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Under Rule 55(c) the court may set aside entry of default for good cause. In determining good cause, the primary factors considered in granting relief from entry of default are diligence, the merits of the case, and prejudice.
Plaintiff La Jolla Loans Inc., commenced this diversity action in October 2008 seeking to collect an unconditional guaranty allegedly executed by defendant Daniel S. Stanford. In April 2007, plaintiff made a loan to Gaston Partners LLC, for the purchase of real property located in Texas. To induce plaintiff to make the loan, defendant allegedly executed an unconditional guaranty, guaranteeing repayment of the loan. In June 2008, Gaston Partners defaulted on the loan and the beneficiaries under the Deed of Trust proceeded with a non-judicial foreclosure of the property. After applying all credits and payments received, plaintiff alleged that the amount due under the guaranty was $ 217,497.16, plus costs and expenses. Plaintiff personally served defendant on December 2008 and, on January 2009. Plaintiff moved for entry of default, the next day, the Clerk of Court entered default against defendant. Plaintiff then moved for entry of default judgment. Defendant opposed the motion and separately moved to set aside default.
Should the defendant’s motion to set aside entry of default be granted?
The court concluded that defendant acted with reasonable diligence in seeking to retain counsel. The court held that, on the merits, it appeared that defendant may have a meritorious defense in that he declared the signature on the unconditional guaranty was of questionable authenticity. Further, the only prejudice identified by plaintiff was the additional expenses incurred for having to file documents. Thus, to ameliorate prejudice to plaintiff caused by defendant’s delay in timely responding to the summons, the court conditionally granted the motion to set aside entry of default upon defendant compensating plaintiff for its reasonable attorney's fees; that defendant must make the required payment to plaintiff's attorney within 10 days of entry of this order. Lastly, the court denied plaintiff's motion for entry of default judgment as moot.