CRS Recovery Inc et al v. Laxton et al

Filing 253

ORDER GRANTING TRUSTEES 240 MOTION TO SET ASIDE DEFAULT AND GRANTING PLAINTIFFS 251 MOTION TO SCHEDULE CASE MANAGEMENT CONFERENCE. Case Management Statement due by 11/29/2011. Case Management Conference set for 12/6/2011 02:00 PM. Signed by Judge Claudia Wilken on 10/21/2011. (ndr, COURT STAFF) (Filed on 10/21/2011)

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1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 9 United States District Court For the Northern District of California 10 CRS RECOVERY INC. and DALE MAYBERRY, No. 06-07093 CW 11 Plaintiffs, 12 v. 13 14 15 JOHN LAXTON, NORTHBAY REAL ESTATE, INC., et al., Defendants. / 16 ORDER GRANTING TRUSTEE’S MOTION TO SET ASIDE DEFAULT AND GRANTING PLAINTIFFS’ MOTION TO SCHEDULE CASE MANAGEMENT CONFERENCE (Docket Nos. 240 and 251) 17 18 Linda Green, the Chapter 7 Trustee of the Estate of Defendant 19 Northbay Real Estate, Inc. moves to set aside the Clerk's Entry of 20 Default against Northbay. Plaintiffs CRS Recovery, Inc. and Dale 21 Mayberry oppose the motion. Plaintiffs also file an administrative 22 motion to schedule a case management conference. The matters were 23 submitted on the papers. Having considered all of the papers filed 24 by the parties, the Court GRANTS the Trustee's motion to set aside 25 the Clerk's Entry of Default and grants Plaintiffs’ motion to 26 schedule a case management conference. 27 28 1 2 BACKGROUND On April 6, 2010, the Ninth Circuit issued its decision in CRS 3 Recovery v. Laxton, 600 F.3d 1138 (9th Cir. 2010), in which it 4 reversed this Court's grant of summary judgment to Plaintiffs on 5 the issue of ownership of the domain name, finding that 6 there were disputed issues of material fact about whether the 7 domain name had been transferred by fraud or theft and whether 8 Mayberry had abandoned the domain name before Defendant John Laxton 9 acquired it. On July 13, 2010, this Court held a case management United States District Court For the Northern District of California 10 conference after remand. 11 advised the Court that counsel who represented him and Northbay was 12 withdrawing and he was in the process of securing new counsel. 13 Court cautioned Laxton that he could not represent Northbay, 14 because a corporation had to be represented by an attorney. 15 Court established a trial date of December 13, 2010, but did not 16 set a date by which new counsel was required to appear. 17 21, 2010, the Court granted the parties' stipulation to allow the 18 withdrawal of Plaintiffs' attorney. At the case management conference, Laxton The The On July 19 After the case management conference, Laxton attempted to 20 locate new counsel without success and, in a letter dated September 21 15, 2010, he advised the Court of his difficulty in obtaining 22 counsel and requested a continuance of the trial date. 23 September 20, 2010, the Court denied the request for a continuance 24 and directed Laxton to confer with Plaintiffs' counsel to schedule 25 his deposition for a date no later than October 15, 2010. 26 27 28 On On September 29, 2010, Laxton advised Plaintiffs' counsel that he intended to file for personal bankruptcy and, on October 13, 2 1 2010, Laxton filed a Chapter 13 bankruptcy petition. 2 that, at that time, he understood that his bankruptcy filing would 3 stay this litigation, including his need to appear at any 4 deposition. 5 Laxton states On November 5, 2010, Plaintiffs filed a request to enter default against Northbay on the ground that neither Laxton nor 7 anyone else on Northbay's behalf had given any indication that 8 Northbay expected to retain counsel. 9 Plaintiffs noted that Laxton had not sat for the completion of his 10 United States District Court For the Northern District of California 6 deposition as representative of Northbay as the Court had ordered. 11 On November 10, 2010, the Clerk entered a default against Northbay. 12 On November 15, 2010, the Court entered an order staying all 13 proceedings against Laxton pursuant to the bankruptcy stay and 14 ordered Plaintiffs to file a motion for default judgment against 15 Northbay by December 15, 2010. 16 filed a Chapter 7 bankruptcy petition. 17 Plaintiffs filed a motion for default judgment against Northbay and 18 served it on Northbay by email to Laxton. 19 case was administratively closed because both Defendants had filed 20 for bankruptcy protection. 21 In a footnote in the request, Also on November 15, 2010, Northbay On December 15, 2010, On January 6, 2011, this Subsequently, Plaintiffs filed, in Northbay’s and Laxton's 22 bankruptcy cases, motions to lift the automatic stay so that this 23 case could be litigated to final resolution in this Court. 24 Following the filing of those motions, the Trustee for Northbay, 25 with the bankruptcy court's approval, retained special counsel for 26 Northbay, and the Trustees for both bankruptcy estates consented to 27 Plaintiffs' application to lift the automatic stay. 28 3 1 Now the Northbay Trustee moves, under Rule 55(c) of the 2 Federal Rules of Civil Procedure, to set aside the default entered 3 against Northbay. 4 5 LEGAL STANDARD Federal Rule of Civil Procedure 55(c) provides that a court 6 “may set aside an entry of default for good cause.” 7 court has discretion to determine whether a party demonstrates 8 “good cause.” 9 court’s discretion is particularly broad where a party seeks to set The district Madsen v. Bumb, 419 F.2d 4, 6 (9th Cir. 1969). United States District Court For the Northern District of California 10 aside an entry of default rather than a default judgment. 11 The v. Wight Vineyard Mgmt., 783 F.2d 941, 945 (9th Cir. 1986). 12 Mendoza In evaluating whether a party has demonstrated good cause, a 13 district court may consider the following factors: (1) whether the 14 defendant's culpable conduct led to the default; (2) whether the 15 defendant has a meritorious defense; and (3) whether setting aside 16 the default would prejudice the plaintiff. 17 Knoebber, 244 F.3d 691, 696 (9th Cir. 2001). 18 “ordinarily disfavored” because “[c]ases should be decided upon 19 their merits whenever reasonably possible.” 20 F.2d 1470, 1472 (9th Cir. 1986). 21 sought . . . and the movant has a meritorious defense,” a court 22 must resolve any doubt in favor of setting aside the default. 23 Mendoza, 783 F.2d at 945-46. 24 of default bears the burden of demonstrating that these factors 25 favor doing so. Default judgments are Eitel v. McCool, 782 Thus, whenever “timely relief is The party seeking to vacate the entry TCI Group Life, 244 F.3d at 696. 26 27 28 TCI Group Life Ins. v. 4 1 2 3 DISCUSSION I. Culpable Behavior A defendant's conduct is culpable "where there is no explanation of the default inconsistent with a devious, deliberate, 5 willful or bad faith failure to respond." 6 Northern California Health and Welfare Trust Fund v. Alvarado, 2010 7 WL 2765522, *2 (N.D. Cal.) (citing TCI, 244 F.3d at 697-98). 8 Plaintiffs contend that Northbay's conduct violated the Court's 9 orders, was willful and deliberate and, therefore, was culpable. 10 United States District Court For the Northern District of California 4 The Trustee argues that this is not the typical case for default 11 because Northbay answered Plaintiffs' complaint and the only ground 12 for default is the fact that Northbay was unrepresented by counsel 13 for a few months prior to filing for bankruptcy. 14 contends that the temporary lack of counsel did not violate any 15 order of the Court because the Court never set a date by which 16 Northbay had to retain counsel and Northbay never appeared before 17 this Court without counsel. 18 was diligent in attempting to locate new counsel for Northbay, was 19 unable to do so for financial reasons, but kept Plaintiffs and the 20 Court apprised of his efforts, thus evidencing good faith. District Council 16 The Trustee The Trustee also argues that Laxton 21 The Court concludes that, under these circumstances, there is 22 no showing of a devious, deliberate or bad faith failure to obtain 23 counsel. 24 the entry of default. 25 II. Prejudice 26 Therefore, this factor weighs in favor of setting aside The prejudice required to defeat a motion to set aside entry 27 of default must result in greater harm than delaying the resolution 28 5 1 of the case; it must result in tangible harm such as loss of 2 evidence, increased difficulty in discovery or an opportunity for 3 fraud or collusion. 4 244 F.3d at 701. District Council, 2010 WL 2765522 at *3; TCI, 5 Plaintiffs argue that they have been prejudiced by the delay 6 in going to trial and by the fact that Laxton has sold one of his 7 assets, which might have been used to pay a judgment in their 8 favor. 9 insufficient to cause prejudice. The delay here has been a few months and is, therefore, Laxton’s sale of an asset also is United States District Court For the Northern District of California 10 insufficient to establish prejudice because there is no Court order 11 prohibiting such a sale and an award of damages in favor of 12 Plaintiffs at this point is speculative. 13 weighs in favor of setting aside the default. 14 III. Meritorious Defense 15 Therefore, this factor Pursuant to the Ninth Circuit's opinion, there are two 16 disputed issues of material fact. 17 lost the domain name through fraud and not theft. 18 600 F.3d at 1145-46. 19 law, if it was lost through theft, the name would belong to 20 Plaintiffs; if the name was lost by fraud, the name would belong to 21 Defendants. 22 purchaser whose vendor obtained title by fraud and a purchaser 23 whose vendor obtained title by theft, because an involuntary 24 transfer results in a void title, whereas a voluntary transfer, 25 even if fraudulent, renders the title merely voidable."). 26 second issue is whether Mayberry's actions constituted abandonment 27 of the right to possess the domain name, in which case the 28 The first is whether Mayberry See CRS, This is relevant because, under California See id. at 1145 ("the law distinguishes between a 6 The 1 2 name would belong to Defendants. See id. at 1146-47. Plaintiffs argue that they do not have to prove that 3 Defendants have no defense, but just that they have no meritorious 4 defense. 5 material disputes of fact regarding two meritorious defenses--that 6 the domain name was lost through fraud and that Mayberry had 7 abandoned the domain name. 8 of setting aside the default. 9 However, given the Ninth Circuit's opinion, there are Therefore, this factor weighs in favor Because all factors weigh in the Trustee’s favor and because United States District Court For the Northern District of California 10 of the strong policy against default judgments, the Court concludes 11 that the entry of default should be set aside and this case should 12 proceed to judgment on its merits. 13 IV. Sanctions 14 It is appropriate to condition the setting aside of a default 15 upon the payment of a sanction. 16 Berliner, Carson & Wurst v. Louisiana Hydrolec, 854 F.2d 1538, 17 1546-47 (9th Cir. 1988). 18 suffered by the non-defaulting party. 19 Nilsson, Robbins, Dalgarn, The sanction relieves any prejudice Id. at 1546. Plaintiffs argue that, if the Trustee's motion is granted, the 20 Northbay Estate should be sanctioned by conditioning the setting 21 aside of the default on payment of $35,607 for the attorneys' fees 22 and costs Plaintiffs incurred in filing the motions for entry of 23 default and for default judgment. 24 the Court concludes that an award of sanctions is not warranted. 25 26 27 28 For the reasons discussed above, CONCLUSION For the foregoing reasons, the Trustee's motion to set aside the entry of default against Northbay (docket no. 51) is granted 7 1 and Plaintiffs’ administrative motion to schedule a case management 2 conference (docket no. 65) is granted. 3 conference is set for Tuesday, December 6, 2011 at 2 p.m. 4 management statements are due one week before that. A case management Case 5 6 IT IS SO ORDERED. 7 8 Dated: 10/21/2011 CLAUDIA WILKEN United States District Judge 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8

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