ZURICH AMERICAN INSURANCE COMPANY & Another v. LM HEAVY CIVIL CONSTRUCTION LLC & Others.

• Court: Massachusetts Appeals Court
• Decided: November 7, 2024
• Docket: 23-P-1183
• Status: Unpublished

Opinion

NOTICE: Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule 23.0, as appearing in 97 Mass. App. Ct. 1017 (2020) (formerly known as rule 1:28, as amended by 73 Mass. App. Ct. 1001 [2009]), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).

COMMONWEALTH OF MASSACHUSETTS

APPEALS COURT

23-P-1183

ZURICH AMERICAN INSURANCE COMPANY & another1

vs.

LM HEAVY CIVIL CONSTRUCTION LLC & others.2

MEMORANDUM AND ORDER PURSUANT TO RULE 23.0

The defendant, LM Heavy Civil Construction (LM Heavy)

appeals from a judgment entered on May 24, 2023, in the amount

of $27,600,584.23 plus interest. The judgment entered after LM

Heavy was defaulted because (1) its counsel withdrew and (2)

despite having received a sixty-two day stay of proceedings (and

despite having been warned by the court that it would be

defaulted if it did not retain counsel), LM Heavy failed to

retain successor counsel until after the default had entered.

On appeal, LM Heavy argues that the default was entered based

1 Fidelity and Deposit Company of Maryland.

2Liberty Mutual Insurance Company; Citizens Bank, N.A; Enterprise Bank and Trust Company; Bank of America, N.A.; and LendingClub Bank, N.A., trustee process defendants. upon an erroneous procedure, or alternatively, that the judge

erred in denying LM Heavy's motions to remove the default. We

conclude that LM Heavy's claims of error are without merit, and

accordingly affirm.

Background. The plaintiffs, Zurich American Insurance

Company (Zurich) and Fidelity and Deposit Company of Maryland,

among other things write performance and payment bonds for

construction projects. The defendant, LM Heavy, performs

construction contracting work, including on major public

construction projects. The plaintiffs wrote performance and

payment bonds for LM Heavy and, when LM Heavy failed to perform

its construction projects, the plaintiffs "arranged to complete

the [p]rojects and to pay for labor performed and equipment and

materials provided to [LM Heavy]." The plaintiffs then initiated

this action in August of 2021 seeking to recoup, pursuant to

several general indemnity agreements LM Heavy had executed in

favor of Zurich and associated companies, the monies the

plaintiffs had spent when they performed under the bonds. The

basic causes of action were for breach of contract and

indemnity.

LM Heavy retained counsel, answered the complaint, and

litigated the matter until November of 2022, when LM Heavy's

counsel filed an emergency motion to withdraw, citing in part a

"lack of resources available to [LM Heavy]," that LM Heavy had

2 "failed to fulfill its material obligations" to counsel, and a

conflict of interest. At counsel for LM Heavy's request, a

Superior Court judge then stayed the action for sixty-two days

and scheduled a status conference for February 6, 2023. At the

February 6 conference, LM Heavy's counsel of record appeared, as

did a barrister from the United Kingdom, although the barrister

did not attempt to appear as counsel in the case. The judge

allowed counsel of record's motion to withdraw, and then

explicitly warned LM Heavy that it must retain successor counsel

"or risk being defaulted," as a corporation may not proceed pro

se.

No successor counsel filed an appearance on February 6, or

in the following week. On February 15, 2023, the plaintiffs

filed a "Request for Entry of Default" pursuant to Mass. R. Civ.

P. 55 (a), 365 Mass. 822 (1974). As contemplated by the rule,

this "request" was directed to the clerk of the court, who is

empowered by the rule to enter defaults. Id.3 The plaintiffs'

request for default stated, among other things:

"As of February 6, 2023, [LM Heavy] has no counsel and as a corporation, [LM Heavy] is incapable of self-representing. It is no longer capable of defending itself in this matter and has no appearance in this matter."

3Rule 55 (a) states in full: "When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend as provided by these rules and that fact is made to appear by affidavit or otherwise, the clerk shall enter his default."

3 The plaintiffs did not serve LM Heavy's counsel with the request

for default, as LM Heavy had no counsel at the time. The

plaintiffs assert, however, (and it is not contested) that they

served a copy of the request on the corporation, LM Heavy,

through its registered agent for service.

The request for default was endorsed on February 21, and a

default entered on the docket on February 23. Notably, the

Superior Court judge (not the clerk) endorsed the request:

"Allowed. The court shall schedule a Rule 55(b)(2) damages

assessment hearing at least six weeks from now." Notice of the

entry of default was sent on February 23.

There followed three separate efforts by LM Heavy to remove

the default. The first was filed "pro se" on February 28, as LM

Heavy still had no counsel; the judge treated the filing --

entitled "LMH's Reply and Affirmative Defenses to Plaintiff's

Request for Entry of Default Pursuant to Mass. R. Civ. P. 55

(a)" -- as a motion to remove the default, and denied the motion

without prejudice. On March 17, 2023, a successor counsel for

LM Heavy finally appeared, and on March 23 successor counsel

filed a motion to remove the default, which the judge denied.

On April 25, 2023, LM Heavy's counsel filed an opposition to

plaintiff's motion for an assessment of damages. Attached

thereto was yet another motion to remove default, this time

submitted together with an affidavit, as well as proposed

4 amended counterclaims, all of which were filed with the court on

May 11. In the renewed motion to remove default, LM Heavy

argued that the court ought to remove the default because LM

Heavy had shown "good cause" for removal; LM Heavy argued that

its default had not been willful because it had not been

dilatory in seeking counsel given the complexity of the case,

and that it had meritorious counterclaims and defenses to

assert. See Mass. R. Civ. P. 55 (c), 365 Mass. 822 (1974) ("For

good cause shown the court may set aside an entry of default

. . ."). LM Heavy also argued that the procedure for obtaining

the default was erroneous, because plaintiffs had merely filed a

request with the clerk, and had not filed a motion or complied

with Superior Court Rules 9A and 9C.

In accordance with Mass. R. Civ. P. 55 (b) (2), as amended,

463 Mass. 1401 (2012), the judge conducted an assessment of

damages hearing regarding the default on May 18, 2023.4

Successor counsel for LM Heavy had notice of the hearing and was

present. Before addressing the plaintiffs' damages, the judge

4 Rule 55 (b) (2) states in pertinent part: "In all other cases [that is, when a plaintiff's claim is not "for a sum certain or for a sum which can by computation be made certain," Mass. R. Civ. P. 55 (b) (1), as amended, 454 Mass. 1401 (2009)] the party entitled to a judgment by default shall apply to the court therefor . . . . The court shall not conduct a hearing unless the party entitled to a judgment by default has provided notice to all other parties . . . ."

5 heard argument on LM Heavy's third (April 25) motion to remove

the default.

The judge denied the third motion to remove the default

from the bench. The judge then conducted an evidentiary hearing

on the plaintiffs' damages, at which two witnesses -- an

accountant and one of Zurich's claims representatives --

testified and were examined by counsel for LM Heavy. On the

same day, the judge entered two orders: the first explained why

the judge denied the motion to remove the default, concluding

that "LM Heavy has not met its burden of showing either that it

had a good cause for failing to defend itself or that it has

meritorious defenses." The second order awarded damages of

$27,600,584.23, after discussing the plaintiffs' evidence in

some detail. Judgment entered thereafter, and LM Heavy appeals.

Discussion. The first issue is whether the initial entry

of default was procedurally defective, and if so, whether the

error requires that the default judgment be vacated. In cases

such as this, rule 55 establishes a two-step process for the

entry of default judgments: (1) the entry of default, which

under rule 55 (a) may be entered by the clerk where a defendant

fails to "plead or otherwise defend"; and (2) the entry of

judgment. Where, as here, the plaintiff's damages are not a

"sum certain or . . . a sum which can by computation be made

certain," judgment cannot enter until the plaintiff files an

6 appropriate motion, and the judge conducts a hearing as to the

plaintiffs' damages, for which the plaintiff must provide notice

to the defendant. See Mass. R. Civ. P. 55 (b) (1), as amended,

454 Mass. 1401 (2009), and Mass. R. Civ. P. 55 (b)(2), as

amended, 463 Mass. 1401 (2012); J.W. Smith & H.B. Zobel, Rules

Practice § 55.5 (2d ed. 2007).

Here, LM Heavy challenges the process employed for the

first step, the entry of the default. LM Heavy argued below,

and repeats its argument here, that the plaintiffs were required

to proceed by motion, and in particular, that they were required

to follow Superior Court Rules 9A and 9C. Had those rules

applied, the plaintiffs could not have filed a motion for

default until they had served their motion on LM Heavy, which

would then have had ten days to respond. See Rule 9A (b) of the

Rules of the Superior Court (2023). Plaintiffs also would have

been required to conference the contemplated motion under rule

9C. See Rule 9C (a) of the Rules of the Superior Court (2023).

We are not persuaded, however, that Rules 9A and 9C apply

to a request for default under rule 55 (a). Rules 9A and 9C

apply to the filing of "motions" in Superior Court. See Rule 9

of the Rules of the Superior Court (2023) (stating that Rules 9A

and 9C, among others, apply to "[a]ll civil motions"). It seems

clear, however, that a request under rule 55 (a) is not a motion

under the rules of civil procedure, but instead involves a

7 ministerial matter directed to the clerk, the merit of which the

clerk generally can determine from examining the docket.

Reporters' Notes to Mass. R. Civ. P. 55 (1973) ("Rule 55 (a)

deals solely with entry of default, a formal, ministerial act of

the clerk . . ."). The question under rule 55(a) is whether the

defendant has failed to plead or otherwise defend; if not, a

default "shall" enter. See Mass. R. Civ. P. 55 (a). Moreover,

rule 55 has additional procedural protections in cases, as here,

where damages must be determined. In such cases there must be

notice and likely a hearing before judgment may enter. See

Mass. R. Civ. P. 55 (b) (2).

Finally, it is not at all clear how Superior Court Rules 9A

and 9C could apply in circumstances where a corporate defendant

does not have counsel. The rule 9A process contemplates service

on opposing parties, the preparation of an opposition by the

opposing party, and then, the preparation of a motion package to

be filed with the court. Rule 9C requires a conference

regarding the contemplated motion between the moving party and

someone properly representing the opposing party. While the

motion could perhaps be served on the corporation itself, the

remainder of the rules could not be followed where a corporate

defendant does not have a lawyer.

In its reply brief in this court, LM Heavy makes a

different procedural argument. LM Heavy contends in essence

8 that rule 55 (a) only applies when a defendant fails to respond

at the outset of a case. LM Heavy further contends that once a

defendant has appeared and defended, rule 55 (a) can no longer

apply, such that even if a corporate defendant subsequently has

no counsel, or if (for example) a defendant fails to appear for

trial, the plaintiff and the court cannot default the defendant

under rule 55 (a) and instead must employ an alternative process

to conclude the case.5

This argument was not made to the Superior Court judge, and

accordingly, it is waived. See Carey v. New England Organ Bank,

446 Mass. 270, 285 (2006), quoting Century Fire & Marine Ins.

Corp. v. Bank of New England-Bristol County, N.A., 405 Mass.

420, 421 n.2 (1989) ("An issue not raised or argued below may

not be argued for the first time on appeal"). Indeed, the

argument was not made to this court until LM Heavy's reply

brief, rendering it doubly procedurally defective. See

Commonwealth v. Rogers, 494 Mass. 629, 645 n.10 (2024), quoting

Assessors of Boston v. Ogden Suffolk Downs, Inc., 398 Mass. 604,

608 n.3 (1986) ("Any issue raised for the first time in an

5 LM Heavy does not suggest alternative processes other than filing a motion for default with the judge, as opposed to a request for default with the clerk. Another possible mechanism would be a motion for summary judgment under Mass. R. Civ. P. 56, 365 Mass. 824 (1974), to which an unrepresented corporate defendant would be unable to respond. We express no view on the propriety of alternative mechanisms to secure a judgment.

9 appellant's reply brief comes too late, and we do not consider

it").

We note, however, that the question of how rule 55 (a)

applies to a failure to defend during the middle of a case is

one that bears scrutiny, when the appropriate case arises.

There are some authorities that hold that rule 55 (a) cannot be

employed where a defendant initially appeared and defended.

These authorities adopt the position that the language "fail[s]

to . . . otherwise defend" refers to motions that may be filed

at the outset of a case (i.e. rule 12 motions), and does not

embrace circumstances where a defendant ceases to defend as the

case progresses. See Bass v. Hoagland, 172 F.2d 205, 210 (5th

Cir. 1949), cert. denied, 388 U.S. 816 (1949); cf. Curly

Customs, Inc. v. Pioneer Fin., 62 Mass. App. Ct. 92, 99 (2004)

("The words 'otherwise defend' refer to filings such as a motion

to dismiss that defer the requirement to plead to the claim for

relief"). Other authorities are in direct conflict, holding

instead that rule 55 (a) applies, for example, where as here a

corporate defendant no longer has counsel, and thus can no

longer defend. Hoxworth v. Blinder, Robinson & Co., 980 F.2d

912, 917-919 (3rd Cir. 1992), abrogated on other grounds by

Morgan v. Sundance, Inc., 596 U.S. 411 (2022). See also Eagle

Assocs. v. Bank of Montreal, 926 F.2d 1305, 1306-1307, 1310 (2nd

Cir. 1991) (affirming default judgment under Federal Rule 55(a)

10 where defendant, a partnership, had been without counsel for

twenty-five weeks, and disregarded trial court's order to appear

through counsel). In any event, we do not resolve the conflict

today, as the issue was not properly presented. Had the issue

been presented below, the Superior Court judge would have had

the opportunity to consider the authorities and perhaps to adopt

a different process for addressing LM Heavy's lengthy failure to

defend. Under these circumstances, we will not vacate the

judgment on procedural grounds.

Nor did the judge err in exercising his discretion to

refuse to remove the default. In seeking to remove the default,

LM Heavy had the burden to show "good cause" -- that is, that it

had a good reason for failing to defend and also that it had

"meritorious defenses." Johnny's Oil Co. v. Eldayha, 82 Mass.

App. Ct. 705, 708 (2012). The trial judge has discretion to

deny a motion to remove a default, and we review a judge's

decision to do so for abuse of discretion. Id. Here, LM

Heavy's showing was not compelling as to either prong of the

test. As to a good reason for failing to defend, LM argues that

it "lacked counsel for only a short period of time" -- thirty-

nine days, from February 6 (when the motion to withdraw was

granted), until March 17, when successor counsel entered an

appearance. Furthermore, LM Heavy argues that it was only

11 warned of the risk of being defaulted fifteen days before entry

of default.

This argument paints an incomplete picture of the operative

facts. Rather than fifteen or thirty-nine days, LM Heavy was

effectively without counsel for nearly four months -- from late

November 2022 until mid-March 2023. This lack of counsel

burdened the plaintiffs and the court, as the matter was stayed,

and thus not progressing at all, for this entire time.

LM Heavy was also explicitly warned that a failure to

secure counsel could result in default. It was within the

court's discretion to conclude that LM Heavy did not act

conscientiously, and thus did not show a good reason for failing

to defend, when as a corporate defendant in litigation it had no

counsel for nearly four months.

Moreover, LM Heavy also failed to satisfy the second prong

of the test, as it failed to show that it could present

meritorious defenses if the default was removed. In moving to

set aside a default, a defendant must accompany its motion with

an affidavit setting forth the facts and circumstances upon

which the motion rests, including the nature of its meritorious

defense. See New England Allbank for Sav. v. Rouleau, 28 Mass.

App. Ct. 135, 140 (1989). The only evidence that LM Heavy

submitted with its various motions to remove the default was an

affidavit of LM Heavy's CEO. The affidavit made only conclusory

12 statements that LM Heavy had meritorious defenses, which were

essentially unsupported by any evidence. The only statement

within the affidavit related to LM Heavy's defenses is that "[LM

Heavy] has meritorious defenses to the Plaintiffs['] claim and a

meritorious counterclaim, as is set forth in the company's

answer and counterclaim filed as Docket Entry 22." The judge

did not abuse his discretion in finding that this was

insufficient evidence for LM Heavy to meet its burden at this

stage. The allegations in the proposed answer and counterclaim

are not evidentiary, and attaching documents, the significance

of which is not explained by any witness through affidavit or

otherwise, adds nothing substantial to the calculus. See

Rouleau, 28 Mass. App. Ct. at 140, 142-143 (holding that

defendants failed to make the requisite showing as to

meritorious defenses, so as to be relieved from a default

judgment, where defendants only proffered answer, counterclaims,

and affidavit attesting to their truth).

Judgment affirmed.

By the Court (Sacks, Englander & Grant, JJ.6),

Clerk

Entered: November 7, 2024.

6 The panelists are listed in order of seniority.