Default Judgments Are Discretionary and Not Favored — Factors for the Court’s Consideration
Americredit Fin. Servs. v. Glennon (In re Jeffers), 2012 Bankr. LEXIS 6170 (E.D. Cal. Oct. 10, 2012):
Federal Rule of Civil Procedure 55 and Federal Rule of Bankruptcy Procedure 7055 govern default judgments. In re McGee, 359 B.R. 764, 770 (B.A.P. 9th Cir. 2006). Obtaining a default judgment of nondishcargeability of a claim is a two-step process which requires: (1) entry of the defendant's default, and (2) entry of a default judgment. Id. at 770.
Even when a party has defaulted and all requirements for a default judgment are satisfied, a claimant is not entitled to a default judgment as a matter of right. 10 Moore's Federal Practice - Civil ¶ 55.31 (Daniel R. Coquillette & Gregory P. Joseph eds. 3rd ed.). Entry of a default judgment is within the discretion of the court. Eitel v. McCool, 782 F.2d 1470, 1471 (9th Cir. 1986); In re McGee, 359 B.R. 764, 770 (B.A.P. 9th Cir. 2006) (citing In re Kubick, 171 B.R. 658, 659-60 (B.A.P. 9th Cir. Alaska 1994). Default judgments are not favored, as the judicial process prefers determining cases on their merits whenever reasonably possible. Id. at 1472. Factors which the court may consider in exercising its discretion include:
(1) the possibility of prejudice to the plaintiff,
(2) the merits of plaintiff's substantive claim,
(3) the sufficiency of the complaint,
(4) the sum of money at stake in the action,
(5) the possibility of a dispute concerning material facts,
(6) whether the default was due to excusable neglect, and
(7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.
Eitel v. McCool, 782 F.2d at 1471-72 (citing 6 Moore's Federal Practice - Civil ¶ 55-05[s], at 55-24 to 55-26 (Daniel R. Coquillette & Gregory P. Joseph eds. 3rd ed.)); In re Kubick, 171 B.R. at 661-662.
In fact, before entering a default judgment the court has an independent duty to determine the sufficiency of Plaintiff's claim. Id. at 662. Entry of a default establishes well-pleaded allegations as admitted, In re McGee, 359 B.R. at 772, but factual allegations that are unsupported by exhibits are not well-pleaded and cannot support a claim. Id. at 774. Thus, a court may refuse to enter default judgment if Plaintiff did not offer evidence in support of the allegations. See id. at 775. Finally, Federal Rule of Civil Procedure 9.(b), made applicable through Federal Rule of Bankruptcy Procedure 7009, raises the bar by requiring that allegations of fraud be stated with particularity.
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