Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-01151/USCOURTS-azd-2_08-cv-01151-0/pdf.json

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

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WO

NOT FOR PUBLICATION

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

BRT Funding, LLC, a Delaware limited

liability company, 

Plaintiff, 

vs.

Carlsbad Development I, LLC, a Utah

limited liability company; Richard C.

Bennion and Jane Doe Bennion, husband

and wife; Tad Gygi and Jane Doe Gygi,

husband and wife; Randy Krantz and Jane

Doe Krantz, husband and wife; and D.

Gregory Hales and Jane Doe Hales,

husband and wife,

Defendants. 

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No. 08-1151-PHX-FJM

ORDER

This action arises out of a loan agreement between the parties. Defendants did not file

an answer and were defaulted. We have before us defendants Richard and Joan Bennion,

Tad and Colleen Gygi, Randy and Susan Krantz, and D. Gregory and Terri Hales’s motion

for Rule 55(c) relief from entry of default (doc. 34), plaintiff BRT Funding, LLC’s (“BRT”)

response (doc. 35), and defendants’ reply (doc. 36). We also have before us plaintiff’s

motion for entry of default judgment and application for award of attorneys’ fees (doc. 28)

and declarations in support of the motion (docs. 30 & 31). The court also has before it Philip

Mitchell and Cory Foley’s unopposed motion to withdraw as attorneys of record for

defendants (doc. 37). 

Case 2:08-cv-01151-FJM Document 38 Filed 06/08/09 Page 1 of 8
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1

In the prior action, plaintiff failed to establish diversity jurisdiction because it did not

include in its pleadings the citizenship of each member of plaintiff and defendant LLCs. See

BRT, CV-08-00749-PHX-JAT (doc. 34). Plaintiff has included the citizenship of its and

Carlsbad’s members in the present complaint, and has sufficiently plead diversity

jurisdiction. See Complaint ¶¶ 3-19, 22.

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I

On March 20, 2007, BRT made a loan of $27,000,000 to Carlsbad Development I,

LLC (“Carlsbad”) for the purchase of the Falcon Glen apartments in Mesa, Arizona. On the

same date, Richard Bennion, Tad Gygi, Randy Krantz, and D. Gregory Hales (collectively,

“guarantors”) entered into a guaranty agreement with BRT for the full amount of the loan.

Under the terms of the loan agreement, Carlsbad was responsible for making monthly interest

payments to BRT with the entire balance of the loan due on April 1, 2008. Carlsbad began

to miss payments in October 2007 and failed to repay the principal balance once the note

matured. Guarantors also failed to make any of the missed payments or repay the principal

balance.

In May 2008, BRT filed an action in this court for breach of the loan agreement and

guaranty against Carlsbad, guarantors, and their wives. See BRT Funding, LLC v. Carlsbad

Dev. I, LLC et al., CV-08-00749-PHX-JAT. On June 12, 2008, that action was dismissed

without prejudice for failure to show subject matter jurisdiction.1

 Plaintiff filed the present

action for breach of the loan agreement and guaranty on June 20, 2008. On July 24, 2008,

after defendants failed to appear and defend, the clerk entered their default on plaintiff’s

motion pursuant to Rule 55(a), Fed. R. Civ. P. (doc. 27). Plaintiff moved for default

judgment and attorneys’ fees on January 20, 2009. While that motion was pending,

defendants filed their motion for relief from the entry of default.

II

Rule 55(c), Fed. R. Civ. P., allows a court to set aside an entry of default for “good

cause.” Although a finding of “good cause” is ultimately within the discretion of the court,

Haw. Carpenters' Trust Funds v. Stone, 794 F.2d 508, 513 (9th Cir.1986), three factors

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2

The process server’s sworn affidavit claims that the complaint was personally served

on Gayana Girgoryan, Nathan Dorius’s legal assistant (doc. 7). 

3

Randy Krantz had been designated as guarantor’s liaison to counsel, but claims that

he ceased communication with counsel in June because he was dealing with the severe illness

and ultimate passing of two close family members. Motion for Relief, Ex. 4. Krantz failed

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should be considered: “(1) whether the defendant[s’] culpable conduct led to the default; (2)

whether the defendant[s have] a meritorious defense; and (3) whether reopening the default

judgment would prejudice the plaintiff.” Employee Painters’ Trust v. Ethan Enters., Inc., 480

F.3d 993, 1000 (9th Cir. 2007) (quotation omitted). “This tripartite test is disjunctive” and

a finding against defendants on any of the three prongs would justify denying relief.

Hammer v. Drago, 940 F.2d 524, 526 (9th Cir. 1991). 

A. Culpable Conduct

Plaintiff claims that the defendants are culpable for not responding to the complaint

because they received actual or constructive notice of the action and failed to answer.

However, a default is only culpable, “where there is no explanation of the default

inconsistent with a devious, deliberate, willful, or bad faith failure to respond.” TCI, 244

F.3d at 698. Defendants claim their failure to respond was not intentional because: (1)

plaintiff did not properly serve defendants’ designated agent; (2) defendants’ counsel was not

notified when this action was filed, despite requesting notification; and (3) defendants’

designated liaison to counsel failed to make contact due to personal issues. 

The defendants’ failure to answer in this action appears to have arisen from a

convoluted set of events largely attributable to negligence by defendants and their agents.

On June 27, 2008, defendants’ designated agent was given the complaint in the present

action.2

 However, because he believed the complaint to be a copy of the May 2008

complaint, which he was not aware had been dismissed, he disregarded these papers without

taking any action. Motion for Relief, Ex. 2 ¶10. Also, defendants appear to have assumed

that their counsel would properly respond to the complaint, even though neither guarantors

nor their wives had contact with counsel.3

 After learning of the entry of default, defendants

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to inform any of the other defendants of his inability or unwillingness to communicate with

counsel. 

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allocated all of their “limited funds and resources” to “negotiating and restructuring the Loan

with BRT” until entering bankruptcy in November 2008. Motion for Relief, Ex. 3 ¶9.

Defendants chose not to make a filing with the court until requesting leave to file the present

motion on February 27, 2009.

Although the actions of defendants and defendants’ agent demonstrate an egregious

amount of neglect, defendants’ conduct does not show a deliberate attempt to manipulate the

legal system. Plaintiff relies on Haw. Carpenters’, 794 F.2d at 512, for the proposition that

defendants were required to take some action in this case while trying to reach a settlement

agreement. The court in Haw. Carpenters’, however, was referring to the parties’ duty to

respond to a complaint while attempting to settle, not a duty to seek relief after default had

been entered. While we agree that a better course would have been for defendants’ to seek

relief from default during negotiations, a failure to do so does not necessarily make their

conduct culpable. Moreover, plaintiff’s claims of prejudice from the delay are not entirely

credible because it did not file a motion for default judgment and attorney’s fees until

January 2009, nearly six months after default was entered. Defendants’ conduct was

inexcusably negligent, and thus had default judgment been entered, we would not have set

it aside.

B. Meritorious Defense

Defendants are also “required to make some showing of a meritorious defense as a

prerequisite to vacating an entry of default.” Haw. Carpenters’, 794 F.2d at 513. 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.” Id. Defendants are required to “present

specific facts that would constitute a defense,” but “the burden on a party seeking to vacate

a default judgment is not extraordinarily heavy.” TCI, 244 F.3d at 700. 

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Defendants claim that they have a meritorious defense because guarantors’ wives,

Joan Bennion, Colleen Gygi, Susan Krantz, and Terri Hales, did not sign the guaranty

agreement and are not, therefore, liable under its terms. Plaintiff argues that guarantors’

wives were included as defendants to satisfy Arizona’s community property laws. However,

“Arizona courts have long held that the property rights of a husband and wife are governed

by the law of the couple’s matrimonial domicile at the time of the acquisition of the

property.” Lorenz-Auxier Fin. Group v. Bidewell, 160 Ariz. 218, 220, 772 P.2d 41, 43 (Ct.

App. 1989) (citation omitted). In this case, guarantors and guarantor’s wives are allegedly

domiciled in Utah, which is a non-community property state. See U.C.A. § 30-2-5. Because

they may not, therefore, have liability under Utah law, guarantors’ wives, Joan Bennion,

Colleen Gygi, Susan Krantz, and Terri Hales, have presented a meritorious defense to

plaintiff’s claims.

Defendants Richard Bennion, Tad Gygi, Randy Krantz, and D. Gregory Hales,

however, have failed to present any defense to plaintiff’s claims. Accordingly, we conclude

that defendants Richard Bennion, Tad Gygi, Randy Krantz, and D. Gregory Hales have failed

to show “good cause” why the entry of default should be set aside as to them. Haw.

Carpenters’, 794 F.2d at 513 (“To permit reopening of the case in the absence of some

showing of a meritorious defense would cause needless delay and expense to the parties and

court system.”). We must, however, continue the “good cause” analysis regarding

defendants Joan Bennion, Colleen Gygi, Susan Krantz, and Terri Hales. 

C. Prejudice

Finally, defendants must show that plaintiff will not be prejudiced if the entry of

default is vacated. “To be prejudicial, the setting aside of a judgment must result in greater

harm than simply delaying resolution of the case . . . ‘the standard is whether [plaintiff's]

ability to pursue his claim will be hindered.’” TCI, 244 F.3d at 701 (quotation omitted).

Plaintiff claims that it will be prejudiced because Carlsbad is in bankruptcy and “[t]he longer

BRT is forced to wait before obtaining judgment, the greater the likelihood that whatever it

collects will ultimately not be sufficient to satisfy the judgment.” Response at 8. We do not

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find this claim credible. Although default was entered in July 2008, plaintiff waited until

January 2009 to even move for default judgment. We find no prejudice to plaintiff if default

is vacated apart from the customary delay of litigation, which is insufficient. Accordingly,

relief from entry of default is granted as to Joan Bennion, Colleen Gygi, Susan Krantz, and

Terri Hales.

III

Because we deny relief from entry of default for the guarantors, we must now address

plaintiff’s motion for default judgment as to those defendants. Whether to enter default

judgment is within our discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir.1980).

After entry of default, the factual allegations of the complaint are taken as true, except those

allegations relating to damages. See Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th

Cir. 1977). Plaintiff must prove the amount of damages to which it is entitled. Philip Morris

USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. at 494, 498 (C.D.Cal.2003). Plaintiff seeks

an award of $32,359,976.62–$26,843,345.00 as the principal amount due under the loan,

$5,423,183.00 in accrued interest from January 1, 2008 through November 30, 2008, and

$93,448.62 in attorneys’ fees and costs. Plaintiff also claims that it is entitled to recover

post-judgment interest at a rate of 24.5% per annum. We find the evidence submitted

insufficient to prove plaintiff’s claim for damages. 

The only evidence plaintiff has submitted regarding the outstanding principal due on

the loan and the amount of accrued interest is the declaration of Lonnie Halpern, vice

president of BRT. Halpern’s declaration fails to provide any specific evidence regarding the

number or amount of payments Carlsbad or guarantors made to BRT, or any other

explanation as to how the amounts sought were calculated. The declaration also states that

the loan documents specify an interest at a rate of 24.5% per annum, but plaintiff has not

actually submitted any of the loan documents. Moreover, plaintiff does not explain why

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4

Although the complaint alleges that defendants failed to make interest payments from

January 1, 2008, it also alleges that the entire balance of the loan was due on April 1, 2008.

Complaint ¶¶ 52-72. Plaintiff has provided no explanation as to why interest should continue

to accrue through November 30, 2008.

5

Plaintiff claims that it is entitled to attorneys’ fees under both the terms of the loan

agreements and A.R.S. § 12-341.01(A). However, plaintiff is not entitled to attorneys’ fees

under A.R.S. § 12-341.01(A) because this was not a contested action. See Morrison v.

Shanwick, 167 Ariz. 39, 46, 804 P.2d 768, 775 (Ct. App. 1990) (“[A] contested action is one

in which the defendant has appeared and generally defends against the claims and demands

made by the plaintiff.”).

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accrued interest is being requested for the period from January 1, 2008 until November 30,

2008.4

Plaintiff also seeks over $93,000 in attorneys’ fees and costs, which includes large

amounts of work performed to recover on the loan outside of this action.5

 Even if plaintiff

is entitled to recover attorneys’ fees and costs, plaintiff has failed to establish the

reasonableness of the amount requested. Plaintiff submitted an itemized billing statement,

which includes work performed by eleven attorneys, a summer associate, and three

paralegals, each of whom bills at a different hourly rate, but did not provide any information

regarding the role or qualifications of any these individuals. We are, therefore, unable to

determine whether the rates charged are reasonable from the information provided. 

 In addition, plaintiff asks for $310.17 in computerized research expenses, but has

only provided a summary sheet listing dates and amounts for “Westlaw computerized

research” without any detail regarding the purpose of the research. Declaration of Counsel,

Ex. B. Plaintiff also requests $1,390.00 in taxable costs under A.R.S. § 12-341, but has

submitted only a summary of costs, which does not provide enough information for us to

determine the nature of these costs. Declaration of Counsel, Ex. C. These summary exhibits

are insufficient for us to determine whether these charges are reasonable and should be

recovered by plaintiff. 

Accordingly, we conclude that plaintiff has failed to prove any of the amounts it

seeks. Plaintiff will have fifteen days from the date of this order to supplement its motion,

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or its motion for default judgment will be denied. Because defendants have now appeared,

we will also allow them an opportunity to respond to plaintiff’s motion as supplemented.

IV

IT IS THEREFORE ORDERED GRANTING IN PART AND DENYING IN

PART defendants’ motion for relief from entry of default (doc. 34). Entry of default is set

aside as to Joan Bennion, Colleen Gygi, Susan Krantz, and Terri Hales. 

We reserve decision on plaintiff’s motion for default judgment and application for

award of attorneys’ fees and costs (doc. 28). IT IS FURTHER ORDERED that plaintiff

shall have fifteen days from the date of this order to provide additional evidence regarding

the amount of damages, attorneys’ fees, and costs to which it is entitled. If no additional

filing is received within that time, plaintiff’s motion for default judgment and application

for award of attorneys’ fees will be denied. Defendants shall have to and including July 10,

2009 to respond to plaintiff’s motion as supplemented. 

IT IS FURTHER ORDERED GRANTING Philip Mitchell and Corey Foley’s

unopposed motion to withdraw as attorneys of record for defendants (doc. 37). 

In addition, although no notice was filed, the parties have informed us that Carlsbad

has filed for Chapter 11 bankruptcy. In light of the bankruptcy filing, IT IS HEREBY

ORDERED that this action is stayed as to defendant Carlsbad ONLY and will be dismissed

against defendant Carlsbad without further notice sixty days from the date of this order,

unless the court is advised that the bankruptcy stay has been lifted by the bankruptcy judge,

or that plaintiff’s motion to lift the stay has not been ruled upon. 

DATED this 5th day of June, 2009.

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