NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

JACKSON HEWITT INC.,

Plaintiff, 

v. 

SEMO TAX SERVICES, INC., a Missouri

Corporation, and KAREN LANCE, an

individual,

Defendants. 

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Hon. Dennis M. Cavanaugh

OPINION

Civil Action No. 11-662 (DMC)(JAD)

DENNIS M. CAVANAUGH, U.S.D.J.:

This matter comes before the Court on the Motion of Plaintiff Jackson Hewitt, Inc.

(“Plaintiff”) for Default Judgment against Defendant SEMO Tax Services, Inc. (“SEMO”) and

Defendant Karen Lance (“Lance”) (collectively, “Defendants”) (ECF No. 7), and on the Motion of

Defendants to Vacate Default and to Allow Defendants to File an Answer Out of Time. (ECF No.

9). Pursuant to FED. R. CIV. P. 78, no oral argument was heard. After reviewing the submissions

of the parties, and based upon the following, Plaintiff’s Motion is granted and Defendants’ Motion

is denied. 

I. BACKGROUND

Plaintiff is a Virginia corporation with its principal place of business located in Parsippany,

New Jersey. Compl. ¶ 1, ECF No. 1. SEMO is a Missouri corporation with its principal place of

business in Missouri, and is a former Jackson Hewitt franchisee. Compl. ¶ 2. Lance is a citizen of

Missouri who owns 100% of SEMO. Compl. ¶ 3. Plaintiff and SEMO entered into three

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substantially identical Franchise Agreements (the “Agreements,” Ex. 1 to Dec. of Arnold Janofsky,

ECF No. 7-3) for the operation of certain Jackson Hewitt income tax preparation businesses in

Missouri. Compl. ¶ 8. Lance is a guarantor of SEMO’s obligations under the agreements. Compl.

¶ 3. On December 28, 2010, Plaintiff terminated the Agreements by letter to Defendants. Compl.

¶ 55. According to the Agreements, Defendants were required to comply with certain post

termination obligations, including obligations to: (1) return all confidential, proprietary, and trade

secret information and client files to Jackson Hewitt; (2) de-identify each franchise location by

discontinuing the use of the Jackson Hewitt Marks, trade dress, signs, and other forms of advertising;

(3) transfer all telephone numbers; (4) pay all monies due and owing to Jackson Hewitt under the

franchise agreement; (5) pay the principal sums and interest pursuant to the terms of the promissory

notes made by Defendants; and (6) comply with the terms of the post termination covenant not to

compete. Compl. ¶ 10. Plaintiff states that Defendants failed to comply with the post termination

obligations, and failed to pay all monies due under the agreement.

Plaintiff filed this action on February 4, 2011, seeking all past due amounts and interest owed

by Defendants pursuant to Paragraphs 5, 6.1, 8.4, 8.7, and 15.1 of the Agreements. Additionally,

Plaintiff seeks an injunction enforcing the post termination obligations set forth in Paragraphs 12.3.2,

18.2, 18.6, 18.7, 20.3(a)-(j), 28.6, 28.14 of the Agreements, damages for Defendants’ infringing and

other wrongful conduct pursuant to Paragraph 28.6 of the Agreements, and attorneys fees and costs

as set forth in Paragraph 28.18 of the Agreements. 

Defendants were required to answer or otherwise plead on or before March 14, 2011. On

May 3, 2011, Defendants had failed to answer or otherwise plead, and Plaintiff sought to have the

Clerk to enter the default of Defendants. ECF No. 6. On May 5, 2011, the Clerk entered the default. 

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On May 23, 2011, Defendants moved for Default Judgment. Defendants filed Opposition, a Motion

to Vacate Default, and a Motion for Permission to File an Answer out of Time on June 1, 2011. 

Plaintiff filed Opposition papers to Defendants’ Motion to Vacate Default on June 13, 2011. ECF

No. 12. Defendants filed Reply papers to Plaintiff’s Opposition on June 28, 2011. ECF No. 13. The

matter is now before this Court. 

II. STANDARD OF REVIEW

A decision to set aside the entry of default is left primarily to the discretion of the District

Court. Bailey v. United Airlines, 279 F.3d 194, 204 (3d Cir. 2002); United States v. $ 55,518.05 in

U.S. Currency, 728 F.2d 192 (3d Cir. 1984). In a close case, however, doubts should be resolved

in favor of setting aside the default and reaching a decision on the merits. Farnese v. Bagnasco, 687

F.2d 761, 764 (3d Cir. 1982); see also $55,518.05 in U.S. Currency, 728 F.2d at 194-195 (stating that

the Third Circuit “does not favor entry of default or default judgments.”)

Three factors should be evaluated when considering a motion to set aside a default under

FED. R. CIV. P. 55(c) or to reopen a default judgment under FED.R. CIV. P. 60(b): first, whether the

plaintiff will be prejudiced; second, whether the defendant has a meritorious defense; and third,

whether culpable conduct of the defendant led to the default. Hritz v. Woma Corp., 732 F.2d 1178,

1181 (3d. Cir. 1984). The second factor, whether defendant has asserted a meritorious defense, is

a threshold issue in determining whether to set aside a default. Interior Finish Contractors Ass’n of

Delaware Valley v. Drywall Finishers Local Union No. 1955, 625 F.Supp. 1233, 1239 (E.D.Pa.

1985) (citing Hritz, 732 F.2d at1181; $55,518.05 in U.S. Currency, 728 F.2d at 195)). 

III. DISCUSSION

Defendants argue that the unusual circumstances of their attorneys’ retention in this matter

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provide sufficient cause to vacate the entry of default. Defs.’ Mot. 1-4. Defendants’ attorneys state

that on March 9, 2011, they were contacted about the possibility of acting as local counsel. Defs.’

Mot. ¶ 2. In anticipation of retention, Defendants’ counsel contacted Plaintiff to request consent for

an extension of time to file an answer, which Plaintiff consented to on or about March 14, 2011. 

Defs.’ Mot. ¶¶ 3-6. On or about March 16, 2011, Defendants’ counsel forwarded a Retainer

Agreement to Defendants, along with a specific statement that they would not enter an appearance

until they had received both the signed Retainer Agreement and the Retainer Amount. Defs.’ Mot.

¶ 7. On or about March 24, 2011, Defendants’ counsel received the Retainer Agreement, but not the

Retainer Amount. Defs.’ Mot. ¶ 9. After Plaintiff moved to enter default, Defendants’ counsel

conducted an investigation into its accounts, and discovered a book-keeping error in which the

Retainer Amount was received but not acknowledged. Defs.’ Mot. ¶ 16. Defendants contend that

this error caused their local counsel to not enter an appearance on their clients’ behalf, and that if not

for the error, they would have entered an appearance, and an entry of default would have been

avoided. Defs.’ Mot. ¶ 23. Defendants therefore argue that these facts constitute “mistake,

inadvertence, surprise and excusable neglect and that the Default should be vacated allowing the

defendants to file an answer.” Defs.’ Mot. ¶ 23. Defendants did not submit a memorandum of law

with their Motion, and have not directly addressed the factors of prejudice, whether the defendant

has a meritorious defense, and whether culpable conduct of the defendant led to the default.

As Plaintiff correctly notes, whether Defendants have established a meritorious defense is

a threshold issue for this Court’s consideration of the matter. This factor is established where the

“allegations of a defendant’s answer, if established at trial, would constitute a complete defense to

the action.” Tozer v. Charles A. Krause Mill. Co., 189 F.2d 242, 244 (3d Cir. 1951). To make this

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showing, Defendants must provide more than simple denials or conclusory statements; rather, they

must allege specific facts as the grounds of their defense. $55,518.05 in U.S. Currency, 728 F.2d

at 195. 

The majority of the proposed Answer submitted with Defendants’ Motion involves general

denials or conclusory statements, which clearly are insufficient to survive the threshold factor of

establishing a meritorious defense. ECF No. 9-3. The only factually specific allegation of

Defendants’ Answer is the following assertion: 

Jackson Hewitt’s claims are barred as a result of Jackson Hewitt’s prior material

breaches of the Franchise Agreements, including their failure to provide adequate tax

preparation software; misuse of the advertising fund; improper termination of the

Franchise Agreements; and the failure to maintain a properly functioning financial

reporting system as required by the Franchise Agreements.

Answer ¶ 133. This allegation does not, however, amount to a complete defense if established at

trial. Pursuant to Paragraph Twenty of the Agreements, Defendants were permitted to terminate the

Agreements either with Plaintiff’s consent in writing, or if Plaintiff were in breach of a material

provision of the Agreements. Agreements ¶ 20.1. Defendants’ allegation indicates that their

decision to unilaterally terminate the Agreements was permitted due to a material breach of the

Agreements by Plaintiff. Paragraph Twenty of the Agreements, however, also indicates that

termination for either permitted reason “will not relieve you of any obligation under this Agreement

or any Collateral Agreements.” Agreements ¶ 20.1. Defendants would thus not be relieved of the

obligations at issue if their allegations were established at trial, and therefore, these allegations do

not establish a complete defense. As the establishment of a meritorious defense is a threshold issue,

this Court need not consider the issue of prejudice, or whether culpable conduct of Defendants led

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to the default. See, e.g., $55,518.05 in U.S. Currency, 728 F.2d at 195 (“[T]here would be no point

in setting aside the default judgment . . . if [defendant] could not demonstrate the possibility of his

winning.”) 

Defendants’ Motion to Allow Filing of an Answer Out of Time is also denied. FED R. CIV.

P. 6(b) provides that “[w]hen an act may or must be done within a specified time, the court may, for

good cause, extend the time . . . on motion made after the time has expired if the party failed to act

because of excusable neglect.” Excusable neglect is defined as “requiring a demonstration of good

faith on the part of the party seeking an enlargement and some reasonable basis for noncompliance

within the time specified in the rules . . . . ‘[H]alf hearted efforts at service’ and ‘inadvertence of

counsel’ do ‘not amount to good cause.’” McCrae v. KLLM Inc., 89 F. App’x 361, 364 (3d

Cir.2004) (citing Braxton v. United States, 817 F.2d 238, 241 (3d Cir.1987)). The Court does not

find that the inadvertence of Counsel in this case amounts to good cause to warrant an extension of

time to file an Answer. 

IV. CONCLUSION

For the foregoing reasons, Plaintiff’s Motion is granted and Defendants’ Motion is denied. 

An appropriate Order accompanies this Opinion.

 S/ Dennis M. Cavnaugh 

 Dennis M. Cavanaugh, U.S.D.J.

Date: December 27 , 2011 

Orig.: Clerk 

cc: All Counsel of Record

Hon. Joseph A. Dickson, U.S.M.J.

File

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