American Contractors Indemnity Company v. Fernandez et al
ORDER ADOPTING FINDINGS & RECOMMENDATION TO DENY MOTION FOR DEFAULT JUDGMENT AND TO SET ASIDE ENTRY OF DEFAULT AS TO BOTH DEFENDANTS re 23 - Signed by JUDGE DERRICK K. WATSON on 9/21/2017. "The Court hereby ADOPTS the F&R (ECF No. 23), OVERRULES AmCon's related objections, DENIES AmCon's DJ Motion (ECF No. 16), and sets aside the Entry of Default (ECF No. 14) as to both Defendants. Defendants are instructed to file their Answers to the Complaint within ten days of th is Order." (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Frank M. Fernandez and Janis H. Fernandez shall be served by first class mail to the address of record on September 22, 2017.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAI`I
CIV. NO. 17-00086 DKW-RLP
ORDER ADOPTING FINDINGS &
RECOMMENDATION TO DENY
MOTION FOR DEFAULT
JUDGMENT AND TO SET ASIDE
FRANK M. FERNANDEZ and JANIS H. ENTRY OF DEFAULT AS TO
On July 11, 2017, Magistrate Judge Richard L. Puglisi entered his Findings
and Recommendation (“F&R”) to deny the Motion for Entry of Default Judgment,
filed by Plaintiff American Contractors Indemnity Company (“AmCon”) on June
16, 2017. AmCon filed Objections to the F&R on July 18, 2017 (ECF No. 27)
arguing, among other things, that default judgment against Defendants is
appropriate due to their failure to timely respond to service of the pleadings and
because of Frank M. Fernandez’s alleged misrepresentations to the Court.
As explained below, the Court ADOPTS the F&R (ECF No. 23), DENIES
AmCon’s Motion for Default Judgment (ECF No. 16), and sets aside the Entry of
Default (ECF No. 14) as to both defendants.
Plaintiff AmCon, “a licensed surety company in the State of Hawaii,” seeks
monetary damages and other remedies for Defendants’ alleged failure to honor
indemnification and guarantee provisions of three related contracts (see ECF Nos.
1-1, 1-2, 1-3). Compl. ¶ 2, ECF No. 1.
In the first—a December 13, 2004 “Executing Agent’s Contract” (the “2004
Contract”)—AmCon authorized Defendant Frank M. Fernandez (“Frank”) to serve
as its “agent . . . for the soliciting and writing of Bail bonds” in the City and
County of Honolulu. See 2004 Contract, ECF No. 1-1. Under the 2004 Contract,
Frank was required to perform certain duties with respect to the appearance of
persons bonded in court and agreed to indemnify AmCon from any and all
“liability, loss, costs, damages, claims, suits, attorneys’ fees, and expenses of
whatever kind” arising out of bonds executed under the agreement. See Compl.
¶¶ 12–15. Defendant Janis H. Fernandez (“Janis”) guaranteed Frank’s obligations
under the 2004 Contract, and pursuant to that guaranty, Defendants “agreed that all
of their property, whether real, personal, community or mixed, shall be subject to
and bound by the 2004 Contract.” Compl. ¶¶ 10–11; see 2004 Contract at 2.
In the second contract—an April 19, 2007 “Executing Agent’s Contract”
between AmCon and Janis (the “2007 Contract”)—AmCon authorized Janis to
serve as its “agent” in the City and County of Honolulu “for the soliciting and
writing of Bail bonds.” Compl. ¶¶ 16–18; see 2007 Contract, ECF No. 1-2. As the
2004 Contract had required of Frank, the 2007 Contract required Janis to perform
certain duties, to indemnify AmCon from certain liabilities and expenses, and to
pay AmCon all sums due under the bonds subject to the agreement. See Compl.
¶¶ 21–24. And as Janis had done with respect to Frank’s 2004 Contract, Frank
executed a guaranty of Janis’s obligations to AmCon in consideration of AmCon’s
agreement with Janis. See 2007 Contract at 2; Compl. ¶ 19.
AmCon, Frank, and Michael Panzo executed the third contract—a January 9,
2008 “Bail Bond Division Sub-Agents Contract” (the “2008 Contract”)—“for the
purpose of: constituting [Frank] as the General Agent for the writing of bail bonds
in the State of Hawaii; and appointing Mr. Panzo as the Executing Agent for
[AmCon] for the soliciting and writing of Bail Bonds in the State of Hawaii.”
Compl. ¶ 26; see 2008 Contract, ECF No. 1-3. On the same date, Frank executed a
guaranty of Mr. Panzo’s obligations to AmCon, by which he “unconditionally
guaranteed and agreed to be bound to [AmCon] for the full and complete payment
and performance by Mr. Panzo of all the provisions, conditions, covenants, and
agreements contained in the 2008 Contract.” Compl. ¶ 27.
On February 28, 2017, AmCon filed a Complaint against Defendants for
allegedly breaching the terms of the 2004 Contract, the 2007 Contract, and the
2008 Contract. Compl., ECF No. 1.
According to the Complaint, AmCon “has performed all of its obligation
under the terms” of the three contracts in question. Compl. ¶ 33. AmCon also
asserts that “Defendants and Mr. Panzo have written bail bonds with [AmCon] as
surety” under the three contracts, and “[s]everal” of these bail bonds “have resulted
in unpaid forfeitures and/or judgment.” Compl. ¶¶ 34–35. Moreover, AmCon
claims that “Defendants and Mr. Panzo have also issued bail bonds that were not
reported” to it; and AmCon represents that although it “has made several demands
to Defendants and Mr. Panzo for the indemnification of the reported bail bonds and
the unpaid forfeitures and/or judgments,” no payment or indemnification has been
made. Compl. ¶¶ 37–39. For its grievances, AmCon requests at least $326,870.67
in damages, among other remedies. Compl. ¶ 41.
AmCon represents that upon filing the Complaint on February 28, 2017, it
“caused copies of the Complaint, Summons, Notice to Parties Regarding Service
Pursuant to Rule 4 of the Federal Rules of Civil Procedure, Notice of a Lawsuit
and Request To Waive Service of a Summons and an (unexecuted) Waiver of the
Service of Summons, together with self-addressed stamped envelopes[,] to be
mailed” to Defendants’ known address. See Mem. in Supp. of Mot. for Default J.,
ECF No. 16-1 [hereinafter DJ Mem.]; see also Civil Waiver of Serv. Packet, ECF
No. 8. When an executed Waiver of Service of Summons was not returned,
AmCon “retained the services of a process server, Neal F. Yoro, to effect service”
on Defendants. DJ Mem. at 6; see Yoro Decl., ECF No. 22-1. AmCon’s proofs of
service were filed on April 24, 2017 (ECF Nos. 11, 12) and indicate that Yoro
served Frank (personally) and Janis (through Frank) on April 1, 2017.1
Having failed to receive any response from Defendants within 21 days of
service, AmCon filed its “[Request] for Entry of Default Against [Defendants]”
(ECF No. 13) on May 2, 2017. See Fed. R. Civ. P. 12(a)(1). The Clerk of Court
In his declaration in support of AmCon’s DJ Motion, Yoro provides the following account of
events at the time of service:
On April 1, 2017 at 12:30 p.m. as I was exiting my vehicle at 1370 Pueo
Street, Honolulu, HI 96816, Defendant Frank M. Fernandez who was
sitting outside on a bench near his dwelling’s front door reading a book
became aware of my presence, stood up and began to walk quickly
towards his front door leaving his phone on the bench[,] at which time I
informed Defendant Frank M. Fernandez that I was serving him as well as
his wife, Janis H. Fernandez through him.
Defendant Frank M. Fernandez would not look at me and proceeded to
enter his residence through the front door.
I proceeded to knock on the door but Defendant Frank M. Fernandez
would not respond. As such, I reiterated in a loud voice that I was
personally serving him and Janis H. Fernandez was being served through
Yoro Decl. ¶¶ 6–8, ECF No. 22-1. According to AmCon, Yoro then effected service by leaving
the Summons, Complaint, and other documents outside the door for Frank. Reply in Supp. of
Mot. for Default J. at 2, ECF No. 22.
entered default the next day. Entry of Default, ECF No. 14. According to counsel
for AmCon (Scott I. Batterman), Frank called Mr. Batterman two weeks after
default was entered—on May 16—and claimed to be in the process of retaining an
attorney in order to defend the action. See Decl. of Counsel ¶¶ 5–6, ECF No. 22-2
[hereinafter Batterman Decl.]). According to Frank and Janis, however, Frank
called and spoke to Mr. Batterman in order to inform him that neither defendant
had been properly served; and although Mr. Batterman stated that he would return
Frank’s call, he failed to do so. See Decl. of Frank M. Fernandez ¶¶ 3–8, 11, ECF
No. 18-1 [hereinafter Frank Decl. I]; Decl. of Janis H. Fernandez ¶¶ 3–8, 11, 15,
ECF No. 21-1 [hereinafter Janis Decl. I].
On June 16, 2017, AmCon filed the Motion for Entry of Default Judgment
(“DJ Mot.” or “DJ Motion”; ECF No. 16) against Frank and Janis and mailed hard
copies of the motion to Defendants’ residence. See Batterman Decl. ¶ 8. In the DJ
Motion, AmCon asserted that Defendants “breached their obligations under the
terms of the 2004 Contract, the 2007 Contract, and the 2008 Contract by failing to
indemnify [AmCon] for the liabilities, costs, and expenses that [AmCon] sustained
and/or incurred in connection with the bonds written by Defendants and Mr.
Panzo; and by failing to honor their guarantees of such obligations.” See DJ. Mem.
at 5, ECF No. 16-1. Frank filed his Response to the DJ Motion, thereby making
his first appearance in the case, on June 26, 2017 (ECF No. 18), and Janis filed her
Response to the DJ Motion on July 3, 2017 (ECF No. 21). AmCon filed its Reply
in Support of the DJ Motion (ECF No. 22) on July 7, 2017.
On July 11, 2017, Magistrate Judge Puglisi entered the F&R, in which he
found that “[despite] failing to timely respond to the Complaint, Defendants have
indicated their clear intent to defend this case by filing Responses to [AmCon]’s
[DJ] Motion[.]” F&R at 4, ECF No. 23. The Magistrate Judge therefore
(1) [AmCon]’s Motion for Entry of Default Judgment . . . be
(2) The entry of default against Defendants . . . be set aside; and
(3) Defendants . . . be directed to file responses to the Complaint no
later than 10 days after the district court acts on this Findings and
F&R at 5.
Before the Court are AmCon’s objections to the F&R (ECF No. 27),
wherein AmCon urges the Court not to exercise its discretion on behalf of
Defendants and enter default judgment at this time. Obj. Mem. at 2. Defendants
responded to these objections on July 27, 2017 (ECF Nos. 28 (Frank), 29 (Janis)).
Accompanying those responses were Defendants’ declarations, in which they
informed the Court of their intent “to defend and pursue any and all claims
involved in this matter” and set forth a non-exhaustive list of eight potential
defenses they might raise. See Decl. of Frank M. Fernandez ¶¶ 3–4, ECF No. 28-1
[hereinafter Frank Decl. II]; Decl. of Janis H. Fernandez ¶¶ 3–4, ECF No. 29-1
[hereinafter Janis Decl. II].
For the reasons stated below, the Court ADOPTS the F&R, DENIES
AmCon’s DJ Motion, and sets aside the Entry of Default.
STANDARD OF REVIEW
A motion for default judgment is a case-dispositive motion that requires the
issuance of findings and recommendations if initially reviewed by a magistrate
judge. See 28 U.S.C. § 636(b)(1)(C).
When a party objects to a magistrate judge’s findings or recommendation,
the district court must review de novo only those portions to which the objections
are made. 28 U.S.C. § 636(b)(1); United States v. Reyna-Tapia, 328 F.3d 1114,
1121 (9th Cir.) (en banc) (“[T]he district judge must review the magistrate judge’s
findings and recommendations de novo if objection is made, but not otherwise.”),
cert. denied, 540 U.S. 900 (2003). In doing so, the district court “may accept,
reject, or modify” the findings and recommendations, “in whole or in part[.]” 28
U.S.C. § 636(b)(1). Although the district court need not hold a de novo hearing,
United States v. Raddatz, 447 U.S. 667, 673–74 (1980), it is the court’s obligation
to arrive at its own independent conclusion about those portions of the magistrate
judge’s findings or recommendations to which a party objects, United States v.
Remsing, 874 F.2d 614, 618 (9th Cir. 1989). In other words, under a de novo
standard, the court reviews “the matter anew, the same as if it had not been heard
before, and as if no decision had previously been rendered.” Freeman v. DirecTV,
Inc., 457 F.3d 1001, 1004 (9th Cir. 2006); United States v. Silverman, 861 F.2d
571, 576 (9th Cir. 1988).
“The determination as to whether a default or a default judgment shall be set
aside rests in the sound discretion of the trial court.” Madsen v. Bumb, 419 F.2d 4,
6 (9th Cir. 1969) (citing Aviation Specialties, Inc. v. Thompson, 395 F.2d 199 (9th
Cir. 1968); McCloskey & Co. v. Eckart, 164 F.2d 257 (5th Cir. 1947); Ferraro v.
Arthur M. Rosenberg Co., 156 F.2d 212 (2d Cir. 1946)); see also Franchise
Holding II, LLC v. Huntington Rest. Grps., Inc., 375 F.3d 922, 927 n.4 (9th Cir.
2004) (citing Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388, 1391 (9th Cir.
1989), as amended), cert. denied, 544 U.S. 949 (2005).
“When a party against whom a judgment for affirmative relief is sought has
failed to plead or otherwise defend,” Rule 55(a) of the Federal Rules of Civil
Procedure (“FRCP”) requires the court clerk to “enter the party’s default.” An
entry of default may be set aside “[f]or good cause shown.” Fed. R. Civ. P. 55(c).
In order to obtain affirmative relief from a defaulting party after the clerk has
entered default, the non-defaulting party must obtain a judgment under FRCP
55(b), which itself may be set aside under FRCP 60(b). See Eitel v. McCool, 782
F.2d 1470, 1471 (9th Cir. 1986) (distinguishing actions to set aside the entry of
default from actions to set aside default judgment); Alaka‘i Mech. Corp v. RMA
Land Constr., Inc., 2016 WL 8710425, at *2 (D. Haw. Jan. 15, 2016) (explaining
that “[a] defendant’s default does not automatically entitle the plaintiff to a courtordered judgment”; rather, “[t]he district court has discretion as to the
determination of whether default judgment is appropriate.”) (citing Aldabe v.
Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980)).
Here, the Clerk of Court entered default against Defendants on May 3, 2017
(ECF No. 14), after which AmCon filed the DJ Motion (ECF No. 16). In objecting
to the Magistrate Judge’s recommendation that this Court deny AmCon’s DJ
Motion, AmCon states that Defendants “made no effort to even suggest a basis for
disputing” AmCon’s arguments in the DJ Motion in their purported responses to it
(ECF Nos. 18, 21). Obj. Mem. at 2, ECF No. 27. This, AmCon argues, “suggests
that Defendants are simply engaged in an effort to stall the proceedings.” Obj.
Mem. at 2. Moreover, AmCon states that “Defendants have not been forthright
with the Court” regarding the facts of service, and it asserts that theirs “are not the
actions of parties who should receive the benefit of the doubt from the Court in the
exercise of discretion.” Obj. Mem. at 2–3.2
AmCon also contends that “Defendants have not been forthright with the Court” regarding their
pro se status in this action:
Although Defendants have not formally moved to set aside the clerk’s entry
of default, their opposition to default judgment can be treated as such a request, to
be analyzed under the “good cause” standard. See F.D.I.C. v. Danzig, 1993 WL
478842, at *2 (4th Cir. Nov. 22, 1993) (per curiam) (citing Meehan v. Snow, 652
F.2d 274, 276 (2d Cir. 1981)); Dascenzo v. Blain, 1974 WL 168884, at *2 (E.D.
Pa. Oct. 15, 1974) (“Although defendants have not moved to have the defaults set
aside, the brief opposing entry of a default judgment by implication seeks such a
relief.”). In the context of determining whether to set aside the entry of default,
“good cause” is determined by examining whether the defendant moved quickly to
set aside the entry of default and whether the defendant had a meritorious defense
to the action. O’Connor v. Nevada, 27 F.3d 357, 364 (9th Cir. 1994); accord
Vonderplanitz v. City of Los Angeles, 43 Fed. Appx. 60, 61 (9th Cir. 2002) (citing
O’Connor, supra); N.Y. Life Ins. & Annuity Corp. v. Esfandiari, 2010 WL
3584442, at *1 (D. Haw. Sept. 13, 2010) (same). Courts may also consider a
defendant’s culpability for the entry of default and whether the non-defaulting
Leaving aside that there is no basis in law for “pro se fees”, what made
these frivolous requests especially egregious was the effort by [Frank] to
justify his request by stating that he “was a practicing attorney from 19861992 and 1996-2011,” while neglecting to mention that he is no longer
practicing because he was disbarred from the practice of law.
Obj. Mem. at 3, ECF No. 27. This argument has no bearing on the instant disposition and is not
party will suffer prejudice if the default is set aside, among other factors.3 See
Franchise Holding II, 375 F.3d at 925–26. As each of these factors is disjunctive,
the Court’s determination may hinge on any one factor. Am. Ass’n of Naturopathic
Physicians v. Hayhurst, 227 F.3d 1104, 1108 (9th Cir. 2000) (citing In re Hammer,
940 F.2d 524, 525–26 (9th Cir. 1991)).
Defaults are not favored by the law. As a result, any doubt concerning entry
should be resolved in favor of setting aside a default so that the Court may rule on
the merits of the dispute. See In re Roxford Foods, Inc., 12 F.3d 875, 881 (9th Cir.
1993) (citing Schwab v. Bullock’s Inc., 508 F.2d 353, 355 (9th Cir. 1974));
Mendoza v. Wight Vineyard Mgmt., 783 F.2d 941, 945–46 (9th Cir. 1986); BDM,
Inc. v. Sageco, Inc., 549 P.2d 1147, 1150 (Hawai‘i 1976) (collecting cases in
support). Courts are particularly lenient towards defaulting parties where it is the
“As a practical matter . . . , when considering a motion to set aside a default entry, the parallels
between granting relief from a default entry and a default judgment encourage utilizing the list of
grounds for relief provided in Rule 60(b) . . . , [which] are liberally interpreted when used on a
motion for relief from an entry of default.” Haw. Carpenters’ Trust Funds v. Stone, 794 F.2d
508, 513 (9th Cir. 1986) (citing 10 C. Wright, A. Miller, & M. Kane, Fed. Prac. & Proc. § 2694
(1983) [hereinafter Wright & Miller]). See, e.g., Franchise Holding II, 375 F.3d at 925–26
(stating that courts determine “good cause” exists to set aside default judgments under Rule
60(b) by examining whether: (1) the defendant “engaged in culpable conduct that led to the
default”; or (2) the defendant “had a meritorious defense”; or (3) “reopening the default
judgment would prejudice [the plaintiff]”)); Eitel, 782 F.2d at 1471–72 (instructing district courts
to consider the following factors when determining whether to enter default judgment: (1) the
possibility of prejudice to the plaintiff if relief is denied; (2) the substantive merits of the
plaintiff’s claims; (3) the sufficiency of the claims raised in the complaint; (4) the sum of money
at stake in relationship to the defendant’s behavior; (5) the possibility of a dispute concerning
materials facts; (6) whether default was due to excusable neglect; and (7) the strong public policy
favoring decisions on the merits.”). “The Rule 60(b) grounds are liberally interpreted when
used on a motion for relief from an entry of default,” Stone, 794 F.2d at 513 (citing Wright &
Miller, supra, § 2694), as is the case here.
entry of default rather than a default judgment that is being set aside. Robinson v.
Tripler Army Med. Ctr., 2009 WL 688922, at *5 (9th Cir. Mar. 17, 2009) (citing
O’Connor, 27 F.3d at 364); Mendoza, 783 F.2d at 945 (citing Meehan, 652 F.2d at
The “good cause” standard has been met in this case because Defendants did
not unreasonably delay their opposition to the entry of default; they have raised
potentially meritorious defenses; and AmCon will not be prejudiced by the delay.
Time of Motion
Motions to set aside entry of default are governed by FRCP 55(c), which,
unlike Rule 60(b), does not specify a time within which such a motion must be
filed. Courts nonetheless require that a motion to set aside entry of default be
made within a “reasonable time” or with “reasonable promptness” upon discovery
of the default. See Wright & Miller, § 2698 (4th ed. 2017); e.g., Johnson v.
Barlow, 2007 WL 214603, at *3 (E.D. Cal. Jan. 25, 2007) (“[T]he fact that the
defaulted party acted quickly to cure the default and seek relief is a strong reason
for the court to exercise its discretion to set aside the default.” (citation omitted)).
To make this determination, courts look either to the date of the entry of default or
to the date on which the defendant discovered his or her default. See Seanor v.
Bair Transp. Co. of Del., 54 F.R.D. 35, 36 (E.D. Pa. 1971) (citing Consol.
Masonry & Fireproofing, Inc. v. Wagman Constr. Corp., 383 F.2d 249, 251 (4th
Cir. 1967)). Generally, motions to set aside default filed within a few months are
reasonable,4 but a delay of many months or years is not.5
In this case, Defendants knew that default had been entered within two
weeks. Indeed, the clerk entered default against Defendants (ECF No. 14) on May
3, 2017, and the record demonstrates that by May 16, 2017, Frank had contacted
plaintiff’s counsel regarding the suit. See Batterman Decl. at ¶¶ 5–6.
Frank and Janis opposed AmCon’s DJ Motion—thereby implicitly moving
to set aside the entry of default—in memoranda they filed on June 26 (ECF No.
18) and July 3 (ECF No. 21), respectively. See Danzig, 1993 WL 478842, at *2
(citing Meehan, 652 F.2d at 276); Dascenzo, 1974 WL 168884, at *2. Thus, both
defendants waited less than two months from discovering that default was entered
(on May 16, 2017, at the latest) before implicitly asking the court to vacate the
entry (on June 26 and July 3, 2017).
See, e.g., Reynal v. United States, 153 F.2d 929, 931–32 (5th Cir. 1945) (finding thirty-day
delay to be reasonable); Edes v. Fredson, 344 F. Supp. 2d 209, 209, 212–13 (D. Me. 2004)
(stating that defendant acted promptly by moving to set aside the entry of default sixteen days
after plaintiff filed the request for default). But cf., Gen. Contracting & Trading Co., LLC v.
Interpole, Inc., 899 F.2d 109 (1st Cir. 1990) (holding unreasonable the three and one-half month
delay in asking for relief where default judgment was the product of defendant’s negligence
“coming perilously close” to willfulness).
See, e.g., Atlanta Gas Light Co. v. Semaphore Advertising, Inc., 747 F. Supp. 715, 718 (S.D. Ga.
1990) (finding untimely the motion to set aside default filed over ten months after default was
entered where defendant learned of entry within one week); Green v. Warren, 2003 WL
23329263, at *3 (E.D. Va. Apr. 24) (holding delay unreasonable where “Rule 60(b) motion was
filed within one year of the default judgment . . . [and] almost sixteen months after the entry of
default”), aff’d 69 Fed. Appx. 642 (4th Cir. 2003) (per curiam).
In light of the especially lenient “good cause” standard for setting aside
entry of default and the strong judicial preference for adjudication on the merits,
see O’Connor, 27 F.3d at 364; In re Roxford Foods, 12 F.3d at 881; Mendoza, 783
F.2d at 945, this less-than-two-month delay was reasonably prompt. This factor
therefore weighs in favor of setting aside the entry of default.
As a prerequisite to vacating an entry of default, a defaulting party is
required to make “some showing of a meritorious defense.” Stone, 794 F.2d at 513
(citing Wright & Miller, § 2697 (Supp. 1986); Medunic v. Lederer, 533 F.2d 891,
893 (3d Cir. 1976)). Generally, “[t]o establish a meritorious defense, the defendant
must ‘state a defense good at law which is sufficient if it contains even a hint of a
suggestion which, proven at trial, would constitute a complete defense.’” Am. Exp.
Travel Related Servs. Co. v. Tangredi, 2010 WL 1426915, at *6 (M.D. Tenn. Apr.
8, 2010) (citing Thompson v. Am. Home Assur. Co., 95 F.3d 429, 434 (6th Cir.
1996)); accord Girafa.com, Inc. v. Smartdevil Inc., 728 F. Supp. 2d 537, 545 (D.
Del. 2010); Pall Corp. v. Entegris, Inc., 249 F.R.D. 48, 56 (E.D.N.Y. 2008);
Wainwright’s Vacations, LLC v. Pan Am. Airways Corp., 130 F. Supp. 2d 712, 718
(D. Md. 2001) (citing Jones v. Phipps, 39 F.3d 158, 165 (7th Cir. 1994)). This is
because the underlying concern in determining whether to set aside default “is to
determine whether there is some possibility that the outcome of the suit after a full
trial will be contrary to the result achieved by the default.” Stone, 794 F.2d at 513
(citing Wright & Miller, § 2697 (Supp. 1986)); cf., e.g., Brady v. United States,
211 F.3d 499, 504 (9th Cir. 2000) (affirming the district court’s decision to set
aside the entry of default notwithstanding plaintiff’s argument that defendant was
untimely in both responding to the complaint and in moving to set aside the
Although courts generally require the defaulting party to present some
factual basis for any allegedly meritorious defense, “[t]he demonstration of a
meritorious defense is not expressly called for by the federal rules and, therefore,
the nature and extent of the showing that will be necessary is a matter that lies
within the court’s discretion.” Wright & Miller, § 2697 (citing Bank of Southside
Va. v. Host & Cook, LLC, 239 F.R.D. 441, 445 (E.D. Va. 2007); Widmer-Baum v.
Chandler-Halford, 162 F.R.D. 545, 557 (N.D. Iowa 1995)). Indeed, the Ninth
Circuit has held that a meritorious defense was present where a defendant merely
“alleged various defenses based on the contract” during the hearing on the motion
to set aside the default judgment. Price v. Seydel, 961 F.2d 1470, 1473 (9th Cir.
1992); see also Botts v. Kompany.com, 2010 WL 11465403, at *3 (C.D. Cal. July
12, 2010) (citing Price, supra). Courts have also found that meritorious defenses
may exist when the defendant only disputes the amount of the default entered,
rather than the propriety of the claim. See Wainwright’s Vacations, 130 F. Supp.
2d at 719 (citing Agusta v. Fiberglass, 843 F.2d 808, 812 (4th Cir. 1988)).
Although they have not yet filed any Answer or Proposed Answer to
AmCon’s Complaint, Defendants have, in response to AmCon’s objections to the
F&R, declared their “inten[t] to defend and pursue and any all claims involved in
this matter.” Frank Decl. II at ¶ 3, ECF No. 28-1; Janis Decl. II at ¶ 3, ECF No.
29-1. In response to AmCon’s DJ Motion, Frank and Janis also filed declarations
claiming that service was never properly effected on Frank, and that Frank never
received any Complaint to be delivered to Janis. Frank Decl. I at ¶¶ 3–4, ECF No.
18-1; Janis Decl. I at ¶¶ 3–4, 14–15, ECF No. 21-1.6 Moreover, in opposing
AmCon’s objections, Defendants each set forth the following non-exhaustive list
of defenses/counter claims:
(1) Failure to Mitigate[;]
(2) Negligence in regards to failure to train [Defendants;]
(3) Negligence in not informing [Defendants] of the (60) day
deadline to pay all bail forfeitures[;]
(4) Failure to monitor bail forfeitures for 12 years resulting in
In responding to AmCon’s DJ Motion, Defendants each contested Yoro’s statement that service
was made; they each stated that Frank had made a phone call to AmCon’s attorney, Mr.
Batterman, “in order to inform him of the fact that [Frank] was not served with a copy of the
Complaint either for himself or for Defendant Janis H Fernandez,” but that Mr. Batterman had
failed to return the call[.]” Frank Decl. I at ¶¶ 6, 8, 11–13; Janis Decl. I at ¶¶ 6, 8, 10–11, 16–17.
(5) Payment of $300,000 in bail premiums that should result in
coverage for all of the forfeitures involved this matter;
(6) Bad Faith denial of coverage in not paying for said Bail
Forfeitures, since $300,000 were paid in premiums;
(7) Unconsciousability [sic] of any and all contract with
[AmCon] since Premiums were paid with No Benefit to [either
(8) Illegal contract in violation Insurance and Contractual
Frank Decl. II at ¶¶ 3–4 (formatting altered); accord Janis Decl. II at ¶¶ 3–4.
Although Defendants offer no additional facts in support of these alleged
defenses, they have raised the possibility that their contracts with AmCon were
invalid. See Botts, 2010 WL 11465403, at *3 (holding that defaulting party who,
in a proposed answer, asserted thirteen affirmative defenses and “br[ought] several
specific arguments in favor of his position, denying that the Agreement was ever a
binding contract between the parties,” asserted a meritorious defense (citing Price,
961 F.2d at 1473)). Defendants also appear to contest the amount of damages that
AmCon now seeks to recover through default judgment, notwithstanding any
challenge to the merits of the underlying dispute. See, e.g., Agusta, 843 F.2d at
812 (finding that statements in defendants’ affidavits established a meritorious
defense although they “addressed the amount, rather than the propriety, of [the
plaintiff]’s claim”). Thus, Defendants have offered at least plausible theories of
defense that, if established at trial, could completely bar AmCon’s recovery. See
generally Valvanis v. Milgroom, 2008 WL 2150952, at *5 (D. Haw. May 20, 2008)
(explaining that the issues of whether the plaintiff made out a prima facie case
against defendants and/or whether defendants have any valid defenses is not an
issue for default judgment, “but rather summary judgment and/or trial”).
Accordingly, the meritorious defense inquiry weighs in favor of setting aside
the entry of default.
Courts considering whether to set aside an entry of default may also examine
whether the non-defaulting party will be prejudiced by reopening the suit and
whether the default was the result of culpable behavior by the defendant. See, e.g.,
Franchise Holding II, 375 F.3d at 925 (citing TCI Grp. Life Ins. Plan v. Knoebber,
244 F.3d 691, 696, 701 (9th Cir. 2001), overruled on other grounds by Egelhoff v.
Egelhoff ex rel. Breiner, 532 U.S. 141 (2001)); see also Am. Ass’n of Naturopathic
Physicians, 227 F.3d at 1108 (citing In re Hammer, 940 F.2d at 525–26); Cty. of
Hawai‘i v. Ala Loop Homeowners, 235 P.3d 1103(Hawai‘i 2010) (citing Rearden
Fam. Trust v. Wisenbaker, 65 P.3d 1029, 1046 (Hawai‘i 2003)). “[M]erely being
forced to litigate on the merits cannot be considered prejudicial for purposes of
lifting a default judgment.” TCI Grp., 244 F.3d at 701 (“[T]he standard is whether
[plaintiff’s] ability to pursue his claim will be hindered.”) (quoting Falk v. Allen,
739 F.2d 461, 463 (9th Cir. 1984)). A court determines whether conduct is
culpable by looking at the totality of the circumstances and whether the conduct
was “willful, deliberate, or evidence of bad faith.” TCI Grp., 244 F.3d at 697
(quoting Am. All. Ins. Co. v. Eagle Ins. Co., 92 F.3d 57, 61 (2d Cir. 1996)).
Conduct is not culpable if a reasonable, good faith explanation is given, so “under
the proper circumstances,” culpable conduct “can be excused even in the event that
[Defendants] received the [Complaint], understood its consequences, and
intentionally failed to answer.” Botts, 2010 WL 11465403, at *2 (citing TCI Grp.,
244 F.3d at 697; Empl. Painters Trust v. Ethan Enters., Inc., 480 F.3d 993, 1000
(9th Cir. 2007)).
AmCon has not argued that it will be prejudiced by allowing the suit to
proceed on the merits. Rather, it focuses on highlighting alleged inaccuracies in
Defendants’ statements to the Court and cites authority stating that, “[w]here a
defendant attempts to avoid service by refusing to take the papers, it is sufficient if
the server is in close proximity to the defendant, clearly communicates intent to
serve court documents, and makes reasonable efforts to leave the papers with the
defendant.” Reply in Supp. of DJ Mot. at 2–3 (quoting Song v. KBOS, Inc., 2015
WL 5162556, at *4 n.5 (D. Haw. Aug. 31, 2015)). Frank’s May 16, 2017 phone
call to Mr. Batterman indicates that, at the very least, Defendants had constructive
notice of the action. See Batterman Decl. at ¶¶ 5–6; Frank Decl. I at ¶ 6–8, 11;
Janis Decl. I at ¶ 6–8, 11. AmCon therefore argues that “[i]t is clear that
Defendants’ efforts have been directed, not toward contesting this action on the
merits, but towards evading service.” Obj. Mem. at 3, ECF No. 27.
Even if the Court were to treat AmCon’s assertion as true, the Court has
discretion to set aside the entry of default and direct Defendants to file an Answer
to AmCon’s Complaint. E.g., Haskins v. U.S. One Transp., LLC, 755 F. Supp. 2d
126, 130–31 (D.D.C. 2010) (finding “good cause” for setting aside the entry of
default where, although the company owner-defendant initially may have willfully
failed to respond to the complaint, she subsequently asserted a meritorious defense,
and the employee would not have been prejudiced by vacating the entry of
default); cf. Johnson, 2007 WL 214603, at *3 (“Put simply, if good reason exists to
set aside the default, the court should find good cause for doing so.”). The Court
agrees with the Magistrate Judge that “Defendants have indicated their clear intent
to defend this case by filing Responses” to AmCon’s DJ Motion and now having
filed additional responses to AmCon’s Objections. See F&R at 4. In those
responses, Defendants appear to contest the circumstances of service and assert
defenses that they intend to pursue through trial. Based on its own review of the
facts and law, and in light of the strong judicial preference for resolution on the
merits, see In re Roxford Foods, 12 F.3d at 881; Mendoza, 783 F.2d at 945, the
Court therefore holds that Defendants have sufficiently satisfied the conditions
necessary to set aside entry of default.
The Court hereby ADOPTS the F&R (ECF No. 23), OVERRULES
AmCon’s related objections, DENIES AmCon’s DJ Motion (ECF No. 16), and sets
aside the Entry of Default (ECF No. 14) as to both Defendants. Defendants are
instructed to file their Answers to the Complaint within ten days of this Order.
IT IS SO ORDERED.
DATED: September 21, 2017 at Honolulu, Hawai‘i.
Am. Contractors Indemnity Co. v. Fernandez & Fernandez; CV 17-00086 DKWRLP; ORDER ADOPTING FINDINGS & RECOMMENDATION TO DENY
MOTION FOR DEFAULT JUDGMENT AND TO SET ASIDE ENTRY OF
DEFAULT AS TO BOTH DEFENDANTS
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