Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-00851/USCOURTS-azd-2_08-cv-00851-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Contract Dispute

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

FOC Financial Limited Partnership, 

Plaintiff, 

vs.

National City Commercial Capital

Corporation, 

Defendant. 

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No. CV-08-0851-PHX-ROS

ORDER

Background

On March 31, 2008, Plaintiff filed a Complaint in Arizona state court alleging breach

of contract, unjust enrichment and conversion claims against Defendant (Doc. 1 Ex. 1). On

May 5, 2008, Defendant removed the action to this Court, pursuant to the diversity

jurisdiction and removal statutes (Doc. 1). On May 9, 2008, Defendant filed a Motion to

Dismiss, which was denied on August 28, 2008 (Docs. 6, 18). Defendant then failed to

timely answer the Complaint. 

On January 14, 2009, Plaintiff submitted an application for default, which the Clerk

entered, and filed a Motion for Default Judgment (Docs. 28-30). The following day

Defendant answered the Complaint (Doc. 31). On January 19, 2009, Defendant moved to

set aside default (Doc. 35). Before the Court are Plaintiff’s Motion for Default Judgment and

Case 2:08-cv-00851-SRB Document 63 Filed 04/14/09 Page 1 of 7
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Defendant’s Motion to Set Aside Default. For the following reasons, Plaintiff’s motion will

be denied and Defendant’s motion will be granted.

Discussion 

A. Motion To Set Aside Default

Federal Rule of Civil Procedure 55(c) (“Rule 55”) allows entry of default to be set

aside “for good cause.” What constitutes “good cause” is within the discretion of the trial

court. See Haw. Carpenters’ Trust Funds v. Stone, 794 F.2d 508, 513 (9th Cir. 1986) (“Rule

55(c) frees a court considering a motion to set aside a default entry from the restraint of Rule

60(b) and entrusts determination to the discretion of the court.”); Franchise Holding II, LLC.

v. Huntington Restaurants Group, Inc., 375 F.3d 922, 925 (9th Cir. 2004) (reviewing district

court’s set aside of default for abuse of discretion). The burden rests with the moving party.

See Id. at 926. 

The Ninth Circuit has identified three factors as important in a Rule 55(c) good-cause

analysis: (1) the moving party’s culpable conduct, (2) prejudice to the non-moving party and

(3) the moving party’s meritorious defenses. See Id. at 925-26; Alan Neuman Prod.’s, Inc.

v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988). Although the burden rests on the moving

party, the factors are to be “liberally interpreted” in favor of setting aside default. Haw.

Carpenters’ Trust Funds, 794 F.2d at 513; Nilsson, Robbins, Dalgarn, Berliner, Carson &

Wurst v. La. Hyrdrolec, 854 F.2d 1538, 1546 (9th Cir. 1988) (per curiam) (“philosophy of

modern federal procedure favors trials on the merits”) (quoting Thorpe v. Thorpe, 364 F.2d

692, 694 (D.C. Cir. 1966)). A sufficient finding against the movant on any one factor

negates good cause. See Franchise Holding II, LLC, 375 F.3d at 926 (“As these factors are

disjunctive, the district court was free to deny the motion if any of the three factors was

true.”) (internal citation omitted).

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1. Culpable Conduct

Only intentional conduct is sufficiently culpable to deny a motion to set aside default.

See TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 698 (9th Cir. 2001) (“[W]e have

typically held that a defendant’s conduct was culpable for purposes of the [Rule 55(c) or

60(b)] factors where there is no explanation of the default inconsistent with a devious,

deliberate, willful, or bad faith failure to respond.”), overruled on other grounds, Egelhoff

v. Egelhoff ex rel. Breiner, 532 U.S. 141, 147-50 (2001). Defendant claims to have

“inadvertently neglected to file an answer to the complaint in the wake of the Court’s order

denying Defendant’s Motion to Dismiss” and argues its behavior, before and after entry of

default, reflects good intentions, not bad faith (Doc. 35 at 2). Plaintiff responds that

Defendant’s failure to answer is part of a broader effort to delay the proceedings and prevent

an outcome on the merits (Doc. 39 at 5-6). As evidence of dilatory motive, Plaintiff cites

Defendant’s 2007 decision to file a preemptive lawsuit in Ohio state court and subsequent

decision to remove the current proceedings from Arizona state court. The Court disagrees.

Defendant answered on the same day default was entered (Doc. 31). Two court days

later, Defendant filed the motion to set aside (Doc. 35). Moreover, Defendant has fully

participated in discovery, providing initial disclosures, expert witness disclosures, and all

requested documents (Docs. 23, 32, 43). Defendant also appears to have cooperated with

Plaintiff in scheduling necessary depositions (Doc. 43). This is not the behavior of a party

engaging in, as Plaintiff argues, a “deliberate strategy to delay the proceedings as much as

possible” (Doc. 39 at 5). While the tactical decisions cited by Plaintiff may be indicative of

Defendant’s litigation strategy, this strategy is not on the face of the record one of improper

delay. 

Citing Franchise, Plaintiff further argues Defendant’s knowledge of the obligation to

answer and subsequent failure to answer, without more, are sufficient to establish culpable

conduct and deny Defendant’s motion. See 375 F.3d at 926 (“If a defendant has received

actual or constructive notice of the filing of the action and failed to answer, its conduct is

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Although Pincay concerned the “excusable neglect” standard and a failure to timely appeal,

Pincay’s holding applies to Rule 55(c)’s “good cause” standard and Plaintiff’s failure to timely

answer, as both analyses focus on how much discretion to grant a trial court in determining the

culpability of a party seeking to correct a technical error. Furthermore, “good cause” is either

equivalent to or less stringent than “excusable neglect.” See TCI Group Life Ins. Plan, 244 F.3d at

696 (treating “good cause” and “excusable neglect” as functionally equivalent standards); Haw.

Carpenters’ Trust Funds, 794 F.2d at 513 (treating “good cause” as less stringent than “excusable

neglect”).

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culpable.”) (internal citation omitted). However, the Ninth Circuit in a subsequent en banc

decision squarely rejected a rigid rule that would prevent parties from correcting technical

mistakes, such as failing to file a timely answer, in favor of a more flexible analysis of

equitable considerations. See Pincay v. Andrews, 389 F.3d 853, 860 (9th Cir. 2004) (en

banc) (“[T]he correct approach is to avoid any per se rule . . . erecting a rigid barrier against

late filings attributable in any degree to the movant’s negligence. Instead, we leave the

weighing of . . . equitable factors to the discretion of the district court in every case.”).1

 In

this way, Franchise, insofar as it creates a rule that would prevent a deserving party from

setting aside default, is inconsistent with Ninth Circuit policy. See e.g. E. & J. Gallo Winery

v. Cantine Rallo, S.P.A., 430 F. Supp. 2d 1064, 1086 (E.D. Cal. 2005) (“Franchise Holding

II . . . is an anomalous case that does not follow precedent and was not followed by a

subsequent en banc panel of the Ninth Circuit [Pincay].”); Quach v. Cross, 2004 WL

2862285, *6 n.7 (C.D. Cal. 2004) (“As TCI gives a thorough reasoned basis for its decision,

Franchise Holding II provides no analysis and fails to even mention TCI, and the Ninth

Circuit again broadly defined excusable neglect after Franchise Holding II [in Pincay], the

Court finds Franchise Holding II anomalous and unpersuasive.”).

Thus, Defendant’s failure to timely answer is neither culpable conduct nor a basis for

denying the motion to set aside default.

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2. Prejudice

To prevent setting aside default, prejudice to a non-moving party “must result in

greater harm than simply delaying resolution of the case[,] [r]ather, the standard is whether

[the non-movant’s] ability to pursue his claim will be hindered.” TCI Group Life Ins. Plan,

244 F.3d at 701. “[M]erely being forced to litigate on the merits cannot be considered

prejudicial for purposes of lifting a default judgment.” Id. Defendant argues its compliance

with discovery obligations and attempts to quickly resolve procedural problems posed by the

default, such as prompt filing of the answer, has established no prejudice to Plaintiff (Doc.

35 at 2, 4). Plaintiff responds “[i]f National City were to become bankrupt, insolvent o[r]

taken over by the government, then FOC’s ability to obtain essential documents and

discovery will be hindered, delayed or prevented [and] . . . FOC would be delayed and

hindered in its ability to collect a judgment” (Doc. 39 at 7). While arguably correct, it is

irrelevant to the issue of prejudice because the default judgment has caused no delay and has

not affected these proceedings other than forcing the parties to file additional briefs. Thus,

Plaintiff’s worst-case-scenario outcome is no more or less likely because of Defendant’s

default. Accordingly, Defendant’s default has not caused Plaintiff sufficient prejudice to

warrant denying the motion to set aside.

3. Meritorious Defense

The movant “is required to make some showing of a meritorious defense as a

prerequisite to vacating an entry of default.” Haw. Carpenters’ Trust Funds, 794 F.2d at 513.

To satisfy the “some showing” standard, the movant must “present specific facts that would

constitute a defense” TCI Group Life Ins. Plan, 244 F.3d at 700. Neither Defendant’s

motion nor reply contain “specific facts” pertinent to a meritorious defense, but rather

summarily refer to arguments presented in the Motion to Dismiss and accompanying papers.

Even if the vague reference to these papers satisfies the burden of “some showing” of

“specific facts,” the Motion to Dismiss papers only contain defenses to Plaintiff’s breach of

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contract claim and are void of legal arguments concerning the unjust enrichment and

conversion claims (Docs. 6 at 2-4; 12 at 2-6). Defendant failed to correct this deficiency

even after it was highlighted by Plaintiff in the response. Given Defendant’s failure to

properly argue meritorious defenses, as required by Rule 55(c), the Court has discretion to

deny Defendant’s motion and enter default judgment. 

However, the pleadings and Motion to Dismiss persuade the Court that Defendant has

potentially meritorious defenses to the breach of contract claim and may also offer colorable

defenses to the unjust enrichment and conversion claims. Thus, neither the purpose of Rule

55(c) nor the interests of justice would be served by denying Defendant’s motion and

entering default judgment. See Haw. Carpenters’ Trust Funds, 794 F.2d at 513 (“The

underlying concern, however, 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.”);

Nilsson, et al., 854 F.2d at 1546 (“philosophy of modern federal procedure favors trials on

the merits”) (internal citation omitted). 

It is also noted that Defendant’s failure to timely answer was a technical error with

little bearing on the disposition of the case. Defendant promptly responded to service of

process by filing a notice of removal and Motion to Dismiss and the failure to answer was

not noticed by both the Court and Plaintiff’s competent counsel for five months during which

time the proceedings continued as if an answer had been filed (Docs. 1, 6, 28). The Court

agrees with Defendant that Plaintiff’s five-month silence and litigation-as-usual conduct

effectively waived any right to entry of default judgment. See e.g. Ciccarello v. Joseph

Schlitz Brewing Co., 1 F.R.D. 491, 493 (S.D. W. Va. 1940) (plaintiff’s conduct may

constitute “waiver of any right to a default judgment”); La. Farmers Protective Union v.

Great Atl. & Pac. Tea Co. of Am., Inc., 83 F. Supp. 646, 656 (E.D. Ark. 1949) (plaintiff’s

delay in seeking default constituted effective waiver). 

 Accordingly,

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IT IS ORDERED Plaintiff’s Motion For Default Judgment (Doc. 29) IS DENIED.

FURTHER ORDERED Defendant’s Motion To Set Aside Default (Doc. 35) IS

GRANTED.

DATED this 14th day of April, 2009.

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