I'm pretty sympatico with the approach of the federal rules towards default judgments. We like resolving cases on the merits. We don't like penalizing defendants unduly harshly if we can avoid it. We'll go ahead and vacate default judgments in a variety of settings, even when the defendant was inexplicably negligent in failing to respond to the complaint, as long as the defendant in fact has a meritorious defense and we can solve any prejudice to the plaintiff.
Which is why I liked this opinion. Yes, American Bankers Insurance Company completely biffed its response to the federal lawsuit against it. Yes, American Bankers has utterly no excuse for failing to respond.
But that doesn't stop the district court from vacating the default judgment. American Bankers had a reasonable defense to the lawsuit -- it's not like it stiffed the Brandts after their home was flooded (AB provided them with flood insurance), and the dispute is only about whether this payment was overly low. American Bankers would be severely prejudiced by not vacating the default judgment, which was for over $650,000. And the district court only agreed to vacate the default if American Bankers paid plaintiffs' attorney fees in opposing the motion for relief and the travel costs of the plaintiffs in attending a hearing, plus reimbursed the Brandts for their entire mortgage payments and an additional $1500 a month from the date the complaint was filed until the date of the order setting aside the default judgment.
That seems reasonable. The Brandts still have their lawsuit. They've also got extra money. That's more than enough. It's neither necessary nor equitable to give 'em $650,000 just because American Bankers was incompetent in responding to the complaint.
Good job by both the Ninth Circuit and the Western District of Washington.
