United States District Court, N.D. Alabama, Southern Division
MEMORANDUM OPINION AND ORDER
H. ENGLAND, III UNITED STATES MAGISTRATE JUDGE
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
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).
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.
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).
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
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).
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).
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.
their pro se answer, all Defendants retained the same new
counsel. The case remains stayed for arbitration.