United States District Court, S.D. Texas, Houston Division
HARRIS COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT NO. 89, Plaintiff,
PHILADELPHIA INDEMNITY INSURANCE COMPANY, and E&M ENTERPRISES, INC., Defendants.
ORDER DENYING DEFAULT JUDGMENT AGAINST E&M
ROSENTHAL CHIEF UNITED STATES DISTRICT JUDGE
plaintiff, Harris County Water Control and Improvement
District No. 89, sued E&M Enterprises, Inc. and
Philadelphia Indemnity Insurance Company in state court after
E&M failed to properly construct the District's
administrative building. (Docket Entry No. 1-B). In March
2016, the District entered into a contract with E&M
Enterprises to construct the District's administrative
building and related facilities. (Id. at ¶ 8).
The agreement required E&M to provide the District with a
payment bond and a performance bond issued by a surety
company. (Id. at ¶ 9). Philadelphia Indemnity
issued both bonds, naming E&M as principal and the
District as obligee. (Id. at ¶¶ 10, 12).
The District alleges that E&M failed to progress
construction and properly perform its contractual duties.
(Id. at ¶ 14). In August 2018, the District
terminated E&M for default. (Id. at ¶ 16).
District asserted breach of contract and breach of warranty
claims against E&M, and breach of contract and
performance bond claims against Philadelphia Indemnity.
(Id. at ¶¶ 25- 26). While E&M
consented to Philadelphia Indemnity's removal to federal
court, it did not file an answer or otherwise defend against
the suit. This court entered default against E&M on July
12, 2019. (Docket Entry No. 14). The District now moves for
default judgment. (Docket Entry No. 18). The motion is
default is entered, a plaintiff may seek default judgment
under Federal Rule of Civil Procedure 55(b). See N.Y.
Life Ins. Co. v. Brown, 84 F.3d 137, 141 (5th Cir.
1996). The plaintiff must submit evidence showing that the
defendant has been properly served with the summons,
complaint, and the default judgment motion. See James
Avery Craftsman, Inc. v. Sam Moon Trading Enters., Ltd.,
No. 16-CV-463, 2018 WL 4688778, at *3 (W.D. Tex. July 5,
2018) (citing Bludworth Bond Shipyard, Inc. v. M/V
Caribbean Wind, 841 F.2d 646, 649-51 (5th Cir. 1988));
Hazim v. Schiel & Denver Book Grp., No.
H-12-1286, 2013 WL 2152109, at *1 (S.D. Tex. May 16, 2013);
S.D. Tex. Local R. 5.5 (a default judgment motion “must
be served on the defendant-respondent by certified mail
(return receipt requested).”). Absent proper service, a
district court does not have personal jurisdiction over the
defendant, and any default judgment is void. See
Recreational Props., Inc. v. Sw. Mortg. Serv. Corp., 804
F.2d 311, 314 (5th Cir. 1986).
default judgment is unassailable on the merits but only so
far as it is supported by the well-pleaded allegations,
assumed to be true.” Wooten v. McDonald Transit
Assocs., Inc., 788 F.3d 490, 496 (5th Cir. 2015)
(quoting Nishimatsu Constr. Co., Ltd. v. Hous. Nat'l
Bank, 515 F.2d 1200, 1206 (5th Cir. 1975)). “There
must be a sufficient basis in the pleadings for the judgment
entered.” Nishimatsu, 515 F.2d at 1206. For
the court to enter default judgment, the complaint must
satisfy Federal Rule of Civil Procedure 8. See
Wooten, 788 F.3d at 497-98. “On appeal, the
defendant, although he may not challenge the sufficiency of
the evidence, is entitled to contest the sufficiency of the
complaint and its allegations to support the judgment.”
Nishimatsu, 515 F.2d at 1206. “Generally, the
entry of default judgment is committed to the discretion of
the district judge.” Lewis v. Lynn, 236 F.3d
766, 767 (5th Cir. 2001) (quoting Mason v. Lister,
562 F.2d 343, 344 (5th Cir. 1977)).
judgment is not appropriate at this time. The District has
not submitted evidence showing that E&M has been properly
served with the default judgment motion by certified mail as
required by Local Rule 5.5.
Philadelphia Indemnity argues that the court should not enter
default judgment because, as E&M's surety, it has the
right to assert all of E&M's defenses. (Docket Entry
No. 19 at 1-2); see Great Am. Ins. Co. v. N. Austin Mun.
Util. Dist. No. 1, 908 S.W.2d 415, 419 (Tex. 1995)
(“Another significant distinction between sureties and
an insurer is that sureties traditionally are entitled to
rely upon all defenses available to their principal as to the
debt owed to the bond obligee.”). Philadelphia
Indemnity cites the holding in Frow v. De La Vega,
82 U.S. 552, 554 (1872) that “when one of multiple
defendants who is facing a joint liability action has
defaulted, judgment should not be entered against him until
the matter has been adjudicated as to all defendants, or all
defendants have defaulted.” Underwriters at Lloyds,
Syndicate 4242 v. Turtle Creek P'ship, Ltd., No.
4:08-CV-3044, 2010 WL 5583118, at *2 (S.D. Tex. Feb. 26,
2010) (discussing Frow). Courts have extended this
approach to “situations in which several defendants
have closely related defenses.” Id. (quoting
10A Charles A. Wright & Arthur R. Miller, Federal
Practice & Procedure § 2690 (4th ed. 2019)).
Fifth Circuit has not clearly adopted the Frow
approach,  but many district courts in this circuit
have, in cases involving both joint and several liability and
closely-related defenses. See GFRS Equip. Leasing Fund II
LLC v. Nguyen, No. 3:18-CV-2250-L, 2019 WL 3530421, at
*3 (N.D. Tex. Aug. 1, 2019); Scottsdale Ins. Co. v. All
Citizens Transp., LLC, No. 4:19-CV-10- ALM-KPJ, 2019 WL
3210368, at *3 (E.D. Tex. June 24, 2019), report and
recommendation adopted, No. 4:19-CV-10, 2019 WL 3206054
(E.D. Tex. July 16, 2019); Hamilton v. EnerSafe
Inc., No. 5:15-CV-1003-DAE, 2018 WL 7822064, at *2 (W.D.
Tex. Dec. 19, 2018); Martinez v. Brownsville Doctors
Hosp., LLC, No. 1:12-167, 2013 WL 12174046, at *2 (S.D.
Tex. Aug. 29, 2013). The Fifth Circuit has held that a
default judgment is “incongruous” and
“unfair” if used to “allow some defendants
to prevail, while not providing the same benefit to similarly
situated defendants.” Lewis, 236 F.3d at 768.
District's claim against Philadelphia Indemnity arises
from E&M's alleged breach of its agreement with the
District. (Docket Entry No. 1-B at ¶ 26). Because
Philadelphia Indemnity is a party, the risk of prejudice to
Philadelphia Indemnity from a default judgment against
E&M is lessened. But entering default judgment against
E&M, when Philadelphia Indemnity may still raise
arguments that E&M could have brought, runs the risk of
creating two judgments with inconsistent findings.
Philadelphia Indemnity may show that the District “has
no cause of action[, ] . . . [a] defense [that] generally
inures . . . to the benefit of a defaulting defendant.”
Lewis, 236 F.3d at 768 (internal quotation omitted).
If Philadelphia Indemnity does not present this defense, or
if the court enters judgment consistent with entering the
requested default judgment against E&M, that judgment may
be entered against E&M at that time.
of the procedural issues and the potential for incongruous
and inconsistent rulings, the District's motion for
default judgment is denied at this time, without prejudice to
reurging. (Docket Entry No. 18).
 The Fifth Circuit distinguished
Frow on its facts in In re Grabanski, 691
Fed.Appx. 159, 163 ...