Case: 11-40446 Document: 00511808150 Page: 1 Date Filed: 04/02/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 2, 2012
No. 11-40446 Lyle W. Cayce
Clerk
ACS RECOVERY SERVICES, INC.; FKI INDUSTRIES, INC.,
Plaintiffs - Appellants
v.
LARRY GRIFFIN; WILLIE EARL GRIFFIN; LARRY GRIFFIN SPECIAL
NEEDS TRUST; JUDITH GRIFFIN,
Defendants - Appellees
Appeal from the United States District Court
for the Eastern District of Texas
Before REAVLEY, ELROD, and HAYNES, Circuit Judges.
HAYNES, Circuit Judge:
ACS Recovery Services, Inc. (“ACS”) and FKI Industries, Inc. (“FKI”)
appeal the district court’s decision to dismiss their suit for equitable relief under
section 502(a)(3) of the Employee Retirement Income and Security Act of 1974
(“ERISA”) for lack of jurisdiction.1 Specifically, ACS and FKI argue that the
district court: (1) erroneously interpreted two Supreme Court cases as requiring
dismissal of their claims; (2) abused its discretion in denying their motion for a
1
The procedural posture of this dismissal was the grant of summary judgment to the
Appellees; however, the decision to do so was based on the fact that ERISA does not authorize
ACS and FKI’s claim for equitable relief and therefore the court lacked subject matter
jurisdiction.
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default judgment against one of the defendants; (3) should have concluded that
Chapter 142 of the Texas Property Code is preempted by ERISA; and (4) should
have deferred to the FKI Industries Inc., Subsidiaries and Affiliates Medical
Benefits Plan (the “Plan”) administrator’s determination of liability. We
AFFIRM the district court’s decision to dismiss the ERISA claims against Larry
Griffin, Judith Griffin, Willie Earl Griffin (the “Trustee”), and the Larry Griffin
Special Needs Trust (the “Trust”) for lack of jurisdiction. As a result, we find it
unnecessary to address their remaining arguments.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
At the time of the automobile accident that precipitated this dispute, Larry
Griffin worked for FKI and participated in the Plan. The Plan is an “employee
welfare benefit plan” within the meaning of section 3(1) of ERISA, 29 U.S.C.
§ 1002(1). Should a Plan member be injured by a third party and recover
damages for the injury, the Plan’s terms require that member to reimburse the
Plan for any medical benefits received.
In 2006, Larry Griffin was seriously injured in an automobile accident and
received $50,076.19 in medical benefits from the Plan. He and his wife, Judith
Griffin, sued the party responsible for the accident which led to a payment of
$294,439.82 under a settlement funded by SAFECO, the party’s insurer. The
Griffins’ attorney admitted that he purposefully structured the settlement “in
an effort to legally avoid any equitable lien asserted by the Group Medical Policy
. . . .” The state court approved the settlement, which provided for the payment
of attorneys’ fees, some additional medical expenses, and $40,000.00 to Judith
Griffin, pursuant to the parties’ allocation in a divorce settlement for Judith
Griffin’s loss of consortium claim. After these payments, $148,007.68 was left,
which the settlement agreement provided that SAFECO would pay directly to
Hartford CEBSCO. In turn, Hartford CEBSCO was required to purchase an
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annuity from the Hartford Life Insurance Company to make monthly payments
to the Trust, which would be used for Larry Griffin’s benefit.
Because Larry Griffin failed to reimburse the Plan for the medical
expenses paid by the Plan, FKI and ACS filed suit against Larry Griffin, the
Trustee, and the Trust. The complaint was subsequently amended to add Judith
Griffin as a defendant. The plaintiffs invoked section 502(a)(3) of ERISA as the
basis for recovering the unpaid medical benefits, which allows “a participant,
beneficiary, or fiduciary . . . to obtain other appropriate equitable relief[.]” 29
U.S.C. § 1132(a)(3)(B).
Both parties filed motions for summary judgment. The magistrate judge
issued a report and recommendation denying FKI and ACS’s motion for
summary judgment and granting Larry Griffin, the Trust, and the Trustee’s
motion for summary judgment. After considering the plaintiffs’ objections to the
report and recommendation, the district judge adopted the magistrate judge’s
decision, concluding that the requested relief was unavailable under section
502(a)(3) of ERISA, and it dismissed the claims against all of the defendants.2
The district court entered a final judgment, and FKI and ACS timely appealed.
II. JURISDICTION AND STANDARD OF REVIEW
We review a grant of summary judgment de novo, applying the same
standard as the district court. Gen. Universal Sys. Inc. v. HAL Inc., 500 F.3d
444, 448 (5th Cir. 2007). Summary judgment is appropriate if the moving party
can show that “there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a). The
evidence must be viewed in the light most favorable to the non-moving party.
United Fire & Cas. Co. v. Hixson Bros., Inc., 453 F.3d 283, 285 (5th Cir. 2006).
2
Although Judith Griffin never moved for summary judgment, the district judge
nonetheless dismissed the claims against her. As discussed below, we affirm the dismissal of
ACS and FKI’s claims against Judith Griffin for lack of subject matter jurisdiction.
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FKI and ACS premised jurisdiction in the district court on 28 U.S.C.
§ 1331 as claims based on ERISA. We have appellate jurisdiction pursuant to
28 U.S.C. § 1291. Although we affirm the district court’s finding that ACS and
FKI’s claims against the Appellees must be dismissed for lack of subject matter
jurisdiction, “it is familiar law that a federal court always has jurisdiction to
determine its own jurisdiction.” United States v. Ruiz, 536 U.S. 622, 628 (2002).
III. DISCUSSION
A. Did the district court err in finding that it lacked jurisdiction over ACS
and FKI’s claim for equitable relief against Larry Griffin, the Trust, and
the Trustee pursuant to section 502(a)(3)?
Section 502(a)(3) of ERISA allows “a participant, beneficiary, or fiduciary
. . . to obtain other appropriate equitable relief (i) to redress [violations of ERISA
or the terms of the plan] or (ii) to enforce any provisions of [ERISA] or the terms
of the plan.” 29 U.S.C. § 1132(a)(3)(B). The Supreme Court has narrowly
interpreted the term “other equitable relief” to include only “those categories of
relief that were typically available in equity . . . .” Mertens v. Hewitt Assocs., 508
U.S. 248, 256 (1993); see also Great-West Life & Annuity Ins. Co. v. Knudson, 534
U.S. 204, 210 (2002). Thus, if a plan or a plan’s fiduciary seeks to impose
personal liability on a defendant for breach of contract, we would not have
jurisdiction under section 502(a)(3) because such relief was not typically
available in equity. Knudson, 534 U.S. at 210; see also Bauhaus USA, Inc. v.
Copeland, 292 F.3d 439, 444-45 (5th Cir. 2002). If, however, the plan or the
plan’s fiduciary seeks restitution in equity in the form of a constructive trust or
equitable lien, the action would fall under section 502(a)(3) because the action
would be classified as equitable. Knudson, 534 U.S. at 213. The parties dispute
whether the nature of this lawsuit is equitable or legal.
The Supreme Court has decided two cases that are instructive on this
issue: Knudson and Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356
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(2006). In Knudson, a benefit plan sued to recover medical benefits it had paid
after the beneficiary, Janette Knudson, received a settlement from a third-party
tortfeasor. 534 U.S. at 207. The plan had a reimbursement provision that
required the beneficiary to reimburse the plan for any medical expenses
recovered from third parties. Id. The plan sought an injunction and declaratory
relief; however, the Court was not convinced that the nature of the action was
equitable. Id. at 210. It noted that “petitioners seek, in essence, to impose
personal liability on respondents for a contractual obligation to pay
money—relief that was not available typically in equity.” Id. The Court pointed
out that “a plaintiff could seek restitution in equity, ordinarily in the form of a
constructive trust or an equitable lien, where money or property identified in
good conscience to the plaintiff could clearly be traced to particular funds or
property in the defendant’s possession.” Id. at 213. “Thus, for restitution to lie
in equity, the action must seek not to impose personal liability on the defendant,
but to restore to the plaintiff particular funds or property in the defendant’s
possession.” Id. at 214.
Ultimately, the Court concluded that the action did not lie in equity
because “the funds to which petitioners claim an entitlement under the Plan’s
reimbursement provision—the proceeds from the respondents’ tort action—are
not in respondents’ possession.” Id. Because the settlement order showed that
the checks were paid to a special needs trust and to the Knudsons’
attorney—neither of whom were named as defendants—the claim was legal, not
equitable. Id. However, the Court specifically left open the question of “whether
petitioners could have obtained equitable relief against respondents’ attorney
and the trustee of the Special Needs Trust . . . .” Id. at 220.
In Sereboff, the Court addressed a situation where the funds sought by the
plan’s fiduciary were in the defendants’ possession. 547 U.S. at 362-63. After
the Sereboffs filed a state tort suit to recover for injuries from an automobile
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accident, the plan asserted a lien on the anticipated proceeds from the suit
because the agreement between the plan and its beneficiary contained a
reimbursement provision. Id. at 359-60. The plan’s administrator sued the
Sereboffs when they failed to reimburse the plan upon recovery from the third
party. Id. at 360. The parties agreed that the Sereboffs would preserve the
disputed funds in an investment account until the suit was resolved. Id.
Although the Sereboffs argued that Knudson prevented the plan from
recovering, the Court found that the “impediment to characterizing the relief in
Knudson as equitable is not present here” since the plan’s fiduciary “sought
specifically identifiable funds that were within the possession and control of the
Sereboffs – that portion of the tort settlement due [the fiduciary] under the
terms of the ERISA plan, set aside and preserved [in the Sereboffs’] investment
accounts.” Id. at 362-63 (internal quotation marks and citation omitted and
second alteration in original). The Court distinguished Knudson, noting that
because the plan’s administrator sought recovery from a “particular fund from
the defendant,” the suit was equitable and could proceed pursuant to section
502(a)(3)(B)(ii). Id. at 363. Thus, whether the lawsuit seeking to impose a
constructive trust should be characterized as legal or equitable depends on
whether “money or property identified in good conscience to the plaintiff could
clearly be traced to particular funds or property in the defendant’s possession.”
Knudson, 534 U.S. at 213; see also Sereboff, 547 U.S. at 363.
We have established a three-part test for determining whether the relief
sought is equitable within the meaning of ERISA. See Bombardier Aerospace
Emp. Welfare Benefit Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348, 356
(5th Cir. 2003). This test asks whether the plan seeks “to recover funds (1) that
are specifically identifiable, (2) that belong in good conscience to the Plan, and
(3) that are within the possession and control of the defendant beneficiary[.]” Id.
(emphasis added).
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In Bombardier, a benefit plan sued one of its beneficiaries and the
beneficiary’s law firm—which held the proceeds from a third-party tort suit in
trust on behalf of the beneficiary—to recover for medical expenses paid on the
beneficiary’s behalf. 354 F.3d at 350. First, we concluded that the law firm was
a proper defendant because “Congress did not see fit . . . to include a . . .
limitation on the set of proper defendants to a § 502(a)(3) action.” Id. at 354.
Next, we found that the suit was equitable in nature because all three elements
of the test were met. Id. at 357-58. The plan sought identifiable funds that
belonged in good conscience to the plan under the reimbursement provision. Id.
at 356. The third element—that the beneficiary have control over and
possession of the disputed funds—was met because the “Plan’s participant . . .
ha[d] ultimate control over, and thus constructive possession of, the disputed
funds” held in trust by his attorney on his behalf. Id. Because the “Plan [did]
not seek to impose personal liability on either [the beneficiary] or his counsel,”
we concluded that section “502(a)(3) authorize[d] the Plan’s claim for relief.”
Id. at 358. Two other circuits have agreed that a constructive trust can be
imposed on funds held by an attorney.3 See Longaberger Co. v. Kolt, 586 F.3d
459, 469 (6th Cir. 2009) (holding that a plan may obtain an equitable lien
against an attorney); Wal-Mart Stores, Inc. Assocs.’ Health & Welfare Plan v.
Wells, 213 F.3d 398, 401 (7th Cir. 2000) (holding that a plan’s action for a
constructive trust over funds held in escrow by a beneficiary’s attorney was
equitable in nature and permissible pursuant to section 502(a)(3)).
The Bombardier opinion distinguished Bauhaus, in which we held that
funds deposited in a state court’s registry in anticipation of an interpleader
action were not in the defendant beneficiary’s actual or constructive possession
or control. 354 F.3d at 356 (discussing Bauhaus, 292 F.3d at 445). Because the
3
The Griffins’ attorney was not sued in this case.
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funds in Bauhaus were in the court’s registry and thus outside of the defendant’s
control, we concluded that the plan was trying to impose personal liability on the
defendant beneficiary, and the action could not proceed under section 502(a)(3).
Bauhaus, 292 F.3d at 444-45. Bombardier also discussed Knudson, noting that
in that case, “the funds had been placed in a Special Needs Trust, as mandated
by California law, to provide for the beneficiary’s care, and the trustee was
totally independent of the plan beneficiary.” Bombardier, 354 F.3d at 356.
Here, ACS and FKI argue that the district court erroneously interpreted
Knudson as requiring dismissal for lack of subject matter jurisdiction. The
district court concluded that because Larry Griffin did not have legal title to the
funds, the action does not lie in equity. We agree with ACS and FKI that this
case is distinguishable in one respect from Knudson. Here, the plaintiffs
specifically named the Trustee and the Trust as defendants, which was not the
case in Knudson. See 534 U.S. at 220 (leaving open the question of “whether
petitioners could have obtained equitable relief against respondents’ attorney
and the trustee of the Special Needs Trust . . .”). However, this difference does
not resolve the remaining question of whether it matters that the “defendant
beneficiary” does not have actual or constructive possession or control over the
funds. See Bombardier, 354 F.3d at 356.
In defending the district court’s decision, Larry Griffin, the Trust, and the
Trustee do not dispute that the first two elements of our test have been met in
this case; rather, they argue that the district court’s decision should be upheld
because no defendant ever had “possession” of the disputed funds. Case law
indicates that both actual and constructive possession satisfy the “possession”
requirement of the three-part test. See Bombardier, 354 F.3d at 356
(constructive possession); Admin. Comm. of the Wal-Mart Stores, Inc. v. Varco,
338 F.3d 680, 691 (7th Cir. 2003) (actual possession). We therefore must
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evaluate the issue of “possession” with respect to Larry Griffin, the Trust, and
the Trustee.
1. Larry Griffin
We conclude that the third element of the Bombardier test has not been
met with respect to Larry Griffin, as he does not have actual or constructive
possession of the funds. Because the settlement agreement established a special
needs trust on his behalf, Larry Griffin does not have possession or control over
the money. The Trustee will use the money to provide for Larry Griffin, who was
determined to be an “incapacitated person” under Texas law. Knudson indicates
that the beneficiary of a special needs trust is not the proper party to a suit
under section 502(a)(3), as he does not “possess” the funds. See 534 U.S. at 214.
Even if we were to find that Larry Griffin had fleeting possession or control over
the funds at the time of the settlement agreement, he no longer has either
possession or control. Thus, ACS and FKI cannot obtain equitable relief from
Larry Griffin, as a judgment in ACS and FKI’s favor would make Larry Griffin
personally liable for a money judgment. See Knudson, 534 U.S. at 214. We
therefore affirm the district court’s decision to dismiss ACS and FKI’s claim
against Larry Griffin.
2. The Trustee and the Trust
The issue of whether FKI and ACS are entitled to a constructive trust on
the funds received by the Trust and the Trustee from the annuity purchased by
Hartford CEBSCO is more complicated. The Trust and the Trustee do not have
actual possession of the funds, because, pursuant to the settlement agreement
between Larry Griffin and the third-party tortfeasor, SAFECO “assign[ed] its
obligation to pay periodic payment to Hartford [CEBSCO]” which purchased an
annuity from Hartford Life Insurance Company and directed payments to be
made to the Trust. Thus, Hartford CEBSCO—not the Trust and the
Trustee—actually possesses the annuity. Indeed, the only attachment to the
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document establishing the Trust is a statement that the Trust’s initial assets
consist of “[f]uture periodic payments within the meaning of Section 104(a)(2) of
the Internal Revenue Code of 1986 . . . .”
Further complicating the matter, because of the way a special needs trust
is structured, Larry Griffin—as the beneficiary—does not currently have
possession or control over the funds. Thus, applying the third prong of our
three-part test in Bombardier, ACS and FKI cannot impose a constructive trust
on funds that the defendant beneficiary does not possess or control. 354 F.3d at
356. Here, the funds are not “within the possession and control of the defendant
beneficiary.” Id. (emphasis added).4
FKI and ACS rely on Bombardier for the proposition that a benefit plan
can recover from a third party that is holding the funds “on behalf of a
plan-participant client who is a traditional ERISA party.” Id. at 353. However,
that is not the case here, because unlike the attorney in Bombardier, who was
4
FKI and ACS cite two cases where circuit courts have allowed a section 502(a)(3)
claim to proceed where a benefit plan sued the trustee of a trust formed to benefit the plan’s
beneficiary. See Admin. Comm. for the Wal-Mart Stores, Inc. Assoc.’ Health & Welfare Plan
v. Horton, 513 F.3d 1223, 1228-29 (11th Cir. 2008); Admin. Comm. for the Wal-Mart Stores,
Inc. Assoc.’ Health & Welfare Plan v. Shank, 500 F.3d 834, 836-37 (8th Cir. 2007). In Horton,
the Eleventh Circuit concluded that a benefit plan could use section 502(a)(3) to recover “a
specifically identifiable fund in possession of a defendant.” In that case, the employee
beneficiary of the plan was also the conservator for her son, a “covered person” who was
injured and received benefits. 513 F.3d at 1228. The court concluded that the money held by
the trustee “has been identified as belonging in good conscience to the Administrative
Committee by virtue of the Plan’s terms, and the money can clearly be traced to a particular
fund in the defendant’s possession.” Id. at 1228-29. It noted that “[t]he fact that [the trustee]
holds the funds as a third party” did not defeat the plan’s claim. Id. at 1229. That case did
not involve a special needs trust or a trustee who was not herself a beneficiary.
The Eighth Circuit in Shank did address a special needs trust and allowed imposition
of a constructive trust on funds held in that trust. 500 F.3d at 836-37. The court concluded
that the suit was equitable because the plan (1) sought the “specific funds . . . owed under the
terms of the plan[;] (2) from a specifically identifiable fund that is distinct from Shank’s
general assets—i.e., the special needs trust; and (3) that is controlled by defendant James
Shank, the trustee.” Id. at 836. However, while citing Bombardier, the court did not address
the meaning of “defendant beneficiary” as discussed in that case. We are bound by
Bombardier; these cases are inapposite.
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found to be subject to the client’s control, the Trust in this case cannot be
controlled by Larry Griffin.
To get around Bombardier’s third element, ACS and FKI argue that Larry
Griffin had fleeting possession and control over the money that went to the
special needs trust when he signed the settlement agreement in the state court
lawsuit. Thus, they argue that “those funds were traceable to . . . the Trust
established for Larry’s exclusive benefit.” However, Bombardier’s third prong
asks whether the plan seeks “to recover funds . . . that are within the possession
and control of the defendant beneficiary[.]” Id. at 356 (emphasis added). The
test makes no mention of whether the funds ever were within the possession or
control of the defendant beneficiary. Thus, even if we were to find that Larry
Griffin had fleeting possession of the funds, we are still bound by our prior
precedent, which requires the defendant beneficiary to have either possession
or control of the funds at the time that the defendant is seeking equitable relief.
Id. Therefore, we conclude that the district court properly dismissed FKI and
ACS’s claim for equitable relief against the Trust and the Trustee.
B. Did the district court err in dismissing ACS and FKI’s claim against
Judith Griffin?
ACS and FKI argue that the district court erroneously dismissed their
claim against Judith Griffin and abused its discretion in denying their motion
for a default judgment against her, as she never filed an answer despite being
properly served. Judith Griffin has never filed anything in the district court or
this court. Despite Judith Griffin’s failure to appear, a “party cannot waive
subject matter jurisdiction by its silence.” Forsythe v. Saudi Arabian Airlines
Corp., 885 F.2d 285, 289 n.6 (5th Cir. 1989) (per curiam). We may affirm on any
basis supported by the record, United States v. Taylor, 482 F.3d 315, 318 (5th
Cir. 2007), and we must review our own jurisdiction sua sponte. Steel Co. v.
Citizens for a Better Env’t, 523 U.S. 83, 94 (1998). In doing so, we conclude that
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we lack subject matter jurisdiction over ACS and FKI’s claims against Judith
Griffin and, therefore, the district court’s decision to dismiss the claim against
Judith Griffin should be affirmed.
The second element of Bombardier’s three-part test requires that the Plan
seek to recover funds that “belong in good conscience to the Plan.” 354 F.3d at
356. ACS and FKI cannot show that the money in Judith Griffin’s possession
belongs in good conscience to the Plan, as the money awarded to Judith Griffin
was not compensation for Larry Griffin’s injury. The Order approving the
settlement agreement awarded Judith Griffin $40,000.00 “per the terms of the
Decree of Divorce,” which ordered “that [she] receive $40,000.00 in regard to her
claims for loss of consortium.” In re Marriage of Larry Griffin & Judith Griffin,
No. 2007-1807-DR, Final Decree of Divorce (307th Dist. Tex. Dec. 3, 2007).
Although a loss of consortium claim is derivative of the injured party’s claim, it
is a separate cause of action. McGovern v. Williams, 741 S.W.2d 373, 374 (Tex.
1987).
Absent a term in the Plan Agreement specifying that the Plan can seek
reimbursement out of an award for loss of consortium or out of an award made
separately to a beneficiary’s spouse—as is the case here—the Plan cannot seek
to recover from money awarded to a member’s spouse for such claims. This
money was compensation paid separately to Judith Griffin for the loss of her
husband’s society and companionship, not as compensation to Larry Griffin for
his injury. Because there is no evidence that Judith Griffin was a party to the
Plan Agreement, we hold that under these facts, the Plan cannot recover from
Judith Griffin; therefore, we affirm the district court’s decision to dismiss the
claim for equitable relief against Judith Griffin. We find it unnecessary to
address ACS and FKI’s claim that the district court erred in denying their
motion for a default judgment against her, “since absence of jurisdiction
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altogether deprives a federal court of the power to adjudicate the rights of the
parties.” Gonzalez v. Crosby, 545 U.S. 524, 534 (2005).5
Because we affirm the district court’s decision to dismiss ACS and FKI’s
claims against Larry Griffin, the Trust, the Trustee, and Judith Griffin, we find
it unnecessary to address FKI and ACS’s additional arguments.
AFFIRMED.
5
Even assuming we could address this argument on the merits, ACS and FKI failed
to object to the magistrate’s decision to deny their motion for a default judgment. Our review
would therefore be limited to plain error. See Douglass v. United Servs. Auto. Ass’n, 79 F.3d
1415, 1428-29 (5th Cir. 1996) (en banc), superceded by statute on other grounds, 28 U.S.C.
§ 636(b)(1) (extending the time to file objections from ten to fourteen days).
Here, assuming arguendo there was an error, it would not have been plain. First, as
discussed above, ACS and FKI’s claim against Judith Griffin was not meritorious. Second, a
party “is not entitled to a default judgment as a matter of right, even where the defendant is
technically in default.” Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir. 2001) (per curiam) (internal
quotation marks and citation omitted). We have noted that “[d]efault judgments are a drastic
remedy, not favored by the Federal Rules and resorted to by courts only in extreme situations.”
Id. (internal quotation marks and citation omitted). Therefore, it would not have been plain
error to deny FKI and ACS’s motion for a default judgment.
13