Default Judgment After Off-Island Service
On March 3, 2024, Lina, a Saipan homeowner, filed suit in CNMI Superior Court against Guam Builders Inc. for a leaking roof that caused $85,000 in damage. The complaint alleged breach of contract and negligence. Guam Builders' registered agent on Saipan was served on March 7; the agent emailed the papers to the company's Guam office, but the office manager deleted the email as spam. Guam Builders did not answer. On May 20, Lina moved for default judgment. On June 3, Guam Builders appeared and moved to set aside default, attaching the contract's arbitration clause and an affidavit from its president saying he first learned of the suit on May 28. Lina argues the delay was inexcusable and that arbitration is waived. The court must decide whether to set aside the default and whether to compel arbitration.
1. What standard governs Guam Builders' motion to set aside the default, and what facts matter?
Read the worked answer
Under CNMI Rule 55(c), the court may set aside an entry of default for good cause; after a default judgment, Rule 60(b) supplies a more demanding standard. This case involves an entry of default, not yet a judgment, so good cause applies. Courts consider whether the default was willful or culpable, whether the plaintiff will be prejudiced, whether the defendant has a meritorious defense, and the policy favoring decisions on the merits. Guam Builders' agent was served, so service was valid; the company's internal email mishap is weak but not necessarily deliberate. The president's affidavit says he learned on May 28, about three weeks before appearing. Lina can claim prejudice from delay, but an $85,000 claim is not unusually complex. The arbitration clause, if valid, is a meritorious defense to litigation.
2. Should the court compel arbitration, and has Guam Builders waived arbitration?
Read the worked answer
The contract's arbitration clause is a strong basis for a motion to compel, but the court must first decide whether the clause is valid and covers the dispute. A defective roof and breach of contract likely fall within a broad clause. Waiver of arbitration requires knowing participation in litigation and prejudice; here Guam Builders defaulted and then appeared promptly after learning of the suit. That is not the kind of extensive litigation conduct that usually waives arbitration. The delay caused by the default is some prejudice, but courts generally prefer arbitration unless the opposing party has been forced to litigate substantially. The court should set aside the default, stay the case, and compel arbitration, or at least allow the motion to compel to be heard.
3. What order should the court enter and what conditions, if any?
Read the worked answer
The court should set aside the entry of default, deny the default judgment motion without prejudice, and order the parties to arbitration if the clause is valid. It may condition relief on Guam Builders paying Lina's reasonable costs caused by the default, and it should require a prompt answer or motion. The court should not decide the merits of the roof claim. If the arbitration clause is limited or unconscionable, the court should allow the case to proceed and set a scheduling order. The key is to avoid punishing a defendant for an agent's internal forwarding failure when there is a meritorious defense and little prejudice.