Automata Holdings, LLC v. Robert Hurley Enterprises, Inc.

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IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FORT SMITH DIVISION
AUTOMATA HOLDINGS, LLC 	PLAINTIFF
V. 	CASE NO. 2:24-CV-2111
ROBERT HURLEY ENTERPRISES, INC. 	DEFENDANT
OPINION AND ORDER
Currently before the Court are Defendant Robert Hurley Enterprises, Inc.’s (“RHE”)
Motion to Set Aside Clerk’s Entry of Default (Doc. 12) and Brief in Support (Doc. 13),
Plaintiff Automata Holdings, LLC’s (“Automata”) Response in Opposition (Doc. 20), and
RHE’s Reply (Doc. 23). For the reasons stated herein, RHE’s Motion is GRANTED.
This case involves a contract for the sale of real property in Johnson County,
Arkansas. On September 4, 2024, Plaintiff Automata filed a Verified Complaint (Doc. 2)
accusing Defendant RHE of breach of contract and requesting permanent injunctive relief.
Then, on October 28, Automata filed an affidavit confirming that RHE had been properly
served on September 14. See Doc. 7. RHE’s answer or other responsive pleading was
due on October 5, but nothing was ever filed. When the Clerk of Court filed a Notice of
Default Procedures Under Federal Rule of Civil Procedure 55(a) (Doc. 8) on November
7, Automata’s counsel responded by sending the Clerk a letter (Doc. 9) on November 27
to advise that the parties were “attempting to work out an amicable resolution” and
therefore “request[ed] that the Clerk and Court refrain from requiring a motion for default
judgment” at that time. Id. Instead, Automata would “let[ ] the Clerk and Court know if the
attempts to resolve the matter break down.” Id.
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Nothing happened in the case until January 21, 2025, when Automata’s counsel
filed an affidavit in support of a Clerk’s default. See Doc. 10. The Clerk promptly entered
a default the following day, January 22. See Doc. 11. Four weeks later, on February 19,
RHE filed the instant Motion to Set Aside Clerk’s Entry of Default (Doc. 12).
In evaluating RHE’s Motion, the Court bears in mind that “[t]here is a ‘judicial
preference for adjudication on the merits,’ and it is likely that a party who promptly attacks
an entry of default, rather than waiting for grant of a default judgment, was guilty of an
oversight and wishes to defend the case on the merits.” Johnson v. Dayton Elec. Mfg.
Co., 140 F.3d 781, 784 (8th Cir. 1998) (quoting Oberstar v. F.D.I.C., 987 F.2d 494, 504
(8th Cir.1993)). Further, the Court should consider “whether the conduct of the defaulting
party was blameworthy or culpable, whether the defaulting party has a meritorious
defense, and whether the other party would be prejudiced if the default were excused.”
Id. For the reasons stated below, all three factors weigh in favor setting aside the Clerk’s
default.
Even though Automata served the Complaint on RHE’s registered agent on
September 14, 2024, RHE claims the agent never forwarded the Complaint to RHE’s
attorney. As a result, RHE was unaware of the lawsuit until October 28, when Automata’s
attorney emailed RHE’s attorney directly. At that point, the parties attempted to resolve
their dispute in good faith—which Automata’s letter to the Clerk of Court proves. However,
settlement negotiations broke down in January 2025, which prompted Automata to
request the entry of a Clerk’s default on January 21. According to RHE, it stands ready to
assert meritorious defenses to the Complaint. Further, it argues that its delay in answering
was accidental and should be excused and that Automata has failed to establish that it
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will suffer concrete prejudice if the Clerk’s default is set aside. Automata responds that
RHE has been aware of the lawsuit for at least four months and never made an effort to
file an answer or formally request an extension of time to respond—which RHE was
obligated to do, regardless of the parties’ attempts to settle out of court. Finally, with
respect to prejudice, Automata claims RHE has breached the parties’ contract and has
no good-faith defenses, so allowing litigation to proceed will only result in further delay
and damage to Automata.
The Court notes that the Eighth Circuit has “consistently sought to distinguish
between contumacious or intentional delay or disregard for deadlines and procedural
rules, and a ‘marginal failure’ to meet pleading or other deadlines” and has set aside the
entry of default “when there were meritorious defenses and an absence of prejudice.”
Johnson, 140 F.3d at 784. There is no indication that RHE acted in bad faith in failing to
file a timely answer. Rather, the failure was most likely due to its service agent’s
negligence. And although the better practice would have been for RHE to file a formal,
agreed motion for extension of time to answer once it realized it had been sued, RHE’s
failure to file cannot be characterized as “contumacious” under the circumstances. The
parties were attempting to save costs by negotiating a settlement, and RHE simply failed
to file its answer as soon as it knew settlement talks were at an end. On balance, RHE’s
failures here are not so severe that Automata should win by default.
Next, it appears that RHE is prepared to offer meritorious defenses to this case.
Though Automata counters that the defenses lack merit, the Court is mindful of the fact
that an adjudication on the merits is always preferred to a default.
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Lastly, the Court is unpersuaded that Automata will suffer concrete prejudice if the
Clerk’s default is vacated. “[D]elay alone, or the fact the defaulting party would be
permitted to defend on the merits, are insufficient grounds to establish the requisite
prejudice 	to 	the 	plaintiff.” Stephenson 	v. 	El-Batrawi, 	524 	F.3d 	907, 	912 	(8th 	Cir.
2008) (quoting Johnson, 140 F.3d at 785).
For these reasons, IT IS ORDERED that RHE’s Motion to Set Aside Clerk’s Entry
of Default (Doc. 12) is GRANTED, and the Clerk’s default (Doc. 11) is SET ASIDE.
IT IS FURTHER ORDERED that RHE must file an answer or other responsive
pleading by no later than Wednesday, April 9, 2025. The Court will then enter an initial
scheduling order.
IT IS SO ORDERED on this 2 nd day of April, 2025.
______________________________
TIMOTHY L. BROOKS
UNITED STATES DISTRICT JUDGE
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