335 F. Supp. 3d 1105
E.D. Wis.2018Background
- Cree, Inc. sued BHB Energy LLC and BHP Energy Mexico S. de R.L. de C.V. to compel arbitration under a contractual arbitration clause selecting Racine, Wisconsin, and to enjoin parallel Mexican litigation.
- BHB was timely served and opposed the petition; BHP repeatedly avoided traditional service and was ultimately served by alternative means (email and Facebook) after the court authorized such service.
- Magistrate Judge Joseph granted Cree’s petition as to BHB on the merits, staying the Mexican litigation and compelling arbitration; she clarified her order to apply only to BHB because BHP had not yet been served.
- Clerk entered default against BHP after it failed to answer; Cree moved for default judgment and for monetary sanctions against BHP and Alan Barson for willful evasion of service.
- The district court found the well‑pleaded allegations establish a valid arbitration agreement, concluded BHP was properly served and in default, granted default judgment compelling arbitration and enjoining BHP from pursuing the Mexican litigation, and imposed monetary sanctions on BHP for willful evasion.
- The court declined to impose sanctions on Barson (a non‑party) because it concluded it lacked inherent authority to sanction a non‑party under the circumstances, but invited Cree to file an itemization of sanctions against BHP.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether default judgment may be entered against BHP to compel arbitration and stay Mexican litigation | Cree: BHP was served (including by authorized alternative means), default entered; well‑pleaded facts establish arbitration agreement and scope | BHP: did not appear to contest service/merits | Granted: default judgment entered; BHP enjoined from pursuing Mexican litigation and ordered to arbitrate in Racine |
| Validity of alternative service (email/Facebook) on BHP | Cree: exercised due diligence; BHP had actual notice; Hague Convention not prohibitive of email service in these facts | BHP/Barson: contested adequacy and claimed separation/no authority | Implicitly approved: Magistrate authorized alternate service; court relied on that service for default judgment |
| Whether BHP should be sanctioned for willful evasion of service | Cree: BHP (through affiliates/principal) took deliberate steps to avoid service causing expense and delay | BHP: no response; factual denials in related filings; asserted procedural objections | Granted as to BHP: court found BHP acted in bad faith and awarded opportunity to quantify monetary sanctions |
| Whether non‑party Alan Barson can be sanctioned for evading service | Cree: Barson centrally involved and substantially participated in litigation, so sanctions appropriate | Barson: not a defendant; denied authority to accept service; argued separation from BHP; objected to sanctions | Denied as to Barson: court reluctant to exercise inherent authority to sanction non‑party absent clearer authority/test in Seventh Circuit |
Key Cases Cited
- VLM Food Trading Int’l, Inc. v. Ill. Trading Co., 811 F.3d 247 (7th Cir.) (upon default, well‑pleaded allegations on liability are taken as true)
- Dundee Cement Co. v. Howard Pipe & Concrete Prods., 722 F.2d 1319 (7th Cir.) (effect of entry of default)
- In re Catt, 368 F.3d 789 (7th Cir.) (court must determine relief entitlement after default)
- Druco Rests., Inc. v. Steak n Shake Enters., Inc., 765 F.3d 776 (7th Cir.) (elements to compel arbitration: agreement, scope, refusal)
- Chambers v. NASCO, Inc., 501 U.S. 32 (1991) (district courts have inherent authority to sanction for abuse of judicial process)
- Ramirez v. T & H Lemont, Inc., 845 F.3d 772 (7th Cir.) (standards for inherent‑authority sanctions; showing of willful abuse or bad faith)
- Fuery v. City of Chicago, 900 F.3d 450 (7th Cir.) (mere poor lawyering insufficient for bad faith sanctions)
- Montano v. City of Chicago, 535 F.3d 558 (7th Cir.) (sanction proportionate to gravity)
- Hal Commodity Cycles Mgmt. Co. v. Kirsh, 825 F.2d 1136 (7th Cir.) (affirming default sanction for evasion of service)
- Fox Valley Constr. Workers Fringe Ben. Funds v. Pride of Fox Masonry & Expert Restorations, 140 F.3d 661 (7th Cir.) (affirming sanctions against a corporation’s lawyer for vexatious conduct)