SUBH Investment, LLC v. Singh

Filing 26

OPINION AND ORDER: Defendant's Motion to Set Aside the Default Judgment 8 is GRANTED. The Clerk is hereby directed to VACATE the entry of default 6 . Defendant shall file an answer within 14 days of this order. The parties are further ordered to confer and submit a joint proposed scheduling order within 30 days of this order. The proposal shall include deadlines for discovery, dispositive motions, a joint ADR report, pretrial order, and any other deadlines that the parties may find helpful. Signed on 3/19/2018 by Judge Ann L. Aiken. (ck)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
EUGENE DIVISION

Case No. 6:17-cv-00277-AA
OPINION AND ORDER

SUBH INVESTMENT, LLC,
Plaintiff,

v.
KARAN SINGH,
Defendant.

Aiken, District Judge:
Plaintiff SUBH Investment, LLC ("SUBH"), has sued defendant Karan Singh alleging
claims for breach of contract and waste. (doc. 1). On April 26, 2017, the Clerk made an entry of
default against defendant. (doc. 6). Defendant now moves this Court to set aside the Entry of
Default. (doc. 8). For the reasons set fmth herein, defendant's motion is GRANTED.
BACKGROUND

On July 11, 20013, plaintiff, an Oregon Corporation, executed a contract, outlined on the
back of a napkin, for the purchase of a sixty room hotel owned by defendant, a citizen of
California, for a price of $750,000. The hotel is located in Roseburg, Oregon and was associated
with the America's Best Value Inn ("ABVI") brand. On July 14, 2003, plaintiff alleges it
performed an inspection of the hotel which showed that the property was generally clean and in
working order. Before closing the transaction, however, defendant executed a second contract
with a competing buyer, JV Envision, LLC ("JV"), for $850,000. Plaintiff then filed an action for

specific performance of the sale agreement in Douglas County Circuit Court (Case no. 13-cv3003-CC).

On August 5, 2013, N filed suit against defendant and plaintiff for specific

perfmmance of its contract. On August 12, 2013, defendant leased the propetiy to JV, which
operated the propetiy during the underlying state litigation.
The underlying case proceeded to a bench trial in September 2014, and on September 30,
2014, the trial court entered judgement in favor of plaintiff. The defendant was directed to
promptly execute a deed and close the transaction, delivering possession to plaintiff no later than
October 24, 2014. JV Investments subsequently settled its state claims against defendant.
However, defendant allegedly refused to turn over possession of the hotel to plaintiff during the
pendency of his appeal.
The trial comi denied defendant request for stay of the udgement and this decision
affirmed by the Court of Appeals on January 27, 2015. On February 17, 2015, plaintiff obtained
a writ of execution and took possession of the property on February 18, 2015. On October 1,
2015, plaintiff closed its transaction with defendant and obtained title to the property. On
February 18, 2016 the Oregon Court of Appeals granted plaintiffs motion to dismiss defendant's
still pending appeal and entered an appellate judgment in plaintiffs favor.
Plaintiff filed the present action on February 17, 2017, alleging claims for breach of
contract and waste. Plaintiff claims that when it took possession of the propetiy in February
2015, it found that the property was severely damaged, nearly unusable as a hotel, and in need of
extensive repairs. It farther alleges that plaintiff and JV began using the propetiy as a monthly
apartment building. SUBH also learned that ABVI had terminated the hotel's franchise
agreement, allegedly due to propetiy damage. Plaintiff alleges that this reduced the money it

2 - OPINION AND ORDER

could eam from the property as well requiring a significant fee to obtain a new franchise
agreement. Plaintiff alleges damages in the amount $1,250,000.
It is undisputed that on March 5, 2017, defendant was personally served with a summons

and the Complaint in this case. (doc 3). On April 6, 2017, plaintiff moved for Entry of Default
against defendant as 21 days had passed since service with no answer having been filed by
defendant. On April 26, 2017, the Clerk made an En!ly of Default against defendant. (doc. 6) On
June 7, 2017, defendant filed the present Motion to Set Aside the Entry of Default. (doc. 8) Oral
argument was heard on September 27, 2017.

LEGAL STANDARD
Entry of default may be set aside upon a showing of good cause. Fed R. Civ. Pro. 55(c).
The Ninth Circuit's good cause standard for setting aside entry of default is the same as that for
setting aside default judgment under Rule 60(b), but the test for setting aside entry of default is
less rigid and is more generous to the party in default. Franchise Holding IL LLC v. Huntington
Rests. Group, Inc., 375 F. 3d 922, 925 (9th Cir. 2004), cert. den., 544 U.S. 949 (2005). Further,

"[t]he law does not favor defaults," and "therefore, any doubts as to whether a party is in default
should be decided in favor of the defaulting party." Eclectic Prod., Inc. v. Painters Prod., Inc.,
No. 2014 WL 12703283, at 1 (D. Or. 2014) (citing Bonita Packing Co. v. O'Sullivan, 165 F.R.D.
610, 614 (C.D. Cal. 1995)).
A court considers three factors when deciding whether to set aside default: (1) whether
the defendant's culpable conduct led to the default; (2) whether the defendant has a meritorious
defense; and (3) whether setting aside default would prejudice the plaintiff. Franchise, 375 F. 3d
at 925-926. The party in default bears the burden of establishing good cause, and "a finding that
any one of these factors is true is sufficient reason for the district court to refuse to set aside the

3 - OPINION AND ORDER

default." United States v. Signed Pers. Check No.730 ofYubran S. lvfesle, 615 F.3d 1085, 1091
(9th Cir. 2010). However, "the law does not favor defaults, and therefore, any doubts as to
whether a patiy is in default should be decided in favor of the defaulting patiy." Eclectic Prod.,
Inc. v. Painters Prod, Inc., 2014 WL 12703283, at 1 (D. Or. 2014) (citing Bonita Packing Co. v.
O'Sullivan, 165 F.R.D. 610, 614 (C.D. Cal. 1995)).
DISCUSSION

First, I examine whether defendant's culpable conduct led to the default. Defendant
admits that he did not file a timely response, but he argues that his conduct was excusable
because of personal illness which did not allow him to personally deliver a copy of the complaint
to an attorney.
Negligent failure to respond is excusable if the defaulting party offers a credible, good
faith explanation for the delay that negates "any intention to take advantage of the opposing
paiiy, interfere with judicial decision-making, or otherwise manipulate the legal process." TC!
Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 697-98 (9th Cir. 2001). Further, the court may

consider the defendant's exigent personal situation, his mental state, and his lack of familiarity
with legal matters. Id. at 699.
Defendant specifically alleges that at the time of service he was bedridden due to a
number of medical conditions including liver disease, pneumonia, anemia, and an undiagnosed
gastric disorder. He also avers that he gave the complaint and summons to his caregiver on
March 10, 2017, to fax to his attorney, but his caregiver allegedly misplaced the documents and
did not fax them. Defendant fmiher details his extensive efforts to personally obtain another

4 - OPINION AND ORDER

copy of the complaint. 1 He eventually obtained a copy and gave it to his attorney, Dan
McKinney.2
Defendant's medical records support his claims regarding his illness. He avers that his
failure to respond to the suit was unintentional and caused by his illnesses. Defendant further
argues that plaintiff knew he was represented by his present attorney in the underlying state
litigation, but did not seek to serve the complaint tlu·ough Mr. McKinney. He also complains that
plaintiff did not send a notice of his intention to seek default to defendant or Mr. McKinney.
Plaintiff argues that defendant is a legally sophisticated business person who has
experience in real estate and was familiar with the concept of default judgment. Therefore, it
argues, defendant should be held to a higher standard than the one set forth in TC! Group Life

Ins. Plan, supra. I do not find this distinction persuasive. Certainly, it is frustrating, given the
extensive recitation of his personal efforts obtain an additional copy of the complaint, that
plaintiff did not simply telephone his attorney or SUBH's attoreny about this matter earlier.
Neveiiheless given the allegations concerning defendant's health and mental state as set f01ih in
the supporting declarations to his motions, I do not find sufficient evidence in the record to
support that defendant had an "intention to take advantage of the opposing party, interfere with

1

Defendant contends that he contacted Peter Kumar, owner of SUBH, to request another
copy of the complaint. After not receiving a copy from Kumar, defendant traveled to the Douglas
County Comihouse to obtain a copy; however, he learned that the suit was not filed in circuit
court. He alleges while on this trip he became ill and was hospitalized. He was then directed by
his doctor to return home to his home in California.
Defendant finally obtained another copy of the complaint and civil summons on April 20,
2017, when he traveled to Portland and visited the office of plaintiffs attorney. He alleges that
on that day he again became violently ill, requiring fu1iher hospitalization. He then returned
California. He contends that he was not able to return to Oregon until May 12, 2017, when he
was able to meet with attorney.
2
Counsel for defendant represents that upon meeting with defendant receiving the legal
document in May 2017, he contacted counsel for defendant to request that he join in a request to
set aside the entry of default, but defendant denied the request.
5 - OPINION AND ORDER

judicial decision-making, or otherwise manipulate the legal process." Id at 697-98. Further, I
note that in assessing the factual circumstances asse1ied by the paiiies, "all doubts are resolved in
favor of the pmiy seeking relief." Biton v. Palestinian Interim SelfGov't Auth., 233 F. Supp. 2d
31, 33 (D.D.C. 2002) (citing Jackson v. Beech, 636 F.2d 831, 836 (D.C.C. 1980)). Thus, I do not
find the first factor warrants denying the motion to set aside default.
Now, I consider whether defendant has a meritorious defense. A defense is considered
meritorious if "there is some possibility that the outcome of the suit after a full trial will be
contrary to the result achieved by the default." Hawaii Carpenters' Trust Funds v. Stone, 794 F
.2d 508, 513 (9th Cir. 1986). All that is required is an assertion of "a factual or legal basis that is
sufficient to raise a particular defense; the question of whether a pmiicular factual allegation is
true is resolved at a later stage." Audio Toys, Inc. v. Smart AV Pty Ltd, 2007 WL at 1655793 at 3
(N.D. Cal. 2007).
Though there is no proposed answer filed in the briefing, defendant outlines several
issues he might raise in his answer. Defendant denies certain factual allegations in complaint
regarding the knowledge of plaintiff when it took possession of the property as well as the reason
for the loss of the ABVI franchise. Plaintiff also avers that JV is an essential party to this
litigation as it operated the prope1iy as lessee during the pendency of the underlying state court
suit and may be liable for damages it may have caused to the property. Plaintiff contends that
defendant has not alleged sufficient facts that would constitute a defense.
I make no comment on whether the theories offered by defendant would prevail in
summary judgment or at trial. I note that the burden on a pmiy seeking to vacate a default
judgment is not extraordinarily heavy. TC! Gip. Life Ins. Plan, 244 F.3d at 700 (citing to In re

6 - OPINION AND ORDER

Stone, 588 F.2d 1316, 1319 n. 2 (10th Cir.1978) (explaining that the movant need only
demonstrate facts or law showing the trial coutt that "a sufficient defense is asse1tible").
Having reviewed the record and the representations of defendant, I find potential merit in
the defenses presented. Were defendant to prevail, even partially, on these defenses, the outcome
would be contrary to the result achieved by default.3 Therefore, defendant has set foith a
meritorious defense and satisfies the second good cause factor.
Next, I ask whether setting aside default would prejudice plaintiff. Prejudice is
dete1mined by whether a pmty will be hindered in pursuing its claim. See TCI Grp. Life Ins.
Plan, 244 F.3d at 701. The fact that a pmty may be denied a quick victory is not sufficient to
deny relief from default judgment. Bateman v. Unites States Postal Service, 231F.3d1220, 1225
(9th Cir. 2000). "The delay must result in tangible harm such as loss of evidence, increased
difficulties of discovery, or greater oppo1tunity for fraud or collusions." Audio Toys, Inc., 2007
WL 1655793 at 3. Plaintiff offers no compelling arguments regarding how it would be
prejudiced moving forward. Thus, I find that a mere delay in litigation does not constitute
prejudice needed to supp01t harsh sanction of default in this case.
Considering all three good cause factors, I find that it is appropriate to vacate the entry of
default in favor of allowing the suit to proceed on the merits.
CONCLUSION

For the reasons set foith above, defendant's Motion to Set Aside Entry of Default (doc. 8)
is GRANTED. The Clerk is hereby directed to VACATE the Entry of default. (doc. 6)
Defendant shall file an answer within 14 days of this order. The pmties are futther ordered to
confer and submit a joint proposed scheduling order within 30 days of this order. The proposal
3

I note that defendant is not limited to the defenses he presented in the briefing for this
motion when he files formal answer.
7 - OPINION AND ORDER

shall include deadlines for discovery, dispositive motions, a joint ADR report, pretrial order, and
any other deadlines that the pmiies may find helpful.
IT IS SO ORDERED.

DATED this 19th day of March 2018.

LrlL0
ANN AIKEN
United States District Judge

8 - OPINION AND ORDER