Yellowcake, Inc. et al v. Universal Music Group, Inc., et al

Filing 79

ORDER signed by Senior District Judge John A. Mendez on 1/27/25, GRANTING 62 defendant's Motion to Set Aside the Clerk's Defaults. (Deputy Clerk AS)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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YELLOWCAKE, INC., a
California corporation and
LATIN POWER MUSIC USA, LLC, a
California limited liability
company,

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Plaintiffs,

No.

1:22-cv-01109-JAM-CSK

ORDER GRANTING DEFENDANTS’
MOTION TO SET ASIDE CLERK’S
ENTRY OF DEFAULT

v.
UMG RECORDINGS, INC.,
UNIVERSAL MUSIC LATIN
ENTERTAINMENT, DISA LATIN
MUSIC, VICTOR GONZALEZ,
ANTONIO SILVA, CORPORATIVO
LATIN POWER MUSIC SA DE CV
and JOSE SERRANO MONTOYA,
Defendants.

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PROCEDURAL HISTORY

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Currently pending before this Court is Corporativo Latin

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Power Music SA de CV (“LPM Mexico”) and Jose Serrano Montoya’s

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(“Serrano”) (collectively, the “Serrano Defendants”) motion to

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set aside the Clerk’s defaults entered against Defendant Serrano

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on January 20, 2023 and Defendant LPM Mexico on January 24, 2023.

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See Mot., ECF Nos. 17, 19.

Plaintiffs submitted an opposition,
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Opp’n, ECF No. 68, and Defendants replied, Reply, ECF No. 74.

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For the reasons provided herein, the Court GRANTS Defendants’

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motion to set aside the clerk’s defaults.1

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I.

BACKGROUND

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On August 31, 2022, Plaintiffs Yellowcake and LPM USA filed

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their initial Complaint alleging various copyright infringement,

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breach of contract, and related claims arising out of the

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exploitation of certain sound recordings by Defendants UMG

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Recordings, Inc. (“UMRI”), Universal Music Latin Entertainment

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(“UMLE”), and Disa Latin Music (“Disa”) that Plaintiffs allege to

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have acquired.

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Defendants at a business meeting on October 27, 2022.

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at 2, 4; ECF Nos. 8, 9.

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and defaults were entered against them.

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Defendants now argue that service was improper and seek to set

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aside the defaults that were entered.

Plaintiffs allege that they properly served
See Opp’n

Defendants subsequently did not respond
See ECF Nos. 17, 19.

See Mot. at 11.

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II.

OPINION

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A.

Legal Standard

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Under Federal Rule of Civil Procedure 55, a court may set

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aside an entry of default for “good cause.”

The Ninth Circuit

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evaluates “good cause” by assessing three factors: (1) whether

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the defendant’s culpable conduct led to the default; (2) whether

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the defendant has a meritorious defense; and (3) whether setting

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1This

motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was
scheduled for January 21, 2025.
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aside the default would prejudice the plaintiff.

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Personal Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091

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(9th Cir. 2010) (Mesle), quoting Franchise Holding II, LLC v.

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Huntington Rests. Grp., Inc., 375 F. 3d 922, 926 (9th Cir. 2004).

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District courts generally grant motions to set aside a default

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unless the default was willful, the plaintiff will be prejudiced,

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or the defendant has no meritorious defense.

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Dierschke, 975 F.2d 181, 183-184 (5th Cir. 1992).

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“court's discretion is especially broad where . . . it is entry

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of default that is being set aside, rather than a default

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judgment.”

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1994).

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U.S. v. Signed

See In re
Moreover, the

O'Connor v. State of Nev., 27 F.3d 357, 364 (9th Cir.

As a general matter, courts favor the resolution of cases on

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the merits.

The Ninth Circuit has emphasized that resolution of

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a motion to set aside the entry of default is necessarily

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informed by well-established policies favoring resolution of

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cases on their merits and generally disfavoring default

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judgments.

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a drastic step appropriate only in extreme circumstances; a case

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should, whenever possible, be decided on the merits”) (citations

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and quotation marks omitted); Westchester Fire Ins. Co. v.

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Mendez, 585 F.3d 1183, 1189 (9th Cir. 2009) (“[a]s a general

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rule, default judgments are disfavored; cases should be decided

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upon their merits whenever reasonably possible”); Dierschke, 975

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F.2d. at 183 (“courts universally favor trial on the merits”);

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Assemi v. Assemi, 2024 WL 4668246, at *1 (E.D. Cal.

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2024)(“[c]rucially, however, ‘judgment by default is a drastic

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step appropriate only in extreme circumstances; a case should,

See Mesle, 615 F.3d at 1091 (“judgment by default is

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whenever possible, be decided on the merits’”), quoting Falk v.

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Allen, 739 F.2d 461, 463 (9th Cir. 1984).

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B.

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Analysis
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Culpable Conduct

Plaintiffs have not demonstrated that Defendants exhibited

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culpable conduct when they failed to submit an answer.

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defendant “is culpable if [it] has received actual or

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constructive notice of the filing of the action and

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intentionally failed to answer.”

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Albright, 862 F.2d 1388, 1392 (9th Cir. 1988).

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‘intentionally’ means that a [defendant] cannot be treated as

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culpable simply for having made a conscious choice not to

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answer; rather, to treat a failure to answer as culpable, the

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[defendant] must have acted with bad faith, such as an

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‘intention to take advantage of the opposing party, interfere

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with judicial decision making, or otherwise manipulate the legal

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process.’”

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Plan v. Knoebber, 244 F.3d 691, 697 (9th Cir. 2001).

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A

Alan Neuman Prods., Inc. v.
“[T]he term

Mesle, 615 F.3d at 1092, quoting TCI Grp. Life Ins.

Plaintiffs and Defendants disagree about the validity of

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the original service and offer conflicting declarations

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describing the meeting where Serrano was served.

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claim deficient process because Serrano is a non-English speaker

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and believed that the envelope he received contained contracts

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instead of process papers.

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Plaintiffs’ claim that their process server properly informed

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Serrano that he had been served.

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of conflicting declarations, Plaintiffs have not met their

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burden to establish bad faith or any intention to manipulate the

See Mot. at 11.

Defendants’

On the other hand,

See Opp’n at 5-6.

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In the face

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legal process attributable to the Defendants.

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Defendants have provided a good faith explanation for their

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delay and in the absence of other equitable factors such as

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prejudice, “simple carelessness” is not sufficient to deny a

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defendant’s motion to set aside default judgment.

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615 F.3d at 1093.

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2.

Instead,

See Mesle,

Defendants’ Meritorious Defenses

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Defendants have also provided potentially meritorious

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defenses, which weighs in favor of setting aside the entry of

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default.

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with twenty-five affirmative defenses as well as a series of

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proposed counterclaims.

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considered meritorious if “there is some possibility that the

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outcome of the suit after a full trial will be contrary to the

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result achieved by the default.”

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794 F.2d 508 at 513.

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In their motion, Defendants attach a proposed answer

See Mot. Exs. 1, 2.

A defense is

Hawaii Carpenters’ Tr. Funds,

Plaintiffs’ main argument against Defendants’ potential

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defenses is that Defendants’ counterclaims are not viable

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because the statute of limitations has expired for those claims.

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However, even if the initial breaches of contract may have

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occurred in 2019, Defendants’ counterclaims are based on

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Plaintiffs’ ongoing obligation to pay LPM Mexico’s royalties.

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As Defendants point out, continuing claims and obligations to

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pay are not time-barred because a cause of action accrues each

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time a wrongful act occurs.

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Tri–Valley Oil & Gas Co., 116 Cal. App. 4th 1375, 1388–89

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(2004).

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periodic injury has occurred.

See Armstrong Petroleum Corp. v.

Thus, each time a royalty has not been paid, a new
See Peterson v. Highland Music,
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Inc., 140 F.3d 1313, 1321 (9th Cir. 1998).

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have shown that they have potentially viable defenses and

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counterclaims.

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3.

Thus, Defendants

Lack of Prejudice

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Plaintiffs argue that they would be prejudiced because

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setting aside the default would cause a delay to the resolution

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of this case and increased litigation costs.

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arguments are not persuasive because prejudice does not result if

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a party is merely forced to litigate the merits of their case.

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See TCI Grp. Life Ins. Plan, 244 F.3d at 701.

However, these

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While substantial time has passed since the entry of

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default, Plaintiffs currently have submitted a pending motion to

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amend their existing First Amended Complaint and argue that no

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ultimate prejudice would result to Defendants by altering their

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pleadings.

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repeatedly argue that no prejudice would result from granting

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leave to file a Second Amended Complaint since “discovery is

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nowhere near complete . . . and no depositions have been

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conducted.”

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that Plaintiffs themselves seek to add new defendants and claims

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that would require a new scheduling order with extended discovery

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deadlines, the Court finds that Plaintiffs would not be subject

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to any undue delay caused by setting aside the clerk’s entry of

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default.

See ECF No. 47.

In their own submissions, Plaintiffs

See ECF No. 47-1 at 18-19; ECF No. 60 at 3.

Given

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III.

CONCLUSION

The Court finds that Defendants have shown good cause to set
aside the Clerk’s defaults.

Because Defendants have not
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exhibited culpable conduct, presented potentially meritorious

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defenses, and lack of prejudice, an adjudication on the merits of

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the case is appropriate in line with the general judicial

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preference for resolving cases on their merits.

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IV.

ORDER

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For the reasons set forth above, the Court GRANTS

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Defendants’ Motion to Set Aside the Clerk’s Defaults.

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IT IS SO ORDERED.

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Dated: January 27, 2025

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