G & G Closed Circuit Events, LLC v. Guardado Garcia

Background

G & G Closed Circuit Events, LLC alleged that Theresa D. Guardado Garcia and Restaurante La Libertad Corp. unlawfully intercepted, received, and published the plaintiff’s television program. The company was served on July 20, 2020, and Ms. Guardado was served on July 23, 2020. Neither initially answered or otherwise responded. On September 3, 2020, the Clerk entered Certificates of Default against both defendants.

The court later ordered the defendants to show cause why default judgment should not be entered. At the October 15, 2020, hearing, Ms. Guardado appeared without a lawyer and argued that she had sold the Corporate Defendant before the events alleged in the complaint. The Corporate Defendant’s counsel also appeared. The Corporate Defendant then filed a suggestion of bankruptcy and sought a stay because Albertico Chavez, its sole shareholder, had filed a voluntary Chapter 13 bankruptcy petition.

Stay of the Case Against the Corporate Defendant

The court explained that the Bankruptcy Code’s automatic stay generally pauses actions against the bankruptcy debtor and, in some circumstances, actions against related non-debtors. The court relied on precedent holding that a claim against a closely held corporation can be barred by the owner’s bankruptcy stay when success against the corporation would immediately harm the bankruptcy estate.

The court held that the stay applied to Restaurante La Libertad Corp. because it was wholly owned by Mr. Chavez and a judgment against it would have an immediate adverse economic effect on his bankruptcy estate. The court found no reason to apply a different rule because the bankruptcy was under Chapter 13 rather than Chapter 11, or because the defendant was a limited liability company rather than a corporation. Independently, the court said it had authority to stay the case to control its docket and concluded that a stay was in the interest of justice.

Vacating Ms. Guardado’s Default

Under Federal Rule of Civil Procedure 55(c), a court may set aside an entry of default for good cause. The relevant factors are whether the default was willful, whether setting it aside would prejudice the opposing party, and whether the defendant has a meritorious defense. Courts generally favor deciding disputes on their merits rather than by default.

The court found good cause to vacate Ms. Guardado’s Certificate of Default. The evidence did not show that her default was willful because she apparently believed that selling the Corporate Defendant meant she no longer had an interest in the dispute. The court also found that she appeared to have a meritorious defense based on that sale, and the plaintiff had not identified prejudice from setting aside the default.

Orders

The court vacated the September 3, 2020, Certificate of Default against Ms. Guardado. It stayed the action against the Corporate Defendant, including any motion for default judgment against that defendant, pending resolution of Mr. Chavez’s bankruptcy proceeding. The plaintiff must file a status letter on December 22, 2020, and every forty-five days afterward, updating the court about the bankruptcy proceeding as it affects this case.

If the complaint was not dismissed as to Ms. Guardado, she was ordered to file an answer by December 4, 2020. The Clerk was directed to close the open motion at Dkt. No. 28. The order did not resolve the merits of the plaintiff’s allegations.