United States District Court, N.D. California, San Francisco Division
QINGDAO TANG-BUY INTERNATIONAL IMPORT & EXPORT COMPANY, LIMITED, Plaintiff,
PREFERRED SECURED AGENTS, INC., et al., Defendants.
ORDER SETTING ASIDE ENTRY OF DEFAULT
BEELER UNITED STATES MAGISTRATE JUDGE
Tang-Buy International Import & Export Company sued the
defendants for breach of contract and fraud. In its Second
Amended Complaint (“SAC”), Qingdao named Glenn
Hartman as a defendant. Mr. Hartman did not answer or otherwise
respond to the complaint within 21 days after service of
process. The clerk of court thus entered default
against him. Mr. Hartman appeared in May 2016 and moved
to set aside the entry of default. Qingdao opposed the
court can determine this matter without oral argument
pursuant to Civil Local Rule 7-1(b). The court grants the
motion for good cause shown and sets aside the entry of
district court has discretion to set aside a default or a
default judgment. Fed.R.Civ.P. 55(c), 60(b); Brandt v.
Am. Bankers Ins. of Florida, 653 F.3d 1108, 1111-12 (9th
Cir. 2011). More specifically, 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 Id. (citing
Franchise Holding II, LLC v. Huntington Rests. Group.,
Inc., 375 F.3d 922, 925 (9th Cir. 2004)). This standard
is disjunctive, meaning that 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,
‘judgment by default is a drastic step appropriate only
in extreme circumstances; a case should, whenever possible,
be decided on the merits.’” Id. (quoting
Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984)).
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 Fund v. Stone, 794 F.2d 508, 513
(9th Cir. 1986). The inquiry “is at bottom an equitable
one, taking account of all relevant circumstances surrounding
the party’s omission.” Brandt, 653 F.3d
at 1111 (quoting Pioneer Inv. Servs. Co. v. Brunswick
Ass’n Ltd., 507 U.S. 380, 395 (1993)). The
decision ultimately lies in the discretion of the court.
Brandt, 653 F.3d at 1111-12.
party seeking to set aside entry of default, a defendant
bears the burden of showing good cause under this test.
Hawaii Carpenters’ Trust Fund, 794 F.2d at
513-14. 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.
Mr. Hartman Did Not Act Culpably
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” or otherwise
defend the action. Id. at 1092 (quoting TCI
Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 697 (9th
Cir. 2001) (emphasis in original)); Fed.R.Civ.P. 55(a).
parties do not dispute that Mr. Hartman knew of the pendency
of the lawsuit. They dispute whether he intentionally
failed to answer the lawsuit or acted in bad
faith. “[C]onduct [is] culpable . . . where
there is no explanation of the default inconsistent
with a devious, deliberate, willful, or bad faith
failure to respond.” TCI Group, 244 F.3d at
698 (emphasis added).
following is the timeline. Qingdao served Mr. Hartman with
the complaint on January 27, 2016. Around February 1, defense
counsel Hal Reiland was hospitalized; his wife notified the
court and opposing counsel, and the court adjusted the
case’s schedule. A week later, Mr. Reiland sent Mr.
Hartman an email stating that he notified the court of his
hospitalization, the case was on hold, and he planned to
represent him in the pending matter in federal court unless
Mr. Hartman decided to seek other counsel. Qingdao moved
for entry of default on March 8, and the clerk entered
default two days after. Mr. Hartman stated that he
“understood that Mr. Reiland would represent him in