Submitted: May 19, 2014
Upon Plaintiff's Motion for Judgment on the Pleadings
Richard L. Horwitz, Esquire John A. Sensing, Esquire Frederick B. Rosner, Esquire
Fred S. Silverman Judge
Plaintiff belongs to a group of related companies developing, marketing, and distributing recorded music. Plaintiff contracted with Exigen USA to develop software. Under a guaranty, Defendant guarantors jointly and severally promised to cover all Exigen USA's liabilities arising from the software contract. After a default judgment against Exigen USA,  Plaintiff sued to enforce the guaranty. Now, Plaintiff moves for judgment on the pleadings, arguing Defendants' defenses to the underlying debt and the resulting judgment are barred under res judicata. Defendants argue the default is void because it was entered moments after Exigen USA filed bankruptcy.
In 2010, Plaintiff sued Exigen USA for breach of their software development contract. Exigen USA began defending the case in depth, arguing the agreement and underlying project had not been validly terminated, and counterclaiming for breach of contract. After nearly three years of involved litigation, including extensive discovery and motion practice, Exigen USA's counsel withdrew. It took Exigen USA over three months, and Plaintiff's filing for default judgment, to secure a second set of counsel. This second set of counsel withdrew less than six months later. Then, the court gave Exigen USA time to secure a third set of counsel. But it again cautioned, "if new counsel has not appeared within 30 days, Plaintiff may file a motion for default, which the court will hear forthwith." When the deadline expired, Plaintiff re-noticed a default judgment. Exigen USA never responded. On October 17, 2013, as a last resort and after fair warning, the court granted default judgment and dismissed the counterclaims. In no way can it be said that it was a snap judgment.
On October 18, 2013, the court corrected a typo in the previous day's order. It substituted "UMI" for "Exigen" in the last numbered paragraph, to make it read "UMI is entitled to pre-judgment and post-judgment interest." Obviously, UMI, the plaintiff, not Exigen, the defaulter, was entitled to the interest awarded when the judgment was entered, and the correction made it so. Concurrently, however, on October 17, 2013, Exigen USA filed for chapter 11 bankruptcy. The court believes the bankruptcy preceded the corrected order by hours, hence the core issue whether the corrected order violated the automatic bankruptcy stay.
With its default judgment in hand, Plaintiff filed suit here to enforce the guaranty on October 25, 2013. In the two months between the default and answering this action, Defendants did not challenge the judgment in the federal bankruptcy court, nor did they seek to intervene in order to have the default vacated or to appeal its entry. Instead, Defendants waited until Plaintiff acted.
On December 20, 2013, Defendants answered the complaint. The answer contends that the guaranty is unenforceable for lack of consideration and the default judgment violates the automatic bankruptcy stay. Further, as the guaranty allows Defendants to assert any underlying objections and defenses Exigen USA could assert,  Defendants asserted them along with essentially the identical counterclaims Exigen USA asserted in the initial litigation.
On February 11, 2014, Plaintiff filed this Motion for Judgment on the Pleadings. After initial briefing, the court held oral argument April 4, 2014. The court requested supplemental briefing on the relationship between the judgment order and Exigen USA's bankruptcy. The record closed May 19, 2014.
Plaintiff argues the pleadings clearly establish Defendants are responsible for its judgment against Exigen USA. First, the guaranty is enforceable because, by its terms, it forbids revocation and is supported by sufficient consideration. More importantly, Plaintiff argues the October 17, 2013 order, entered before the bankruptcy stay, is final and binding because the correction was merely ministerial. Accordingly, under the guaranty's terms, all "objections and defenses" are waived except those available to Exigen USA. (As discussed below, however, they are no longer available because res judicata bars them all.) Counterclaims are not contemplated at all by the agreement. Accordingly, the judgment, in effect, decided all underlying claims, defenses, and counterclaims against Exigen USA, and guarantors are not entitled to relitigate them, hoping to do better than Exigen USA with a second go-round.
Defendants pri maril y argue res judicata does not apply. First, the default judgment is allegedly void because it was entered after the bankruptcy stay was in effect. Second, res judicata only applies to final judgments on the merits and where the parties to the two actions are in privity, neither of which Plaintiff has proven. And, here, ...