Eleventh Circuit reverses Order Granting Judgment on the Pleadings in Perez v. Wells Fargo

In Perez v. Wells Fargo, No. 13-13853 (Dec. 18, 2014), the Eleventh Circuit reversed an order granting judgment on the pleadings for defendant Wells Fargo and denying the plaintiff an opportunity to file an out-of-time answer to Wells Fargo’s counterclaim. The Court also reversed the district court’s order denying the plaintiff’s motion to amend her complaint. The circuit court held that Wells Fargo’s motion for judgment on the pleadings was premature since the pleadings were not closed, and thus should have properly been treated by the district court as a motion for an entry of default judgment. Accordingly, in evaluating whether plaintiff should be allowed to file an out-of-time answer, the court should have applied the “good cause” standard provided for under Rule 55(c), which governs default judgment analysis, rather than the stricter “excusable neglect” standard provided for by Rule (6), which is a rule of more general applicability.

The plaintiff in Perez was a small business owner who operated a Hispanic grocery store in the Chatooga County area. She opened three accounts with Wells Fargo related to her business. In June 2012, Wells Fargo suddenly froze her accounts, together containing nearly $100,000, with the sole explanation that Wells Fargo had made “a business decision to end [Perez’s] deposit account relationship.” She sued in state court seeking injunctive and monetary relief, and Wells Fargo removed to federal court. Wells Fargo then filed a counterclaim alleging that a contractual agreement between Perez and Wells Fargo allowed them to freeze her accounts because she had deposited United States Treasury checks into them—an activity that was not approved for the particular type of accounts she opened. In December 2012—six months after freezing Perez’s accounts—Wells Fargo returned all of the money in her accounts less $10,130.64 to cover attorney’s fees and other costs related to freezing her accounts.

Perez did not file a response to Wells Fargo’s counterclaim due to an error on the part of her attorneys. Rather than seeking a formal entry of default from the clerk following Perez’s failure to timely answer the counterclaim, Wells Fargo instead moved for a Rule 12(c) judgment on the pleadings, asking the court to deem all well-pleaded allegations contained in their counterclaim to be admitted by the plaintiff by virtue of her failure to answer. The plaintiff immediately requested that she be allowed to file an out-of-time answer to the counterclaim and that her request be evaluated under the Rule 55 standard of “good cause,” which is applied in default judgment analysis. The district court denied her request, applying Rule 6(b)(1)(B)’s stricter “excusable neglect standard” instead. Because the district court found that Perez failed to show excusable neglect, it granted Wells Fargo’s motion for judgment on the pleadings. Additionally, the district court denied Perez leave to amend her original complaint, accepting as true the allegation in the counterclaim that the contractual agreement between Perez and Wells Fargo authorized Wells Fargo’s conduct and thus determining that any amendment would be futile. It also granted attorney’s fees to Wells Fargo based on another provision of the contract.

The Eleventh Circuit reversed and remanded the decision by the district court for several reasons. First, the Eleventh Circuit found that a motion for judgment on the pleadings is supposed to apply in situations “where a judgment on the merits can be achieved by focusing on the content of the competing pleadings,” and where pleadings are closed. Where competing pleadings don’t exist, a motion for judgment on the pleadings is not appropriate. Moreover, pleadings are not considered closed under the Federal Rules of Civil Procedure until a counterclaim has been answered, the Eleventh Circuit explained, “[b]ut the plaintiff is not left to twist in the wind; rather, Rule 55(a) mandates the entry of default so that ‘the adversary process [will not be] halted because of an essentially unresponsive party.’” It makes no difference to the calculus that Wells Fargo did not seek the formal entry of a clerk’s default; Perez was nonetheless in default on the counterclaim and was therefore entitled to have the more liberal “good cause” standard applied to her request to file an out-of-time answer.

Second, even if Wells Fargo’s motion could properly be considered a motion for judgment on the pleadings, its characterization of the contract between Perez and Wells Fargo amounted to a legal conclusion rather than a factual allegation. Therefore, the district court erred in accepting as true Wells Fargo’s bare assertion that the contract sanctioned its decision to freeze Perez’s accounts simply because she deposited U.S. Treasury checks into them. The construction of the contract is “a question of law for the court.”

Third, because it was error to deem Wells Fargo’s characterization of the contract to be admitted by Perez, since that characterization was a legal conclusion rather than a factual allegation, it was error to find that allowing Perez to amend would necessarily be futile. The district court was “required to review the actual contract at issue” in evaluating futility of amendment.

Finally, the Eleventh Circuit has “long expressed a strong policy of determining cases on their merits when reasonably possible.” Accordingly, the district court’s orders granting judgment on the pleadings for Wells Fargo and denying Perez leave to amend her complaint were reversed, and the issue of attorney’s fees was remanded along with the rest of the case for further proceedings.

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