Default Set Aside, Despite Counsel’s Confusion

In plaintiff sales executive’s contract action against his former employer, the Richmond U.S. District Court accepts the magistrate judge’s recommendations to seal documents filed by plaintiff and redact proprietary and confidential information, and to vacate the default judgment against defendant company, even though the company’s “outside” counsel was confused about proper service of process.

Plaintiff sued for breach of contract, seeking specific performance and damages of nearly $1 million. The contract provides that it is effective through Dec. 3, 2010, and is contingent upon plaintiff’s signed Confidentiality and Proprietary Rights Assignment Agreement.

Plaintiff never resigned from defendant, instead performing services as its vice president of sales between August 2010 and January 2011, when he was terminated from an affiliated company. In that role, he sent 406 business-related emails and conducted 32 business-related conference calls, reporting his activities to defendant’s new CEO, Bill Nygard, and its chief information officer Scott Sirdevan. At their instruction, plaintiff also terminated two employees from the company during his tenure as vice president of sales, negotiating and implementing severance agreements from his office in Virginia.

Plaintiff moves to seal the unredacted version of his declaration, filing in the public record a version in which all proprietary and confidential information contained therein has been redacted. Defendant does not object.

The requirements to seal the documents are satisfied. First, plaintiff publicly filed his motion to seal on Aug. 5, 2011, and after four months, the court has received no objections from the public. Second, plaintiff’s proposal to redact only the proprietary and confidential information, rather than seal the entirety of his declaration, constitutes the least drastic method of shielding the information at issue. Finally, there is no legitimate public interest in disclosing the proprietary and confidential information of defendant, a closely held corporation, and disclosure to the public could result in significant damage to the company. The court recommends plaintiff’s motion to seal be granted.

As a basis for setting aside the default judgment, defendant asserts a defense of lack of personal jurisdiction. The court is well satisfied from the evidence before it that defendant is subject to personal jurisdiction in Virginia due to its extensive presence in the commonwealth during the period of plaintiff’s employment.

Defendant company’s basis for claiming “good cause” to set aside default is that its “outside” general counsel misunderstood whether its registered agent, Sirdevan, had been properly served with process. Of course, the lawyer is more than merely “outside” general counsel – he serves as a duly elected corporate officer. His actions are more properly construed as those of the company itself, not outside counsel. A Rule 55(c) motion is more “forgiving” than a Rule 60(b) motion.

The court recommends setting aside the default judgment. Defendant has proffered evidence of a meritorious defense, claiming a condition precedent – signing the confidentiality agreement – was never satisfied and timely acceptance of the offered employment was not demonstrated. Even if Virginia’s prevention doctrine forecloses defendant’s reliance on the confidentiality agreement as a condition precedent, it would not preclude its reliance on the acceptance deadline. Although defendant bears some personal responsibility for the failure to respond, the lawyer and the registered agent did not act in bad faith. Any unfair delay to plaintiff can be remedied by requiring defendant to compensate him for attorney’s fees arising out of the motions related to the default. Plaintiff also is granted leave to amend his complaint.

Adams v. Object Innovation Inc. (Dohnal, Payne) No. 3:11cv272, Dec. 5, 2011; USDC at Richmond, Va. VLW 011-3-652, 20 pp.