United States District Court, N.D. California, San Francisco Division
For Barg Coffin Lewis & Trapp, LLP, Plaintiff: John F. Barg, LEAD ATTORNEY, Barg Coffin Lewis & Trapp, LLP, San Francisco, CA; Samir J. Abdelnour, Barg Coffin Lewis & Trapp, LLP, San Francisco, CA.
For Arlie & Company, Defendant: Charles Richard Markley, LEAD ATTORNEY, Greene & Markley P.C., Portland, OR; Sherri Dianne Martinelli, Greene & Markley, P.C., Portland, OR.
ORDER SETTING ASIDE ENTRY OF DEFAULT INTRODUCTION
Laurel Beeler, United States Magistrate Judge.
This is a dispute over unpaid attorney's fees. Defendant Arlie & Company failed to file a timely response to the plaintiff's complaint. On November 5, 2014, the clerk entered Arlie's default. (ECF No. 6.) The only issue is whether the court should set aside that default. ( See ECF No. 14); Fed.R.Civ.P. 55(c). The court finds this matter suitable for determination without oral argument and so vacates the January 15, 2015 hearing. See Civ. L.R. 7-1(b). Both parties have consented to the undersigned's jurisdiction. (ECF Nos. 11, 12.) The court grants the defendant's motion to set aside the default.
The background facts relevant to this motion are mainly those that constitute this young case's procedural history. Plaintiff Barg Coffin Lewis & Trapp, LLP filed this lawsuit on September 26, 2014, in the Superior Court of San Francisco, seeking unpaid attorney's fees from its former client, defendant Arlie & Company. (ECF No. 1 at 6-10.) On October 10, 2014, Arlie's counsel wrote to Barg Coffin's counsel and asked for ten days' written notice before Barg Coffin sought a default. (Markley Decl. -- ECF No. 15 at 1-3, ¶ 3 and Ex. 2.) Barg Coffin's lawyer agreed to give Arlie that notice. (Id. and Ex. 3.) Arlie removed the case to this court on diversity grounds on October 24. (ECF No. 1 at 1.) It did not file an answer or responsive motion. On November 3, Barg Coffin notified the clerk of court that it would seek the entry of Arlie's default on November 13. (ECF No. 5.) Two days later -- on November 5, 2014 -- the clerk entered that default. (ECF No. 6.) Two days after that, Arlie filed an answer. (ECF No. 7.) Barg Coffin then filed an " application" asking the court to strike this answer. (ECF No. 9.) Barg Coffin also moved for a default judgment (ECF No. 10) but has since said that it will withdraw that motion as moot if the court sets aside the default (ECF No. 16 at 4 n. 1). Under Rule 55(c) of the Federal Rules of Civil Procedure, Arlie now moves to set its default aside. (ECF Nos. 14, 16-17); see Fed.R.Civ.P. 55(c).
I. LEGAL STANDARDS
Under Rule 55(c), a court may set aside an entry of default for " good cause." See United States v. Signed Personal Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (" Mesle" ). To determine whether a defendant has shown good cause to justify vacating entry of default, a court considers three factors: (1) whether the defendant engaged in culpable conduct that led to the default; (2) whether the defendant lacked a meritorious defense; and (3) whether reopening the default would prejudice the plaintiff. See Mesle, 615 F.3d at 1091 (citing Franchise Holding II, LLC v. Huntington Rests. Group., Inc., 375 F.3d 922, 925 (9th Cir. 2004)). This standard is disjunctive, meaning, the court may deny the request to vacate default if any of the three factors is true. See Mesle, 615 F.3d at 1091 (citing Franchise Holding II, 375 F.3d at 925). " Crucially, however, '[j]udgment by default is a drastic step appropriate only in extreme circumstances; a case should, whenever possible, be decided on the merits.'" Mesle, 615 F.3d at 1091 (quoting Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984)).
The standard to set aside an entry of default is the same standard used to determine whether a default judgment should be set aside under Federal Rule of Civil Procedure 60(b), except that in the Rule 55(c) context, courts have greater discretion and can apply the standard more liberally to grant relief from entry of default because there is no interest in the finality of a judgment. See Mesle, 615 F.3d at 1091 n.1 (citations omitted); TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir. 2001); Hawaii Carpenters' Trust Funds v. Stone, 794 F.2d 508, 513 (9th Cir. 1986); Mendoza v. Wight Vineyard Mgmt., 783 F.2d 941, 945 (9th Cir. 1986). When considering whether to vacate entry of default under Rule 55(c), the court's " underlying concern . . . is to determine whether there is some possibility that the outcome of the suit after a full trial will be contrary to the result achieved by the default." Hawaii Carpenters' Trust Funds, 794 F.2d at 513. The inquiry " is at bottom an equitable one, taking account of all relevant circumstances surrounding the party's omission." Brandt v. Am. Bankers Ins. of Florida, 653 F.3d 1108, 1111 (9th Cir. 2011) (quoting Pioneer Inv. Servs. Co. v. Brunswick Ass'n Ltd., 507 U.S. 380, 395, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993)). The decision ultimately lies in the discretion of the court. See Brandt, 653 F.3d at 1111-12.
As the party seeking to set aside entry of default, a defendant bears the burden of showing good cause under this test. Hawaii Carpenters' Trust Funds, 794 F.2d at 513. To ensure that cases are decided on the merits whenever possible, the court resolves any doubt regarding whether to grant relief in favor of vacating default. O'Connor v. Nevada, 27 F.3d 357, 364 (9th Cir. 1994).
A. The Defendant Did Not Act Culpably
The first question under Rule 55(c) is " whether the defendant engaged in culpable conduct that led to the default." Mesle, 615 F.3d at 1091. " [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." Id. at 1092 (quoting TCI, 244 F.3d ...