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Kyllonen v. GNC Franchising, LLC

United States District Court, D. Nevada

June 13, 2019

CRAIG C. KYLLONEN, et al., Plaintiffs,
v.
GNC FRANCHISING, LLC, et al., Defendants.

          ORDER

          GLORIA M. NAVARRO, CHIEF JUDGE UNITED STATES DISTRICT JUDGE.

         Pending 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).

         For the reasons discussed herein, GNC's Motion is GRANTED.

         I. BACKGROUND

         The 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.

         Prior 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).

         On the 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).

         Based 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).

         Plaintiffs 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).

         On November 6, 2018, GNC filed the instant Motion, seeking to set aside the clerk's entry of default, (ECF No. 11).

         II. LEGAL STANDARD

         Under 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).

         While 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.

         III. ...


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