1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 SUNRISE INFOTECH, Case No. 24-cv-09017-VKD

9 Plaintiff, ORDER RE PLAINTIFF'S MOTION 10 v. FOR DEFAULT JUDGMENT; DEFENDANTS' OPPOSITION AND 11 HOMETOWN MEDICAL SUPPLIES LLC, MOTION TO SET ASIDE ENTRY OF et al., DEFAULT 12 Defendants. Re: Dkt. Nos. 20, 23 13 14 On December 13, 2024, plaintiff Sunrise Infotech (“Sunrise”) filed a complaint against 15 entity defendants Hometown Medical Supplies LLC (“Hometown”), Reliable Medical Supply 16 LLC, a Minnesota limited liability company (“Reliable Minnesota”), and Reliable Medical Supply 17 LLC, a California limited liability company (“Reliable California”), and individual defendants 18 Lalit Goel and Marcus Sampson.1 Dkt. No. 1. The complaint asserts nine claims for fraud and 19 breach of contract arising out of work Sunrise performed for defendants. Id. On March 18, 2025, 20 the Clerk of the Court entered default against all defendants. Dkt. No. 18. Sunrise now moves for 21 entry of default judgment against all defendants. Dkt. No. 20. Defendants oppose this motion and 22 1 All named parties have expressly consented that all proceedings in this matter may be heard and 23 finally adjudicated by a magistrate judge.

(c); Fed. R. Civ. P. 73; Dkt. Nos. 16, 17, 25, 33. The complaint also refers to 10 “Doe” defendants. Dkt. No. 1. These defendants are 24 not considered for the purposes of determining whether all parties consent to magistrate judge jurisdiction. See Williams v. King,

(9th Cir. 2017) (all named parties, 25 whether served or unserved, must consent in order to vest jurisdiction in magistrate judge); RingCentral, Inc. v. Nextiva, Inc., No. 19-cv-02626-NC,

, at *1 n.1 (N.D. Cal. 26 Feb. 28, 2020) (distinguishing Williams with respect to unnamed “Doe” defendants); see also Geppert v. Doe 1, No. 23-cv-03257-SVK,

, at *1 (N.D. Cal. Sept. 7, 2023) 27 (“[P]laceholder Doe defendants are not ‘parties’ for purposes of assessing whether there is 1 ask the Court to set aside the default and allow the case to proceed on the merits. Dkt. Nos. 23, 2 31, 35. The Court held oral argument on May 27, 2025. Dkt. No. 30. 3 Upon consideration of the parties’ briefing and arguments at the hearing, the Court grants 4 defendants’ motion to set aside default and denies plaintiff’s motion for default judgment. 5 I. BACKGROUND 6 According to the complaint, plaintiff Sunrise is a “provider of professional administrative 7 services” based in Andra Pradesh, India, and defendants are “providers of complex rehab 8 technology, clinical respiratory products, and durable medical equipment and supplies.” Dkt. No. 9 1 ¶¶ 3-8. In November 2016, defendant Hometown asked Sunrise to provide certain professional 10 services, including “data entry of all patient details, working with health insurance companies 11 regarding eligibility to provide Hometown’s medical equipment, posting payments received from 12 insurance to individual health accounts to overall managing communications with patients, 13 hospitals and insurance companies.”

. Sunrise asserts that it did not charge 14 Hometown for the first two months of work, but thereafter it began sending Hometown regular 15 invoices.

. However, Hometown “never made full payment of the invoices,” and by 16 May 2022, Hometown owed Sunrise $66,045.00.

. As a result of Hometown’s failure 17 to pay, Sunrise had to take out a loan to “clear employee monthly paychecks.”

. 18 In June 2022, an agent of Sunrise met with individual defendants Lalit Goel and Marcus 19 Sampson, who represented Hometown.

. At the meeting, defendants “promised to pay off 20 both the invoices and loan payments, including accrued interest on the loan.”

Sunrise never 21 received any payment.

. In addition, defendants failed to inform Sunrise that Hometown 22 had been sold to defendant Reliable Medical Supply LLC.

. On December 13, 2024, 23 Sunrise filed this action. Dkt. No. 1. 24 The docket reflects that Sunrise served each defendant between December 16, 2024 and 25 January 8, 2025. See Dkt. Nos. 7, 8, 9, 10, 12. Based on these dates of service, defendants were 26 due to respond to the complaint between January 6, 2025 and January 29, 2025; no defendant 27 timely appeared in the action or responded to the complaint. 1 representative of Sunrise in order to discuss a settlement and had, in fact, reached a settlement in 2 principle. Dkt. No. 23-1 ¶ 5 (Declaration of Lalit Goel). They state that after some back and forth 3 negotiations, Mr. Sampson signed a settlement agreement on January 17, 2025 and that Mr. Goel 4 signed the agreement on February 21, 2025.

; Dkt. No. 23-2 ¶¶ 9-10 (Declaration of Marcus 5 Sampson). Apparently, they did not receive an indication that Sunrise also signed the agreement. 6 On February 24, 2025, Mr. Sampson texted Sunrise, stating that he was having trouble 7 reaching Mr. Goel in order to effect payment by March 1, 2025, and he attempted to negotiate an 8 amendment to the agreement. Dkt. No. 23-2 ¶ 11. Sunrise did not agree to the amendment.

9 ¶ 12. 10 On March 10, 2025, Sunrise moved for entry of default. Dkt. No. 13. On March 18, 2025, 11 the Clerk entered default against all defendants. Dkt. No. 18. Mr. Goel and Mr. Sampson attest 12 that they never received notice from Sunrise that default had been entered against them. Dkt. No. 13 23-1 ¶ 12; Dkt. No. 23-2 ¶ 14. On March 18, 2025, Mr. Goel attempted to join the Court’s case 14 management conference, which he believed was scheduled for that date, but was informed that the 15 conference had been vacated.2 Dkt. No. 23-1 ¶ 10. On March 26, 2025, Mr. Goel retained 16 counsel.

. Mr. Sampson and Sunrise texted about settlement of the action on March 31, 17 2025 but were unable to reach an agreement. Dkt. No. 23-2 ¶ 13. Mr. Sampson retained counsel 18 on April 17, 2025.

. 19 On April 22, 2025, Sunrise filed its motion for default judgment. Dkt. No. 20. Mr. 20 Sampson and Mr. Goel assert that they were not served with the motion. Dkt. No. 23-1 ¶ 14; Dkt. 21 No. 23-2 ¶ 17. On May 6, 2025, Mr. Goel and Mr. Sampson filed an opposition to the motion for 22 default judgment and filed their own motion to set aside the default. Dkt. No. 23. The Court 23 heard oral argument on May 27, 2025. Dkt. No. 30. 24 On June 6, 2025, entity defendants Hometown, Reliable Minnesota, and Reliable 25 California appeared and filed a notice indicating that they joined Mr. Goel and Mr. Sampson’s 26 motion to set aside default. Dkt. No. 31. Sunrise filed an opposition to this joinder. Dkt. No. 34. 27 1 II. LEGAL STANDARD 2 After entry of default by the Clerk, a court may, in its discretion, enter default judgment. 3 Fed. R. Civ. P. 55(b)(2); Aldabe v. Aldabe,

(9th Cir. 1980). In deciding 4 whether to enter default judgment, a court may consider the following factors: (1) the possibility 5 of prejudice to the plaintiff; (2) the merits of the plaintiff’s substantive claim; (3) the sufficiency of 6 the complaint; (4) the sum of money at stake in the action; (5) the possibility of a dispute 7 concerning material facts; (6) whether the default was due to excusable neglect; and (7) the strong 8 policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. Eitel v. 9 McCool,

(9th Cir. 1986) (“Eitel factors”). In considering these factors, all 10 factual allegations in the complaint are taken as true, except those relating to damages. TeleVideo 11 Sys., Inc. v. Heidenthal,

(9th Cir. 1987). The court may also hold a hearing 12 to conduct an accounting, determine the amount of damages, establish the truth of any allegation 13 by evidence, or investigate any other matter. Fed. R. Civ. P. 55(b)(2). 14 However, before entry of default judgment, “[a] court may set aside the Clerk’s entry of 15 default for good cause . . . .” Fed. R. Civ. P. 55(c). “To determine ‘good cause’, a court must 16 ‘consider[ ] three factors: (1) whether [the party seeking to set aside the default] engaged in 17 culpable conduct that led to the default; (2) whether [it] had [no] meritorious defense; or 18 (3) whether reopening the default judgment would prejudice’ the other party.” United States v. 19 Signed Pers. Check No. 730 of Yubran S. Mesle,

(9th Cir. 2010) (quoting 20 Franchise Holding II, LLC. v. Huntington Restaurants Grp., Inc.,

, 925-26 (9th Cir. 21 2004)) (alterations in original). This standard is disjunctive and a “finding that any one of these 22 factors is true is sufficient reason for the district court to refuse to set aside the default.” Id. 23 However, “judgment by default is a drastic step appropriate only in extreme circumstances; a case 24 should, whenever possible, be decided on the merits.” Id. (quoting Falk v. Allen,

, 25 463 (9th Cir. 1984)). 26 III. DISCUSSION 27 The Court will first consider defendants’ request to set aside default before turning to 1 appeared at different times in this case, the Court will address each separately. 2 A. Individual Defendants’ Motion to Set Aside Default 3 1. Culpable conduct 4 Mr. Goel and Mr. Sampson argue that their default should be set aside because their failure 5 to respond to the complaint is excusable and they have engaged in no culpable conduct. Dkt. No. 6 23 at 7-9. Sunrise responds that Mr. Goel and Mr. Sampson have engaged in deception and 7 manipulation and have failed to act in good faith. Dkt. No. 27 at 4. 8 “[A] defendant’s conduct is culpable if he has received actual or constructive notice of the 9 filing of the action and intentionally failed to answer.” Mesle,

(citation omitted) 10 (alterations in original) (emphasis in original). Where a defendant is not represented, a 11 defendant’s intentional failure to answer requires more than simply making “a conscious choice 12 not to answer”; instead, the defendant “must have acted with bad faith, such as an intention to take 13 advantage of the opposing party, interfere with judicial decisionmaking, or otherwise manipulate 14 the legal process.”

(quotations and citation omitted); see also Precision Glassworks, Inc. v. 15 Ghannam, No. 15-cv-03227-HSG,

, at *2 (N.D. Cal. May 10, 2016) (“In other 16 words, ‘intentional’ in the default context is something more than merely ‘the result of conscious 17 choice’ not to respond.”) (citation omitted). 18 Here, Mr. Goel and Mr. Sampson advance two explanations as to why their conduct was 19 not culpable. First, Mr. Goel attests that he was not properly served but discovered the complaint 20 and summons on his doorstep, “causing him to question the veracity of the documents.” Dkt. No. 21 23 at 7; Dkt. No. 23-1 ¶ 4. Second, Mr. Goel and Mr. Sampson assert that they have participated 22 in this matter by engaging in good faith settlement negotiations with Sunrise since the filing of the 23 complaint, and that Sunrise never indicated in these discussions that it was planning to or had 24 moved for default. Dkt. No. 23 at 7-8. Mr. Goel states that he also attempted to participate in this 25 matter by trying to join the initial case management conference before learning that the conference 26 had been vacated, and by informing the Court that a settlement was being negotiated between the 27 parties. Dkt. No. 23-1 ¶¶ 10-11. 1 attaching a declaration of diligence from the process server, who attests that Mr. Goel and his wife 2 fled the scene when the process server attempted to serve them. Dkt. No. 27 at 3-4, Ex. A. 3 Sunrise also contends that the purported settlement negotiations were simply “meant to manipulate 4 [Sunrise] into dropping or delaying the litigation” and were not genuine attempts to settle the case. 5

. 6 Based on the record presented, the Court finds that the conduct of the individual 7 defendants in this matter cannot be considered a culpable failure to respond to the complaint for 8 purposes of default. While the explanations offered by Mr. Goel and Mr. Sampson do not excuse 9 their failure to respond to the complaint, their conduct does not “evince an attempt ‘to take 10 advantage of the opposing party, interfere with judicial decisionmaking, or otherwise manipulate 11 the legal process.’” Precision Glassworks,

, at *2 (quoting Mesle, 625 F.3d at 12 1092); see also Smith v. Santa Cruz Cnty., No. 21-cv-00421-EJD,

, at *3 (N.D. 13 Cal. May 26, 2023) (“There is no evidence here that Defendant's neglect—for there was clearly 14 neglect—was the result of a malicious effort to thwart Plaintiffs’ prosecution of this case or the 15 judicial process more generally. The Court has no reason to doubt Defendant's sworn declaration 16 regarding his ignorance of the legal system, lack of clarity as to the nature of the documents 17 received, and neglect to search for the documents upon his return to the country.”) (emphasis 18 added). Thus, the Court concludes that this factor weighs in favor of setting aside default as to the 19 individual defendants. 20 2. Existence of a meritorious defense 21 Mr. Goel and Mr. Sampson argue that they have potential meritorious defenses that should 22 weigh in favor of setting aside default. To demonstrate a meritorious defense, defendants must 23 “allege sufficient facts that, if true, would constitute a defense.” Precision Glassworks,

2641475, at *2 (quoting Mesle,

); see also Smith,

, at *3 (court 25 does not assess whether an alleged fact is true when deciding this factor). The burden on 26 defendants in this context is “minimal.” Smith,

, at *3 (quoting Mesle,

at 1094). 1 that Mr. Goel was not properly served; (2) that there is no privity of contract between Sunrise and 2 Mr. Goel and Mr. Sampson; (3) that the individual defendants cannot be held personally liable; (4) 3 that genuine disputes exist over whether the contract was breached and by whom; (5) that 4 information Sunrise claims was withheld was publicly available; and (6) that the complaint fails to 5 meet the pleading standards under Federal Rules of Civil Procedure 8 and 9(b). Dkt. No. 23 at 9- 6 12. Sunrise responds that Mr. Goel was properly served; that Mr. Goel and Mr. Sampson were 7 sufficiently intertwined with Hometown so as to be liable; and that its claims are otherwise 8 sufficient. Dkt. No. 27 at 5-7. 9 For the purposes of setting aside default, the Court finds that the individual defendants 10 have stated facts that could plausibly support potentially meritorious defenses. For example, Mr. 11 Sampson alleges that Sunrise may have engaged in conduct that violated the terms of the contract, 12 raising a question as to Sunrise’s entitlement to recovery. Dkt. No. 23-2 ¶ 4. Additionally, the 13 individual defendants have identified a number of deficiencies in Sunrise’s fraud claims. Dkt. No. 14 23 at 12. In view of the minimal burden facing Mr. Goel and Mr. Sampson at this stage, the Court 15 finds that this factor weighs in favor of setting aside entry of default. 16 3. Prejudice to the plaintiff 17 Finally, Mr. Goel and Mr. Sampson argue that Sunrise will not be prejudiced by setting 18 aside the default because “[t]his case is still in its infancy, having been filed less than five months 19 ago, much of which time has been spent in settlement negotiations between the parties” and thus 20 “[a]ny delay has been minimal.” Dkt. No. 23 at 13. In response, Sunrise asserts that “it has 21 incurred significant amounts of time and legal fees due to Defendants’ dilatory tactics in 22 promising settlements and payments that never materialized and requesting changes at the last 23 minute” and that “[n]either [d]efendant demonstrated any intent to defend this lawsuit until 24 Plaintiff moved for default judgment.” Dkt. No. 27 at 7. 25 Prejudice results when the “plaintiff’s ability to pursue his claim will be hindered.” Smith, 26

, at *3 (quotations and citation omitted). This requires “greater harm than 27 simply delaying resolution of the case.”

(quotations and citation omitted). Rather, the delay 1 greater opportunity for fraud or collusion.” Precision Glassworks,

, at *2 (N.D. 2 Cal. May 10, 2016) (quotations and citation omitted). 3 The Court agrees with Mr. Goel and Mr. Sampson that Sunrise will not be prejudiced if 4 their default is set aside. The case is in its early stages; the only action taken thus far is the entry 5 of default against defendants. The fact that the parties have engaged in settlement negotiations 6 that Sunrise claims were unfruitful does not hinder its ability to pursue its claim going forward. 7 Both individual defendants appeared to defend against the entry of default judgment and are ready 8 to proceed with litigating the merits of the case. The Court finds this factor weighs in favor of 9 setting aside default. 10 *** 11 As the Court has found all three factors weigh in favor of setting aside default, the Court 12 sets aside the entry of default as to the individual defendants, Mr. Goel and Mr. Sampson. 13 B. Entity Defendants’ Joinder in Motion to Set Aside Default 14 Unlike the individual defendants, entity defendants Hometown, Reliable Minnesota, and 15 Reliable California did not appear in this action in time to oppose the motion for default judgment 16 and they did not appear at the motion hearing. Instead, on June 6, 2025, the entity defendants filed 17 a one paragraph joinder “request[ing] they be permitted to adopt the arguments and authorities set 18 forth in the Motion as though it were their own.” Dkt. No. 31. Sunrise filed a response to this 19 joinder arguing that the entity defendants were properly served and had provided no explanation as 20 to why they had not appeared. Dkt. No. 34 at 2. Sunrise also pointed out that the arguments 21 advanced by the individual defendants in their motion to set aside default do not apply to the entity 22 defendants.

The entity defendants filed a reply to this opposition, asserting that they “first 23 learned of this litigation” from counsel for the individual defendants on May 28, 2025. Dkt. No. 24 35 at 1. They state that they engaged counsel and “diligently began an inquiry into the purported 25 service and the underlying dispute,” determining that it would be appropriate to join the individual 26 defendants’ motion as the individual defendants had been negotiating a global settlement on behalf 27 of all defendants.

The entity defendants further assert that they properly join in the challenges 1 As an initial matter, the Court notes that the entity defendants’ joinder does not adequately 2 address matters relevant to whether the default entered against them should be set aside. The 3 joinder and reply offer no explanation as to why the entity defendants did not have knowledge of 4 the case until May 28, 2025 and provide no information to counter Sunrise’s assertion that the 5 entity defendants were properly served. And while it may be true that the individual defendants 6 were intending to negotiate a global settlement, the pendency of this negotiation cannot excuse the 7 entity defendants’ failure to act, as they claim they were not even aware of the dispute until May 8 of 2025. See Dkt. No. 35 at 1. 9 Despite the inadequacy of the entity defendants’ briefing, the Court will exercise its 10 discretion to set aside default as to the entity defendants as well as the individual defendants. The 11 entity defendants appeared prior to the entry of default judgment and have indicated their intent to 12 defend the case. While they provide little explanation for their failure to appear, there is no 13 indication of actual culpable conduct, i.e. that they intended not to defend this case. Furthermore, 14 as Sunrise acknowledges, the entity and individual defendants’ liability is intertwined and 15 allowing the case to reach the merits as to all defendants promotes the effective resolution of the 16 case, especially where all defendants are now prepared to defend. See Mesle,

17 (“[A] case should, whenever possible, be decided on the merits.”) (quoting Falk,

). 18 The Court therefore sets aside the entry of default to the entity defendants. 19 C. Plaintiff’s Motion for Default Judgment 20 The Court has already considered several of the Eitel factors that bear on Sunrise’s motion 21 for default judgment, including the possibility of prejudice to Sunrise, the merits of its claims and 22 potential defenses to those claims, the possibility of a dispute concerning material facts, and 23 whether defendants’ default was due to excusable neglect. For the reasons explained above, the 24 Court concludes that these factors generally favor setting aside the default and, relatedly, denying 25 Sunrise’s motion for default judgment. 26 With respect to the remaining factors, the sufficiency of the complaint has not been 27 challenged under Rules 8, 9, or 12, although defendants indicate they may bring such a challenge. 1 The sum of money at stake in the action exceeds $100,000. This is not an insubstantial sum, but it 2 || reflects Sunrise’s calculation of the amount defendants owe for services rendered. The Court finds 3 this factor favors entry of default judgment. Finally, the Court considers the strong policy 4 || favoring decisions on the merits. As defendants have now indicated they are prepared to defend 5 this action on the merits, this factor strongly favors denial of the motion for entry of default 6 || judgment. 7 Accordingly, because all of the Fite! factors, save one, favor denying entry of default 8 || judgment or are neutral, the Court denies Sunrise’s motion. 9 || IV. CONCLUSION 10 For the reasons set forth above, the Court grants defendants’ motion to set aside default 11 and denies plaintiff's motion for default judgment. All defendants must file a response to the 12 || complaint by July 31, 2025. 13 IT IS SO ORDERED. 14 |] Dated: July 17, 2025

5 Virgint K. DeMarchi nited States Magistrate Judge 18 19 20 21 22 23 24 25 26 27 28