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