Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_12-cv-02080/USCOURTS-caed-2_12-cv-02080-2/pdf.json

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

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

SUNTRUST BANK,

 Plaintiff,

 v.

ALLEN W. WARREN; YANKEE DAWDLE,

LLC, 

 Defendants.

_______________________________

)

)

)

)

)

)

)

)

)

)

)

2:12-cv-02080-GEB-CKD

ORDER SETTING ASIDE ENTRY OF

DEFAULT

Defendants move under Federal Rule of Civil Procedure (“Rule”)

55(c) to set aside the Clerk of Court’s entry of default against each of

them. Plaintiff opposes the motion.

I. LEGAL STANDARD

Rule 55(c) prescribes: “The 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; [and]

(3) whether reopening the default judgment would prejudice’ the other

party.” United States v. Signed Personal Check No. 730 of Yubran S.

Mesle (Mesle), 615 F.3d 1085, 1090 (9th Cir. 2010) (quoting Franchise

Holding II, LLC v. Huntington Rests. Grp., Inc., 375 F.3d 922, 925–26

(9th Cir. 2004)) (first four alterations in original). “[D]efault

judgments are generally disfavored, and ‘“whenever it is reasonably

possible, cases should be decided upon their merits.”’” In re Hammer,

1

Case 2:12-cv-02080-CKD Document 30 Filed 07/22/13 Page 1 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

940 F.2d 524, 525 (9th Cir. 1991) (quoting Gregorian v. Izvestia, 871

F.2d 1516, 1523 (9th Cir. 1989) (quoting Pena v. Seguros La Comercial,

S.A., 770 F.2d 811, 814 (9th Cir. 1985))). “‘Where timely relief is

sought from a[n entry of] default . . . and the movant has a meritorious

defense, doubt, if any, should be resolved in favor of the motion to set

aside the [default] so that cases may be decided on their merits.’”

Mendoza v. Wight Vineyard Mgmt., 783 F.2d 941, 945–46 (9th Cir. 1986)

(quoting Schwab v. Bullock’s Inc., 508 F.2d 353, 355 (9th Cir. 1974))

(omission and second alteration in original). 

II. DISCUSSION

Plaintiff argues the motion should be denied because

“Plaintiff’s Counsel explicitly told the Defendant, by telephone and by

follow-up email, that Plaintiff would seek a default if substantive

settlement discussions did not occur by December 14, 2012,” and that

“Defendants do not have a meritorious defense.” (Pl.’s Opp’n 1:20–23,

ECF No. 23.)

Defendants argue although they “did not file a response with

the Court in time, [their] conduct was excusable because they believed

good faith settlement negotiations were ongoing which would avoid

litigation costs.” (Defs.’ Mot. to Set Aside Default (“Defs.’ Mot.”)

4:4:–6, ECF No. 22-1.) Defendants contend that they “had no intent to

gain an advantage over [Plaintiff] or to delay legal proceedings[, and

that their] delay in response was due to excusable neglect.” (Id.

4:7–8.) 

Defendants support their motion with a declaration from

Defendant Allen Warren (“Warren”) in which he avers: 

Defendants did not file a response to the lawsuit

with the Court on time for the following reasons: I

believed in good faith that the parties were

2

Case 2:12-cv-02080-CKD Document 30 Filed 07/22/13 Page 2 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

continuing to negotiate a settlement of all claims

to avoid litigation. I was in the process of

gathering requested information and documents to

provide to the plaintiff when the [entry of]

default was entered.

(Decl. of Allen Warren (“Warren Decl.”) ¶ 5, ECF No. 22-3.)

When deciding whether Defendants’ failure to timely respond to

the complaint can “be treated as culpable simply for having made a

conscious choice not to [respond],” it must be determined whether this

failure is the product of Defendants “act[ing] with bad faith, such as

an ‘intention to take advantage of the opposing party, interfere with

judicial decisionmaking, or otherwise manipulate the legal process.’” 

Mesle, 615 F.3d at 1093 (quoting TCI Grp. Life Ins. Plan v. Knoebber,

244 F.3d 691, 696 (9th Cir. 2001), overruled on other grounds by

Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141, 147–50 (2001)).

Warren’s averments that he “believed in good faith that the parties were

continuing to negotiate a settlement of all claims to avoid litigation”

and that he “was in the process of gathering requested information and

documents to provide to the plaintiff when the [entry of] default was

entered,” (Warren Decl. ¶ 5), evince that Defendants did not intend to

manipulate the legal process through their actions or inaction.

Further, Defendants argue they also prevail on the

“meritorious defense” factor since “[t]he attorney’s fees requested by

the Affidavit of default are not consistent with the Agreement,” the

breach of which is at issue in the instant case. (Defs.’ Mot. 4:23–27

(citing Warren Decl. ¶ 6).) Defendants also argue that “Plaintiff[’s

request to] recover[] . . . $160,080 in attorney’s fees . . . is . . .

unreasonable . . . based on a[n entry of] default . . . [since]

Plaintiff’s counsel has billed very few hours on this matter.” (Defs.’

Reply 4:9–11.) Plaintiff counters that “Defendants have not . . . set

3

Case 2:12-cv-02080-CKD Document 30 Filed 07/22/13 Page 3 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

forth any alleged facts to support such a [defense].” (Pl.’s Opp’n

5:3–4.)

To prevail on the “meritorious defense” factor, “a [plaintiff]

need only demonstrate law or facts showing that a sufficient defense is

assertable.” J & J Sports Prod., Inc. v. Benitez, No. 1:11cv01875 AWI

DLB, 2012 WL 6088300, at *4 (E.D. Cal. Dec. 6, 2012) (citing TCI Grp.

Life Ins. Plan, 244 F.3d at 700). A defense is “meritorious” if “there

is some possibility that the outcome of the suit after a full trial will

be contrary to the result achieved by the default.” Haw. Carpenters’

Trust Funds v. Stone, 794 F.2d 508, 513 (9th Cir. 1986) (citing C.

Wright, A. Miller & M. Kane, Federal Practice & Procedure § 2694 (Supp.

1986)). Further, a meritorious defense may be as to liability or as to

damages. G & G Closed Circuit Events, LLC v. Looney, No. C 12-3094 SBA,

2013 WL 1739576, at *2 (N.D. Cal. Apr. 22, 2013) (citing Haw.

Carpenters’ Trust Funds, 794 F.2d at 513).

The parties agree that Virginia law applies to this lawsuit

and argue under that law. Defendants argue that they have a meritorious

defense as to the amount of attorney’s fees since “[t]he fees awarded in

any piece of litigation, according to . . . Virginia [law], must be

reasonable.” (Defs.’ Reply 3:16–17.) Under Virginia law, a “party who

seeks to recover attorneys’ fees pursuant to a contractual provision

. . . has the burden to present a prima facie case that the requested

fees are reasonable and necessary.” Dewberry & Davis, Inc. v. C3NS,

Inc., 732 S.E. 2d 239, 243 (Va. 2012) (citing Chawla v. BurgerBusters,

Inc., 499 S.E. 2d 829, 833 (Va. 1998); Seyfarth, Shaw, Fairweather &

Geraldson v. Lake Fairfax Seven Ltd. P’ship (Seyfarth), 480 S.E. 2d 471,

473 (Va. 1997)). The court states in Chawla:

4

Case 2:12-cv-02080-CKD Document 30 Filed 07/22/13 Page 4 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

In determining whether a party has established a

prima facie case of reasonableness, a fact finder

may consider, inter alia, the time and effort

expended by the attorney, the nature of the

services rendered, the complexity of the services,

the value of the services to the client, the

results obtained, whether the fees incurred were

consistent with those generally charged for similar

services, and whether the services were necessary

and appropriate.

Chawla, 499 S.E. 2d at 833 (citing Seyfarth, 489 S.E. 2d at 473).

The attorney’s fee provision at issue states, “[Defendants]

must pay all collection costs including but not limited to [Plaintiff’s]

reasonable attorney’s fees of 25% of the amount due (or if this is not

permitted under applicable law, the highest amount permitted) at the

time the account is referred to an attorney for collection.” (Complaint,

Ex. 1, at 2; ECF No. 2.) Plaintiff has not yet established what

constitutes reasonable attorney’s fees; however Defendants have

“demonstrate[d] law or facts showing . . . a sufficient defense” to the

amount of attorney’s fees Plaintiff seeks. J & J Sports Prod., Inc.,

2012 WL 6088300, at *4; see also Sokolsky v. Voss, No. 1:07 CV-00594

SMM, 2009 WL 2705741, at *3 (E.D. Cal. Aug. 25, 2009) (finding a

defendant’s defense meritorious prior to discovery, given that once the

defendant “complete[d] discovery, it is possible that he will be able to

present evidence that reduces his amount of liability”). 

Lastly, Defendants argue that “[a]llowing the case to move

forward on the merits . . . should not prejudice Plaintiff’s ability to

litigate its case[, and so] the third and final good cause factor is

satisfied.” (Defs.’ Mot. 5:9–13.) Defendants also contend that “[they]

are ready and willing to litigate this lawsuit.” (Id. 5:15.) To

determine whether a plaintiff would suffer prejudice if an entry of

default were set aside, “[t]he standard is whether [the plaintiff’s]

ability to pursue his claim will be hindered.” Falk v. Allen, 739 F.2d

5

Case 2:12-cv-02080-CKD Document 30 Filed 07/22/13 Page 5 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

461, 463 (9th Cir. 1984) (citing Gross v. Stereo Component Sys., 700

F.2d 120, 123 (3d Cir. 1983)). “Absent a showing of some evidentiary or

financial loss, . . . [a plaintiff] is unlikely to prove prejudice.” Am.

Ass’n of Naturopathic Physicians v. Hayhurst, 227 F.3d 1104, 1109 n.2

(9th Cir. 2000). Plaintiff has not shown that it will suffer prejudice

if the entries of default are set aside.

III. CONCLUSION

For the stated reasons, Defendants’ motion to set aside the

Clerk of Court’s entries of default, (ECF Nos. 15, 16), is GRANTED.

Dated: July 19, 2013

 

GARLAND E. BURRELL, JR.

Senior United States District Judge

6

Case 2:12-cv-02080-CKD Document 30 Filed 07/22/13 Page 6 of 6