United States District Court, D. Maine
RECOMMENDED DECISION ON MOTION TO SET ASIDE DEFAULT
JOHN H. RICH, III, Magistrate Judge.
Defendant Select Portfolio Servicing, Inc. ("SPS") moves to set aside the default entered against it in the Maine Superior Court, Cumberland County, before the action was removed to this court by both defendants (ECF No. 1) on September 1, 2015. For the reasons discussed below, I recommend that the court grant the motion.
I. Factual Background
The complaint alleges that the plaintiff owns real property in Portland that is encumbered by a mortgage to the New Century Mortgage Corporation dated May 12, 2006. Plaintiff's Complaint for Declaratory, Injunctive and Other Relief ("Complaint") (ECF No. 1-1) ¶¶ 4-5. New Century assigned the mortgage to HSBC on November 12, 2007. Id. ¶ 6. SPS acted as the servicer of the mortgage. Id. ¶ 7. A promissory note from the plaintiff to New Century dated May 12, 2006, was alleged to have been assigned to HSBC. Id. ¶ 8.
In the spring of 2014, HSBC began an action to foreclose the mortgage in Maine Superior Court. Id. ¶ 9 & ECF No. 12-2. As part of that action, HSBC accelerated the promissory note and demanded payment of the entire outstanding principal and accrued interest. Complaint ¶ 10. At the close of the trial, the Superior Court entered judgment for the instant plaintiff, who was the defendant in that action. Id. ¶ 11. HSBC did not appeal from the judgment. Id. ¶ 12. The plaintiff demanded that HSBC discharge the mortgage but HSBC refused. Id. ¶ 13.
A request that a federal court set aside a default entered by a state court before the action was removed to federal court is unusual but not entirely unprecedented. In Doustout v. G.D. Searle & Co., 680 F.Supp. 49 (D. Me. 1988), Judge Carter of this court granted a motion to set aside a default entered against the defendant in state court after the defendant had placed its notice of removal in the mail, but before it was received by the state court. Id. at 50-51. The notice of removal was timely filed. Id. at 51. Judge Carter held that "although the state court did not know it, Defendant was not truly in default when default was entered against him." Id. See also Great Works Props., Inc. v. Perma Roofing, Inc., No. 06-72-P-C, 2006 WL 1361219, at *1 (D. Me. May 16, 2006).
The facts are different here, however. Here, the summons and complaint were served on SPS's agent, Corporation Service Company, on June 25, 2015. Docket, Byron v. HSBC Bank, et al., Docket No. PORSC-CV-2015-00288, Maine Superior Court (Cumberland County) at 1 (ECF No. 6-1). A request for entry of default against SPS was filed on July 20, 2015. Id. at 2. Default was entered that day and copies of the default entry were sent to "parties/counsel." Id. The notice of removal was filed in the state court on September 3, 2015. Id. The motion to set aside the default was filed in this court on September 11, 2015. ECF No. 7.
When an action in which a default has been entered against a defendant in state court is timely removed to federal court, the federal court treats the state default "as if it were entered by [the federal] court." Sindi v. El-Moslimany, Civil Action No. 13-10798-GAO, 2014 WL 1281522, at *2 (D. Mass. Mar. 26, 2014). Federal Rule of Civil Procedure 55(c) provides that an entry of default may be set aside "for good cause."
Unlike the more stringent standard of "excusable neglect" applied to a motion for relief from final judgments pursuant to Federal Rule of Civil Procedure 60(b), the "good cause" criterion applie[s] to motions to set aside entries of default is more liberal, setting for a lower threshold for relief. This lower threshold is justified by the fact that an entry of default is a clerical act, and not a final judgment issued by the Court. It is also in keeping with the philosophy that, if at all possible, actions should be decided on their merits.
Great Works, 2006 WL 1361219 at *1 (citations omitted; emphasis in original).
The First Circuit has identified several factors relevant to a determination concerning whether a motion to set aside an entry of default should be granted:
(1) whether the default was willful; (2) whether setting it aside would prejudice the adversary;... (3) whether a meritorious defense is presented[;]... (4) the nature of the defendant's explanation for the default; (5) the good faith of the parties; (6) the amount of money ...