California Brewing Company v. 3 Daughters Brewing LLC et al

Filing 48

ORDER signed by District Judge Kimberly J. Mueller on 11/17/2016 GRANTING 40 Motion to Set Aside 38 Clerk's Entry of Default; GRANTING California Brewing Company's Request to accept its 39 Answer to 36 Counterclaim; DEEMING the 39 Answer filed. (Michel, G.)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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CALIFORNIA BREWING COMPANY, a
California corporation,
Plaintiff and CounterDefendant,

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No. 2:15‐cv‐02278‐KJM‐CMK

ORDER

v.
3 DAUGHTERS BREWING, LLC, a
Florida Limited Liability Company;
LMMML, LLC, a Florida Liability
Company,
Defendant and CounterClaimants.

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This matter is before the court on the motion to set aside the clerk’s entry of

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default by plaintiff/counter-defendant California Brewing Company (“CBC”). Mot. Set Aside

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Default (Mot.), ECF No. 40. The Clerk certified an entry of default on September 2, 2016 after

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CBC failed to timely respond to counterclaims by defendants/counter-claimants 3 Daughters

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Brewing, LLC (“3DB”) and LMMML, LLC (“LM”). See Entry of Default (Default), ECF No.

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38; Defs.’ App. for Entry of Default (Defs.’ App.), ECF No. 37. CBC’s motion is unopposed,

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and the motion was submitted without a hearing. As explained below, the motion is GRANTED.

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I.

BACKGROUND

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This action arises from the defendants’ alleged use of plaintiff’s “Beach Blonde
Ale” mark. See Order, ECF No. 23.1

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Plaintiff CBC filed a complaint on November 2, 2015. Compl., ECF No. 1.

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Defendants filed a motion to dismiss and transfer venue on December 3, 2015. The court denied

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the motion on April 19, 2016. Mot. Dismiss, ECF No. 10; Order, ECF No. 23. On May 2, 2016,

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defendants filed an answer, affirmative defenses, and counterclaim. Answer, Aff. Defenses,

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Counterclaim (Counterclaim), ECF No. 24. Although plaintiff filed a timely answer to

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defendants’ counterclaim on May 23, 2016, the court subsequently granted the defendants’

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motion to amend the answer and counterclaim. Pl.’s Answer, ECF No. 29; Order, ECF No. 35.

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Defendants filed their amended answer and counterclaim on August 8, 2016. Am.

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Answer, ECF No. 36. On September 1, 2016, defendants applied for an entry of default, noting

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that plaintiff failed to timely respond to defendants’ amended counterclaim within twenty-one

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days of service, by August 29, 2016. Defs.’ Appl.; Fed. R. Civ. P. 12(a)(1)(B). The Clerk

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entered default on September 2, 2016.

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Plaintiff filed the current motion to set aside entry of default on September 10,

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2016. Mot. Plaintiff claims he missed the deadline to submit an answer due to a “calendaring

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error.” Id. at 2. Plaintiff further avers that, due to his prompt meet and confer efforts initiated

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soon after learning about the entry of default, defendants have agreed not to oppose plaintiff’s

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motion. Id.

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II.

STANDARD

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A clerk’s entry of default may be set aside for “good cause.” Fed. R. Civ. P. 55(c).

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“To determine ‘good cause,’ a court must consider three factors: (1) whether the party seeking to

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set aside the default engaged in culpable conduct that led to the default; (2) whether it had no

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meritorious defense; or (3) whether reopening the default judgment would prejudice the other

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For simplicity’s sake, plaintiff/counter-defendant is referred to throughout this Order as
“plaintiff” and defendants/counter-claimants are referred to as “defendants.”

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party.” United States v. Signed Pers. Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091

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(9th Cir. 2010) (“Mesle”) (citing Franchise Holding II, LLC v. Huntington Rests. Grp., Inc.,

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375 F.3d 922, 925–26 (9th Cir. 2004) (“Franchise Holding II”)). Although the “good cause”

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standard is the same that applies to motions to set aside default judgment under Rule 60(b), the

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test is “more liberally applied” in the Rule 55(c) context. Mesle, 615 F.3d at 1091 n.1; see also

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Brady v. United States, 211 F.3d 499, 504 (9th Cir. 2000) (finding district court’s discretion is

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“especially broad” when setting aside entry of default, rather than default judgment). Because the

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test described above is disjunctive, a motion to set aside the entry of default may be refused in the

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presence of any one of the three factors. Brandt v. Am. Bankers Ins. Co. of Fla., 653 F.3d 1108,

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1111 (9th Cir. 2011). The court therefore reviews each.

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III.

ANALYSIS

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Plaintiff argues its actions were not culpable, that it has a meritorious defense to

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defendants’ counterclaims, and that setting aside the entry of default will not result in prejudice to

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the defendants. The court examines the three Mesle factors in turn and concludes that plaintiff in

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fact reacted promptly in light of the calendaring error and has met its burden to set aside the

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default.

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A.

Culpability
A defaulting defendant acts “culpably” if it had notice of the lawsuit but

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intentionally declined to answer. TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691, 697 (9th

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Cir. 2001), overruled on other grounds, Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141, 147

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(2001); see also Broadcast Music, Inc., 2013 WL 6564309, at *2. “Intentional” conduct in this

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sense is “willful,” “deliberate,” or in “bad faith,” rather than neglectful. Knoebber at 697–98. It

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means an “intention to take advantage of the opposing party, interference with judicial

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decisionmaking, or otherwise manipulate the legal process.” Mesle, 615 F.3d at 1092. If the

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party’s explanations for its default are all consistent with a willful or bad faith failure to respond,

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the court may refuse to set aside its default. Knoebber at 697–98 (collecting cases).

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Here, plaintiff points to an administrative mistake—a “calendaring error”—of
which it was unaware until defendants’ application for entry of default. The speed with which
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plaintiff responded to the entry of default supports plaintiff’s claim that this was an unknowing

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mistake: the court entered default on September 2, plaintiff’s counsel contacted defendants over

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the holiday weekend and offered to meet and confer on September 6, and plaintiff submitted the

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current motion along with the overdue answer on September 10. See Pl.’s Answer, ECF No. 39;

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Mot. 2. In light of plaintiff’s earlier timely response to defendants’ first answer and counterclaim,

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a response that remains substantially unchanged in plaintiff’s proffered response to the amended

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counterclaim, the court finds no “willful,” “deliberate,” or “bad faith” conduct. See ECF No. 40

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at 5. CBC has not acted culpably.

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B.

Meritorious Defense

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Second, regarding a meritorious defense, “[a]ll that is necessary to satisfy the

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‘meritorious defense’ requirement is to allege sufficient facts that, if true, would constitute a

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defense.” Mesle, 615 F.3d at 1094. This is not an “extraordinarily heavy” burden. TCI Grp.,

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244 F.3d at 700.

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Here, plaintiff points to its complaint and its answer to defendants’ initial

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counterclaim as the basis for its “meritorious defense.” Mot. 5. Defendants’ counterclaim seeks

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(1) a declaration of non-infringement of CBC’s rights and (2) a declaration that CBC’s rights in

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“Beach Blonde Ale” are invalid and unenforceable. Am. Answer, ECF No. 36 at 10, 21. Much

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of defendants’ claim relies on the relative timing of CBC’s and 3DB’s first use of the mark. Id.

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Plaintiff’s complaint alleges creating the recipe for its beer in 2007, being issued a federal

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trademark for “Beach Blonde Ale” in 2008, and working to build the “Beach Blond Ale” brand

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for “more than half a decade.” Compl. 6. Moreover, plaintiff’s initial answer to defendants’

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counterclaim asserted numerous denials of allegations in the counterclaim, including those

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regarding the timing of CBC’s use of the mark. Pl.’s Answer, ECF No. 29. Finally, plaintiff’s

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answer asserts affirmative defenses that, if proven, would undermine defendants’ allegations

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made in the counterclaim, such as abandonment of rights, laches, waiver, acquiescence, and

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estoppel. Pl.’s Answer, ECF No. 29 at 12-13. Thus, CBC has a meritorious defense sufficient to

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support its motion. The defenses asserted in CBC’s answer to the amended counterclaim, which

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will be deemed filed upon granting of the motion to set aside entry of default, are consistent with

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the defenses identified in the initial answer and so do not alter this conclusion. See ECF No. 39.

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C.

Prejudice

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Lastly, the court may refuse to set aside the entry of default if doing so would

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prejudice defendants’ case. “To be prejudicial, the setting aside of a judgment must result in

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greater harm than simply delaying resolution of the case.” TCI Grp., 244 F.3d at 701. Only

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tangible harm, such as the loss of evidence, complication of discovery, or the risk of fraud or

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collusion, will support the denial of a motion to set aside the entry of default. Id. A plaintiff is

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not prejudiced if forced only to litigate the merits of his case. Id.

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Here, plaintiff argues delay will not impair defendants’ ability to pursue their

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claims. The delay caused by plaintiff’s error is minimal and does not affect the other dates in the

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case schedule. See Status Order, ECF No. 30. Defendants’ lack of opposition to plaintiff’s

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motion further supports plaintiff’s claim that no prejudice results. Defendants will not be

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prejudiced by the granting of plaintiff’s motion.

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IV.

CONCLUSION

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CBC’s motion to set aside the entry of default is GRANTED. As a result, CBC’s

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request that the court accept its Answer to Counterclaim is also GRANTED and the Answer is

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deemed filed.

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This order resolves ECF No. 40.

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IT IS SO ORDERED.

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DATED: November 17, 2016.

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UNITED STATES DISTRICT JUDGE

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