United States District Court, W.D. North Carolina, Charlotte Division
C. Mullen, United States District Judge
MATTER is before the Court on Defendant's Motion
to Set Aside Clerk's Entry of Default (Doc. No. 11). For
the following reasons, this Motion is granted.
Viper Publishing, LLC (“Viper”), is a Nevada
limited liability company with its principal place of
business in North Carolina. Viper is a digital entertainment
company. Defendant Howard Bailey, Jr. (“Bailey”),
is a musical recording artist and performer who is
professionally known as “Chingy.” The owner of
Viper is Leslie Charles King II (“King”). King is
a licensed attorney in North Carolina, and King previously
provided “management services” to Bailey pursuant
to an oral agreement (the “Management
to the Complaint, Viper and Bailey entered into a Purchase
Agreement on April 25, 2014. Under the Purchase Agreement,
Viper acquired (among other things) all of Bailey's
right, title, and interest to any digital performance
royalties for the transmission and reproduction of sound
recordings by Bailey. SoundExchange, a nonprofit collective
management organization that collects and distributes digital
performance royalties, managed royalties on behalf of Bailey.
Up until April 2017, Viper received all SoundExchange
royalties owed to Bailey under the Purchase Agreement. In
April 2017, Bailey changed the bank account information
applicable to the SoundExchange recordings in order to route
royalty payments to himself, instead of to Viper.
sent a Demand Letter to counsel for Bailey on April 12, 2017,
and when Bailey refused to comply, Viper filed this action on
June 9, 2017, alleging five counts of breach of contract and
seeking relief in the form of liquidated damages,
attorney's fees and costs, and a declaratory judgment.
Viper properly served its Complaint on Bailey on or before
August 21, 2017. When Bailey did not timely answer, Viper
moved for and received an entry of default, and then
subsequently moved for a default judgment. Before this Court
could hold a hearing on the default judgment motion, Bailey
made an appearance through counsel.
moves to set aside the entry of default, asserting both that
there is good cause to set aside the entry of default and
that this Court lacks personal jurisdiction over him. Bailey
also filed a Motion to Dismiss for lack of personal
jurisdiction. Because the Court finds that there is good
cause to set aside the default, the arguments regarding
personal jurisdiction will be addressed in a separate order
on the Motion to Dismiss.
STANDARD OF REVIEW
court may set aside an entry of default for good cause . . .
.” Fed.R.Civ.P. 55(c). The Fourth Circuit has a
“strong preference” that default judgments be
avoided and cases be decided on the merits. Colleton
Preparatory Acad., Inc. v. Hoover Universal, Inc., 616
F.3d 413, 417 (4th Cir. 2010). There are six factors that a
district court must consider in deciding whether to set aside
an entry of default: (1) “whether the moving party has
a meritorious defense, ” (2) “whether it acts
with reasonable promptness, ” (3) “the personal
responsibility of the defaulting party, ” (4)
“the prejudice to the party, ” (5) “whether
there is a history of dilatory action, ” and (6)
“the availability of sanctions less drastic.”
Payne ex rel. Estate of Calzada v. Brake, 439 F.3d
198, 204-05 (4th Cir. 2006).
argues that each of the six factors identified in
Payne weighs in his favor.
Bailey raises a meritorious defense. “[A]ll that is
necessary to establish the existence of a ‘meritorious
defense' is a presentation or proffer of evidence, which,
if believed, would permit either the Court or the jury to
find for the defaulting party.” United States v.
Moradi, 673 F.2d 725, 727 (4th Cir. 1982). Bailey
alleges that King held himself out as an attorney, that
Bailey was his “client, ” that they entered a
fiduciary relationship, and that King violated the North
Carolina State Bar Rules of Professional Conduct by using his
relationship with Bailey to enter into a transactional
relationship without following the proper procedures.
Assuming these allegations to be true, as the Court must do,
Bailey has alleged facts supporting a valid defense that the
Purchase Agreement is void against public policy.
the Court finds that Bailey acted with “reasonable
promptness.” According to the sworn statement of
Bailey, at the time the Complaint was served, he was
represented by attorney Ron Sweeney. Bailey proceeded to send
a copy of the Complaint and Summons to Mr. Sweeney and
communicated with him about the matter. Bailey assumed that
Mr. Sweeney would handle the defense, and the evidence
submitted by Viper shows that counsel for Viper also assumed
Mr. Sweeney would handle this matter. Only after Bailey
received notice of the Motion for Entry of Default Judgment
did Mr. Sweeney inform Bailey that he would not be
representing him. At that point, Bailey sought out new
counsel. This Motion was filed twenty-one days after Bailey
learned of the default judgment and less than two months
after Bailey's answer was initially due. Thus, Bailey
acted with reasonable promptness under the circumstances.
the Court finds that the personal responsibility of Bailey
for the failure to timely reply is low. It was reasonable for
Bailey to rely on Mr. Sweeney, as his attorney, to take steps
to prepare for Bailey's defense or to promptly notify
Bailey of his inability to represent him in this matter.
“[J]ustice demands that a blameless party not ...