FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
TODD BRANDT AND KAREN BRANDT,
Plaintiffs-Appellants, No. 10-35764
v.
D.C. No.
3:08-cv-05760-BHS
AMERICAN BANKERS INSURANCE
COMPANY OF FLORIDA, OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Western District of Washington
Benjamin H. Settle, District Judge, Presiding
Argued and Submitted
June 6, 2011—Seattle, Washington
Filed August 10, 2011
Before: William A. Fletcher and Johnnie B. Rawlinson,
Circuit Judges, and Irma E. Gonzalez,
Chief District Judge.*
Opinion by Judge Gonzalez
*The Honorable Irma E. Gonzalez, Chief District Judge for the United
States District Court, Southern District of California, sitting by designa-
tion.
10565
BRANDT v. AMERICAN BANKERS INSURANCE 10567
COUNSEL
Bradley A. Maxa, Gordon, Thomas, Honeywell, L.L.P.,
Tacoma, Washington, for appellants Todd and Karen Brandt.
William T. Treas, Nielsen Law Firm, L.L.C., Metairie, Loui-
siana, for appellee American Bankers Insurance Co. of Flor-
ida.
OPINION
GONZALEZ, Chief District Judge:
Todd and Karen Brandt appeal the district court’s order
granting American Bankers Insurance Company’s motion to
set aside default judgment for excusable neglect under Fed. R.
Civ. P. 60(b)(1). The Brandts argue that once the district court
concluded American Bankers acted culpably in failing to
respond to the complaint, it was precluded as a matter of law
from setting aside the default judgment.
We hold that the district court applied the correct legal
standard, and that it did not abuse its discretion.
Background
American Bankers issued a flood insurance policy to the
Brandts under the National Flood Insurance Program, 42
10568 BRANDT v. AMERICAN BANKERS INSURANCE
U.S.C. §§ 4001 et seq., and its related regulations. After the
Brandts’ home flooded in December of 2007, the Brandts sub-
mitted a claim to American Bankers. Although American
Bankers paid a portion of the claim, the Brandts believed the
payment was too low.
The Brandts brought suit against American Bankers in the
U.S. District Court for the Western District of Washington,
alleging breach of contract and bad faith under Washington
law. The Brandts served process on American Bankers
through the Office of the Insurance Commissioner for the
State of Washington (“OIC”) as permitted by Washington
law. See R.C.W. § 48.05.200. The OIC accepted service of
the complaint and sent it, via certified mail, to American
Bankers’ registered agent, Corporations Service Company
(“CSC”).
Thereafter, CSC forwarded the complaint, via email, to two
individuals at Assurant Group, American Bankers’ parent
company, according to instructions for service on record with
CSC. Although personnel at Assurant should have forwarded
the complaint to the appropriate personnel at American Bank-
ers, they failed to do so. The Brandts’ counsel also mailed a
copy of the complaint to the American Bankers claims
adjuster handling the matter; however, the claims adjuster
stated he did not receive the complaint.
American Bankers did not answer or otherwise respond to
the Brandts’ complaint, and the Clerk entered default. Upon
motion by the Brandts, and following an evidentiary hearing,
the district court entered default judgment against American
Bankers in the amount of $655,489.42, representing both con-
tractual and extra-contractual state law damages. The follow-
ing day, counsel for the Brandts sent a letter to American
Bankers via fax, demanding payment of the default judgment.
Upon receipt of the Brandts’ letter, American Bankers
retained counsel, who filed a notice of appearance in the dis-
BRANDT v. AMERICAN BANKERS INSURANCE 10569
trict court. Shortly thereafter, American Bankers filed a
motion to set aside default for good cause pursuant to Fed. R.
Civ. P. 55(c), and to set aside the default judgment for excus-
able neglect pursuant to Fed. R. Civ. P. 60(b)(1).
For purposes of the Rule 55(c) and 60(b)(1) motion, the
Brandts conceded American Bankers had a meritorious
defense. The district court found American Bankers was cul-
pable because it “fail[ed] to provide a credible explanation for
its failure to respond to Plaintiff’s lawsuit.” Nonetheless, the
court concluded American Bankers’ conduct was not inten-
tional or in bad faith. Because American Bankers had a meri-
torious defense, and any prejudice to the Brandts could be
cured, the district court granted American Bankers’ motion
and ordered the default judgment and entry of default be set
aside upon American Bankers’ satisfaction of certain condi-
tions.1
American Bankers satisfied the conditions imposed by the
court. The court set aside the default and default judgment,
and reopened the case. After discovery, the district court
granted partial summary judgment in favor of American
Bankers, dismissing the Brandts’ state law extra-contractual
and tort claims as preempted by the National Flood Insurance
Program. Following a bench trial, the district court concluded
American Bankers did not breach its contract of insurance
with the Brandts. Thus, the district court entered judgment in
favor of American Bankers.
The Brandts now appeal the district court’s order setting
aside default judgment. They do not appeal the district court’s
1
The conditions imposed by the district court were substantial: (1) reim-
bursement of the Brandts’ attorney fees associated with American Bank-
ers’ motion to set aside the default judgment; (2) reimbursement of Mr.
Brandt’s travel expenses to attend the default judgment hearing; and (3)
reimbursement of the cost of the Brandts’ mortgage payments, plus $1,500
per month, from the date they filed the complaint until the date of the
order setting aside the default judgment.
10570 BRANDT v. AMERICAN BANKERS INSURANCE
order granting partial summary judgment on the state law
extra-contractual and tort claims, or the district court’s deci-
sion rejecting their breach of contract claim.
Standard of Review
A district court’s denial of a motion to set aside either
default under Rule 55(c) or default judgment under Rule
60(b)(1), is reviewed for abuse of discretion. United States v.
Signed Personal Check No. 730 of Yubran S. Mesle, 615 F.3d
1085, 1091 (9th Cir. 2010) (“Mesle”); TCI Group Life Ins.
Plan v. Knoebber, 244 F.3d 691, 695 (9th Cir. 2001) (“TCI”).
[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.
[T]he second step . . . is to determine whether the
trial court’s application of the correct legal standard
was (1) “illogical”, (2) “implausible,” or (3) without
“support in inferences that may be drawn from the
facts in the record.”
Mesle, 615 F.3d at 1091 (quoting United States v. Hinkson,
585 F.3d 1247, 1261 (9th Cir. 2009) (en banc)).
Discussion
On appeal, the Brandts argue the district court abused its
discretion by applying an incorrect legal standard to grant
American Bankers’ motion to set aside default judgment.2
Once the district court found American Bankers acted culpa-
2
The Brandts also argue the district court erred as a matter of law in
vacating the default judgment based on excusable neglect under Rule
60(b)(1) because American Bankers failed to come forward with affirma-
tive evidence demonstrating what happened to the complaint after it was
properly served. However, our cases require no threshhold showing of
“excuse” apart from the inquiry into “excusable neglect” under Rule
60(b)(1).
BRANDT v. AMERICAN BANKERS INSURANCE 10571
bly in failing to respond to the complaint, the Brandts argue
the district court was precluded, as a matter of law, from set-
ting aside the default judgment.
[1] Pursuant to Rule 55(c), a district court may set aside
the entry of default upon a showing of good cause. Once
default judgment has been entered, relief is governed by Rule
60(b). Where a defendant seeks relief under Rule 60(b)(1)
based upon “excusable neglect,” the court applies the same
three factors governing the inquiry into “good cause” under
Rule 55(c). Mesle, 615 F.3d at 1091. Those factors, which
courts consistently refer to as the “Falk factors,” are:
(1) whether the plaintiff will be prejudiced, (2)
whether the defendant has a meritorious defense, and
(3) whether culpable conduct of the defendant led to
the default.
Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984). The determi-
nation of what conduct constitutes “excusable neglect” under
Rule 60(b)(1) and similar rules “is at bottom an equitable one,
taking account of all relevant circumstances surrounding the
party’s omission.” Pioneer Inv. Svcs. Co. v. Brunswick Assoc.
Ltd., 507 U.S. 380, 395 (1993).
The Brandts argue the district court applied an incorrect
legal standard when it set aside the default judgment against
American Bankers. The Brandts point to a perceived conflict
in the way the Falk factors have been applied by this Court
in Mesle and Franchise Holding II, LLC v. Huntington Res-
taurants Group, Inc., 375 F.3d 922 (9th Cir. 2004)
(“Franchise Holding II”) on the one hand, and TCI on the
other. They argue the Falk factors are “disjunctive” and that
the district court erred when it “balanced” the factors. Apply-
ing the “disjunctive approach,” the Brandts contend the dis-
trict court was required, as a matter of law, to deny American
Bankers’ motion to set aside the default judgment once it
found American Bankers acted culpably.
10572 BRANDT v. AMERICAN BANKERS INSURANCE
[2] However, there is no conflict between our description
of the “disjunctive” nature of the Falk factors, as expressed in
Franchise Holding II and Mesle, and the approach we took to
applying those factors in TCI. In all three cases, we held that
although a district court should consider the Falk factors in
ruling on a motion to set aside default judgment, “the district
court [is] free to deny [relief] ‘if any of the three factors [is]
true.’ ” Franchise Holding II, 375 F.3d at 926 (quoting Amer-
ican Ass’n of Naturopathic Physicians v. Hayhurst, 227 F.3d
1104, 1108 (9th Cir. 2008)); see also Mesle, 615 F.3d at 1091;
TCI, 244 F.3d at 696-97.
In TCI, because the district court denied the defendant’s
motion to set aside default judgment for excusable neglect
under Rule 60(b)(1) without providing any explanation, we
outlined the factors and equitable principles the district court
should consider in the first instance when ruling on a Rule
60(b)(1) motion to set aside a default judgment for excusable
neglect. See TCI, 244 F.3d at 695-96. Nothing in TCI is con-
trary to the well-established proposition that a finding of cul-
pability on the part of a defaulting defendant is sufficient to
justify the district court’s exercise of its discretion to deny
relief from a default judgment.
Neither Franchise Holding II nor Mesle supports the new
rule the Brandts propose, stripping the district court of its dis-
cretion to set aside a default judgment under Rule 60(b)(1) if
it finds the defaulting defendant acted culpably. None of the
cases cited by the Brandts suggest that a district court is lim-
ited in its discretion to set aside a default judgment under
Rule 60(b)(1) where the defendant has a meritorious defense
and any prejudice can be cured. The rule the Brandts propose
conflicts with the Supreme Court’s decision in Pioneer Invest-
ment Services, which describes the inquiry into “excusable
neglect” as “at bottom an equitable one, taking account of all
relevant circumstances surrounding the party’s omission.”
507 U.S. at 395.
BRANDT v. AMERICAN BANKERS INSURANCE 10573
[3] In short, the application of Rule 60(b)(1)’s excusable
neglect standard “is committed to the discretion of the district
courts.” TCI, 244 F.3d at 695. TCI, Franchise Holding II, and
Mesle, as well as the other cases cited by the parties, consis-
tently hold that the district court is to consider the defendant’s
culpability, the presence of a meritorious defense, and poten-
tial prejudice to the plaintiff, in determining whether to set
aside a default judgment for excusable neglect under Rule
60(b)(1). A district court may exercise its discretion to deny
relief to a defaulting defendant based solely upon a finding of
defendant’s culpability, but need not. Here, American Bank-
ers had a meritorious defense and prejudice to the Brandts
from setting aside default could be cured. The district court’s
finding that American Bankers acted culpably did not pre-
clude it, as a matter of law, from setting aside the default
judgment under Rule 60(b)(1) based upon excusable neglect.
The district court applied the correct legal standard, and did
not abuse its discretion in setting aside the default judgment.
AFFIRMED.