Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-3_05-ap-03245/USCOURTS-canb-3_05-ap-03245-0/pdf.json

Parties Involved:
Charles E. Sims
Plaintiff
Magdave Associates, Inc.
Defendant

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MEMORANDUM RE MTN TO SET

ASIDE DEFAULT JUDGMENT

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UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

In re

MACCON MASONRY MATERIALS, INC.,

Debtor.

 

CHARLES E. SIMS,

Plaintiff, 

vs.

MAGDAVE ASSOCIATES, INC.,

Defendant.

 

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Case No: 04-32122-TC

Chapter 7

Adv. Proc. No. 05-3245

Date: February 3, 2006

Time: 9:30 a.m.

Ctrm: Hon. Thomas E. Carlson

 235 Pine Street

 San Francisco, CA 

MEMORANDUM RE MOTION TO SET ASIDE DEFAULT JUDGMENT

The court held a hearing at the above date and time on

Defendant’s motion to set aside default judgment. Charles P. Maher

appeared for Plaintiff. Ori Katz appeared for Defendant. Based on

the pleadings filed in this proceeding, the arguments of counsel at

Signed and Filed: February 21, 2006

________________________________________

THOMAS E. CARLSON

U.S. Bankruptcy Judge

________________________________________

Entered on Docket 

February 22, 2006

GLORIA L. FRANKLIN, CLERK 

U.S BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

Case: 05-03245 Doc# 33 Filed: 02/21/06 Entered: 02/22/06 10:58:14 Page 1 of 7 
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MEMORANDUM RE MTN TO SET

ASIDE DEFAULT JUDGMENT

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the hearing, for the reasons stated in this memorandum, and good

cause appearing therefor, the court denies Defendant’s motion.

FACTS

Early in 2002, Defendant was selected by the City of Hawyard

as the contractor for building a soundwall at the Hayward Airport. 

Debtor was a subcontractor selected by Defendant to supply blocks

for building the soundwall. Debtor supplied the blocks for the

wall. Defendant did not pay for them.

In February 2005, Plaintiff, the Trustee for Debtor’s chapter

7 bankruptcy case, filed his complaint for account stated, labor

rendered and breach of contract, seeking to recover from Defendant

$33,076.88. This sum represents the goods supplied by Debtor to

Defendant but not paid for (blocks, mortar mix, molds), plus simple

interest. Defendant did not file a timely response to the

complaint. On April 13, 2005, the Clerk entered Defendant’s

default. 

On June 24, 2005, the court held a status conference in this

proceeding. At the status conference, Defendant’s principal

appeared without counsel and made assertions that led the court to

believe that Defendant had a complete defense to this action. 

Defendant’s principal asserted, for example, that Defendant was not

paid by the City of Hayward on the airport soundwall project due

wholly or in part to Debtor leaving a large number of blocks at the

jobsite after the project was completed. Defendant’s principal

also asserted that Defendant had expended considerable sums

removing and storing the blocks, and that Defendant had incurred

additional expense when Debtor caused damage to the storage

facility when it finally removed the blocks from storage. 

Case: 05-03245 Doc# 33 Filed: 02/21/06 Entered: 02/22/06 10:58:14 Page 2 of 7 
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MEMORANDUM RE MTN TO SET

ASIDE DEFAULT JUDGMENT

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Defendant is a corporation. In this district, a corporation

is barred from representing itself in an adversary proceedings. 

There are no exceptions to this local rule. To enable this

proceeding to be resolved on the merits, the court entered an order

giving Defendant until October 21, 2005 to engage counsel. The

reason the court gave Defendant four months to find counsel is that

Defendant’s principal represented that Defendant lacked funds to

pay for counsel, and would need someone to represent the

corporation pro bono. 

Defendant searched for counsel but did not find counsel who

would represent Defendant pro bono. Accordingly, the court

extended the deadline to find counsel to December 19, 2005. The

court then engaged in efforts to assist Defendant in finding pro

bono counsel, including contacting a Hastings law professor, who

kindly took it upon herself to send an e-mail to graduates of the

Hastings Civil Justice Clinic. On or around the second deadline to

retain counsel, Mr. Katz received this e-mail and performed a

conflicts check to see whether his firm could agree to represent

Defendant. The court very much appreciates the willingness of Mr.

Katz and his firm to represent Defendant. 

On December 21, 2005, before Mr. Katz made an appearance in

this proceeding, and after the second deadline to retain counsel

had passed, the court entered default judgment against Defendant. 

On December 23, 2005, Mr. Katz filed a Motion to Set Aside

Default Judgment. Plaintiff opposed the Motion, arguing that

Defendant lacked a meritorious defense, and that Defendant’s

conduct had prejudiced Plaintiff by delaying the administration of

the estate and increasing the costs to the estate. Plaintiff asked

Case: 05-03245 Doc# 33 Filed: 02/21/06 Entered: 02/22/06 10:58:14 Page 3 of 7 
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MEMORANDUM RE MTN TO SET

ASIDE DEFAULT JUDGMENT

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the court to deny the Motion to Set Aside, arguing that granting

the requested relief would serve no purpose other than to further

delay administration of the estate. In light of Plaintiff’s

opposition, the court continued the hearing on Defendant’s Motion,

and ordered Defendant to supplement the record with evidence

supporting Defendant’s allegedly meritorious defense.

In support of its Motion, Defendant lodged a proposed answer

to the complaint, which asserts eight defenses and a reservation of

rights to assert further defenses. Defendant also filed a

supplemental declaration by its principal and 26 exhibits. This

evidence shows that Defendant has a right to offset some of the

payments owing to Debtor, based on Debtor’s overdelivery of

approximately 900 blocks totaling $3,243. There is no evidence

quantifying Defendant’s expenses related to removing and storing

the excess bricks. There is no evidence that Defendant was not

paid by the City on account of the blocks purchased from Debtor and

left behind at the jobsite. Rather, the evidence shows that the

City of Hayward paid Defendant $96,619 of the amount owing to

Defendant for the project at issue, and that the City held back

only $2,740.50 owing to Defendant on the project. There is no

evidence that there are other amounts owing to Defendant on the

project that the City has refused to pay.

LAW

Three factors govern whether a default judgment should be

vacated: (1) whether Defendant’s culpable conduct led to the

default; (2) whether Defendant has a meritorious defense; and

(3) whether reopening the default judgment would prejudice

Plaintiff. E.g., TGI Group Life Ins. Plan v. Knoebber, 244 F.3d

Case: 05-03245 Doc# 33 Filed: 02/21/06 Entered: 02/22/06 10:58:14 Page 4 of 7 
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MEMORANDUM RE MTN TO SET

ASIDE DEFAULT JUDGMENT

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691, 696 (9th Cir. 2001). This test is disjunctive, meaning that

finding the presence of any one of these factors justifies denial

of a motion to vacate a default judgment. E.g., Hammer v. Drago,

940 F.2d 524, 526 (9th Cir. 1991). Doubts should be resolved in

favor of setting a default judgment aside. Civic Center Square,

Inc. v. Purina Mills (In re Roxford Foods, Inc.), 12 F.3d 875 (9th

Cir. 1993). 

There is nothing in the record to suggest culpable conduct by

Defendant or prejudice to Plaintiff. There is no evidence that

Defendant deliberately failed to obtain counsel to gain a

litigation advantage, or that reopening the default judgment would

prejudice Plaintiff by, for example, lost evidence or increased

discovery difficulties. TGI Group Life Ins. Plan v. Knoebber, 244

F.3d 691 (9th Cir. 2001). 

The court finds, however, that Defendant does not have a

meritorious defense. The evidence Defendant provided to support

its defense is very different from the evidence that would be

required to prevail on the asserted defenses. The Defendant was

only able to establish a defense for ten percent of the default

judgment, based on blocks delivered by Defendant and not ordered by

Plaintiff. While Defendant is entitled to an offset for this sum,

it is appropriate to condition setting aside the judgment as to

this amount on Defendant’s payment of Plaintiff’s reasonable

attorneys fees in obtaining the default judgment, and in opposing

Defendant’s efforts to set it aside. Nilsson, Robbins, Dalgarn,

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

(9th Cir. 1988). Because the reasonable attorneys fees that the

court would award to Plaintiff as a condition for partially setting

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aside the judgment are likely greater than the amount by which the

judgment should be reduced, the court denies Defendant’s Motion. 

**END OF MEMORANDUM**

Case: 05-03245 Doc# 33 Filed: 02/21/06 Entered: 02/22/06 10:58:14 Page 6 of 7 
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Court Service List

Charles P. Maher, Esq.

Luce, Forward, Hamilton and Scripps

121 Spear Street, Suite 200

San Francisco, CA 94105 

Diana L. Donabedian, Esq.

Luce, Forward, Hamilton and Scripps

121 Spear Street, Suite 200

San Francisco, CA 94105 

Ori Katz, Esq.

Sheppard, Mullin, Richter & Hampton

4 Embarcadero Center, 17th Floor

San Francisco, CA 94111

Charles E. Sims

P.O. Box 1247

Sonoma, CA 95476 

Office of the U.S. Trustee

235 Pine Street

Suite 700

San Francisco, CA 94104 

Case: 05-03245 Doc# 33 Filed: 02/21/06 Entered: 02/22/06 10:58:14 Page 7 of 7