The opinion of the court was delivered by: Hon. Roger T. Benitez United States District Judge
ORDER: (1) DENYING DEFENDANTS' MOTION TO SET ASIDE CLERK'S ENTRY OF DEFAULT; AND (2) GRANTING PLAINTIFF'S REQUEST FOR DEFAULT JUDGMENT
Defendants GERALDO ALBERTO MAYER, JR., also known as ALBERTO MAYER, also known as GERARDO ALBERTO MAYER, also known as ALBERTO B. MAYER, an individual; MAYER CUSTOM HOUSE BROKER, INC., a California Corporation; and ALBERTO MAYER dba MAYER CUSTOMHOUSE BROKER ("Defendants") move to set aside the Clerks's Entry of Default. In their Motion to Set Aside Default, Defendants claim that good cause exists to set aside the entry of default because (1) the default was not the result of willful misconduct or intentional delay; (2) Plaintiff would suffer no prejudice if the default was set aside; and (3) Defendants have a meritorious defense. Plaintiff HARTFORD FIRE INSURANCE COMPANY ("Plaintiff") opposes Defendants' Motion and asks the Court to enter a final order of default. After a hearing on these motions and for the reasons that follow, the Court DENIES Defendants' Motion to Set Aside Default and GRANTS Plaintiff's Motion for Default Judgment.
This case arises out of Defendants' customs broker business in which Defendants executed and delivered customs bonds on Plaintiff's bond forms. Sometimes in 2004, Plaintiff received claims from Customs and Border Protection on bonds Defendants had executed and delivered for a certain importer named Zuran Company, Inc. ("Zuran"). On September 21, 2004, Plaintiff instructed Defendants to stop executing and delivering Zuran bonds. Nevertheless, Defendants continued executing Zuran bonds without Plaintiff's permission, while neither reporting these bonds nor remitting premiums to Plaintiff. On July 29, 2005, Plaintiff again instructed Defendants to stop executing Zuran bonds. Plaintiff ultimately learned that Customs and Border Protection assessed over $2,000,000 in liquidated damages against Hartford on Zuran bonds that were executed after September 21, 2004. After a long negotiation process, Plaintiff was able to mitigate these damages to $392,802.20. Plaintiff incurred $26,528 in attorney's fees while negotiating with Customs and Border Protection.
On April 18, 2007, Plaintiff filed a Complaint against Defendants alleging negligence, breach of fiduciary duty, conversion, and fraud and deceit. Plaintiff asked for $419,33.20 in damages, plus pre-judgment interest from September 22, 2006 (the date on which Plaintiff remitted its final payment to Customs and Border Protection) to the date of judgment. On June 13, 2007, Plaintiff properly served Defendants via personal service. After Defendants failed to answer or otherwise respond to the Complaint, Plaintiffs obtained an Entry of Default from the Clerk of Court on July 12, 2007. On July 18, 2007, Plaintiffs served the copies of the Entry of Default on Defendants by mail.
The Court has wide discretion to set aside an entry of default. O'Connor v. Nevada, 27 F.3d 357, 364 (9th Cir. 1994), cert. denied, 514 U.S. 1021 (1995) (citing Mendoza v. Wight Vineyard Mgmt., 783 F.2d 941, 945 (9th Cir. 1986)) ("The court's discretion is especially broad where, as here, it is entry of default that is being set aside, rather than a default judgment."). The district court may set aside an entry of default "[f]or good cause shown." Fed. R. Civ. Proc. 55(c). "The good cause analysis considers three factors: (1) whether [the defendant] engaged in culpable conduct that led to the default; (2) whether [the defendant] had a meritorious defense; or (3) whether reopening the default judgment would prejudice [the plaintiff]." Franchise Holding II, LLC. v. Huntington Rest.'s Group, Inc., 375 F.3d 922, 925-26 (9th Cir. 2004), cert. denied, 544 U.S. 949 (2005) (citations omitted). "This tripartite test is disjunctive. Hence, a finding that the plaintiff will be prejudiced, or that the defendant lacks a meritorious defense, or that the defendant's own culpable conduct prompted the default is sufficient to justify the district court's refusal to vacate a default judgment." Cassidy v. Tenorio, 856 F.2d 1412, 1415 (9th Cir. 1988) (citations omitted). Defendants have "the burden of showing that any of these factors favored setting aside the default." Franchise Holding, 375 F.3d at 926.
A. Defendants' Culpable Conduct Prompted the Entry of Default
The first prong in a good cause analysis is determining whether Defendants engaged in "culpable conduct" that led to the default. The Ninth Circuit explained that a defendant's conduct is culpable if "a defendant 'has received actual or constructive notice of the filing of the action and failed to answer.'" Franchise Holding, 375 F.3d at 926 (citing Direct Mail Specialists, Inc. v. Eclat Computerized Techs., Inc., 840 F.2d 685, 690 (9th Cir. 1988)). Culpable conduct is conduct for which "there is no explanation of the default inconsistent with a devious, deliberate, willful, or bad faith failure to respond." Employee Painters' Trust v. Ethan Enter.'s, Inc., 480 F.3d 993, 1000 (9th Cir. 2007) (citing TCI Group Life Ins. Plan, 244 F.3d 691, 698 (9th Cir. 2001)).
Here, Defendants presented two inconsistent explanations for their failure to answer the Complaint. At first, Defendants falsely claimed that they were never personally served; that Defendant Mayer was away on a three-week-long business trip at the time of service; and that Mayer's relative was served instead of Mr. Mayer. In fact, Mayer had not yet left for his trip on June 13, 2007, when the process server served him at his home. Mayer subsequently admitted that he traveled to Mexico with his family on June 15th or 16th, 2007 and returned "on or shortly after July 11, 2007." Mayer Decl. ¶ 4, Docket Entry No. 10.
Confronted with an affidavit from the process server, Mayer later introduced a second version of the story in an attempt to excuse his false statements regarding service. This time, he alleged that he was "confused" and "not good with dates" when he falsely claimed that he was traveling on business on the day of service. See Mayer Decl. ¶ 7, Docket Entry No. 10. Mayer claimed that he set aside and did not open the envelope containing the Complaint because he mistakenly thought it contained divorce papers. See id. ¶¶ 1-3. Nevertheless, even after confronting his wife later that day and discovering she was not divorcing him, Mayer still failed to open the envelope. Id. Mayer's excuse for not opening the package was that he had mistakenly opened another envelope on his desk instead. Id.
Such inaction, without a good faith explanation by Defendants, constitutes 'culpable conduct' sufficient to enter a default judgment against them. See Franchise Holding, 375 F.3d at 926. Moreover, because Mayer repeatedly lied about the events related to service of process, the Court is not convinced that ...