Zoom Electric, Inc. v. International Brotherhood of Electrical Workers, Local 595

Filing 132

ORDER by Judge Claudia Wilken DENYING 125 MOTION TO SET ASIDE DEFAULT. (Attachments: # 1 Certificate/Proof of Service) (ndr, COURT STAFF) (Filed on 1/17/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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ZOOM ELECTRIC, INC.,

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Petitioner,
v.
INTERNATIONAL BROTHERHOOD OF
ELECTRICAL WORKERS, LOCAL 595,
and DOES 1-20,
Respondents.

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United States District Court
For the Northern District of California

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________________________________/

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INTERNATIONAL BROTHERHOOD OF
ELECTRICAL WORKERS, LOCAL 595;
ALAMEDA COUNTY ELECTRICAL
INDUSTRY SERVICE CORPORATION;
IBEW LOCAL 595 HEALTH & WELFARE
TRUST FUND; IBEW LOCAL 595
PENSION TRUST FUND; IBEW LOCAL
595 MONEY PURCHASE PENSION TRUST
FUND; IBEW LOCAL 595 VACATION
FUND; IBEW LOCAL 595 APPRENTICE &
TRAINING FUND; ELECTRICAL
CONTRACTORS TRUST; CONTRACT
ADMINISTRATION FUND; LABOR
MANAGEMENT COOPERATION FUND;
VICTOR UNO; and DON CAMPBELL,

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Counter-Plaintiffs,
v.
ZOOM ELECTRIC, INC.; VEIKO HORAK;
B-SIDE, INC.; and DOES ONE
through TEN, inclusive,
Counter-Defendants.
________________________________/

No. C 11-1699 CW
ORDER DENYING
MOTION TO SET
ASIDE DEFAULT
(Docket No. 125)

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B-SIDE, INC.,

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Cross-Claimant,
v.
VEIKO HORAK, doing business as
ZOOM ELECTRIC,
Cross-Defendant.

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________________________________/
Cross-Defendant Veiko Horak moves to set aside the default

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entered against him on December 5, 2012.

Cross-Plaintiff B-Side,

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Inc. opposes the motion.

The Court takes the motion under

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United States District Court
For the Northern District of California

submission on the papers and DENIES it.
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BACKGROUND
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On August 15, 2012, B-Side filed a cross-claim against Horak,
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doing business as Zoom Electric, a sole proprietorship.

Docket

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No. 105.

B-Side did not name Zoom Electric, Inc. as a Cross-

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Defendant.

The cross-claim was served upon Horak through the

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electronic filing system upon his attorney of record, Benjamin
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Martin.

At that time, Martin had represented both Horak and Zoom

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Electric, Inc.
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On August 28, 2012, Horak filed a notice of substitution of
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attorney removing Martin and substituting himself in pro per.
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Docket No. 106.
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On October 25, 2012, the Court held a hearing on several
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motions.

Docket No. 119.

At that time, Horak stated that he no

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longer was represented by Martin because Martin had previously
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represented both him and B-Side, and that Martin had “pretty much
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told me that the case is over, there was nothing I can do.”

The

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Court told him that there was something he could do: that he could
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file an answer to B-Side’s cross-claim, although it was already

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overdue, and that if he did not, he might be liable for anything

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that B-Side was ordered to pay.

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case, he would like additional time to hire a new attorney and to

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file an answer.

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eight days to file an answer and directed B-Side to seek entry of

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default if he did not do so.

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information regarding the Legal Help Center, a free service

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provided by the Bar Association of San Francisco to provide

Horak responded that, in that

The Court permitted Horak an additional twenty-

The Court also provided Horak with

United States District Court
For the Northern District of California

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information and limited-scope legal assistance to pro se litigants

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in civil cases in the district.

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On December 3, 2012, thirty-nine days after the hearing, BSide moved for entry of default.

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Docket No. 120.

On December 5, 2012, Zoom Electric, Inc. filed a notice of

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substitution of attorney removing Martin as its counsel and

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substituting Eric Milliken in his place.

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Horak signed the substitution on behalf of Zoom Electric.

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the instant motion, Milliken represents that, on or about that

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date, Horak also retained him to represent Horak himself.

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4.

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Milliken as counsel for Horak himself.

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Docket No. 121.

Veiko
Id.

In

Mot. at

However, no corresponding notice was filed to substitute

On December 5, 2012 as well, Milliken contacted B-Side’s

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counsel and left a message stating that he would be representing

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Horak and inquired about B-Side voluntarily vacating its entry of

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default.

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No. 125-1, ¶ 3.

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default.

Last Decl., Docket No. 126, ¶ 3; Milliken Decl., Docket
On that same day, the Clerk entered Horak’s

Docket No. 122.

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On December 11, 2012, Horak filed the instant motion to set
aside the default.

Docket No. 125.

On December 26, 2012, B-Side filed its six-page opposition to

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Horak’s motion.

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opposition a separate, one-page evidentiary objection to portions

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of Milliken’s declaration in support of the motion.

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126-2.1

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United States District Court
For the Northern District of California

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B-Side attached to its

Docket No.

Pursuant to Civil Local Rule 7-3(c), Horak’s deadline to file
a reply in support of his motion was January 2, 2013.

No reply

was filed.

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Docket No. 126.

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

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set aside an entry of default rather than a default judgment.

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Mendoza v. Wight Vineyard Mgmt., 783 F.2d 941, 945 (9th Cir.

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1986).

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interest in the finality of the judgment with which to contend.”

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United States v. Signed Personal Check No. 730 of Yubran S. Mesle

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(Mesle), 615 F.3d 1085, 1091 n.1 (9th Cir. 2010).

The district

Madsen v. Bumb, 419 F.2d 4, 6 (9th Cir. 1969).

The

“This is because in the Rule 55 context there is no

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Pursuant to Civil Local Rule 7-3(a), any evidentiary or
procedural objections to the motion were required to be contained
in the opposition brief itself. Because B-Side’s opposition brief
and evidentiary objections together total significantly less than
the twenty-five page limit, the Court excuses B-Side’s improper
filing of its evidentiary objections as a separate document.
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In evaluating whether a party has demonstrated good cause, a

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district court may consider the following factors, which courts

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refer to as the “Falk factors”: (1) whether the defendant’s

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

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a meritorious defense; and (3) whether setting aside the default

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would prejudice the plaintiff.

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1108, 1111 (9th Cir. 2011) (citing Falk v. Allen, 739 F.2d 461,

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463 (9th Cir. 1984)); see also Mesle, 615 F.3d at 1091 & n.1

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(noting that the same test applies for motions seeking to set

Brandt v. Am. Bankers, 653 F.3d

United States District Court
For the Northern District of California

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aside entry of default and relief from a default judgment,

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although it is applied more liberally in the former context).

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standard is disjunctive and “the district court is free to deny

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relief if any of the three factors is true.”

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1111 (quoting Franchise Holding II, LLC v. Huntington Restaurants

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Group, Inc., 375 F.3d 922, 926 (9th Cir. 2004)) (internal

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quotation marks and formatting omitted).

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culpability on the part of a defaulting defendant is sufficient to

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justify the district court’s exercise of its discretion to deny

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relief.”

The

Brandt, 653 F.3d at

Thus, “a finding of

Id.

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Default judgments are “ordinarily disfavored” because

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“[c]ases should be decided upon their merits whenever reasonably

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possible.”

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Thus, whenever “timely relief is sought from the default . . . and

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the movant has a meritorious defense,” a court should resolve any

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doubt in favor of setting aside the default.

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945-46 (quoting Schwab v. Bullock’s Inc., 508 F.2d 353, 355 (9th

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Cir. 1974)) (internal quotation marks omitted; ellipses in

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original).

Eitel v. McCool, 782 F.2d 1470, 1472 (9th Cir. 1986).

Mendoza, 783 F.2d at

The party seeking to vacate the entry of default bears
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the burden of demonstrating that these factors favor doing so.

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TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir.

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2001).

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DISCUSSION
I.

Culpable conduct
Horak argues that he did not act culpably or intentionally

fail to answer.

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the legal system and limited English comprehension, at the time he

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retained new counsel, he did not understand that he should have

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United States District Court
For the Northern District of California

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filed an answer and thought that he needed only to file a case

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management statement.

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support of these facts and argues that Horak’s conduct was

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culpable, pointing out that the Court specifically told Horak of

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the need to file an answer, and that Horak did not require the aid

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of an interpreter at his deposition in this case.

He explains that, due to his lack of knowledge of

B-Side objects to Milliken’s declaration in

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“‘[A] defendant’s conduct is culpable if he has received

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actual or constructive notice of the filing of the action and

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intentionally failed to answer.’”

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(quoting TCI Group, 244 F.3d at 697) (brackets and emphasis in

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original).

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the term ‘intentionally’ means that a movant cannot be treated as

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culpable simply for having made a conscious choice not to answer”

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or for having demonstrated “simple carelessness.”

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“to treat a failure to answer as culpable, the movant must have

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acted with bad faith, such as an ‘intention to take advantage of

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the opposing party, interfere with judicial decisionmaking, or

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otherwise manipulate the legal process.’”

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244 F.3d at 697); see also id. at 1094 (concluding it was error to

Mesle, 615 F.3d at 1092

The Ninth Circuit has explained that “in this context

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Id.

Instead,

Id. (quoting TCI Group,

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find a defendant’s conduct culpable based on “his failure to act

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after being notified of the need to do so, in the absence of any

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indication that he acted in bad faith”).

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typically found culpability only if “‘there is no explanation of

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the default inconsistent with a devious, deliberate, willful, or

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bad faith failure to respond.’”

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244 F.3d at 698); see also TCI Group, 244 F.3d at 697 (“Neglectful

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failure to answer as to which the defendant offers a credible,

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good faith explanation negating any intention to take advantage of

The Ninth Circuit has

Id. at 1092 (quoting TCI Group,

United States District Court
For the Northern District of California

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the opposing party, interfere with judicial decisionmaking, or

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otherwise manipulate the legal process is not ‘intentional.’”).

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The Ninth Circuit has only found culpability based simply on the

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failure to answer after being provided with notice in some limited

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circumstances in which the moving party was “a legally

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sophisticated entity or individual,” and has specifically

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cautioned against such a finding when the individual was “not a

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lawyer” and “was unrepresented at the time of the default.”

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at 1093.

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Id.

The central dispute is whether Horak has submitted a

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credible, good faith explanation negating bad faith.

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the facts asserted in his motion regarding the reasons for his

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failure to answer, Horak has submitted the declaration of his

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attorney only and has not offered his own declaration.

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Milliken’s declaration, he asserts,

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To support

In

The Defendant’s lack of knowledge of the U.S. legal
system, coupled with his limited comprehension of the
English language, has resulted in the Defendant missing
the deadline for answering the complaint. When the
Defendant retained my services he was under the
impression that the only document that needed to be
submitted was the case management statement. He did not
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intentionally fail to answer. To the contrary, he
retained my services because he was aware that something
needed to be done, but lacked the understanding of the
U.S. legal system to understand what needed to be done.
. . . The Defendant did not miss the deadline to answer
for any willful reason.

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Milliken Decl. ¶¶ 2-3.

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“inadmissible hearsay, a non-expert opinion, and argument.”

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B-Side’s Objections to the Milliken Decl., Docket No. 126-2,

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¶¶ 1-2.

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objections.

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B-Side objects to these statements as

Horak has not responded to B-Side’s evidentiary

The Court sustains B-Side’s unopposed objections to these

United States District Court
For the Northern District of California

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portions of the declaration.

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repeat the out-of-court statements that Horak made to him,

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Milliken’s recitation of Horak’s beliefs at the time that he was

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retained or reasons for his inaction is based on inadmissible

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hearsay, offered to establish that Horak in fact had those beliefs

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and reasons.

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reasons that Horak failed to act but does not lay any proper

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foundation for its admission as rationally based on his personal

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observation and recollection of concrete facts.

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v. Beck, 418 F.3d 1008, 1015 (9th Cir. 2005); Federal Rule of

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Evidence 701 (addressing opinion testimony by lay witnesses).

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addition, Milliken impermissibly includes in his declaration

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statements that consist of legal conclusions and argument, in

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violation of Civil Local Rule 7-5.

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Although Milliken does not directly

Further, Milliken presents his opinion as to the

See United States

In

To support the facts outside of the record underlying his

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assertions that his conduct was excusable, Horak was required to

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submit admissible evidence.

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(2d Cir. 1998) (neglect in failing to answer was willful and not

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excusable where record contained no affidavit with a satisfactory

See SEC v. McNulty, 137 F.3d 732, 739

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explanation); In re Stone, 588 F.2d 1316, 1319 (10th Cir. 1978)

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(distinguishing between the requirement to provide evidence of

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excusable neglect and alleging a meritorious defense); Moore’s

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Federal Practice, § 55.71[2] (addressing Federal Rule of Civil

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Procedure 43(c), which relates to the proffer of evidence on a

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motion, in the context of a motion to set aside entry of default).

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That Milliken’s opinions are at least arguably inconsistent with

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the exchange at the October 25 hearing, at which Milliken was not

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present, and with the fact that Horak was able to testify

United States District Court
For the Northern District of California

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competently without an interpreter at his deposition in this

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matter makes competent evidence even more important.

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Accordingly, Horak has not met his burden to offer a credible

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and good faith explanation for his failure to answer.

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II.

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Meritorious defense
“‘A defendant seeking to vacate a default judgment must

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present specific facts that would constitute a defense.

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burden on a party seeking to vacate a default judgment is not

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extraordinarily heavy.’”

Mesle, 615 F.3d at 1094 (quoting TCI

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Group, 244 F.3d at 700).

“All that is necessary to satisfy the

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‘meritorious defense’ requirement is to allege sufficient facts

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that, if true, would constitute a defense: ‘the question whether

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the factual allegation [i]s true’ is not to be determined by the

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court when it decides the motion to set aside the default.”

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(quoting TCI Group, 244 F.3d at 700).

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denial without facts to support it’ is not enough to justify

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vacating a default or default judgment.”

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375 F.3d at 926 (quoting Madsen v. Bumb, 419 F.2d 4, 6 (9th Cir.

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1969)).

But the

Id.

However, a “‘mere general

Franchise Holding II,

The underlying concern “is to determine whether there is
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some possibility that the outcome of the suit after a full trial

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will be contrary to the result achieved by the default.”

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Carpenters’ Trust Funds v. Stone, 794 F.2d 508, 513 (9th Cir.

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1986).

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Haw.

In this action, B-Side is being charged with liability for

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certain claims made against Zoom Electric, Inc. under California

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law on the basis that the latter entity was unlicensed and B-Side

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had hired it as a subcontractor.

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alleges that it entered into a contract with Horak, who was a

In the cross-claim, B-Side

United States District Court
For the Northern District of California

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licensed electrical subcontractor doing business as Zoom Electric,

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a sole proprietorship, and that, after B-Side had signed the

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contract, the contract was modified by adding “Inc.” after “Zoom

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Electric” on the signature block in order to state that Zoom

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Electric, Inc. was the subcontractor instead of Horak.

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Claim ¶¶ 6-7.

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whether between it and Horak as a sole proprietor or it and Horak

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as the alter ego of Zoom Electric Inc., Horak had agreed to

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indemnify it for any liability it incurred in the instant suit.

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Id. at ¶¶ 9-14.

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Cross-

B-Side further contends that, under the agreement,

In the instant motion, in support of his argument that he has
a meritorious defense, Horak states only,
B-Side has accused the Defendant of fraud by adding
“Inc.” after his Business Name, after the contract was
signed, which functionally changed the contracting
business entity. However B-Side has offered no facts to
back-up this meritless accusation. The fact is that BSide was the drafter of the contract and either
intentionally or negligibly had my client sign a
contract with the wrong party’s names. The Defendant
can establish the necessary facts to defend himself
against these meritless accusations.

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Mot. at 5.

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responds that this is insufficient and that Horak did not submit a

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declaration or any other specific facts to support his allegation

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that B-Side was responsible for the incorrect name on the

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contract.

Horak has not submitted a proposed answer.

B-Side

Opp. at 5.

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Although Horak need meet only a minimal burden here, the

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averments that he has made in his motion are plainly insufficient

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to carry this burden.

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that B-Side, the drafter, intentionally or negligently had Horak

The only factual assertion that Horak made,

United States District Court
For the Northern District of California

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sign a contract with the wrong name, Zoom Electric, Inc., does not

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constitute a defense to B-Side’s claim that it is entitled to

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indemnification from Horak under the agreement whether it was

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between B-Side and Horak, doing business as Zoom Electric, or

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Horak, as the alter ego of Zoom Electric, Inc.

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proclamation that he would be able to establish the necessary

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facts to defend himself is not enough to justify vacating a

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default.

His general

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Accordingly, Horak has not met his burden to allege

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sufficient facts that would constitute a defense if ultimately

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proven to be true.

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III. Prejudice

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Setting aside a default is considered prejudicial if it

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results “in greater harm than simply delaying resolution of the

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case.”

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the opposing party’s “ability to pursue his claim will be

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hindered.”

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prejudicial, a “delay must result in tangible harm such as loss of

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evidence, increased difficulties of discovery, or greater

TCI Group, 244 F.3d at 701.

The proper inquiry is whether

Id. (quoting Falk, 739 F.2d at 463).

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To be considered

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opportunity for fraud or collusion.”

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American Home Assur. Co., 95 F. 3d 429, 432 (6th Cir. 1996)).

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Id. (citing Thompson v.

Horak argues that B-Side would suffer no prejudice if his

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default were set aside.

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motion was untimely and it is scheduled for hearing shortly before

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the trial in this matter is set to commence.

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points to no prejudice other than the delaying of the resolution

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of this matter, which does not constitute prejudice for this

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purpose, Horak has met his burden of demonstrating that this

B-Side responds that it would because the

United States District Court
For the Northern District of California

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factor favors relieving him of his default.

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IV.

Because B-Side

Summary

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Even in light of the preference of resolving claims on their

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merits, the Court finds that the Falk factors favor denial of the

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motion, particularly because to set aside Horak’s default “in the

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absence of some showing of a meritorious defense would cause

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needless delay and expense to the parties and court system.”

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Carpenters’ Trust Funds, 794 F.2d at 513.

Haw.

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CONCLUSION

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For the reasons set forth above, the Court DENIES Horak’s

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motion (Docket No. 125).
IT IS SO ORDERED.

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Dated: 1/17/2013

CLAUDIA WILKEN
United States District Judge

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