Opinion
Case No. 3:20-cv-00208-YY
06-02-2020
AMERICAN REFINING AND BIOCHEMICAL, INC., a Pennsylvania corporation, Plaintiff, v. CYCLE POWER PARTNERS, LLC, a Delaware Limited Liability Company, Defendant.
FINDINGS AND RECOMMENDATIONS
FINDINGS
Plaintiff American Refining and Biochemical, Inc., has brought suit against defendant Cycle Power Partners, LLC, alleging defendant has breached the terms of a settlement agreement that the parties entered into on December 9, 2015. Compl., ECF #1. Defendant has not filed an Answer or otherwise appeared in this matter. On March 5, 2020, plaintiff filed a motion for entry of default (ECF #9), and the court entered an order of default on March 9, 2020 (ECF #10). Plaintiff has filed a Motion for Default Judgment (ECF #11), which should be granted for the reasons set forth below.
I. Subject Matter Jurisdiction
Federal courts are courts of limited jurisdiction. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). "It is to be presumed that a cause lies outside this limited jurisdiction, . . . and the burden of establishing the contrary rests upon the party asserting jurisdiction." Id. "If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action." Fed. R. Civ. P. 12(h)(3); see also Fiedler v. Clark, 714 F.2d 77, 78-79 (9th Cir. 1983) (recognizing that the court may sua sponte dismiss an action if it finds that subject matter jurisdiction is lacking).
Here, the court has diversity jurisdiction pursuant to 28 U.S.C. § 1332(a) because plaintiff and defendant are citizens of different states and the amount in controversy exceeds $75,000.
II. Personal Jurisdiction
A district court "has an affirmative duty" to determine whether it has personal jurisdiction over a defendant before entering a default judgment. In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). "A judgment entered without personal jurisdiction over the parties is void." Id.
The Supreme Court has recognized two types of personal jurisdiction: general, or "all-purpose," jurisdiction, and specific jurisdiction. Daimler AG v. Bauman, 571 U.S. 117, 127-28, 132 (2014). "With respect to a corporation, the place of incorporation and principal place of business are 'paradig[m] . . . bases for general jurisdiction.'" Id. at 137 (citation omitted). "Those affiliations have the virtue of being unique—that is, each ordinarily indicates only one place—as well as easily ascertainable." Id. "These bases afford plaintiffs recourse to at least one clear and certain forum in which a corporate defendant may be sued on any and all claims." Id.
Defendant's principal place of business is in Oregon and it is registered to do business in the state. Childs Decl., Ex. F, ECF #11-8. Accordingly, personal jurisdiction over defendant exists in this case.
III. Service of Process
Before entering a default judgment, the court must "assess the adequacy of the service of process on the party against whom default is requested." Bank of the West v. RMA Lumber Inc., No. C 07-06469 JSW, 2008 WL 2474650, at *2 (N.D. Cal. June 17, 2008). "[I]n the absence of proper service of process, the district court has no power to render any judgment against the defendant's person or property unless the defendant has . . . waived the lack of process." S.E.C. v. Ross, 504 F.3d 1130, 1138-39 (9th Cir. 2007).
Under Federal Rule of Civil Procedure 4(h)(1)(B), service may be made on a corporation by delivering a copy of the summons and complaint to an agent authorized by law to receive service of process. Plaintiff has filed an affidavit of service showing that on February 12, 2020, a process server personally served the clerk on duty in the office of defendant's registered agent. Aff. Service, ECF #7. Thus, plaintiff has established that the service of process in this case is adequate.
IV. Plaintiff's Claims
Plaintiff asserts two claims: (1) breach of a settlement agreement, and (2) failure to act on a promissory note. Compl. 3, ECF #1. Plaintiff has produced a copy of the December 9, 2015 settlement agreement in which defendant agreed to pay $105,000 in "monthly installments of at least $10,000 each, beginning no later than February15, 2016, with the full balance thereof due and payable no later than May 31, 2016." Childs Decl., Ex. A, ¶ 2, ECF #11-3. The settlement agreement states that "[s]uch payment obligations will be evidenced by a Promissory Note," a copy of which plaintiff also has produced. Id.; see id., Ex. B, ECF #11-4. The promissory note, which is similarly dated December 9, 2015, is signed by defendant's managing partner, and includes a promise to pay $10,000 in monthly installments beginning on January 29, 2016, with 12% interest per annum. Id., ¶¶ 1(a), (b).
In the breach-of-settlement-agreement claim, plaintiff seeks the unpaid amount of $105,000, plus 12% interest per annum from May 31, 2016. Compl. 3, ECF #1. In the promissory-note claim, plaintiff seeks $105,000, plus 12% interest per annum from December 9, 2015. Id. at 3-4.
While upon an entry of default, the facts in the complaint are taken as true, "neither the default nor the allegation in the complaint can establish the amount of damages." Lasheen v. Embassy of the Arab Republic of Egypt, 625 F. App'x. 338, 341 (9th Cir. 2015) (cited pursuant to Ninth Circuit Rule 36-3). Accordingly, before the court can enter a default judgment for a sum that is uncertain, the plaintiff must prove damages. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 916-17 (9th Cir. 1987).
Here, plaintiff has established damages. According to the settlement agreement and promissory note, defendant owed plaintiff $105,000 as of December 9, 2015. The promissory note allows for interest at 12% per annum, which, as of the date of these findings and recommendations, equals $56,510,14.
Plaintiff also seeks costs of $400 for the filing fee. "Unless a federal statute, these rules or a court order provides otherwise, costs—other than attorney's fees—should be allowed to the prevailing party." Fed.R.Civ.P. 54(d)(1). "Rule 54(d)(1) creates a presumption in favor of awarding costs to the prevailing party, and a district court has limited discretion to deny fees under the rule." Goldberg v. Pac. Indem. Co., 627 F.3d 752, 758 (9th Cir. 2010). Thus, plaintiff is entitled to $400 in costs. V. Eitel Analysis
The district court's decision whether to enter a default judgment is a discretionary one. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In exercising its discretion, the court considers the following factors under Eitel v. McCool, 782 F.2d 1470 (9th Cir. 1986):
(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.Id. at 1471-72.
A. Factor One: Possibility of Prejudice to Plaintiff
In assessing this factor, courts have considered whether a plaintiff would be without recourse for recovery if the motion for default judgment is not granted. See, e.g., J & J Sports Prods., Inc. v. Cardoze, No. C 09-05683 WHA, 2010 WL 2757106, at *5 (N.D. Cal. July 9, 2010); PepsiCo, Inc. v. California Sec. Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002). Here, prior to filing this lawsuit, plaintiff's general counsel, Richard Smith, sent a demand letter to defendant dated November 18, 2019. Childs Decl. ¶ 3, ECF #11-2. Defendant responded on January 10, 2020, claiming the "original transaction is null and void" for various reasons. Id., Ex. C, ECF #11-5. Under these circumstances, there is no method for recovery other than to bring suit, as plaintiff has done.
B. Factors Two and Three: Merits of Claims and Sufficiency of Complaint
Upon entry of default, this court must take the well-pleaded factual allegations of the complaint as true. See Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977) ("The general rule of law is that upon default the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true."); Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992) ("In reviewing a default judgment, this court must take the well-pleaded factual allegations of [the complaint] as true.").
Here, plaintiff's well-pleaded complaint alleges facts establishing both of plaintiff's claims. Additionally, plaintiff has proffered copies of the pertinent settlement agreement and promissory note. Thus, plaintiff has established the merits of its claims.
C. Fourth Factor: Sum of Money at Stake
Under the fourth Eitel factor, "the court must consider the amount of money at stake in relation to the seriousness of [d]efendant's conduct." PepsiCo, 238 F.Supp.2d at 1176-77; see also J & J Sports, 2010 WL 2757106, at *5 ("a large sum of money at stake would disfavor default damages," such as a request for $114,200 in damages); Board of Trustees of the Sheet Metal Workers v. Vigil, No. C 07-01508 WHA, 2007 WL 3239281, at *2 (N.D. Cal. Nov. 1, 2007) ("[D]efault judgment is disfavored if there were a large sum of money involved").
Here, while the damages that plaintiff seeks could not be characterized as small, they are supported by the settlement agreement and promissory note that plaintiff has proffered with its motion for default judgment.
D. Fifth Factor: Possibility of Dispute Over Material Facts
In addressing the fifth factor, the court considers the possibility that there is a dispute concerning material facts. As mentioned above, "[u]pon entry of default, all well-pleaded facts in the complaint are taken as true, except those relating to damages." PepsiCo, 238 F. Supp. 2d at 1177. Thus, "[t]he fifth factor . . . weighs in favor of default judgment when the claims in the complaint are well-pleaded." Joe Hand Prods. v. Holmes, No. 2:12-cv-00535-SU, 2015 WL 5144297, at *7 (D. Or. Aug. 31, 2015). Otherwise stated, "[b]ecause all allegations in a well-pleaded complaint are taken as true after the court clerk enters default judgment, there is no likelihood that any genuine issue of material fact exists." Elektra Entm't Grp., Inc. v. Crawford, 226 F.R.D. 388, 393 (C.D. Cal. 2005).
As noted, the complaint is well-pleaded, and plaintiff has submitted a settlement agreement and promissory note establishing the merits of its claims. Thus, the possibility that there is a dispute over material facts is low.
E. Sixth Factor: Excusable Neglect
The sixth factor pertains to the possibility that the default resulted from excusable neglect. As noted, before filing suit, plaintiff's general counsel sent a demand letter to defendant in November 2019, which defendant acknowledgepd by letter in January 2020. Childs Decl. ¶ 3, ECF #11-2. Thus, defendant had notice of this lawsuit, in addition to proper service discussed above. There is no indication of excusable neglect.
F. Policy Favoring Decision on the Merits
Factor seven is "the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits," specifically the policy that "[c]ases should be decided upon their merits whenever reasonably possible." Eitel, 782 F.2d at 1472. However, "this policy, standing alone, is not dispositive, especially where a defendant fails to appear or defend itself in an action." Joe Hand Promotions, Inc. v. Machuca, No. 2:13-cv-1228 GEB KJN, 2014 WL 1330749, at *6 (E.D. Cal. Mar. 31, 2014). Where a defendant has failed to answer a complaint, it "makes a decision on the merits impractical, if not impossible." PepsiCo, 238 F. Supp. 2d at 1177. Rule 55 allows the court to terminate a case before hearing the merits when a defendant fails to defend an action. Fed. R. Civ. P. 55. "Thus, the preference to decide cases on the merits does not preclude a court from granting default judgment." PepsiCo, 238 F. Supp. 2d at 1177 (internal quotation omitted).
Here, a decision on the merits is impossible because defendant has failed to appear, plead, or defend this action. Additionally, all other factors weigh in favor of a default judgment. Therefore, the seventh factor is not dispositive and does not preclude the court from entering a default judgment against defendant.
RECOMMENDATIONS
Plaintiff's Motion for Default Judgment (ECF #9) should be GRANTED. Judgment in the amount of $105,000 plus interest of $56,510.14 and $400 in costs should be awarded.
SCHEDULING ORDER
These Findings and Recommendations will be referred to a district judge. Objections, if any, are due Tuesday, June 16, 2020. If no objections are filed, then the Findings and Recommendations will go under advisement on that date.
If objections are filed, then a response is due within 14 days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendations will go under advisement.
NOTICE
These Findings and Recommendations are not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any Notice of Appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of a judgment.
DATED June 2, 2020.
/s/ Youlee Yim You
Youlee Yim You
United States Magistrate Judge