L.A. Insurance Agency Franchising, LLC v. Montes et al

Filing 21

ORDER Granting in Part and Denying in Part Defendants' 17 MOTION to Set Aside Defaults and Denying Plaintiff's 15 MOTION for Default Judgment as Moot. (Defendants' Answer due by 5:00 p.m. on 3/17/2015.) Signed by District Judge Matthew F. Leitman. (Monda, H)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
L.A. INSURANCE AGENCY
FRANCHISING, LLC,
Plaintiff,

Case No. 14-cv-14432
Hon. Matthew F. Leitman

v.
CLAUDIA MONTES, et al.,
Defendants.
_________________________________/
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’
MOTION TO SET ASIDE DEFAULTS (ECF #17) AND DENYING
PLAINTIFF’S MOTION FOR DEFAULT JUDGMENT
AS MOOT (ECF #15)
On November 19, 2014, Plaintiff L.A. Insurance Agency Franchising, LLC
(“L.A. Insurance”) filed this action against Defendants. (See the “Complaint,”
ECF #1.) Among other things, L.A. Insurance alleges that Defendants infringed
upon its trademarks and breached certain agreements. (See id.) Defendants did not
answer or otherwise respond to the Complaint. On December 17, 2014, L.A.
Insurance requested that the Clerk of the Court enter a default against the
Defendants. (See ECF #9.) The Clerk of the Court entered the requested defaults
on December 18, 2014. (See ECF ## 10-14.) On January 6, 2015, L.A. Insurance
moved for a default judgment against all Defendants. (See ECF #15.)

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On February 9, 2015, Defendants appeared in this action for the first time
and filed a motion to set aside the defaults. (See ECF #17.) In their motion,
Defendants explain that their “failure to file a responsive pleading to this lawsuit
was the result of excusable neglect.”

(Id. at 2, Pg. ID 433.)

Specifically,

Defendants argue that they did not respond to the Complaint earlier because they
were engaged in settlement negotiations with L.A. Insurance. (See id. at 8, Pg. ID
439.) Defendants also assert that they have meritorious defenses against L.A.
Insurance’s claims, and that L.A. Insurance would not be prejudiced if the defaults
were set aside. (See id.)
Defaults are historically disfavored, and the United States Court of Appeals
for the Sixth Circuit has endorsed a “strong preference for trials on the merits.”
Shepard Claims Service, Inc. v. William Darrah & Associates, 796 F.2d 190, 193
(6th Cir. 1986). Under Federal Rule of Civil Procedure 55(c), this Court may set
aside an entry of a default “for good cause shown.” “Rule 55(c) leaves to the
discretion of the trial judge the decision whether to set aside an entry of default.”
Shepard Claims Service, 796 F.2d at 193.

When considering whether “good

cause” exists, the Court considers three factors:
1.
2.
3.

Whether the plaintiff will be prejudiced;
Whether the defendant has a meritorious defense;
and
Whether culpable conduct of the defendant led to
the default.
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Id. at 192 (quoting United Coin Meter Co. v. Seaboard Coastline R.R., 705 F.2d
839, 845 (6th Cir. 1983)). Moreover, this circuit applies a “somewhat more lenient
standard” to “Rule 55(c) motions where there has only been an entry of default,
than to Rule 60(b) motions where judgment has been entered.” Id. at 193. Here,
“good cause” exists to set aside the defaults.
First, setting aside the defaults would cause no substantial prejudice to LA
Insurance. Indeed, L.A. Insurance “concedes that Defendants’ delay in responding
to the Complaint is not likely to give rise to” the loss of evidence or problems
during discovery. (L.A. Insurance Response Brief, ECF #18 at 5, Pg. ID 464.)
Therefore, this factor favors setting aside the defaults.
Second, when determining whether a defaulted defendant has a meritorious
defense, the “[l]ikelihood of success is not the measure … [r]ather, if any defense
relied upon states a defense good at law, then a meritorious defense has been
advanced.” United Coin, 705 F.2d at 845. “[S]uch a defense is sufficient if it
contains even a hint of a suggestion which, proven at trial, would constitute a
complete defense.” INVST Financial Group, Inc. v. Chem-Nuclear Systems, Inc.,
815 F.2d 391, 399 (6th Cir. 1987) (internal quotation marks omitted).
Here, Defendants have raised a number of possible meritorious defenses that
meet this standard. For example, the facts in Montes’ affidavit could be sufficient
to support a determination that the relevant franchise agreement between the
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parties is unenforceable, that L.A. Insurance committed the first material breach of
the parties’ contract, that L.A. Insurance prevented Defendants from performing
under parties’ contract, and that L.A. Insurance acted with unclean hands rendering
unavailable the equitable relief L.A. Insurance seeks.

(See, e.g., Affidavit of

Claudia Montes, ECF #17-3, Pg. ID 449-451.) At this stage, the facts in Montes’
affidavit are sufficient to state plausible meritorious defenses.
Finally, where, as here, “the first two factors militate in favor of setting aside
the entry [of a default], it is an abuse of discretion for a district court to deny a
Rule 55(c) motion in absence of a willful failure of the moving party to appear and
plead.” Shepard Claims Service, 796 F.2d at 193.

In other words, where a

defendant has established that the first two factors weigh in its favor, the
defendant’s conduct must be “particularly culpable” in order to “outweigh those
two factors and tip the balance toward denial of relief.” Waifersong, Ltd. v. Classic
Music Vending, 976 F.2d 290, 293 (6th Cir. 1992).
Defendants’ behavior here was not “particularly culpable.”

While

Defendants should have responded to L.A. Insurance’s communications and to the
Complaint in a more timely manner, the Court credits Ms. Montes’ affidavit in
which she avers, under oath, that she did not respond earlier because she believed
she was having ongoing and productive settlement negotiations with L.A.

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Insurance. (See Montes Aff. at ¶26.) All three factors, therefore, favor setting
aside the defaults.
In their motion, Defendants also ask for an award of their costs. Defendants
claim that L.A. Insurance unreasonably withheld its concurrence in the relief
Defendants sought (i.e., the setting aside of the defaults). The Court has reviewed
Defendants’ argument in this regard and finds it without merit. The Court does not
believe that L.A. Insurance unreasonably withheld concurrence in Defendants’
motion.
Accordingly, for all of the reasons stated above, IT IS HEREBY
ORDERED that Defendants’ Motion to Set Aside Defaults (ECF #17) is
GRANTED IN PART AND DENIED IN PART. The defaults entered against
Defendants (ECF ## 10-14) shall be set aside, but Defendants shall not be awarded
any costs or fees. Defendants shall file an Answer or otherwise respond to the
Complaint no later than 5:00 p.m. on March 17, 2015. The Court will not
entertain any extension of this deadline. IT IS FURTHER ORDERED that
because the Court has set aside the defaults, L.A. Insurance’s Motion for Default
Judgment (ECF #15) is DENIED AS MOOT.

s/Matthew F. Leitman
MATTHEW F. LEITMAN
UNITED STATES DISTRICT JUDGE

Dated: March 3, 2015
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I hereby certify that a copy of the foregoing document was served upon the parties
and/or counsel of record on March 3, 2015, by electronic means and/or ordinary
mail.
s/Holly A. Monda
Case Manager
[phone]

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