HWAG LLC v. Racine Car Dealer LLC

          DECISION AND ORDER

          WILLIAM E. DUFFIN U.S. MAGISTRATE JUDGE.

         Procedural History

         Having relatively recently purchased the assets and goodwill of a Hyundai car dealership located in West Allis, Wisconsin from BMR No. 1 LLC d/b/a Arrow Hyundai, plaintiff HWAG, LLC commenced this lawsuit on June 13, 2017, against Shawn Monty, a former Arrow Hyundai employee, and the entity that it believed to be his then-current employer, Home Run Auto Group, LLC d/b/a Racine Hyundai. (ECF No. 1.) The complaint alleged that Monty was continuing to access his former employer's trade secrets and confidential business information.

         HWAG subsequently learned that Monty's new employer was actually Racine Car Dealer, LLC, and sought leave to file an amended complaint substituting Racine Car Dealer as a defendant for Home Run Auto Group (ECF No. 13), which motion was granted on July 25, 2017. (ECF No. 17.) HWAG's amended complaint alleges misappropriation and wrongful use of confidential information and trade secrets, computer fraud, deceptive trade practices, and tortious interference with business relationships by Racine Car Dealer and Monty. (ECF No. 18, ¶¶ 1, 9.)

         On August 17, 2017, Monty filed an answer to the amended complaint along with a counterclaim against HWAG and a cross-claim against Racine Car Dealer, by whom he was at that point no longer employed. (ECF No. 27.) Monty's counterclaim against HWAG included six causes of action: one count of defamation by libel, four counts of defamation by slander, and one count of tortious interference with prospective economic advantage. (ECF No. 43 at 25-31.) Racine Car Dealer filed an answer to Monty's cross-claim. (ECF No. 31.) On September 19, 2017, HWAG and Racine Car Dealer entered into a settlement agreement and HWAG's claims against Racine Car Dealer were dismissed. (ECF No. 41.)

         On September 28, 2017, HWAG filed a motion to dismiss all six counts of Monty's counterclaim under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. (ECF No. 42.) Monty filed a brief in opposition to the motion to dismiss (ECF No. 44), and separately and simultaneously filed an amended answer and counterclaims. (ECF No. 43.) The amended counterclaims add several allegations (although no new counts), apparently in an attempt to remedy some of the alleged shortcomings raised in the motion to dismiss. In reply, HWAG stated that, for purposes of judicial economy, its reply was to serve not only as a reply in support of its motion to dismiss but also as its response to the amended counterclaims. (ECF No. 46 at 2, n. 1.)

         Approximately one week later, Monty filed a motion for entry of default on the ground that HWAG failed to answer Monty's amended counterclaims. (ECF No. 48.) The motion argues that HWAG's reply in support of the motion to dismiss the original counterclaims is not a proper pleading in response to the amended counterclaims.

         Both motions have been fully briefed. All parties have consented to have this court resolve this case. (ECF Nos. 16, 23, 29.) The court has jurisdiction under 28 U.S.C. §§ 1331 and 1367.

         Motion for Entry of Default

         Monty's motion for entry of default is not well received. Twenty five years ago the Seventh Circuit Court of Appeals adopted standards for professional conduct for those lawyers and judges practicing within the Seventh Federal Judicial Circuit. The standards were “designed to encourage us, judges and lawyers, to meet our obligations to each other, to litigants and to the system of justice, and thereby achieve the twin goals of civility and professionalism, both of which are hallmarks of a learned profession dedicated to public service.” Standards for Professional Conduct Within the Seventh Federal Judicial Circuit, Preamble. The standards are to be “reviewed and followed by all judges and lawyers participating in any proceeding in this Circuit.” Id. The standards set forth certain duties that lawyers have to other counsel. One of those duties states: “We will not cause any default or dismissal to be entered without first notifying opposing counsel, when we know his or her identity.” Standards for Professional Conduct Within the Seventh Federal Judicial Circuit, Lawyers' Duties to Other Counsel, ¶ 18.

         It does not appear that counsel for Monty contacted counsel for HWAG prior to filing its motion for default judgment. Had they done so, this motion very likely would have been avoided. Among other things, one of the matters that counsel for Monty could have cleared up was the confusion they created by filing amended counterclaims while simultaneously, and separately, filing a brief in opposition to HWAG's motion to dismiss. Monty's position is that the amended counterclaims superseded the original counterclaims (ECF No. 50 at 2) and rendered the motion to dismiss moot (ECF No. 48 at 5). The problem is that, by separately filing a brief in opposition to the motion to dismiss, Monty did not treat the motion to dismiss as moot. Indeed, nowhere in his response to the motion to dismiss does Monty state that the motion is moot or that the original counterclaims have been superseded by the amended counterclaims.

         Under Rule 55(a), “When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.” Fed.R.Civ.P. 55(a). In response to the amended counterclaims, HWAG could have withdrawn its motion to dismiss the original counterclaims and filed a new motion to dismiss the amended counterclaims--the same arguments that support the motion to dismiss the original counterclaims apply just as much to the amended counterclaims. But in the interest of “judicial economy” (ECF No. 46 at 2, n. 1) it chose to simply go forward with the already-pending motion to dismiss rather than start over. Thus, HWAG did “otherwise defend” against the amended counterclaims by referring to and discussing them as part of its reply in support of its pending motion to dismiss.

         In short, default judgment is not appropriate. See Schmidt v. Hudec, 486 F.Supp.2d 821, 825-26 (E.D. Wis. 2007) (improper filing of answer to amended complaint in state court rather than federal court does not warrant default judgment when the procedural posture of the case was unique and the movant was not prejudiced by the improper filing). Monty's motion for entry of default is denied.

         After careful consideration, HWAG's request for costs and fees in having to respond to Monty's motion for entry of default is also denied. However, counsel is expected to be familiar with the Standards for Professional Conduct discussed above and conduct themselves accordingly. Zealous representation of one's client, on the one hand, and the ...