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Clinical Reference Laboratory, Inc. v. Salugen Biosciences, Inc.

United States District Court, Tenth Circuit

April 29, 2013

CLINICAL REFERENCE LABORATORY, INC., Plaintiff,
v.
SALUGEN BIOSCIENCES, INC., et al., Defendants.

MEMORANDUM AND ORDER

KATHRYN H. VRATIL, District Judge.

This matter comes before the Court on Defendants' Motion To Set Aside Clerk's Entries of Default And Motion For Leave To File Answer (Doc. #11) filed February 5, 2013, by Salugen Biosciences, Inc. and Proove Biosciences, Inc. For reasons stated below, the Court finds that the motions should be sustained.

Procedural Background

On December 7, 2012, plaintiff filed a complaint alleging breach of contract. On December 18 and 19, 2012, plaintiff executed a return of service on the registered agent for Proove and Salugen, respectively. See Docs. #4, 5. Neither defendant timely filed an answer or otherwise responded.

On January 3, 2013, plaintiff applied for a clerk's entry of default under Rule 55(a), Fed.R.Civ.P. Plaintiff Clinical Reference Laboratory, Inc.'s Application For Entry Of Default Judgment (Doc. #6). On January 7, 2013, pursuant to Rule 55(a), the Clerk entered default against both defendants. Clerk's Entry of Default (Doc. #7). On January 16, 2013, plaintiff filed an Application For Clerk's Entry Of Default Judgment Amended (Doc. #8). That same day, the Clerk entered an Amended Clerk's Entry of Default []. Doc. #9.

Brian Meshkin, president of Proove, avers as follows: On January 17, 2013, Proove's registered agent, LegalZoom, notified Meshkin that the Clerk had entered default in this case. Affidavit Of Brian Meshkin (Doc. #11-1) filed February 5, 2013, at 3. Until January 17, 2013, Meshkin had not received any court documents in this case. He contacted the Clerk and requested copies of the court documents.[1] On January 22, 2013, Meshkin received the documents and "promptly" consulted counsel to arrange a response to the entry of default. On February 5, 2013, defendants filed the motion to set aside the entry of default.

Analysis

I. Motion To Set Aside Entry Of Default

Under Rule 55(c), the Court may set aside an entry of default "for good cause." Fed.R.Civ.P. 55(c). The Court applies the same considerations when deciding whether to set aside an entry of default or a default judgment, but it applies them more liberally when reviewing an entry of default. See Berthelsen v. Kane , 907 F.2d 617, 620 (6th Cir. 1990). The good cause required by Rule 55(c) poses a lesser standard for the defaulting party than the excusable neglect which must be shown for relief from judgment under Rule 60(b). See Dennis Garberg & Assocs., Inc. v. Pack-Tech Int'l Corp. , 115 F.3d 767, 775 n.6 (10th Cir. 1997). In determining whether defendants have shown good cause, the Court considers the following factors: (1) whether the default resulted from culpable conduct by defendants; (2) whether plaintiff would be prejudiced if the Court sets aside the default; and (3) whether defendants have presented a meritorious defense. See id. These factors are not "talismanic" and the Court may consider other factors. Morrow v. Bank of Am, No. 12-cv-00671-WYD-MJW, 2013 WL 275534, at *2 (D. Colo. Jan. 24, 2013) (quoting Hunt v. Ford Motor Co., No. 94-3054 , 1995 WL 523646, at *3 (10th Cir. Aug. 29, 1995)). The standard for setting aside an entry of default under Rule 55(c) is fairly liberal because the preferred disposition of any case is upon its merits and not by default judgment. Gulley v. Orr , 905 F.2d 1383, 1386 (10th Cir. 1990) (citing Gomes v. Williams , 420 F.2d 1364, 1366 (10th Cir. 1970)).

The first factor, i.e. whether the default resulted from culpable conduct by defendants, weighs against setting aside the default. Defendants' conduct is considered culpable if they have defaulted willfully or have no excuse for the default. United States v. Timbers Preserve, Routt Cnty., Colo. , 999 F.2d 452, 454 (10th Cir. 1993). Defendants assert that they did not timely appear and defend because prior to the entry of default, they did not receive information about the lawsuit from the resident agent. Plaintiff points to records from LegalZoom, however, that on December 11, 2012, LegalZoom sent Meshkin an email regarding "documents received on your behalf, " and at "customer" request, LegalZoom then mailed the documents to a different address than the one on file. Plaintiff also points to correspondence in late 2012 between Meshkin and plaintiff's CEO which indicate that plaintiff told Meshkin that it intended to file suit to recover money which defendants owed under a contractual agreement with plaintiff.

The second factor, i.e. whether plaintiff would be prejudiced if the Court sets aside the default, weighs in favor of defendants. Plaintiff filed the case on December 7, 2012, and the Clerk entered default on January 16, 2013. Defendants filed the motion to set aside the default on February 5, 2013. Doc. #9. Although plaintiff asserts prejudice, this Court has found no prejudice in cases involving similar delays. See, e.g., Topolski v. Chris Leef Gen. Agency Inc., No. 11-2495, 2011 WL 5921167, at *2 (D. Kan. Nov. 28, 2011) (no prejudice from 12 day delay); Alsbrooks v. Collecto, Inc., No. 10-2271, 2010 WL 4067145, at *2 (D. Kan. Oct. 15, 2010) (plaintiff not seriously prejudiced where defendant filed motion to set aside default 21 days after entry of default; delays of two months "relatively innocuous").

The third factor, i.e. whether defendants have presented a meritorious defense, also weighs in favor of setting aside the default. Defendants' proposed answer asserts meritorious defenses. See Defendant's [Proposed] Answer To Complaint On Account And Breach Of Contract (Doc. #11-3) filed February 5, 2013 (plaintiff barred from recovery because of material breach; equitable doctrines of unclean hands, waiver, laches and lack of consideration).

Weighing the above factors, the Court finds that defendants have established good cause to set aside the entry of fault. See Gomes , 420 F.2d at 1366 (preferred ...


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