Ketayi v. Health Enrollment Group

[7] 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 ERIC KETAYI, MIRYAM KETAYI, both Case No.: 20-CV-1198-GPC-KSC individually and on behalf of all others [11] similarly situated, and for the benefit of ORDER GRANTING DEFENDANT 12 the general public, ALLIANCE FOR CONSUMERS USA’S EX PARTE MOTION TO SET 13 Plaintiffs, ASIDE CLERK’S ENTRY OF 14 v. DEFAULT 15 HEALTH ENROLLMENT GROUP, et al., [16] Defendants. [ECF No. 176] [18] 19 BACKGROUND 20 Plaintiffs served the original complaint in this action on Defendant Alliance for 21 Consumers USA (“ACUSA”) on July 2, 2020. ECF No. 17-4, Fox Decl. ¶ 3. Plaintiffs 22 served the First Amended Complaint (“FAC”) and summons on ACUSA on September 23 16, 2020. ECF No. 59. The Clerk of Court entered default on Plaintiffs’ FAC against 24 ACUSA on December 7, 2020. ECF No. 75. Plaintiffs served the Second Amended 25 Complaint (“SAC”) and summons on ACUSA on April 26, 2021. ECF No. 107. The 26 Clerk entered default on Plaintiffs’ SAC against ACUSA on May 24, 2021. ECF No. 27 118. Plaintiffs served the Third Amended Complaint (“TAC”) on August 25, 2021. ECF [28] 1 No. 148. The Clerk entered default on Plaintiffs’ TAC on September 27, 2021. ECF No. 2 162. 3 Now before the Court is Defendant ACUSA’s ex parte motion to set aside the 4 Clerk’s entry of default on Plaintiffs’ TAC against ACUSA. ECF No. 176. Plaintiffs did 5 not oppose the motion. For the reasons set forth below, the Court GRANTS ACUSA’s 6 motion to set aside default, and ORDERS that ACUSA respond to the operative 7 complaint on or before December 23, 2021. 8 LEGAL STANDARD 9 Under Federal Rule of Civil Procedure 55, “[w]hen a party against whom a 10 judgment for affirmative relief is sought has failed to plead or otherwise defend, and that 11 failure is shown by affidavit or otherwise, the clerk must enter the party’s default.” Fed. 12 R. Civ. P. 55(a). And under Rule 55(c), “[t]he court may set aside an entry of default for 13 good cause . . . .” Fed. R. Civ. P. 55(c). 1 A party may move the court to set aside an 14 entry of default by ex parte motion. See, e.g., Hawkins v. Bank of America, N.A., 2018 15 WL 3426218 (S.D. Cal. July 16, 2018). 16 The decision to set aside default is within the district court’s discretion. See Fed. 17 R. Civ. P. 55(c). As dictated by Rule 55(c), the district court must determine whether 18 there is “good cause” to set aside the entry of default. Brandt v. Am. Bankers Ins. Co. of 19 Fl., 653 F3d 1108, 1111 (9th Cir. 2011). A district court’s discretion to set aside entry of 20 default, rather than default judgment, is “especially broad.” O’Connor v. State of 21 Nevada, 27 F.3d 357, 364 (9th Cir. 1994). In the Ninth Circuit, district courts consider [24] 1 Importantly, the clerk’s entry of default against a party is the first of two steps required 25 to seek an enforceable default judgment against the party that failed to plead or respond. Under Rule 55(b), in most cases the party seeking default judgment “must apply to the [26] court for a default judgment.” Fed. R. Civ. P. 55(b)(2). Therefore, a motion to set aside 27 an entry of default seeks a lesser intervention than would a motion to set aside a default judgment in a case under Rule 60(b). [28] 1 the three factors laid out in Falk v. Allen, 739 F.2d 461 (9th Cir. 1984), when determining 2 whether good cause exists to set aside the Clerks’ entry of default, id. at 463 . Those 3 factors are: “(1) whether the plaintiff will be prejudiced, (2) whether the defendant has a 4 meritorious defense, and (3) whether culpable conduct of the defendant led to the 5 default.” Id. Further “[w]here timely relief is sought from a default . . . and the movant 6 has a meritorious defense, doubt, if any, should be resoled in favor of the motion to set 7 aside the default so that cases may be decided on their merits.” Mendoza v. Wight 8 Vineyard Management, 783 F.2d 941, 945-46 (9th Cir. 1986). 9 Under the first factor, for a plaintiff to establish prejudice, they must demonstrate 10 “greater harm than simply delaying resolution of the case . . . the standard is whether 11 [plaintiff’s] ability to pursue [the] claim will be hindered.” Id. Under the second factor, 12 “[a]ll that is necessary to satisfy the ‘meritorious defense’ requirement is to allege 13 sufficient facts that, if true, would constitute a defense.” United States v. Aguilar, 782 14 F.3d 1101, 1107 (9th Cir. 2015). In order to set aside a default entry, the court need not 15 decide whether the facts making up the defense are true when it decides the motion to set 16 aside default, because “that question would be the subject of later litigation.” United 17 States v. Signed Personal Check No. 730 of Yurban S. Mesle, 615 F.3d 1085, 1094 (9th 18 Cir. 2010) (citing TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691 , 700) (9th Cir. 19 2001)). Under the third Falk factor, the court should find a defendant’s conduct 20 “culpable” when she has “received actual or constructive notice of the filing and 21 intentionally failed to answer.” Mesle, 615 F.3d at 1091 . To find the movant culpable, 22 “the movant must have acted with bad faith, such as an intention to take advantage of the 23 opposing party, interfere with judicial decision making, or otherwise manipulate the legal 24 process.” Id. It must be more than the movant “simply . . having made a conscious 25 choice not to answer . . . .” Id. [28] 1 DISCUSSION 2 The Court finds that there is good cause under Rule 55 to set aside the Clerk’s 3 entry of default against ACUSA, and GRANTS Defendant ACUSA’s motion. 4 The Court first notes that ACUSA’s motion to set aside default is unopposed by 5 Plaintiffs. ECF No. 176-1, Horton Decl. ¶ 5. Because ACUSA has not yet participated 6 in this case, despite having repeated constructive notice that they were named in 7 Plaintiffs’ complaint, ACUSA’s participation will require Plaintiffs to respond to further 8 motions challenging Plaintiffs’ complaint. The Court therefore does not agree with 9 ACUSA that Plaintiffs will not be prejudiced by ACUSA’s decision to now participate in 10 the case. See ECF No. 176 at 5. However, because Plaintiffs do not oppose ACUSA’s 11 motion to set aside default, the Court finds that Plaintiffs will not be significantly 12 prejudiced. 13 Second, ACUSA states in its motion that, if the Court grants the instant motion, 14 ACUSA “would deny material facts or would allege sufficient facts that, if true, would 15 constitute meritorious defenses” and that it has “similar positions to other defendants in 16 the case who have already appeared and asserted various defenses.” ECF No. 176 at 5. 17 Specifically, “ACUSA would deny that marketing was false and misleading or that or 18 that [it] provided ‘worthless’ services.” ECF No. 176 at 5; ECF No. 176-1, Horton Decl. 19 ¶ 4. The Defendants that have appeared in this case have litigated multiple rounds of 20 motions to dismiss during which they have raised various defenses to the claims alleged 21 in Plaintiffs’ complaint. See, e.g., ECF Nos. 142, 143, 145, 158.2 As an alleged 22 participant in the scheme Plaintiffs describe in the TAC, ECF No. 134, the Court finds it 23 likely that ACUSA will similarly present meritorious defenses rebutting Plaintiffs’ [26] 27 2 Motions to dismiss Plaintiffs’ Third Amended Complaint filed by four Defendants. The Court’s Order on this motion is published at ECF No. 178. [28] 1 |/claims. As with the prejudice factor discussed above, the meritorious defense factor 2 ||similarly weighs in favor of granting ACUSA’s motion. 3 Finally, the Court considers whether ACUSA’s failure to plead or otherwise 4 ||respond was the result of culpable conduct. In support of its motion, ACUSA explains 5 || that it is a non-profit corporation based in Nebraska and was “unable to appear because it 6 || had inadvertently fallen out of good standing with the California [Franchise Tax Board] 7 Secretary of State. ACUSA was alerted to this when first served with the initial 8 complaint.” ECF No. 176 at 4; ECF No. 176-1, Horton Decl. 2. ACUSA contacted 9 || Plaintiffs once it had revived good standing, seeking to participate in the case. ECF No. 10 at 4. Considering all of the facts, ACUSA’s failure to plead or otherwise respond, 11 || which led to the Clerk’s entry of default, was excusable and not culpable conduct. As 12 as ACUSA was able to participate in the case, they sought to do so. As such, the 13 || Court finds that the third Falk factor also weighs in favor of granting ACUSA’s motion. 14 CONCLUSION 15 Considering the facts presented in the instant motion, the circumstances which 16 || prevented ACUSA from responding to Plaintiffs’ complaints, and the Falk factors, the 17 Court finds that Defendant ACUSA has demonstrated good cause for the Court to set 18 || aside the Clerk’s entry of default. Accordingly, the Court GRANTS Defendant 19 || ACUSA’s motion to set aside default. Defendant ACUSA is ordered to respond no later 20 || than December 23, 2021. 21 IT IS SO ORDERED. 22 Dated: December 8, 2021 <= United States District Judge [27] 28 ; 20-cv-1198-GPC