FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
YUBRAN S. MESLE,
Claimant-Appellant,
v.
SIGNED PERSONAL CHECK NO. 730
OF YURBAN S. MESLE, Drawn from
Bank of America Account No.
0967267676 in the amount of
$240,000.00 in U.S. Currency;
SIGNED PERSONAL CHECK NO. 1004
OF YUBRAN S. MESLE, Drawn from
No. 09-55353
Wells Fargo Bank Account No. D.C. No.
3572585739 in the Amount of 3:08-cv-00394-
$5,000.00 in U.S. Currency; WQH-CAB
SIGNED PERSONAL CHECK NO. 1040 OPINION
OF YUBRAN S. MESLE, Drawn, from
Bank of America Account No.
2454767190, No Amount Stated;
$197,031.14 IN U.S. CURRENCY,
Seized from Bank of America
Account No. 0967267676 on
February 22, 2008; $1,598.21 IN
U.S. CURRENCY, Seized from Wells
Fargo Bank Account No.
3572585739 on February 22,
2008,
Defendants.
11211
11212 UNITED STATES v. MESLE
Appeal from the United States District Court
for the Southern District of California
William Q. Hayes, District Judge, Presiding
Argued and Submitted
April 9, 2010—Pasadena, California
Filed August 4, 2010
Before: Dorothy W. Nelson and Stephen Reinhardt,
Circuit Judges, and Robert H. Whaley,
Senior District Judge.*
Opinion by Judge Reinhardt
*The Honorable Robert H. Whaley, United States District Judge for the
Eastern District of Washington, sitting by designation.
UNITED STATES v. MESLE 11215
COUNSEL
Karen P. Hewitt, United States Attorney; Bruce R. Castetter,
Assistant United States Attorney, Chief, Appellate Section,
Criminal Division; Bruce C. Smith, Assistant United States
Attorney, San Diego, California, for the plaintiff-appellee.
Richard M. Barnett, San Diego, California, for the claimant-
appellant.
OPINION
REINHARDT, Circuit Judge:
Yubran Mesle appeals the district court’s denial of his
motion to set aside an entry of default in a forfeiture proceed-
ing against checks drawn on Mesle’s accounts and funds in
those accounts. “[J]udgment by default is a drastic step appro-
priate only in extreme circumstances; a case should, whenever
possible, be decided on the merits.” Falk v. Allen, 739 F.2d
461, 463 (9th Cir. 1984). Our rules for determining when a
default should be set aside are solicitous towards movants,
11216 UNITED STATES v. MESLE
especially those whose actions leading to the default were
taken without the benefit of legal representation. See id.; TCI
Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 695-98 (9th
Cir. 2001). The district court failed to show such solicitude,
holding the movant to a standard inappropriate for determin-
ing whether an unrepresented lay party’s conduct demon-
strated culpability; and made merits decisions as to the
movant’s defenses that were premature at this stage of the
proceedings, and, moreover, were incorrect. We reverse.
I
On November 8, 2007, Yubran Mesle’s brother, Ata
Dighlawi, entered the United States carrying three personal
checks drawn on Mesle’s accounts that totaled $245,000.
Each was signed by Mesle, but the payee line for each was
blank. Dighwali failed to declare the checks, and customs
officials seized them pursuant to 31 U.S.C. §§ 5316(a)(1)(B)
and 5324(c)(1).
A week later, Mesle received a letter from Customs inform-
ing him that it had seized the checks and that they were sub-
ject to forfeiture under 31 U.S.C. § 5317. The letter described
a set of legal options available to Mesle, including, among
others, filing a petition for administrative relief with US Cus-
toms and filing a claim that would give rise to a forfeiture
proceeding in federal district court. Nowhere did the letter
explain that these options were exclusive of one another, or
what would happen if Mesle exercised more than one option.
Included with the letter were several forms, including a
“Petition for Remission or Mitigation of Forfeiture,” used to
initiate an administrative proceeding with Customs; a “Seized
Asset Claim Form,” used to initiate an action in federal dis-
trict court; and an “Election of Proceedings Form.” The Elec-
tion of Proceedings Form listed three options for Mesle — 1)
requesting that Customs delay forfeiture proceedings and con-
sider an administrative petition, 2) abandoning the property,
UNITED STATES v. MESLE 11217
and 3) requesting that Customs send his case for court action
— and stated that Mesle was to choose only one of these
options.
Mesle filled out this paperwork without the help of a law-
yer, and apparently without understanding that the instruc-
tions to choose one option on the Election of Proceedings
form meant that he had to choose either a court action or an
administrative petition process. He mailed to Customs both
the Petition for Remission and the Seized Asset Claim form;
in his declaration he stated that he did so because he hoped
for the aid in recovering his property of both the courts and
the administrative apparatus at Customs. Mesle also mailed
Customs the Election of Proceeding form, having checked the
box for a court proceeding. He asserts that he did so only out
of confusion, and without realizing that this would nullify his
administrative petition.
In February 2008, a United States Magistrate Judge issued
two warrants ordering the seizure of $240,000 and $5,000,
respectively, from the bank accounts on which the seized
checks were drawn. Federal agents then seized $197,031.14
from one of Mesle’s accounts and $1,598.21 from another.
On March 3, 2008, the United States filed a complaint for
forfeiture pursuant to 31 U.S.C. § 5317(c) against the three
checks and the seized funds, and on March 6, 2008, it sent
Mesle and other potential claimants a notice of judicial forfei-
ture proceedings and a copy of the complaint. The notice
stated that in order to contest the forfeiture, a claimant had to
file a verified claim in district court within 35 days, and an
answer to the complaint within 20 days of filing the verified
claim.
Mesle received the notice of forfeiture proceedings a few
days later, but, again acting without the aid of a lawyer, took
no action in response to it. Mesle asserts that he did nothing
because he thought that his prior action in sending in the Peti-
11218 UNITED STATES v. MESLE
tion for Remission and the Seized Asset Claim form was suf-
ficient at least until the resolution of the administrative
process that he erroneously thought he had initiated and that
a Customs official had told him could take up to a year.
In June 2008, with none of the potential claimants in the
forfeiture proceeding having filed a claim or an answer, the
government filed a request for Clerk’s entry of default as to
all potential claimants, which was granted. A month later, on
July 18, 2008, the government filed a motion for default judg-
ment. When Mesle received notice of that motion, he realized
that action was required and hired a lawyer. On August 7,
2008, Mesle filed a claim in district court demanding the
return of the checks and currency, and on August 19, 2008,
he filed a response in opposition to the United States’ motion
and requested that the district court set aside the entry of
default for good cause under Federal Rule of Civil Procedure
55(c). After briefing, the district court denied Mesle’s motion
to set aside the default and granted the government judgment
by default.
II
This court reviews the district court’s denial of a Rule 55(c)
motion for abuse of discretion. Franchise Holding II v. Hun-
tington Rests. Group, Inc., 375 F.3d 922, 925 (9th Cir. 2004).
There is a two step test for abuse of discretion. “[T]he first
step of our abuse of discretion test is to determine de novo
whether the trial court identified the correct legal rule to apply
to the relief requested.” United States v. Hinkson, 585 F.3d
1247, 1261 (9th Cir. 2009) (en banc). “[T]he second step . . .
is to determine whether the trial court’s application of the cor-
rect legal standard was (1) ‘illogical,’ (2) ‘implausible,’ or (3)
without ‘support in inferences that may be drawn from the
facts in the record.’ ” Id. “Due to the policy of favoring judg-
ments on the merits, a glaring abuse of discretion is not
required for reversal of a court’s refusal to relieve a party of
the harsh sanction of default.” United States v. $22,050.00
UNITED STATES v. MESLE 11219
U.S. Currency, 595 F.3d 318, 324 (6th Cir. 2010) (internal
quotation marks and citation omitted).
The primary question before us is whether the district court
identified the correct legal standards to apply. We hold that it
did not. The technical details of its errors are explained below,
but the basic deficiencies are simply stated: the district court
ignored our oft stated commitment to deciding cases on the
merits whenever possible, and held Mesle, a layman working
without the aid of an attorney, to the same standards to which
we hold sophisticated parties acting with the benefit of legal
representation.
[1] The Federal Rules provide that a “court may set aside
an entry of default for good cause. . . .” Fed. R. Civ. Pro.
55(c). To determine “good cause”, a court must “consider[ ]
three factors: (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; or (3) whether
reopening the default judgment would prejudice” the other
party. See Franchise Holding II, 375 F.3d at 925-26. This
standard, which is the same as is used to determine whether
a default judgment should be set aside under Rule 60(b), is
disjunctive, such that a finding that any one of these factors
is true is sufficient reason for the district court to refuse to set
aside the default. See id. Crucially, however, “judgment by
default is a drastic step appropriate only in extreme circum-
stances; a case should, whenever possible, be decided on the
merits.” Falk, 739 F.2d at 463; see also Latshaw v. Trainer
Wortham & Co., Inc., 452 F.3d 1097, 1103 (9th Cir. 2006);
Speiser, Krause & Madole P.C. v. Ortiz, 271 F.3d 884, 890
(9th Cir. 2001); TCI Group, 244 F.3d at 695-96.1
1
Additionally, “[w]hile the same test applies for motions seeking relief
from default judgment under both Rule 55(c) and Rule 60(b), the test is
more liberally applied in the Rule 55(c) context,” such as we consider
here. Cracco v. Vitran Exp., Inc., 559 F.3d 625, 631 (7th Cir. 2009) (quo-
tations and citations omitted). This is because in the Rule 55 context there
is no interest in the finality of the judgment with which to contend. See
Hawaii Carpenters’ Trust Funds v. Stone, 794 F.2d 508, 513 (9th Cir.
1986).
11220 UNITED STATES v. MESLE
[2] In denying Mesle’s motion to set aside the default and
entering default judgment in favor of the government, the dis-
trict court omitted any mention of the “extreme circum-
stances” requirement for judgment by default. This was no
minor omission: rather, it fundamentally altered the standard,
turning the court’s attention to everyday oversights rather than
to whether there were any extreme circumstances. Absent
such circumstances, judgment by default is inappropriate in
this case.
[3] Had the district court properly considered the “extreme
circumstances” requirement, it could not have reached the
result that it did. Nothing about Mesle’s failure to respond to
the notice of forfeiture proceedings suggests extreme or
exceptional circumstances such as might warrant the “drastic
step” of entering a default judgment against his interests.
Mesle clearly made a timely attempt to challenge the forfei-
ture: he sent Customs a Petition for Remission of the seized
checks well within the 30 days the letter notifying him of the
seizure gave him to file such a petition. His error was that he
also filled out a Seized Asset Claim form and checked the box
on the “Election of Proceedings” form requesting court
action, thus nullifying his administrative petition and trigger-
ing a court action rather than an administrative proceeding; he
then failed to respond to the notice of judicial forfeiture pro-
ceedings. He did all of these things, however, without a law-
yer’s help. Mesle explained that he thought that he had done
what he needed to do to register a claim when he sent off the
first round of forms: he had, after all, already sent the govern-
ment both the Petition for Remission and the Seized Asset
Claim form, and was told by a Customs officer that process-
ing his claim might take up to a year. As soon as he received
notice that a default had been entered against him and of the
government’s motion for judgment by default — thus alerting
him that he might have misunderstood the situation — he
hired a lawyer and responded with the present motion. There
is nothing extreme about these circumstances: Mesle dis-
played a quite ordinary ignorance of the law, but nothing to
UNITED STATES v. MESLE 11221
warrant the “drastic” step of denying his motion to set aside
the default.
The ordinariness of the circumstances and the concomitant
inappropriateness of the judgment by default against Mesle
are all the more apparent in an examination of the individual
“good cause” factors, particularly culpable conduct and meri-
torious defenses.
1. Culpable conduct
[4] “[A] defendant’s conduct is culpable if he has received
actual or constructive notice of the filing of the action and
intentionally failed to answer.” TCI Group, 244 F.3d at 697
(emphasis in original) (quoting Alan Neuman Productions,
Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988)); see
also Meadows v. Dominican Republic, 817 F.2d 517, 521 (9th
Cir. 1987) (defendant “intentionally declined” service). As we
have previously explained, in this context the term “intention-
ally” means that a movant cannot be treated as culpable sim-
ply for having made a conscious choice not to answer; rather,
to treat a failure to answer as culpable, the movant must have
acted with bad faith, such as an “intention to take advantage
of the opposing party, interfere with judicial decisionmaking,
or otherwise manipulate the legal process.” TCI Group, 244
F.3d at 697. We have “typically held that a defendant’s con-
duct was culpable for purposes of the [good cause] factors
where there is no explanation of the default inconsistent with
a devious, deliberate, willful, or bad faith failure to respond.”
Id. at 698. As we explained in TCI Group, our approach is
consistent with Pioneer Investment Services Co. v. Brunswick
Associates Ltd, 507 U.S. 380, 388, 394-95 (1993), in light of
which it is clear that simple carelessness is not sufficient to
treat a negligent failure to reply as inexcusable, at least with-
out a demonstration that other equitable factors, such as preju-
dice, weigh heavily in favor of denial of the motion to set
aside a default. See TCI Group, 244 F.3d at 696-97; see also
Lemoge v. United States, 587 F.3d 1188, 1192 (9th Cir. 2009).
11222 UNITED STATES v. MESLE
[5] The district court did not apply the applicable standard
when determining whether Mesle’s conduct was culpable.
Instead, it relied on language from Franchise Holdings II, in
which we stated that a defendant’s conduct may be considered
culpable “[i]f [the] defendant has received actual or construc-
tive notice of the filing of the action and failed to answer,”
with no mention of that failure being intentional. See 375 F.3d
at 926 (internal quotations omitted). This is not the ordinary
standard for Rule 55(c) and 60(b) motions; in fact, we have
never applied it to deny relief in the context of such motions
except when the moving party is a legally sophisticated entity
or individual. See, e.g., Franchise Holdings II, 375 F.3d at
924 (notice of action received by counsel of company that
later tried to set aside the default); Direct Mail Specialists,
Inc. v. Eclat Computerized Tech., Inc., 840 F.2d 685, 690 (9th
Cir.1988). It is possible to reconcile the language in Fran-
chise Holdings II with the standard in TCI Group. When con-
sidering a legally sophisticated party’s culpability in a default,
an understanding of the consequences of its actions may be
assumed, and with it, intentionality. See Direct Mail Special-
ists, Inc., 840 F.2d at 690 (defendant was “a lawyer, presum-
ably . . . well aware of the dangers of ignoring service of
process”). Here, we need not determine, however, whether the
Franchise Holdings II standard applies to more than sophisti-
cated parties represented by counsel who may be presumed to
be aware of the consequences of their actions. It is sufficient
to observe that Mesle is not a lawyer and that he was unrepre-
sented at the time of the default; accordingly, the proper stan-
dard to apply was that of TCI Group.
[6] Applying the proper standard, Mesle’s conduct was
clearly not culpable. The district court determined that Mesle
lacked a good faith explanation for his default — in other
words, that he was culpable — because the letter from Cus-
toms and the accompanying forms that Mesle received in
November 2007, together with the notice of judicial forfeiture
proceedings he received in March 2008, were sufficient notice
of the filing of the forfeiture action and the steps necessary to
UNITED STATES v. MESLE 11223
avoid default. Mesle’s failure to act upon receiving these two
sets of documents is insufficient to establish culpability; to the
contrary, the facts demonstrate that Mesle was ignorant of the
law and unable to understand correctly his legal obligations
by reading and synthesizing the information on two sets of
documents received months apart — not an unusual occur-
rence in the case of a layman acting without the help of a law-
yer. The district court itself noted that it was important to
consider when determining culpability whether the movant
had the benefit of counsel, but then utterly failed to apply this
consideration when evaluating Mesle’s conduct.
[7] Moreover, nothing in Mesle’s conduct suggests the bad
faith necessary to find that he intentionally failed to answer
the notice he had received regarding the action. The district
court did not point to any “intention to take advantage of the
opposing party, interfere with judicial decisionmaking, or oth-
erwise manipulate the legal process,” TCI Group, 244 F.3d at
697; nor could it have done so. Mesle’s failure to respond
allowed him neither to “take advantage” of the federal gov-
ernment, nor to “manipulate the legal process.” The only out-
come that such a failure could have earned him was what he
received: a default and a heightened possibility of the loss of
his property, which was already in the hands of the govern-
ment and which he had no hopes of reacquiring except
through engaging in the legal process. In contrast, behavior
that we have found culpable usually involves conduct by par-
ties that is calculated to help them retain property in their pos-
session, and avoid liability by staying out of court: for
instance, when companies act to avoid service in order to
thwart their customers’ attempts to bring suit against them.
See id. at 698-99 (collecting cases).
[8] In short, the district court erred in finding Mesle’s con-
duct culpable because of his failure to act after being notified
of the need to do so, in the absence of any indication that he
acted in bad faith.
11224 UNITED STATES v. MESLE
2. Meritorious defense
[9] “A defendant seeking to vacate a default judgment
must present specific facts that would constitute a defense.
But the burden on a party seeking to vacate a default judg-
ment is not extraordinarily heavy.” See TCI Group, 244 F.3d
at 700 (citations omitted). All that is necessary to satisfy the
“meritorious defense” requirement is to allege sufficient facts
that, if true, would constitute a defense: “the question whether
the factual allegation [i]s true” is not to be determined by the
court when it decides the motion to set aside the default. Id.
Rather, that question “would be the subject of the later litiga-
tion.” Id.
[10] The district court did not take note of the minimal
nature of the burden Mesle was supposed to carry. Worse, it
made a key factual determination, rejecting Mesle’s sworn
assertions that the checks and the funds in the underlying
accounts belonged to him and not his brother. It decided,
instead, that the checks and underlying funds belonged to
Mesle’s brother because Mesle’s brother asserted ownership
over the checks when asked about them at the border. Mesle’s
supposed lack of ownership interest in the seized checks and
underlying funds was the district court’s only ground for
rejecting two of his proposed defenses to the forfeiture action:
that he was an innocent owner of the checks and funds, and
that forfeiture of all of the seized funds would constitute an
excessive fine violative of the Eighth Amendment.
[11] There are any number of reasons that the checks
might have been in the possession of Mesle’s brother, many
of which would not involve transfer of ownership of the
checks or the underlying funds. Certainly there is no law say-
ing that once a check has been signed and turned over to
somebody else, the signatory has given up all ownership inter-
est in the check or the funds underlying it. Cf. Cal. Comm.
Code § 4403 (under California law, the signatory of a check
retains sufficient interest in the check after writing it and hav-
UNITED STATES v. MESLE 11225
ing it pass from his possession that he may make a timely
request to stop payment on it). Under the law of this Circuit,
Mesle had a right to raise his allegation that he owned the
checks and the funds in court and to have it resolved during
a merits proceeding. See, e.g., United States v. $69,292.00 in
U.S. Currency, 62 F.3d 1161, 1164 (9th Cir. 1995) (proceed-
ings on the merits required to establish ownership over cash
that one man was caught smuggling out of the country when
his brother, who had transferred money into his accounts, also
claimed ownership of that cash); cf. United States v. One 1985
Cadillac Seville, 866 F.2d 1142, 1146 (9th Cir. 1989)
(“Although we are familiar with the maxim, ‘possession is
nine-tenths of the law,’ we prefer to apply the remaining one-
tenth”). The district court’s rejection of Mesle’s proffered
defenses although he alleged facts sufficient to set forth those
defenses was error.
3. Prejudice
[12] The district court properly determined that the gov-
ernment would not be prejudiced by the setting aside of the
default. The government does not contest the correctness of
that determination. It does, however, make an argument on
appeal that requires discussion. It contends that even though
the district court’s initial determination as to prejudice was
correct, we should now on appeal reconsider the prejudice
determination in light of the time that has passed during the
pendency of the appeal, which it claims has caused witnesses’
memories to fade.
[13] The government misunderstands the nature of an
appellate inquiry. This court examines whether the district
court abused its discretion in denying Mesle’s motion to set
aside the default, and considers the validity of the actions
taken by that court. The government suggests that even if the
district court abused its discretion by ruling in its favor, the
government should nonetheless prevail, because the appellate
process takes time. This is patently erroneous, and, not sur-
11226 UNITED STATES v. MESLE
prisingly, the government has no cases to support its position.
If anything, our cases suggest the opposite: “To be prejudi-
cial, the setting aside of a judgment must result in greater
harm than simply delaying resolution of the case.” TCI
Group, 244 F.3d at 701. On appeal, the prevailing party below
may not seek to profit from errors that the district court made
in its favor by arguing that the time that it takes our court to
correct those errors has caused prejudice to it and that such
prejudice should be treated as if it had existed at the time that
the district court made its initial determination, so as to bar
relief to the appellant.
III
[14] All three factors in the “good cause” analysis for set-
ting aside a default under Rule 55(c) favored Mesle: his con-
duct leading to the default was not culpable; he alleged facts
sufficient to establish more than one meritorious defense; and
setting aside the default would not prejudice the government.
In reaching its decision to the contrary, the district court
applied incorrect legal standards with respect to the culpabil-
ity of a movant’s conduct and the meritorious nature of a
movant’s defenses. More generally, it engaged in its analysis
without demonstrating a proper awareness that “judgment by
default is a drastic step appropriate only in extreme circum-
stances; a case should, whenever possible, be decided on the
merits.” Falk, 739 F.2d at 463. Accordingly, we conclude that
the district court abused its discretion by denying Mesle’s
motion under Rule 55(c) to set aside the clerk’s entry of
default against him. We reverse the denial of the Rule 55(c)
motion, vacate the judgment entered against Mesle, and
remand for the district court to consider on the merits his
claim against the seized checks and funds.
REVERSED, VACATED AND REMANDED