## Facts

- Colleton Preparatory Academy, a private school in South Carolina, alleged roof trusses and sheathing were damaged by fire-retardant substances associated with defendants’ products.
- Colleton sued two entities in federal district court, then amended the complaint to substitute Hoover Universal as the correct defendant.
- Hoover Universal was served through its registered agent, The Corporation Company (TCC), which accepted the summons and complaint.
- TCC mistakenly forwarded the suit papers to another party (also represented by TCC as registered agent) and did not notify Hoover Universal.
- Hoover Universal did not answer because it did not receive the papers; the clerk entered an entry of default.
- After learning of the suit by chance weeks later, Hoover Universal promptly moved to quash service and to set aside the entry of default; the district court denied both motions.
- The district court later treated a re-filed, single-defendant complaint as an administrative step, struck Hoover Universal’s answer, and maintained the default posture.
- After a bench proceeding limited to damages, the district court entered judgment for Colleton on a South Carolina Unfair Trade Practices Act claim, awarded damages, and granted attorney’s fees and costs.

## Issues

1. Whether the district court abused its discretion under Federal Rule of Civil Procedure 55(c) by refusing to set aside the clerk’s entry of default against Hoover Universal for “good cause.”
2. Whether service of process was sufficient when the registered agent accepted service but failed to forward the papers to the defendant.

## Decision

- The Fourth Circuit affirmed the ruling that service of process on Hoover Universal was sufficient because its registered agent accepted service.
- The Fourth Circuit reversed the refusal to set aside the entry of default, holding the district court abused its discretion under Rule 55(c).
- The court vacated the default-based judgment (including damages and fee awards) and remanded for further proceedings on the merits.

## Legal Principles

- Under Rule 55(c), an entry of default may be set aside for “good cause,” a standard less demanding than Rule 60(b) relief from a default judgment.
- In assessing “good cause,” courts consider factors including: (1) existence of a meritorious defense, (2) reasonable promptness, (3) personal responsibility for the default, (4) prejudice to the nonmovant, (5) history of delay, and (6) availability of less drastic sanctions.
- Federal courts generally prefer resolving disputes on the merits rather than by default; Rule 55(c) is construed to permit relief from defaults when the circumstances warrant it.
- Service is effective when made on a defendant’s registered agent in compliance with applicable rules; the agent’s internal mishandling or failure to notify the principal does not invalidate service.
- An agent’s error may support “good cause” to set aside an entry of default, especially where the defendant acts promptly and the nonmovant cannot show meaningful prejudice beyond ordinary litigation delay.

## Conclusion

The Fourth Circuit held that Hoover Universal was properly served through its registered agent but that the district court misapplied Rule 55(c) by refusing to set aside an entry of default caused by the agent’s mistake; the default-based judgment was vacated and the case returned for litigation on the merits.


Colleton Preparatory Academy, Inc. v. Hoover Universal, Inc., 616 F.3d 413 (4th Cir. 2010)