Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—RISuperCt: Entry of Default Vacated in Van Dealer’s Rhode Island Franchise Law Suit , (Apr 11, 2013)

By Tobias J. Gillett, J.D., LL.M.

In a lawsuit brought by a franchise dealer of a type of van produced by DaimlerChrysler Motors Corporation, alleging that Chrysler and three other automobile dealers had violated Rhode Island law by selling a van identical to the one sold by the franchise dealer in the dealer’s market, a Rhode Island Superior Court has removed an entry of default against one of the other dealers because the dealer demonstrated good cause for its removal (Altrui Brothers Truck Sales, Inc. v. DaimlerChysler, April 9, 2013, Procaccini, D.).

On October 19, 2001, Altrui Brothers Truck Sales, Inc. entered into a franchise agreement with DaimlerChrysler that recognized Altrui as the sole authorized seller of a specific type of van within the "relevant market area." In 2007, Altrui filed suit in Rhode Island Superior Court, alleging that Elmwood Dodge and Bald Hill Realty Co. ("Elmwood") and another Dodge dealer were selling a van identical to the one Altrui sold. Altrui alleged that this conduct violated Rhode Island General Laws Section 31-5.1-4.2, which requires manufacturers to provide notice to dealers of their intent to establish new dealerships in areas where the same models would be sold, and provides for administrative hearings before granting new franchises for the same product line.

Altrui later withdrew its complaint and proceeded with hearings before the Motor Vehicle Dealers License and Hearing Board (MVDLHB). On February 1, 2008, the MVDLHB found it did not have jurisdiction, a ruling upheld on appeal. Altrui filed its lawsuit against Chrysler and three dealers, including Elmwood. Altrui allegedly served Elmwood through its agent for service, who claimed that he forwarded the complaint in a letter to Elmwood’s president, although Elmwood later claimed not to have received the complaint in that manner. Elmwood did not file an answer, and Altrui received an entry of default in February 2009.

On September 20, 2102, Altrui filed a motion for entry of default judgment. Elmwood claimed that it became aware of the entry of default at that time. Elmwood filed a motion to vacate the entry of default and an objection to the entry of default judgment.

The court explained that judgment by default "should only be employed in extreme situations," and that a party only needed to show "good cause" to obtain removal of a default. Good cause requires showing "that the default was not the result of gross neglect, that the non-defaulting party will not be substantially prejudiced by the reopening, and the party in default has a meritorious defense."

The court found good cause for granting Elmwood’s motion to vacate the entry of default. The court initially concluded that Elmwood’s default was not the result of gross neglect. Elmwood had retained counsel to represent it in the 2007 lawsuit and the MVDLHB hearing. Elmwood alleged that it was unaware of the 2008 complaint or the 2009 entry of default, that it did not receive the complaint from its agent for process, and that it took immediate action when it learned of the default. Although Altrui had correctly followed the Rules of Civil Procedure in serving Elmwood, and the court found the decision to be a "close call," the court found Elmwood had not engaged in "gross neglect."

The court also determined that Altrui would not face substantial prejudice from reopening the case. Although almost four years had passed since the entry of default, Altrui did not explain why it waited that long to file a motion for default judgment, nor did Altrui explain how it would be prejudiced from reopening the case. The court would not "infer prejudice from the passage of time," and Altrui had made no claim "that evidence has been lost, that witnesses are unavailable, or that discovery will be frustrated."

Moreover, the court found Elmwood had meritorious defenses, including its claims that no contract existed between Elmwood and Altrui, that parties for whom Elmwood was not responsible had caused any damages, that Altrui had been unjustly enriched, and that Altrui had not exhausted its administrative remedies. The court found these defenses to be plausible.

Further, Altrui sought damages in excess of $3 million, and the court observed that doubts are resolved in favor of removing default in cases involving large sums of money. Therefore, the court granted Elmwood’s motion to vacate the entry of default.

The case is C.A. No. PC 08-7187.

Attorneys: Mitchell Riffkin (Law Offices of Mitchell S. Riffkin) for Altrui Brothers Truck Sales, Inc. William A. Gosz (Law Office of John J. Bevilacqua) for Elmwood Dodge and Bald Hill Realty Co.

Companies: DaimlerChrysler Vans, LLC; DaimlerChrysler Motors Corp.; Elmwood Dodge and Bald Hill Realty Co.; Altrui Brothers Truck Sales, Inc.

Cases: FranchisingDistribution RhodeIslandNews