Sterling National Bank v. VI Corps, LLC

UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ILLINOIS

STERLING NATIONAL BANK,

Plaintiff,

v. Case No. 19-cv-1115-JPG

VI CORPS LLC, DON BETHUNE, and

VICTOR VICARI,

Defendants.

MEMORANDUM AND ORDER

This matter comes before the Court on defendant Don Bethune’s motion to set aside entry of

default and default judgment against him (Doc. 33). Plaintiff Sterling National Bank (“Sterling”)

responded to the motion (Doc. 38). The Court held a hearing on the motion on September 21, 2021, at

which it heard testimony from Amanda Thomas (via videoconference), Don Bethune (“Bethune”),

Tyler Bethune (“Tyler”), and Jack Howser. The Court took the matter under advisement. Sterling has

since submitted supplemental authority on a question that arose at the hearing (Doc. 54), and Bethune

has responded to that filing (Doc. 55).

I. Background

Sterling brought this action alleging VI Corps had defaulted on a loan/security agreement with

De Lage Landen Financial Services (“De Lage”). Under that agreement, De Lage took a security

interest in certain equipment VI Corps purchased with the loaned funds. Vicari and Bethune each also

allegedly personally guaranteed the loan. De Lage then assigned its rights under the agreement to

Sterling. After VI Corps defaulted in February 2019, Sterling filed this lawsuit for breach of contract,

replevin, and detinue against VI Corps and breach of guaranty against Vicari and Bethune. Sterling

served the defendants, they did not respond, and the Clerk of Court entered their defaults on September

29, 2020 (Doc. 23). A week later the Court entered default judgment against all defendants awarding

Sterling all the relief it had requested (Doc. 26).

Bethune now asks the Court to vacate the entry of default and default judgment against him on

the grounds that he was never validly served. Sterling maintains it properly served Bethune on

October 16, 2019, by substitute service at his usual place of abode by leaving a copy with Tyler,

Bethune’s adult son who lived with Bethune, and by mailing a copy to Bethune afterward. Bethune

maintains Tyler was never given the process for Bethune and, even if he had been, he did not live at

Bethune’s residence so he was not capable of receiving substitute service.

II. Legal Standards

Federal Rule of Civil Procedure 55(c) provides that a court may set aside entry of default for

good cause. The Court should do so if the defendant shows (1) good cause for his default; (2) quick

action to correct it; and (3) a meritorious defense to the complaint. Arwa Chiropractic, P.C. v. Med-

Care Diabetic & Med. Supplies, Inc., 961 F.3d 942, 949 (7th Cir. 2020); O’Brien v. R.J. O’Brien &

Assocs., 998 F.2d 1394, 1401 (7th Cir. 1993). The standard for vacating a default judgment under

Federal Rule of Civil Procedure 60(b) is essentially the same as the standard for setting aside an entry

of default under Rule 55(c). Davis v. Hutchins, 321 F.3d 641, 646 n. 2 (7th Cir. 2003); Chrysler Credit

Corp. v. Macino, 710 F.2d 363, 367 (7th Cir. 1983). It is, indeed, proper to vacate entry of default and

default judgment if the plaintiff has failed to comply with service requirements and the defendant has

not waived objection to service. See Mid-Continent Wood Prod., Inc. v. Harris, 936 F.2d 297, 301-02

(7th Cir. 1991) (even diligent, substantial compliance with Rule 4 insufficient to assert personal

jurisdiction over defendant unless error is purely technical error of form); Precision Etchings &

Findings, Inc. v. LGP Gem, Ltd., 953 F.2d 21, 23-24 (1st Cir. 1992) (“A default judgment entered by a

court which lacks jurisdiction over the person of the defendant is void . . . and may be set aside at any

time pursuant to Fed. R. Civ. P. 60(b)(4).”).

III. Facts

The evidence presented at the hearing establishes the following facts by a preponderance of the

evidence.

Sterling hired Elite Process Serving and Investigations, Inc. to serve process on Bethune. Elite

subcontracted the job to SIR Investigations LLC, who gave the assignment to Jack Howser, a trained

process server. On the evening of October 16, 2019, Howser went to Bethune’s usual place of abode

on South Cherry Street in West Frankfort, Illinois, to attempt service. He saw a light on in a large

detached garage on Bethune’s property, so he walked to the garage and saw a young man. He

ascertained that the man was not Bethune but Tyler, who said that he was Bethune’s son and that he

lived there. Howser asked Tyler if he could leave documents for Bethune with him, and Tyler said he

could but that he did not want to sign to indicate he had received the documents. Howser recorded

Tyler’s appearance as a white male with brown hair, approximately 25 years old, 5 feet 7 inches tall,

and weighing 210 pounds. Later, Howser mailed a copy of the process to Bethune at his South Cherry

Street residence.

In fact, Tyler did not live at Bethune’s house, was in a dispute with Bethune, and was not

communicating with him at that time. Instead, Tyler was living with his former step-mother—

Bethune’s ex-wife—Amanda Thomas on North Benton Road, West Frankfort, Illinois. Thomas had

moved out of Bethune’s South Cherry Street residence in August 2019. Beginning in September 2019,

she allowed Tyler to live in her basement, which was about a mile away from Bethune’s house, on the

condition that he steer clear of his persistent methamphetamine abuse. He had been homeless before

he moved in with Thomas, and when he relapsed in December 2019, he moved out and became

homeless again. Even before September 2019, Tyler had not resided with Bethune since 2017,

although Bethune and Amanda, while she lived in Bethune’s house, had allowed him to spend a few

nights there on occasion. Otherwise, he was homeless or in jail. He has always directed his mail to his

grandmother’s house at a different address.

There is conflicting testimony about what happened on October 16, 2017, mostly from Tyler

and Howser. Of the two, Howser was more credible. The Court draws this conclusion based on

Howser’s demeanor while testifying, the clarity and reasonableness of his testimony, and the lack of

any incentive to fabricate evidence. The Court notes his description of Tyler was slightly shorter and

heavier that Tyler actually was at that time, but the Court attributes that to its being an estimate based

on a short encounter, and possibly due to Tyler’s clothing.

Tyler, on the other hand, did not appear credible. His demeanor while testifying indicated

confusion, uncertainty, and a lack of clarity of the type the Court has often observed in young,

immature drug abusers. The events occurred while Tyler was battling a long-time addiction to

methamphetamine, although he was not using it at that particular moment, which calls into question

the reliability of his memory in general. The Court also notes his incentive today to fictionalize the

events of October 16, 2019, to avoid what could reasonably have been construed by Bethune as an

unlawful entry into his garage and an attempt to unlawfully take a vehicle. Tyler and Bethune have

since reconciled their differences, and Tyler would likely not want to reveal facts that could damage

this newfound good relationship. The Court further finds that while Tyler was in a dispute with

Bethune in October 2019, he would have been unlikely to have passed on the process left by Howser

because it would have revealed Tyler’s entry into Bethune’s garage and because withholding the

documents would have been a way for Tyler to further get back at Bethune in their dispute. For these

reasons, the Court finds Tyler’s testimony as to the events of October 16, 2019, incredible.

Additionally, some evidence suggests that Bethune would have been aware of any attempt to

unlawfully enter his garage because of his surveillance system. This does not persuade the Court to

disregard Howser’s testimony. There are numerous reasons why Bethune, who was out of town on

vacation on October 16, 2019, might have unintentionally overlooked an alert on his cell phone or why

he might have disregarded an alert showing criminal activity by his own son. Additionally, it is

possible Tyler could have circumvented Bethune’s surveillance measures to avoid detection. In any

case, Howser’s testimony remains credible.

Finally, the Court questions Bethune’s testimony that he did not receive notice in the mail of

the service of process, the request for entry of default, the entry of default, or the motion for default

judgment. This is based on his demeanor while testifying and the incentive he has to testify falsely. It

is true that the United States Postal Service has not been up to snuff for the past several years, but it is

unreasonable to believe that it failed on so many occasions related to this litigation. The Court

believes it is more likely that Bethune received at least one of the mailings and discarded it either

because he did not want to face the fact that he was a defendant in a lawsuit or because he believed he

was not at risk because he had never been served with process. This case only became a problem for

Bethune in December 2020 when he attempted to refinance his house. In any case, because a follow-

up mailing is not required for proper service of process under federal law, this issue is not relevant to

the outcome of the proceedings.

Having found these facts, the Court turns to the merits of Bethune’s motion.

IV. Analysis

As noted above, in deciding whether to vacate entry of default and default judgment, the Court

must decide whether Bethune has shown (1) good cause for his default; (2) quick action to correct it;

and (3) a meritorious defense to the complaint.

A. Good Cause

Bethune has shown good cause for his default; service on him did not comply with service

rules. Federal Rule of Civil Procedure 4(e)(2)(B) permits service on an individual in a federal lawsuit

by “leaving a copy of each at the individual’s dwelling or usual place of abode with someone of

suitable age and discretion who resides there” (emphasis added). Unlike substitute service under

Illinois law, Rule 4(e)(2)(B) does not additionally require mailing process to the defendant’s residence.

See 735 ILCS 5/2-203(a)(2). Although mailing a copy of process is advisable, it is not required.

Despite Sterling’s and Howser’s best efforts to serve Bethune by leaving a copy at his home and the

optional follow-up of service by mail, the summons and complaint were not left with someone who

resided at Bethune’s home, so it was not effective.

Bethune’s failure to respond to the complaint in a timely manner does not appear to be the type

of willful refusal to follow Court rules that would justifies refusing to vacate entry of default. See

Davis v. Hutchins, 321 F.3d 641, 646 (7th Cir. 2003). Instead, it appears Bethune did not know

Sterling had attempted what appeared to be good service, so he had good cause for not responding.

Notwithstanding the supplemental authority cited by Sterling, the Court cannot find service was

proper. In Sweeney v. Christner, No. C13-02817 HRL, 2013 WL 5946504, at *2 (N.D. Cal. Nov. 5,

2013), the court relied on the failure of the defendant to overcome the presumption that he had actually

received personal service. And in Limon-Hernandez v. Lumbreras, 171 F.R.D. 271 (D. Or. 1997), the

question was also whether the defendant himself had been personally served. Any further statements

by those courts about substitute service at a defendant’s abode are dicta and in clear conflict with

federal service rules as construed by the Court of Appeals for the Seventh Circuit.

B. Quick Action

Whether Bethune took quick action to correct the default is a closer question. Whether action

qualifies as “quick” turns on the particular situation. See Jones v. Phipps, 39 F.3d 158, 165 (7th Cir.

1994). Here, Bethune claims not to have received any notice of Sterling’s pursuit of default or default

judgment, which the Court finds doubtful. Nevertheless, it is possible he saw notice but decided that

any judgment would be void because he had not been properly served. Once it became apparent that

third parties—specifically, the bank from which he sought to refinance his house around December

2020—was not treating the judgment as void he took action to vacate the default. This is a risky

strategy, and the Court does not condone ignoring notices of potential entry of default, but the bottom

line remains that Bethune had not been properly served and the Court had no jurisdiction over him to

enter default judgment. In these circumstances, the Court accepts Bethune’s actions as sufficiently

“quick.”

C. Meritorious Defense

Bethune offers the potential defense that his signature on the loan guaranty was forged. A

meritorious defense is not necessarily a winning defense, but is instead “one which at least raises a

serious question regarding the propriety of a default judgment and which is supported by a developed

legal and factual basis.” Jones v. Phipps, 39 F.3d 158, 165 (7th Cir. 1994). It must be more than a

general denial or a bare legal conclusion that a defense exists. See Pretzel & Stouffer, Chtd. v.

Imperial Adjusters, Inc., 28 F.3d 42, 46 (7th Cir. 1994). Bethune’s defense of forgery satisfies this

requirement.

For these reasons, the Court will vacate entry of default against Bethune (Doc. 23) and the

default judgment (Doc. 26). The Court will further order all funds collected, if any, to satisfy the

judgment against Bethune to be returned and order Sterling to cease collections against Bethune until

the case against him is resolved.

D. Further Proceedings

The Court turns to the claims against the other defendants in this case, which were also

resolved by the default judgment. All parties ask the Court to leave that part of the judgment in place,

but the Court cannot do that without additional findings pursuant to Federal Rule of Civil Procedure

54(b). Where a judgment resolves fewer than all claims and defendants, the Court must make an

express finding “that there is no just reason for delay” for the claims resolved in the judgment and

direct that judgment be entered on those claims. Fed. R. Civ. P. 54(b); Granack v. Continental Cas.

Co., 977 F.2d 1143, 1144-45 (7th Cir. 1992).

In determining whether to grant judgment under Rule 54(b), the Court must first determine

whether the judgment is final in the sense that it is “‘an ultimate disposition of an individual claim

entered in the course of a multiple claims action.’” Curtiss-Wright Corp. v. General Elec. Co., 446

U.S. 1, 7 (1980) (quoting Sears, Roebuck & Co. v. Mackey, 351 U.S. 427, 436 (1956)). Then, the

Court must determine whether there is any just reason for delay, taking into account the interests of

judicial administration and the equities involved. Curtiss-Wright, 446 U.S. at 8; Schieffelin & Co. v.

Valley Liquors, Inc., 823 F.2d 1064, 1065-66 (7th Cir. 1987). In attempting to prevent piecemeal

litigation, the Court should “consider such factors as whether the claims under review [are] separable

from the others remaining to be adjudicated and whether the nature of the claims already determined

[is] such that no appellate court would have to decide the same issues more than once even if there

were subsequent appeals.” Curtiss-Wright, 446 U.S. at 8; see ODC Commc’ns Corp. v. Wenruth Inv.,

826 F.2d 509, 512 (7th Cir. 1987). The decision to certify a final judgment as to fewer than all claims

in a case is left to the sound discretion of the district court. Curtiss-Wright, 446 U.S. at 8; Schieffelin,

823 F.2d at 1065.

This case presents the rare occasion where a Rule 54(b) judgment is appropriate. The judgment

against VI Corps is based on the loan/security agreement and has already been resolved in Sterling’s

favor. Similarly, the breach of guaranty claim against Vicari has already been resolved in Sterling’s

favor. Bethune’s defense—forgery of his guaranty—has nothing to do with the validity of the original

loan/security agreement or Vicari’s guaranty and centers on a completely different contractual

obligation under his guaranty agreement. Liability under the loan/security agreement has been

established and is a given, and the time to appeal that decision has long passed. Bethune’s guaranty

agreement will either be valid because Bethune signed it, or Bethune’s signature will be found to be a

forgery, and Bethune will not be liable under the guaranty. This is a freestanding issue that will not

result in piecemeal litigation or multiple appeals of the same issue, the evils Rule 54(b) was designed

to avoid.

Accordingly, the Court will certify that there is no just reason for delay in entry of judgment

against VI Corps and Vicari. The Court will further order the Clerk of Court to vacate the original

default judgment (Doc. 26), enter a Rule 54(b) default judgment against VI Corps and Vicari that is

identical in form to the original default judgment as to those defendants, and docket it as of the date of

the original default judgment, October 6, 2020. The Court does not intend to order duplicate relief in

this second iteration of the judgment against VI Corps and Vicari but simply to preserve the relief

already awarded as of the date it was awarded.

As for Bethune, the Court notes that he indicates he would like to proceed to defend this case,

and he appeared at the September 21, 2021, hearing without objecting to personal jurisdiction. The

Court finds that he has consented to the jurisdiction of this court and that no further service of process

is necessary.

The Court will allow Bethune a reasonable amount of time to respond to Sterling’s complaint.

However, that response must be in the form of an answer, not a motion to dismiss. The defense of

forgery is very unlikely to succeed on a motion to dismiss because it will require evidence from those

present at the alleged signing of Bethune’s guaranty and/or handwriting experts. Allowing a motion to

dismiss for failure to state a claim asserting this defense would be quickly denied, and there is no

reason to delay this case further by going through those foreordained steps.

V. Conclusion

For the foregoing reasons, the Court:

• GRANTS Bethune’s motion to set aside entry of default and default judgment (Doc. 33);

• VACATES the entry of default against Bethune (Doc. 23) and the default judgment (Doc. 26);

• CERTIFIES that there is no just reason for delay in entry of judgment against VI Corps and

Vicari to await resolution of the claim against Bethune;

• DIRECTS the Court to enter a Rule 54(b) judgment against VI Corps and Vicari identical in

substance to the original default judgment except for the Rule 54(b) designation and the

omission of relief against Bethune. It shall be entered using the filing date of the original

default judgment, October 6, 2020;

• ORDERS Sterling to return any funds already collected to satisfy the default judgment against

Bethune and to cease collections against Bethune until the case against him is resolved;

• ORDERS that Bethune shall have 21 days from entry of this order to file an answer to the

complaint.

IT IS SO ORDERED.

DATED: September 29, 2021

s/ J. Phil Gilbert

J. PHIL GILBERT

DISTRICT JUDGE