Alutiiq International Solutions, LLC v. OIC Marianas Insurance Corporation
Filing
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ORDER Granting 38 Amended Motion to Set Aside Default and Default Judgment. Signed by Judge Kent J. Dawson on 8/2/2012. (Copies have been distributed pursuant to the NEF - SLR)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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ALUTIIQ INTERNATIONAL
SOLUTIONS, LLC,
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Plaintiff,
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ORDER
v.
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Case No. 2:10-CV-01189-KJD-RJJ
OIC MARIANAS INSURANCE
CORPORATION,
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Defendant.
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Before the Court is Defendant OIC Marianas Insurance Corporation’s Amended Motion to
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Set Aside Default and Default Judgment (#38). Plaintiff Alutiiq International Solutions, LLC, filed
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an Opposition to Defendant’s Motion to Set Aside Default Judgment (#39), and Defendant filed a
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Reply (#40).
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I. Background
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This action arose as a result of Plaintiff’s attempt to collect on a performance bond (the
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“Bond”) executed by Defendant. Plaintiff is an Alaskan limited liability company that entered into a
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construction subcontract with NCC Electrical Services, Inc. (“NCC”). Defendant executed the Bond
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with NCC in the amount of $1,301,018 whereby Defendant assumed liability to the obligee of the
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Bond in the event of NCC’s nonperformance under the construction subcontract with Plaintiff.
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During performance of the subcontract, Plaintiff and NCC became involved in a dispute regarding
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performance by NCC, and NCC was terminated from the project by Plaintiff.
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On July 19, 2010, Plaintiff filed a complaint (#1) against Defendant for recovery on the Bond.
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On August 23, 2010, Defendant filed a motion to dismiss for failure to state a claim upon which
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relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6). On March 1, 2011, Defendant’s counsel
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filed a motion to withdraw as attorney. A hearing on the motion to withdraw as counsel was set for
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April 11, 2011, and the Court order required a corporate representative for Defendant to appear at the
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hearing. On March 29, 2011, Defendant’s motion to dismiss was denied (#23). On April 11, 2011,
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the motion to withdraw as attorney was granted and Mr. Lyon, the Vice President and Majority
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Owner of Defendant, was ordered to designate new counsel by April 27, 2011, (#25). Defendant
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failed to file a responsive pleading by April 12, 2011, in violation of Fed. R. Civ. P. 12(a)(4)(A)
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(within 14 days of the denial of the motion to dismiss), and Mr. Lyon failed to designate new counsel
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for Defendant by April 27, 2011, in violation of the April 11, 2011, order.
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On May 10, 2011, Plaintiff filed a Motion for Entry of Clerk’s Default (#27), and on May 11,
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2011, the Clerk of Court entered default (#28). On May 12, 2011, Plaintiff filed a Motion for Entry
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of Default Judgment (#29). That same day, Joe Lyon, a non-attorney member of Defendant’s board
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filed a Motion for Extension of Time (#30). On May 13, 2011, the Court granted Plaintiff’s Motion
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for Entry of Default Judgment (#31) pursuant to Fed. R. Civ. P. 55(b)(2). On June 8, 2011,
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Magistrate Judge Johnston denied Mr. Lyon’s Motion for Extension of Time as moot (#34), and on
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June 20, 2011, Mr. Lyon filed a Motion to Set Aside Default Judgment (#35) which was denied
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because Mr. Lyon cannot represent Defendant since it is a corporation. On October 6, 2011,
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Defendant’s new counsel filed a Motion to Set Aside Default Judgment (#37), and on October 7,
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2011, Defendant filed an Amended Motion to Set Aside Default Judgment (#38). Plaintiff filed an
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Opposition (#39), and Defendant filed a Reply (#40).
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II.Discussion
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Federal Rule of Civil Procedure 55(a) provides that when a party against whom a judgment
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for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by
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affidavit or otherwise, the clerk must enter the party’s default and the party may move for entry of
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default judgment. See Fed. R. Civ. P. 55(a). If the party against whom a default judgment is sought
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has appeared personally or by a representative, that party or its representative must be served with
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written notice of the application at least 7 days before “the hearing.” Fed. R. Civ. P. 55(b)(2). No
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party in default is entitled to 55(b)(2) notice unless he has appeared in the action. Wilson v. Moore
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& Associates, Inc., 564 F.2d 366, 368 (9th Cir. 1977) (quotations omitted). The appearance need not
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necessarily be a formal one, i.e., one involving a submission or presentation to the court. Id. at 369.
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In limited situations, informal contacts between the parties have sufficed when the party in default
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has thereby demonstrated a clear purpose to defend the suit. Id.
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Defendant argues the May 13, 2011 order granting default judgment was improper because
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Defendant was not served with written notice of the application at least 7 days before the hearing.
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Defendant contends it was entitled to written notice pursuant to Rule 55(b)(2) because the August 23,
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2010, motion to dismiss constitutes an appearance. Plaintiff argues that Defendant was not entitled
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to notice under Rule 55(b)(2) because “[o]nce the Court granted the withdrawal of OIC’s counsel on
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April 11, 2011—which left OIC without any representation—OIC needed to file an appearance in
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this action subsequent to that date.”
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Plaintiff cites no authority in support of its contention that Defendant must have filed an
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appearance subsequent to withdrawal of counsel in order to have “appeared” for purposes of Rule
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55(b)(2). Instead, Plaintiff cites case law to support the proposition that pleadings filed on behalf of
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corporations by non-attorneys do not constitute an appearance. That case law has no bearing on
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whether Plaintiff’s motion to dismiss constitutes an appearance in this action. Plaintiff’s motion to
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dismiss was submitted to this Court by a licensed attorney and it demonstrated a clear purpose to
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defend the suit. It thus constitutes an appearance for purposes of Rule 55(b)(2).
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The question before the Court is what notice Defendant was entitled to prior to entry of the
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default judgment. Rule 55(b)(2) requires notice 7 days before “the hearing.” Plaintiff filed the
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certificate of service and mailed a copy of the motion for entry of default judgment to Defendant on
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May 12, 2011, and this Court granted the Motion and entered default judgment in favor of Plaintiff
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May 13, 2011. While Rule 55(b)(2) contemplates the possibility of a hearing prior to entering or
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effectuating judgment, the Court is not required to conduct such a hearing. In this case, Plaintiff
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provided an application for default with a declaration of damages that was sufficient for the Court to
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effectuate judgment without the necessity of a hearing. Accordingly, the notice requirement of Rule
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55(b)(2) does not fit squarely within the situation presented here and Plaintiff received all the notice
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required by the Rules.
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C.Default
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Rule 55(c) provides that the court may set aside an entry of default for good cause or as
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provided under Rule 60(b). Fed. R. Civ. P. 55(c). The good cause analysis considers three factors:
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(1) whether the plaintiff would be prejudiced if the judgment is set aside, (2) whether defendant has
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no meritorious defense, or (3) whether the defendant’s culpable conduct led to the default. See Am.
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Ass’n of Naturopathic Physicians v. Hayhurst, 227 F.3d 1104, 1108 (9th Cir. 2000). These factors
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are disjunctive and the court is free to deny the motion if any of the three factors is true. See
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Franchise Holding II, LLC., 375 F.3d at 926 (quotations omitted).
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i.Prejudice
Legal prejudice is shown where actual legal rights are threatened or where monetary or other
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burdens appear to be extreme or unreasonable. Mayes v. Fujimoto, 181 F.R.D. 453, 456 (D. Haw.
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1998) aff’d, 173 F.3d 861 (9th Cir. 1999) (quotations omitted). However, the mere inconvenience of
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another lawsuit does not constitute plain legal prejudice. See, e.g., Hamilton v. Firestone Tire &
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Rubber Co., Inc., 679 F.2d 143, 145 (9th Cir. 1982). To be prejudicial, the setting aside of a
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judgment must result in greater harm than simply delaying resolution of the case. TCI Group Life
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Ins. Plan v. Knoebber, 244 F.3d 691, 701 (9th Cir. 2001). Rather, the standard is whether Plaintiff’s
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ability to pursue his claim will be hindered. Id. (quotations omitted).
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Plaintiff argues that it will be prejudiced if the default is set aside because: (1) it filed this
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lawsuit over fifteen months ago and it will be forced to start back at square one without anything to
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show for the time lost; and (2) its ongoing litigation against Mr. Lyon, personally, to enforce this
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Court’s default judgment will need to be stayed, consolidated, and/or amended considerably.
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Plaintiff has not alleged that its legal right to seek remedy against Defendant or Mr. Lyon will
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be extinguished if the default is vacated. While a stay, consolidation, or amendment of the litigation
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against Mr. Lyon may delay resolution of that case, Plaintiff’s ability to pursue his claim against
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Defendant or Mr. Lyon will ultimately not be hindered. Finally, the inconvenience and expense of
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pursuing this action further will fall on both parties equally, and Plaintiff has not demonstrated that
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the burden will be unreasonable or extreme. Accordingly, Plaintiff has not shown it would be
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prejudiced if the default is set aside.
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ii.Meritorious Defense
A defendant seeking to vacate a default judgment must present specific facts that would
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constitute a defense. United States v. Signed Pers. Check No. 730 of Yubran S. Mesle, 615 F.3d
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1085, 1094 (9th Cir. 2010) (citations and quotations omitted). But the burden on a party seeking to
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vacate a default judgment is not extraordinarily heavy. Id. All that is necessary to satisfy the
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meritorious defense requirement is to allege sufficient facts that, if true, would constitute a defense:
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the question whether the factual allegation is true is not to be determined by the court when it decides
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the motion to set aside the default. Id. Rather, that question would be the subject of the later
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litigation. Id.
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Defendant contends that the cause of NCC’s failure to perform under the subcontract
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stemmed from Plaintiff’s actions. Defendant presents allegations from a separate suit between NCC
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and Plaintiff involving the same construction project as proof. NCC’s complaint asserts that Plaintiff
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mismanaged the construction project and failed to pay NCC as required by the subcontract. As a
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result of Plaintiff’s actions, NCC was unable to pay its suppliers. Then, Plaintiff wrongfully
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terminated NCC after concluding it was in material default of the subcontract. NCC’s suit against
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Plaintiff alleges facts which, if true, would constitute a meritorious defense against Plaintiff in the
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instant action. Defendant avers that if Plaintiff is found liable in the other suit, then Defendant
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would assert as an additional defense, that Plaintiff committed a material breach of its contract with
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NCC and should be estopped from recovering any sums related to the breach. Accordingly, this
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Court finds that Defendant has presented specific facts that would constitute a defense.
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iii.Culpable Conduct
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We have typically held that a defendant’s conduct was culpable for purposes of the good
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cause factors where there is no explanation of the default inconsistent with a devious, deliberate,
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willful, or bad faith failure to respond. See United States v. Signed Pers. Check No. 730 of Yubran
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S. Mesle, 615 F.3d 1085, 1092 (9th Cir. 2010) (citations and quotations omitted).
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As discussed above, Defendant did not file a responsive pleading within 14 days of the order
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denying the motion to dismiss, nor did Defendant comply with the order to obtain new counsel by
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April 27, 2011. However, Defendant credibly alleges that it was unable to obtain new counsel
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because it did not receive its file from prior counsel until May 9, 2011, and “no local Las Vegas
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counsel would consider taking this matter until they had opportunity to review [the] file.” In
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addition, Defendant’s Vice President, Mr. Lyons, attempted to respond to Plaintiff’s filings on behalf
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of Defendant. Such actions are consistent with a good faith attempt to respond and do not
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necessarily demonstrate culpable conduct. Accordingly, this Court finds that the default was not the
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result of culpable conduct by Defendant.
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Default judgments are generally only appropriate in situations where an unresponsive party
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halts the adversarial process. See, e.g. Eitel v. McCool, 782 F.2d 1470, 1471–72 (9th
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Cir.1986)(strong policy underlying the Federal Rules of Civil Procedure favors decisions on the
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merits). Accordingly, this Court holds that Defendant has shown good cause for setting aside the
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default. Accordingly, Defendant’s motion to set aside the default is granted.
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III.Conclusion
Accordingly, IT IS HEREBY ORDERED that Defendant’s Amended Motion to Set Aside
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Default and Default Judgment (#38) is GRANTED.
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DATED this 2nd day of August 2012.
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_____________________________
Kent J. Dawson
United States District Judge
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