Assume the following facts: you file a complaint, serve the defendant, the defendant refuses to answer, you present competent evidence to prove your damages on the claims alleged in the complaint, and you obtain a default judgment. Should the defendant be able to overturn the default judgment on appeal? Many legal practitioners would answer no, but a divided panel of the Fifth Circuit recently held otherwise. So long as a complaint contains insufficient factual allegations to survive a Rule 12(b)(6) motion to dismiss, a defendant against whom a default judgment was entered can overturn that default judgment for the first time on appeal. That is so even if the plaintiff introduces sufficient evidence at an evidentiary hearing to cure any insufficient-factual-allegation deficiencies the complaint may contain.
In Wooten v. McDonald Transit Associates, Inc., the plaintiff sued his former employer alleging age discrimination and retaliation. The plaintiff served the defendant twice: once at the beginning of the lawsuit and once approximately six months later after the district court ordered additional service. After the defendant refused to answer and defend the lawsuit, the district court held a hearing on damages and entered final default judgment on the claims asserted in the complaint. Though the complaint contained few factual allegations to support the elements of the plaintiff’s causes of action, the plaintiff’s testimony at the damages hearing provided sufficient factual support for his claims.
Faced with a money judgment against it, the defendant appeared and moved to set aside the default judgment. The district court denied the motion. On appeal, the defendant argued that the district court erred in entering default judgment because the complaint was not supported by sufficient factual allegations. The Fifth Circuit agreed and reversed.
The court based its holding on Nishimatsu, a case from 1975, in which the Fifth Circuit stated that a default judgment “is unassailable on the merits but only so far as it is supported by well-pleaded allegations, assumed to be true.” The Fifth Circuit interpreted Nishimatsu’s “well-pleaded allegations” language to mean that the complaint must be able to survive a Rule 12(b)(6) motion to dismiss. Because Wooten’s complaint—though it listed the legal elements of his causes of action—did not contain sufficient factual allegations to satisfy the Twombly standard, the Fifth Circuit concluded that the default judgment could not stand. The majority further held that “a defective complaint cannot be redeemed by evidence presented at the prove-up hearing and therefore cannot support a default judgment absent amendment of the pleadings.”
The majority opinion is not particularly persuasive. Though in some circumstances Rule 12(b)(6) challenges may be made as late as at trial, they are nevertheless waived unless made. In Wooten, the defendant, who was served twice, never brought a Rule 12(b)(6). The majority opinion does not explain why the defendant should be able to challenge the factual sufficiency of the complaint for the first time on appeal when it arguable waived that argument by failing to make it before the time of trial in the district court. Moreover, Wooten was not a case in which the plaintiff added a claim at the damages hearing that did not appear in the complaint. Though the defendant may not have known the precise factual contours of the claims asserted against it at the time of service, the defendant nevertheless knew what claims it could be liable on.
Arguably, the better rule would allow default judgments in all cases where Rule 12(b)(6) factual deficiencies are cured at an evidentiary hearing held before the entry of final judgment. Under the majority’s contrary holding, district courts must now conduct sua sponte Rule 12(b)(6) analyses in all cases in which defendants fail to answer the complaint.