TCI Group Life Ins. Plan v. Knoebber

• Citation: 244 F.3d 691
• Decision Date: 09 May 2001
• Docket Number: Nos. 98-17122,99-15070,s. 98-17122,99-15070
• Parties: (9th Cir. 2001) TCI GROUP LIFE INSURANCE PLAN, LIFE INSURANCE COMPANY OF NORTH AMERICA, Plaintiffs-counter-defendantsAppellees, v. JANET KNOEBBER,Defendant-cross-defendant-Appellant,KATHLEEN KNOEBBER, Defendant-counter-claimant-cross-claimant-Appellee
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 691

244 F.3d 691 (9th Cir. 2001)

TCI GROUP LIFE INSURANCE PLAN, LIFE INSURANCE COMPANY OF NORTH AMERICA, Plaintiffs-counter-defendantsAppellees, v. JANET KNOEBBER,Defendant-cross-defendant-Appellant,KATHLEEN KNOEBBER, Defendant-counter-claimant-cross-claimant-Appellee.

Nos. 98-17122,99-15070

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted June 16, 2000

Filed March 26, 2001

Amended May 9, 2001

[Copyrighted Material Omitted]

George P. Kickliter, Tampa, Florida, for the defendant-crossdefendant-appellant.

Jeffrey Lewis, Deene Goodlaw, Teresa S. Renaker, Sigman, Lewis & Feinberg, Oakland, California, for the defendantcross-claimant-appellee.

Appeals from the United States District Court for the Northern District of California Saundra B. Armstrong, District Judge, Presiding. D.C. No.CV-98-01531-SBA

Before: Andrew J. Kleinfeld, A. Wallace Tashima and Marsha S. Berzon, Circuit Judges.

BERZON, Circuit Judge:

On the merits, this case concerns an intra-family dispute over the proceeds of a $50,000 life insurance policy. When Janet Knoebber failed to plead in response to the complaint or the cross-claim, the district court entered a default judgment against the deceased's wife in favor of his mother. The district court denied the wife's motion to vacate the default judgment. We hold, in accord with the long-standing principle that default judgments are disfavored, that the district court abused its discretion in failing to set aside the default and reach the merits. In the course of doing so, we clarify the meaning of the "culpability" prong of the well-established standard governing the setting aside of default judgments.

I. Background

Thomas Knoebber died of lung cancer on August 16, 1997, at the age of 40, leaving his wife, Janet, and a two-year-old son. Thomas' death left Janet distraught. She sought psychiatric treatment, and under her psychiatrist's care was taking powerful antidepressants.

In July 1998, Janet completed the sale of her home in Livermore, California, and moved to Tampa, Florida, with her son and her eight-year-old daughter from a previous marriage to begin anew. It was during the time that Janet was preparing to move, moving, and setting up a new home and new life in Florida that the events that gave rise to the default judgment, and to this appeal, took place.

Thomas was an employee of Tele-Communications, Inc. (TCI), and a participant in the TCI Group Life Insurance Plan (the Plan). The Life Insurance Company of North America (LINA) issued the group life insurance plan to TCI. The Plan's basic life insurance policy provided a $123,000 benefit to be paid to Thomas' designated beneficiary in the event of his death. Janet was the designated beneficiary of the basic life insurance policy. Accordingly, upon Thomas' death, the Plan paid the $123,000 basic benefit to Janet.

Four years before he married Janet, Thomas had purchased an additional voluntary life insurance policy worth $50,000. At the time, he designated his mother, Kathleen Knoebber, as the beneficiary in trust for his two children from a previous marriage. Janet asserts that after she and Thomas were married, Thomas notified the Plan administrator of his desire to designate Janet as the beneficiary. As far as the record shows, however, the Plan never received a signed designation-ofbeneficiary form to that effect.

Upon Thomas' death, both Janet and Kathleen made claims on the Plan for the $50,000 voluntary life insurance benefit. Janet based her claim on Thomas' intent to designate her as his beneficiary, and on her interest in the benefit under California community property law. Because of the conflicting claims, LINA and the Plan filed an interpleader action in District Court on April 15, 1998 to determine who should receive the $50,000 benefit. Although Janet was served with the summons and complaint on May 12, she did not respond.

When Kathleen received the interpleader summons and complaint, she contacted the interpleader plaintiffs' counsel and entered into a stipulation extending her time to respond to the complaint until June 19. On June 18, Kathleen's counsel telephoned Janet, who explained she had not retained counsel and did not know what she was going to do about the litigation. The following day, Kathleen filed her answer, counterclaim, and cross-claim against Janet. Kathleen's counsel mailed Janet a copy of the answer, counterclaim, and cross-claim, asked that Janet waive personal service, and suggested that Janet contact the Alameda County Bar Association's referral service for help in obtaining a lawyer. Janet did not respond to this letter.

Janet was personally served with Kathleen's answer, counterclaim, and cross-claim on July 6, 1998 and had 20 days to file an answer to the cross-claim or otherwise plead. In the middle of the time period for answering the cross-claim, on July 17, Janet moved with her children to Tampa. She did not answer the cross-claim.

Two days after Janet's answer was due, Kathleen moved for an entry of default against Janet, and the clerk entered the default the following day. Almost immediately, on August 4, Kathleen moved for a default judgment, serving Janet at her new address in Florida. A hearing on Kathleen's motion was set for September 15.

Janet failed to respond to the motion within 21 days, as required by the District Court's local rules, see N.D. Cal. Civil L.R. 7-3(a), so the District Court, on September 4, granted the default judgment against Janet. Four days later-before the date set for the hearing, and before she learned that the request for the default judgment had been granted--Janet approached a local lawyer in Tampa for advice. That lawyer filed a Notice of Appearance of Counsel with the District Court on September 11 (but not, apparently, a motion to appear pro hac vice), and proceeded to engage local counsel and file a motion to appear pro hac vice. Meanwhile, on September 18, the District Court entered the default judgment and directed the Plan to disburse the proceeds of the $50,000 voluntary life insurance policy to Kathleen.

Janet filed a motion to set aside the default judgment under Fed. R. Civ. P. 60(b) on October 15, accompanied by declarations from Janet and her attorney reciting the circumstances summarized above. The district court denied the motion on December 8, without explanation. Janet appeals the denial of her motion to set aside the default.

The district court had jurisdiction over the underlying interpleader action under ERISA, 29 U.S.C. S 1132, see Aetna Life Ins. Co. v. Bayona, 223 F.3d 1030, 1033-34 (9th Cir. 2000) (ERISA interpleader brought by fiduciary is cognizable cause of action), and over Kathleen's cross-claim, which is the subject of this appeal, see Cripps v. Life Ins. Co. of North America, 980 F.2d 1261, 1266-67 (9th Cir. 1992) (person who claims to be the beneficiary of an ERISA plan has a cause of action under 29 U.S.C. S 1132(a)(1)).¹

II. Rule 60(b)'s Standards for Vacating Default Judgments

Motions to vacate a default judgment, like the one in this case, are cognizable under Fed. R. Civ. P. 60(b). Rule 60(b)(1), the subsection here pertinent, grants district courts discretion to relieve a party from a judgment or order for reason of "mistake, inadvertence, surprise, or excusable neglect," provided that the party moves for such relief not more than a year after the judgment was entered.² As such, Rule 60(b)(1)guides the balance between the overriding judicial goal of deciding cases correctly, on the basis of their legal and factual merits, with the interest of both litigants and the courts in the finality of judgments. Pena v. Seguros La Comercial, 770 F.2d 811, 814 (9th Cir. 1985). The rule does so by limiting both the reasons for which relief from a judgment may be granted, and the time in which a party may seek relief, while at the same time providing district courts with discretion within those limits to undo the finality of judgments in order to reach the merits of questions that have been decided wrongly or not at all.

Although the application of Rule 60(b) is committed to the discretion of the district courts and is therefore reviewable in this Court only for abuse of discretion, United States v. 87 Skyline Terrace, 26 F.3d 923, 929 (9th Cir. 1994), this Court has admonished that, as a general matter, Rule 60(b) is "remedial in nature and . . . must be liberally applied. " Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984) (per curiam). More specifically, in applying the general terms of Rule 60(b) to default judgments, this Court has emphasized that such judgments are "appropriate only in extreme circumstances; a case should, whenever possible, be decided on the merits." Falk, supra, 739 F.2d at 463. Put another way, where there has been no merits decision, appropriate exercise of district court discretion under Rule 60(b) requires that the finality interest should give way fairly readily, to further the competing interest in reaching the merits of a dispute.

This does not mean, of course, that the moving party is absolved from the burden of demonstrating that, in a particular case, the interest in deciding the case on the merits should prevail over the very important interest in the finality of judgments. Rather, based on the principles elucidated above, this court has held that three factors derived from the "good cause" standard that governs the lifting of entries of default under Fed. R. Civ. P. 55(c) govern the vacating of a default judgment under Rule 60(b) as well.³ Those factors are: whether the defendant's culpable conduct led to the default; whether the defendant has a meritorious defense; and whether reopening the default judgment would prejudice the plaintiff. See Falk, supra, 739 F.2d at 463; Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988); see also Feliciano v. Reliant Tooling Co., 691 F.2d 653, 656 (3d Cir. 1982) (explaining that the...