Trillium Partners, L.P. v. Sanwire Corporation

[1] 2 UNITED STATES DISTRICT COURT 3 DISTRICT OF NEVADA [4] 5 TRILLIUM PARTNERS, L.P., Case No. 2:24-cv-00562-ART-BNW 6 Plaintiff, vs. ORDER ON PLAINTIFF’S MOTION 7 FOR DEFAULT JUDGMENT SANWIRE CORPORATION, (ECF No. 12) [8] Defendant. [9] 10 Plaintiff Trillium Partners, L.P. brings this action against Defendant 11 Sanwire Corporation alleging breach of contract. Before the Court is Defendant’s 12 motion to set aside default judgment and stay enforcement of the judgment. (ECF 13 No. 12.) For the reasons discussed below, the Court grants Defendant’s motion 14 to set aside default. 15 I. BACKGROUND 16 Plaintiff filed the complaint in this action on March 21, 2024. (ECF No. 1.) 17 The record reflects that Defendant was served with the summons and complaint 18 on March 26, 2024. (ECF No. 5.) Defendant, however, never appeared in this 19 action nor filed an answer or a responsive pleading. On May 10, 2024, Plaintiff 20 moved for an entry of default against Defendant. (ECF No. 8.) On May 28, the 21 Clerk entered default against Defendant for failure to plead or otherwise defend 22 in this action. (ECF No. 9.) On September 9, 2024, Plaintiff filed its motion for 23 default judgment against Defendant (ECF No. 10,) and May 8, 2025, the Court 24 granted the motion. (ECF No. 11.) Defendant then filed this motion to set aside 25 default on May 22, 2025. (ECF No. 12.) Plaintiff responded. (ECF No. 14.) 26 Defendant replied. (ECF No. 17.) 27 II. LEGAL STANDARD FOR VACATING DEFAULT JUDGMENT 28 A court may set aside an entry of default for good cause. Fed. R. Civ. P. 1 55(c). “The ‘good cause’ standard that governs vacating an entry of default under 2 Rule 55(c) is the same standard that governs vacating a default judgment under 3 Rule 60(b).” Franchise Holding II, LLC. v. Huntington Restaurants Grp., Inc., 375 4 F.3d 922, 925 (9th Cir. 2004) (citation omitted). Courts consider three factors to 5 determine good cause: (1) whether the party seeking to set aside the default 6 engaged in culpable conduct that led to the default; (2) whether it had no 7 meritorious defense; or (3) whether reopening the default judgment would 8 prejudice the other party. U.S. v. Signed Personal Check No. 730 of Yubran S. 9 Mesle (“Mesle”), 615 F.3d 1085, 1091 (9th Cir. 2010). In deciding whether to set 10 aside a default judgment, courts are guided by two concerns: Rule 60(b) is meant 11 to be remedial in nature and therefore must be liberally applied; and judgment 12 by default is a drastic step appropriate only in extreme circumstances. MetroPCS 13 v. A2Z Connection, LLC, 2018 WL 3785384 , *5 (D. Nev. Aug. 9, 2018) (citing to 14 Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984)). 15 III. ANALYSIS 16 a. Culpable Conduct 17 “A defendant’s conduct is culpable if he has received actual or constructive 18 notice of the filing of the action and intentionally failed to answer.” Mesle, 615 19 F.3d at 1092 (internal citations omitted) (emphasis in original). “Intentionally,” in 20 this context, means the defendant acted in bad faith “to take advantage of the 21 opposing party, interfere with judicial decision-making, or otherwise manipulate 22 the legal process.” Sundance Media Group, LLC v. Yuneec USA, Inc., No. 2:18-cv23 0388-APG-PAL, 2018 WL 6435887 at *1 (citing TCI Grp. Life. Ins. Plan v. 24 Knoebber, 244 F.3d 691 , 697 (9th Cir. 2001)). A defendant's conduct is culpable 25 “where there is no explanation of the default inconsistent with a devious, 26 deliberate, willful, or bad faith failure to respond.” Id. at 698.Failure to appear 27 without any actual notice of the lawsuit amounts to excusable neglect, mistake, 28 or surprise under Rule 60(b)(1), regardless of whether process was served lawfully 1 in compliance with a court order under Rule 4(f)(3). Las Vegas Sands Corp. v. 2 First Cagayan Leisure & Resort Corp., No. 2:14-cv-424-JCM-NJK, 2016 WL 44781 3 at *3 (D. Nev. Feb. 3, 2016) (citing Mullane v. Central Hanover Bank & Trust Co., [4] 339 U.S. 306, 314-15 (1950)). 5 Corporations can be served “by delivering a copy of the summons and of 6 the complaint to an officer, a managing or general agent, or any other agent 7 authorized by appointment or by law to receive service of process . . .” Fed. R. 8 Civ. P. 4(h)(1)(B). Nevada state law allows an entity or association to be served by 9 delivering a copy of the summons and complaint to “the registered agent or the 10 entity or association.” Nev. R. Civ. P. 4.2(c)(1)(A). 11 Defendant argues that it never received actual notice of the summons or 12 complaint, because its registered agent sent the summons to Intercept Music, 13 Inc., and therefore its failure to defend was not intentional. (ECF Nos. 12 at 6; 17 14 at 7; Ex. H.) Plaintiff argues that it served all papers and pleadings to the correct 15 registered agent to provide Defendant notice and that Defendant’s quarterly 16 report ending on March 31, 2025, indicated that Defendant was aware of the 17 filing of the complaint. (ECF No. 14 at 6-7.) Defendant adds that the quarterly 18 report was authored and signed on May 20, 2025, two days before it filed its 19 motion to set aside default judgment, and updated to reflect the current suit. 20 (ECF No. 17 at 7.) In Sundance, the court found that the defendant’s explanation 21 for not responding to a counterclaim because an administrative assistant failed 22 to calendar the deadline was sufficient to demonstrate lack of culpability despite 23 multiple communications by opposing counsel. Sundance Media Group, LLC, [24] 2018 WL 6435887 at *1. Although the court found that the deficiency deserved 25 “strong criticism,” it did not rise to the level of bad faith. Id. So it is here. 26 Defendant offers a plausible explanation of how a signed proof of service and the 27 quarterly report is not indicative of actual notice of the lawsuit. Therefore, the 28 Court finds that the Defendant’s conduct is not culpable. 1 b. Meritorious Defense 2 “A defendant seeking to vacate a default judgment must present specific 3 facts that would constitute a defense. But the burden on a party seeking to vacate 4 a default judgment is not extraordinarily high.” Las Vegas Sands Corp., 2016 WL 5 447481 at *3 (citing Mesle, 615 F.3d at 1094 ). “The question whether the factual 6 allegation is true is not to be determined by the court when it decides the motion 7 to set aside the default,” which would be the subject of later litigation. Mesle, 615 8 F.3d at 1094. 9 Defendant argues that it has several potential meritorious defenses to the 10 action: that Plaintiff’s claim is founded upon a void and unenforceable contract, 11 responsibility belongs to a third party, accord and satisfaction has already been 12 met, the contract is unenforceable due to unconscionability, and Plaintiff 13 breached the duty of good faith and fair dealing. (ECF No. 17 at 8, 11.) Plaintiff 14 claims that any dispute between Defendant and its subsidiary does not bear on 15 Plaintiff’s rights, and that the failure to issue shares to the Plaintiff was 16 intentional. (ECF No. 14 at 8.) 17 Defendant alleges specific facts that the Convertible Promissory Note (“the 18 Note”) was negotiated with Intercept Music, Inc., and funds were dispersed to 19 Intercept Music, Inc., not Defendant. (ECF No. 17.) It cites section 1.2 of the Note 20 for the assertion that Plaintiff attempted to convert the shares at a rate six times 21 the rate described in the Note in bad faith. (Id. at 9.) Taking its allegations as 22 true, Defendant has presented sufficient facts and arguments for a meritorious 23 defense to set aside default judgment. 24 c. Prejudice to the Opposing Party 25 “To be prejudicial, the setting aside of a judgment must result in greater 26 harm than simply delaying resolution of the case.” Las Vegas Sands Corp., 2016 27 WL 447841 at *4 (citing TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691 , 700 28 (9th Cir. 2001)). “It is obvious that merely being forced to litigate on the merits 1 || cannot be considered prejudicial for purposes of lifting an entry of default.” Id. 2 || (internal citations omitted). 3 Plaintiff argues that it will be “forced to expend more resources on 4 || attorney’s fees and costs and simultaneously deprive [it] of the ability to sell the 5 || shares it is due.” (ECF No. 14 at 7.) This is the same position that Plaintiff would 6 || be in had Defendant responded to the summons and litigated the case. Therefore, 7 || this factor weighs in favor of setting aside judgment. 8 Therefore, the Court will set aside the default judgment. For this reason, 9 || there is no reason to stay enforcement. 10 |} IV. CONCLUSION 11 It is therefore ordered that Defendant’s motion to set aside default 12 || judgment (ECF No. 12) is GRANTED. 13 It is further ordered that Defendant’s motion to stay enforcement of the 14 || default judgment is DENIED as MOOT. 15 Dated this 2"¢ day of December, 2025. [16] 7 Ans pod den 18 ANNE R. TRAUM 19 UNITED STATES DISTRICT JUDGE