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First Mercury Insurance Co. v. SQI, Inc.

United States District Court, W.D. Washington, Seattle

February 6, 2014

FIRST MERCURY INSURANCE COMPANY, Plaintiff,
v.
SQI, INC., et al., Defendants. FIRST MERCURY INSURANCE COMPANY, Plaintiff,
v.
SKYLINE SHEET METAL, INC., et al., Defendants.

ORDER SETTING ASIDE DEFAULT AND CONSOLIDATING CASES

JAMES L. ROBART, District Judge.

I. INTRODUCTION

Before the court are two unopposed motions: (1) Defendant SQI, Inc.'s ("SQI") motion to set aside default (Mot. to Set Aside (Dkt. #24)); and (2) Plaintiff First Mercury Insurance Company's ("FMIC") motion to consolidate (Mot. to Consol. (Dkt. #25)). Neither side opposes the other's motion. For the reasons described below, the court GRANTS both motions.

II. BACKGROUND

This is an insurance coverage action. The underlying dispute involves construction defects in a residential development known as the Admiral Way Condominiums ("the condos"). (Compl. (Dkt. #1) ¶ 14.) In 2007, the Admiral Condominium Owners' Association brought a lawsuit against the owner and developer of the condos. ( Id. ¶ 22.) The lawsuit was premised on problems with the roofing in the condos. ( Id. ¶ 19, 22.) Additional lawsuits soon proliferated. First, the owner and developer of the condominiums sued the project's general contractor, Ledcor Industries (USA), Inc. ("Ledcor"). ( Id. ¶ 23.) Ledcor, in turn, sued two of its roofing subcontractors, SQI, Inc. ("SQI"), and Skyline Sheet Metal Inc. ("Skyline"), among others. ( Id. ¶ 24-25.) SQI and Skyline tendered defense of these claims to their insurer, FMIC, who agreed to defend under a reservation of rights and proceeded to bring coverage actions against SQI and Skyline separately in this court. ( See generally Compl. 33-36; First Mercury Ins. Co. v. Skyline Sheet Metal, Inc., No. C13-2109JLR.) The SQI case was assigned to Chief Judge Marsha Pechman, and the Skyline case was assigned to this court. However, the SQI case was soon reassigned to this court as related to the Skyline case. (1/30/14 Order (Dkt. #29).) At the time the case was reassigned, default had already been entered against SQI and the two motions at issue in this order were already pending. ( See Dkt.)

III. ANALYSIS

A. Motion to Set Aside Default

The first motion, the motion to set aside default, is GRANTED. FMIC has indicated that it does not oppose the motion. (Resp. (Dkt. #28).) Rule 55(c) of the Federal Rules of Civil Procedure permits the court to "set aside an entry of default for good cause." Fed.R.Civ.P. 55(c). To determine whether a party has shown good cause, the court must examine "(1) whether [the party seeking to set aside the default] engaged in culpable conduct that led to the default; (2) whether [it] had [no] meritorious defense; [and] (3) whether reopening the default judgment would prejudice any other party." United States v. Signed Personal Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (quoting Franchise Holding II v. Huntington Rests. Grp., Inc., 375 F.3d 922, 925-26 (9th Cir. 2004)) (quotation marks omitted); Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984) (adopting the three factor test for the first time in the Ninth Circuit). The Falk factors are to be considered conjunctively. See TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir. 2001). When performing this analysis, the court must 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. at 1091 (quoting Falk, 739 F.2d at 463) (quotation marks omitted).

These factors favor setting aside default in this case. First, there is no suggestion of culpable conduct. SQI alleges that it was served with papers for this coverage action but "did not believe any action on [its] part was necessary" because it was represented in the underlying liability action. (Decl. of Steve Gardner (Dkt. #24-1) ¶ 4.) Unbeknownst to SQI, FMIC did not serve SQI's attorney directly. ( Id. ¶¶ 4-5.) SQI did not follow up with its attorney until after the holiday season ended, by which time default had been entered. ( Id. ¶¶ 5-7.) SQI's actions appear to be inadvertent mistakes, not the kind of culpable action that might persuade a court not to set aside a default. ( See id. ) Second, it appears that there is a possibility that SQI will raise a meritorious defense. SQI asserts that it has such a defense, and the pleadings thus far do not demonstrate that this is unlikely. (Mot. to Set Aside at 3-4.) Last, there is no hint of prejudice to FMIC, as evidenced by the fact that FMIC does not oppose the motion. This case is still in its early stages and there is no suggestion by either side that the delay thus far will have any adverse impact on FMIC's ability to defend itself. Accordingly, the court GRANTS the motion to set aside default.

FMIC requests that the court award attorney's fees as a condition of setting aside default. Indeed, a default judgment may be set aside "upon such terms as are just, " and "it is appropriate to condition setting aside a default upon the payment of a sanction." Nilsson, Robbins, Dalgarn, Berliner, Carson & Wurst v. Louisiana Hydrolec, 854 F.2d 1538, 1546-47 (9th Cir. 1988). The most common sanction imposed "is that the defendant reimburse the plaintiff for costs incurred because of the default." Id. at 1546. This condition is just and appropriate here. SQI was properly served and has no excuse beyond its own misunderstanding for failing to appear. FMIC was under no obligation to notify SQI that it was moving for entry of default because SQI never appeared in the case. See Local Rules W.D. Wash. LCR 55(a). The court awards attorney's fees in the amount of $1500.00 as a condition of setting aside the entry of default. The court also ORDERS SQI to answer the complaint within ten days of the date of this order.

B. Motion to Consolidate

The second motion, the motion to consolidate, is also GRANTED. Consolidation of cases is governed by Federal Rule of Civil Procedure 42(a), which provides as follows:

(a) Consolidation. If actions before the court involve a common question of law ...

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