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Bronson v. Green Tree Servicing

March 3, 2009

MARTHA BRONSON, PLAINTIFF,
v.
GREEN TREE SERVICING, LLC, GREEN TREE FINANCIAL SERVICING CORP., GREEN TREE INVESTMENT HOLDINGS, LLC (FKA CFN INVESTMENT HOLDINGS, LLC) VENAE VALDEZ, RANDY LAKE, US BANK TRUST NATIONAL ASSOCIATION, US BANK NATIONAL ASSOCIATION, GREEN TREE HE/HI BORROWERS, LLC, SPECIALIZED, INC., ELVIA BOUCHE, FORTRESS TRUST II, FORTRESS INVESTMENT GROUP, LLC, DEFENDANTS.



ORDER SETTING ASIDE DEFAULT AND DISMISSING CLAIMS

Martha Bronson ("Plaintiff") filed this action against the defendants alleging unlawful conduct with respect to the execution and servicing of two loans. Plaintiff filed a Third Amended Complaint ("TAC") which several defendants failed to answer in a timely manner. Entries of default were ordered by the Court against Green Tree Servicing, LLC ("Green Tree Servicing") and Fortress Investment Group, LLC ("Fortress Investment"). Defendants Green Tree Servicing and Fortress Investment move to set aside the entry of default filed against them, arguing that it is void because there is "good cause" to set aside the entry and that service of process was defective. There is also a motion to dismiss the TAC by the following defendants: Green Tree Servicing, Green Tree Financial Servicing Corp., Green Tree Investment Holdings, LLC (fka CFN Investment Holdings, LLC), US Bank Trust National Association, US Bank National Association, Green Tree He/Hi Borrowers, LLC, Fortress Trust II, and Fortress Investment Group, LLC. For the following reasons, this Court GRANTS the Motion to Set Aside the Entry of Default and GRANTS the Motion to Dismiss the Third Amended Complaint.

BACKGROUND

Plaintiff obtained two loans from Green Tree Financial Servicing Corporation, one in 1994 and one in 1999. (Third Amended Complaint "TAC" ¶¶ 11-13.) The 1994 loan was acquired to finance the construction of a swimming pool. (TAC ¶ 11.) Bronson alleges that the 1999 loan was solicited by the defendants late in 1998 under the promise of consolidating her 1994 loan and an unrelated car loan with a lower interest rate.

(TAC ¶ 12.) She alleges that the defendants told her to stop making loan payments on her car in reliance of the consolidation loan. (TAC ¶ 13.) As a result of this advice, Bronson went into default on her car loan and the vehicle was repossessed in April of 1999, just a month before her consolidation loan finally went into effect. Id.

Sometime around the late 1990s, Green Tree Financial and its subsidiaries were purchased by Conseco Inc. (Defs.' Mot. Dismiss Third Am. Compl. 3:14.). After this acquisition, Green Tree Financial became known as Conseco Finance Corporation ("CFC"). Id. at 3:16-18. Then on December 17, 2002, CFC and their subsidiary, Conseco Finance Servicing Corp., filed for relief under Chapter 11 of the Bankruptcy Code in the Northern District of Illinois. Id. at 3:20-23.

The bankruptcy court's ruling approved the CFC debtors Sixth Amended Chapter 11 plan which contained a distribution scheme for the sale of CFC's assets free of all future claims against them. Id. at 4-5. The September 9, 2003 ruling stated that "[e]xcept as expressly permitted by the Purchase Agreement, all persons and entities . . . holding Interests or Claims of any kind or nature whatsoever against the CFC Debtors or in the Purchased Assets . . . are forever barred, estopped, and permanently enjoined from asserting, prosecuting or otherwise pursuing against the Buyer . . . such persons' or entities' Interest or Claims." (Schwartz Decl. Ex. A at 11-12).

Based on the allegedly unlawful execution and servicing of the two loans, Plaintiff asserted ten*fn1 causes of action in her Second Amended Complaint ("SAC"). She claimed, inter alia, that from approximately September of 1993 through 1997 "plaintiff encountered a myriad of problems with Green Tree including its unauthorized and illegal charges of insurance; misapplication of payments received; delayed posting of payments resulting in unlawful interest charges; repeated failures to provide explanations about apparent errors on statements and repeated failures to correct the same; repeated refusals to explain how and on what basis the [p]rincipal/interest is applied; repeated failures to send accountings upon request; repeatedly sending misleading, deceptive and confusing monthly account statements." (SAC ¶ 11.) Based on this alleged misconduct by the defendants, Bronson brought the following ten causes of action in her SAC:

(1) Misrepresentation, undue influence, fraud; (2) Rescission based on contracts of adhesion and unconscionability; (3) Rescission based on lack of agreement; (4) Breach of loan extension agreements and of contract to negotiate a settlement of both loans; (5) Home Owners Equity Protections Act; (6) Rosenthal Fair Debt Collection Practices Act; (7) California Unfair Business Practices Act; (8) California Code of Civil Procedure §§ 1803.2, 1720; (10) RESPA, 12 U.S.C. § 2607, Regulation X, 12 C.F.R. § 3500.14(c); and (11) California Business and Professions Code § 17500.

In response to the SAC, defendants Green Tree Investment Holdings and Green Tree Servicing moved for partial summary judgment on all claims against them. (Docket at 52.) Based on the bankruptcy court order prohibiting all future claims on the CFC assets, this Court granted a partial summary judgment in favor of the moving defendants on March 28, 2005, ruling that all of the ten causes of action asserted in Bronson's SAC were barred against Green Tree Servicing and Green Tree Financial under the Sixth Amended Chapter 11 plan. (Docket at 66.)

Over two years after the partial summary judgment, Bronson filed a TAC. The amended complaint reasserts all of the causes of action from the SAC, several new causes of action, and is directed at all of defendants from the SAC as well as some new ones, most of whom she believes are liable as assignees.

OPINION

A. Motion to Set Aside Entry of Default for Good Cause

1. Legal Standard

An entry of default may be set aside "for good cause." Fed. R. Civ. P. 55(c). The standard of "good cause" is slightly more favorable for the party in default when it is an entry of default, rather than a default judgment. Hawaii Carpenters' Trust Funds v. Stone, 794 F.2d 508, 513 (9th Cir. 1986) ("The standards for setting aside entry of default under Rule 55(c) are less rigorous than those for setting aside a default [judgment]."); 10A Charles Alan Wright et al., Federal Practice and Procedure § 2696, at 142 (3d ed. 1998) ("[A] default entry may be set aside for reasons that would not be enough to open a default judgment.").

A default judgment or entry of default may be set aside for good cause if the moving party shows "mistake, inadvertence, surprise, or excusable neglect." Fed. R. Civ. P. 60(b)(1). However, the motion to set aside an entry of default may be denied if, "(1) the plaintiff would be prejudiced if the judgment is set aside, (2) defendant has no meritorious defense, or (3) the defendant's culpable conduct led to the default." In re Hammer, 940 F.2d 524, 525-26 (9th Cir. 1991). The test is disjunctive. Id. at 526. Although these grounds for relief provided in Rule 60(b) are for default judgments, given the parallels between a default entry and judgment, their use is appropriate in determining whether to set aside default. See Hawaii Carpenters' Trust Funds, 794 F.2d at 513. The grounds, however, should be "liberally interpreted when used on a motion for relief from an entry of default." Id. Furthermore, decisions of setting aside default judgments and entries of default are left to the court's discretion, see Savarese v. Edrick Transfer & Storage, Inc., 513 F.2d 140, 146 (9th Cir. 1975). In fact, the discretion to set aside an entry of default is "especially broad." Mendoza v. Wight Vineyard Management, 783 F.2d 941, 945 (9th Cir. 1986).

2. Defendants Have a Meritorious Defense

As discussed in more detail in section B of this order concerning the motion to dismiss plaintiff's TAC, defendants have a meritorious defense for all of the causes of action asserted and therefore successfully establish grounds for setting aside the entry of default.

3. Motion to Set Aside Entry of Default for Lack of Proper Service

The moving defendants also argue that the entry of default should be set aside because service of process was defective. This Court agrees that the lack of proper service further justifies setting aside the entry of default.

The Federal Rules of Civil Procedure 5(b)(1) requires that "[i]f a party is represented by an attorney, service under this rule must be made on the attorney unless the court orders service on the party." (emphasis added)

Plaintiff argues that she attempted to serve the moving defendants' attorney, Donald Cram ("Cram") but that he refused to accept service for his clients. Cram states that his refusal was with respect to the clients he did not represent. In Plaintiff's request to Cram, she stated, "Please immediately advise if you will accept service on behalf of any of the clients you have told me that you represent, including, but not limited to: GREEN TREE SERVICING, LLC, GREEN FINANCIAL SERVICING CORPORATION . . ." (emphasis added). The list included parties not represented by Cram. This Court believes that given the language of this request, it was within defense counsel's reasonable discretion not to accept service for clients he did not represent.

Plaintiff also alleges that the moving defendants' counsel was served on the day that the court ordered the preliminary injunction and the TAC complaint was filed. Pls' Opp'n Mot. Set Aside Default 2:18-20. However, this Court finds no certificate of service that supports this conclusion. All of the certificates of service that are in ...


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