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Credit Acceptance Corp. v. Thames

United States District Court, S.D. Mississippi, Northern Division

August 3, 2017




         This cause is before the court on the motion of defendants Rosemary Thames and Walter White to set aside the default judgment entered against them by the court on June 26, 2017. Plaintiff Credit Acceptance Corporation (CAC) has responded in opposition to the motion, and the court, having considered the motion, response and the record in the case[1], concludes that the motion should be denied.

         On May 1, 2017, CAC, a Michigan corporation, asserting diversity subject matter jurisdiction under 28 U.S.C. § 1332[2], filed a complaint for arbitration pursuant to § 4 of the Federal Arbitration Act (FAA), 9 U.S.C. § 1, et seq., against defendants, Mississippi residents. According to the complaint, under the terms of a purchase and finance agreement executed by White and Thames in connection with their purchase of a car financed by CAC, they agreed both to arbitrate “any controversy or claim between You and U.S. arising out of or in any way related to this Contract, ” and to provide CAC with written notice of any covered dispute.[3]

         Notwithstanding this agreement, on March 30, 2017, White and Thames filed suit against CAC, Chucks Used Cars, Sharon Seals and Charles Edward Seals in the Hinds County Chancery Court asserting claims for conversion, detrimental reliance, unjust enrichment, deceptive trade practices, conspiracy, bad faith tort, trespass, breach of fiduciary obligation and emotional distress based on allegations that even though they made a substantial down payment and timely made all payments pursuant to their Agreement executed in connection with their purchase of the vehicle, defendants wrongfully repossessed the car in December 2016. As relief, among other things, White and Thames sought to be provided a new vehicle valued at $15, 000, “general and specific” damages in the amount of $19, 429, punitive damages and an award of attorney's fees.

         CAC served White and Thames with the summons and complaint in this cause on May 18, 2017. Thereafter, on June 14, 2017, when no answer or other responsive pleading had been filed by White or Thames, CAC sought and received a clerk's entry of default pursuant to Rule 55(a) of the Federal Rules of Civil Procedure. On June 18, 2107, CAC filed its motion for default judgment, which the court granted on June 27, 2017. The court's judgment required White and Thames to arbitrate their disputes, stayed the state court litigation and dismissed the action.

         On July 5, 2017, defendants filed the present motion seeking to set aside the default judgment, strike the entry of default, lift the stay of the state court proceedings and award $8, 000 in attorney's fees. Although it is not altogether clear, White and Thames appear to urge that the judgment should be set aside because (1) it is void as the court lacks diversity jurisdiction; (2) they were not provided proper notice of default under either the Federal Rules of Civil Procedure or § 4 of the FAA and the conduct of CAC's attorneys lulled them into believing that CAC intended to proceed in state court; and (3) the judgment was obtained through the use of fraudulent documentation.

         Federal Rule of Civil Procedure Rule 55(c) provides that the court may set aside a default judgment in accordance with Rule 60(b). Rule 60(b), in turn, provides, in pertinent part,

On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect; . . .
(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party; [or]
(4) the judgment is void[.]

Rule 60(b) is a “remedial provision intended to prevent injustice by allowing parties their day in court even though some technical error has occurred which would otherwise be grounds for default.” Greater Baton Rouge Golf Assoc. v. Recreation and Park Comm'n, 507 F.2d 227, 228 (5th Cir. 1975). As a general proposition, the decision to grant or deny a motion to set aside a default judgment under Rule 60(b) rests within the trial court's discretion and is, at bottom, an equitable one. United States v. One Parcel of Real Property, 763 F.2d 181, 183 (5th Cir. 1985)). An exception is Rule 60(b)(4). “Unlike other Rule 60(b) provisions, relief under Rule 60(b)(4) is not discretionary; if the judgment is void, the district court must necessarily set the judgment aside.” Borne v. River Parishes Hosp., LLC, 548 Fed.Appx. 954, 957 (5th Cir. Apr. 22, 2013). A void judgment is “one which, from its inception, was a complete nullity and without legal effect.” Id. (internal citations and quotation marks omitted). The Fifth Circuit has identified two circumstances in which a judgment may be set aside under Rule 60(b)(4): “1) if the initial court lacked subject matter or personal jurisdiction; and 2) if the district court acted in a manner inconsistent with due process of law.” Callon Petroleum Co. v. Frontier Ins. Co., 351 F.3d 204, 208 (5th Cir. 2003) (citing Carter v. Fenner, 136 F.3d 1000, 1005 (5th Cir. 1998)).

         Here, White and Thames argue that the judgment is void because the court lacked subject matter jurisdiction. In this regard, they appear to argue that diversity jurisdiction is lacking for two reasons: (1) CAC failed to join certain indispensable parties as defendants, and specifically, Chucks Used Cars, Sharon Seals and Charles Edward Seals, Mississippi citizens who are defendants in the state court action; and (2) the amount in ...

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