Febtors, Creditors, Default Judgments, and Discretion: Why Rule 62(b)(4) Will Become One of the Most Important Federal Rules of Civil Procedure

• Publication year: 2022

44 Creighton L. Rev. 227. FEBTORS, CREDITORS, DEFAULT JUDGMENTS, and DISCRETION: WHY RULE 62(b)(4) WILL BECOME ONE OF THE MOST IMPORTANT FEDERAL RULES OF CIVIL PROCEDURE

DEBTORS, CREDITORS, DEFAULT JUDGMENTS, and DISCRETION: WHY RULE 62(b)(4) WILL BECOME ONE OFTHE MOST IMPORTANT FEDERAL RULES OF CIVIL PROCEDURE

Jesse N. Panoff (fn*)

I. INTRODUCTION

An obscure procedural rule is about to become profoundly important. The rule is Federal Rule of Civil Procedure 62(b)(4), the context is setting aside default judgments, and a modern exigency that this Article calls "default-by-design" will remove Rule 62(b)(4) from anonymity. (fn1) Though this Article's topic is narrow - Rule 62(b)(4) motions to stay within the default judgment context - the application is wide, given our weakened economy, the untold number of debts that may never be paid, and the tension that exists between defiant debtors and determined creditors.(fn2)

All told, Rule 62(b)(4) demands a judicial balancing act between protecting assets and legitimizing default judgments. This balancing takes place amidst a scenario that pits diligent plaintiffs against dilatory defendants.

The scenario is as follows: a plaintiff sues a defendant, seeking money damages. Service is effectuated properly; the defendant receives the summons and complaint. Nonetheless, despite proper service, regardless of a plaintiff's diligent pursuit of the law, the defendant intentionally or otherwise, does not participate in litigation. After the requisite time period, default is entered, followed by a default judgment.(fn3)

When a plaintiff obtains a default judgment, collection is imminent.(fn4) Asset attachment and wage garnishment actualize a judgment.(fn5) They also cause defendants to act; seized assets and diminished salaries almost inevitably prompt participation in the judicial process. A defaulted defendant may only become interested in litigation when property is attached.(fn6) Property loss, threatened or actualized, causes defendants to rush to court and file a Federal Rule of Civil Procedure 60 motion to set aside.(fn7)

Defendants will assert a variety of reasons to explain previous non-participation, including excusable neglect or mistake.(fn8) Some defendants choose an alternate route, admitting intentional nonpartici-pation; though they knew a lawsuit existed and understood that a default judgment may be entered, they still refused to participate in a case.(fn9) No matter the reason, Rule 60 is invoked, ushering in a time period within which Rule 62(b)(4) can and will play a pivotal role. This role has yet to be realized because of a common mistake that attorneys make, owing perhaps to Rule 62(b)(4)'s inconspicuousness.

Some attorneys, and clients, assume that if they file a Rule 60 motion, collection efforts must cease.(fn10) This is false - the primary way that judgment execution or enforcement can be paused is through Rule 62(b)(4).(fn11) This rule, not Rule 60, is the mechanism through which defendants can stay judgment enforcement and execution.(fn12) Rule 62(b)(4) provides that "[o]n appropriate terms for the opposing party's security, the court may stay the execution of a judgment-or any proceedings to enforce it-pending disposition of any of the following motions: ... under Rule 60, for relief from a judgment or order."(fn13)

Rule 62(b)(4) embodies dueling objectives. On the one hand, it legitimizes default judgments. On the other hand, it recognizes that occasionally judgment enforcement and execution should cease temporarily. As a result, both plaintiff and defense attorneys can use Rule 62(b)(4) to a client's advantage.

Defense attorneys can invoke this rule to protect defendants' assets and restrict disclosure of information.(fn14) Plaintiff attorneys can use it to require security during a stay, ensuring that a defendant does not transfer or hide assets. Regardless, a rule's efficacy, its capacity to benefit litigants, depends on judicial construction and application -both of which are missing from the Rule 62(b)(4)-default judgment context.

Few Rule 62(b)(4) precedents exist, published opinions are sparse, with the rule's development occurring almost exclusively at the district court level, perhaps the juridical arena most suited for such a task.(fn15) In fact, the rule is so underdeveloped that no uniform set of elements has emerged to guide courts in determining a stay's propriety.(fn16) And while Rule 62(b) has been interpreted within other contexts,(fn17) its specific role in conjunction with a Rule 60 motion to set aside a default judgment has rarely been assessed by courts.(fn18) The same can be said about legal scholarship, until now.

This Article explores Rule 62(b)(4) within the default judgment context. First, this Article explains how attorneys can use this rule to benefit their clients. Next, this Article focuses on courts by construing the rule's text and reviewing courts' historical stay discretion, a traditional power vital to fully understanding Rule 62(b)(4). The Article also offers a series of elements to help courts determine a stay's appropriateness. Finally, the Article examines default-by-design, the modern exigency that will push Rule 62(b)(4) into prominence.

Thus, this Article's objective is clear: to remove Rule 62(b)(4) from anonymity. It is too important a rule to be glossed over by practitioners, thereby minimizing judicial constructions. The rule is significant because it impacts people during a vulnerable period.(fn19) When a judgment exists against someone, a life is subject to scrutiny, property is open to seizure, and private financial information is susceptible to dis-closure.(fn20) At the same time, duly obtained judgments, default or otherwise, must be respected. When a diligent plaintiff has invested time and money in gaining a judgment, collection should not be stayed au-tomatically.(fn21) The dueling objectives that animate Rule 62(b)(4) go to the essence of a society struggling to maintain its dignity without sacrificing its law, all occurring during an era bleak from uncertainty.(fn22)

And so, this Article is the first step in what will be a much longer journey and ever-developing effort to reconcile Rule 62(b)(4)'s dueling objectives: legitimizing default judgments and acknowledging that sometimes judgment execution and enforcement should be stayed momentarily. Achieving a balance between these conflicting goals, a necessarily judicial task, is but one of the many remarkable circumstances where law strives to be efficient and fair, involving a give and take between competing interests and desires.(fn23)

II. PROTECTING CLIENT ASSETS: HOW DEFENSE ATTORNEYS CAN USE RULE 62(b)(4)

From a defendant's perspective, Federal Rule of Civil Procedure 62(b)(4) has two tactical benefits. First, it strengthens a Federal Rule of Civil Procedure 60 motion to set aside.(fn24) Without a stay, the mere request to set aside will not stop a plaintiff from executing or enforcing a default judgment.(fn25) Second, Rule 62(b)(4) shields assets from execution pending a Rule 60 motion's resolution; execution and enforcement are prohibited during a stay.(fn26)

These benefits, however, will go unrealized unless defense attorneys use Rule 62(b)(4) effectively. Defense attorneys can do so by being cognizant of Rule 60's significance within Rule 62(b)(4) and by pursuing a stay diligently.

A. DEFENDANTS CAN UTILIZE RULE 62(b)(4) EFFECTIVELY IF THEIR ATTORNEYS APPRECIATE RULE 60'S ROLE

Federal Rule of Civil Procedure 62(b)(4)'s text indicates Federal Rule of Civil Procedure 60's significance. Under Rule 62(b)(4), courts have discretion to stay a default judgment's execution, "[p]ending disposition of . . . [a] Rule 60 [motion] ... ."(fn27) Rule 60 motions to set aside are textual prerequisites, to be filed before or with a motion to stay.(fn28)

Rule 60 motions also demarcate a Rule 62(b)(4) stay's duration.(fn29) Execution and enforcement are stayed until a court disposes a Rule 60 motion.(fn30) As a result, a stay will last for as long as a court takes to decide a Rule 60 motion.(fn31) Defendants can use Rule 62(b)(4) effectively if their attorneys appreciate Rule 60's role.

B. DEFENSE ATTORNEYS SHOULD PURSUE STAYS DILIGENTLY

In addition to appreciating Federal Rule of Civil Procedure 60's significance, defense attorneys should seek stays diligently. Default judgments are available because of litigation non-participation.(fn32) Absent a contrary explanation, courts may conclude that a defendant is simply defying law by not responding to a complaint.(fn33) The defendant's delay wastes judicial resources and impedes litigation's orderly progress.(fn34)

Rule 60 motions to set aside are a defendant's first opportunity to dispel the image of an indifferent and dilatory litigant. As such, every filing after a default judgment's entry must be prompt, indicating a desire to litigate diligently.(fn35)

For instance, one way that Federal Rule of Civil Procedure 62(b)(4) stays can be pursued diligently is by filing them on orders shortening time. Requesting an early hearing or disposition date will indicate a willingness to litigate seriously, to participate in a way that does not drain judicial resources, or further postpone a case's prompt resolution. Defense attorneys should pursue Rule 62(b)(4) stays diligently.

C.USING RULE 62(b)(4) EFFECTIVELY WILL ACTUALIZE ITS TACTICAL...