Acree v. Republic of Iraq

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

_____________________________ ) CLIFFORD ACREE, et al., ) ) Plaintiffs, ) ) v. ) Civil Action No. 06-723 (RWR) ) REPUBLIC OF IRAQ, et al., ) ) Defendants. ) _____________________________ )

MEMORANDUM OPINION AND ORDER

After the defendants failed to timely respond to the

complaint, plaintiffs, American soldiers held as prisoners of war

by the Republic of Iraq during the Gulf War, secured entry of

default. Iraq has filed a motion under Federal Rule of Civil

Procedure 55(c) to set aside entry of default. Because Iraq has

raised meritorious defenses to the plaintiffs’ claims and because

the plaintiffs will not be prejudiced by a set aside, the

defendant’s motion to set aside entry of default will be granted.

BACKGROUND

Plaintiffs bring this action against the Republic of Iraq,

the Iraqi Intelligence Service, and other individual defendants

seeking compensation for injuries arising from the plaintiffs’

captivity as prisoners of war in Iraq during the Gulf War. The

plaintiffs allege that jurisdiction is proper over Iraq under

Section 1607(a)(7) of the Foreign Sovereign Immunities Act, 28 -2-

U.S.C. § 1607(a)(7). After the defendants failed to timely

respond to the complaint, the plaintiffs secured an entry of

default. Following entry of default, the parties filed a joint

status report proposing a schedule upon which this action should

proceed. In light of the parties’ joint status report, a

schedule was set for Iraq to file and the parties to brief a Rule

55(c) motion to set aside entry of default. Within the time

permitted by the court’s order, Iraq has filed a motion to set

aside entry of default, alleging that (1) its failure to timely

respond to plaintiff’s complaint was attributable to excusable

neglect “arising from the impacts of war and reconstruction as

well as governmental reorganization;” (2) the plaintiffs will not

suffer prejudice from setting aside default; and (3) Iraq has

several meritorious defenses to the plaintiffs’ claims, including

res judicata and collateral estoppel, statute of limitations, and

foreign sovereign immunity. In support of its motion to set

aside entry of default, Iraq submits a declaration from Timothy

B. Mills and two declarations from Hanan Nassef that purport to

explain the circumstances beyond Iraq’s control that caused

Iraq’s failure to timely respond to the plaintiffs’ complaint.

The plaintiffs opposed Iraq’s motion to set aside entry of

default and also have moved to strike the Mills declaration and

the two Nassef declarations for failure to comply with applicable

federal and local civil rules. -3-

DISCUSSION

Under Rule 55(c), a court has discretion to “set aside an

entry of default for good cause.” Fed. R. Civ. P. 55(c).

Default judgments are generally disfavored by courts “perhaps

because it seems inherently unfair to use the court’s power to

enter and enforce judgments as a penalty for delays in filing.”

Jackson v. Beech, 636 F.2d 831, 835 (D.C. Cir. 1980); see Webb v.

District of Columbia, 146 F.3d 964, 971 (D.C. Cir. 1998) (“[A]

default judgment must be a sanction of last resort to be used

only when less onerous methods . . . will be ineffective or

obviously futile.” (internal quotation marks omitted)). Thus,

while a court has discretion to decide whether to set aside an

entry of default, “‘there is a strong policy favoring the

adjudication of a case on its merits[.]’” Strong-Fisher v.

LaHood, 611 F. Supp. 2d 49, 51 (D.D.C. 2009) (quoting Baade v.

Price, 175 F.R.D. 403, 405 (D.D.C. 1997)). Moreover, where, as

here, the defendant is a foreign sovereign, default judgment is

especially disfavored because “[i]ntolerant adherence to default

judgments against foreign states could adversely affect [the

United States’] relations with other nations and undermine the

State Department’s continuing efforts to encourage foreign

sovereigns generally to resolve disputes within the United

States’ legal framework.” Practical Concepts, Inc. v. Republic

of Bolivia, 811 F.2d 1543, 1551 n.19, 1552 (D.C. Cir. 1987) -4-

(internal quotation and alterations omitted) (“When a defendant

foreign state has appeared and asserts legal defenses, albeit

after a default judgment has been entered, it is important that

those defenses be considered carefully and, if possible, that the

dispute be resolved on the basis of all relevant legal

arguments.”). Thus, the court should recognize that the United

States has an interest in protecting a foreign sovereign’s

interest “in being able to assert defenses based on its sovereign

status.” FG Hemisphere Assocs., LLC v. Democratic Republic of

Congo, 447 F.3d 835, 838 (D.C. Cir. 2006).

A court considering whether to set aside an entry of default

must balance three factors: “‘whether (1) the default was

willful, (2) a set-aside would prejudice the plaintiff, and (3)

the alleged defense was meritorious.’” Jackson, 636 F.2d at 836

(quoting Keegel v. Key West & Caribbean Trading Co., 627 F.2d

372, 373 (D.C. Cir. 1980)); see Canales v. A.H.R.E., Inc., 254

F.R.D. 1, 8-12 (D.D.C. 2008) (applying the Jackson three-factor

test). When balancing these factors, “all doubts are resolved in

favor of the party seeking relief.” Jackson, 636 F.2d at 836.

I. LOCAL CIVIL RULE 7(G)

As a preliminary matter, the plaintiffs allege that Iraq’s

motion should be denied for failure to comply with Local Civil

Rule 7(g) because Iraq’s motion is not accompanied by a verified

answer or motion to dismiss the complaint. Local Civil Rule 7(g) -5-

instructs that “[a] motion to vacate an entry of default . . .

shall be accompanied by a verified answer presenting a defense

sufficient to bar the claim in whole or in part.” Although Local

Rule 7(g) speaks only of a verified answer, courts also routinely

accept and consider motions to set aside entry of default

accompanied by motions to dismiss, rather than verified answers.

See, e.g., Reading v. United States, 506 F. Supp. 2d 13, 19

(D.D.C. 2007) (finding no error in granting a motion to set aside

default judgment unaccompanied by a verified answer because a

motion to dismiss had already been filed); Owens v. Republic of

Sudan, 374 F. Supp. 2d 1, 9 (D.D.C. 2005) (noting that “[c]ourts

routinely allow defendants to file a motion to dismiss in place

of an answer despite a prior entry of default”); see also Strong-

Fisher, 611 F. Supp. 2d at 50 (considering a motion to set aside

entry of default and dismiss the complaint). Similarly, because

there is a strong preference for resolving disputes on the

merits, district courts may, in appropriate circumstances,

exercise their discretion against denying a motion on a purely

procedural ground, such as the failure to file a verified answer

under Local Rule 7(g), in favor of considering the merits of the

parties’ substantive arguments. See, e.g., Owens, 374 F. Supp.

2d at 9 (stating that the court was “unaware of any decision in

which a court has struck a motion to dismiss following an entry

of default because the motion to vacate the default was filed -6-

without an answer”); Harris v. District of Columbia, 159 F.R.D.

315, 317 (D.D.C. 1995) (setting aside entry of default despite

the defendants’ failure to submit a verified answer with their

motion to vacate entry of default because of the court’s

“reluctan[ce] to decide [the] case on procedural grounds”).

Here, although Iraq’s motion is not accompanied by an answer or

motion to dismiss, Iraq expressly seeks modification of Local

Rule 7(g)’s requirement that a motion to set aside entry of

default be accompanied by a verified answer and proposes a

schedule for Iraq to file a dispositive motion upon set aside of

entry of default. Considering the established presumption

against granting default judgment against foreign nations, see FG

Hemisphere, 447 F.3d at 839, and the court’s discretion to modify

a party’s obligation under the local rules in appropriate

circumstances, Iraq’s motion to set aside entry of default will

not be denied for failure to comply with Local Civil Rule 7(g)

and the merits of the motion will be considered.1

1 In addition, it appears that the plaintiffs may have waived their argument that Iraq’s motion should be denied for failure to comply with Local Civil Rule 7(g). Although not acknowledged by either party, the parties’ joint status report suggesting a schedule for motions in this action reflects the parties’ agreement to a schedule under which Iraq would file a motion to set aside entry of default and then have sixty days from the date of entry of an order setting aside entry of default to answer or otherwise respond to the complaint. Iraq’s filing of a motion to set aside entry of default with a proposed schedule for Iraq to respond to the complaint appears consistent with the previous agreement between the parties. -7-

II. GOOD CAUSE TO SET ASIDE ENTRY OF DEFAULT

Balancing the Jackson factors favors setting aside the entry

of default. First, the plaintiffs have not shown that they would

be prejudiced by setting aside the entry of default. “‘Delay in

and of itself does not constitute prejudice.’” Capital Yacht

Club v. Vessel AVIVA, 228 F.R.D. 389, 393-94 (D.D.C. 2005)

(brackets omitted) (quoting KPS & Assocs., Inc. v. Designs by

FMC, Inc., 318 F.3d 1, 15 (1st Cir. 2003)); see Keegel, 627 F.2d

at 374 (finding that although “setting aside the default would

delay satisfaction of plaintiffs’ claim, should plaintiffs

succeed at trial,” such a delay “is insufficient to require

affirmance of the denial” of a motion to vacate entry of

default). “The issue is not mere delay, but rather its

accompanying dangers: loss of evidence, increased difficulties of

discovery, or an enhanced opportunity for fraud or collusion.”

KPS & Assocs., 318 F.3d at 15 (quoting FDIC v. Francisco Inv.

Corp., 873 F.2d 474, 479 (1st Cir. 1989)) (internal quotation

marks omitted).

Here, although the plaintiffs claim prejudice from Iraq’s

failure to timely respond to the complaint, the plaintiffs have

not alleged that the delay has caused any accompanying dangers,

such as loss of evidence or inability to conduct discovery. The

plaintiffs do allege that they will suffer prejudice from a set

aside because this action is no longer in a preliminary stage. -8-

(See Pls.’ Opp’n at 19-20.) Contrary to the plaintiffs’

assertion, however, this action is still in a preliminary stage.

Discovery has not yet begun, and although the plaintiffs have

secured entry of default, they have not yet filed a motion for

default judgment or presented in this case evidence establishing

their right to relief to satisfy their burden under 28 U.S.C.

§ 1608(e). See, e.g., Biton v. Palestinian Interim Self Gov’t

Auth., 233 F. Supp. 2d 31, 33 (D.D.C. 2002) (finding no prejudice

to the plaintiffs when “no discovery ha[d] been conducted, and no

summary judgment motions ha[d] been filed”). Because the

plaintiffs have shown no danger with proceeding and have not yet

expended any significant efforts to satisfy their burden of proof

for default judgment, the plaintiffs have not shown they will be

prejudiced by a set aside at this early stage. Cf. Whelan v.

Abell, 48 F.3d 1247, 1259 (D.C. Cir. 1995) (finding “substantial

prejudice” when vacating entry of default would force non-

defaulting plaintiffs “to try their . . . claim a second time”).

In addition, Iraq has identified several potentially

meritorious defenses, including res judicata, statute of

limitations, and foreign sovereignty immunity. When moving to

vacate an entry of default, “the movant is not required to prove

a defense, but only to assert a defense that it may prove at

trial.” Id. “Under the standards for vacating default in this

Circuit, a defense is meritorious if it ‘contain[s] even a hint -9-

of a suggestion’ which, proven at trial, would constitute a

complete defense.” Harris, 159 F.R.D. at 317 (quoting Keegel,

627 F.2d at 374); see also Biton, 233 F. Supp. 2d at 33 (stating

that “[l]ikelihood of success is not the measure” for determining

whether a defense is meritorious” (internal quotation marks

omitted)). Although the plaintiffs present arguments in

opposition to the defendant’s asserted defenses, the plaintiffs’

brief arguments do not squarely foreclose the merits of Iraq’s

defenses, at least in part, because the parties’ filings do not

address the impact of the Supreme Court’s recent decision in

Republic of Iraq v. Beaty, 129 S. Ct. 2183 (2009).2 Affording

Iraq the benefit of the doubt, as is required under Jackson, 636

F.2d at 836, Iraq has offered sufficiently meritorious defenses

that support setting aside entry of default.

Regarding the willfulness of the defendant’s default, “[t]he

boundary of willfulness lies somewhere between a case involving a

negligent filing error, which is normally considered an excusable

failure to respond, and a deliberate decision to default, which

is generally not excusable.” Int’l Painters & Allied Trades

Union & Indus. Pension Fund v. H.W. Ellis Painting Co., 288 F.

Supp. 2d 22, 26 (D.D.C. 2003). Iraq contends that its default

was not willful, but rather constituted inadvertence or excusable

2 In its motion, Iraq specifically identifies Beaty as relevant to the success of its defenses. The petition for certiorari in Beaty was pending at the time of the filing of Iraq’s motion. -10-

neglect “attributable to the effect of war, reconstruction and

governmental reorganization,” relying on the declarations of

Mills and Nassef to explain the circumstances resulting in Iraq’s

default. (Def.’s Mem. in Supp. of Mot. to Set Aside Default J.

at 11.) By contrast, citing specific cases in which Iraq has

been an active party during the time in which it did not respond

in this case (Pls.’ Opp’n at 15), the plaintiffs contend that

Iraq’s familiarity with the United States courts and its

involvement in other litigation during their default in the

present suit suggest that Iraq’s default was willful conduct

warranting denying the motion to vacate entry of default. The

plaintiffs also challenge Iraq’s use of the Mills and Nassef

declarations to support their motion. In light of the

established preference to avoid granting default judgment against

foreign nations, and having found that the plaintiffs will not be

prejudiced by a set aside of the entry of default and that Iraq

has presented meritorious defenses, it is unnecessary to resolve

the parties’ dispute as to willfulness. Even accepting the

plaintiffs’ contention that Iraq’s default was willful, the

Jackson factors on balance nonetheless favor setting aside entry -11-

of default.3 Thus, because there is good cause to set aside the

clerk’s entry of default, Iraq’s motion will be granted.

CONCLUSION AND ORDER

Because Iraq has raised meritorious defenses to the

plaintiffs’ claims and setting aside the clerk’s entry of default

would not prejudice the plaintiffs, there is good cause to set

aside the entry of default despite the plaintiffs’ arguable

showing that Iraq willfully defaulted by failing to timely

respond to the complaint. Because this conclusion does not

depend upon the Mills and Nassef declarations submitted by the

defendant in support of their motion, the plaintiffs’ motions to

strike these declarations will be denied as moot. Accordingly,

it is hereby

ORDERED that Iraq’s motion [16] to set aside entry of

default be, and hereby is, GRANTED. It is further

ORDERED that Iraq shall have until forty five days from the

entry of this memorandum opinion and order to answer or otherwise

respond to the complaint. If the defendant files a dispositive

motion in response to the complaint, the plaintiffs shall have

forty five days from the date of service of the motion to file an

3 Because the Jackson factors favor setting aside default even if Iraq’s default was willful, this memorandum opinion does not make any finding as to whether Iraq’s conduct was in fact willful and does not rely at all upon the Mills or Nassef declarations. Accordingly, the plaintiffs’ motions to strike these declarations will be denied as moot. -12-

opposition and the defendant shall have thirty days from the date

of service of the plaintiffs’ opposition to file a reply in

support of its motion. It is further

ORDERED that the plaintiffs’ motions [19] and [25] to strike

the declarations of Mills and Nassef be, and hereby are, DENIED

AS MOOT.

SIGNED this 30th day of September, 2009.

/s/ RICHARD W. ROBERTS United States District Judge