United States District Court, D. Colorado
A. BRIMMER United States District Judge.
matter is before the Court on Defendant Chow's Motion to
Set Aside Entry of Default and Motion for Leave to Allow
Filing of Answer Out of Time [Docket No. 36]. In his motion,
defendant requests that the Court vacate the Entry of Default
[Docket No. 21] entered by the Clerk of the Court on October
6, 2016, plaintiffs filed a complaint asserting claims
against defendant for violations of the federal Racketeering
Influenced and Corrupt Organizations Act (“RICO”)
and Colorado Organized Crime Control Act
(“COCCA”) and seeking damages and injunctive
relief. Docket No. 1. Plaintiffs initially requested entry of
default on October 19, 2016. Docket No. 18. The Clerk of the
Court did not enter default because plaintiffs failed to
supply an affidavit or declaration concerning defendant's
military status. Docket No. 19. On October 21, 2016,
plaintiffs filed a second motion for entry of default. Docket
No. 20. On October 21, 2016, the Clerk entered def ault
against defendant José Benjamín Chow del Campo.
Docket No. 21.
motion to set aside the entry of default, defendant argues
that his failure to answer was not culpable, because he had
difficulties procuring representation and believed that the
parties would settle their dispute by agreement. Docket No.
36 at 5-6. Defendant further argues that, in light of the
parties' interactions, the instant motion to set aside
the default was made promptly, shortly after defendant became
aware of the entry of default. Id. at 8-9. Defendant
claims that setting aside the default in this case would not
prejudice plaintiffs and would allow defendant to present
meritorious defenses. Id. at 6-7. Last, defendant
states that plaintiffs' failure to comply with
D.C.COLO.LCivR. 7.1 militates in favor of setting the default
aside. Id. at 10.
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). 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 plaintiffs 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 may consider other factors in its
discretion. 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
respect to the first factor, whether the default was caused
by defendant's culpable conduct, defendant concedes that
he was properly served in this matter and failed to file a
timely answer. Docket No. 36-1 at 2, ¶ 9. Defendant
argues in his motion that his failure to answer was not
culpable because he had difficulty procuring counsel and
believed that settlement negotiations would be fruitful.
Docket No. 36 at 5-6. With respect to procuring counsel,
defendant states he “contacted numerous attorneys for
the purpose of providing legal counsel in this lawsuit”
and that “various attorneys have worked at different
times on [his] behalf.” Docket No. 36-1 at 1,
¶¶ 3-4. Defendant claims that “he was unable
to identify counsel who he felt could adequately represent
him in this proceeding and provide him counsel regarding it
implications, if any, in the parallel NAFTA arbitration
proceeding.” Docket No. 36 at 5.
was served on August 23, 2016. Docket No. 11. Defendant did
not answer or otherwise respond to the complaint. On October
19, 2016, plaintiffs filed a request for entry of
default. Docket No. 18. Plaintiffs sent defendant a
copy of the request for default by email, FedEx, and by
certified mail. Docket No. 51 at 4, ¶ 10. An adult named
J. Chow signed for the FedEx delivery on October 24, 2016.
Id. According to plaintiffs, on October 25, 2016,
Geoff Binney, a Texas attorney, called plaintiffs'
counsel and informed him that “he wanted to avoid a
default judgment against his client and that his client
wanted to enter into settlement negotiations with the
Plaintiffs to resolve the claims in the suit.” Docket
No. 51 at 4, ¶ 11. Over the next several months, Binney
reached out to plaintiffs on multiple occasions regarding
settlement, but plaintiffs state that no “earnest
settlement discussions” took place. Id. at 5,
¶ 12. Defendant's new counsel contacted plaintiffs
on or around March 10, 2017.Id. at 6, ¶ 17.
Defendant does not dispute plaintiffs' description of
events. See Docket No. 55.
on the foregoing, defendant obtained counsel immediately
after receiving notice from plaintiffs that they intended to
seek entry of default. While the timing does not support
defendant's claim that he was unable to procure counsel,
it does show that defendant did not completely disregard his
obligation to address plaintiffs' claims.
next points to the settlement negotiations between the
parties as justification for his failure to answer.
Plaintiffs state that “no meaningful settlement
discussions were initiated by Chow's counsel and neither
Chow nor his counsel displayed any urgency over the
default.” Docket No. 49 at 5. However, on multiple
occasions, plaintiffs represented to the Court that
plaintiffs and defendant were engaged in settlement
discussions. See Docket No. 22 (“[S]hortly
after Plaintiffs obtained entry of default against Defendant
José Benjamín Chow del Campo , he hired new
counsel who has begun discussing settlement with
Plaintiffs”); Docket No. 25 (“[S]ettlement
discussions are now at an advanced stage between Plaintiffs
and all three Defendants - including José
Benjamín Chow del Campo.”); Docket No. 31
([A]lthough Defendant Benjamín Chow del Campo recently
changed counsel, which set settlement discussions back, those
discussions continue in earnest between Plaintiffs and
the mere fact that settlement negotiations were taking place
“did not excuse [defendant's] responsibility to
file a responsive pleading under Fed.R.Civ.P. 12(a).”
QFA Royalties LLC v. Liberty Holding Grp., Inc., No.
06-cv-00948-LTB-MEH, 2007 WL 2071633, at *2 (D. Colo. July
16, 2007). Only the Court can waive or excuse a party's
obligation to respond. Id. (citing Fed.R.Civ.P.
6(b)(1)). Accordingly, despite ongoing settlement
discussions, defendant was obligated to answer the complaint.
Court finds that defendant has failed to present evidence
showing that his failure to answer the complaint was the
result of difficulties procuring counsel or that ongoing
settlement discussions excused his conduct. “If the
default was the result of the defendant's culpable
conduct, the district court may refuse to set aside the
default on that basis alone.” Hunt, 1995 WL
523646 at *3 (citations omitted). While the Court finds that
defendant's culpable conduct led to the default in this
matter, the Court considers whether the other factors
demonstrate good cause for setting aside the default. See
Crutcher v. Coleman, 205 F.R.D. 581, 584 (D. Kan. 2001).
respect to the second factor, whether the plaintiffs will be
prejudiced by setting aside the entry of default, the Court
finds no prejudice to plaintiffs in setting aside the entry
of default. Plaintiffs argue that “[t]he delay caused
by Chow has prevented the speedy adjudication of
Plaintiffs' claims and continued the uncertainty
surrounding Chow's wrongful acts, ” Docket No. 49
at 11, but much of the delay in this case is attributable to
plaintiffs. Instead of immediately seeking the entry of
default judgment against defendant, plaintiffs repeatedly
delayed the scheduling conference to continue settlement
negotiations. Docket Nos. 22, 25, 31. During the same time
period, plaintiffs failed to prosecute their case against
another non-appearing defendant, forcing the magistrate judge
to demand that plaintiffs either seek default or file
dismissal papers against that defendant. See Docket
No. 42. As a result of plaintiffs' actions, no scheduling
conference has been held and this case remains at an early
stage. Accordingly, the Court finds that plaintiffs will
suffer no prejudice if the entry of default is vacated.
Estate of Ortiz v. Lithia Motors, Inc., No.
08-cv-00907-PAB-KLM, 2009 WL 1258969, at *2 (D. Colo. May 5,
2009) (finding no prejudice because plaintiff did not
identify any undue prejudice it would suffer if the Court set
aside the Clerk's entry of default).
defendant asserts that he has meritorious defenses to
plaintiffs' complaint. Docket No. 36 at 7. To determine
whether defendant has a meritorious defense, “the court
examines the allegations contained in the moving papers to
determine whether the movant's version of the factual
circumstances surrounding the dispute, if true, would
constitute a defense to the action.” In re
Stone, 588 F.2d 1316, 1319 (10th Cir. 1978). Defendant
alleges that plaintiffs' claims lack merit because any
alleged corporate misconduct is rebutted by official minutes
from shareholder meetings conducted in Mexico and that
plaintiffs cannot prove damages because their casinos failed
as a result of prior difficulties with the Mexican
government, not defendant's conduct. Docket No. 36 at 16,
¶¶ 10-11. While plaintiffs offer the declaration of
Neil Ayervais to rebut defendant's defenses, Docket No.
50, the Court must treat defendant's allegations as true.
Stone, 588 F.2d at 1319 (“The rule requires a
sufficient elaboration of facts to permit the trial court to
judge whether the defense, if movant's version were
believed, would be meritorious”). If defendant can
prove that his conduct was not wrongful, or that plaintiffs
were not harmed by his conduct, he may be successful in this
case. Accordingly, defendant should have ...