Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-01470/USCOURTS-caed-2_05-cv-01470-1/pdf.json

Nature of Suit Code: 150
Nature of Suit: Overpayments &amp; Enforcement of Judgments
Cause of Action: 28:1330 Breach of Contract

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

PHILIPS PRODUCTS, INC., a

Delaware Corporation,

CASE NO. CIV. S-05-1470 WBS GGH

Plaintiff,

v. MEMORANDUM AND ORDER RE: 

MOTION TO SET ASIDE DEFAULT 

CREATIVE WINDOW CONCEPTS,

INC., a California

Corporation, WILLIAM L.

LANGAN, and MARY ELLEN LANGAN,

Defendants.

----oo0oo----

Plaintiff Phillips Products, Inc., brought suit in

federal court on diversity grounds to recover money owed by

defendants Creative Window Concepts (“Creative”), William Langan,

and Mary Ellen Langan, on an overdue trade account. Defendants

failed to appear, plead, or answer plaintiff’s complaint within

the time allowed by law and consequently, upon plaintiff’s

motion, the clerk entered default as to all defendants on

September 19, 2005. Defendants now move to set aside the entry

of default.

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2

I. Factual and Procedural Background

Defendants William and Mary Ellen Langan own and

operate a window installation company, Creative Window Concepts,

and as part of that business, they bought and installed

plaintiff’s windows. (Compl. ¶¶ 8-9; Defs.’ Mem. of P. & A. in

Supp. of Mot. to Set Aside 2.) Plaintiff supplied these products

pursuant to an open trade account agreement, which required

“payment on any invoice or delivery . . . within 30 days from the

date of that invoice or delivery.” (Compl. ¶ 10.) If defendants

settled their balance within the first ten days of a payback

period, they received a two percent discount on the amount owed. 

(Id.) 

Starting in October 2003, Creative began to “experience

financial problems” resulting in a failure to pay an outstanding

debt to plaintiff in excess of $1,512,555. (Id. ¶ 11.) In light

of this development, the parties entered into a Credit Extension

and Forbearance Agreement (“Credit Agreement”), which established

a repayment plan for Creative. (Id. ¶¶ 12-15.) Additionally,

the Langans pledged, with few exceptions, all personal and real

property interests to plaintiff to secure plaintiff’s extension

of credit. (Id. ¶ 16.) When defendants failed to meet the

repayment terms detailed in the Credit Agreement, plaintiff filed

the instant action to sell and or foreclose on all of the

personal and real assets offered to secure the agreement.

One of the assets that defendants risked losing as part

of this suit was their family home, thus, in an effort to prevent

this loss, defendants retained a bankruptcy attorney in August,

2005. (Langan Decl. ¶ 4). Through counsel, defendants filed for

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Franchise Holding II involved both a Rule 55(c) motion 1

to set aside entry of default and a Rule 60(b) motion to vacate a

default judgment. However, the court reasoned that the same

standard governs both motions, 375 F.3d at 925, and consequently,

the language of the good cause test that it applied to the

3

Chapter 7 bankruptcy protection on September 16, 2005. (Defs.’

Mem. of P. & A. in Supp. of Mot. to Set Aside 2.) In the

interim, however, defendants missed the deadline for responding

to the instant action, which was September 6, 2005 for defendants

William Langan and Creative and September 8, 2005 for defendant

Mary Ellen Langan. (Pl.’s Opp’n to Defs.’ Mot. to Set Aside 4.) 

Defendants claim that this oversight resulted from their mistaken

understanding that the scope of their bankruptcy representation

included representation in this pending civil action. (Langan

Decl. ¶¶ 5-7.)

Defendants now move, pursuant to Federal Rule of Civil

Procedure 55(c), to set aside the default entered against them by

the clerk on September 19, 2005. Plaintiff opposes this motion

and, in the alterative, asks the court to award it the attorneys’

fees associated with the motions for entry of default and also

the fees incurred in defending the instant motion.

II. Discussion

A. Legal Standard

Federal Rule of Civil Procedure 55(c) allows the court,

“for good cause shown” to “set aside an entry of default.” The

good cause analysis asks: (1) “whether [the defendant] engaged in

culpable conduct that led to the default;” (2) whether

the defendant’s defense is meritless; or (3) “whether reopening

the default judgment would prejudice [the plaintiff].” Franchise 1

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defendant’s Rule 55(c) motion referred to “default judgment”

rather than “entry of default.”

4

Holding II, LLC. v. Huntington Rests. Group, Inc., 375 F.3d 922,

925-26 (9th Cir. 2004). These factors are disjunctive, therefore

the court may deny the motion if any of these questions are

answered affirmatively. Id. at 926. Additionally, the moving

party “[bears] the burden of showing that any of these factors

favored setting aside the default.” Id.

B. 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.” TCI Group Life Ins. Plan v.

Knoebber, 244 F.3d 691, 697 (9th Cir. 2001) (quoting Alan Neuman

Prods., Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988)). 

However, as this rule intimates, defendant’s conduct must involve

more than a mere conscious choice--it must evince a “devious,

deliberate, willful, or bad faith failure to respond.” Id. at

698. The defendant who fails to respond to a pleading, knowing

what the consequences will be, is not culpable if he “offers a

credible, good faith explanation negating any intention to take

advantage of the opposing party, interfere with judicial

decisionmaking, or otherwise manipulate the legal process . . .

.” Id.

Here, defendants have explained that they were mistaken

as to the scope of the representation provided by their

bankruptcy attorneys at Binder & Malter LLP. (Langan Decl. ¶ 7.) 

Specifically, they assumed that these attorneys would respond to

plaintiff’s complaint in a timely manner. (Id.) Defendant

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Although the court’s finding of no culpability in TCI 2

Group Life Insurance Plan v. Knoebber was bolstered by the

defendant’s exigent personal circumstances, including her mental

state and her lack of familiarity with legal matters, the court’s

analysis is still instructive in this case. First, defendants

here, who risk losing their family home of 29 years are, although

perhaps to a lesser degree, facing distressing personal issues. 

Second, the court in Knoebber noted that underlying its decision

was a desire to clarify that, in the context of entry of default,

a culpable party is someone who is not merely at fault, but

someone who ignored court proceedings in bad faith. 244 F.3d at

693, 697.

5

William Langan further asserts that defendants’ “delay in

responding to the Complaint was in no way intentional.” (Id.) 

Defendants’ actions, while negligent, were not designed

to unfairly manipulate these proceedings. Cf. McVicker v.

Donnelly, 95 F.R.D. 353, 354 (E.D. Pa. 1982) (relieving from

default judgment a defendant who mistakenly thought that legal

documents to which he failed to respond pertained to another

proceeding in which he had actively been participating). 

Moreover, defendants quickly resolved this misunderstanding with

counsel and, merely five weeks after entry of default, filed the

instant motion seeking relief. See Nilsson, Robbins, Dalgarn,

Berliner, Carson & Wurst v. La. Hydrolec, 854 F.2d 1538, 1546

(9th Cir. 1988) (“[D]efault judgments should generally be set

aside where the moving party acts with reasonable promptness,

alleges a meritorious defense to the action, and where the

default has not been willful.” (quoting Thorpe v. Thorpe, 364

F.2d 692, 694 (D.C. Cir. 1966))). 

The Ninth Circuit has noted that, in the absence of

evidence of “deviousness or willfulness,” even weak reasons for

delay will excuse a party’s failure to respond. Id. at 698. It 2

has also advised courts to decide a case, whenever possible, on

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the merits. Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984). 

In light of these principles, the court finds that defendants’

conduct was not culpable and should not interfere with their

ability to challenge the merits of plaintiff’s case.

C. Meritorious Defense

Defendants must also demonstrate that they have a

meritorious defense to plaintiff’s claims. To do so, defendants

must present “specific facts that would constitute a defense.” 

Franchise Holding II, 375 F.3d at 926. “A ‘mere general denial

without facts to support it’ is not enough to justify vacating a

default;” however, defendants need not prove the truth of their

factual allegations at this stage. Id. (quoting Madsen v. Bumb,

419 F.2d 4, 6 (9th Cir. 1969); Knoebber, 244 F.3d at 700

(“[W]hether the factual allegation was true [is] the subject of .

. . later litigation.”).

Defendants propose several possible defenses to

plaintiff’s action and allege, inter alia, that plaintiff

interfered with their business dealings, making it impossible for

them to comply with the terms of the repayment agreement. 

((Defs.’ Mem. of P. & A. in Supp. of Mot. to Set Aside 5-6.) 

This defense is factually supported by a sworn affidavit and

could potentially serve to defeat liability in this case. 

Defendants’ burden at this point in the litigation does not

involve proving their theories--they need only “make some showing

of a meritorious defense as a prerequisite to vacating an entry

of default.” Haw. Carpenters’ Trust Funds v. Stone, 794 F.2d

508, 513 (9th Cir. 1986) (emphasis added). Defendants have thus

met their burden at this stage.

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Plaintiff suggested at oral argument that additional 3

fees (those incurred while preparing an unfiled motion for

default judgment) should be added to the award here. However,

given the timeliness of defendants’ motion to set aside, and the

fact that both parties were devoting time to work out a

stipulated judgment when the instant motion was filed, the court

does not think further compensation for work on incomplete

7

D. Prejudice to Plaintiff

Finally, defendants are required to show that plaintiff

will not suffer prejudice if the court sets aside the entry of

judgment. Significantly, “delay alone does not constitute the

sort of prejudice cognizable upon a Rule 55(c) motion . . . .” 

Apache Nitrogen Prods., Inc. v. Harbor Ins. Co., 145 F.R.D. 674,

682 (D. Ariz. 1993). Defendants must instead “show[] that delay

will result in the loss of evidence, create increased

difficulties of discovery, or provide greater opportunity for

fraud and collusion.” Id. (quoting Davis v. Musler, 713 F.2d

907, 916 (2d Cir. 1983)).

Plaintiff does not argue that prejudice would result

from a decision to vacate the clerk’s entry of judgment. Nor can

the court imagine, based on the facts alleged, how plaintiff

might be prejudiced by the court’s decision to grant defendants’

motion, given that delay alone is insufficient. Consequently,

this third factor, like the two before it, favors defendant’s

motion for relief from entry of default.

Plaintiff does, however, request that if the court sees

fit to grant defendants’ motion, that it award plaintiff the

legal expenses incurred in connection with requesting entry of

default, attempting to agree on a judgment amount, and defending

the instant motion (totaling $5,810). (Lerner Decl. ¶ 9.) 3

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motions is warranted. Moreover, plaintiff will likely find a use

for its work on proving up the judgment when preparing its case

on the merits. 

Defendants point out that the amount requested, $5,810, 4

was unexplainably $200 higher than the total of the attorneys’

fees requested.

Defendants, through their attorney, conceded at oral 5

argument that they are capable of paying this sanction. Thus,

the court’s order here does not run afoul of the Ninth Circuit’s

position that “imposition of a condition that is impossible for a

party in default to satisfy” is “tantamount to a denial of [the]

8

Defendants are amendable to paying $200, which it estimates to be

the portion attributable to the cost of the default itself.4

(Defs.’ Reply 6.)

The Ninth Circuit has held that “it is appropriate to

condition setting aside a default upon the payment of a

sanction,” which can include attorneys’ fees. La. Hydrolec, 854

F.2d at 1546-47; Wokan v. Alladin Int’l, Inc., 485 F.2d 1232,

1234 (3d Cir. 1973) (noting that payment of costs or attorneys’

fees commonly accompanies a grant of Rule 60(b) motion to set

aside a default judgment); Int’l Broth. of Elec. Workers, Local

Union No. 313 v. Skaggs, 130 F.R.D. 526, 530 (D. Del. 1990)

(awarding attorneys’ fees incurred because “[t]o avoid the

harshness of a default, courts favor alternative sanctions which

would be equally effective yet less severe.”). “[C]onditioning

the setting aside of a default [rectifies] any prejudice suffered

by the non-defaulting party as a result of the default and the

subsequent reopening of the litigation . . . .” La. Hydrolec,

854 F.2d at 1546. Thus, absent any authority to the contrary, an

award of attorneys’ fees, as requested by plaintiff, is warranted

here. As one court has noted, “plaintiff should not have to bear 5

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motion to set aside entry of default.” Stone, 794 F.2d at 513.

Plaintiff actually requests $5,810, but fails to 6

explain the source of the $200 not attributable to the documented

attorneys’ fees. 

9

the costs of defendant[s’] neglect.” Howard Fischer Assocs.,

Inc. v. CDA Inv. Techs., No. CIV.A. 94-4855, 1995 WL 472115, at

*7 (E.D. Pa. Aug. 10, 1995). 

Plaintiff’s attorneys submitted the following

calculated fees: $ 2,610 for 17.4 hours of work performed by an

associate attorney and $2,250 for 9 hours of work performed by an

Of Counsel with 10 years of experience. (Lerner Decl. ¶ 9.) 

Additionally, counsel requested $750 for 3 hours spent preparing

for and attending oral argument for the instant motion. (Id.) 

Broken down, counsel’s request assigns a rate of $250 per hour to

the experienced attorney on this matter and $150 per hour to the

associate. (Id. ¶ 10 (declaring that these rates are consistent

with prevailing market rates)). Defendants did not object to the

reasonableness of the hours spent or the proposed rates. 

Additionally, the going rates for experienced attorneys and

associates in the Sacramento area for other types of litigation

are consistent with the amounts requested. See Sanford v.

Thrifty Payless, Inc., No. CIV S-02-0480, 2005 WL 2562712, at *4

(Oct. 11, 2005) (approving of a market rate of $250 per hour for

experienced attorneys and $150 per hour for associate attorneys

in ADA litigation). Therefore, the court finds attorneys’ fees

in the documented amount of $5,610 to be reasonable.6

IT IS THEREFORE ORDERED that defendants’ motion for

relief from the entry of default be, and the same hereby is,

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GRANTED. 

IT IS FURTHER ORDERED that defendants pay plaintiff’s

costs incurred in pursuing and defending the entry of default

($5,610).

DATED: January 11, 2006

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