Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_14-cv-02733/USCOURTS-azd-2_14-cv-02733-0/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 15:78m(a) Securities Exchange Act

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Gold Star Resources, LLC, 

Plaintiff, 

v. 

Joseph D. Balser et al., 

Defendants.

No. CV-14-02733-PHX-NVW

ORDER 

Before the Court is Defendant Balser’s Motion to Set Aside Default (Doc. 53), 

Defendant Morris’s Motion to Set Aside Default (Doc. 63), Plaintiff’s Motion for 

Judgment by Default (Doc. 58), and the parties’ accompanying briefs. For the reasons 

that follow, the Defendants’ Motions to Set Aside Default will be conditionally granted 

and Plaintiff’s Motion for Judgment by Default will be denied. 

I. BACKGROUND 

Plaintiff Gold Star Resources, LLC, (“Gold Star”) claims to be the victim of “a 

sophisticated scheme or confidence game designed to defraud.” (Doc. 42 at ¶ 9.) Here is 

how the “scheme” allegedly worked: Defendant Joseph Balser, a scientist, claimed to 

have a unique method for identifying and extracting gold and silver deposits from older 

mining claims. (Id.) Defendant James Morris, the owner of various mining properties in 

Arizona, vouched for Balser’s methods. (Id.) Other defendants confirmed Balser’s 

methods. (Id.) In reliance on these representations, Gold Star raised millions of dollars, 

bought hundreds of mining claims in Arizona, and began constructing a chemical plant 

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for the purpose of extracting gold and silver. (Id. at ¶¶ 12, 13, 19.) The plant never 

produced any meaningful quantities of gold and silver, and Balser’s method could not be 

confirmed through an independent laboratory. (Id. at ¶¶ 20, 22.) Gold Star sued Balser 

and Morris for securities violations, racketeering, fraud, conversion, breach of covenant 

of good faith and fair dealing, breach of contract, and conspiracy. (Id. at ¶¶ 49-88.) 

Balser failed to respond to Gold Star’s amended complaint by March 23, 2015. 

Accordingly, Gold Star applied for entry of default as to Balser (Doc. 21), and default 

was entered on April 2 (Doc. 27). 

Likewise, Morris failed to respond to Gold Star’s amended complaint by April 4, 

2015. Accordingly, Gold Star applied for entry of default as to Morris (Doc. 28), and 

default was entered on April 10 (Doc. 29). 

On July 31, Balser moved to set aside the entry of default against him. (Doc. 53.) 

In his affidavit (Doc. 53-1), he explained he did not receive a copy of Gold Star’s 

complaint until weeks after service had been executed on March 1. He further explained 

that, due to his limited resources and communication capabilities, he was unable to retain 

an attorney quickly and was unable to explain his circumstances to his attorney until 

meeting with him on May 29. 

On August 17, Morris moved to set aside the entry of default against him. (Doc. 

63.) In his affidavit (Doc. 63-1), he explained he did not receive a copy of Gold Star’s 

complaint until May. He further explained he thought Balser’s attorney was representing 

him as well as Balser. After he discovered otherwise on July 17, he asked the Court for 

an extension of time and retained a lawyer, whom he instructed to file an answer as soon 

as possible. 

Gold Star opposes both motions. (Doc. 64.) In response to Balser’s motion, Gold 

Star argues that an email sent by Balser’s attorney on March 26, 2015, belies Balser’s 

claim that he could not quickly communicate with an attorney and indicates unreasonable 

delay. In response to Morris’s motion, Gold Star argues Morris’s affidavit is inadequate, 

false, and inconsistent with Balser’s affidavit. Gold Star also claims that neither 

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defendant has a meritorious defense to the underlying allegations and that setting aside 

these defaults would unfairly prejudice Gold Star. For these same reasons, Gold Star 

moved for default judgment against Balser and Morris. (Doc. 58.) 

II. ANALYSIS 

“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; or (3) whether reopening the default judgment 

would prejudice the other party. This standard, which is the same as is used to determine 

whether a default judgment should be set aside under Rule 60(b), is disjunctive, such that 

a finding that any one of these factors is true is sufficient reason for the district court to 

refuse to set aside the default.” United States v. Signed Pers. Check No. 730 of Yubran S. 

Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (alterations and citations omitted). 

“Crucially, however, judgment by default is a drastic step appropriate only in 

extreme circumstances; a case should, whenever possible, be decided on the merits. 

Additionally, while the same test applies for motions seeking relief from default 

judgment under both Rule 55(c) and Rule 60(b), the test is more liberally applied in the 

Rule 55(c) context . . . because in the Rule 55 context there is no interest in the finality of 

the judgment with which to contend.” Id. at 1091 & n.1 (alteration and citations 

omitted). 

A. Neither Defendant Engaged in 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. . . . [T]he 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.” Id. at 

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1092 (alteration and citations omitted) (emphasis in original). Typically, when a 

defendant’s conduct is deemed culpable, “there is no explanation of the default 

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

(citation omitted). 

1. Balser 

Balser has offered a plausible explanation for his default, consistent with good 

faith conduct. According to his affidavit (Doc. 53-1), the complaint was served on him 

by delivery to his wife on March 1, 2015. He was living in a different city at the time, 

with limited contact with his family. The complaint was then placed with other mail, 

which was forwarded to him weeks later. Due to his limited resources and 

communication capabilities, he could not retain an attorney quickly. His employer 

eventually retained an attorney for him. He was not able to explain his circumstances to 

his attorney until meeting with him on May 29, 2015. 

In response to this explanation, Gold Star points to an email sent by Balser’s 

attorney on March 26, 2015. (Doc. 64-1.) From this email, Gold Star draws two 

inferences: (1) Balser’s affidavit is false because Balser was apparently able to contact an 

attorney quickly, and (2) Balser’s delay in moving to set aside default was unreasonable 

because he was represented by an attorney several days before default was entered. 

Neither of these inferences is valid. 

First, the fact that Balser had representation as of March 26, 2015, does not 

contradict his affidavit. Balser does not specify when he retained counsel. Although he 

states he was unable to explain his circumstances to his attorney until May 29, 2015, that 

statement is consistent with his claim of limited communication capabilities. Indeed, 

Balser’s attorney attested that, though he was retained on March 26, he was not able to 

collect essential information until meeting with Balser on May 29. (Doc. 65-1.) 

Second, the fact that Balser had representation as of March 26, 2015, does not 

make his delay in moving to set aside default unreasonable. Balser’s attorney acted 

prudently by emailing Gold Star’s attorney on March 26, asking for a withdrawal of entry 

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of default. (Doc. 64-1.) The subsequent delay in moving to set aside default is somewhat 

understandable given that Balser’s attorney could not collect necessary information from 

Balser until May 29. (Doc. 65-1.) 

Even if the delay were unreasonable, it would not establish 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 (citation omitted). At most, 

unreasonable delay would indicate error on the part of Balser’s attorney. And “on a 

motion to set aside a default or default judgment, courts have been reluctant to attribute to 

the parties the errors of their legal representatives.” Jackson v. Beech, 636 F.2d 831, 837 

(D.C. Cir. 1980) (citation omitted). Therefore, Balser has not engaged in culpable 

conduct. 

2. Morris 

Morris has also offered a plausible explanation for his default, consistent with 

good faith conduct. According to his affidavit (Doc. 63-1), the complaint was served on 

him by delivery to a homeless man staying at his house on March 14, 2015. Morris was 

out of town and had allowed the man to stay at his house. The man did not tell Morris of 

the complaint. Morris first discovered the complaint when he returned home in May. 

Morris then spoke with Balser, who said his attorney would represent both of them. It 

was not until July 17 that Morris found out he was not being represented. He then asked 

the Court for an extension of time and retained a lawyer. He instructed his lawyer to file 

an answer as soon as possible. 

Gold Star contends Morris’s affidavit is inadequate, false, and inconsistent with 

Balser’s affidavit. No persuasive evidence supports these contentions. Morris’s affidavit 

suffices to show he did not engage in culpable conduct. 

B. Both Defendants Have Raised Meritorious Defenses 

“All that is necessary to satisfy the ‘meritorious defense’ requirement is to allege 

sufficient facts that, if true, would constitute a defense: the question whether the factual 

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allegation is true is not to be determined by the court when it decides the motion to set 

aside the default.” Mesle, 615 F.3d at 1094 (alteration and citations omitted). 

Balser raises various defenses in his affidavit (Doc. 53-1), including: his methods 

are valid scientific processes; he always honestly represented his processes and 

conclusions; he never planned to deceive; he never had a written agreement regarding his 

services; and he never made the statements attributed to him in the complaint. These 

facts, if true, would constitute meritorious defenses. Gold Star’s contention that the 

defenses are false is beside the point. 

Morris raises defenses in his motion to set aside default (Doc. 63): he denies the 

scheme attributed to him in the complaint, and he points out that the land sale contracts 

he sold contained no warranties or promises that would give rise to Gold Star’s claims 

against him. These facts, if true, would also constitute meritorious defenses. 

C. Plaintiff Would Not Be Prejudiced by Setting Aside the Defaults 

“To be prejudicial, the setting aside [of the default] must result in greater harm 

than simply delaying resolution of the case. Rather, the standard is whether plaintiff’s 

ability to pursue his claim will be hindered.” TCI Grp. Life Ins. Plan v. Knoebber, 244 

F.3d 691, 701 (9th Cir. 2001) (alteration and citations omitted). 

Setting aside these defaults will not hinder Gold Star’s ability to pursue its claims. 

There is no indication the defaults have resulted 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 (6th Cir. 1996), 

quoted with approval in Knoebber, 244 F.3d at 701. 

Gold Star contends the defaults have prolonged the litigation, increased its costs, 

and given the defendants an opportunity to plan for an adverse outcome. But this is just 

to say the defaults have caused delay. Mere delay is not prejudice. 

/ / / 

/ / / 

/ / / 

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III. CONCLUSION 

For the reasons stated above, good cause exists to set aside the entry of default as 

to defendants Balser and Morris. This good cause extends to the defendants’ spouses, 

who are parties to this action only because Gold Star contends the defendants incurred 

liability in furtherance of the communities of their respective marriages. (Doc. 42 at 2.) 

Entry of default as to defendants Balser and Morris will therefore be set aside, on 

the condition that they each file pleadings in response to Gold Star’s amended complaint 

no later than October 20, 2015. Gold Star’s request for attorney’s fees is denied without 

prejudice to renewal at the end of this case, when all requests for attorney’s fees may be 

considered at once. Gold Star’s motion for default judgment will be denied. 

IT IS THEREFORE ORDERED that Defendant Balser’s Motion to Set Aside 

Default (Doc. 53) and Defendant Morris’s Motion to Set Aside Default (Doc. 63) are 

granted, on the condition that Balser and Morris each file pleadings in response to 

Plaintiff’s Amended Complaint (Doc. 42) no later than October 20, 2015. 

IT IS FURTHER ORDERED that Plaintiff’s Motion for Judgment by Default 

(Doc. 58) is denied. 

 Dated this 6th day of October, 2015. 

Neil V. Wake

United States District Judge

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