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St. Paul Fire and Marine Insurance v. Virginia Surety Company

February 4, 2013

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, PLAINTIFF,
v.
VIRGINIA SURETY COMPANY, INC., DEFENDANT.



The opinion of the court was delivered by: Barry Ted Moskowitz, Chief Judge United States District Court

BRIEFING ON MOTION TO SET ORDER RE: SUPPLEMENTAL ASIDE DEFAULT AND DEFAULT JUDGMENT

Defendant Virginia Surety Company, Inc. ("Virginia Surety") has filed a Motion to Set Aside Default and Default Judgment or to Amend Default Judgment. For the reasons discussed below, the Court orders supplemental briefing from the parties.

I. BACKGROUND

This action arises out of two underlying state court actions: (1) City of San Diego v. RCP Block and Brick, Inc. et al., (Superior Court, County of San Diego, Case No. 37-2008-00090291-CU-CD-CTL) ("City of San Diego Action"); and, (2) Woodland Creek Homeowners Association v. Wind River Woodland Partners, LLC, et al., (Superior Court, County of San Mateo, Case No. CIV493225) ("Woodland Creek Action").

With respect to both of these actions, Plaintiff St. Paul Fire and Marine Insurance Company ("St. Paul") contends that it is entitled to equitable contribution from Virginia Surety because Virginia Surety has not paid its fair share of the costs of defending and indemnifying the insured parties in those actions. St. Paul also seeks a declaration regarding the respective rights and obligations of St. Paul and Virginia Surety under the commercial general liability insurance policies in question.

St. Paul commenced this action on August 17, 2011. Default was entered against Virginia Surety on November 10, 2011. In an Order filed on August 14, 2012, the Court granted St. Paul's motion for default judgment. Judgment was entered in favor of St. Paul and against Virginia Surety in the amount of $441,905.92. The Court also granted declaratory relief which set forth Virginia Surety's duties to defend, contribute to defense fees and costs, and provide separate counsel to common insureds, Wind River and Bjork.

II. STANDARD

Fed. R. Civ. P. 55(c) provides that a court may set aside the entry of default "for good cause shown." Factors to be considered when deciding whether to set aside an entry of default for "good cause" include: (1) whether the defendant's "culpable conduct" led to the default; (2) whether the plaintiff would be prejudiced by a set-aside; and (3) whether the defendant can present a meritorious defense to the claim. Falk v. Allen, 739 F.2d 46, 463 (9th Cir. 1984); American Ass'n of Naturopathic Physicians v. Hayhurst, 227 F.3d 1104, 1108 (9th Cir. 2000). If any one of these factors weighs against the defendant, the district court may refuse to set aside the default. Franchise Holding II v. Huntington Rests. Group, Inc., 375 F.3d 922, 925-26 (9th Cir. 2004). However, "judgment by default is a drastic step appropriate only in extreme circumstances; a case should, whenever possible, be decided on the merits." Falk, 739 F.2d at 463.

When default judgment has been entered, relief is governed by Rule 60(b). In cases where a defendant seeks relief under Rule 60(b)(1) on the ground of "excusable neglect," the court applies the same three Falk factors to determine whether relief is warranted. Brandt v. American Bankers Ins. Co. of Florida, 653 F.3d 1108, 1111 (9th Cir. 2011).

III. DISCUSSION

Virginia Surety argues that the default judgment should be set aside under Rule 60(b)(1) due to mistake or excusable neglect. "[F]or 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 Inv. Serv. Co. v. Brunswick Assoc. Ltd. P'ship, 507 U.S. 380, 394 (1993). Whether neglect is "excusable" involves an equitable determination that takes into account all of the relevant circumstances surrounding the party's omission. Id. at 395.

A. Culpable Conduct

Typically, a defendant's conduct is deemed "culpable" where "there is no explanation

of the default inconsistent with a devious, deliberate, willful, or bad faith failure to respond." TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 698 (9th Cir. 2001). "[S]imple carelessness is not sufficient to treat a negligent failure to reply as inexcusable, at least without a demonstration that other equitable factors, such as prejudice, weigh heavily in favor of denial of the motion to set ...


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