Eliasieh v. Legally Mine, LLC

Filing 50

ORDER by Magistrate Judge Jacqueline Scott Corley granting 36 Motion to Set Aside Default; denying as moot 18 Motion for Default Judgment. Answer due by 2/5/2019. Joint Case Management Statement due by 3/1/2019. Initial Case Management Conference set for 3/1/2019 at 1:30 PM in San Francisco, Courtroom F, 15th Floor. (ahm, COURT STAFF) (Filed on 1/15/2019)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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KASRA ELIASIEH,

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Plaintiff,

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v.

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LEGALLY MINE, LLC,

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Defendant.

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United States District Court
Northern District of California

Case No.18-cv-03622-JSC
ORDER GRANTING MOTION TO SET
ASIDE DEFAULT AND DENYING
MOTION FOR DEFAULT JUDGMENT
Re: Dkt. Nos. 18, 36

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Plaintiff Kasra Eliasieh filed this putative class action against Defendant Legally Mine,

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LLC alleging violation of state law. After Defendant failed to timely file an answer or responsive

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pleading, Plaintiff filed a motion for entry of default which was granted. On the same day

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Plaintiff filed his motion for default judgment, Defendant filed a motion to set aside default.1

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(Dkt. Nos. 18 & 36.) After carefully considering the arguments and briefing submitted, the Court

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concludes that oral argument is unnecessary, see Civ. L.R. 7-1(b), VACATES the January 17,

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2019 hearing date, GRANTS the motion to set aside default, and DENIES the motion for default

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judgment as moot.
BACKGROUND

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In October 2016, Plaintiff signed up for an asset protection plan with Legally Mine aimed

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at physicians such as himself. (Dkt. No. 1 at ¶¶ 1, 11-12.) In doing so, Plaintiff authorized

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Legally Mine to charge his personal credit card $7,800. (Id. at ¶¶ 19-23.) Plaintiff later

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determined that the program was likely a scam and sought to cancel the plan and obtain a refund.

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(Id. at ¶¶ 49, 56-58.)

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Both parties have consented to the jurisdiction of a magistrate judge pursuant to 28 U.S.C. §
636(c). (Dkt. Nos. 5, 14, 34.)

After failing to receive a refund, Plaintiff filed this action against Defendant Legally Mine

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on June 18, 2018, on his behalf as well as on behalf of a class of (1) California physicians and

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dentists who had signed up for an asset protection plan with Defendant in the last four years, and

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(2) California physicians and dentists who had signed up for an asset protection plan with

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Defendant using a credit card. Plaintiff’s complaint alleges violation of California consumer

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protection statutes as well as other state law contract-based claims.
A little less than a month later, Defendant sought and obtained a 45-day extension of time

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to answer or file a responsive pleading “so that further negotiation may be attempted to resolve

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and settle the matter.” (Dkt. No. 11 at 1:21-22; Dkt. No. 12.2) Defendant thereafter failed to

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timely file a responsive pleading, and two days after the deadline to do so, Plaintiff moved for

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United States District Court
Northern District of California

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entry of default which was granted a few days later. (Dkt. Nos. 15, 16.) A month later, Plaintiff

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moved for entry of default judgment and the same day, October 12, 2018, Defendant moved to set

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aside default. (Dkt. Nos. 18, 20.) The Court declined to take any action on Defendant’s motion to

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set aside default because Defendant’s counsel was not admitted to practice in this Court. (Dkt.

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No. 21.) Two weeks later, Defendant’s counsel notified the Court of her admission and the Court

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set a hearing on the motions for default judgment and to set aside default. (Dkt. Nos. 24, 25.)

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Shortly thereafter, the parties filed a stipulation to move the hearing dates because Defendant had

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obtained new counsel, which the Court granted. (Dkt. No. 28.) The parties then filed another

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stipulation allowing Defendant to refile its motion to set aside default (because it was erroneously

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based on California rather than federal law) and to amend the briefing schedule on Plaintiff’s

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motion for default judgment. (Dkt. No. 32.) The Court granted this stipulation as well. (Dkt. No.

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35.) The parties’ motions are now fully briefed.
DISCUSSION

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Pursuant to Federal Rule of Civil Procedure 55(c), a district court may set aside the entry

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of default upon a showing of good cause. “To determine ‘good cause’, a court must consider three

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factors: (1) whether the party seeking to set aside the default engaged in culpable conduct that led

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Record citations are to material in the Electronic Case File (“ECF”); pinpoint citations are to the
ECF-generated page numbers at the top of the documents.
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to the default; (2) whether it had no meritorious defense; or (3) whether reopening the default

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judgment would prejudice the other party.” United States v. Signed Pers. Check No. 730 of Yubran

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S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (internal quotation marks and alterations omitted).

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The moving party bears the burden of showing that these factors weigh in favor of granting the

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motion to set aside default. Franchise Holding II, LLC v. Huntington Rests. Grp., Inc., 375 F.3d

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922, 926 (9th Cir. 2004). The standard is disjunctive, such that a finding that any one of these

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factors is true is sufficient reason for the district court to refuse to set aside the default. Id.

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However, even if one of the factors weighs against the defendant, the court may still exercise its

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discretion and grant the motion. Brandt v. Am. Bankers Ins. Co., 653 F.3d 1108, 1111-12 (9th Cir.
2011) (“A district court may exercise its discretion to deny relief to a defaulting defendant based

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United States District Court
Northern District of California

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solely upon a finding of defendant’s culpability, but need not.”). Put another way, the defendant

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must show that “any of these factors favor[s] setting aside the default,” and the default may stand

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if any of the three factors weighs against the defendant. Franchise Holding II, 375 F.3d at 926.

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When considering whether to set aside default, a court should bear in mind that “judgment

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by default is a drastic step appropriate only in extreme circumstances; a case should, whenever

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possible, be decided on the merits.” Mesle, 615 F.3d at 1091 (internal citation omitted); see also

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Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984). In addition, any doubt about the cause of default

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should be resolved in favor of the motion to set aside the default so that the case may be decided

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on its merits. O’Connor v. State of Nevada, 27 F.3d 357, 364 (9th Cir. 1994).

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Defendant insists that there is good cause to set aside the default here because it did not

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engage in culpable conduct, it has meritorious defenses, and Plaintiff will not be prejudiced.

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Plaintiff concedes that Defendant has meritorious defenses but insists that Defendant’s failure to

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respond was culpable and that it will be prejudiced should default be set aside.

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A. Culpability

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“[A] defendant’s conduct is culpable if he has received actual or constructive notice of the

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filing of the action and intentionally failed to answer.” TCI Grp. Life Ins. Plan v. Knoebber, 244

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F.3d 691, 697 (9th Cir. 2001) (emphasis in original; internal quotation marks omitted), overruled

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in part on other grounds by Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141 (2001). “[I]n this
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context the term ‘intentionally’ means that a movant cannot be treated as culpable simply for

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having made a conscious choice not to answer; rather ... the movant must have acted with bad

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faith, such as an intention to take advantage of the opposing party, interfere with judicial

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

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quotation marks and citation omitted); see also TCI Grp., 244 F.3d at 699 (noting that conduct is

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culpable when it demonstrates a “devious, deliberate, willful, or bad faith failure to respond”). In

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other words, “intentional” in the default context is something more than merely “the result of

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conscious choice” not to respond. TCI Grp., 244 F.3d at 697.
Here, Defendant contends that its failure to respond was based on excusable neglect

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because it believed that the parties were in settlement discussions and once it became apparent that

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United States District Court
Northern District of California

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was not the case, Defendant engaged in a series of procedural missteps with respect to its request

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to set aside default. In support of its argument, Defendant identifies an email sent by Defendant’s

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in-house counsel, Jarom Hillery, two days after the responsive pleading deadline—which

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Defendant concedes it missed—stating that he was writing “in regards to our conversation from

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about a month ago” where he “asked if you would talk to your client and come back with an offer

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for settlement.” (Dkt. No. 39 at ¶¶ 13-14; Dkt. No. 39-1.) Mr. Hillery stated that he had not

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received a response, but noted that “Legally Mine is still interested in reaching a mutual

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settlement.” (Id.) Plaintiff responded a few hours later stating that he had filed a motion for

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default earlier that day. (Dkt. No. 39-1.) The parties then exchanged emails regarding potential

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settlement but were not able to resolve the matter. (Dkt. No. 39 at ¶¶ 16-20.) About six weeks

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later, Defendant filed a motion to set aside default, but the counsel who did so was not admitted to

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practice before this Court and thus the Court declined to take any action on the motion. (Dkt. No.

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21.) Defendant later obtained new counsel who sought leave to refile the motion to set aside

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default because the prior motion was erroneously based on California rather than federal law.

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(Dkt. No. 32.)

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Plaintiff insists that these actions reflect culpable conduct on Defendant’s part because it

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was trying to coerce a settlement out of Plaintiff. Plaintiff likens Defendant’s conduct here to that

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of the Defendant in Meadows v. Dominican Republic, 817 F.2d 517, 521 (9th Cir. 1987), where
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the defendants admitted they received the complaint but decided not to respond to it. Here, in

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contrast, there is no dispute that in response to the Complaint Defendant’s in-house counsel

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reached out to Plaintiff to resolve the issue informally. (Dkt. No. 39 at ¶¶ 5-10.) While Defendant

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thereafter failed to timely file an answer, Mr. Hillery’s declaration and the attached email attest

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that he was waiting for a response from Plaintiff to his request for a settlement offer.3 Defendant’s

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conduct may well have lacked the necessary care, but it does not rise to the level of culpability—

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“a movant cannot be treated as culpable simply for having made a conscious choice not to answer;

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rather, to treat a failure to answer as culpable, the movant must have acted with bad faith.” Mesle,

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615 F.3d at 1092 (internal citation and quotation marks omitted). No such intent is found here.

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Considering the Ninth Circuit’s preference that cases be decided on their merits, the Court finds

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United States District Court
Northern District of California

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that this factor weighs in favor of setting aside entry of default.

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B. Meritorious Defenses

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Plaintiff does not dispute that Defendant could raise meritorious defenses. (Dkt. No. 47 at

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5 n.1.) As such, this factor weighs in favor of setting aside default.

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C. Prejudice

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The third factor considers whether setting aside default would prejudice the plaintiff. See

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Mesle, 615 F.3d at 1091. “To be prejudicial, the setting aside of a default must result in greater

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harm than simply delaying resolution of the case, or forcing the plaintiff to litigate on the merits.”

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Dao, 2015 WL 457814, at *3 (citing TCI Grp., 244 F.3d at 701). The standard is whether setting

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aside default will hinder the plaintiff’s ability to pursue her claim by showing some “tangible harm

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such as loss of evidence, increased difficulties of discovery, or greater opportunity for fraud or

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collusion.” TCI Grp, 244 F.3d at 701 (quoting Thompson v. Am. Home Assur. Co., 95 F.3d 429,

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433–34 (6th Cir. 1996)).
Plaintiff insists that he would be prejudiced because if the default is set aside, Defendant

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will seek to compel arbitration which would deprive Plaintiff of his right to a jury trial. But if

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there had been no default, Defendant would likely have moved to compel arbitration. Plaintiff is

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Plaintiff’s counsel’s declaration does not dispute this fact, but instead points the fact that
Defendant had not reached out to Plaintiff again between July 11 and August 29. (Dkt. No. 47-1.)
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in no different position with respect to any motion to compel arbitration than if Defendant had

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timely answered and thereafter moved to compel arbitration.4 “A default judgment gives the

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plaintiff something of a windfall by sparing her from litigating the merits of her claim because of

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her opponent’s failure to respond; vacating the default judgment merely restores the parties to an

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even footing in the litigation.” TCI Grp., 244 F.3d at 701. The Court thus concludes that this

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factor likewise weighs in favor of setting aside default.
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Given that all three Mesle factors weigh in favor of setting aside Defendant’s default, the

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motion is granted. The Court in its discretion declines Plaintiff’s request to order Defendant to
pay its attorney’s fees and costs as a sanction.
CONCLUSION

United States District Court
Northern District of California

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For the reasons stated above, Defendant’s motion to set aside default is GRANTED. (Dkt.

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No. 36.) The motion for default judgment is therefore DENIED AS MOOT. Defendant shall file

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an answer or responsive pleading within 21 days of this Order. The initial case management

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conference is scheduled for March 7, 2019 at 1:30 p.m. and a joint case management conference

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statement shall be filed by March 1, 2019.

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This Order disposes of Docket Nos. 18 and 36.

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IT IS SO ORDERED.

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Dated: January 15, 2019

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JACQUELINE SCOTT CORLEY
United States Magistrate Judge

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Plaintiff’s related request that if default is set aside, the Court find that Defendant has waived its
right to move to compel arbitration lacks any legal support.
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