This case was referred to the undersigned pursuant to Eastern District of California Local Rule 302(c)(19) and 28 U.S.C. § 636(b)(1) for hearing on plaintiff's motion for default judgment against defendants Belinda Smith and Jacob Winding. Dckt. No. 30. A hearing was held on the motion on December 21, 2011; however, all parties failed to appear.*fn1 For the reasons stated herein, the motion for default judgment will be denied, and the Clerk of Court's entry of default as to defendants Belinda Smith and Jacob Winding will be set aside.
On July 20, 2010, plaintiff filed a verified complaint in rem and in personam for foreclosure of a vessel owned by defendant owner Belinda Smith. Compl., Dckt. No. 1. The complaint alleges that Smith signed a fixed rate promissory note with plaintiff's predecessor National City Bank for $336,653.58 on July 12, 2005, who then granted Smith a preferred ship mortgage. The complaint further alleges that Smith then "allegedly executed" a promissory note in the amount of $110,000 with defendant lienholder Jacob Winding. According to the complaint, Smith defaulted under the promissory note and mortgage by failing to make the monthly payment due on 8/10/08 and all payment accruing thereafter. Plaintiff contends that it is owed $288,648.57, plus interest, costs, and attorney's fees. Plaintiff repossessed the vessel in June 2009. In March 2011, the court issued an order authorizing the United States Marshal to seize the vessel and to surrender its possession to National Maritime Services, which was appointed as substitute custodian of the vessel. Dckt. No. 19.
On May 25, 2011, plaintiff filed a motion for service by publication, contending that it was the most likely method of service that would give defendants actual notice of the pendency of the action since defendants were "avoiding all other methods of service." Dckt. No. 20. Then, on June 1, 2011, the court issued an order granting the motion for service by publication. Dckt. No. 22. On July 25, 2011, plaintiff filed a proof of service by publication in the Stockton Record. Dckt. No. 23.
On September 21, 2011, defendants Smith and Winding filed a notice and motion of acknowledgment of waiver of service of summons, Dckt. No. 24, and an executed waiver of service, Dckt. No. 25, contending that they did not receive service of the complaint until September 20, 2011. Defendants stated that they "acknowledge and waive service of summons in this case" in order to save unnecessary costs of service, and that therefore their answers would be filed within 60 days from the date they were served with the complaint (which they contend was on September 20). Id. Defendants also stated that they had attempted on several occasions to locate National City Bank about their personal property, and that therefore the "complaint is a welcomed means of communication for the issue at hand." Id.
On October 4, 2011, plaintiff filed an application for entry of default and default judgment.*fn2 Dckt. No. 27. The next day, October 5, 2011, the Clerk of Court entered default as to Smith and Winding. Dckt. No. 28. However, on October 6, 2011, the undersigned issued a minute order stating that "[i]n light of defendants' notice and motion for acknowledgment and waiver of service of summons , the undersigned finds good cause to extend the notice period set forth in E.D. Cal. L.R. 540(d). Accordingly, plaintiff is directed to notice its motion for default judgment in accordance with the timelines set forth in E.D. Cal. L.R. 230(b). Any opposition and/or reply, shall be filed in accordance with E.D. Cal. L.R. 230(c) and (d)." Dckt. No. 29.
Plaintiff then filed a motion for default judgment on November 21, 2011, and noticed the motion for hearing on December 21, 2011. Dckt. No. 30. On November 22, 2011, Smith filed an answer, Dckt. No. 31, and Winding filed an answer and counterclaim, Dckt. No. 32. STANDARDS
It is within the sound discretion of the district court to grant or deny a default judgment. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980); see also E.D. Cal. L.R. 540 (regarding default judgments in actions in rem).*fn3 In making this determination, the court considers the following factors:
(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action, (5) the possibility of a dispute concerning the material facts, (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.
Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). As a general rule, once default is entered, the factual allegations of the complaint are taken as true, except for those allegations relating to damages. TeleVideo Systems, Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (citations omitted). However, although well-pleaded allegations in the complaint are admitted by defendant's failure to respond, "necessary facts not contained in the pleadings, and claims which are legally insufficient, are not established by default." Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992).
Setting Aside Entry of Default
The court also has the power to set aside the entry of default "for good cause." Fed. R. Civ. P. 55(c). The Ninth Circuit treats the standard for good cause to set aside an entry of default under Rule 55(c) the same as the excusable neglect standard for relief from judgment under Rule 60(b)(1). "A showing of lack of culpability sufficient to meet the Rule 55(c) 'good cause' standard (for setting aside a default) is ordinarily sufficient to demonstrate as well the 'excusable neglect' or 'mistake' criteria under Rule 60(b)(1) (to set aside a judgment)." TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 697 (9th Cir. 2001)); Franchise Holding II, LLC v. Huntington Restaurants Group, Inc., 375 F.3d 922, 925-26 (9th Cir. 2004).
"At least for purposes of Rule 60(b), 'excusable neglect' is understood to encompass situations in which the failure to comply with a filing deadline is attributable to negligence." Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 394 (1993) (dealing with "excusable neglect" as ground for permitting late filing of creditor's claim under Bankruptcy Rule 9006(b)(1)). What constitutes "excusable" neglect is basically an equitable determination. As noted by the Supreme Court in an analogous context: "Because Congress has provided no other guideposts for determining what sorts of neglect will be considered 'excusable' . . . the determination is at bottom an equitable one, taking account of all relevant circumstances surrounding the party's omission." Id. at 395. The equitable considerations include the danger of prejudice to ...