United States District Court, D. Idaho
MEMORANDUM DECISION AND ORDER
B. LYNN WINMILL, Chief District Judge.
The Court has before it Defendants TimberStone Management LLC's and Laura Tennison's Motions to Set Aside Clerk's Entry of Default (Dkts. 21, 22). Having considered the record and pleadings, the Court will grant these motions and set aside the Clerk's entry of default. The Court will also deny Plaintiff Idaho Golf Partner, Inc.'s Motion for Default Judgment (Dkt. 11).
Plaintiff Idaho Golf Partners, Inc. commenced this action on June 13, 2014. A few days later, Idaho Golf's counsel emailed a copy of this complaint to defendant Laura Tennison, indicating that the complaint had "sent... out for service... in hopes we can resolve this matter short of protracted litigation." June 17, 2014 email from Dinius to Tennison, Dkt. 23-2. Defendant TimberStone was not named as a defendant in this complaint; instead Idaho Golf named Peninsula Beverage Co. and Laura Tennison as defendants. See Dkt. 1.
Roughly one month later, Idaho Golf filed an amended complaint, dropping Peninsula Beverage as a defendant and adding in its place defendant TimberStone. On July 21, 2014, a process server delivered copies of the amended complaint and summonsto the law offices of Webster Powell, P.C. See Affidavits of Service, Dkts. 9-2, 9-3. Defendant Tennison was employed by Webster Powell at the time and attorney James L. Webster - presumably of Webster Powell - was listed as defendant TimberStone's registered agent. See Decl. of Kevin E. Dinius, at Ex. D, Dkt. 23-5.
The process server left copies of the summons and complaint with Mr. Louie Salas, who was working as a temporary administrative assistant at Webster Powell. See Def. TimberStone's Br. at 4, Dkt. 21-4. As discussed further below, the parties dispute whether leaving the documents with Mr. Salas effected service upon the defendants.
On August 13, 2014, the Court Clerk entered both defendants' default, and Idaho Golf thereafter moved for entry of a default judgment. See Dkts. 10, 11. Within days of this motion being filed, Tennison and TimberStone entered their appearances. See Dkts. 12, 14. The parties then stipulated that the Court should refrain from ruling on the motion for entry of a default judgment while they attempted to resolve their differences. See Dkt. 18. The Court granted that stipulation. See Dkt. 19.
Meanwhile, back in Illinois, TimberStone had sued Idaho Golf in the United States District Court for the Northern District of Illinois. TimberStone filed the Illinois action on July 18, 2014 - three days before copies of the amended Idaho complaint were delivered to Mr. Salas. Additionally, around that same time, Idaho Golf filed a cancellation proceeding against TimberStone in the United States Patent and Trademark Office (USPTO). See Pl. Resp. at 3, Dkt. 23. The Illinois case was dismissed in November 2014 for lack of jurisdiction. Pl. Resp. at 4, Dkt. 23. The USPTO proceeding has been stayed pending the disposition of this action.
Federal Rule of Civil Procedure 55(c) empowers a court to set aside an entry of default for "good cause." Fed.R.Civ.P. 55(c). To determine whether good cause exists, the Court considers three factors: 1) whether the defendant's culpable conduct led to the default; 2) whether the defendant has a meritorious defense; or 3) whether setting aside the default would prejudice the plaintiff. Brandt v. Am. Bankers Ins. Co. of Fla., 653 F.3d 1108, 1111 (9th Cir. 2011). The movant bears the burden of demonstrating these factors, but the burden is "not extraordinarily heavy." United States v. Signed Personal Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010). The Ninth Circuit has found that it is "crucial" for courts to remember that "judgment by default is a drastic step appropriate only in extreme circumstances; a case should, whenever possible, be decided on the merits." Id. ( citing Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984)). Further, although the same test applies to a motion seeking relief from the entry of default under Rule 55(c) and default judgment under Rule 60(b), the test is more liberally applied in the Rule 55(c) context because "there is no interest in the finality of judgment with which to contend." Id. at 1091 n.1.
1. Effective Service of Process
Before addressing good cause under the three-part described above, the Court will address the parties' threshold dispute regarding service of process. An entry of default presumes effective service of process; as a result, if neither defendant was effectively served, then this alone justifies setting aside the default. See, e.g, Veeck v. Commodity Enters., 487 F.2d 423, 425-26 (9th Cir. 1973) (reversing district court's denial of motion to set aside default judgment and quash service of process because service of process was ineffective and citing Rule 55(c) in so doing); Gold Kist, Inc. v. Laurinburg Oil Co., Inc., 756 F.2d 14, 19 (3d Cir.1985) ("A default judgment entered when there has been no proper service of the complaint is, a fortiori, void, and should be set aside."); Mettle v. First Union Nat'l Bank, 279 F.Supp.2d 598, 603 (D.N.J. 2003) (finding good cause to set aside the entry of default given improper service of process).
In determining whether service was effective, the Court looks to Rule 4 of the Federal Rules of Civil Procedure. See Direct Mail Specialists v. Eclat, 840 F.2d 685, 688 (9th Cir. 1988). "Rule 4 is a flexible rule that should be liberally construed so long as a party receives sufficient notice of the complaint.'" Id. (citation omitted). But if a party has not substantially complied with Rule 4, "neither actual notice nor simply naming the defendant in the complaint will provide personal jurisdiction." Id. (citation omitted). A plaintiff bears the burden of demonstrating proper service. See Brockmeyer v. May, 383 F.3d 798, 801 (9th Cir. 2004).
Tennison. Turning first to individual defendant Laura Tennison, plaintiff could have effected service under Rule 4 in one of two ways. First, plaintiff could have followed either Idaho or Illinois state law for effecting ...