Opinion
PROCEEDINGS (IN CHAMBERS): ORDER GRANTING PLAINTIFF'S APPLICATION FOR DEFAULT JUDGMENT [21]
HONORABLE MICHAEL W. FITZGERALD, UNITED STATES DISTRICT JUDGE.
Before the Court is Plaintiff Phillips 66 Company's Application for Default Judgment. (Docket No. 21). The requested judgment is against both Defendants. The Court has read and considered the papers on this Application, and held a hearing on May 11, 2015. For the reasons set forth below, the Court GRANTS the Application.
On March 11, 2009, Defendant Fry's South Pasadena Investment, Inc. (" Fry's") entered into a 10-year Branded Reseller Agreement with ConocoPhillips Company. (Decl. of John G. George, Jr. at ¶ 1 (Docket No. 21-4); Compl. ¶ 7 (Docket No. 1)). On March 3, 2009, Defendant Frydoun Sheikhpour executed a Personal Guaranty in which he unconditionally guaranteed all of Fry's existing and future indebtedness to ConocoPhillips. (George Decl. at ¶ 1; Compl. ¶ 8).
Plaintiff alleges that on or about January 25, 2012, Fry's breached the parties' contract by failing to maintain a seller's permit allowing it to sell tangible personal property subject to sales tax when sold at retail. (George Decl. at ¶ 12; Compl. ¶ 9). Additionally, on February 6, 2012, ConocoPhillips observed Defendant was in default by failing to continuously stock and offer for sale sufficient quantities of Branded ConocoPhillips products, and therefore terminated the contract on the ground of this material breach. (Id. ). Demand was then made on Defendant Sheikhpour to guaranty Fry's debts under the Personal Guaranty. However, Sheikhpour refused to guaranty the debts, constituting a breach of his agreement with Plaintiff. (Compl. ¶ 11).
Plaintiff Phillips 66 Company is the assignee of all of ConocoPhillips' rights under the Contract, pursuant to an assignment made on May 1, 2012. (Compl. ¶ 10). On June 13, 2014, Plaintiff filed a Complaint for breach of contract and breach of guaranty agreement. (Docket No. 1). In this Complaint, Plaintiff seeks actual damages against both Defendants, jointly and severally, in the amount of $490,370.54, reasonable attorney's fees, costs, and expenses, and pre- and post-judgment interest as allowed by law.
Through a registered process server, Plaintiff attempted service on Defendants four times at Sheikhpour's residence in Santa Monica, California. (Docket No. 8). On the fourth attempt, on July 8, 2014, at 11:30 a.m., the process server successfully served a woman who identified herself as Sheikhpour's mother. (Id. ). In compliance with the California rules for substitute service, Cal. Code Civ. Proc. § 415.20, the papers were also mailed to this same address. (Docket No. 9). Plaintiff filed his Proof of Service with the Court on October 2, 2014. (Docket Nos. 8-9). Such service complied with Federal Rules of Civil Procedure 4(e) and 4(h), which govern service respectively on individuals and corporations.
On November 7, 2014, Plaintiff filed a Request for Entry of Default Against all Defendants (Docket Nos. 15, 16, 17). On February 9, 2015, the Clerk entered default against Defendants. (Docket No. 18). On February 10, 2015, the Court ordered Plaintiff to Show Cause regarding default judgment, which could be satisfied by the filing of a motion for default judgment by March 9, 2015. (Docket No. 19). This deadline was later continued by the Court to April 6, 2015. (Docket No. 20).
On April 2, 2015, Plaintiff filed the present Application for Default Judgment, which was served on Defendants by mail on the same day. (Docket No. 21-7). As of the date of this Order, neither Defendant has filed an answer or any other responsive pleading. Neither Defendant has made an appearance. Neither Defendant was in attendance at the hearing on this Application held on May 11, 2015.
Justification for Default Judgment
Federal Rule of Civil Procedure 55(b) permits a court-ordered default judgment following the entry of default by the clerk under Rule 55(a). The five procedural requirements of Federal Rule of Civil Procedure 55 and Local Rule 55-1 are met here: (1) the Clerk entered default against Defendants on February 9, 2015 (Docket No. 18); (2) Defendants failed to respond to the Complaint; (3) neither Defendant is an infant or an incompetent person (Decl. of Dawn Ceizler ¶ 6 (Docket No. 21-5)); (4) neither Defendant is in the military service and thus the Service Members Civil Relief Act does not apply ( id.); and (5) Plaintiff served Defendants with notice of this Application and supporting papers on April 2, 2015 (Docket No. 21-7).
The choice as to whether a default judgment should be entered is at the sole discretion of the trial court. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). The Ninth Circuit has determined that a court should look at seven discretionary factors before rendering a decision on default judgment. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir.1986). In this action, the seven discretionary factors weigh in favor of entering default judgment against Fry's and Sheikhpour. As examined below, the seven factors are as follows: (1) the possibility of prejudice to the plaintiff, (2) the merits of the plaintiff's substantive claims, (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 decision on the merits. Id.
As to the first factor, Plaintiff would suffer prejudice if default judgment were not entered because it would likely be without other means to recover the damages it sustained by Defendants' failure to adhere to their contractual obligations. See Pepsico, Inc. v. Cal. Sec. Cans, 238 F.Supp.2d 1172, 1177 (C.D. Cal. 2002). Thus, the first factor supports entry of default judgment.
As to the second and third factors, the Ninth Circuit has written that " upon default the factual allegations of the complaint, except those relating to the amount of damages will be taken as true." Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977). The second and third factors require the Court to examine the Complaint to determine whether the plaintiff adequately pled a claim for relief. Trs. of S. Cal. IBEW-NECA Pension Plan v. Alarm Tech Sec. Sys., Inc., CV 08-3432 PSG PJWX, 2008 WL 4196627, at *3 (C.D. Cal. Sept. 8, 2008). Plaintiff is seeking default judgment on its breach of contract claim against Fry's and breach of guaranty claim against Sheikhpour.
Taking all allegations as true, Plaintiff met its pleading burden with regard to Defendant Fry's by alleging: (1) " ConocoPhillips and Defendant entered into the Branded Reseller Agreement related to Defendant's purchase of ConocoPhillips branded motor fuel and use of ConocoPhillips's signage and other image equipment on or about March 23, 2011" (Compl. ¶ 14); (2) " ConocoPhillips supplied the requested products and signage and other image equipment under the Contract and fully performed all of its obligations" (Compl. ¶ 14); (3) " Defendant breached Section 11(a) of the Contract by failing to stock and offer sufficient quantities of ConocoPhillips Products, " and " Defendant breached Section 22(c) of the Contract by failing to comply with all applicable federal, state, and local laws, regulations, order, and ordinances, " and " Defendant breached Section 16(a) of the Contract by failing to purchase the minimum amount of branded fuel for resale and to timely and fully pay ConocoPhillips all amounts due" (Compl. ¶ ¶ 15-17); and (4) Plaintiff " suffered damages in the sum of $490,370.54 exclusive of interest and attorneys' fees as allowed by law due to Defendant's breach of the Contract" (Compl. ¶ 18).
Taking all allegations as true, Plaintiff also met its pleading burden with regard to Defendant Frydoun Sheikhpour by alleging: (1) " Sheikhpour executed the Guaranty in which he guarantee[d] unconditionally the full and prompt payment of all Fry's South Pasadena Investment's present and future indebtedness to ConocoPhillips" (Compl. ¶ 20); (2) " Fry's South Pasadena Investment [became and] is indebted to Phillips 66" (Compl. ¶ 20); (3) " [d]espite Plaintiff's demands, Sheikhpour has refused to pay Fry's South Pasadena Investment's indebtedness to Plaintiff" (Compl. ¶ 20); and (4) " Plaintiff Phillips 66 suffered damages in the sum of $490,370.54 plus interest and attorneys' fees as allowed by law due to Sheikhpour's breach of the Guaranty" (Compl. ¶ 20).
" The fourth Eitel factor examines the amount of money at stake in relation to the seriousness of a defendant's conduct." Craigslist, Inc. v. Naturemarket, Inc., 694 F.Supp.2d 1039, 1060 (N.D. Cal. 2010). Plaintiff seeks the principal sum of $490,370.54 in damages, in addition to prejudgment interest, attorney's fees and costs. To support its request, Plaintiff submitted a declaration showing the basis of its calculations: $37,671.36 for the balance owing on installation of Marketing Equipment at Fry's Station under Section 3 of the Installation Addendum; $454,456.11 in liquidated damages, calculated by multiplying $0.03 (liquidated damages under Section 27(a)(1) of the Contract) times 176, 000 (the minimum monthly gallons for fuel under Section 11(b) of the Contract) times 85.06897 (the number of months and partial months remaining on the term of the Agreement at its termination on February 21, 2012); and less $1,756.93 in motor fuel taxes. (Decl. of Paul Curtis (Docket No. 21-3)). Based on the evidence presented, the award that Plaintiff seeks is " consistent with the terms of the [Agreement] and are otherwise appropriate." Landstar Ranger, Inc. v. Parth Enters., 725 F.Supp.2d 916, 921 (C.D. Cal. 2010). This factor therefore weighs in favor of entry of default judgment. The Court below addresses the amount of damages that are actually appropriate on the facts of this case.
The final three Eitel factors also favor entry of default judgment. Because Plaintiff filed a well-pleaded complaint alleging the facts necessary to establish their claims, and the clerk entered default against Defendants Fry's and Sheikhpour, there is no dispute regarding the material facts. Defendants have made no showing of excusable neglect, and " where a defendant fails to appear and respond as occurred here, a decision on the merits is impossible and default judgment is appropriate." Coach Servs., Inc. v. YNM, Inc., No. 2:10-CV-02326-JST (PLAx), 2011 WL 1752091, at *4 (C.D. Cal. May 6, 2011).
Damages
Plaintiff seeks damages in the amount of $490,370.54 for all amounts due and owing under the Contract and the Personal Guaranty. As explained above, the bulk of this request is for liquidated damages in the amount of $454,456.11. This sum, while high, is justified by reference to the agreement, which provided a method for calculating the damages in unmet fuel purchases. The amount is reached by multiplying $0.03 (the liquidated damages under Section 27(a)(1) of the Contract) and 176, 000 (the minimum monthly gallons for fuel under Section 11(b) of the Contract), by 85.06897 (the number of months and partial months remaining on the term of the Agreement at its termination on February 21, 2012). (Curtis Decl. at ¶ 3). The remainder of the amount is for $37,671.36 for the balance owing on installation of Marketing Equipment at Fry's Station under Section 3 of the Installation Addendum, less $1,756.93 in motor fuel taxes. (Id. ). Therefore, the evidence supports Plaintiff's claim for $490,370.54 for amounts due under the agreements.
Prejudgment Interest
Prejudgment interest is a substantive aspect of a plaintiff's claim and is governed by state law in a diversity action. In re Exxon Valdez, 484 F.3d 1098, 1101 (9th Cir. 2007). Pursuant to California Civil Code section 3289(b), " [i]f a contract entered into after January 1, 1986, does not stipulate a legal rate of interest, the obligation shall bear interest at a rate of 10 percent per annum after a breach." Plaintiff indicates that 1, 162 days have passed since the breach and the present Application, and that the total accrued interest, assuming a 10% interest rate, is therefore $156,112.48. (Ceizler Decl. at ¶ 5). Plaintiff also provides an excel spreadsheet demonstrating the calculation of this amount. (Id. at Ex. B). Therefore, the evidence supports Plaintiff's claim for $156,112.48 for prejudgment interest.
Attorneys' Fees and Costs
The contract at issue here provides that any collection efforts by Plaintiff entitle it to " any and all reasonable attorneys' fees, court costs, and allowable interest" (Compl., Ex. A at ¶ 17(f)), and the Guaranty states that " [s]hould ConocoPhillips . . . decide it is necessary to recover from Guarantor through collection activities, Guarantor shall (to the fullest extent permitted by law) be liable to ConocoPhillips Company for the costs of such collection and/or attorney fees." (Compl., Ex. B).
Local Rule 55-3 states that, in the context of a default judgment, when a contract provides for the recovery of reasonable attorneys' fees, those fees are to be calculated pursuant to the schedule set forth in Rule 55-3. Local Rule 55-3 also states that an attorney " claiming a fee in excess of this schedule may file a written request at the time of entry of the default judgment to have the attorney's fee fixed by the Court, " and the Court " shall hear the request and render judgment for such fee as the Court may deem reasonable."
Local Rule 55-3 would permit Plaintiff attorney's fees only in the amount of $16,529.66. Plaintiff argues that it is entitled to $27,863.50. Therefore, Plaintiff requests an amount greater than that provided under Local Rule 55-3, and the Court must determine whether this written request is reasonable.
Plaintiff argues that the guaranty is governed by Texas law, and under Texas law, an award of attorneys' fees after a default judgment may be based on an affidavit of the prevailing party's legal counsel. Plaintiffs provide two declarations to support their claims fees: (1) the Ceizler declaration explains that Plaintiff hired a Texas firm that specializes in collections, which resulted in the lowest possible attorney's fees for Plaintiff (Ceizler Decl. at ¶ 2); and (2) the George Declaration discusses the reasonableness of the claimed rates, the work performed, and the total fees.
Plaintiff has not explained, however, why Local Rule 55-3 should not limit the fees here. It is true that, potentially, fees should be greater if the only remedy is equitable or public policy rejects the application of proportional attorney's fees. See McComb v. Vejar, No. 2:14-CV-00941-RSWL-E, 2014 WL 5494017, at *9 (C.D. Cal. Oct. 28, 2014) (granting Plaintiff's written request for $2,225 in attorney's fees rather than following the provisions of Local Rule 55-3 on the basis that the sole remedy under a title III ADA claim is equitable, and public policy rejects proportionality rules in civil rights cases). That situation is simply not what we have here. Rather, this case fits squarely into the situation contemplated by Local Rule 55-3. Accordingly, the Court awards the statutory amount: $16,529.66.
Plaintiff also seeks $550 in costs. The Court determines that these costs are reasonable, permitted under the agreements, and supported by the evidence.
Post-Judgment Interest
Finally, Plaintiff seeks post-judgment interest at the rate provided for in California Code of Civil Procedure section 3289(b): 10% per annum. " In diversity actions, state law determines the rate of pre-judgment interest, and post-judgment interest is governed by federal law." Am. Tel. & Tel. Co. v. United Computer Sys., Inc., 98 F.3d 1206, 1208 (9th Cir. 1996). Accordingly, the Court will permit a recovery of $134.35 per day from the time that Ceizler's Declaration was filed until the date of this Order. However, the Court will not diverge from 28 U.S.C. § 1961 with regard to post-judgment interest, and awards post-judgment interest as allowed in that section. See Kern Ridge Growers, LLC v. Seacoast Distrib., Inc., No. 8:14-cv-00820-ODW (DFMx), 2014 WL 6630153, at *3 (C.D. Cal. Nov. 21, 2014).
Conclusion
In sum, the Application is GRANTED, and the Court ORDERS a total award in the amount of $663,562.68 plus post-judgment interest as allowed under 28 U.S.C. § 1961. A separate Judgment will issue.
IT IS SO ORDERED.
JUDGMENT
Defendants FRY'S SOUTH PASADENA INVESTMENT, INC. and FRYDOUN SHEIKHPOUR, having been served with a copy of the Summons and Complaint in this action, the time having passed for Defendants to answer, the default of Defendants having been duly entered, and for good cause appearing from the Motion of Plaintiff PHILLIPS 66 COMPANY, for Entry of Default Judgment Against Defendants, and the evidence submitted in support of the Motion, IT IS HEREBY ORDERED, ADJUDGED AND DECREED THAT the Court enters Judgment in favor of Phillips 66 Company and against Defendants Fry's South Pasadena Investment Inc. and Frydoun Sheikhpour as follows:
Principal Sum
$90,370.54
Prejudgment Interest
$156,112.48
Costs
$550.00
Attorneys' Fees
$16,529.66
Total
$663,562.68
The Court also awards post-judgment interest at the rate provided for in 28 U.S.C. § 1961.