United States District Court, D. Nevada
CRAIG C. KYLLONEN, et al., Plaintiffs,
GNC FRANCHISING, LLC, et al., Defendants.
M. NAVARRO, CHIEF JUDGE UNITED STATES DISTRICT JUDGE.
before the Court is the Motion to Set Aside Clerk's Entry
of Default, (ECF No. 11), filed by Defendants GNC
Franchising, LLC and General Nutrition Corporation
(collectively “GNC”). Plaintiffs Craig C.
Kyllonen (“Kyllonen”), Kypro Enterprises, LLC
(“Kypro”), and K and K GNC, LLC (“K &
K”) (collectively “Plaintiffs”) filed a
Response, (ECF No. 12), and GNC filed a Reply, (ECF No. 13).
reasons discussed herein, GNC's Motion is
present Motion arises from the clerk of court's entry of
default against GNC. (See Clerk's Entry of
Default, ECF No. 9). Plaintiffs bring several contract-based
causes of action against GNC for alleged breaches of four
franchise agreements. (See Compl., ECF No. 1).
Between 2008 and 2013, GNC granted franchise licenses to
Kyllonen, entitling him to operate four retail stores in
Nevada. (Id. ¶ 14). Kyllonen created two Nevada
limited liability companies to operate the franchises,
Plaintiffs Kypro and K & K. (Id. ¶¶
4-5). The franchises ultimately failed due to financial
distress, resulting in Plaintiffs and GNC blaming each other
for breaching their respective contractual obligations.
to Plaintiffs filing this action here, GNC filed a
breach-of-contract complaint (the “PA Action”)
against Kyllonen on November 8, 2016, in the U.S. District
Court for the Western District of Pennsylvania. (See
Compl., GNC Franchising, LLC, et al. v. Craig C
Kyllonen, No. 2:16-cv-01692 (W.D. Pa. Nov. 8, 2016), Ex.
1 to Mot. to Set Aside, ECF No. 11-1). The PA Action concerns
two of the same franchise agreements at issue in the instant
case. (Id. ¶¶ 9-10); (see also
Franchise Agreements, Exs. 1A, 1B, ECF Nos. 11-2, 11-3). GNC
served Kyllonen on February 2, 2017, with a copy of the PA
Action complaint and waiver-of-service form. (Decl. of
Charles H. Saul ¶ 2, Ex. 23 to Mot. to Set Aside, ECF
No. 11-23). In an effort to reach an out-of-court resolution,
GNC voluntarily withdrew the PA Action and entered settlement
negotiations with Kyllonen. (Mot. to Set Aside 2:12-20, ECF
No. 11). After the settlement talks concluded unsuccessfully,
GNC re-filed the PA Action. (Id. 2:21-23).
following day, August 16, 2018, Kyllonen, Kypro, and K &
K filed their Complaint here, bringing claims arising from
the franchise agreements that were the subject of the PA
Action, in addition to two other franchise agreements between
the parties. (See Compl. ¶ 14). Plaintiffs
allege that GNC's failure to provide contracted-for
financial services and documentation left Plaintiffs
uninformed of the franchises' ensuing financial
difficulties. (Id. ¶¶ 15-17). GNC
allegedly withheld accounting support in a deliberate effort
to ensure it would be able to acquire the franchises at below
market value. (Id. ¶¶ 20-25). GNC also
allegedly failed to uncover an embezzlement scheme at one the
franchises, resulting in losses of $10, 000 per month over
the course of seven months. (Id. ¶ 18).
upon the alleged breaches of the franchise licenses and
related agreements, Plaintiffs assert the following claims
against GNC: (1) breach of contract; (2) unjust enrichment;
(3) breach of fiduciary duty; (4) fraud; (5) negligent
misrepresentation; (6) tortious interference with prospective
contractual relations on behalf of Kyllonen; (7) tortious
interference with prospective contractual relations on behalf
of Kypro and K & K; (8) breach of the implied covenant of
good faith and fair dealing; and (9) consumer fraud.
(Id. ¶¶ 28-83).
served GNC on August 17, 2018, giving GNC until September 7,
2018 to respond, (ECF Nos. 6-7). Upon GNC's failure to
respond, Plaintiffs moved for clerk's entry of default on
August 19, 2018, which the clerk of court entered the next
day. (See Mot. for Clerk's Entry of Default, ECF
No. 8); (Clerk's Entry of Default, ECF No. 9).
November 6, 2018, GNC filed the instant Motion, seeking to
set aside the clerk's entry of default, (ECF No. 11).
Federal Rule of Civil Procedure 55(c), “[t]he court may
set aside an entry of default for good cause.” To
determine whether good cause exists, courts look to:
“(1) whether the party seeking to set aside the default
engaged in culpable conduct that led to the default; (2)
whether it had no meritorious defense; or (3) whether
reopening the default judgment would prejudice the other
party.” United States v. Signed Personal Check No.
730 of Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir.
2010) (citation omitted). This standard “is
disjunctive, such that a finding that any one of these
factors is true is sufficient reason for the district court
to refuse to set aside the default.” United States
v. Aguilar, 782 F.3d 1101, 1105 (9th Cir. 2015) (quoting
Mesle, 615 F.3d at 1091).
the court considers the same factors prior to vacating an
entry of default as it would for a default judgment, the test
is less stringent when the court has not entered default
judgment. See Hawaii Carpenters' Trust Funds v.
Stone, 794 F.2d 508, 513 (9th Cir. 1986). Indeed,
“[t]he court's discretion is especially broad where
. . . it is entry of default that is being set aside, rather
than a default judgment.” Mendoza v. Wight Vineyard
Mgmt., 783 F.2d 941, 945 (9th Cir. 1986).
“[J]udgment by default is a drastic step appropriate
only in extreme circumstances; a case should, whenever
possible, be decided on the merits.” Mesle,
615 F.3d at 1091.