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Thornell v. Performance Imports, LLC

United States District Court, N.D. Alabama, Southern Division

February 7, 2018

PERFORMANCE IMPORTS, LLC, et al. Defendants.



         On September 28, 2017, Defendants Khaled Khalidi (“Khalidi”) and Performance Imports, LLC (“Performance”) moved to set aside defaults previously entered against them, (see docs. 28 & 40). (Doc. 56). Plaintiff John Thornell (“Thornell”) opposes the motion as it pertains to Performance and states he “does not consent, but takes no position” to the motion as it pertains to Khalidi. (Doc. 61 at 1). Additionally, Thornell has moved for default judgment against both Performance and Khalidi, (docs. 31 & 41), and for sanctions against Performance, (docs. 17 & 51). On November 7, 2017, the undersigned held a hearing on the pending motions. For the reasons set out more fully below, the motion to set aside default is GRANTED IN PART and DENIED IN PART, the motion for default judgment against Khalidi is DENIED, the motion for default judgment against Performance is DENIED with leave to refile, and the motions for sanctions are GRANTED IN PART and DENIED IN PART.

         I. Background

         In August 2015, Thornell purchased a used 2003 Ford Mustang from Performance, an automotive dealer organized as an Alabama limited liability company. Following a dispute over the vehicle's title, Thornell sued Performance in the Circuit Court of Jefferson County, Alabama, on January 31, 2016, alleging various state law claims and violations of the Federal Truth in Lending Act and Federal Odometer Act. (See doc. 1-1). On March 7, 2016, Performance removed the case to this court. (Doc. 1). Ten days after removal, Performance filed a motion to compel arbitration. (Doc. 3). On April 28, 2017, Thornell consented to arbitration. (Doc. 9). The undersigned granted the motion to compel arbitration and stayed this case. (Doc. 10).

         Two months passed, during which Performance did not pay its portion of the filing fee required by the American Arbitration Association (“AAA”). (See docs. 13-3 & 13-4). As a result, the AAA dismissed the arbitration. (Doc. 13-4). Following the dismissal of the arbitration, on June 29, 2016, Performance filed a motion to appoint an arbitrator, arguing it had not approved the use of the AAA and could refuse to use AAA under the arbitration agreement. (Doc. 11). The undersigned denied that motion on August 3, 2016, and sent the case back to arbitration. (Doc. 14).

         On October 26, 2016, Performance's counsel, Amanda Cooks, moved to withdraw, citing her inability to contact her client. (Doc. 15). The undersigned set that motion for a hearing and ordered a representative for Performance to attend, (doc. 16), but no Performance representative showed up. The undersigned ordered Cooks to make additional efforts to communicate with her client and attempt to identify the membership of Performance, (doc. 18); she was still unable to communicate with them, but identified the sole member of Performance as Khalidi, (see doc. 19).

         On January 30, 2017, the undersigned gave Performance ten days to show cause why Cooks' motion should not be granted. (Doc. 21). The order contained the following warning:

A failure to reply could result in the undersigned granting Cook's motion. Defendant is further notified that a corporation, being an artificial entity, can only be represented by licensed counsel in proceedings such as this. See Rowland v. California Men's Colony, Unit II Men's Advisory Counsel, 506 U.S. 194, 202, 113 S.Ct. 716, 121 L.Ed.2d 656 (1993); Palazzo v. Gulf Oil Corp., 764 F.2d 1381, 1385 (11th Cir. 1985), cert. denied, 474 U.S. 1058, 106 S.Ct. 799, 88 L.Ed.2d 775 (1986); Southwest Express Co. v. Interstate Commerce Commission, 670 F.2d 53, 55 (5th Cir. 1982). If the motion to withdraw is granted and Defendant fails to find substitute counsel, Defendant risks a default judgment against it as an unrepresented corporation. See, e.g., Armadillo Distribution Enterprises, Inc., v. Hai Yun Musical Instruments Mfg. Co. Ltd., 142 F.Supp.3d 1245 (M.D. Fla. November 5, 2015); Davis v. Lane Management, LLC, 524 F.Supp.2d 1375 (S.D. Fla. November 6, 2007); Delta Air Lines, Inc. v. Wunder, No. 1:13-CV-3388-MHC, 2016 WL 4157349 (N.D.Ga. Apr. 14, 2016).

(Doc. 21 at 1-2). The order was mailed to Khalidi at both addresses listed on the Alabama Secretary of State's Business Entity Records website: Performance's business address and the address listed for Khalidi as the LLC's registered agent, on Bristol Lane in Birmingham, Alabama. (See doc. 21 at 2 n.1; staff note between doc. 21 & 22).

         Performance did not respond to that order, and on February 14, 2017, the undersigned granted Cooks' motion to withdraw. (Doc. 22). In the same order, the undersigned gave Performance an additional thirty days to find counsel, with the following warning: “Defendant is again reminded as an artificial entity, it must be represented by counsel. Therefore, Defendant has thirty (30) days to find new counsel. Failure to find new counsel by that deadline may result in a default judgment against Defendant.” (Id. at 2) (emphasis in original). Again, the order was mailed to Khalidi at both addresses. (See staff note between docs. 22 & 23).

         Following that order, Thornell discovered that Performance had dissolved in January 2017-backdating its articles of dissolution to a date prior to the sale at issue in this case-and filed an emergency motion for a hearing. (Doc. 24). The undersigned set a hearing for April 24, 2017, and mailed notice of the hearing to both addresses for Khalidi, (doc. 25); the copy sent to Performance Imports' business address was returned as undeliverable with the notation “no longer here, ” (doc. 26). Khalidi did not attend the hearing, nor did any other representative of Performance Imports. On April 24, 2017, the undersigned directed the Clerk to enter default against Performance as an unrepresented artificial entity, (doc. 27), and default was entered the same day, (doc. 28). The entry of default was also mailed to both addresses, (see staff note between docs. 28 & 29), but the copy sent to Performance's business address was returned as undeliverable, (doc. 29). On May 17, 2017, Thornell moved for a default judgment against Performance. (Doc. 31).

         Thornell moved for leave to amend his complaint to add a count of fraud and a count of conspiracy against Khalidi and Hazim Mahmoud, (doc. 30), and the undersigned granted that motion, (doc. 32). Khalidi was served on July 11, 2017, (docs. 35 & 38), but did not file his answer on time; as a result, default was entered against him. (Doc. 40). Khalidi and Mahmoud filed a combined, one-page pro se answer on August 9, 2017 (eight days after Khalidi's answer was due). (Doc. 42).

         Following their pro se answer, all Defendants retained the same new counsel. The case remains stayed for arbitration.

         IT. ...

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