Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_12-cv-00587/USCOURTS-casd-3_12-cv-00587-0/pdf.json

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

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

CAPITAL PARTNERS FUNDING, LLC, a

California Limited Liability Corporation,

Plaintiff,

v.

TRANS-SPEC TRUCK SERVICE, INC., a

Massachusetts Corporation; TRIPLE H

TRANSPORTATION, INC., a Massachusetts

Corporation; BERLIN TRANSPORTATION,

INC., a Massachusetts Corporation; JOSEPH

HOWARD, an individual; WILLIAM

HOWARD, an individual, and DOES 1

through 10, inclusive,

Defendants. 

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Civil No. 12cv0587 AJB (JMA)

ORDER GRANTING DEFENDANTS’

MOTION TO SET ASIDE DEFAULT

JUDGMENT 

(Doc. No. 17)

On October 10, 2012, Plaintiff Capital Partners Funding, LLC (“Capital”) obtained a default

judgment in the amount of $360,300.78, against Defendants Trans-Spec Truck Service, Inc.

(“Trans-Spec”), Triple H Transportation (“Triple H”), Berlin Transportation (“Berlin), Joseph Howard,

and William Howard (collectively, “Defendants”).1

 (Doc. No. 15.) Defendants now move to vacate the

default judgment and the underlying entry of default. (Doc. No. 17.) Pursuant to Civil Local Rule

7.1.d.1, the Court finds the motion suitable for determination on the papers and without oral argument. 

Accordingly, the motion hearing scheduled for January 24, 2013 is hereby vacated. For the reasons set

forth below, the Court GRANTS Defendants’ motion.

1

 The total judgment was comprised of $215,345.42 in monetary damages, $113,029.64 in

prejudgment interest, and $31,925.72 in attorneys’ fees and costs.

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BACKGROUND

Capital is a leading factoring provider offering funding to thousands of businesses nationwide. 

On March 26, 2010, pursuant to a Factoring Master Agreement (“Factoring Agreement”) between

Capital and Trans-Spec, Capital purchased accounts receivables from Trans-Spec, providing Trans-Spec

with an immediate infusion of cash. To induce Capital to enter into the Factoring Agreement,

Trans-Spec executed a Continuing Guaranty and Security Agreement (“Guaranty”), whereby Defendants Joseph Howard and William Howard personally guaranteed to pay all amounts due and owing in

connection with the Factoring Agreement in the event Trans-Spec failed to honor its obligations. 

On May 8, 2012, after countless attempts to collect on the unpaid balance from both Trans-Spec

and guarantors Joseph and William Howard, Capital filed the operative complaint. The complaint

alleged seven causes of action, including: (1) breach of contract (factoring agreement); (2) breach of

contract (guarantor agreement); (3) breach of the implied covenant of good faith and fair dealing; (4)

intentional misrepresentation; (5) negligent misrepresentation; (6) accounts stated; and (7) unfair

competition. The complaint further alleged that although Triple H and Berlin were not signatories to the

Factoring Agreement or the Guaranty, each was jointly and severally liable as the alter egos of TransSpec. On April 17, 2012, Capital filed a request for entry of default, (Doc. No. 8), and on April 18,

2012, the Clerk of the Court entered default against all Defendants. (Doc. No. 9). Subsequently, on

October 10, 2012, the Court granted in part and denied in part Capital’s motion for default judgment.2

(Doc. No. 10). Just over a month later, Defendants filed the instant motion to vacate and set aside the

default judgment. (Doc. No. 17.)

LEGAL STANDARD

Pursuant to Rule 55, subdivision (c), a district court may set aside the entry of default upon a

showing of good cause. Once default judgment has been entered, relief is governed by Rule 60(b).

Where a defendant seeks relief under Rule 60(b)(1) based upon “excusable neglect,” the court applies

the same three factors governing the inquiry into “good cause” under Rule 55(c). United States v.

Signed Personal Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (“Mesle ”);

2

 The Court granted Capital’s motion for monetary damages, prejudgment interest, and attorneys’

fees, and denied Capital’s motion with respect to exemplary damages. The Court however provided

Capital leave to amend to later seek an amended judgment. 

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TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir. 2001) (“TCI”). These three factors,

often referred to as the “Falk factors,” include (1) whether the defendant engaged in culpable conduct

that led to the default; (2) whether the defendant had a meritorious defense; and (3) whether reopening

the default judgment would prejudice the plaintiff. Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984);

TCI, 244 F.3d at 696. Although the “Falk factors” are disjunctive, such that a court may decline to

vacate a default judgment upon a finding of any one of the factors, district courts are not—as a matter of

law—required to deny a motion to set aside a default judgment upon a finding of any of the factors. See

Brandt v. Am. Bankers Ins. Co. of Fla., 653 F.3d 1108, 1111 (9th Cir. 2011).

Moreover, and more crucially, “judgment by default is a drastic step appropriate only in extreme

circumstances . . . [and] a case should, whenever possible, be decided on the merits.” Falk, 739 F.2d at

463; Mesle, 615 F.3d at 1089. As recently emphasized by the Ninth Circuit, the “rules for determining

when a default should be set aside are solicitous towards movants, especially those whose actions

leading to the default were taken without the benefit of legal representation.” Mesle, 615 F.3d at 1089. 

See also TCI, 244 F.3d at 695–98. Accordingly, the Court discusses each of Falk factors below,

followed by a determination as to whether conditions imposed on the Court’s order setting aside the

default judgment are warranted. 

DISCUSSION

I. Defendants’ 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, 244 F.3d at 697 (emphasis in original). “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

decisionmaking, or otherwise manipulate the legal process.’ ” Mesle, 615 F.3d at 1092 (emphasis

added). Thus, culpability involves more than a parties “nonappearance following receipt of notice of the

action, but rather conduct which hindered judicial proceedings.” TCI, 244 F.3d at 698. A district court

should consider a “bevy of equitable factors” when determining culpability. Id. at 697. 

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Capital argues Defendants’ conduct was culpable because they: (1) admit they were properly

served with the summons and the Complaint in March 2012; (2) admit they discussed the case with a

licensed attorney—an individual who contacted Capital’s counsel on behalf of all Defendants to clarify

scheduling deadlines; and (3) are sophisticated business entities and individuals familiar with legal

proceedings in federal court, and thus understand the consequences of missed deadlines. Defendants

argue their conduct was not culpable, and thus excusable, because they: (1) never hired the Massachusetts attorney they initially discussed the case with; (2) after speaking with “a few attorneys about the

case generally, without hiring any of them,” they were under the impression that it would be foolish to

take the case on pro se because “one misstep could cost them tens or hundreds of thousands of dollars;”

and (3) they believed that there was no way Capital would be able to obtain a judgment against them

because the case is based on frivolous and unsubstantiated allegations. Defendants further argue that

Capital seeks to apply the more stringent culpability standard articulated by the Ninth Circuit in

Franchise Holding II, LLC v. Huntington Restaurants Group, Inc., 375 F.3d 922 (9th Cir. 2004), which

the Mesle court explained is not the “ordinary standard for Rule 55(c) and 60(b) motion[s],” and is only

applicable where the defaulting party is represented by counsel or is a “legally sophisticated entity or

individual.” 615 F.3d at 1093-94.

Although this is a close question, the Court finds Defendants failure to respond to the Complaint

after discussing the action with several attorneys, coupled with Defendants’ knowledge of the legal

system through past involvement in federal litigation—albeit in Massachusetts—is sufficient to warrant

a finding of inexcusable culpable conduct.3

 Moreover, this case can be differentiated from several cases

cited by the TCI court, wherein the defaulting parties’ conduct was found excusable. See TCI, 244 F.3d

at 697-98. For example, in Gregorian v. Izvestia, 871 F.2d 1515 (9th Cir. 1989), the Ninth Circuit

found that where a party knew about the litigation and was served with the summons and the complaint,

but elected not to answer or otherwise respond based on the mistaken belief that the court lacked subject

3

 As noted by Capital, and uncontested by Defendants, Defendants experience in federal

litigation includes the following: Trans-Spec Truck Service Inc. v. Caterpillar Inc., United States

District Court, District of Massachusetts, Case No. 04-cv-11836, filed August 23, 2004; Michael Brault

v. Truck Tire Service Corporation/Truck Tire Service Corporation, United States District Court, District

of Massachusetts, Case No. 02-cv-12371, filed December 10, 2002; Joseph M. Howard, Jr. v. Country

Coach, Inc., United States District Court, District of Massachusetts, Case No. 02-cv-11474, filed July

19, 2002.

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matter jurisdiction over the action, such conduct was excusable rather than culpable. Moreover, in

Bateman v. United States Postal Service, 231 F.3d 1220 (9th Cir. 2000), the court held that an attorneys

sudden absence from the jurisdiction to care for a family emergency warranted vacating a judgment

issued for failure to respond to a pending summary judgment motion. Finally, in the often cited case

Falk v. Allen, wherein the Ninth Circuit articulated the factors currently considered by this Court, the

Ninth Circuit stated that leaving the country for medical reasons and defendants failure to obtain legal

counsel in the face of diligent attempts, was excusable rather than culpable conduct. 739 F.2d at 461.

Here, however, Defendants elected not to respond to the properly served Complaint because they

believed the Complaint lacked merit, not because they believed the Court lacked subject matter

jurisdiction over the matter. Moreover, although the Ninth Circuit has found that a defendant’s or

counsel’s physical or mental illness is a common ground for finding conduct non-culpable, here

Defendants do not contend their failure to respond to the action was the result of a physical or mental

impairment. See TCI, 244 F.3d at 698 n. 5. Finally, based on case law in the Ninth Circuit, courts tend

to consider the defaulting parties “general familiarity with legal processes or consultation with lawyers

at the time of the default” pertinent to determining whether failing to respond was deliberate, willful or

in bad faith.4

 See, e.g., Meadows v. Dominican Republic, 817 F.2d 517, 522 (9th Cir. 1987). Thus,

“absent some explanation (such as offered by the attorney in Bateman), it is fair to expect that individuals who have previously been involved in litigation or have consulted with a lawyer appreciate the

consequences of failing to answer and do so only if they see some advantage to themselves.” See TCI,

244 F.3d at 699 n. 6. Accordingly, the Court finds Defendants’ failure to respond to Complaint, entry of

default, and corresponding default judgment was the result of culpable rather than excusable conduct.

II. Meritorious Defense

“A defendant seeking to vacate a default judgment must present specific facts that would

constitute a defense.” TCI, 244 F.3d at 700 (citations omitted). The burden, however, “is not

4

 Meadows v. Dominican Republic, 817 F.2d 517, 522 (9th Cir. 1987) (finding the defendants

culpable in not answering the complaint because they were “aware of the relevant federal law, . . . fully

informed of the legal consequences of failing to respond, . . . and sufficiently sophisticated and

experienced in the requirements of American law to protect [their] interests”); Richmark Corp. v.

Timber Falling Consultants, Inc., 937 F.2d 1444, 1449 (9th Cir. 1991) (finding foreign defendant

revealed familiarity with U.S. courts by retaining local counsel to protect its interests in other matters).

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extraordinarily heavy.” Id. “All that is necessary to satisfy the ‘meritorious defense’ requirement is to

allege sufficient facts that, if true, would constitute a defense.” Mesle, 615 F.3d at 1094. See also

O’Connor v. State of Nev., 27 F.3d 357, 364 (9th Cir. 1994) (“Where timely relief is sought from a

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.”).

Capital argues Defendants have not presented a meritorious defense because the law requires

“admissible evidence showing facts supporting the defense or the defenses,” and “simple denials and

conclusory statements are inadequate.” (Doc. No. 20, p. 10:18-28.) To support this allegation, Capital

cites case law from the Eastern District of Virginia and the Eastern District of Pennsylvania, none of

which are binding, and both of which conflict with current Ninth Circuit precedent. Trueblook v.

Grayson, 32 F.R.D. 190, 196 (E.D. Va. 1963); Foy v. Dicks, 146 F.R.D. 113, 116 (E.D. Pa. 1993). As

stated by the Ninth Circuit, to justify vacating a default judgment the defaulting party must only present

specific facts that would constitute a defense. See Franchise Holding II, 375 F.3d 922, 926 (9th Cir.

2004) (emphasis added). The ultimate question as to the validity or the merit of the defense or defenses

is a question to be determined later in the litigation—after the court rules on the motion to vacate the

default judgment. See Mesle, 615 F.3d 1094.

Here, Defendants argue they have a meritorious defense because: (1) Capital already released

Defendants’ “hold back” with respect to all but less than $100,000 of the outstanding invoices, which

Capital would never have done if these delinquent accounts did in fact exist; (2) Defendants never had

more than $20,000 in delinquent accounts; and (2) although Defendants repeatedly requested Capital to

provide documentation supporting the “so-called delinquent accounts,” Capital refused. (Howard Decl.

¶ 3.) Moreover, Defendants allege that after they received the Repurchase letter from Capital, which

demanded that Trans-Spec immediately repay $216,326.09—consisting of $183,239.58 of supposedly

delinquent accounts and $33,086.51 in accrued fees—Trans-Spec reviewed its books and records and

found that “there could be at most $20,000 in delinquent accounts.”5

 (Howard Decl. ¶¶ 4, 5.) 

5

 Defendants allege this can be supported by a senior executive at Aggregate Industries, Inc., a

payor on an allegedly delinquent account, and the Aggregate Industries, Inc. computer database. (Doc.

No. 21, pp. 7-8.)

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Capital argues Defendants allegations do not suffice, as they are merely “general denials” of

Defendants extent of liability. The Court is not inclined to agree. Defendants’ statements that there are

no more than $20,000.00 due and owing in delinquent accounts, if true, is enough to constitute a

meritorious defense under current Ninth Circuit precedent. Mesle, 615 F.3d at 1094. (“[T]he question

whether the factual allegation [i]s true” is not to be determined by the court when it decides the motion

to set aside the default. Rather, that question “would be the subject of the later litigation.”) (internal

citations omitted).

III. Prejudice to Plaintiff

In determining whether the plaintiff will be prejudiced, “the standard is whether [plaintiff’s]

ability to pursue his claim will be hindered.” Falk, 739 F.2d at 463. “To be prejudicial, the setting aside

of a judgment must result in greater harm than simply delaying resolution of the case.” TCI, 244 F.3d at

701. “[T]he delay must result in tangible harm such as loss of evidence, increased difficulties of

discovery, or greater opportunity for fraud or collusion.” Thompson v. Am. Home Assur. Co., 95 F.3d

429, 433-34 (9th Cir. 1996).

Here, the Court finds that setting aside the default judgment will not be prejudicial to Capital.

Although Capital has spent a significant amount of time and resources since filing the Complaint, no

tangible harm will result from re-opening the case and allowing a determination on the merits. 

Furthermore, the slight delay in resolution of this case will not result in the loss of evidence, increased

difficulties in discovery, or the ability of Capital to obtain relief through litigation.6 See E. & J. Gallo

Winery v. Cantine Rallo, S.P.A., 430 F. Supp. 2d 1064, 1091 (E.D. Cal. 2005) (“Plaintiff offers no

suggestion that it will not be fully able to prosecute its claims.”). 

Accordingly, after a consideration of all the Falk factors, the Court finds the default judgment

should be vacated and Defendants should have an opportunity to argue the merits of the case. Specifically, the Court finds that even though Defendants conduct was culpable, Defendants have presented

potential meritorious defenses, the presentation of which will not prejudice Capital in continuing to

6

 The Court entered default judgment against Defendants on October 10, 2012, (Doc. No. 15),

and on November 19, 2012, (Doc. No. 17), Defendants filed the instant motion. 

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advocate the merits of their claims. TCI, 244 F.3d at 697; Haw. Carpenters’ Trust Funds v. Stone, 794

F.2d 508, 513 (9th Cir. 1986); Am. Alliance Ins. Co. v. Eagle Ins. Co., 92 F.3d 57, 61 (2d Cir. 1996).

IV. Conditions on Setting Aside the Default Judgment

Even where a court finds the merits of the case weigh in favor of vacating a default judgment,

Rule 60 permits a court to impose “just terms” conditioning an order setting aside a judgment. See Fed.

R. Civ. P. 60(b) (court may set aside judgment on “just terms”); Brandt, 653 F.3d at 1110 (noting

conditions set by district court); Nilsson, Robbins, Dalgarn, Berliner, Carson & Wurst v. La. Hvdroiec,

854 F.2d 1538, 1546–47 (9th Cir. 1988) (trial court has discretion to set conditions to set aside default

judgment). 

Here, Capital requests that in the event the court grants Defendants’ motion, it should do so on

the condition that Defendants reimburse Capital for the fees, costs, and expenses Capital has suffered as

a result of Defendants “game playing and duplicity.” (Doc. No. 20, p. 13:4-6.) Specifically, Capital

urges the Court to require Defendants to reimburse Capital for the attorneys’ fees and costs incurred in

(1) serving Defendants; (2) procuring entry of default and default judgment; (3) opposing Defendants’

motion to set aside the default judgment; and (4) appearing at the hearing for the instant motion. In

total, Capital seeks reimbursement in the amount of $55,204.15. In response, Defendants argue the

Court should not condition setting aside the default judgment on payment of Capital’s attorneys’ fees

because Defendants did not engage in deliberate conduct, the fees requested by Capital are excessive,

and Defendants do not have the funds to pay this amount. (Doc. No. 21, p. 9-10.) 

Although the Court agrees with Defendants that the fees requested by Capital are excessive, as

they include fees and costs beyond those associated with the present motion, the Court also finds that

Capital was required to expend unnecessary attorneys’ fees as a result of Defendants’ actions. Thus,

although Defendants’ conduct was not culpable in the sense that it precludes setting aside the

default—in light of the other Falk factors—Defendants’ conduct unnecessarily and unfairly imposed

additional burdens on Capital. The Court previously concluded that Capital reasonably incurred

$31,925.72 in fees and expenses in bringing this action, and pursuing the entry of default and default

judgment. (Doc. No. 15.) Here, however, because Capital may still recover the fees and costs

associated with filing the Complaint, and pursuing the entry of default and default judgment in the event

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they are ultimately successful in the underlying action, the Court finds such fees and costs unwarranted

as a condition for setting aside the judgment. On the other hand, the Court finds that if Defendants had

otherwise responded or contacted Capital prior to entry of judgment, Capital would not have expended

certain fees and costs associated with opposing Defendants’ instant motion to vacate the default

judgment. 

Therefore, after reviewing the detailed attorney billing record submitted by Capital, and its

counsel’s attached declaration, the Court finds Capital incurred approximately $7,618.00 in fees and

costs in opposing the instant motion.7 Accordingly, as a condition of setting aside the entry of default

and default judgment, Defendants must reimburse Capital in the amount of $7,618.00. Failure to

reimburse Capital for its reasonable attorneys’ fees and costs incurred in opposing the instant motion, by

the deadline noted below, will result in the Court revoking this order and reinstating the entry of default

and corresponding judgment. (Doc. Nos. 9, 15, 16.)

CONCLUSION

For the reasons set forth above, the Court hereby GRANTS Defendants’ motion to set aside the

default judgment. (Doc. No. 17.) Specifically, the Court makes the following findings:

1. The underlying entry of default and default judgment entered against Defendants are

hereby VACATED (Doc. Nos. 9, 15, 16);

2. Capital’s request for attorneys fees’ is GRANTED IN PART AND DENIED IN PART. 

Defendants must submit payment to Capital in the amount of $7,618.00. Defendants

must submit payment to Capital no later than February 20, 2013. Failure to submit

timely payment will result in a revocation of this Order and a reinstatement of the entry

of default and default judgment; and

7

 Capital states that it spent 18.8 hours at $285.00 per hour for a total of $5,358, and 5 hours at

$450.00 per hour for a total of $2,250, reviewing and opposing the instant motion. Capital also states it

spent $10 in duplication fees ofr the instant motion. (Luther Decl., Ex. A.) Because Capital provided

the Court with a detailed attorney billing sheet, albeit one that included all fees and costs from the date

the Complaint was filed, the Court did not find it necessary to require Capital to re-file the document

limited to those fees and costs associated with the instant motion. Moreover, the Court found it

unnecessary for the parties to submit supplemental briefs on the issue of attorneys fees. Neither the

hourly rate nor the time expended on the instant motion “shocks the conscience.” Mendez v. County of

San Bernardino, 540 F.3d 1109, 1127 (9th Cir. 2008). 

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3. Defendants are ordered to answer or otherwise respond to the Complaint no later than

February 20, 2013. Failure to do so will result in the Court reinstating the default

judgment.

IT IS SO ORDERED. 

DATED: January 4, 2013

Hon. Anthony J. Battaglia

U.S. District Judge

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