U.S. EEOC v. Elite Wireless Group, Inc.

[7] 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA [10] 11 U.S. EQUAL EMPLOYMENT No. 2:19-cv-02187-MCE-CKD OPPORTUNITY COMMISSION, [12] Plaintiff, 13 ORDER SETTING ASIDE DEFAULT v. 14 (ECF No. 12) ELITE WIRELESS GROUP, INC., [15] Defendant. [16] 17 Presently before the court is defendant’s motion to set aside the Clerk’s entry of default. 18 (ECF No. 12.) Plaintiff has filed an opposition and defendant has filed a reply. (ECF Nos. 13, 19 14.) The court held a hearing on the matter on September 30, 2020; plaintiff was represented by 20 attorneys Debra Smith and Rebecca Steele, and defendant was represented by attorney Jim Burns. 21 For the reasons set forth below, the court GRANTS defendant’s motion. 22 BACKGROUND 23 Plaintiff filed the complaint in this matter on October 29, 2019, alleging that in 2017 24 defendant, Elite Wireless Group, Inc., violated Title VII by discriminating against its former 25 employee (“Former Employee”) on the basis of sex. (ECF No. 1.) Plaintiff further asserts that a 26 former manager of Elite Wireless made unwanted sexual advances toward Former Employee and 27 later sexually assaulted Former Employee. (Id. at 3-4.) The alleged assault occurred after 28 defendant’s holiday party, in the former manager’s private hotel room. (Id. at 4.) Former 1 Employee filed a police report, but no charges were filed. (Id.) Former Employee was 2 subsequently transferred and fired from her position. (Id. at 4-5.) 3 The parties agree that there were settlement negotiations before plaintiff filed the present 4 suit. (See ECF Nos. 1 at 2 (noting the parties discussed “informal methods of conciliation to 5 endeavor to eliminate the discriminatory practices and provide appropriate relief”); 12-1 at 1 6 (“The EEOC investigated this matter and negotiated with [defendant] regarding a potential 7 settlement for the better part of two years prior to filing the complaint.”).) Plaintiff filed suit on 8 October 29, 2019 and asserts that defendant was served on January 17, 2020. (ECF No. 6.) 9 Plaintiff requested the Clerk of Court enter default in its favor on March 6, 2020, which the Clerk 10 entered on March 10, 2020. (ECF Nos. 7, 9.) Plaintiff then filed an amended certificate of 11 service, attesting that the entry of default was served on defendant. (ECF No. 10.) Plaintiff has 12 not filed a motion for default judgment. 13 Defendant, for its part, indicates that it ceased operations in February 2020 and has 14 “transferred much of its assets to another operator.” (ECF No. 12 at 3.) Defendant also states 15 that plaintiff “abruptly terminated” negotiations around October 20, 2019. (Id.) While defendant 16 states that between January and March 2020 the parties had continuing settlement negotiations, 17 and it was counsel’s “understanding that a default would not be entered while settlement 18 discussions were ongoing,” (id.) plaintiff denies that such negotiations occurred, (ECF No. 13 at 19 7-8 (“The parties had no settlement discussions between October 28, 2019, when the EEOC 20 informed [counsel] of its plans to file suit, and May 7, 2020.”).) Defendant further asserts it had 21 an answer prepared prior to the Clerk entering default, but it was never filed. (ECF No. 12-1 at 22 2.) On August 14, 2020, more than five months after the Clerk entered default, defendant filed 23 the present motion to set aside. 24 DISCUSSION 25 Under Rule 55(c), the court may set aside entry of default by the Clerk of the Court for 26 “good cause” shown. “Good cause” in this context is determined by three factors: whether the 27 defendant’s culpable conduct led to the default; whether the defendant does not have a 28 meritorious defense; and whether setting aside the default would prejudice the plaintiff. TCI Grp. 1 Life Ins. Plan v. Knoebber, 244 F.3d 691 , 696 (9th Cir. 2001). 2 A finding that any one of these factors is true is a sufficient reason for a court to refuse to 3 set aside a default. United States v. Signed Personal Check No. 730 of Yubran S. Mesle, 615 4 F.3d 1085 , 1091 (9th Cir. 2010). However, a court may, within its discretion, grant relief from 5 default even after finding one of the “good cause” factors to be true. See, e.g., Brandt, 653 F.3d 6 at 1112 (“A district court may exercise its discretion to deny relief to a defaulting defendant based 7 solely upon a finding of defendant’s culpability, but need not”) (emphasis added). “The court’s 8 discretion is especially broad where . . . it is entry of default that is being set aside, rather than a 9 default judgment.” O’Connor v. State of Nev., 27 F.3d 357, 364 (9th Cir. 1994). The factors are 10 more liberally applied with respect to a request to set aside the entry of default, because “there is 11 no interest in the finality of the judgment with which to contend.” Mesle, 615 F.3d at 1091 n.1 12 Additionally, the Ninth Circuit has emphasized that resolution of a motion to set aside the entry of 13 default is necessarily informed by the well-established policies favoring resolution of cases on 14 their merits and generally disfavoring default judgments. See Mesle, 615 F.3d at 1091 15 (“Crucially, . . . judgment by default is a drastic step appropriate only in extreme circumstances; a 16 case should, whenever possible, be decided on the merits”) (citations and quotation marks 17 omitted); Westchester Fire Ins. Co. v. Mendez, 585 F.3d 1183, 1189 (9th Cir. 2009) (“As a 18 general rule, default judgments are disfavored; cases should be decided upon their merits 19 whenever reasonably possible.”). With the above principles in mind, the court turns to the “good 20 cause” factors enumerated above. 21 Culpable Conduct 22 Defendant asserts that its “failure to timely answer was not willful as Defendant’s counsel 23 did not believe a default would be entered without notice, and in fact an answer had already been 24 prepared.” (ECF No. 12 at 5.) Defendant further asserts the active settlement discussions 25 between the parties, and the fact that it accepted service, demonstrate a lack of culpable conduct 26 on its part. (Id.) 27 Plaintiff argues that it properly served defendant—who did not waive service as it 28 alleges—and defense counsel admitted he needed to file an answer, but failed to do so. (ECF No. 1 13 at 7.) Additionally, plaintiff states that the parties were not involved in settlement negotiations 2 during the relevant time. (Id. (“The parties had no settlement discussions between October 28, 3 2019, when the EEOC informed [counsel] of its plans to file suit, and May 7, 2020.”).) 4 “[A] defendant’s conduct is culpable if he has received actual or constructive notice of the 5 filing of the action and intentionally failed to answer.” TCI Group, 244 F.3d at 697. In the 6 default judgment context, “culpable” involves “not simply nonappearance following receipt of 7 notice of the action, but rather conduct which hinder[s] judicial proceedings[.]” Id. at 698 8 (internal quotation marks omitted). Central to this inquiry is whether a party failed to respond in 9 order to “obtain a strategic advantage,” which would further evidence bad faith. Id. Similarly, “a 10 defendant’s neglectful failure to answer, without more, is typically not ‘culpable’ unless there is 11 no explanation of the default inconsistent with a devious, willful, or bad faith failure to respond.” 12 Id. (internal quotation marks omitted). 13 Here, while defense counsel’s failure to answer is certainly careless and negligent, the 14 court finds that counsel’s actions do not suggest “an intention to take advantage of the opposing 15 party, interfere with judicial decisionmaking, or otherwise manipulate the legal process.” Mesle, 16 615 F.3d at 1092. To be sure, counsel should have found a way (if he was not admitted yet to this 17 court) to protect his client’s interest by filing a responsive pleading. However, the parties agree 18 that they were in communication with one another, had previously discussed settlement 19 negotiations, and exchanged some documents prior to plaintiff filing suit. While plaintiff is 20 correct that it was under no obligation to provide defendant with notice of its intention to bring 21 default proceedings, defense counsel’s actions demonstrate that he was not intentionally 22 attempting to gain a strategic advantage or otherwise proceed in bad faith. Rather, from the 23 record before the court, it appears that counsel’s actions were negligent and careless. Therefore, 24 the court finds that defendant’s conduct was not culpable as defined above. 25 Meritorious Defense 26 “A defendant seeking to vacate a default judgment must present specific facts that would 27 constitute a defense. But the burden on a party seeking to vacate a default judgment is not 28 extraordinarily heavy.” TCI Group, 244 F.3d at 700 (emphasis added, citations omitted). To 1 satisfy the “meritorious defense” requirement a party must allege sufficient facts that, if true, 2 would constitute a defense: “the question whether the factual allegation [i]s true” is not to be 3 determined by the court when it decides the motion to set aside the default. Id. Rather, that 4 question “would be the subject of the later litigation.” Id. 5 Defendant raises the following as meritorious defenses: 6 (a) the alleged incidents did not occur, (b) the alleged hotel incident that is the primary event behind the lawsuit occurred in the late 7 hours on a weekend and was not in any way related to the Defendant company’s event, (c) any contact between the alleged 8 perpetrator and claimant were consensual, (d) the complainant filed a police report and the police did a brief investigation without ever 9 filing charges, closing the file, and (e) if the alleged facts in the complaint were found to constitute actionable conduct, the 10 employer is not liable because all acts constituted independent, intentional acts by the alleged prior employee perpetrator, whom 11 the Defendant company terminated long ago. 12 (ECF No. 12 at 5.) 13 While plaintiff argues that defendant must put forth “specific facts” to constitute a 14 meritorious defense, plaintiff overlooks the “minimal” standard mentioned above. Defendant, in 15 its opposition and answer, asserts that the hotel incident occurred outside of the knowledge or 16 control of the company and that any contact was consensual. (ECF Nos. 12 at 5; 12-1.) Those 17 assertions, if true, would presumably constitute a defense to the present action. Similarly, 18 plaintiff’s assertion that facts constituting a meritorious defense must be contained in affidavits, 19 not the moving papers, is unpersuasive. Yet again, this argument overlooks the “minimal” 20 standard adopted by the Ninth Circuit. See e.g., Precision Glassworks, Inc. v. Ghannam, 2016 21 WL 2641475 , at *2 (N.D. Cal. May 10, 2016) (allegations in the moving papers sufficient to 22 demonstrate meritorious defenses); Huerta v. Akima Facilities Mgmt., LLC, 2017 WL 783686 , at 23 *4 (N.D. Cal. Mar. 1, 2017) (even assuming an affidavit should be excluded, facts alleged in a 24 motion sufficient to establish meritorious defense to set aside default). 25 No discovery has yet been conducted at this early stage of the case, and the record is 26 essentially undeveloped with respect to the merits of plaintiff’s claims or defendant’s potential 27 defenses. At a minimum, the present record certainly does not affirmatively show the absence of 28 a meritorious defense. As such, this factor does not counsel in favor of denying defendant’s 1 request to set aside the default. 2 Prejudice 3 “To be prejudicial, the setting aside of a judgment [or clerk’s entry of default] must result 4 in greater harm than simply delaying resolution of the case.” Mesle, 615 F.3d at 1095. Here, 5 there is no indication that plaintiff’s ability to pursue its claim will be hindered by the delay in 6 setting aside the Clerk’s entry of default. Moreover, the delay involved here is not so long as to 7 militate in favor of denying defendant’s motion: defendant filed the present motion to vacate 8 approximately five months after default was entered, and before plaintiff requested a default 9 judgment. 10 In sum, taking all of the factors into consideration, the court finds that defendant has 11 shown good cause to set aside the Clerk’s entry of default 12 Attorneys’ Fees 13 Finally, plaintiff requests attorneys’ fees. A court’s decision whether to award attorneys’ 14 fees is discretionary. Lac v. Nationstar Mortg. LLC, 2016 WL 4055041 , at *7 (E.D. Cal. July 27, 15 2016). “The ability to impose a reasonable condition, such as payment of attorney fees, allows 16 the Court to balance any undue prejudice to the moving party against the Court’s preference for 17 resolving disputes on the merits.” Twin Rivers Eng’g, Inc. v. Fieldpiece Instruments, Inc., 2016 18 WL 7479368 , at *4 n.9 (C.D. Cal. Aug. 10, 2016) (internal quotations marks and citation 19 omitted.). Had plaintiff filed a motion for default judgment, instead of waiting more than five 20 months, the court would be more inclined to grant plaintiff’s request for attorneys’ fees. The 21 parties’ prior negotiations, and defendant’s apparent desire to litigate this matter militate against 22 awarding fees. See id. Accordingly, plaintiff’s request is DENIED. 23 CONCLUSION 24 For the foregoing reasons, it is HEREBY ORDERED that: 25 1. Defendant’s motion to set aside the clerk’s entry of default (ECF No. 12) is 26 GRANTED; the default entered March 10, 2020 is VACATED. 27 ///// 28 ///// wOASe 2 LO TIVES RN INEZ MUO NO Ie 1 2. Defendant shall file an answer within ten (10) days of the date of this order. 2 | Dated: October 5, 2020 Ie Ad /- Mt. Le 9 3 CAROLYN K. DELANEY 4 UNITED STATES MAGISTRATE JUDGE 5 |} 16.2187