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Capital Partners Funding, LLC, A v. Trans-Spec Truck Service

January 4, 2013


The opinion of the court was delivered by: Hon. Anthony J. Battaglia U.S. District Judge


On October 10, 2012, Plaintiff Capital Partners Funding, LLC ("Capital") obtained a default judgment in the amount of $360,300.78, against Defendants Trans-Spec Truck Service, Inc. ("Trans-Spec"), Triple H Transportation ("Triple H"), Berlin Transportation ("Berlin), Joseph Howard, and William Howard (collectively, "Defendants").*fn1 (Doc. No. 15.) Defendants now move to vacate the default judgment and the underlying entry of default. (Doc. No. 17.) Pursuant to Civil Local Rule 7.1.d.1, the Court finds the motion suitable for determination on the papers and without oral argument. Accordingly, the motion hearing scheduled for January 24, 2013 is hereby vacated. For the reasons set forth below, the Court GRANTS Defendants' motion.


Capital is a leading factoring provider offering funding to thousands of businesses nationwide. On March 26, 2010, pursuant to a Factoring Master Agreement ("Factoring Agreement") between Capital and Trans-Spec, Capital purchased accounts receivables from Trans-Spec, providing Trans-Spec with an immediate infusion of cash. To induce Capital to enter into the Factoring Agreement, Trans-Spec executed a Continuing Guaranty and Security Agreement ("Guaranty"), whereby Defendants Joseph Howard and William Howard personally guaranteed to pay all amounts due and owing in connection with the Factoring Agreement in the event Trans-Spec failed to honor its obligations.

On May 8, 2012, after countless attempts to collect on the unpaid balance from both Trans-Spec and guarantors Joseph and William Howard, Capital filed the operative complaint. The complaint alleged seven causes of action, including: (1) breach of contract (factoring agreement); (2) breach of contract (guarantor agreement); (3) breach of the implied covenant of good faith and fair dealing; (4) intentional misrepresentation; (5) negligent misrepresentation; (6) accounts stated; and (7) unfair competition. The complaint further alleged that although Triple H and Berlin were not signatories to the Factoring Agreement or the Guaranty, each was jointly and severally liable as the alter egos of Trans-Spec. On April 17, 2012, Capital filed a request for entry of default, (Doc. No. 8), and on April 18, 2012, the Clerk of the Court entered default against all Defendants. (Doc. No. 9). Subsequently, on October 10, 2012, the Court granted in part and denied in part Capital's motion for default judgment.*fn2

(Doc. No. 10). Just over a month later, Defendants filed the instant motion to vacate and set aside the default judgment. (Doc. No. 17.)


Pursuant to Rule 55, subdivision (c), a district court may set aside the entry of default upon a showing of good cause. Once default judgment has been entered, relief is governed by Rule 60(b). Where a defendant seeks relief under Rule 60(b)(1) based upon "excusable neglect," the court applies the same three factors governing the inquiry into "good cause" under Rule 55(c). United States v. Signed Personal Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) ("Mesle "); TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir. 2001) ("TCI"). These three factors, often referred to as the "Falk factors," include (1) whether the defendant engaged in culpable conduct that led to the default; (2) whether the defendant had a meritorious defense; and (3) whether reopening the default judgment would prejudice the plaintiff. Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984); , 244 F.3d at 696. Although the "Falk factors" are disjunctive, such that a court may decline to vacate a default judgment upon a finding of any one of the factors, district courts are not-as a matter of law-required to deny a motion to set aside a default judgment upon a finding of any of the factors. See Brandt v. Am. Bankers Ins. Co. of Fla., 653 F.3d 1108, 1111 (9th Cir. 2011).

Moreover, and more crucially, "judgment by default is a drastic step appropriate only in extreme circumstances . . . [and] a case should, whenever possible, be decided on the merits." Falk, 739 F.2d at Mesle, 615 F.3d at 1089. As recently emphasized by the Ninth Circuit, the "rules for determining when a default should be set aside are solicitous towards movants, especially those whose actions leading to the default were taken without the benefit of legal representation." Mesle, 615 F.3d at 1089. See also TCI,244 F.3d at 695--98. Accordingly, the Court discusses each of Falk factors below, followed by a determination as to whether conditions imposed on the Court's order setting aside the default judgment are warranted.


Defendants' Culpable Conduct "[A] defendant's conduct is culpable if he has received actual or constructive notice of the filing of the action and intentionally failed to answer." TCI, 244 F.3d at 697 (emphasis in original). "The term 'intentionally' means that a movant cannot be treated as culpable simply for having made a conscious choice not to answer; rather, to treat a failure to answer as culpable, the movant must have acted with bad faith, such as an 'intention to take advantage of the opposing party, interfere with judicial decisionmaking, or otherwise manipulate the legal process.' " Mesle, 615 F.3d at 1092 (emphasis added). Thus, culpability involves more than a parties "nonappearance following receipt of notice of the action, but rather conduct which hindered judicial proceedings." TCI, 244 F.3d at 698. A district court should consider a "bevy of equitable factors" when determining culpability. Id. at 697.

Capital argues Defendants' conduct was culpable because they: (1) admit they were properly served with the summons and the Complaint in March 2012; (2) admit they discussed the case with a licensed attorney-an individual who contacted Capital's counsel on behalf of all Defendants to clarify scheduling deadlines; and (3) are sophisticated business entities and individuals familiar with legal proceedings in federal court, and thus understand the consequences of missed deadlines. Defendants argue their conduct was not culpable, and thus excusable, because they: (1) never hired the Massachusetts attorney they initially discussed the case with; (2) after speaking with "a few attorneys about the case generally, without hiring any of them," they were under the impression that it would be foolish to take the case on pro se because "one misstep could cost them tens or hundreds of thousands of dollars;" and (3) they believed that there was no way Capital would be able to obtain a judgment against them because the case is based on frivolous and unsubstantiated allegations. Defendants further argue that Capital seeks to apply the more stringent culpability standard articulated by the Ninth Circuit in Franchise Holding II, LLC v. Huntington Restaurants Group, Inc., 375 F.3d 922 (9th Cir. 2004), which

Mesle court explained is not the "ordinary standard for Rule 55(c) and 60(b) motion[s]," and is only applicable where the defaulting party is represented by counsel or is a "legally sophisticated entity or individual." 615 F.3d at 1093-94.

Although this is a close question, the Court finds Defendants failure to respond to the Complaint after discussing the action with several attorneys, coupled with Defendants' knowledge of the legal system through past involvement in federal litigation-albeit in Massachusetts-is sufficient to warrant a finding of inexcusable culpable conduct.*fn3 Moreover, this case can be differentiated from several cases cited by the TCI court, wherein the defaulting parties' conduct was found excusable. See TCI, 244 F.3d at 697-98. For example, in Gregorian v. Izvestia, 871 F.2d 1515 (9th Cir. 1989), the Ninth Circuit found that where a party knew about the litigation and was served with the summons and the complaint, but elected not to answer or otherwise respond based on the mistaken belief that the court lacked subject matter jurisdiction over the action, such conduct was excusable rather than culpable. Moreover, in Bateman v. United States Postal Service, 231 F.3d 1220 (9th Cir. 2000), the court held that an attorneys sudden absence from the jurisdiction to care for a family emergency warranted vacating a judgment issued for failure to respond to a pending summary judgment motion. Finally, in the often cited case Falk ...

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