## Facts

- Ingrid Neustadter, as assignee of a promissory note, sued R. Michael Butner in California state court to recover on the note.
- Butner, an Arkansas resident temporarily in Los Angeles on business, was personally served in Los Angeles on June 22, 1962.
- Butner promptly sent the summons and complaint to his Arkansas lawyer and instructed that local Los Angeles counsel be retained to appear.
- On July 2, a lawyer in the prospective Los Angeles firm learned of the suit and attempted twice to reach Neustadter’s counsel by telephone to obtain additional time to plead; counsel was unavailable, and a callback number was left.
- The same day, defense counsel mailed a letter to opposing counsel requesting an extension and stating an intent to appear and defend.
- On the morning of July 3, 1962, the state court entered Butner’s default and a default judgment for $20,000 plus interest and attorney’s fees.
- Later on July 3, opposing counsel informed defense counsel by telephone that the default and judgment had already been entered.
- Butner removed the case to federal district court and promptly moved to set aside the state-court default judgment, asserting excusable neglect and defenses including fraud in obtaining the note and lack of valid holder status.
- The district court denied relief, and Butner appealed.

## Issues

1. Whether removal to federal court automatically vacates a default judgment previously entered in state court.
2. Whether the district court abused its discretion by refusing to set aside the default judgment based on excusable neglect and a asserted meritorious defense.

## Decision

- The Ninth Circuit held that removal does not automatically nullify a state-court default judgment; the federal court takes the case as it finds it.
- The court held that the district court abused its discretion in denying the motion to set aside the default judgment.
- The court reversed and directed that the default judgment be set aside.

## Legal Principles

- Removal transfers the case to federal court in its existing posture; prior state-court defaults and judgments remain effective unless and until set aside.
- After removal, federal standards govern requests to set aside default and default judgment, including the standards reflected in Fed. R. Civ. P. 55 and 60.
- Relief from default should be granted liberally when the default resulted from excusable neglect, particularly when the defendant acted diligently and sought to appear before default was taken.
- A defendant seeking to set aside a default judgment must show grounds for relief (such as excusable neglect) and a potentially meritorious defense; the preference is for decisions on the merits when reasonably possible.

## Conclusion

The Ninth Circuit ruled that removal does not erase a state-court default judgment, but federal courts should apply federal default-relief standards and set aside such a judgment when the defendant’s failure to respond was excusable and the defendant promptly sought relief while presenting a colorable defense.


Butner v. Neustadter, 324 F.2d 783 (9th Cir. 1963)