2591028 Ontario Limited v. Vector Technology Systems LLC, 2:21-cv-01090

2591028 Ontario Ltd. sued Vector Technology Systems LLC, Mark Cohn, and a Jane Doe on June 23, 2021; defendants were served July 1 and proof of service was filed July 19.
Court issued a show‑cause order July 29 for failure to prosecute; plaintiff applied for entry of default on August 5 and the clerk entered default August 6.
Defendants filed a motion to set aside the default on August 20; plaintiff filed for default judgment on August 24 and opposed vacatur, alternatively seeking attorneys’ fees and costs.
Defendants said financial hardship delayed retention of counsel and asserted defenses: no factual allegations against Cohn, contract claims not against him, and an arbitration clause covering the dispute.
Plaintiff relied on an email suggesting Defendants had retained counsel for another matter and argued Defendants’ failure to answer was culpable; plaintiff sought fees if the default were set aside.
The court vacated the entry of default, denied the default judgment as moot, refused to impose attorneys’ fees/costs as a condition, and gave defendants until September 27, 2021 to respond.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Culpable conduct under Rule 55(c)	Defendants received notice and failed to answer; Franchise Holding II standard should deem failure culpable	Financial inability to retain counsel caused delay; lack of bad faith or deviousness	Applied Mesle standard for unrepresented/unsophisticated parties; no culpable conduct found
Meritorious defenses required to vacate default	No meritorious defense; default should stand	Complaint lacks factual allegations tying Cohn to wrongdoing; arbitration clause applies; defenses alleged	Defendants met the minimal burden by alleging facts that, if true, constitute defenses
Prejudice to plaintiff from vacatur	Setting aside default prejudices plaintiff by causing delay and wasted effort	Delay alone is not enough; no tangible harm to plaintiff’s ability to pursue claims	No prejudice: plaintiff’s ability to litigate on the merits was not hindered
Conditioning vacatur on attorneys’ fees/costs	Fees and costs should be awarded to rectify prejudice from default proceedings	Conduct was not egregious; defendants struggled to obtain counsel; plaintiff incurred some fees after learning of defendants’ intent to litigate	Denied fees: court found defendants’ conduct not sufficiently egregious and plaintiff voluntarily incurred some costs

United States v. Signed Personal Check No. 730 of Yubran S. Mesle, 615 F.3d 1085 (9th Cir. 2010) (sets three‑factor good‑cause test and requires intentionality for unrepresented parties)
Franchise Holding II, LLC v. Huntington Rests. Grp., Inc., 375 F.3d 922 (9th Cir. 2004) (earlier rule treating mere failure to answer as culpable)
O'Connor v. Nevada, 27 F.3d 357 (9th Cir. 1994) (courts should resolve doubts in favor of deciding cases on the merits)
Nilsson, Robbins, Dalgarn, Berliner, Carson & Wurst v. La. Hydrolec, 854 F.2d 1538 (9th Cir. 1988) (authorizes conditioning vacatur on payment of fees to remedy prejudice)
TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691 (9th Cir. 2001) (prejudice requires more than delay; must hinder plaintiff’s ability to pursue claim)
Falk v. Allen, 739 F.2d 461 (9th Cir. 1984) (default judgment is a drastic remedy; prefer merits resolution)
E. & J. Gallo Winery v. Cantine Rallo, S.p.A., 430 F. Supp. 2d 1064 (E.D. Cal. 2005) (denying fees for costs incurred after defendant indicated intent to litigate)