It Happens to the Best of Us: $1.26 Billion Default Judgment Entered Against PepsiCo

Anyone who has consulted a lawyer about defending a lawsuit knows that if you don't file your answer on time, the plaintiff can can a "default judgment" against you. We can imagine someone who has never been sued before and has not had a chance to consult a lawyer to fall into this trap. But, could it also happen to a large, multi-national corporation which has been a party to many lawsuits, and has a bunch of lawyers on its payroll? Apparently it can.

The case in point is a recent $1.26 Billion default judgment entered against PepsiCo, Inc. in the Wisconsin state court. According to the news buzz, in April 2009, Charles Joyce and James Voigt filed a lawsuit alleging PepsiCo, Inc. developed Aqafina based on misappropriated trade secrets from the confidential conversations plaintiffs had with their distributors about selling purified water. The lawsuit was served on PepsiCo, Inc.'s agent in North Carlina. When PepsiCo did not answer the complaint, plaintiffs obtained the default judgment.

On October 13, 2009, PepsiCo's attorneys brought motion to set aside the judgment. They are making various arguments, that the documents were not properly served on the company's agent in North Carolina, that the papers were mislaid by PepsiCo's employees instead of being forwarded to the attorneys, etc. According to Yahoo! News, PepsiCo's attorneys have made this account of the events in their motion so set aside the judgment:

• June 11, 2009: Stith & Stith, PepsiCo's law firm in North Carolina was "allegedly" served with process, but PepsiCo was not made aware of this;
• September 15, 2009: Stith & Stith sends a correspondence concerning this lawsuit to Tom Tamoney in PepsiCo's legal department, but his secretary Kathy Henry was so occupied with other matters that she did not communicate the letter to anyone nor did she enter it into the log;
• September 29, 2009: Plaintiffs Charles Joyce and James Voigt request entry of default judgment against PepsiCo;
• September 30, 2009: The Wisconsin court enters default judgment against PepsiCo;
• October 5, 2009: Kathy Henry receives notice of judgment, and as she enters it into the log, she is reminded about the earlier letter;
• October 6, 2009: PepsiCo's attorneys learn about the case.

At the end of the day, the court may set aside the judgment and allow PepsiCo to file its answer and defend the lawsuit. But in the meantime, PepsiCo's attorneys and employees will need to explain this public embarrassment. How could it be that such a large company overlooks defending a good size lawsuit as this? Can a large company be at a disadvantage in such matters, because the various departments cannot effectively communicate with each other?

Some of the materials for this blog were obtained from ABA Journal and Yahoo! News. For additional information visit the Wisconsin Court web site or run a search on Google.

Robin Mashal is a partner at the law firm of Hong & Mashal LLP. He can be reached at (310) 286-2000.