Brad Hall & Associates Incorporated v. Elkotb

• Court: District Court, D. Arizona
• Decided: March 9, 2023
• Docket: 4:22-cv-00155
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Brad Hall & Associates Incorporated, No. CV-22-00155-TUC-RM

10 Plaintiff, ORDER

11 v.

12 Mohamed Elkotb, et al.,

13 Defendants. 14 15 Pending before the Court is Defendants Mohamed Elkotb (“Elkotb”) and Tucson 16 Chevron Gas, LLC’s (“Tucson Chevron”) (collectively, “Defendants”) Motion to Set 17 Aside Default Judgment. (Doc. 37.) Plaintiff Brad Hall & Associates Incorporated 18 (“Plaintiff” or “BHA”) responded (Doc. 41) and Defendants replied (Doc. 44). For the 19 following reasons, the Motion will be denied. 20 I. Background 21 On September 26, 2017, Tucson Chevron entered into a Dealer Agreement with 22 Senergy Petroleum, LLC (“Senergy”), pursuant to which Tucson Chevron agreed to 23 purchase, exclusively from Senergy, gasoline to be sold and dispensed from Tucson 24 Chevron’s gas station located at 1570 W. Grant. Rd., Tucson, Arizona. (Doc. 17 at 1-2; 25 Doc. 37 at 3.) The Dealer Agreement contained terms stating that Tucson Chevron would 26 maintain gasoline brand names and trademarks at the gas station as directed by Senergy. 27 (Doc. 37 at 3.) On September 29, 2017, Defendant Elkotb entered into a Guaranty whereby 28 he agreed to pay Senergy any money owed to it by Tucson Chevron. (Doc. 17 at 1-2; Doc. 1 37 at 3.) On March 30, 2020, Senergy assigned its interests in the Dealer Agreement to 2 Plaintiff. (Doc 1 at 2; Doc. 37 at 4.) 3 Plaintiff filed its Complaint in this action on March 31, 2022, alleging that 4 Defendants were responsible for paying Plaintiff money due under the Dealer Agreement 5 upon Tucson Chevron’s termination of the Dealer Agreement on January 28, 2022. (Doc. 6 1; Doc. 17 at 2; Doc. 16-1 at 5 n. 3.) Service was executed on April 28, 2022 (Docs. 12, 7 13), but Defendants did not answer or otherwise respond to the Complaint. On June 10, 8 2022, Plaintiff filed an Application for Entry of Default (Doc. 14) and the Clerk of Court 9 entered default on June 14, 2022 (Doc. 15). On June 15, 2022, Plaintiff moved for default 10 judgment. (Doc. 16.) On July 1, 2022, the Court entered default judgment in favor of 11 Plaintiff and against Defendants in the amount of $237,221.53. (Doc. 17.) On August 3, 12 2022, the Court granted Plaintiff’s Motion for Attorneys’ Fees and awarded Plaintiff 13 attorneys’ fees and taxable costs. (Doc. 22.) On September 2, 2022, the Court entered an 14 Order (“Charging Order”) granting in part and denying in part Plaintiff’s Application for 15 Order Charging Limited Liability Companies with Payment of Judgment. (Doc. 31.) 16 Plaintiff also filed several applications for writs of garnishment, which then issued. (Docs. 17 26, 28, 30, 35.) 18 On September 28, 2022, defense counsel filed a Notice of Appearance. (Doc. 36.) 19 On September 30, 2022, Defendants filed the pending Motion to Set Aside, along with 20 requests to stay the Charging Order and Writs of Garnishment. (Docs. 37, 38, 39.) The 21 Court granted Defendants’ requests to stay the Charging Order and Writs of Garnishment 22 and took the Motion to Set Aside under advisement. (Doc. 47.) 23 II. Applicable Law 24 Federal Rule of Civil Procedure 60(b) allows for relief from judgment in certain 25 circumstances and provides, in relevant part, that a party may be relieved from a final 26 judgment, order, or proceeding for “mistake, inadvertence, surprise, or excusable neglect.” 27 Fed. R. Civ. P. 60(b)(1); see also Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984) (per 28 curiam). “Rule 60(b) is remedial in nature and therefore must be liberally applied.” Falk, 1 739 F.2d at 463; see also Hawaii Carpenters’ Tr. Funds v. Stone, 794 F.2d 508, 513 (9th 2 Cir. 1986) (“Rule 60(b) grounds are liberally interpreted when used on a motion for relief 3 from an entry of default.”) 4 In evaluating a Rule 60(b) motion to reopen a default judgment, courts consider 5 three factors: “(1) whether the plaintiff will be prejudiced, (2) whether the defendant has 6 [no] meritorious defense, and (3) whether culpable conduct of the defendant led to the 7 default.” Falk, 739 F.2d at 463. “[T]his tripartite test is disjunctive,” meaning a district 8 court may deny a Rule 60(b) motion “if any of the three factors [i]s true.” Am. Ass’n of 9 Naturopathic Physicians v. Hayhurst, 227 F.3d 1104, 1108 (9th Cir. 2000), as amended on 10 denial of reh’g (Nov. 1, 2000). Defendants bear the burden of demonstrating that the three 11 factors favor setting aside the default judgment. Franchise Holding II, LLC. v. Huntington 12 Restaurants Grp., Inc., 375 F.3d 922, 926 (9th Cir. 2004). 13 “[J]udgment by default is a drastic step appropriate only in extreme circumstances; 14 a case should, whenever possible, be decided on the merits.” Falk, 739 F.2d at 463. When 15 applying the Falk factors, courts must keep in mind that “default judgments are the 16 exception, not the norm, and should be viewed with great suspicion.” United States v. 17 Aguilar, 782 F.3d 1101, 1106 (9th Cir. 2015). However, so long as a court faithfully applies 18 the Falk factors, it need not “articulate why a particular case presents ‘extreme 19 circumstances.’” Id. 20 III. Discussion 21 In their Motion to Set Aside Default Judgment, Defendants aver that Senergy did 22 not obtain Defendants’ consent to assign the Dealer Agreement to Plaintiff. (Doc. 37 at 4.) 23 Defendants further aver that, between approximately June 1, 2021 and October 21, 2022, 24 the gas station’s credit card machines were hacked and malfunctioned, resulting in a few 25 hundred dollars being stolen per day. (Id.) Tucson Chevron sought to purchase new gas 26 dispensers to address this issue, but delivery of the machines was delayed due to COVID- 27 19. (Id.) Defendants aver that Plaintiff then made a “unilateral decision” to “unbrand” 28 Tucson Chevron, refused to sell Tucson Chevron motor fuel, and told Tucson Chevron that 1 it had to remove Chevron signage from the gas station. (Id.) Defendants state, however, 2 that Plaintiff did not terminate the Dealer Agreement but instead offered to sell Tucson 3 Chevron “off-brand gas” at wholesale prices, a deal to which Tucson Chevron agreed. (Id.) 4 Defendants state that they discovered Plaintiff was not providing the off-brand gas at 5 wholesale prices, and when the higher price prevented Tucson Chevron from competing 6 with nearby gas stations, Defendants refused to purchase the off-brand gas. (Id.) 7 Defendants state that Plaintiff then unilaterally terminated the Dealer Agreement on 8 January 28, 2022. (Id.) 9 Defendants also aver that, after Elkotb received the Complaint in this action, he 10 called Plaintiff’s attorney, Taylor Burgoon of Fennemore Craig, P.C., on May 5, 2022, and 11 left a voicemail message. (Id. at 5.) Ms. Burgoon returned Elkotb’s call on May 17, 2022. 12 (Id.) During that call, Elkotb informed Burgoon that Defendants would not accept 13 Plaintiff’s settlement offer and that Defendants still needed to retain an attorney to answer 14 the Complaint. (Id.) According to Defendants, Burgoon indicated that she “would wait” 15 for a response from Defendants’ attorney. (Id.) Based on this conversation, Elkotb believed 16 that Burgoon had “granted” Defendants an “open extension” to retain an attorney and file 17 an answer to the Complaint. (Id.) Defendants aver that they were “surprised” to learn that 18 a default judgment had been entered against them, Plaintiff never advised them that the 19 “open extension” was revoked, and Plaintiff never served Defendants with copies of its 20 Application for Entry of Default, its Motion for Default Judgment, its Motion for 21 Attorneys’ Fees and Costs, or any of the Court’s Orders, despite knowing Defendants’ 22 contact information. (Id. at 5-6.) 23 Plaintiff alleges that Defendants, not Plaintiff, terminated the Dealer Agreement, 24 and Plaintiff supports that allegation with multiple letters from BHA and Chevron to 25 Defendants regarding Defendants’ alleged failure to comply with Chevron policies and the 26 terms of the Dealer Agreement. A letter from BHA to Defendants, dated August 24, 2021, 27 informs Defendants that Plaintiff believed Defendants had violated their obligations 28 pursuant to the Dealer Agreement, had therefore breached the Agreement, were jointly and 1 severally liable for debts incurred, and owed BHA a total sum of $218,980.62. (Doc. 41-1 2 at 3-4.) That letter informs Defendants that Plaintiff would exercise its rights pursuant to 3 the Dealer Agreement, including filing a lawsuit, to collect the balance due. (Id.) A letter 4 from Chevron dated December 15, 2021, informs Defendants that Chevron intended to 5 terminate the brand authorization for Tucson Chevron if it failed to install compliant gas 6 dispensers within 90 days. (Id. at 5.) A letter from BHA dated January 28, 2022 7 “acknowledge[s] Tucson Chevron’s termination of the Dealer Agreement”1 and states that 8 BHA consents to termination of the Agreement. (Id. at 6-8.) The letter states that Tucson 9 Chevron terminated the Agreement by selling unbranded fuel, removing Chevron imaging 10 from its gas station, removing itself from the Chevron credit card network, and failing to 11 comply with Chevron’s retail brand standards, thereby “unilaterally abandon[ing]” its 12 Chevron franchise and terminating the Agreement. (Id. at 6.) The letter states that, 13 notwithstanding the termination, BHA was willing to continue providing Chevron products 14 and Chevron was willing to allow Tucson Chevron to continue using its brand. (Id. at 7.) 15 The letter informs Defendants of the balance owed and that Plaintiff will exercise its rights, 16 including filing a lawsuit, to collect the balance due. (Id. at 8.) Lastly, a letter from Chevron 17 dated January 31, 2022, informs Defendants that they must completely remove Chevron’s 18 insignia and images from the gas station premises. (Id. at 9.) 19 Plaintiff also provides a declaration by Taylor Burgoon stating that Elkotb never 20 asked for an extension of the answer deadline and that Burgoon never offered or agreed to 21 an extension of the deadline, and “certainly not an indefinite ‘open’ extension.” (Doc. 41- 22 1 at 11-13.) Burgoon states that, when Elkotb began speaking about the merits of the case, 23 she asked in response if he was represented by counsel. (Id.) He responded that he was 24 going to retain an attorney the following week. (Id.) Burgoon responded that once Elkotb 25 retained counsel, all communications would need to be through the attorneys. (Id.) Elkotb 26 again stated that he would retain an attorney the following week, and Burgoon responded 27 by saying something like “we will await your attorney’s response.” (Id.) Burgoon 28 1 The letter refers to the Dealer Agreement as the “Supply Agreement.” 1 maintains that, had an open extension of the answer deadline been offered or agreed to, 2 Plaintiff would not have moved for entry of default judgment, but no such extension was 3 discussed or agreed upon. (Id. at 13.) Burgoon states that Plaintiff has not been able to 4 collect on any of the judgment amount and believes that Elkotb owns nine business entities, 5 of which Tucson Chevron is one. (Id.) 6 A. Prejudice to Plaintiff 7 The standard for prejudice is whether the Plaintiff’s “ability to pursue his claim will 8 be hindered.” Falk, 739 F.2d at 463. “[F]or the setting aside of a default judgment to be 9 considered prejudicial, it must result in more than delay. Rather, the delay must result in 10 tangible harm such as loss of evidence, increased difficulties of discovery, or greater 11 opportunity for fraud or collusion.” Thompson v. Am. Home Assur. Co., 95 F.3d 429, 433– 12 34 (6th Cir. 1996). The Ninth Circuit Court of Appeals has upheld a finding of prejudice 13 where a plaintiff argued that a delay in judgment would allow the defendant to move or 14 hide assets, and the defendant had not made a payment to its creditor in two years or filed 15 any pleadings until after default was entered. Franchise Holding II, 375 F.3d at 926–27. 16 Defendants argue that Plaintiff will not be prejudiced by setting aside the default 17 judgment because it only filed its Complaint in March of 2022, and the allegations arise 18 out of events leading up to that time. (Doc. 37 at 7.) Therefore, according to Defendants, 19 any delay from reinstating the case will not be prejudicial, nor will any other harm, such 20 as difficulty of discovery or greater opportunity for fraud, result. (Id.) In response, Plaintiff 21 contends that setting aside the default judgment would be prejudicial because the delay 22 would provide Defendants with an opportunity to move and hide assets among Mr. 23 Elkotb’s multiple business entities. (Doc. 41 at 17-18.) Plaintiff avers that it has been 24 seeking payment of the debt owed since August 28, 2021 but has been unable to collect on 25 the judgment. (Id.) 26 The Court finds that prejudice to Plaintiff may result from setting aside the default 27 judgment. Like the debtor defendant in Franchise Holding II, 375 F.3d at 926–27, here, 28 Defendants have failed to make any payments and failed to participate in this action until 1 after default judgment was entered. The record clearly shows that BHA and Chevron 2 contacted Defendants multiple times leading up to the filing of the Complaint in this action, 3 notifying them that they had breached the Agreement and that Plaintiff would be engaging 4 its legal rights to obtain payment. Moreover, once Elkotb received the Complaint and spoke 5 with Burgoon, he informed Burgoon that he intended to hire a lawyer soon thereafter. 6 However, Defendants did not participate in the action until default judgment was entered, 7 a motion for attorneys’ fees was granted, and a Charging Order issued as to eight LLCs in 8 which Elkotb holds an interest. (See Docs. 22, 24, 31.) Defendants contend that Plaintiff 9 never served them with copies of these documents. However, Plaintiff had no obligation to 10 do so, whereas Defendants had an obligation to appear in and defend this action if they 11 intended to contest the allegations. When they did not do so, even after the phone call with 12 Burgoon, Plaintiff properly moved for default judgment. Finally, a delay in entering 13 judgment in this matter could give Defendants the opportunity to move or hide assets 14 among the multiple business entities in which Elkotb holds an interest. For these reasons, 15 the first factor of prejudice to the Plaintiff is satisfied. 16 B. Meritorious Defense 17 “A party in default [] is required to make some showing of a meritorious defense as 18 a prerequisite to vacating an entry of default,” based on the “underlying concern” of 19 determining “whether there is some possibility that the outcome of the suit after a full trial 20 will be contrary to the result achieved by the default.” Stone, 794 F.2d at 513. “[T]he burden 21 on a party seeking to vacate a default judgment is not extraordinarily heavy,” but the party 22 “must present specific facts that would constitute a defense.” TCI Grp., 244 F.3d at 700. 23 In Falk, the Ninth Circuit held that the defendant raised a meritorious defense where she 24 alleged facts that were sufficient to raise a defense; the question whether the factual 25 allegation was true was the subject of the later litigation. See Falk, 739 F.2d at 463. 26 Defendants present a number of defenses that they argue are meritorious. First, 27 Defendants argue that there was no privity of contract between Plaintiff and Defendants on 28 the Dealer Agreement or the Guaranty because Defendants did not agree to assignment of 1 the Dealer Agreement and Guaranty to Plaintiff. (Doc. 37 at 9.) Defendants also contend 2 that the Dealer Agreement involved non-assignable personal services because it included 3 an agreement to use Chevron’s advertising, promotional materials, and branding at the gas 4 station. (Id. at 9-10.) Defendants argue that, because the alleged assignment is invalid, 5 Plaintiff lacks standing to sue for breach of contract and the claim fails as a matter of law. 6 (Doc. 37 at 10.) Defendants also argue that, because Elkotb’s Guaranty was non- 7 assignable, it cannot be enforced against Elkotb after the assignment to BHA occurred. (Id. 8 at 10-11.) Defendants further argue that, even if the assignment were valid, Plaintiff 9 materially breached the Dealer Agreement first and thereby relieved Defendants of any 10 further duty to perform. (Id. at 12.) Defendants do not dispute Plaintiff’s allegations that 11 Tucson Chevron removed Chevron imaging from the gas station, removed itself from the 12 Chevron credit card network, stopped selling Chevron gasoline, and failed to comply with 13 the Dealer Agreement and Chevron policy. (Id.) However, Defendants contend that 14 Plaintiff breached the Agreement first by refusing to sell Tucson Chevron any Chevron 15 brand gasoline, “unbranding” Tucson Chevron, and failing to sell Tucson Chevron gasoline 16 at wholesale price. (Id.) 17 Plaintiff maintains that Defendants’ purported defenses are without merit. (Doc. 41 18 at 13-17.) First, Plaintiff argues that Defendants are estopped from arguing that the 19 assignment of the Dealer Agreement and Guaranty was improper, because Defendants 20 operated under and benefitted from the Dealer Agreement for years after it was assigned 21 to BHA. (Id. at 13-14.) Second, Plaintiff argues that the plain language of the Dealer 22 Agreement establishes that the assignment was within the terms of the Agreement. (Id. at 23 14; Doc. 37-1 at 4 ¶ 15.) Furthermore, the guarantees by Elkotb and Tucson Chevron are 24 expressly incorporated in the Agreement (see Doc. 37-1 at 4 ¶ 16, 7, 8) and the guarantees 25 explicitly apply to Senergy’s successors and assigns (see Doc. 37-1 at 7 ¶ 1). Third, 26 Plaintiff argues that the assignment was proper under Arizona law, which establishes that 27 contracts for goods, such as motor fuel, are not contracts for “personal services.” (Doc. 41 28 at 14-15 (citing SiteLock LLC v. GoDaddy.com LLC, 562 F. Supp. 3d 283, 301–02 (D. 1 Ariz. 2022) (typical distributorship agreements are most often classified as contracts for 2 the sale of goods… such as “a contract for the sale of goods where the distributor purchased 3 and received products from the manufacturer and then resold those products directly to the 4 customers”) (internal quotation omitted); A.R.S. § 47-2105(A) (goods include “all things 5 (including specially manufactured goods) which are movable at the time of identification 6 to the contract for sale”).) Plaintiff argues that Chevron’s advertising, promotional 7 materials, and branding are properly classified as goods, not personal services. (Id. at 15.) 8 Plaintiff further refutes Defendants’ argument that special guarantees are not assignable, 9 pointing out that under the current Restatement of Suretyship & Guaranty, special 10 guarantees are assignable, see Restatement (Third) of Suretyship & Guaranty § 13, and that 11 Arizona courts follow the Restatement, see Brentwood Scottsdale LLC v. Smith, No. 1 CA- 12 CV 14-0067, 2015 WL 728364, at *1 (Ariz. App. Feb. 19, 2015) (applying Restatement 13 (Third) of Suretyship & Guaranty § 13 to find that plaintiff properly assigned a guaranty). 14 Plaintiff also disputes Defendants’ contention that it breached the Dealer Agreement 15 first, arguing that Defendants admit they breached the Agreement. (Id. at 16.) Plaintiff 16 points out that it is undisputed Defendants stopped allowing credit card transactions at their 17 fuel pumps in approximately June of 2021, which violated Chevron’s brand standards and 18 credit card guidelines, and thereby breached the Agreement. (Id. (citing Doc. 37-1 at 2 ¶ 3 19 (stating that “Buyer shall maintain Buyer’s premises in accordance with Chevron Brand 20 Standards [and] Chevron Credit Card Guidelines[.]”).) Upon this breach, pursuant to the 21 terms of the Agreement, BHA was no longer required to supply Chevron-branded fuel and 22 was permitted to terminate the Agreement, remove the Chevron brand from the gas station, 23 and require Defendants to pay amounts owed. (Id. (citing Doc. 37-1 at 2 ¶¶ 3, 9 (requiring 24 Buyer to repay to Senergy the unamortized cash incentive of $170,000 in the event the 25 Agreement is terminated for any reason by Buyer at any time).) 26 Plaintiff opposes Defendants’ argument that Plaintiff breached the Agreement by 27 selling Defendants off-brand fuel allegedly at a price higher than the wholesale price as set 28 forth in the Agreement. (Id.) Plaintiff contends first that it is undisputed Defendants 1 ordered, purchased, and accepted the off-brand fuel at an agreed-upon price, did not raise 2 any issue regarding the product or the price, and were therefore obligated to pay for the 3 fuel regardless of whether BHA breached the Agreement. (Id. at 16-17 (citing Doc. 37-1 4 at 2 ¶ 4 (stating that “Buyer shall pay Senergy for all goods delivered to Buyer by Senergy 5 hereunder on the date Buyer is required to pay for such goods”)).) Plaintiff further argues 6 that the Agreement’s reference to wholesale pricing refers to Chevron-branded fuel, not 7 off-brand fuel, and therefore Defendants’ argument that BHA breached the contract by 8 selling off-brand motor fuel above wholesale price fails. (Id. at 17 (citing Doc. 37-1 at 2 ¶ 9 4 (agreeing that “[t]he price for Buyer’s gasoline loads shall be Senergy’s Chevron 10 wholesale price”)).) Therefore, Plaintiff argues, it cannot have breached the Dealer 11 Agreement by selling Defendants off-brand fuel at a price higher than wholesale price, 12 because the Agreement did not contemplate or include such an arrangement. 13 After closely considering the parties’ arguments, the contractual terms at issue, and 14 the relevant documents, the Court finds that Defendants have not presented specific facts 15 constituting a defense. The Court is unconvinced by Defendants’ arguments that the Dealer 16 Agreement and the Guaranty were not assignable. Contrary to Defendants’ contention that 17 the Dealer Agreement explicitly precludes Senergy from assigning its interests, the Dealer 18 Agreement contains a clause stating, “Senergy reserves the right to transfer and assign this 19 Agreement at any time.” (See Doc. 37-1 at 4, ¶ 15.) Furthermore, there is no indication in 20 the contract terms that the Guaranty was a special guaranty for payment only to Senergy; 21 such an interpretation would contradict the plain language of the contract, which includes 22 no language limiting Elktob’s liability to Senergy only. There is also no indication, either 23 in the facts of the case or the terms of the Agreement, that the Agreement involved personal 24 services that cannot be assigned. The argument that the contract was for personal services 25 because it included use of Chevron’s imaging and marketing is unsupported by applicable 26 case law. The Agreement is primarily a contract for the sale and purchase of motor fuel, 27 which indisputably is a good and not a personal service. 28 1 Defendants’ argument that Plaintiff breached the Dealer Agreement first is 2 unsupported by the record. Defendants do not dispute that they removed Chevron imaging 3 from the gas station, stopped using the Chevron credit card network, stopped selling 4 Chevron gasoline, and failed to comply with the Dealer Agreement and Chevron policy. 5 These actions constituted a material breach of the Agreement. The record shows that 6 Plaintiff’s refusal to sell Chevron brand gasoline and the “unbranding” of Tucson Chevron 7 were in response to Defendants’ actions. And while Defendants’ actions may have been in 8 response to a credit card machine malfunction outside of their control, it appears that 9 Defendants took no steps to resolve this issue with Chevron, Senergy, or BHA before 10 breaching the Agreement. The record shows several communications from Chevron and 11 BHA to Defendants regarding their failures to comply with the Agreement and applicable 12 policies, but the record contains no indication of any responsive communications from 13 Defendants explaining the situation or attempting to negotiate a way to move forward with 14 the business relationship. Thus, Defendants’ argument is unavailing. 15 As for Defendants’ allegation that Plaintiff’s failure to sell it off-brand gasoline at a 16 wholesale price constituted a breach of the Agreement, this argument is also unsupported 17 by the record. As Plaintiff points out, the Agreement guarantees Defendants the ability to 18 purchase Chevron-branded gasoline, not off-brand gasoline, at a wholesale price. Thus, 19 when Plaintiff offered to sell Defendants off-brand gasoline after ceasing supply of 20 Chevron-branded gasoline due to Defendants’ breach, that deal was not governed by the 21 Agreement provision guaranteeing gasoline at a wholesale price, and Plaintiff was under 22 no obligation to provide the gas at that price. Defendants could have declined the offer to 23 purchase off-brand gasoline without breaching the Agreement. That they accepted the offer 24 does not mean the Agreement terms applied to the deal. 25 Accordingly, Defendants have not presented specific facts constituting a viable 26 defense that they did not breach the Dealer Agreement, and the second factor of presenting 27 a viable defense is not satisfied. 28 . . . . 1 C. Culpable Conduct 2 The Ninth Circuit has held that a “defendant’s conduct is culpable if he has received 3 actual or constructive notice of the filing of the action and intentionally failed to answer.” 4 Icho v. Hammer, 434 F. App’x 588, 590 (9th Cir. 2011) (quoting Alan Neuman Prods. Inc. 5 v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988)). “Culpability involves ‘not simply 6 nonappearance following receipt of notice of the action, but rather conduct which hindered 7 judicial proceedings[.]’” Id. (quoting Gregorian v. Izvestia, 871 F.2d 1515, 1525 (9th Cir. 8 1989)). The Ninth Circuit has “held that a defendant’s conduct was culpable for purposes 9 of the good cause factors where there is no explanation of the default inconsistent with a 10 devious, deliberate, willful, or bad faith failure to respond.” United States v. Signed Pers. 11 Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1092 (9th Cir. 2010). “[I]n this context 12 the term ‘intentionally’ means that a movant cannot be treated as culpable simply for 13 having made a conscious choice not to answer; rather, to treat a failure to answer as 14 culpable, the movant must have acted with bad faith, such as an ‘intention to take advantage 15 of the opposing party, interfere with judicial decisionmaking, or otherwise manipulate the 16 legal process.’” Id. (quoting TCI Grp., 244 F.3d at 697). “Neglectful failure to answer,” 17 where a credible explanation has been offered, “is not necessarily . . . culpable or 18 inexcusable.” TCI Grp., 244 F.3d at 697–98. Where an attorney missed a response deadline 19 but “acted in good faith, without prejudice to the opposing party, and with minimal delay 20 or impact on the judicial proceedings,” his neglect was excusable, even though he knew of 21 the deadline and did nothing to obtain an extension. Id. at 698. Similarly, where a defendant 22 knowingly failed to answer a complaint “for understandable reasons” and “in no way” 23 attempted to “obtain strategic advantage in the litigation,” the neglect was excusable. Id. 24 Defendants argue that they did not engage in culpable conduct leading to the default. 25 (Doc. 37 at 8-9.) Defendants contend that they did not intentionally fail to answer the 26 Complaint or attempt to hinder or circumvent judicial proceedings. (Id.) Defendants state 27 that their failure to timely respond to the Complaint was based on Elkotb’s interpretation 28 of his conversation with Burgoon, based on which he believed that he had an open 1 extension to retain an attorney and file an answer. (Id.) Defendants contend that Plaintiff 2 is culpable for its failure to answer because it never revoked the open extension and did 3 not serve any of its filings related to the default judgment on Defendants. (Id.) 4 In response, Plaintiff argues that it did not offer or agree to an extension for 5 Defendants to retain an attorney or file an answer. (Doc. 41 at 7-8.) Plaintiff avers that it 6 waited over three weeks from the time of Burgoon’s conversation with Elkotb to seek entry 7 of default. (Id.) Plaintiff contends that Defendants’ arguments regarding the conversation 8 are precluded by Local Rule of Civil Procedure 83.7, which states in relevant part that “[n]o 9 agreement between parties or attorneys is binding, if disputed, unless it is in writing signed 10 by the attorney of record or by the unrepresented party, or made orally in open court and 11 on the record[.]” LRCiv 83.7. Plaintiff further contends that Defendants made no effort to 12 participate in this litigation until after default judgment had been entered, they were not 13 diligent in participating in this litigation, they delayed in moving to set aside the default 14 judgment, and such conduct demonstrates a willful disregard of the judicial process. (Doc. 15 41 at 9-10.) Plaintiff further states that it was not required to provide Defendants notice of 16 its application for entry of default or other related filings. (Id. at 11-12.) 17 The Court finds that Defendants did not engage in culpable conduct leading to the 18 default by failing to timely answer the Complaint. Defendants’ failure to file an answer 19 was clearly neglectful, and the Court agrees that LRCiv 83.7 renders any purported oral 20 agreement to extend the deadline to answer not binding, as there is no dispute that the 21 conversation, including the purported agreement to an extension of time, was not recorded 22 in writing or made on the record in open court. However, there is no indication that 23 Defendants’ failure to file an answer was in any way an attempt to gain a strategic 24 advantage in the litigation, that it was an attempt to circumvent or hinder the judicial 25 process, or that it was done in bad faith. Defendants’ failure to abide by the deadline for 26 filing an answer cannot be attributed to intentionally willful conduct. Defendants’ 27 explanation that they relied on their interpretation of Elkotb’s conversation with Burgoon 28 is at least understandable, even if not supported by the applicable Rules. Courts have not 1 || found culpable conduct where a defendant’s failure to respond can be explained in good 2|| faith, even where it was clearly neglectful. 3 D. Conclusion 4 Even if Defendants’ delay in responding to the Complaint or participating in this 5 || litigation does constitute culpable conduct, the other Falk factors establish that setting aside || the default judgment is unnecessary under Rule 60(b). Plaintiff will be prejudiced by 7\|| setting aside the default judgment, and Defendants have not made a showing of a viable 8 || defense such that there is a legitimate possibility of a different outcome at trial. 9|| Accordingly, the Falk factors favor denying Defendants’ Motion to Set Aside. 10 IT IS ORDERED that the Motion to Set Aside Default Judgment (Doc. 37) is 11 || denied. The previously issued stay on the Charging Order and Writs of Garnishment (Doc. 47) is lifted. This case shall remain closed. 13 Dated this 9th day of March, 2023. 14 15 16 wf) Honorable Rostsiary □□□□□□□ 18 United States District □□□□□ 19 20 21 22 23 24 25 26 27 28

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