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Securitynational Mortgage Co. v. Head

United States District Court, D. Colorado

September 15, 2014

SECURITYNATIONAL MORTGAGE COMPANY, Plaintiff,
v.
JOHN FREDERIC HEAD, an individual, and HEAD & ASSOCIATES, P.C., a Colorado professional corporation, Defendants.

ORDER

PHILIP A. BRIMMER, District Judge.

This matter is before the Court on the Motion to Set Aside Clerk's Entry of Default [Docket No. 15] filed by defendants John Frederic Head and Head & Associates, P.C. This case arises out of plaintiff SecurityNational Mortgage Company's claim for legal malpractice. The Court has jurisdiction based on 28 U.S.C. § 1332.

I. BACKGROUND

Plaintiff SecurityNational Mortgage Company ("SecurityNational") brought this case on November 5, 2013, asserting claims for professional negligence, breach of fiduciary duty, breach of contract, and unjust enrichment. Docket No. 1. On December 3, 2013, plaintiff served the complaint on defendants via email. Docket No. 15 at 9, ¶ a. The complaint was accompanied by waivers of service, which state that defendants "must file and serve an answer or a motion under Rule 12 within 60 days from December 3, 2013, the date when this request was sent." Docket Nos. 6 and 7. Mr. Head signed the waivers of service on behalf of both defendants on December 12, 2013. Id. Accordingly, a responsive pleading was due by February 3, 2014. See Fed.R.Civ.P. 6(a)(1) and 12(a)(1)(A)(ii).

On February 4, 2014, after no answer or Rule 12 motion had been filed, plaintiff moved for the entry of default. Docket Nos. 9 and 12. The Clerk of Court entered default as to both defendants. Docket Nos. 10 and 13. On February 12, 2014, defendants moved to set aside the entry of default and filed an answer to the complaint. Docket Nos. 15 and 16. Defendants argue that (1) the Court lacks subject matter jurisdiction over this case; (2) their failure to timely respond was not culpable; and (3) they have meritorious defenses to plaintiff's claims. Docket No. 15. Plaintiff opposes the motion to set aside. Docket No. 20.

II. STANDARD OF REVIEW

The Court may set aside an entry of default for good cause. See Fed.R.Civ.P. 55(c). The good cause standard is a less demanding standard than the excusable neglect standard which must be shown for relief from judgment under Fed.R.Civ.P. 60(b). Id .; Dennis Garberg & Assocs., Inc. v. Pack-Tech Int'l Corp., 115 F.3d 767, 775 n. 6 (10th Cir. 1997). In determining whether to vacate the Clerk's entry of default, the Court may consider the following factors: (1) whether the defendant's culpable conduct led to the default; (2) whether the plaintiff will be prejudiced by setting aside the entry of default; and (3) whether the defendant has a meritorious defense. See Hunt v. Ford Motor Co., 1995 WL 523646, at *3 (10th Cir. Aug. 29, 1995) (citing In re Dierschke, 975 F.2d 181, 183 (5th Cir. 1992)). The Court need not consider each one of these factors and, in its discretion, may consider other factors. Id. Guiding the Court's analysis is the time-honored principle that "[t]he preferred disposition of any case is upon its merits and not by default judgment." Gomes v. Williams, 420 F.2d 1364, 1366 (10th Cir. 1970); see also Katzson Bros., Inc. v. E.P.A., 839 F.2d 1396, 1399 (10th Cir. 1988) (noting that "default judgments are not favored by courts"). It is, however, within the Court's discretion to balance the judicial preference against default judgments with considerations of social goals, justice, and expediency. Gomes, 420 F.2d at 1366.

III. ANALYSIS

A. Subject Matter Jurisdiction

Defendants argue that the Court lacks subject matter jurisdiction because the named plaintiff is a fictitious entity. Docket No. 15 at 3. Defendants refer to the fact that "SecurityNational Mortgage Corporation"-the stated name of the plaintiff that initially filed this case-is not a registered entity in the State of Utah. Id. However, since defendants' motion to set aside was filed, the case caption and docket have been amended to correctly list plaintiff as SecurityNational Mortgage Company. Docket No. 24. Accordingly, there is no jurisdictional defect. Moreover, there is little equitable weight to this argument since the complaint left no doubt as to plaintiff's real identity and defendants could have sought dismissal of the complaint based on the incorrectly named plaintiff.

B. Motion to Set Aside

Defendants move to set aside the entry of default on the basis that their delay in filing an answer was not culpable and they have meritorious defenses to plaintiff's claims. Docket No. 15.

The Court finds that the failure to timely respond was culpable because defendants "received actual... notice of the filing of the action and failed to answer." See Meadows v. Dominican Republic, 817 F.2d 517, 521-22 (9th Cir. 1987) (failure to respond to complaint was inexcusable neglect where defendants were aware of federal law, informed of the legal consequences of failing to respond, and "sufficiently sophisticated and experienced in the requirements of American law to protect [their] interests, based on [] involvement in other actions in United States courts.").

Defendants argue that their delay was not culpable because it was based on the belief that plaintiff did not comply with Federal Rule of Civil Procedure 4 in effecting service. Docket No. 15 at 8-10. Specifically, defendants contend that plaintiff's service of process fell short of Rule 4's requirements because (1) plaintiff's email was not accompanied by a "prepaid means of returning the form" or by (2) "a notice in the form prescribed by Form 5." Docket No. 15 at 9. These arguments evidence, at most, a mistake of law, which is not a sufficient basis to establish non-culpable mistake. See Pioneer Inv. Servs. Co. v. Brunswick Assocs. ...


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