B-MEX, LLC et al v. Chow del Campo et al

Filing 56

ORDER. ORDERED that Defendant Chow's Motion to Set Aside Entry of Default andMotion for Leave to Allow Filing of Answer Out of Time 36 is GRANTED. ORDERED that the Clerk's Entry of Default against defendant Jos Benjamn Chow del Campo 21 is VACATED. ORDERED that defendant shall file his answer to plaintiffs' complaint on or before June 14, 2017. Signed by Judge Philip A. Brimmer on 06/02/17. (jhawk, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 16-cv-01358-PAB-KLM
B-MEX, LLC, a Colorado Company, et al.,
Plaintiffs,
v.
JOSÉ BENJAMÍN CHOW DEL CAMPO,
Defendant.

ORDER

This matter is before the Court on Defendant Chow’s Motion to Set Aside Entry
of Default and Motion for Leave to Allow Filing of Answer Out of Time [Docket No. 36].
In his motion, defendant requests that the Court vacate the Entry of Default [Docket No.
21] entered by the Clerk of the Court on October 21, 2016.
On June 6, 2016, plaintiffs filed a complaint asserting claims against defendant
for violations of the federal Racketeering Influenced and Corrupt Organizations Act
(“RICO”) and Colorado Organized Crime Control Act (“COCCA”) and seeking damages
and injunctive relief. Docket No. 1. Plaintiffs initially requested entry of default on
October 19, 2016. Docket No. 18. The Clerk of the Court did not enter default because
plaintiffs failed to supply an affidavit or declaration concerning defendant’s military
status. Docket No. 19. On October 21, 2016, plaintif fs filed a second motion for entry
of default. Docket No. 20. On October 21, 2016, the Clerk entered def ault against
defendant José Benjamín Chow del Campo. Docket No. 21.

In his motion to set aside the entry of default, defendant argues that his failure to
answer was not culpable, because he had difficulties procuring representation and
believed that the parties would settle their dispute by agreement. Docket No. 36 at 5-6.
Defendant further argues that, in light of the parties’ interactions, the instant motion to
set aside the default was made promptly, shortly after defendant became aware of the
entry of default. Id. at 8-9. Defendant claims that setting aside the default in this case
would not prejudice plaintiffs and would allow defendant to present meritorious
defenses. Id. at 6-7. Last, defendant states that plaintiffs’ failure to comply with
D.C.COLO.LCivR. 7.1 militates in favor of setting the default aside. Id. at 10.
The Court may set aside an entry of default for good cause. See Fed. R. Civ. P.
55(c). The good cause standard is a less demanding standard than the excusable
neglect standard which must be shown for relief from judgment under Fed. R. Civ. P.
60(b). Dennis Garberg & Assocs., Inc. v. Pack-Tech Int’l Corp., 115 F.3d 767, 775 n.6
(10th Cir. 1997). In determining whether to vacate the Clerk’s entry of default, the Court
may consider the following factors: (1) whether the defendant’s culpable conduct led to
the default; (2) whether the plaintiffs will be prejudiced by setting aside the entry of
default; and (3) whether the defendant has a meritorious defense. See Hunt v. Ford
Motor Co., 1995 WL 523646, at *3 (10th Cir. Aug. 29, 1995) (citing In re Dierschke, 975
F.2d 181, 183 (5th Cir. 1992)). The Court need not consider each one of these factors
and may consider other factors in its discretion. Id. Guiding the Court’s analysis is the
time-honored principle that “[t]he preferred disposition of any case is upon its merits
and not by default judgment.” Gomes v. Williams, 420 F.2d 1364, 1366 (10th Cir.

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1970); see also Katzson Bros., Inc. v. E.P.A., 839 F.2d 1396, 1399 (10th Cir. 1988)
(noting that “default judgments are not favored by courts”). It is, however, within the
Court’s discretion to balance the judicial preference against default judgments with
“considerations of social goals, justice, and expediency.” Gomes, 420 F.2d at 1366.
With respect to the first factor, whether the default was caused by defendant’s
culpable conduct, defendant concedes that he was properly served in this matter and
failed to file a timely answer.1 Docket No. 36-1 at 2, ¶ 9. Defendant argues in his
motion that his failure to answer was not culpable because he had difficulty procuring
counsel and believed that settlement negotiations would be fruitful. Docket No. 36
at 5-6. With respect to procuring counsel, defendant states he “contacted numerous
attorneys for the purpose of providing legal counsel in this lawsuit” and that “various
attorneys have worked at different times on [his] behalf.” Docket No. 36-1 at 1, ¶¶ 3-4.
Defendant claims that “he was unable to identify counsel who he felt could adequately
represent him in this proceeding and provide him counsel regarding it implications, if
any, in the parallel NAFTA arbitration proceeding.” Docket No. 36 at 5.
Defendant was served on August 23, 2016. Docket No. 11. Defendant did not
answer or otherwise respond to the complaint. On October 19, 2016, plaintiffs filed a

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The motion to set aside states that “Chow was never personally served with
process in the present proceeding. . . . The process server did not leave a copy [of the
process] ‘with someone’ as required under the Federal Rules of Civil Procedure.”
Docket No. 36 at 3. Defendant clarified in his reply that “Chow was not attempting to
argue that Plaintiffs failed to comply with a legal requirement.” Docket No. 55 at 3.
Accordingly, the propriety of service is not at issue.
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request for entry of default.2 Docket No. 18. Plaintiffs sent defendant a copy of the
request for default by email, FedEx, and by certified mail. Docket No. 51 at 4, ¶ 10. An
adult named J. Chow signed for the FedEx delivery on October 24, 2016. Id.
According to plaintiffs, on October 25, 2016, Geoff Binney, a Texas attorney, called
plaintiffs’ counsel and informed him that “he wanted to avoid a default judgment against
his client and that his client wanted to enter into settlement negotiations with the
Plaintiffs to resolve the claims in the suit.” Docket No. 51 at 4, ¶ 11. Over the next
several months, Binney reached out to plaintiffs on multiple occasions regarding
settlement, but plaintiffs state that no “earnest settlement discussions” took place. Id.
at 5, ¶ 12. Defendant’s new counsel contacted plaintiffs on or around March 10, 2017. 3
Id. at 6, ¶ 17. Defendant does not dispute plaintiffs’ description of events. See Docket
No. 55.
Based on the foregoing, defendant obtained counsel immediately after receiving
notice from plaintiffs that they intended to seek entry of default. While the timing does

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Defendant argues that plaintiffs failed to comply with D.C.COLO.LCivR. 7.1 by
not conferring with defendant before seeking entry of default. Docket No. 36 at 8.
Defendant appears to have abandoned this argument in his reply. Fed. R. Civ. P.
5(a)(2) states that service is not required upon a defaulted party. It would be logically
inconsistent to require plaintiffs to confer with a party who has not appeared.
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Defendant argues that the motion to set aside is timely because “Chow learned
for the first time on March 10, 2017 that a default had been entered against him in this
case.” Docket No. 36 at 9. Plaintiffs provided defendant with notice of their intent to
seek entry of default despite having no obligation to do so. Fed. R. Civ. P. 5(a)(2) (“No
service is required on a party who is in default for failing to appear.”). Moreover,
defendant obtained representation within one day of receiving notice that plaintiffs
intended to seek an entry of default, suggesting that defendant understood the
significance of plaintiffs’ request. Docket No. 55-1 at 1-2, ¶ 6. Accordingly, the Court
finds that defendant’s motion to set aside, filed months after the entry of default and the
date his counsel first contacted plaintiffs, was not filed in a timely manner.
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not support defendant’s claim that he was unable to procure counsel, it does show that
defendant did not completely disregard his obligation to address plaintiffs’ claims.
Defendant next points to the settlement negotiations between the parties as
justification for his failure to answer. Plaintiffs state that “no meaningful settlement
discussions were initiated by Chow’s counsel and neither Chow nor his counsel
displayed any urgency over the default.” Docket No. 49 at 5. However, on multiple
occasions, plaintiffs represented to the Court that plaintiffs and defendant were
engaged in settlement discussions. See Docket No. 22 (“[S]hortly after Plaintiffs
obtained entry of default against Defendant José Benjamín Chow del Campo [], he
hired new counsel who has begun discussing settlement with Plaintiffs”); Docket No. 25
(“[S]ettlement discussions are now at an advanced stage between Plaintiffs and all
three Defendants – including José Benjamín Chow del Campo.”); Docket No. 31
([A]lthough Defendant Benjamín Chow del Campo recently changed counsel, which set
settlement discussions back, those discussions continue in earnest betw een Plaintiffs
and Chow”).
Regardless, the mere fact that settlement negotiations were taking place “did not
excuse [defendant’s] responsibility to file a responsive pleading under Fed. R. Civ. P.
12(a).” QFA Royalties LLC v. Liberty Holding Grp., Inc., No. 06-cv-00948-LTB-MEH,
2007 WL 2071633, at *2 (D. Colo. July 16, 2007). Only the Court can waive or excuse
a party’s obligation to respond. Id. (citing Fed. R. Civ. P. 6(b)(1)). Accordingly, despite
ongoing settlement discussions, defendant was obligated to answer the complaint.

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The Court finds that defendant has failed to present evidence showing that his
failure to answer the complaint was the result of difficulties procuring counsel or that
ongoing settlement discussions excused his conduct. “If the default was the result of
the defendant’s culpable conduct, the district court may refuse to set aside the default
on that basis alone.” Hunt, 1995 WL 523646 at *3 (citations omitted). While the Court
finds that defendant’s culpable conduct led to the def ault in this matter, the Court
considers whether the other factors demonstrate good cause for setting aside the
default. See Crutcher v. Coleman, 205 F.R.D. 581, 584 (D. Kan. 2001).
With respect to the second factor, whether the plaintiffs will be prejudiced by
setting aside the entry of default, the Court finds no prejudice to plaintiffs in setting
aside the entry of default. Plaintiffs argue that “[t]he delay caused by Chow has
prevented the speedy adjudication of Plaintiffs’ claims and continued the uncertainty
surrounding Chow’s wrongful acts,” Docket No. 49 at 11, but much of the delay in this
case is attributable to plaintiffs. Instead of immediately seeking the entry of default
judgment against defendant, plaintiffs repeatedly delayed the scheduling conference to
continue settlement negotiations. Docket Nos. 22, 25, 31. During the same time
period, plaintiffs failed to prosecute their case against another non-appearing
defendant, forcing the magistrate judge to demand that plaintiffs either seek default or
file dismissal papers against that defendant. See Docket No. 42. As a result of
plaintiffs’ actions, no scheduling conference has been held and this case remains at an
early stage. Accordingly, the Court finds that plaintiffs will suffer no prejudice if the
entry of default is vacated. Estate of Ortiz v. Lithia Motors, Inc., No. 08-cv-00907-PABKLM, 2009 WL 1258969, at *2 (D. Colo. May 5, 2009) (finding no prejudice because
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plaintiff did not identify any undue prejudice it would suffer if the Court set aside the
Clerk’s entry of default).
Finally, defendant asserts that he has meritorious defenses to plaintiffs’
complaint. Docket No. 36 at 7. To determine whether defendant has a meritorious
defense, “the court examines the allegations contained in the moving papers to
determine whether the movant’s version of the factual circumstances surrounding the
dispute, if true, would constitute a defense to the action.” In re Stone, 588 F.2d 1316,
1319 (10th Cir. 1978). Defendant alleges that plaintiffs’ claims lack merit because any
alleged corporate misconduct is rebutted by official minutes from shareholder meetings
conducted in Mexico and that plaintiffs cannot prove damages because their casinos
failed as a result of prior difficulties with the Mexican government, not defendant’s
conduct. Docket No. 36 at 16, ¶¶ 10-11. W hile plaintiffs offer the declaration of Neil
Ayervais to rebut defendant’s defenses, Docket No. 50, the Court must treat
defendant’s allegations as true. Stone, 588 F.2d at 1319 (“The rule requires a sufficient
elaboration of facts to permit the trial court to judge whether the defense, if movant’s
version were believed, would be meritorious”). If defendant can prove that his conduct
was not wrongful, or that plaintiffs were not harmed by his conduct, he may be
successful in this case. Accordingly, defendant should have the opportunity to assert
his defenses. Tozer v. Charles A. Krause Milling Co., 189 F.2d 242, 245 (3d Cir. 1951)
(holding that any doubts regarding entry of default should be resolved in favor of the
defendant, particularly because “[m]atters involving large sums should not be
determined by default judgments if it can reasonably be avoided”).

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The Court finds that good cause exists to set aside the default in this matter.
Therefore, it is
ORDERED that Defendant Chow’s Motion to Set Aside Entry of Default and
Motion for Leave to Allow Filing of Answer Out of Time [Docket No. 36] is GRANTED. It
is further
ORDERED that the Clerk’s Entry of Default against defendant José Benjamín
Chow del Campo [Docket No. 21] is VACATED. It is further
ORDERED that defendant shall file his answer to plaintiffs’ complaint on or
before June 14, 2017.

DATED June 2, 2017.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

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