default judgment for the plaintiff. The next issue the court must consider is

what amount of damages are appropriate. Plaintiff’s amended complaint states that

the original contract amount was $180,000. While defendant may argue it is

entitled to a trial on the issue of damages, we do not believe that this is the case. 

Defendant lost its right to contest damages in the same exact manner it lost its right

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to contest liability. Were we to grant defendant the right to challenge the amount of

damages to award, we would surely be faced with the same dilatory conduct we

have been dealing since the beginning of the case. Therefore, damages in the

amount of $180,000.00 are appropriate.

In summary, in light of the factors enunciated in Poulis and for all of the

reasons discussed above, we will take the extreme measure of entering default

judgment in favor of the plaintiff and against the defendant.

 s/ James F. McClure, Jr. 

James F. McClure, Jr.

United States District Judge

 

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

EFMC INTERNATIONAL, INC., :

Case 4:05-cv-01289-JFM Document 43 Filed 12/12/06 Page 12 of 14
:

Plaintiff, : No. 4:05-CV-1289

:

v. : (Judge McClure)

:

LEEP, INC., :

:

:

Defendant. :

O R D E R

December 12, 2006

For the reasons set forth in the accompanying memorandum, IT IS

ORDERED THAT:

1. Plaintiff’s Motion for Contempt is granted. (Rec. Doc. No. 39).

2. Defendant’s local counsel shall pay to plaintiff twenty-five thousand

and three dollars and eighty cents ($25,003.80), less the eighty-five

hundred dollars ($8,500.00) already received, or a total principal of

$16,503.80, on or before December 29, 2006.

3. Interest shall likewise be payable on or before December 29, 2006 at

the rate of 6 percent per annum on the sum of $25,003.80 for the

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 period October 19, 2006 to December 7, 2006 and on the sum of

$16,503.80 from December 8 to December 29, 2006. 

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4. Defendant’s local counsel shall pay to plaintiff an additional ten

thousand dollars ($10,000.00) on or before December 29, 2006. 

5. If defendant’s local counsel fails to comply in a timely fashion with the

directives in paragraphs 2, 3 and 4 above, the court will direct local

counsel to show cause why he should not be taken into custody by the

United States Marshals Service until he has been purged of the

contempt. 

6. Final judgment by default is entered in favor of the plaintiff EFMC and

against defendant Leep, in the sum of $180,000.00.

7. The clerk is directed to close the case file.

 s/ James F. McClure, Jr. 

James F. McClure, Jr.

United States District Judge

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