Brandt v. American Bankers Insurance

Where the court finds that a defendant acted culpably when the defendant failed to respond to the complaint, the court is not precluded, as a matter of law, from setting aside the default judgment for excusable neglect under Federal Rule of Procedure 60(b)(1).

Todd and Karen Brandt brought suit against American Bankers Insurance Co. (“American Bankers”) for breach of contract and bad faith after their home flooded and American Bankers paid an allegedly inadequate portion of the claim. The district court entered a default judgment against American Bankers after it failed to respond to the Brandts’ complaint. Pursuant to Federal Rule of Civil Procedure 60(b)(1), American Bankers then filed a motion to set aside the default for good cause, which the district court granted after considering the factors for “excusable neglect” set out in Falk v. Allen. Despite finding that American Bankers was culpable because it “fail[ed] to provide a credible explanation for its failure to respond to Plaintiff’s lawsuit,” the district court concluded that American Bankers’ conduct was not intentional or in bad faith. The parties conceded that American Bankers had a meritorious defense, and the district court found that any prejudice to the Brandts could be cured. On appeal, the Brandts argued that the district court abused its discretion when it set aside the default judgment after finding that American Bankers acted culpably in failing to respond to the complaint. The Ninth Circuit held that the district court did not abuse its discretion in setting aside the default judgment based upon excusable neglect. The Court concluded that while a district court should consider the Falk factors in ruling on a motion to set aside default judgment, the application of the excusable neglect standard under Rule 60(b)(1) “is committed to the discretion of the district courts.” AFFIRMED.