Delgado et al v. Deanda et al

Filing 40

ORDER by Judge Lucy H. Koh denying 39 Stipulation; granting 27 Motion to Set Aside Judgment; denying 28 Motion to Stay (lhklc2, COURT STAFF) (Filed on 12/18/2012)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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United States District Court
For the Northern District of California

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SAN JOSE DIVISION

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MARTIN DELGADO; RICARDO DELGADO; )
ANGEL MARTINEZ; and ADRAIN ACOLTZI, )
on behalf of themselves and all those similarly )
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situated,
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Plaintiffs,
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v.
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MARIA DEANDA and RUBEN DEANDA dba )
GUADALAJARA MARKET; and DOES 1-10, )
)
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Defendants.
)
)

Case No.: 10-CV-02799-LHK

ORDER SETTING ASIDE DEFAULT
JUDGMENT

Before the Court is Defendants Maria DeAnda and Ruben DeAnda’s (“Defendants”) motion to

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set aside the default judgment under Federal Rule of Civil Procedure 60(b). Pursuant to Civil

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Local Rule 7–1(b), the Court deems this motion appropriate for determination without oral

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argument and vacates the hearing set for January 3, 2013. Having considered the parties’

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submissions and the relevant law, the Court GRANTS Defendants’ motion to set aside the default

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judgment. Defendants’ motion in the alternative to stay the execution of judgment, ECF No. 28, is

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denied as moot. The parties’ request to continue the hearing, ECF No. 39, is also denied as moot.

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I.

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Plaintiffs Martin Delgado, Ricardo Delgado, Angel Martinez, and Adrian Acolzi (“Plaintiffs”)

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BACKGROUND

filed this action on June 25, 2010, alleging violation of state and federal employment laws. ECF
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Case No.: 10-CV-02799-LHK
ORDER SETTING ASIDE DEFAULT JUDGMENT

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No. 1. Plaintiffs filed a proof of service on September 2, 2012. ECF No. 5. Having received no

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response from Defendants, Plaintiffs requested entry of default on November 8, 2010, ECF No. 12,

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and the Clerk entered default on November 10, 2010, ECF No. 14. There were no further

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developments until July 11, 2011, when Magistrate Judge Howard Lloyd, to whom the case was

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assigned, issued an Order to Show Cause why the case should not be dismissed for failure to

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prosecute. ECF No. 15. Plaintiffs’ attorney appeared at the hearing on the Order to Show Cause

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on August 30, 2011, and the Order to Show Cause was discharged. ECF No. 17. Plaintiffs then

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filed a motion for default judgment on October 24, 2011, ECF No. 18. On November 23, 2011,

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Judge Lloyd issued a report and recommendation that the Court grant the motion for default

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For the Northern District of California

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judgment, and ordered that the case be assigned to a District Judge. ECF No. 23. On November

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23, 2011, the case was reassigned to the undersigned Judge. ECF No. 24. On May 24, 2012, the

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undersigned judge issued an Order adopting Magistrate Judge Lloyd’s report and recommendation,

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ECF No. 25, and the Clerk entered judgment for the Plaintiffs the next day. ECF No. 26. Thirteen

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days later, on June 7, 2012, Defendants filed a motion for relief from that judgment (“Mot.”) and a

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motion for a stay of the judgment. ECF Nos. 27-28. Plaintiffs filed an opposition on June 22,

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2012, ECF No. 31, and Defendants filed a reply on July 6, 2012. ECF No. 32.

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II.

ANALYSIS

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A. Legal Standard

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Rule 60(b) allows a court to set aside a judgment where one or more of the following is shown:

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(1) mistake, inadvertence, surprise or excusable neglect; (2) newly discovered evidence which by

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due diligence could not have been discovered before the court's decision; (3) fraud by the adverse

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party; (4) the judgment is void; (5) the judgment has been satisfied; (6) any other reason justifying

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relief. Fed.R.Civ.P. 60(b); School Dist. 1J v. ACandS Inc., 5 F.3d 1255, 1263 (9th Cir. 1993). This

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Circuit recognizes a “long-standing principle that default judgments are disfavored.” TCI Group

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Life Ins. Plan v. Knoebber, 244 F.3d 691, 694 (9th Cir. 2001).

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“Where there has been no merits decision, appropriate exercise of district court discretion under

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Rule 60(b) requires that the finality interest should give way fairly readily, to further the competing

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interest in reaching the merits of a dispute.” TCI Group, 244 F.3d at 696. The party seeking to
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Case No.: 10-CV-02799-LHK
ORDER SETTING ASIDE DEFAULT JUDGMENT

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vacate the default judgment bears the burden of establishing that three factors favor vacating the

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judgment: whether the plaintiff will be prejudiced; whether the defendant’s default is due to

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culpable conduct; and whether the defendant has a meritorious defense. Id. The Court will

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consider each of these three factors in turn.

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B. ANALYSIS

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In this case, Defendants argue that there is good cause to set aside the default judgment because

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Defendants did not receive notice of the lawsuit. Defendants have also alleged that Plaintiffs’

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proof of service was improper, both because the requirements for substituted service were not

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satisfied and because the individual with whom the papers were allegedly left, a “Mariah Deanda,”

United States District Court
For the Northern District of California

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does not exist. Mot. 6-7; Decl. of Bryce Chastain, ECF No. 33, at Exh. A. Finally, Defendants

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argue that because Plaintiffs had represented, after entry of default, that they would not pursue the

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matter further, Defendants were surprised by the entry of default judgment.

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1. Prejudice to the Plaintiff

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Setting aside a default is considered prejudicial only if it results “in greater harm than simply

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delaying resolution of the case.” TCI Group, 244 F.3d at 701. To constitute prejudice, the “delay

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must result in tangible harm such as loss of evidence, increased difficulties of discovery, or greater

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opportunity for fraud or collusion.” Id. (citing Thompson v. American Home Assur. Co., 95 F. 3d

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429, 432 (6th Cir. 1996)).

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In this case, there is no allegation of prejudice to Plaintiffs. Defendants have made clear that

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they have no intention of avoiding participation in the lawsuit, and to Defendants’ knowledge,

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there is no evidence or witnesses that could have been lost in the delay. Reply at 7. Plaintiffs have

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also failed to identify any prejudice. Thus, this factor favors setting aside the judgment.

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2. Meritorious Defense

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The “burden on a party seeking to vacate a default judgment is not extraordinarily heavy;”

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rather, a defendant need only “present specific facts that would constitute a defense.” TCI Group,

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244 F.3d at 700. The defense need not be on the merits of the claim. See E&J. Gallo Winery v.

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Cantine Rallo, S.p.A., 430 F. Supp. 2d 1064, 1092 (E.D. Cal. 2005) (finding a meritorious defense

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Case No.: 10-CV-02799-LHK
ORDER SETTING ASIDE DEFAULT JUDGMENT

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for Rule 60(b) purposes where laches defense “is viable and cannot be eliminated as a matter of

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law.”).

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Here, Defendants have presented a procedural defense that they were not properly served, and

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thus are not subject to this Court’s personal jurisdiction. Though there is a factual dispute between

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the parties about the service, Defendants need not establish that they will necessarily prevail as a

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matter of law. Defendants need only present facts that could constitute a viable defense. Here,

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Defendants have presented some evidence that there was no proper service. See Mot. at 6-7

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(arguing that the requirements for substituted service were not met); Decl. of Mireya Deanda, ECF

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No. 27-2 (certifying that there is no such person as “Mariah Deanda,” whom the process server

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For the Northern District of California

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allegedly served, and that she herself, as the person in the family with the most similar name, was

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not served). As Defendants have alleged facts that could give rise to a meritorious defense of lack

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of personal jurisdiction, this factor favors setting aside the judgment.

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3. Culpable Conduct

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Conduct is culpable for Rule 60(b) purposes where “there is no explanation of the default

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inconsistent with a devious, deliberate, willful, or bad faith failure to respond.” TCI Group, 244

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F.3d at 698. On a Rule 60(b) motion, the Court “will accept the allegations of the movant’s factual

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statement.” Falk, 739 F.2d at 464.

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Here, Defendants have two distinct arguments. First, Defendants argue that they failed to

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respond to the complaint because they were not properly served, and thus had no notice of the

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lawsuit. See Decl. of Rafael Deanda, ECF No. 27-2 at ¶¶ 2-3. Accepting, for the purposes of this

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motion, that factual allegation as true, the Court finds that there was no culpable conduct in

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Defendants’ failure to respond to the complaint.

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Second, Defendants argue that after the entry of default, they failed to respond because

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Plaintiffs’ conduct led them to believe that Plaintiffs had abandoned the case. Specifically,

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Defendants allege that Plaintiffs’ counsel had agreed that it would be appropriate to vacate the

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Default, and then never contacted Defendants about the matter again, until the default judgment

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was entered. Id. at ¶¶3-4. In short, Defendants seemed to think that the lawsuit had been

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abandoned. Though ignoring a pending lawsuit against them based only on an assumption about
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Case No.: 10-CV-02799-LHK
ORDER SETTING ASIDE DEFAULT JUDGMENT

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Plaintiffs’ behavior was perhaps not the wisest course of conduct, Defendants have presented an

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explanation for their behavior that is “inconsistent with a devious, deliberate, willful, or bad faith

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failure to respond.” TCI Group, 244 F.3d at 698. As the Court must credit that explanation for the

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purposes of this motion, the Court cannot find that Defendants’ conduct was culpable. Thus, this

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factor favors setting aside the default judgment.

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In sum, all three factors favor setting aside the default judgment. Accordingly, Defendants’

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motion to set aside the default judgment is GRANTED. Defendants’ motion to stay enforcement

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of the judgment is DENIED as moot. Plaintiffs’ request that Defendants post bond for the

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judgment amount before a stay of enforcement of the judgment is also DENIED as moot.

United States District Court
For the Northern District of California

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IT IS SO ORDERED.

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Dated: December 18, 2012

_________________________________
LUCY H. KOH
United States District Judge

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Case No.: 10-CV-02799-LHK
ORDER SETTING ASIDE DEFAULT JUDGMENT