Employee Painters' Trust v. Ethan Enterprises, Inc.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

EMPLOYEE PAINTERS’ TRUST; 

RESILIENT FLOORCOVERING PENSION

FUND; WESTERN WASHINGTON

FLOOR COVERING APPRENTICESHIP

FUND; WESTERN WASHINGTON

FLOOR COVERING INDUSTRY

PROMOTION FUND; REBOUND TRUST;

No. 05-35270

CARPET LINOLEUM & SOFT TILE

LAYERS LOCAL UNION 1238

IUPAT,

 D.C. No.

CV-03-02904-RSM

Plaintiffs-Appellees, OPINION

v.

ETHAN ENTERPRISES, INC., a

Washington corporation; REBECCA

JOHNSON, individually; GREGORY S.

TIFT, individually,

Defendants-Appellants.



Appeal from the United States District Court

for the Western District of Washington

Ricardo S. Martinez, District Judge, Presiding

Argued and Submitted

November 16, 2006—Seattle, Washington

Filed March 16, 2007

Before: Pamela Ann Rymer, Marsha S. Berzon, and

Richard C. Tallman, Circuit Judges.

Opinion by Judge Berzon

3257

EMPLOYEE PAINTERS’ TRUST v. ETHAN ENTERPRISES 3261

COUNSEL

Randolph W. Urmston, Hendricks & Lewis, Seattle, Wash-

ington, for the appellants.

Robert A. Bohrer, Ekman, Bohrer & Thulin, Seattle, Wash-

ington, for the appellees.

OPINION

BERZON, Circuit Judge:

Several trusts that administer employee benefit plans sued

for delinquent contributions. Appellants, Ethan Enterprises

and two of its officers, failed to participate in much of the liti-

gation, and a default judgment was entered against them for

roughly a million dollars. The district court denied Ethan and

the individually-named defendants relief from the judgment.

We affirm, albeit for a different reason with respect to each:

The company violated a local rule requiring it to be repre-

sented by counsel, and it was proper to enter judgment against

it. The individually-named defendants failed to answer an

amended complaint properly served pursuant to Rule 5 of the

Federal Rules of Civil Procedure,1 so default was proper

1

Rule 5, as here pertinent, provides:

(a) Service: When required. Except as otherwise provided in

these rules, . . . every pleading subsequent to the original com-

plaint unless the court otherwise orders because of numerous

defendants, . . . shall be served upon each of the parties.

...

3262 EMPLOYEE PAINTERS’ TRUST v. ETHAN ENTERPRISES

against them. The applicability of Rule 5 in determining

proper service of an amended complaint escaped both the par-

ties and the district court. We therefore take this opportunity

to clarify that an amended complaint can often be served in

the same manner as any other pleading if the original com-

plaint is properly served and the defendants appeared in the

first instance.

BACKGROUND

Appellant corporation Ethan Enterprises (“Ethan”) is a

commercial floor covering company. Rebecca Johnson and

Greg Tift serve as its officers. Johnson was the president and

sole shareholder of Ethan from its incorporation in 2001 until

2004, while Tift managed the company from 2002 onward.

Appellee trusts (“trusts”) are joint labor-management trust

funds that administer four separate employee benefit plans,

see 29 U.S.C. § 1002(3), created and maintained pursuant to

the terms of a Collective Bargaining Agreement (CBA) and

the provisions of § 302(c) of the Labor-Management Rela-

tions Act (LMRA), 29 U.S.C. § 186(c).2

The instant appeal is limited to the propriety of the default

judgment, so we do not review the underlying facts except to

(b) Making Service.

...

(2) Service under Rule 5(a) is made by:

...

(B) Mailing a copy to the last known address of the person

served. Service by mail is complete on mailing.

FED. R. CIV. P. 5.

2

As here pertinent, § 302(c) permits employers to contribute funds to

employee trust funds notwithstanding the prohibition on employer pay-

ments to unions or union officers otherwise imposed by § 302 of the

LMRA.

EMPLOYEE PAINTERS’ TRUST v. ETHAN ENTERPRISES 3263

report that they grow out of a long-running dispute, over

unfair labor practices and broken agreements, between Ethan

and the Carpet, Linoleum and Soft Tile Layers Local Union

No. 1238 IUPAT (“union”). See NLRB v. Ethan Enter., Inc.,

No. 04-74905, 154 Fed. Appx. 23 (9th Cir. Nov. 14, 2005)

(affirming a decision of the National Labor Relations Board

(NLRB) holding that Ethan had committed an unfair labor

practice by failing to honor an agreement with the union).

While the case before the NLRB was in process, the trusts

filed the present action in district court seeking allegedly

delinquent contributions. Ethan and the individually-named

defendants filed an answer and added a counterclaim against

the union, alleging that it had breached the settlement agree-

ment at issue in the NLRB proceeding. The district court dis-

missed the counterclaim and set the present matter for trial.

Two months later, defendants’ attorney J. Patrick Brown

lodged with the court a stipulation and proposed order for

withdrawal as counsel. In it, Brown certified that he had

served a copy of the document on his clients, which included

Ethan and both individually-named defendants. He further

certified, as required by the local rules, see W.D. Wash. Local

Rule GR 2(f)(4)(B),3 that he

informed Defendant Ethan Enterprises, Inc. that as a

corporation it is required by law to be represented by

3

The General Rules were amended in 2005, moving GR 2(f)(4) to GR

2(g)(4). At all relevant times below, W.D. Wash. Local Rule GR

2(f)(4)(B) read:

If the attorney for a corporation is seeking to withdraw, the attor-

ney shall certify to the court that he or she has advised the corpo-

ration that it is required by law to be represented by an attorney

admitted to practice before this court and that failure to obtain a

replacement attorney by the date the withdrawal is effective may

result in the dismissal of the corporation’s claims for failure to

prosecute and/or entry of default against the corporation as to any

claims of other parties.

3264 EMPLOYEE PAINTERS’ TRUST v. ETHAN ENTERPRISES

an attorney admitted to practice before this court and

that failure to obtain a replacement counsel by the

date the withdrawal is effective may result in dis-

missal of the corporation’s claims for failure to pros-

ecute and/or entry of default against the corporation

as to any claims of other parties.

(emphasis added). The court accepted the stipulation and filed

the order, which became effective immediately.

Three days after Brown withdrew as defense counsel, the

trusts filed a motion to amend their complaint, which the dis-

trict court granted. Between the time this motion was filed

and granted, the clerk of the court received notice that a copy

of the withdrawal order served on Johnson via mail had been

returned as undeliverable. That notice was only the beginning

of a series of failed attempts at service. A month later, mailed

copies of the court’s Order to Compel Inspection of Records

were returned as undeliverable to both Johnson and Tift, as

was the order allowing the trusts’ amended complaint. Mail

was but one unsuccessful avenue of contact with the individ-

ual defendants; the trusts also attempted to serve Johnson and

Tift with the amended complaint in person but could not

locate them.

A month after these unsuccessful attempts to serve the

amended complaint in person, the trusts asked the court for

permission to serve the amended complaint via publication. A

summons was subsequently published in a local commercial

paper six times the next month. The defendants never

responded to either the summons or to the court orders issued

months before. The trusts therefore moved for an entry of

default, which the clerk of the court granted. Notice of the

order was mailed to the defendants and, again, was returned

undelivered. The district court therefore entered a default

judgment against all defendants in the amount of

$1,030,344.95.

EMPLOYEE PAINTERS’ TRUST v. ETHAN ENTERPRISES 3265

According to an affidavit he filed with the district court,

Tift learned of the default judgment after speaking with a

union representative one month later. Two weeks after that,

the defendants filed a Rule 60(b)(4) motion seeking to set

aside the order and judgment of default. They argued that the

judgment was void because the amended complaint was not

properly served. According to defendants, service by publica-

tion was improper because insufficient efforts were made to

locate them and the trusts knew where they could be found.

The district court denied the motion. It agreed with the

trusts that Ethan violated W.D. Wash. Local Rule GR

2(f)(4)(B), which requires that a corporation be represented

by counsel throughout litigation, thereby subjecting Ethan to

default without regard to its failure to answer the amended

complaint. The court upheld the default against Tift and John-

son on similar grounds, holding that their violation of W.D.

Wash. Local Rule CR 41(b)(2),4 which requires pro se liti-

gants to update their mailing address with the court, justified

default. Even if reliance on the local rules were not sufficient,

the court went on to hold, the trusts complied with the rules

for service by publication in Washington and, thus, the default

judgment was warranted by defendants’ failure to answer the

amended complaint.

In response, the defendants filed a motion for reconsidera-

tion as well as a renewed Rule 60(b) motion, this time on

grounds of excusable neglect and misrepresentation. Tift

alleged that he never received a copy of the withdrawal order

signed by the court and that he believed there had to be a

4

W.D. Wash. Local Rule CR 41(b)(2) reads:

A party proceeding pro se shall keep the court and opposing par-

ties advised as to his current address. If mail directed to a pro se

plaintiff by the clerk is returned by the Post Office, and if such

plaintiff fails to notify the court and opposing parties within 60

days thereafter of his current address, the court may dismiss the

action without prejudice for failure to prosecute.

3266 EMPLOYEE PAINTERS’ TRUST v. ETHAN ENTERPRISES

hearing before the Court would allow Brown to withdraw. He

and the other defendants also argued that substantial evidence

supported their defense and that the trusts misrepresented

information upon which the default judgment was based. In

particular, the defendants alleged that the employment data

relied upon by the trusts for calculating the judgment was that

of Tift & Young, Inc., a company it asserted had “no relation-

ship” to Ethan.5

The district court denied the motion for reconsideration and

subsequent Rule 60(b) motions. Appellants now appeal. Nota-

bly, after both parties filed their briefs, a panel of this court

affirmed the decision of the NLRB requiring Ethan to execute

a collective bargaining agreement with the union and comply

with its terms, which include payment to the plaintiff trusts

for benefit contributions. Ethan Enter., Inc., 154 Fed. Appx.

at 23.

ANALYSIS

We review the district court’s entry of the default judgment

and decisions not to set aside that judgment for an abuse of

discretion. TCI Group Life Ins. Plan v. Knoebber, 244 F.3d

691, 695-96 (9th Cir. 2001); Haw. Carpenters’ Trust Funds

v. Stone, 794 F.2d 508, 511-12 (9th Cir. 1986). Although we

analyze the claims of the corporate defendant and the

individually-named defendants separately, we agree with the

district court that default was a proper sanction against both.

A. Default Against Ethan Enterprises

Ethan concedes that it violated Local Rule GR 2(f)(4)(B),

5

This characterization of the firms’ relationship is in dispute. There is

separate litigation in district court in which it is alleged that Ethan is actu-

ally the alter ego or successor to Tift & Young, Inc. See Bd. of Tr. of the

Masonry Sec. Plan of Wash. v. Ethan Enter., Inc., No. 04-659 (W.D.

Wash. filed Mar. 26, 2004).

EMPLOYEE PAINTERS’ TRUST v. ETHAN ENTERPRISES 3267

which requires a corporation to be represented by counsel

before the court. This failure suffices to support the default

judgment against the corporation.

[1] Local Rule GR 2(f)(4)(B) is explicit that “failure to

obtain a replacement attorney by the date the withdrawal [of

counsel] is effective may result in . . . entry of default against

the corporation as to any claims of other parties.” Ethan’s

attorney provided it with actual notice of the rule before he

withdrew, yet Ethan never retained replacement counsel. As

Ethan concedes, we have recognized default as a permissible

sanction for failure to comply with local rules requiring repre-

sentation by counsel. See United States v. High Country

Broadcasting Co., Inc., 3 F.3d 1244, 1245 (9th Cir. 1993) (per

curiam). We find no reason to distinguish the present case.

Ethan nonetheless argues that the default judgment here

was an abuse of discretion because it was based solely on its

failure to answer the amended complaint, which, Ethan con-

tends, was not properly served. Neither the record nor the law

supports Ethan’s position. The district court made clear that

it found Ethan in default not for failure to answer the

amended complaint but for failure to retain substitute counsel

after Brown withdrew. Although the trusts did file an

amended complaint at a time when Ethan was no longer rep-

resented by counsel, nothing about that filing itself diverged

from the normal course of litigation.

[2] Because Ethan’s violation of Local Rule GR 2(f)(4)(B)

justified entry of a default judgment against it whether or not

service of the amended complaint was effective, the district

court did not abuse its discretion by entering a default judg-

ment and, later, refusing to set it aside.

B. Default Against Tift and Johnson

In their challenge to the default judgment Tift and Johnson

also rely primarily on alleged deficiencies of service. The

3268 EMPLOYEE PAINTERS’ TRUST v. ETHAN ENTERPRISES

record is clear, however, that service of the amended com-

plaint was effective.

[3] Rule 4 of the Federal Rules of Civil Procedure governs

the commencement of an action and the service of process. It

provides that “[a] summons shall be served together with a

copy of the complaint,” FED. R. CIV. P. 4(c)(1), and that

service . . . may be effected in any judicial district of

the United States: (1) pursuant to the law of the state

in which the district court is located, or in which ser-

vice is effected, . . . ; or (2) by delivering a copy of

the summons and of the complaint to the individual

personally . . . .

FED. R. CIV. P. 4(e). Rule 5, in turn, governs service of “every

pleading subsequent to the original complaint unless the court

otherwise orders because of numerous defendants.” FED. R.

CIV. P. 5(a). It provides that such pleadings can be served by

various means, including by “[d]elivering a copy to the person

served[, m]ailing a copy to the last known address of the per-

son served[, and i]f the person served has no known address,

leaving a copy with the clerk of the court.” FED. R. CIV. P.

5(b).

[4] Although the parties and the district court assumed —

for reasons not explained — that Rule 4 governed service of

the amended complaint, that is not so. Instead, it is Rule 5 that

was applicable. Here is why: The amended complaint in this

case qualifies as a “pleading subsequent to the original com-

plaint,”6 thus allowing it to be served in any manner pre-

scribed in Rule 5(b). Plaintiffs served the amended complaint

via mail, which is permitted by Rule 5(b)(2)(B). Thus, to the

extent that appellants’ arguments rely on claims of ineffective

service, their appeal fails.

6

An amended complaint clearly is “subsequent to the original com-

plaint” and thus falls squarely within the provisions of Rule 5.

EMPLOYEE PAINTERS’ TRUST v. ETHAN ENTERPRISES 3269

[5] True, there are circumstances in which amended com-

plaints must be served pursuant to Rule 4. But this is not one

of them. An amended complaint need only be served in the

manner provided by Rule 4 when (1) a party is “in default for

failure to appear” and (2) the “pleadings assert[ ] new or addi-

tional claims for relief.” FED. R. CIV. P. 5(a).

[6] Here, the individual defendants were not in default for

failure to appear; the court had already exercised personal

jurisdiction over them. By the time the amended complaint

was filed, appellants had participated actively in the litigation,

filing an answer to the original complaint and contesting a

disputed counterclaim. It is therefore immaterial whether or

not the amended complaint asserted “new or additional

claims.” See 4B Charles Alan Wright & Arthur R. Miller,

FEDERAL PRACTICE AND PROCEDURE § 1144 (3d ed. 2002) (not-

ing that, “by appearing in the action the party . . . may become

vulnerable to service of claims for new or additional relief

under the relatively informal methods set out in Rule 5(b)”).7

[7] Because Rule 5 and not Rule 4 applies, service of the

amended complaint was complete when plaintiffs sent it via

first class mail. See FED. R. CIV. P. 5(b)(2)(B) (permitting ser-

vice by “[m]ailing a copy to the last known address of the

person served”) (emphasis added). Proof of such service is

clear from the record, as the trusts’ attorney “deposited copies

7

We do not suggest that a court could not order that a formal manner

of personal service was necessary for amended complaints filed after the

period for filing such complaints as of right has expired. See FED. R. CIV.

P. 15(a). Nothing in the record, however, indicates that the district court

took this step. In its order allowing the amended complaint, the district

court stated that “service of an Amended Complaint upon [defendants]

shall be allowed.” This statement comports with the “leave of court”

required by Rule 15 for amendments to pleadings out of time; it does not

suggest that the court found Rule 5 service inadequate. This is unsurpris-

ing. Once a party appears in a civil action it is responsible for the diligent

presentation of its case, which includes, inter alia, keeping apprised of

recent filings and providing the court with a correct mailing address.

3270 EMPLOYEE PAINTERS’ TRUST v. ETHAN ENTERPRISES

of the [Amended Complaint] with the United States Post

Office, directed to said Defendants at the last known address.”

As a result, appellants’ argument that the default judgment

was void for lack of service fails.

C. Alternative Objections to Default

Notwithstanding the propriety of the default judgment,

appellants argue that the district court should have set it aside

because (1) their errors in failing to obtain counsel and update

their addresses amounted to excusable neglect, and (2) plain-

tiffs committed misconduct or misrepresented the record. We

review for an abuse of discretion and affirm.

1. Excusable Neglect

[8] When a default judgment is challenged on grounds of

excusable neglect, three factors inform the district court’s

exercise of discretion: (1) “whether the defendant’s culpable

conduct led to the default”; (2) “whether the defendant has a

meritorious defense”; and (3) “whether reopening the default

judgment would prejudice the plaintiff.” TCI Group Life Ins.

Plan, 244 F.3d at 696; see also Falk v. Allen, 739 F.2d 461,

463 (9th Cir. 1984) (per curiam). Because appellants were

culpable with respect to the default and have no meritorious

defense, the district court acted well within its discretion

when it refused to set aside the judgment.

[9] In this circuit, “a defendant’s conduct [is] culpable for

purposes of the Falk factors where there is no explanation of

the default inconsistent with a devious, deliberate, willful, or

bad faith failure to respond.” TCI Group Life Ins. Plan, 244

F.3d at 698. Such a deliberate failure can be found where, as

here, defendants provide the opposing party with an incorrect

address, thereby precluding normal service of process. See id.

at 698-99 (citing Pena v. Seguros La Comercial, S.A., 770

F.2d 811, 815 (9th Cir. 1985)). As in Pena, the defendants’

failure to update their address made it difficult for the oppos-

EMPLOYEE PAINTERS’ TRUST v. ETHAN ENTERPRISES 3271

ing party to contact them. This error was hardly “excusable,”

as defendants reasonably should have expected contact with

the trusts in the course of ongoing litigation, particularly dur-

ing the discovery period. Moreover, Ethan’s failure to secure

replacement counsel, as required by the local rules, certainly

cannot be described as “excusable neglect” given clear notice

to Ethan of the need to obtain counsel and Ethan’s unex-

plained delay in doing so. See, e.g., Pioneer Inv. Servs. Co.

v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 392 (1993)

(“[M]istakes construing the rules do not usually constitute

‘excusable’ neglect.”); Pincay v. Andrews, 389 F.3d 853, 858

(9th Cir. 2004) (en banc) (describing a misreading of court

rules as “egregious” but affirming the district court’s consid-

eration of other factors).

[10] Nor do appellants have a meritorious defense. See

Haw. Carpenters’ Trust Funds, 794 F.2d at 513 (“[A]s a pre-

requisite to vacating an entry of default,” a party in default “is

required to make some showing of a meritorious defense[.]”).

Although Ethan, Johnson, and Tift argued in their briefs that

they have not signed the CBA and would have a meritorious

defense if the Ninth Circuit reversed the NLRB’s decision,

appellants recently lost their NLRB appeal. See Ethan Enter.,

Inc., 154 Fed. Appx. at 23. As a result, Ethan must execute

the CBA and satisfy its terms, including payment of contribu-

tions to the plaintiff trusts. Given the preclusive effect of this

recent decision on the primary merits issue in the present case

— whether Ethan is in fact bound by a collective bargaining

agreement with the union requiring contributions to the trusts

— “[t]o permit reopening of the case . . . would cause need-

less delay and expense to the parties and court system.” Haw.

Carpenters’ Trust Funds, 794 F.2d at 513.

2. Plaintiff Misconduct

Appellants also argue that the default judgment should be

set aside because of misconduct and misrepresentation by the

trusts. Appellants, however, have provided no evidence of

3272 EMPLOYEE PAINTERS’ TRUST v. ETHAN ENTERPRISES

misconduct by the trusts, let alone the “clear and convincing”

evidence required to support such a charge. See De Saracho

v. Custom Food Mach., Inc., 206 F.3d 874, 880 (9th Cir.

2000).

[11] As described above, the trusts served notice of the

default on the defendants in the same manner as they had

served previous pleadings. Nothing in the record suggests that

the trusts defrauded the court with respect to their claims.

Similarly, no evidence suggests that the trusts misrepresented

the contributions owed to them. Rather, it was appellants’

failure to participate in the litigation that forced the court to

rely on indirect payroll information to calculate the amount of

the judgment. Prior to the default, the district court entered an

order to compel inspection of payroll records, but the copy of

the order sent to defendants was returned to the court as unde-

liverable. So it was defendants who were responsible for the

absence of direct data concerning the contributions due.

[12] Given the lack of evidence of misconduct or misrepre-

sentation, appellants fail to meet their burden under Rule

60(b)(3).

AFFIRMED.