PepsiCo Hit With $1.26B Default Judgment
[Guest post by DRJ]
On September 30, a Wisconsin court entered a $1.26B default judgment against PepsiCo after it failed to respond to a lawsuit alleging misappropriated trade secrets:
“In court papers, PepsiCo claims it first received a legal document related to the case from the North Carolina agent on Sept. 15 when a copy of a co-defendant’s letter was forwarded to Deputy General Counsel Tom Tamoney in PepsiCo’s law department. Tamoney’s secretary, Kathy Henry, put the letter aside and didn’t tell anyone about it because she was “so busy preparing for a board meeting,” PepsiCo said in its Oct. 13 motion to vacate.
When Henry received a forwarded copy of the plaintiff’s motion for default judgment on Oct. 5, she sent that to Yvonne Mazza, a legal assistant for Aquafina matters. Remembering that she still had the other document, Henry passed it to Mazza too. The next day Mazza sent the documents to David Wexler, a department attorney, and he “immediately” called the agent to get a copy of the complaint.”
PepsiCo’s attorneys say they first learned of the case on October 6 and filed a motion to vacate the judgment on October 13. A hearing on the motion is scheduled for November 6. PepsiCo has also asked that the case be dismissed:
“In seeking to dismiss the case, PepsiCo argues that the statute of limitations should preclude the lawsuit, brought 15 years after the company started selling Aquafina and more than two decades after the alleged confidential talks. Moreover, “the $1.26 billion judgment that has been entered is unprecedented in size and justice requires that PepsiCo have a chance to defend itself,” the company said.
The lead plaintiffs lawyer, David Van Dyke of Chicago-based Cassiday Schade, said Wisconsin courts have been “pretty clear that they don’t like” vacating default judgments. “There is a possibly that a judge may say we’re going to litigate the damages aspect of it,” Van Dyke said.”
I don’t know what Wisconsin law provides but, in general, the standard to set aside a default judgment on these grounds is excusable neglect. Excusable neglect can be a difficult standard to meet, but I think courts will sometimes consider how onerous or unjust it would be to let the judgment stand.
— DRJ
If you had checked the internet you would discover you are correct; it is excusable neglect.
However, Pepsico has a problem in that the Wisconsin appellate courts have dealt with the issue before and upheld trial court decisions that find that failure to forward papers resulting in a default does not constitute excusable neglect. Dugenske v. Dugenske, 80 Wis. 2d 64, 257 N.W.2d 865 (1977), and Hollingsworth v. American Fin. Corp., 86 Wis.2d 172, 271 N.W.2d 872 (1978). More ominously, one court REVERSED an order vacating a default when the lawyer lost the papers in an office move and failed to file a timely answer. Mohns, Inc. v. TCF National Bank, 2006 WI App 65, 292 Wis. 2d 243, 714 N.W.2d 245. That last case is pretty similar to what happened here; the one saving grace for Pepsico might be that the error could turn on the omission of the legal secretary and agent for service of process; California law makes that distinction very clearly, though allowing more than neglect as a grounds (in particular “surprise” which is usually held to be a service screw-up).
Cyrus Sanai (3b1f29) — 10/28/2009 @ 1:52 pmI’m not going to venture into Wisconsin law but it’s interesting to see the results of your research. I agree the legal standard may be difficult for PepsiCo to meet — it often is in these cases — but in deciding whether to vacate this judgment, I suspect the court will nevertheless factor in PepsiCo’s S/L-laches defense as well as the size of the monetary judgment.
DRJ (dff2ca) — 10/28/2009 @ 2:04 pm“Say, Yvonne, did you ever do anything about that letter I sent you the other day? You know, the one about the trade secrets thingy?”
“I don’t remember. What did you send me?”
“I can’t remember. I’m sure it’s not very important”.
JayC (0a3ab7) — 10/28/2009 @ 2:10 pmI’m opening all the old mail on my desk right now…
SteveG (97b6b9) — 10/28/2009 @ 2:12 pmThis is a triumph for the legal system, and a triumph for the little guy against a dilatory predatory corporation more concerned with profit than the welfare of its consumers.
JD (9a8a4b) — 10/28/2009 @ 2:33 pmThey obviously NEEDED ANOTHER SECRETARY. Kathy was STRETCHED TO THIN!! GUARANTEED, SHE TOLD THEM AND They knew it. TOO CHEAP to hire another Secretary even a TEMP to make sure ALL their affairs were COVERED properly! I’VE BEEN IN THAT SITUATION AND they HAD TO HIRE 2 people to replace me instead just paying me (and or a temp) a few more dollars AND a few hours of overtime a few times per year! That’s why you have to PROPERLY MANAGE HUMAN RESOURCES not JUST FINANCIAL AND REAL RESOURCES! This is HUGE PROOF THAT THE CURRENT PREVAILING BUSINESS MODEL that most companies use for their ADMIN. help IS JUST A TICKING TIME BOMB. Save $30,000 LOSE $1.26 BILLION. This is the ratio that GREED PAYS! I EXPECT TO HEAR A FEW MORE OF THESE STORIES IN THE COMING MONTHS! Bet the “BOSS” would have paid a few bucks out of his OWN EXECUTIVE BONUS to AVOID this mess. I DONT FEEL SORRY FOR THEM!!!I hope WIS. sticks to it’s guns!
DivineD (8ef0fa) — 10/28/2009 @ 2:46 pmI feel sorry for Ms. Henry, too.
DRJ (dff2ca) — 10/28/2009 @ 2:48 pmA country club in Palm Desert, one I was thinking of joining at one time, had two beautiful golf courses. One was owned but the other was leased from the water district. The lease came up for renewal. The guy on the board who was supposed to renew the lease was a lawyer with about the same IQ as the Pepsico secretary. He missed the deadline and another club, a new club on the other side of the course and a very expensive one, made a better offer to the water district.
Shit happens. Now they have one course and some angry members.
Mike K (2cf494) — 10/28/2009 @ 3:10 pmGiven the past statements from Pepsico’s CEO admonishing the US (i.e. Boosh) to stop “giving the finger” to the rest of the world, I’d say that she just found out that Karma is indeed a beyootch. Don’t cry for her, Argentina.
Dmac (5ddc52) — 10/28/2009 @ 3:38 pmForgot to add that they’ve come a long way down since the days of Roger Enrico – I hope Coke continues to kill them in the marketplace.
Dmac (5ddc52) — 10/28/2009 @ 3:39 pmAnd, of course, if it happened the other way around and the other side missed a deadline, you just know Pepsico would contend that those deadlines ranked right up there with the law of gravity.
Huey (b957d9) — 10/28/2009 @ 4:07 pm#2
There was a very similar published case involving Home Depot in California. The Court of Appeal not only upheld the trial court’s refusal to vacate the default, it sanctioned Home Depot (represented by Pillsbury Winthrop) for its appeal. That case the award was just under a million dollars.
The law does not look at the extent of the potential award in a default case, nor should it. However, the timing of the proceedings suggest that no prove-up hearing was held.
My guess is that there will have to be a prove-up on damages, as the news story states the plaintiff’s lawyer conceded. There’s a due process issue if the plaintiff was not required to put forward any evidence of damages. But prove-ups are one-sided, so Pepsi could end up paying many millions.
The interesting question is, “where did the summons and complaint go”? Most likely it is sitting on some nine-to-five paralegal’s desk. But that does not excuse the company for failing to hire and pay for competent in-house counsel and agents for service of process. Indeed, co-defendant tried to notify Pepsi, but the secretary decided not to give the letter to the lawyer, which suggests that the lawyer had ordered her to hold that stuff so that it did not interrupt his ride home.
Pepsi is one of those companies which disrespects the legal function; its GC is not listed as one of its top executives. Companies with that attitude end up paying the price.
Cyrus Sanai (3b1f29) — 10/28/2009 @ 4:32 pmI know the law doesn’t look at the size of the award but sometimes judges find ways to do it anyway.
DRJ (dff2ca) — 10/28/2009 @ 4:38 pmIn any event, Cyrus, I think a court might find excusable neglect here since PepsiCo offered an explanation (presumably in an affidavit attached to the motion to vacate setting forward the facts recited in the news article) that demonstrates excusable conduct by a member of PepsiCo’s office staff. Specifically, the secretary was preoccupied with an imminent, important company meeting. In addition, there is no apparent evidence of lawyer misconduct or neglect.
DRJ (dff2ca) — 10/28/2009 @ 4:54 pmThe alleged neglect of the secretary, excuable or not, is completely irrelevant. A letter from a co-defendant’s counsel, even if it gives some sort of notice of the lawsuit, does not effect service or confer jurisdiction. Nor does a motion for a default judgment, even if properly served. Pepsi could have deliberately ignored the letter and the motion (or returned them wrapped around a dead fish) without consequence.
All that matters is whether the complaint was properly served back in April when the action was commenced. If not, case closed. Pepsi says it didn’t receive the complaint, so the motion will turn on that issue. I guess there’s a possibility that the NC received the complaint but didn’t forward it, so if there is a neglect issue it will focus on Pepsi’s relationship with the agent, not anything the secretary did.
Northeast Elizabeth (e6c3c4) — 10/28/2009 @ 5:07 pm#13-14
You are correct that a trial court judge might do it anyway. The problem is that Mohns, Inc. v. TCF National Bank involved similar facts (failure to forward a complaint in a timely fashion), a defendant friendly judge, and a Court of Appeal that overturned the judge. So it does not look good.
#14
I think your reading of the situation is what Wisconsin law dictates and fits what I wrote in #12–where did the complaint go after it was served on the agent? You would need to show that the failure was excusable because, in the first place, the summons and complaint was not forwarded properly. The secretary issue is important because it relates to potential inquiry notice at a later point, but is irrelevant if the summons and complaint was received by the legal department of Pepsi.
Cyrus Sanai (3b1f29) — 10/28/2009 @ 5:24 pmService was made on Pepsi’s registered agent in NC, you know, it’s state of incorporation. That the agent did, or did not, send it to home office legal, is of little consequence. That would be between Pepsi and him/her/it.
Once they start talking about what a secretary didn’t do, they must realize they are in trouble. However, I suspect the damage issue will be heard. Though one should look at Pepsi’s Aquafina profits and decide what is just.
All (d4a450) — 10/28/2009 @ 5:56 pmI doubt that simply looking at Aqufina’s profits would constitute a “just” determination.
Given the situation as is, we will not get to hear about the statute of limitation issues, but I suspect that the SOL is not 2 decades.
JD (d71a7a) — 10/28/2009 @ 6:12 pmCyrus,
It may not be good, and I doubt PepsiCo’s lawyers are feeling good right now. Thanks for an interesting discussion.
DRJ (dff2ca) — 10/28/2009 @ 6:28 pmRefresh everything on a budget, bitches.
happyfeet (f62c43) — 10/28/2009 @ 6:50 pmthe ones what make me giggle always get filtrated
happyfeet (f62c43) — 10/28/2009 @ 6:52 pm#17
The law on getting relief when third parties (other than lawyers) screw up is actually pretty favorable to the defendant. If the defendant can show that the agent did not forward the documents, then there is a prima facie claim for relief. However, if you are an agent for service for process and you admit screwing this up, say good-bye to your business.
I really doubt that is the agent’s fault, because if it were, Pepsi would be trumpeting it. The reality is that Pepsi has a legal department that its management scorns, with the result that one would predict–a horrific screw-up.
Cyrus Sanai (3b1f29) — 10/28/2009 @ 6:52 pmDear PepsiCo,
I understand that you may be hiring for the position of secretary to the Deputy General Counsel.
I would like to be considered for this position. I believe my primary qualification is that I would never cause the company to have a default judgment entered against it for having failed to do the job for which I was hired.
Thank you for your consideration.
With respect,
Scott Jacobs, Jr.
Scott Jacobs (d027b8) — 10/28/2009 @ 10:49 pm“Excusable neglect” isn’t that hard of a standard to meet in civil litigation. And I don’t know Wisconsin law, but in California, if the attorney signs what’s called “an attorney affidavit of fault” (ie: he blames himself for the default being entered) and files a motion to set aside the default within 6 months, it is MANDATORY that the cout set it aside. The motion in question is officially called a “473 motion;” unofficially, civil attorneys call it the “whoops I fucked up” motion.
Sean P (50f5d9) — 10/29/2009 @ 6:17 am#24
Yes, the “attorney affidavit of fault” does exist, but it is unique to California. In the Home Depot case the attorneys missed the six month deadline.
The definition of “excusable neglect” varies from jurisdiction to jurisdiction. Some states and Circuit make it easy to meet, some states and Circuits make it hard. Wisconsin is hard.
Cyrus Sanai (3b1f29) — 10/29/2009 @ 9:05 am#25: So hard that it won’t issue pot docs from pot docs?
That’s not hard dude, that’s harsh.
Dr. K (eca563) — 10/29/2009 @ 9:26 amSo what’s the penalty if PepsiCo simply refuses to pay?
The result here seems excessive. I see most of you are not big fans of how Pepsico treats its lawyers, but what’s to stop this from happening to any business? Can someone file dubious claims against a thousand random companies and rake in the billions when a couple of them inevitably don’t show up in court?
Bryan C (026a8d) — 10/29/2009 @ 9:36 amWhat gets me is bottled water really a breathtaking inovation worth one and quarter BILLION dollars?
I mean really – Bottled Water
Have Blue (854a6e) — 10/29/2009 @ 9:44 am28
Yeah me too – next thing – bubbly water – net worth a trillion gazillion
EricPWJohnson (8e6419) — 10/29/2009 @ 9:58 am#28 Have Blue:
I’m thinking a default judgment of $15 sounds about right.
EW1(SG) (edc268) — 10/29/2009 @ 6:40 pm