RE: LLS America LLC (Kriegman v. Bigelow et al Adv. No. 11-80299-PCW)

Filing 131

ORDER SETTING ASIDE DEFAULT - granting 113 Motion to Set Aside the Amended Order of Default; rejdected 124 Report and Recommendations. Signed by Chief Judge Rosanna Malouf Peterson. (VR, Courtroom Deputy)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WASHINGTON
In Re:
NO: CV-11-357-RMP
LLS AMERICA, LLC,
Debtor,
BRUCE P. KRIEGMAN, solely in his
capacity as court-appointed Chapter 11
Trustee for LLS America, LLC,

Bankr. Case No. 09-06194-PCW11
(Consolidated Case)
Adv. Proc. No. 11-80299-PCW11
ORDER SETTING ASIDE DEFAULT

Plaintiff,
v.
MARK BIGELOW, et al.,
Defendants.

Before the Court is Defendant Dale Laviolette’s Motion to Set Aside the
Amended Order of Default, ECF No. 113, and the Bankruptcy Court’s related
Report and Recommendation regarding entry of default judgment against
Defendant, ECF No. 124. The Court has reviewed the filings and is fully
informed.

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In response to Plaintiff’s summons and complaint, Defendant’s accountant
filed a letter to the Bankruptcy Court at Defendant’s request. ECF No. 113-1 at 1.
Defendant stopped accepting mail from Plaintiff’s attorneys, in an alleged attempt
to prompt the attorneys to call him directly. ECF No. 123-1 at 2. The Bankruptcy
Court entered an order of default against Defendant on October 9, 2013, based on
Plaintiff’s assertion that Defendant had not answered its complaint. Bankruptcy
Court Docket 11-80299-FPC, ECF No. 564.
Plaintiff alleges that because the letter was not filed by an attorney or by
Defendant himself, it does not constitute a valid answer. ECF No. 121 at 4-5.
Plaintiff asserts that default judgment is appropriate.
The Federal Rules provide that a “court may set aside an entry of default for
good cause. . . .” Fed. R. Civ. P. 55(c). To determine “good cause,” a court must
“consider[ ] three factors: (1) whether [the party seeking to set aside the default]
engaged in culpable conduct that led to the default; (2) whether [it] had [no]
meritorious defense; or (3) whether reopening the default judgment would
prejudice the other party.” United States v. Signed Personal Check No. 730 of
Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (internal quotation omitted).
However, default judgment “is a drastic step appropriate only in extreme
circumstances; a case should, whenever possible, be decided on the merits.” Falk
v. Allen, 739 F.2d 461, 463 (9th Cir. 1984).

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The Court finds good cause to set aside the Bankruptcy Court’s entry of
default. Although Defendant did not personally draft the letter filed in response to
Plaintiff’s complaint, he explains that he is representing himself and that he needed
his accountant’s assistance due to his own limited typing ability. ECF No. 125 at
1.
Plaintiff also contends that Defendant’s refusal of mail from Plaintiff
constituted culpable conduct, ECF No. 127 at 3, but it was the erroneous
conclusion that Defendant failed to answer the complaint that resulted in default,
not his refusal of mail sent by Plaintiff, Bankruptcy Court Docket 11-80299-FPC,
ECF No. 564 at 2. The Court finds that Defendant’s refusal of mail from Plaintiff
is not relevant to the issue of default judgment. Therefore, the Court will not
consider Defendant’s conduct in this regard as culpable and barring setting aside
the order of default.
Moreover, Defendant’s statements seem consistent with the good faith
defense alleged by many participants in this Ponzi scheme, such that Defendant
may assert a potentially meritorious defense. Finally, any prejudice that Plaintiff
will suffer from the Court setting aside default is not sufficient to warrant default
judgment.
In sum, this is not an “extreme circumstance” that would justify default
judgment, particularly in light of the Court’s duty to construe pleadings of pro se

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litigants liberally. See Bernhardt v. Los Angeles County, 339 F.3d 920, 925 (9th
Cir. 2003).
Accordingly, IT IS HEREBY ORDERED:
1. Defendant’s Motion to Set Aside the Amended Order of Default, ECF
No. 113, is GRANTED.
2. The Bankruptcy Court’s Report and Recommendation regarding entry
of default judgment, ECF No. 124, is REJECTED.

IT IS SO ORDERED.
The District Court Executive is hereby directed to enter this Order and to
provide copies to counsel and to Judge Frederick P. Corbit.
DATED this 24th day of December 2013.

s/ Rosanna Malouf Peterson
ROSANNA MALOUF PETERSON
Chief United States District Court Judge

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