## Facts

- KPS & Associates, Inc., a jewelry manufacturers’ sales representative, and Designs by FMC, Inc., a silver jewelry importer and distributor, formed an oral relationship in 1987 under which KPS solicited accounts for Designs for commissions.
- The parties later disputed key terms, including whether KPS had exclusivity and how commissions were to be calculated.
- KPS sued in federal court on diversity grounds in 1999 for allegedly unpaid commissions.
- After contentious pretrial proceedings, Designs failed to file a timely answer.
- The clerk entered default under Federal Rule of Civil Procedure 55(a).
- Designs moved to set aside the default, attributing the missed deadline to a temporary secretary’s calendaring mistake.
- The district court rejected the explanation as not credible in light of counsel’s litigation conduct and refused to set aside the default.
- The district court treated the claimed damages as a “sum certain,” entered default judgment for $367,154 plus prejudgment interest, and imposed $5,000 in sanctions; a magistrate judge addressed only whether damages should be doubled or trebled under Massachusetts law.
- Designs appealed, challenging (among other rulings) abstention in favor of parallel state litigation, the refusal to vacate default, the damages procedure and amount, and sanctions.

## Issues

1. Whether the district court abused its discretion under Rule 55(c) in refusing to set aside the entry of default for lack of “good cause.”
2. Whether the district court erred under Rule 55(b)(2) by treating damages as a “sum certain” and entering a damages award without an adequate evidentiary basis.
3. Whether the federal action should have been dismissed or stayed due to parallel state-court proceedings.
4. Whether the district court abused its discretion by imposing monetary sanctions based on litigation conduct.

## Decision

- The First Circuit affirmed the denial of dismissal or stay based on parallel state proceedings.
- The First Circuit affirmed the refusal to set aside the entry of default under Rule 55(c).
- The First Circuit affirmed the imposition of $5,000 in sanctions.
- The First Circuit vacated the damages award and remanded for reconsideration of the “base” damages amount because the record did not support treating damages as a “sum certain” without a proper Rule 55(b)(2) determination.

## Legal Principles

- Under Rule 55(c), setting aside an entry of default requires “good cause,” assessed with attention to willfulness, prejudice, and the existence of a potentially meritorious defense, with substantial deference to the trial court’s credibility findings.
- Default establishes liability on well-pleaded allegations but does not establish unliquidated damages.
- Under Rule 55(b)(2), when damages are not liquidated or mechanically computable from reliable materials, the court must conduct an inquiry sufficient to determine damages, which may require evidence, detailed submissions, or a hearing.
- Parallel state proceedings justify declining federal jurisdiction only in exceptional circumstances; the ordinary rule is that a federal court exercises properly invoked diversity jurisdiction.
- A district court may sanction litigation misconduct within the bounds of its discretion to manage proceedings and deter abusive practices.

## Conclusion

The First Circuit held that the district court acted within its discretion in keeping the default in place, refusing to abstain in favor of state litigation, and imposing sanctions, but it vacated and remanded the damages award because the damages were not a “sum certain” and required an adequate Rule 55(b)(2) determination.


KPS & Assocs., Inc. v. Designs by FMC, Inc., 318 F.3d 1 (1st Cir. 2003)