Federated States of Micronesia Development Bank v Gouland [2000] FMSC 32; 9 FSM Intrm. 375 (Chk. 2000) (27 April 2000)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION
Cite case as Federated States of Micronesia Development Bank v Gouland, [2000] FMSC 32; 9 FSM Intrm 375 (Chk. 2000)

FEDERATED STATES OF MICRONESIA DEVELOPMENT BANK,
Plaintiff,

vs.

LARRY GOULAND, JULIA GOULAND,
and YURIE K. GOULAND,
Defendants.

__________________________________________

CIVIL ACTION NO. 2000-1000

ORDER VACATING ENTRY OF DEFAULT

Richard H. Benson
Associate Justice

Decided: April 27, 2000

APPEARANCES:

For the Plaintiff:
Ron Moroni, Esq.
P.O. Box 1618
Kolonia, Pohnpei FM 96941

For the Defendants:
Wesley Simina, Esq.
P.O. Box 94
Weno, Chuuk FM 96942

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HEADNOTES

Judgments - Default Judgments; Judgments - Relief from Judgment
Under Civil Procedure Rule 55(c), relief from an entry of default may be granted for good cause shown. A default entry may thus be set aside for reasons that would not be enough to open a default judgment. A Rule 55(c) motion is addressed to the trial court's discretion. Good cause is a mutable standard, varying from situation to situation, and it is likewise a liberal one, but not so elastic as to be devoid of substance. FSM Dev. Bank v. Gouland, [2000] FMSC 32; 9 FSM Intrm. 375, 377 (Chk. 2000).

Civil Procedure
When an FSM Civil Procedure Rule is nearly identical to a U.S. Federal Rule of Civil Procedure and the FSM Supreme Court has not previously construed the FSM Rule, it may look to U.S. federal practice for guidance in interpreting the rule. FSM Dev. Bank v. Gouland, [2000] FMSC 32; 9 FSM Intrm. 375, 377 n.1 (Chk. 2000).

Judgments - Default Judgments; Judgments - Relief from Judgment
The standard for setting aside an entry of default under Rule 55(c) is the liberal and less rigorous "good cause" standard rather than the more restrictive standard of excusable neglect for setting aside a default judgment under Rule 60(b). FSM Dev. Bank v. Gouland, [2000] FMSC 32; 9 FSM Intrm. 375, 377-78 (Chk. 2000).

Judgments - Default Judgments; Judgments - Relief from Judgment
The "good cause" threshold for Rule 55(c) relief is lower, ergo more easily overcome, than that which obtains under Rule 60(b) and the trial court should not read "good cause" too grudgingly. This more flexible approach reflects a policy decision that a default judgment should enjoy a greater degree of finality and, therefore, should be more difficult to disturb than a mere default. FSM Dev. Bank v. Gouland, [2000] FMSC 32; 9 FSM Intrm. 375, 378 (Chk. 2000).

Judgments - Relief from Judgment
Generally, "good cause" is a broader and more liberal standard that frees the court from some of the restraints imposed by the excusable neglect requirement. A motion for relief pursuant to Rule 55(c) must be liberally construed. The Rule 55(c) standard is lenient. FSM Dev. Bank v. Gouland, [2000] FMSC 32; 9 FSM Intrm. 375, 378 (Chk. 2000).

Judgments - Relief from Judgment
In determining whether good cause to vacate an entry of default exists a court evaluates whether the default was willful, whether setting it aside would prejudice the adversary, and whether a meritorious defense is presented. A court may also examine into such things as the proffered explanation for the default, the good faith of the parties, the amount of money involved, and the timing of the motion. FSM Dev. Bank v. Gouland, [2000] FMSC 32; 9 FSM Intrm. 375, 378 (Chk. 2000).

Judgments - Relief from Judgment
For the purpose of a Rule 55 motion to vacate an entry of default, the meritorious defense factor has a low threshold of adequacy and may be met although a court finds a defendant's meritorious defense argument tenuous. FSM Dev. Bank v. Gouland, [2000] FMSC 32; 9 FSM Intrm. 375, 378 (Chk. 2000).

Judgments - Relief from Judgment
Because of the strong policies favoring resolution on the merits, the trial court has only a narrow scope of discretion, so that in a close case, a trial court should resolve its doubts in favor of a party seeking relief from the entry of a default. FSM Dev. Bank v. Gouland, [2000] FMSC 32; 9 FSM Intrm. 375, 378-79 (Chk. 2000).

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COURT'S OPINION

RICHARD H. BENSON, Associate Justice:

On January 11, 2000, the plaintiff FSM Development Bank filed and on January 13, 2000, it served its Complaint and Summons. On February 10, 2000, the Bank applied for, and received an entry of default when it appeared that no defendant had answered or otherwise defended. On February 16, 2000, the defendants filed and served an Answer to Complaint and Defendants' Counterclaims, and a Motion to Vacate Entry of Default with a supporting Affidavit of Counsel. In response, the Bank filed an Opposition to Motion to Vacate Entry of Default and a Motion for Entry of Default Judgment/ Alternative Motion for Summary Judgment with a supporting Affidavit in Support of Application for Entry of Default and Default Judgment. The defendants then filed a Reply to Opposition to Motion to Vacate Entry of Default.

Defendants' counsel's affidavit states that he was asked to represent the defendants when he was leaving Chuuk in mid-January to attend a Congress session in Pohnpei as a staff attorney and that after he returned on Saturday, February 12th he found that a default had been entered on February 10th. The defendants assert that they have a meritorious defense in that they had earlier asked the bank to voluntarily foreclose on the secured property and the bank did not respond.

Under Civil Procedure Rule 55(c), relief from an entry of default may be granted for "good cause shown." "[A] default entry may be set aside for reasons that would not be enough to open a default judgment." 10 Charles Alan Wright et al., Federal Practice and Procedure § 2696, a-15 (2d ed. 1983).[1] A Rule 55(c) motion is addressed to the trial court's discr. Id. at 515. "'Good cause' is a mutable standard, varying from situation to situatituation. It is likewise a liberal one-but not so elastic as to be devoid of substance." Coon v. Grenier, [1989] USCA1 45; 867 F.2d 73, 76 (1st Cir. 1989).

Although it is unclear whether defendants' counsel received the actual Complaint and Summons before he departed for Pohnpei, he apparently did not review it until his return, and he did not ask either opposing counsel or the court for an enlargement of time to answer. I cannot say that such neglect was excusable. The Rule 55(c) standard, however, is not excusable neglect, but rather a less rigorous standard. Meehan v. Snow, [1981] USCA2 582; 652 F.2d 274, 276 (2d Cir. 1981). "It is Rule 60(b) that imposes the stricter standard of excusable neglect, but that Rule is applicable only to the vacatur of a final judgment." Holford USA Ltd. v. Harvey, 169 F.R.D. 41, 43-44 (S.D.N.Y. 1996) (opponent to motion to vacate entry of default had asserted that the described inadvertent attorney oversight was not excusable neglect within the meaning of Rule 55(c) or 60(b)). "[T]he standard for setting aside a default decree is less rigorous than setting aside a judgment for excusable neglect." United States v. One Parcel of Real Estate, 763 F.2d 181, 183 (5th Cir. 1985). A "motion to set aside [an] entry of default is governed by the liberal 'good cause' standard rather than by the more restrictive standard of [Rule] 60(b)." Rasmussen v. American Nat'l Red Cross, 155 F.R.D. 549, 550 (S.D. W. Va. 1994).

"[T]he 'good cause' threshold for Rule 55(c) relief is lower, ergo more easily overcome, than that which obtains under Rule 60(b)." Coon, 867 F.2d at 76 (trial court should not read "good cause" too grudgingly). "This more flexible approach reflects a policy decision that a default judgment should enjoy a greater degree of finality and, therefore, should be more difficult to disturb than a mere default." Pontarelli v. Stone, 713 F. Supp. 525, 528 (D.R.I. 1989) (emphasis in original) ("generally speaking, good cause is ..... a broader and more liberal standard that frees the Court from some of the restraints imposed by the excusable neglect requirement"). A motion for relief pursuant to Rule 55(c) must be liberally construed. Lolatchy v. Arthur Murray, Inc., [1987] USCA4 915; 816 F.2d 951, 954 (4th Cir. 1987); Rasmussen, 155 F.R.D. at 551. The Meehan court characterized the Rule 55(c) standard as "lenient." Meehan, 652 F.2d at 277.

In determining whether good cause to vacate an entry of default exists a court evaluates "'whether the default was willful, whether setting it aside would prejudice the adversary, and whether a meritorious defense is presented.'" One Parcel, 763 F.2d at 183; Traguth v. Zuck, [1983] USCA2 671; 710 F.2d 90, 94 (2d Cir. 1983) (quoting Meehan, 652 F.2d at 277). "[A] court may also examine into such things as the proffered explanation for the default, the good faith of the parties, the amount of money involved, and the timing of the motion." Coon, 867 F.2d at 76; see also Pontarelli, 713 F. Supp. at 528.

There is no suggestion that the defendants' actions or their counsel's actions in not timely answering were willful. Nor will the Bank be prejudiced if the default entry is vacated.

Without further factual information I am uncertain whether the defendants' affirmative defense would alter the outcome. But the meritorious defense factor has a "low threshold of adequacy for Rule 55 purposes." Meehan, 652 F.2d at 277; see also Rasmussen, 155 F.R.D. at 552 (entry of default vacated although court found defendant's "'meritorious defense' argument tenuous"); Holford USA, 169 F.R.D. at 44 ("whether a meritorious defense is presented, requires only that the defendant meet a 'low threshold'"). The defendants' allegations are enough, even if tenuous, to meet the required low threshold.

Nothing indicates that the parties have not acted in good faith. The case at hand also involves a substantial sum - $166,458.40, as of February 21, 2000. And in this case, the defendants' counsel acted promptly, almost immediately, once he had learned of the default because he could not have learned of it before Monday, February 14th and the defendants' detailed answer and the motion to vacate were filed Wednesday, February 16th.

The factors of lack of willfulness and of prejudice weigh in favor of vacating the default, and the possible weakness of the alleged meritorious defense does not negate a balance in favor of the motion to vacate the entry of default. Additionally, the defendants' promptness in seeking relief from the entry of default, the substantial sum involved, and the parties' good faith all weigh in the motion's favor as well. Because most of the factors I must consider weigh in favor of setting aside the default I can find good cause to set aside the this default, although it is a close case. "In a close case, doubts should be resolved in favor of adjudicating claims on the merits." Coon, 867 F.2d at 79 (reversing trial court's denial of motion to set aside entry of default); see also Leshore v. County of Worcester, [1991] USCA1 488; 945 F.2d 471, 472 (1st Cir. 1991) ("[T]he 'philosophy that actions should ordinarily be resolved on their merits' dictates that 'a [trial] court should resolve doubts in favor of a party seeking relief from the entry of a default.'"); Traguth, 710 F.2d at 94; Meehan, 652 F.2d at 277 ("doubts are to be resolved in favor of a trial on the merits"); Rasmussen, 155 F.R.D. at 551 (any doubts should be resolved in favor of setting aside the default); 10 Charles Alan Wright et al., supra, § 2693484-85. Because of the the strong policies favoring resolution on the merits the trial court has only a narrow scope of discretion. Traguth, 710 F.2d atThe Motion to Vacate Entry of Default is accordingly granteranted.

I did locate one reported case factually similar to the one at hand. In Eisler v. Stritzler, 45 F.R.D. 27 (D.P.R. 1968) the defendant moved to set aside the default one day after he learned of its entry. The Eisler court found good cause and vacated the default entry because the case involved substantial sums, the defendant had been off-island due to the Christmas holidays and illness in his family, the defendant, upon his return to Puerto Rico, had moved promptly to vacate the default once he had learned of it and filed a lengthy answer shortly thereafter. The court emphasized "that such matters should be determined on the merits, especially in a case . . . whefendated ited immediatediately upon knowledge that he was in default." Id. at 28. The court also noted that the defendantallegcomplete defense on the merits, and, even though the defendant's answer containedained a su a substantial counterclaim, that there was no substantial prejudice to the plaintiff. Id. The Eisler court reached this result despite, as set out in the case, the defendant having earlier obtained an enlargement until December 28, 1967. The default was entered on January 9, 1968, the day before the defendant's attorneys filed a second motion asking for an extension of time to plead. This aspect, surely weighing against the defendant, was not discussed in the court's reasoning.

In this case, like Eisler, once defendants' counsel was aware of the default entry he promptly filed the motion to vacate and the defendants' answer. In this case, it was the defendants' counsel, not the defendant, who was off-island for a few weeks, precluding the filing of an answer. These similarities favor vacating the entry of default in this case.

I therefore vacate the entry of default, exercising my discretion in favor of the principle that it is preferable that cases be decided on their merits. The Bank's Motion for Entry of Default Judgment is accordingly denied as moot. Within fifteen days of service of this order the Bank shall file and serve its answer to the defendants' counterclaim found in their answer and the defendants shall file and serve any opposition to the Bank's Alternative Motion for Summary Judgment.

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^[1] When an FSM Civil Procedure Rule is nearly identical to a U.S. Federal Rule of Civil Procedure and this court has not previously construed the FSM Rule, I may look to U.S. federal practice for guidance in interpreting the rule. Jano v. King, [1992] FMSC 11; 5 FSM Intrm. 326, 329 (App. 1992); Andohn v. FSM, [1984] FMSC 4; 1 FSM Intrm. 433, 441 (App. 1984).