UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

CARBON FUEL COMPANY, a
corporation,
Plaintiff,

v.

USX CORPORATION, a corporation;
UNITED STATES STEEL MINING
COMPANY, INCORPORATED, a
corporation,
Defendant & Third Party                                        No. 97-1995
Plaintiff-Appellants,

v.

CONSOLIDATION COAL COMPANY;
ARCH MINERALS OF KENTUCKY; OLD
BEN COAL COMPANY; ARCH COAL,
INCORPORATED,
Third Party Defendants-
Appellees.

Appeal from the United States District Court
for the Southern District of West Virginia, at Charleston.
Charles H. Haden II, Chief District Judge.
(CA-93-1073-2)

Argued: March 6, 1998

Decided: August 6, 1998

Before MURNAGHAN and WILLIAMS, Circuit Judges, and
BROADWATER, United States District Judge for the
Northern District of West Virginia,
sitting by designation.

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Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: James Michael Jarboe, LAW DEPARTMENT OF USX
CORPORATION, Pittsburgh, Pennsylvania, for Appellants. John
Allen Lucas, HUNTON & WILLIAMS, Richmond, Virginia, for
Appellees. ON BRIEF: James T. Carney, LAW DEPARTMENT OF
USX CORPORATION, Pittsburgh, Pennsylvania; Charles L. Woody,
SPILMAN, THOMAS & BATTLE, Charleston, West Virginia, for
Appellants. Gregory B. Robertson, Bruin S. Richardson, III, HUN-
TON & WILLIAMS, Richmond, Virginia, for Appellees Old Ben
Coal, Arch of Kentucky, and Arch Coal; Anthony J. Polito, POLITO
& SMOCK, P.C., Pittsburgh, Pennsylvania, for Appellee Consolida-
tion Coal.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Consolidation Coal Company, Arch of Kentucky, Arch Coal, Inc.,
and Old Ben Coal Company (Appellees), filed counterclaims against
the Appellants, USX Corporation and U.S. Steel Mining Company
(collectively USX) seeking indemnification of attorneys' fees
incurred in defending a lawsuit brought by USX to settle the parties'
contractual obligations for the payment of certain employee benefits
following the enactment of the Coal Industry Retiree Health Benefit
Act of 1992 (Coal Act), 26 U.S.C. §§ 9701 et seq. When USX failed
to respond to the counterclaims in a timely fashion, the clerk noted
entry of default against USX. Thereafter, the district court granted
summary judgment to the Appellees on USX's claim for liability and,
apparently as the result of an oversight, dismissed as moot the Appel-

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lees' counterclaims for attorneys' fees. On appeal to this Court, we
affirmed the district court's grant of summary judgment against USX,
but remanded for consideration of the Appellees' claims for attor-
neys' fees. Following remand, the district court denied a renewed
motion by USX to set aside entry of default and granted default judg-
ment in favor of the Appellees.

In the present appeal, USX makes three assignments of error with
respect to the district court's judgment. First, USX contends that the
district court erred in refusing to set aside the entry of default. Sec-
ond, USX maintains that the parties' indemnification agreement was
rendered unenforceable by passage of the Coal Act. Third, USX
argues that the indemnification agreement does not provide for pay-
ment of attorneys' fees arising from disputes between parties to the
contract. For their part, the Appellees have requested the imposition
of sanctions against USX, pursuant to Fed. R. App. P. 38, for the fil-
ing of an allegedly frivolous appeal.

We affirm the district court's entry of default judgment against
USX and deny the Appellees' motion for relief under Rule 38. We
have no occasion to address the remaining issues raised by USX.

I.

In 1982, Carbon Fuel Company (Carbon) reached a settlement with
USX, in which USX purchased Carbon's mining equipment and
leased its mining properties for a period of fifteen years. During the
early 1980s, USX sold a large portion of its mining operations to the
Appellees.

In April of 1994, Carbon initiated a lawsuit against USX in federal
court, seeking declaratory and injunctive relief regarding what it per-
ceived as USX's contractual responsibility to pay premiums to the
United Mine Workers of America Combined Benefit Fund (Com-
bined Fund) for health care benefits payable to certain retired employ-
ees who had been assigned to Carbon pursuant to the provisions of
the Coal Act. USX denied any liability to Carbon for payments to the
Combined Fund, and it counterclaimed against Carbon and instituted
a third party action against the Appellees, seeking declaratory relief

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with respect to the post-Coal Act liability of all parties for contribu-
tions to the Combined Fund.

Appellees denied any responsibility for USX's liability to the Com-
bined Fund. In addition, in November of 1994, each brought a coun-
terclaim against USX, seeking indemnification of attorneys' fees and
costs under the indemnification and hold harmless provisions of the
parties' asset purchase agreements. USX failed to respond to those
counterclaims in a timely fashion. On February 15, 1995, USX
requested leave to file an untimely reply, which the district court
rejected. The clerk then noted entry of default against USX, pursuant
to Fed. R. Civ. P. 55(a). Thereafter, the Appellees filed a motion for
default judgment under Rule 55(b) or for summary judgment on their
counterclaims, and USX moved to set aside entry of default and for
reconsideration of its request to file an untimely reply.

On July 5, 1995, the district court granted USX's motion for sum-
mary judgment against Carbon, on the ground that the 1992 Coal Act
abrogated all pre-enactment agreements regarding liability to the
Combined Fund. See Carbon Fuel Co. v. USX Corp. , 891 F. Supp.
1186 (S.D. W. Va. 1995). In addition, the court denied Carbon's
motion for summary judgment against USX; denied USX's motion
for summary judgment against the Appellees; and granted the Appel-
lees' motions for summary judgment against USX. See generally id.
The district court dismissed as moot all other motions before the
court, including USX's motions for reconsideration and to set aside
entry of default.

Carbon appealed, and a panel of this Court affirmed the grants of
summary judgment to USX and the Appellees. See Carbon Fuel Co.
v. USX Corp., 100 F.3d 1124 (4th Cir. 1996). However, the Court
remanded the Appellees' counterclaims to the district court for further
proceedings on the issue of attorneys' fees, which the district court
had apparently overlooked in its order. See id. at 1139. On remand,
the district court acknowledged the oversight and denied USX's
renewed motions for reconsideration and to set aside entry of default.
The court then entered default judgment against USX. This appeal
followed.

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II.

USX challenges the district court's grant of default judgment to the
Appellees. According to USX, the district court should have granted
its motion to set aside entry of default, since USX's failure to file a
timely response was the result of excusable neglect, and since setting
aside default would have caused no prejudice to the Appellees.

As a threshold matter, Appellees assert that, under the doctrine of
res judicata, USX is barred from challenging the default because it
failed to do so in its first appeal. See Washington Post Co. v. United
States Dep't of Health & Human Services, 865 F.2d 320, 327 (D.C.
Cir. 1989) (noting the "general rule that a party cannot raise anew on
remand an issue that it failed to pursue in the appeal"). However, for
the doctrine of res judicata to apply, there must have been, among
other things, a "final judgment on the merits in a prior suit." Jones v.
Securities & Exchange Commission, 115 F.3d 1173, 1178 (4th Cir.
1997), cert. denied, 118 S. Ct. 1512 (1998). Under Rule 55(a), an
"entry of default" by the clerk of the court is merely interlocutory; it
is a mechanism to provide notice to the defaulting party before default
judgment is entered by the court. See 10A Charles Allen Wright et al.,
Federal Practice & Procedure § 2692 (3rd ed. 1998). Judgment on the
matter is not final until the non-defaulting party moves the district
court, pursuant to Rule 55(b), for "default judgment." See id. In the
case at bar, it is undisputed that, prior to remand, the district court
never entered default judgment against USX. Therefore, USX was not
entitled, let alone obligated, to raise the issue in its first appeal and
is not barred from raising it now.

Moving to the merits, USX argues that the district court erred in
denying its renewed motion to set aside entry of default. We review
the district court's denial of that motion for an abuse of discretion.
See Consolidated Masonry & Fireproofing, Inc. v. Wagman Constr.
Corp., 383 F.2d 249, 251 (4th Cir. 1967) (citations omitted) ("The
disposition of motions made under Rule[ ] 55(c) . . . is a matter which
lies largely within the discretion of the trial judge and his action is not
lightly to be disturbed by an appellate court."); Wright et al., supra,
§ 2693 ("Considerable weight is given to the district judge's decision
on the motion because the trial judge is the person most familiar with

                     5
the circumstances of the case and is in the best position to evaluate
the good faith and credibility of the parties.").

USX's motion to set aside entry of default was properly considered
under Rule 55(c). That Rule authorizes the district court to set aside
entry of default "[f]or good cause shown . . . ." Fed. R. Civ. P. 55(c).
Traditionally, we have held that entry of default should be set aside
where the moving party alleges a meritorious defense and acts with
reasonable promptness. See Consolidated Masonry , 383 F.2d at 251
(citation omitted). In addition to those factors, the district court should
consider "the personal responsibility of the[defaulting] party, the
prejudice to the [opposing] party, whether there is a history of dilatory
action, and the availability of sanctions less drastic." Lolatchy v.
Arthur Murray, Inc., 816 F.2d 951, 953 (4th Cir. 1987) (citing United
States v. Moradi, 673 F.2d 725, 728 (4th Cir. 1982)).1 With those
principles in mind, we now consider the merits of USX's appeal.

USX maintains that its failure to file a timely response was the
result of excusable neglect arising, in part, from an ambiguous com-
plaint. According to USX, it was not clear from the face of the Appel-
lees' counterclaims that they were in fact counterclaims, as opposed
to some other pleading that did not require a response.

We are unpersuaded. As an initial matter, we believe the character
of the Appellees' counterclaims was readily apparent. The following
counterclaim, filed by Arch Minerals, is typical of those filed by each
Appellee:
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1 We have previously emphasized that the clear policy of the federal
rules is to encourage whenever possible the disposition of claims on their
merits. See Reizakis v. Loy, 490 F.2d 1132, 1135 (4th Cir. 1974). Given
that policy, we have held that Rule 55(c) is to be"liberally construed in
order to provide relief from the onerous consequences of defaults . . . ."
Tolson v. Hodge, 411 F.2d 123, 130 (4th Cir. 1969) (citations omitted).
"Any doubts about whether relief should be granted should be resolved
in favor of setting aside the default so that the case may be heard on the
merits." Id. (citation omitted).

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Counterclaim

          2. Pursuant to [the parties'] indemnification [agreement],
          USX is obligated to indemnify and hold harmless Arch from
          any and all costs and attorneys' fees Arch has incurred and
          will incur in the defense of USX's Counterclaim and in the
          prosecution of this Counterclaim.

...

          WHEREFORE, Arch requests the Court to enter judgment
          against USX:

          (1) awarding Arch any and all costs and attorneys' fees
          Arch has incurred and will incur in the defense of USX's
          Counterclaim and in the prosecution of this Counterclaim.

Although the line between an affirmative defense and a counterclaim
may at times be difficult to discern, such is not the case here. Not only
were the counterclaims clearly labeled, they were not in the nature of
affirmative defenses to USX's claim for declaratory judgment. More
importantly yet, counsel for USX has conceded that it was not the
ambiguity of the complaints but his own lack of good judgment that
led to the default. Counsel points out that at the time the counter-
claims arrived on his desk, he was distracted by numerous other mat-
ters arising in the course of his duties as in-house counsel for USX.
He concedes that, "[i]n retrospect, . . . had[he] engaged in a more
thorough review of the issue at the time that the pleading was served,
[he] would have concluded to file a response .. . ." While counsel's
candor is commendable, we agree with the district court that USX has
failed to demonstrate the sort of "good cause" required to set aside
entry of default.

Next, although USX now asserts a defense to the Appellees' coun-
terclaims, it failed to do so in its motion to set aside entry of default.
In United States v. Moradi, 673 F.2d 725 (4th Cir. 1982), we
explained that to establish the existence of a "meritorious defense" the
defaulting party must make "a presentation or proffer of evidence,
which, if believed, would permit either the Court or the jury to find

                     7
for the defaulting party," id. at 727 (citing Central Operating Co. v.
Utility Workers of America, 491 F.2d 245, 252 n.8 (4th Cir. 1974)).
In the present case, although USX attached the following statement
from trial counsel explaining the reasons for its negligence, it failed
to disclose the basis of its defense to the Appellees' counterclaims:

          As set forth in the various pleadings and filings with this
          Court, including the various memoranda and appendices
          filed in support of, and in response to, the cross motions for
          summary judgment filed by all parties, there exists a com-
          pelling and meritorious claim and defense in favor of USX
          with respect to the substantive matters that are the subject
          of the counterclaims filed on behalf of [the Appellees].

Contrary to that conclusory statement, nothing in the record at the
time would have permitted the district court to ascertain the nature of
USX's defense or the facts supporting it.2 Hence, USX failed to carry
its burden of establishing a meritorious defense. See Consolidated
Masonry, 383 F.2d at 252 (refusing to set aside default where "the
defendant did no more than state that plaintiff breached the contract,
a mere conclusion which fell far short of providing the court with a
satisfactory explanation of the merits of the defense").

Despite all of this, USX contends that no prejudice would have
resulted to the Appellees if the district court had granted its motion
to set aside entry of default. However, as the district court correctly
observed, USX waited until the discovery cutoff date to file its motion
for leave. At that point, if the motion had been granted, Appellees
would have suffered considerable prejudice, because USX's response
to the counterclaim raised affirmative defenses which, due to the
expiration of discovery, the Appellees would have been unable to
investigate. At that point, if the district court had granted USX's
motion for leave, the court would also have had to grant an extension
of the discovery deadline which, in turn, would have required the trial
date to be postponed. In light of those concerns, and USX's history
of dilatory conduct throughout the litigation,3 it was within the district
_________________________________________________________________
2 In fact, it was not until USX filed its brief in the instant appeal that
it explained the basis of its defense to the Appellees' counterclaims.
3 At the beginning of the litigation, USX requested and was granted a
consent order to extend the time for the filing of its answer and any coun-

                     8
court's discretion to conclude that, in the absence of a reasonable
excuse, granting USX's motion for leave would have unjustifiably
prejudiced the Appellees and would have interfered with the efficient
administration of the court's docket. See Heyman v. M.L. Marketing
Co., 116 F.3d 91, 96 (4th Cir. 1997) ("District courts must be allowed
sufficient disciplinary authority to control their dockets. Without the
ability to exact significant penalties when parties ignore court orders,
district courts would be left with nothing but hollow threats of dis-
missal."); National Hockey League v. Metropolitan Hockey Club,
Inc., 427 U.S. 639, 642-43 (1976) ("There is a natural tendency on the
part of reviewing courts, properly employing the benefit of hindsight,
to be heavily influenced by the severity of outright dismissal as a
sanction for failure to comply with a[n] . . . order. . . . But [dismissal]
must be available to the district court in appropriate cases, not merely
to penalize those whose conduct may be deemed to warrant such a
sanction, but to deter those who might be tempted to such conduct in
the absence of such a deterrent.").

The Appellees request sanctions against USX, pursuant to Fed. R.
App. P. 38, for the filing of an allegedly frivolous appeal. We have
carefully considered that motion and now reject it. While we agree
that the imposition of default judgment was within the district court's
discretion, we cannot say USX's appeal of that judgment is frivolous.
_________________________________________________________________
terclaims or affirmative defenses until January 26, 1994. USX then
requested and was granted an order to extend that time until March 14,
1994; then again until March 31; and finally to April 15. Even then, USX
did not file an answer until April 22, 1994. Later, on July 1, 1994, USX
filed a motion, which was granted, to extend to July 15 the time for its
reply to several joint motions filed by the Appellees. Then, on July 15,
USX filed another motion to extend the time for its response to July 29.
The district court denied that request and put the parties "on notice [that]
the Court w[ould] consider further extensions of time only reluctantly."
Even after being denied an extension of time, USX took one anyway, fil-
ing its response on July 26, 1994, along with a motion to file an untimely
reply, which was granted. Finally, Appellees filed their counterclaims
against USX on November 15 and 23, 1994. Although, under the usual
rules of procedure, a response was due within 20 days, USX waited
almost 60 days, until the discovery cut-off date of February 15, 1995, to
request leave to file an untimely reply.

                     9
III.

In summary, we find no abuse of discretion in the district court's
refusal to set aside entry of default. We deny the Appellees' motion
for sanctions and reject as moot all remaining issues raised in this
appeal. The judgment of the district court is therefore

AFFIRMED.

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