1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 YELLOWCAKE, INC., a No. 1:22-cv-01109-JAM-CSK California corporation and 12 LATIN POWER MUSIC USA, LLC, a California limited liability 13 company, ORDER GRANTING DEFENDANTS’ MOTION TO SET ASIDE CLERK’S 14 Plaintiffs, ENTRY OF DEFAULT 15 v. 16 UMG RECORDINGS, INC., UNIVERSAL MUSIC LATIN 17 ENTERTAINMENT, DISA LATIN MUSIC, VICTOR GONZALEZ, 18 ANTONIO SILVA, CORPORATIVO LATIN POWER MUSIC SA DE CV 19 and JOSE SERRANO MONTOYA, 20 Defendants. 21 22 PROCEDURAL HISTORY 23 Currently pending before this Court is Corporativo Latin 24 Power Music SA de CV (“LPM Mexico”) and Jose Serrano Montoya’s 25 (“Serrano”) (collectively, the “Serrano Defendants”) motion to 26 set aside the Clerk’s defaults entered against Defendant Serrano 27 on January 20, 2023 and Defendant LPM Mexico on January 24, 2023. 28 See Mot., ECF Nos. 17, 19. Plaintiffs submitted an opposition, 1 Opp’n, ECF No. 68, and Defendants replied, Reply, ECF No. 74. 2 For the reasons provided herein, the Court GRANTS Defendants’ 3 motion to set aside the clerk’s defaults.1 4 5 I. BACKGROUND 6 On August 31, 2022, Plaintiffs Yellowcake and LPM USA filed 7 their initial Complaint alleging various copyright infringement, 8 breach of contract, and related claims arising out of the 9 exploitation of certain sound recordings by Defendants UMG 10 Recordings, Inc. (“UMRI”), Universal Music Latin Entertainment 11 (“UMLE”), and Disa Latin Music (“Disa”) that Plaintiffs allege to 12 have acquired. Plaintiffs allege that they properly served 13 Defendants at a business meeting on October 27, 2022. See Opp’n 14 at 2, 4; ECF Nos. 8, 9. Defendants subsequently did not respond 15 and defaults were entered against them. See ECF Nos. 17, 19. 16 Defendants now argue that service was improper and seek to set 17 aside the defaults that were entered. See Mot. at 11. 18 19 II. OPINION 20 A. Legal Standard 21 Under Federal Rule of Civil Procedure 55, a court may set 22 aside an entry of default for “good cause.” The Ninth Circuit 23 evaluates “good cause” by assessing three factors: (1) whether 24 the defendant’s culpable conduct led to the default; (2) whether 25 the defendant has a meritorious defense; and (3) whether setting 26
27 1This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was 28 scheduled for January 21, 2025. 1 aside the default would prejudice the plaintiff. U.S. v. Signed 2 Personal Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091 3 (9th Cir. 2010) (Mesle), quoting Franchise Holding II, LLC v. 4 Huntington Rests. Grp., Inc., 375 F. 3d 922, 926 (9th Cir. 2004). 5 District courts generally grant motions to set aside a default 6 unless the default was willful, the plaintiff will be prejudiced, 7 or the defendant has no meritorious defense. See In re 8 Dierschke, 975 F.2d 181, 183-184 (5th Cir. 1992). Moreover, the 9 “court's discretion is especially broad where . . . it is entry 10 of default that is being set aside, rather than a default 11 judgment.” O'Connor v. State of Nev., 27 F.3d 357, 364 (9th Cir. 12 1994). 13 As a general matter, courts favor the resolution of cases on 14 the merits. The Ninth Circuit has emphasized that resolution of 15 a motion to set aside the entry of default is necessarily 16 informed by well-established policies favoring resolution of 17 cases on their merits and generally disfavoring default 18 judgments. See Mesle, 615 F.3d at 1091 (“judgment by default is 19 a drastic step appropriate only in extreme circumstances; a case 20 should, whenever possible, be decided on the merits”) (citations 21 and quotation marks omitted); Westchester Fire Ins. Co. v. 22 Mendez, 585 F.3d 1183, 1189 (9th Cir. 2009) (“[a]s a general 23 rule, default judgments are disfavored; cases should be decided 24 upon their merits whenever reasonably possible”); Dierschke, 975 25 F.2d. at 183 (“courts universally favor trial on the merits”); 26 Assemi v. Assemi, 2024 WL 4668246, at *1 (E.D. Cal. 27 2024)(“[c]rucially, however, ‘judgment by default is a drastic 28 step appropriate only in extreme circumstances; a case should, 1 whenever possible, be decided on the merits’”), quoting Falk v. 2 Allen, 739 F.2d 461, 463 (9th Cir. 1984). 3 B. Analysis 4 1. Culpable Conduct 5 Plaintiffs have not demonstrated that Defendants exhibited 6 culpable conduct when they failed to submit an answer. A 7 defendant “is culpable if [it] has received actual or 8 constructive notice of the filing of the action and 9 intentionally failed to answer.” Alan Neuman Prods., Inc. v. 10 Albright, 862 F.2d 1388, 1392 (9th Cir. 1988). “[T]he term 11 ‘intentionally’ means that a [defendant] cannot be treated as 12 culpable simply for having made a conscious choice not to 13 answer; rather, to treat a failure to answer as culpable, the 14 [defendant] must have acted with bad faith, such as an 15 ‘intention to take advantage of the opposing party, interfere 16 with judicial decision making, or otherwise manipulate the legal 17 process.’” Mesle, 615 F.3d at 1092, quoting TCI Grp. Life Ins. 18 Plan v. Knoebber, 244 F.3d 691, 697 (9th Cir. 2001). 19 Plaintiffs and Defendants disagree about the validity of 20 the original service and offer conflicting declarations 21 describing the meeting where Serrano was served. Defendants’ 22 claim deficient process because Serrano is a non-English speaker 23 and believed that the envelope he received contained contracts 24 instead of process papers. See Mot. at 11. On the other hand, 25 Plaintiffs’ claim that their process server properly informed 26 Serrano that he had been served. See Opp’n at 5-6. In the face 27 of conflicting declarations, Plaintiffs have not met their 28 burden to establish bad faith or any intention to manipulate the 1 legal process attributable to the Defendants. Instead, 2 Defendants have provided a good faith explanation for their 3 delay and in the absence of other equitable factors such as 4 prejudice, “simple carelessness” is not sufficient to deny a 5 defendant’s motion to set aside default judgment. See Mesle, 6 615 F.3d at 1093. 7 2. Defendants’ Meritorious Defenses 8 Defendants have also provided potentially meritorious 9 defenses, which weighs in favor of setting aside the entry of 10 default. In their motion, Defendants attach a proposed answer 11 with twenty-five affirmative defenses as well as a series of 12 proposed counterclaims. See Mot. Exs. 1, 2. A defense is 13 considered meritorious if “there is some possibility that the 14 outcome of the suit after a full trial will be contrary to the 15 result achieved by the default.” Hawaii Carpenters’ Tr. Funds, 16 794 F.2d 508 at 513. 17 Plaintiffs’ main argument against Defendants’ potential 18 defenses is that Defendants’ counterclaims are not viable 19 because the statute of limitations has expired for those claims. 20 However, even if the initial breaches of contract may have 21 occurred in 2019, Defendants’ counterclaims are based on 22 Plaintiffs’ ongoing obligation to pay LPM Mexico’s royalties. 23 As Defendants point out, continuing claims and obligations to 24 pay are not time-barred because a cause of action accrues each 25 time a wrongful act occurs. See Armstrong Petroleum Corp. v. 26 Tri–Valley Oil & Gas Co., 116 Cal. App. 4th 1375, 1388–89 27 (2004). Thus, each time a royalty has not been paid, a new 28 periodic injury has occurred. See Peterson v.
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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 YELLOWCAKE, INC., a No. 1:22-cv-01109-JAM-CSK California corporation and 12 LATIN POWER MUSIC USA, LLC, a California limited liability 13 company, ORDER GRANTING DEFENDANTS’ MOTION TO SET ASIDE CLERK’S 14 Plaintiffs, ENTRY OF DEFAULT 15 v. 16 UMG RECORDINGS, INC., UNIVERSAL MUSIC LATIN 17 ENTERTAINMENT, DISA LATIN MUSIC, VICTOR GONZALEZ, 18 ANTONIO SILVA, CORPORATIVO LATIN POWER MUSIC SA DE CV 19 and JOSE SERRANO MONTOYA, 20 Defendants. 21 22 PROCEDURAL HISTORY 23 Currently pending before this Court is Corporativo Latin 24 Power Music SA de CV (“LPM Mexico”) and Jose Serrano Montoya’s 25 (“Serrano”) (collectively, the “Serrano Defendants”) motion to 26 set aside the Clerk’s defaults entered against Defendant Serrano 27 on January 20, 2023 and Defendant LPM Mexico on January 24, 2023. 28 See Mot., ECF Nos. 17, 19. Plaintiffs submitted an opposition, 1 Opp’n, ECF No. 68, and Defendants replied, Reply, ECF No. 74. 2 For the reasons provided herein, the Court GRANTS Defendants’ 3 motion to set aside the clerk’s defaults.1 4 5 I. BACKGROUND 6 On August 31, 2022, Plaintiffs Yellowcake and LPM USA filed 7 their initial Complaint alleging various copyright infringement, 8 breach of contract, and related claims arising out of the 9 exploitation of certain sound recordings by Defendants UMG 10 Recordings, Inc. (“UMRI”), Universal Music Latin Entertainment 11 (“UMLE”), and Disa Latin Music (“Disa”) that Plaintiffs allege to 12 have acquired. Plaintiffs allege that they properly served 13 Defendants at a business meeting on October 27, 2022. See Opp’n 14 at 2, 4; ECF Nos. 8, 9. Defendants subsequently did not respond 15 and defaults were entered against them. See ECF Nos. 17, 19. 16 Defendants now argue that service was improper and seek to set 17 aside the defaults that were entered. See Mot. at 11. 18 19 II. OPINION 20 A. Legal Standard 21 Under Federal Rule of Civil Procedure 55, a court may set 22 aside an entry of default for “good cause.” The Ninth Circuit 23 evaluates “good cause” by assessing three factors: (1) whether 24 the defendant’s culpable conduct led to the default; (2) whether 25 the defendant has a meritorious defense; and (3) whether setting 26
27 1This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was 28 scheduled for January 21, 2025. 1 aside the default would prejudice the plaintiff. U.S. v. Signed 2 Personal Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091 3 (9th Cir. 2010) (Mesle), quoting Franchise Holding II, LLC v. 4 Huntington Rests. Grp., Inc., 375 F. 3d 922, 926 (9th Cir. 2004). 5 District courts generally grant motions to set aside a default 6 unless the default was willful, the plaintiff will be prejudiced, 7 or the defendant has no meritorious defense. See In re 8 Dierschke, 975 F.2d 181, 183-184 (5th Cir. 1992). Moreover, the 9 “court's discretion is especially broad where . . . it is entry 10 of default that is being set aside, rather than a default 11 judgment.” O'Connor v. State of Nev., 27 F.3d 357, 364 (9th Cir. 12 1994). 13 As a general matter, courts favor the resolution of cases on 14 the merits. The Ninth Circuit has emphasized that resolution of 15 a motion to set aside the entry of default is necessarily 16 informed by well-established policies favoring resolution of 17 cases on their merits and generally disfavoring default 18 judgments. See Mesle, 615 F.3d at 1091 (“judgment by default is 19 a drastic step appropriate only in extreme circumstances; a case 20 should, whenever possible, be decided on the merits”) (citations 21 and quotation marks omitted); Westchester Fire Ins. Co. v. 22 Mendez, 585 F.3d 1183, 1189 (9th Cir. 2009) (“[a]s a general 23 rule, default judgments are disfavored; cases should be decided 24 upon their merits whenever reasonably possible”); Dierschke, 975 25 F.2d. at 183 (“courts universally favor trial on the merits”); 26 Assemi v. Assemi, 2024 WL 4668246, at *1 (E.D. Cal. 27 2024)(“[c]rucially, however, ‘judgment by default is a drastic 28 step appropriate only in extreme circumstances; a case should, 1 whenever possible, be decided on the merits’”), quoting Falk v. 2 Allen, 739 F.2d 461, 463 (9th Cir. 1984). 3 B. Analysis 4 1. Culpable Conduct 5 Plaintiffs have not demonstrated that Defendants exhibited 6 culpable conduct when they failed to submit an answer. A 7 defendant “is culpable if [it] has received actual or 8 constructive notice of the filing of the action and 9 intentionally failed to answer.” Alan Neuman Prods., Inc. v. 10 Albright, 862 F.2d 1388, 1392 (9th Cir. 1988). “[T]he term 11 ‘intentionally’ means that a [defendant] cannot be treated as 12 culpable simply for having made a conscious choice not to 13 answer; rather, to treat a failure to answer as culpable, the 14 [defendant] must have acted with bad faith, such as an 15 ‘intention to take advantage of the opposing party, interfere 16 with judicial decision making, or otherwise manipulate the legal 17 process.’” Mesle, 615 F.3d at 1092, quoting TCI Grp. Life Ins. 18 Plan v. Knoebber, 244 F.3d 691, 697 (9th Cir. 2001). 19 Plaintiffs and Defendants disagree about the validity of 20 the original service and offer conflicting declarations 21 describing the meeting where Serrano was served. Defendants’ 22 claim deficient process because Serrano is a non-English speaker 23 and believed that the envelope he received contained contracts 24 instead of process papers. See Mot. at 11. On the other hand, 25 Plaintiffs’ claim that their process server properly informed 26 Serrano that he had been served. See Opp’n at 5-6. In the face 27 of conflicting declarations, Plaintiffs have not met their 28 burden to establish bad faith or any intention to manipulate the 1 legal process attributable to the Defendants. Instead, 2 Defendants have provided a good faith explanation for their 3 delay and in the absence of other equitable factors such as 4 prejudice, “simple carelessness” is not sufficient to deny a 5 defendant’s motion to set aside default judgment. See Mesle, 6 615 F.3d at 1093. 7 2. Defendants’ Meritorious Defenses 8 Defendants have also provided potentially meritorious 9 defenses, which weighs in favor of setting aside the entry of 10 default. In their motion, Defendants attach a proposed answer 11 with twenty-five affirmative defenses as well as a series of 12 proposed counterclaims. See Mot. Exs. 1, 2. A defense is 13 considered meritorious if “there is some possibility that the 14 outcome of the suit after a full trial will be contrary to the 15 result achieved by the default.” Hawaii Carpenters’ Tr. Funds, 16 794 F.2d 508 at 513. 17 Plaintiffs’ main argument against Defendants’ potential 18 defenses is that Defendants’ counterclaims are not viable 19 because the statute of limitations has expired for those claims. 20 However, even if the initial breaches of contract may have 21 occurred in 2019, Defendants’ counterclaims are based on 22 Plaintiffs’ ongoing obligation to pay LPM Mexico’s royalties. 23 As Defendants point out, continuing claims and obligations to 24 pay are not time-barred because a cause of action accrues each 25 time a wrongful act occurs. See Armstrong Petroleum Corp. v. 26 Tri–Valley Oil & Gas Co., 116 Cal. App. 4th 1375, 1388–89 27 (2004). Thus, each time a royalty has not been paid, a new 28 periodic injury has occurred. See Peterson v. Highland Music, 1 Inc., 140 F.3d 1313, 1321 (9th Cir. 1998). Thus, Defendants 2 have shown that they have potentially viable defenses and 3 counterclaims. 4 3. Lack of Prejudice 5 Plaintiffs argue that they would be prejudiced because 6 setting aside the default would cause a delay to the resolution 7 of this case and increased litigation costs. However, these 8 arguments are not persuasive because prejudice does not result if 9 a party is merely forced to litigate the merits of their case. 10 See TCI Grp. Life Ins. Plan, 244 F.3d at 701. 11 While substantial time has passed since the entry of 12 default, Plaintiffs currently have submitted a pending motion to 13 amend their existing First Amended Complaint and argue that no 14 ultimate prejudice would result to Defendants by altering their 15 pleadings. See ECF No. 47. In their own submissions, Plaintiffs 16 repeatedly argue that no prejudice would result from granting 17 leave to file a Second Amended Complaint since “discovery is 18 nowhere near complete . . . and no depositions have been 19 conducted.” See ECF No. 47-1 at 18-19; ECF No. 60 at 3. Given 20 that Plaintiffs themselves seek to add new defendants and claims 21 that would require a new scheduling order with extended discovery 22 deadlines, the Court finds that Plaintiffs would not be subject 23 to any undue delay caused by setting aside the clerk’s entry of 24 default. 25 26 III. CONCLUSION 27 The Court finds that Defendants have shown good cause to set 28 aside the Clerk’s defaults. Because Defendants have not ee ee ON EIEIO IE IEE OSE IE
1 exhibited culpable conduct, presented potentially meritorious 2 defenses, and lack of prejudice, an adjudication on the merits of 3 the case iS appropriate in line with the general judicial 4 | preference for resolving cases on their merits. 5 6 Iv. ORDER 7 For the reasons set forth above, the Court GRANTS 8 Defendants’ Motion to Set Aside the Clerk’s Defaults. 9 IT IS SO ORDERED. 10 Dated: January 27, 2025 11 A as JOHN A. MENDEZ 13 SENIOR UNITED*STATES DISTRICT JUDGE 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28