M-MLS.com

Peter Sommer and M-MLS.com appeal from .the district court’s amended judgment adding them as judgment debtors to a default judgment previously entered against M-MLS, Inc., Sommer’s wholly-owned corporation. They also appeal from the district court’s denial of their Federal Rule of Civil Procedure 60(b) motion challenging the underlying default judgment as it applied to them. We vacate the order denying the Rule 60(b) motion, and we reverse the amended judgment adding appellants as judgment debtors to the default judgment against M-MLS, Inc.

I.

M-MLS, Inc., a Canadian corporation wholly owned by Peter Sommer, sold an end matcher machine (a woodworking machine) to Katzir’s Floor for $87,200 in an “as is” condition. According to Katzir’s Floor, the machine never worked properly. Katzir’s Floor sued M-MLS, Inc. in California state court on July 29, 1999, seeking special damages of not less than $87,200, as well as general, incidental, consequential, and punitive damages. The action was removed to federal court on the basis of diversity.

M-MLS, Inc. initially answered and defended the lawsuit. Faced with financial *1147 difficulties, M-MLS, Inc. borrowed $50,000 from its former…