United States District Court, E.D. California
FINDINGS AND RECOMMENDATIONS
ALLISON CLAIRE, UNITED STATES MAGISTRATE JUDGE.
matter is before the court on plaintiffs' motion for
default judgment (ECF No. 14) and defendant's motion to
set aside default (ECF No. 22). These motions were referred
to the undersigned pursuant to E.D. Cal. R. 302(c)(19).
Finding no hearing necessary, the matters were taken under
submission by the court. ECF No. 32. For the reasons stated
below, the court recommends defendant's motion to set
aside default be GRANTED and plaintiff's motion for
default judgment be DENIED as moot.
filed its complaint on June 21, 2019. ECF No. 1. Plaintiff
filed its certificate of service on August 1, 2019. ECF No.
9. Plaintiff requested entry of default on August 16, 2019
(ECF No. 10), and default was entered on August 19, 2019 (ECF
No. 11). Plaintiff filed a motion for default judgment on
September 5, 2019 and noticed the hearing for October 9,
2019. ECF No. 14. The parties stipulated to a continuance on
the hearing on October 15, 2019, and the hearing was re-set
to December 4, 2019. ECF Nos. 16, 17, 18. Defendant moved to
set aside default on November 11, 2019, with a hearing date
set for December 18, 2019. ECF No. 22. Both matters were
ultimately taken under submission. ECF No. 32.
Federal Rules provide that a “court may set aside an
entry of default for good cause.” Fed.R.Civ.P. 55(c).
To determine “good cause, ” a court must
“consider[ ] three factors: (1) whether [the party
seeking to set aside the default] engaged in culpable conduct
that led to the default; (2) whether [it] had [no]
meritorious defense; or (3) whether reopening the default
judgment would prejudice” the other party. See
Franchise Holding II, LLC. v. Huntington Restaurants Grp.,
Inc., 375 F.3d 922, 925-26 (9th Cir. 2004). This
standard, which is the same as the one used to determine
whether a default judgment should be set aside under Rule
60(b), is disjunctive, such that a finding that any one of
these factors is true is sufficient reason for the district
court to refuse to set aside the default. See id.
Crucially, however, “judgment by default is a drastic
step appropriate only in extreme circumstances; a case
should, whenever possible, be decided on the merits.”
Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984);
see also Latshaw v. Trainer Wortham & Co., Inc.,
452 F.3d 1097, 1103 (9th Cir. 2006); Speiser, Krause
& Madole P.C. v. Ortiz, 271 F.3d 884, 890 (9th Cir.
2001); TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d
691, 695-96 (9th Cir. 2001), as amended on denial of
reh'g and reh'g en banc (May 9, 2001). Additionally,
“[w]hile the same test applies for motions seeking
relief from default judgment under both Rule 55(c) and Rule
60(b), the test is more liberally applied in the Rule 55(c)
context.” Cracco v. Vitran Exp., Inc., 559
F.3d 625, 631 (7th Cir. 2009) (quotations and citations
omitted). This is because in the Rule 55 context there is no
interest in the finality of the judgment with which to
contend. See Hawaii Carpenters' Trust Funds v.
Stone, 794 F.2d 508, 513 (9th Cir. 1986).
There is Good Cause to Set Aside Default in This
of default in this case should be set aside because it is
clear that (1) defendant did not engage in culpable conduct;
(2) defendant has potentially meritorious defenses which she
is entitled to litigate; and (3) setting aside default would
not prejudice plaintiff. See Franchise Holding II,
LLC, 375 F.3d at 925-26.
court finds that defendant did not engage in 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 . . . [I]n this
context 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 decision making, or otherwise
manipulate the legal process.” United States v.
Signed Pers. Check No. 730 of Yubran S. Mesle, 615 F.3d
1085, 1092 (9th Cir. 2010) (internal citations omitted).
is no evidence here that defendant's conduct was
culpable. Defendant submitted a sworn statement in which she
testified that her attorney was working with plaintiff's
counsel to resolve ongoing disputes between them, and that
when she received the summons and complaint in this case, she
sent them to her counsel and assumed, albeit incorrectly,
that as long as her attorney was talking to defense counsel
that she did not have to take any action. ECF No. 22-2.
Plaintiff argues that sophisticated defendants represented by
counsel are held to a higher standard, and that notice of the
litigation with failure to act is sufficient to find conduct
capable. ECF No. 31 at 7-8. The court disagrees with this
reading of Ninth Circuit case law. While it is true that more
is expected of a sophisticated defendant represented by
counsel than of a pro se litigant, the conduct must still be
such that there “is no explanation of the default
inconsistent with a devious, deliberate, willful, or bad
faith failure to respond.” Mesle, 615 F.3d at
1092. For example, in the Franchise Holding II, LLC. v.
Huntington Restaurants Grp., Inc. case on which
plaintiff relies, the represented defendant “failed to
file anything with the district court until after [the
plaintiff] began collecting on the default
judgment.” 375 F.3d 922, 926 (9th Cir. 2004)
(emphasis added). Such conduct is not analogous to the
conduct at issue in this case. There is no evidence of
culpable conduct here.
Potentially Meritorious Defenses
has indicated that she has potentially meritorious defenses
which she should be allowed to litigate. This “is an
action for breach of contract, breach of implied covenant of
good faith and fair dealing, breach of fiduciary duty, unfair
competition, and unjust enrichment arising from a contractual
relationship between DUSA and Dr. Willey.” ECF No. 1 at
1. The case is complex and involves a patent application
which plaintiff claims was improperly filed by defendant. ECF
No. 1 at 10-12. Defendant has submitted briefing asserting
that plaintiff's complaint makes several erroneous