G&G Closed Circuit Events LLC v. Tryggestad

          ORDER

          Honorable Rosemary Marquez United States District Judge

         Pending before the Court is Defendants' Motion to Set Aside Entry of Default Judgment. (Doc. 16.) The Motion is fully briefed and suitable for determination without oral argument. For the following reasons, the Motion will be granted.

         I. Background

         On September 10, 2018, Plaintiff G&G Closed Circuit Events LLC filed a Complaint against Defendants First Arizona Bar LLC and Gregory and Diane Tryggestad, alleging that Defendants displayed a live sporting event (a boxing match) for profit without first obtaining a license to do so. (Doc. 1.) Plaintiff completed service of process on the Tryggestads on October 25, 2018, and on First Arizona Bar LLC on November 7, 2018. (Docs. 11, 12, 13.) Defendants were thus required to respond by November 15 and November 28, 2018, respectively. See Fed. R. Civ. P. 12(a)(1).

         None of the Defendants filed a response within the required time. On December 13, 2018, Plaintiff filed an Application for Entry of Default. (Doc. 14.) The Clerk of Court entered Defendants' default on December 14, 2018. (Doc. 15.) Although Plaintiff did not request that default judgment be entered or submit an affidavit showing a sum certain amount due on its claims, the Clerk of Court entered a default judgment in favor of Plaintiff. (Id.); see Fed. R. Civ. P. 55(b)(1) (stating that clerk may enter default judgment “on the plaintiff's request, with an affidavit showing the amount due”).

         Defendants appeared on December 21, 2018, by filing the currently pending Motion to Set Aside Entry of Default Judgment. (Doc. 16.)

         II. Standard of Review ^[1]

         “The court may set aside an entry of default for good cause.” Fed.R.Civ.P. 55(c). “The ‘good cause' standard that governs vacating an entry of default under Rule 55(c) is the same standard that governs vacating a default judgment under Rule 60(b).” Franchise Holding II, LLC, 375 F.3d at 925. Under that standard, district courts examine 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.” United States v. Signed Pers. Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (internal quotation marks and brackets omitted). Although a default may be upheld if any of the three factors is present, district courts must remain cognizant of the policy favoring resolution of cases on their merits. Id. (quoting Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984) (per curiam)).

         III. Discussion

         A. Culpable Conduct

         The Court finds that Defendants did not engage in culpable conduct. A defendant is culpable if she has notice of the action and “intentionally” fails to respond. Mesle, 615 F.3d at 1092 (quoting TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691, 697 (9th Cir. 2001), overruled on other grounds by Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141 (2001)). “Intentional” in this context means that the defendant “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. Thus, “a conscious choice not to answer” is insufficient by itself to establish culpable conduct. Id.

         Defendants have established that they acted reasonably and in good faith. They submit declarations asserting that they submitted the Complaint to their insurance carrier and, while awaiting a coverage determination, were informed by an insurance representative that Plaintiff's counsel had agreed to extend the deadline to file a response. (Doc. 16-1, Ex. A, ¶¶ 9-10 & Ex. B, ¶¶ 10-11; Doc. 18-1, Ex. C, ¶¶ 8-9 & Ex. D, ¶¶ 8-9.) Additionally, they state that they immediately sought counsel outside of their insurance carrier upon learning that Plaintiff had applied for an entry of default.

         Defendants' explanation for their default is “inconsistent with a devious, deliberate, willful, or bad faith failure to respond, ” and thus their conduct was not culpable. Mesle, 615 F.3d at 1092 (quoting TCI Grp., 244 F.3d at 698). They sensibly submitted the Complaint to their insurance carrier and, as unrepresented parties, reasonably relied on the insurance representative's assertion that she had spoken to Plaintiff's counsel and obtained an extension of time to respond. Id. at 1089 (explaining that 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.”). Their lack of bad faith is further evidenced by their celerity in seeking outside counsel and moving to set aside their default, which they accomplished in one week.

         Plaintiff argues that Defendants' “subjective beliefs” about the time to respond do not constitute a good faith explanation that establishes a lack of culpability.^[2] Plaintiff further argues that Defendants' failure to respond has interfered with the Court's judicial ...