Opinion
CV 22-5018-RSWL-MRWx
03-14-2023
BASF CORPORATION, Plaintiff, v. SJ'S COLLISION CENTER, et al., Defendants.
ORDER re: PLAINTIFF'S MOTION for DEFAULT JUDGMENT [14]
HONORABLE RONALD S.W. LEW SENIOR U.S. DISTRICT JUDGE
Plaintiff BASF Corporation (“Plaintiff”) initiated this Action against Defendants SJ's Collision Center (“Defendant SJ”) and Grigor Garibyan (“Defendant Garibyan”) (collectively, “Defendants”) alleging breach of contract and unjust enrichment. Currently before the Court is Plaintiff's Motion for Default Judgment against Defendants on the breach of contract and unjust enrichment claims.
Having reviewed all papers submitted pertaining to the Motion, the Court NOW FINDS AND RULES AS FOLLOWS:
the Court GRANTS in part and DENIES in part Plaintiff's Motion for Default Judgment.
I. BACKGROUND
A. Factual Background
The Complaint Alleges:
Plaintiff is a business that sells refinishing, conditioning, and paint products (“Refinish Products”) to distributors who in turn sell these products to automotive body shops. Compl. ¶ 4, ECF No. 2. Defendant Garibyan is the owner of Defendant SJ, an autobody shop engaged in the business of refinishing vehicles. Id. ¶¶ 5-6.
Plaintiff and Defendants entered a requirements agreement (the “Agreement”). Id. ¶ 10. Pursuant to the Agreement, Defendant SJ was required to fulfill with Plaintiff 100% of its requirements for Refinish Products up to a minimum purchase requirement of $326,500.00 (the “Minimum Purchase Requirement”). Id. ¶ 11. Defendant Garibyan guaranteed Defendant SJ's performance and further promised to perform in Defendant SJ's absence. Id. ¶ 14.
Plaintiff paid Defendants $20,000.00 in consideration (the “Consideration”) in exchange for Defendants' contractual obligations. Id. ¶ 12. If Defendants did not fulfill the Minimum Purchase Requirement, then Defendants had to refund the Consideration in accordance with a schedule. Id. ¶ 13. Per the schedule, if Defendants purchased less than 20% of the Minimum Purchase Requirement, then Defendants had to refund Plaintiff 110% of Plaintiff's Consideration, or $22,000.00. Id.
In 2020, Defendant SJ terminated its contract with Plaintiff without purchasing the Minimum Purchase Requirement from Plaintiff as set out in the contract. Id. ¶ 15. Defendant SJ only purchased about $50,651.00 in Refinish Products from Plaintiff. Id. ¶ 16. Defendant Garibyan refused to refund or cover for Defendant SJ's breach. Id. ¶ 18. As specified in the contract, Defendants purchased less than 20% of the Minimum Purchase Requirement, which triggered a consideration repayment of $22,000.00. Id. ¶ 17.
Plaintiff has fulfilled its obligations and remains ready and willing to perform under the contract. Id. ¶ 19.
B. Procedural Background
On July 21, 2022, Plaintiff filed its Complaint [2] alleging claims for breach of contract and unjust enrichment. On July 26, 2022, Plaintiff served Defendant SJ with the Summons and Complaint upon its agent for service of process [11], with a response due by August 16, 2022. On August 4, 2022, Plaintiff served Defendant Garibyan with the Summons and Complaint upon the designated person in charge at Defendant Garibyan's business address [10], with a response due by August 25, 2022. Both Defendants failed to respond to the Complaint by the applicable deadlines.
Since Defendants failed to answer, Plaintiff applied for the Clerk to enter Default against Defendants [12] on September 27, 2022. On September 29, 2022, the Clerk entered Default [13]. On January 6, 2023, Plaintiff filed a Motion for Default Judgment (“Motion”) [14] against Defendants. On that same day, Plaintiff served Defendants with notice of the Entry of Default Judgment and notice of the Motion. Defendants did not file an opposition.
For Defendants' failure to purchase the Minimum Purchase Requirement under the Agreement, Plaintiff seeks $275,849.00 in expectation damages. Plaintiff additionally seeks $22,000 in liquidated damages. Lastly, Plaintiff seeks filing fees in the amount of $402.00 and fees for service of process in the amount of $240.90. In total, Plaintiff seeks $298,491.90.
II. DISCUSSION
A. Legal Standard
The granting of default judgment is within the discretion of the district court. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980); see Fed.R.Civ.P. 55. Procedural and substantive requirements must be satisfied.
Procedurally, the requirements set forth in Federal Rules of Civil Procedure (“FRCP” or “Rule”) 54(c) and 55(b), and Local Rule 55-1 must be met. See Vogel v. Rite Aid Corp., 992 F.Supp.2d 998, 1006 (C.D. Cal 2014). Local Rule 55-1 provides:
When an application is made to the Court for a default judgment, the application shall be accompanied by a declaration in compliance with [Rule] 55(b)(1) and/or (2) and include the following: (a) when and against what party the default was entered; (b) the identification of the pleading to which default was entered; (c) whether the defaulting party is an infant or incompetent person, and if so, whether that person is represented by a general guardian, committee, conservator or other representative; (d) that the Service Members Civil Relief Act, 50 U.S.C. App. § 521, does not apply; and (e) that notice has been served on the defaulting party, if required by Rule 55(b)(2).L.R. 55-1.
Courts should also consider the following factors in determining whether to grant a motion for default judgment: “(1) the possibility of prejudice; (2) the merits of [the] substantive claims; (3) the sufficiency of the complaint; (4) the sum of money at stake; (5) the possibility of a dispute concerning material facts; (6) excusable neglect; and (7) the strong public policy favoring decisions on the merits.” Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).
If the court determines that the defendant is in default, “‘the factual allegations of the complaint, other than those relating to damages, are taken as true.'” Televideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (quoting Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977)). Additionally, “[w]hen entry of judgment is sought against a party who has failed to plead or otherwise defend, a district court has an affirmative duty to look into its jurisdiction over both the subject matter and the parties.” In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999).
If the Court determines that the allegations in the complaint are sufficient to establish liability, the plaintiff must provide proof of all damages sought in the complaint, and the Court must determine the “amount and character” of the relief that should be awarded. Vogel, 992 F.Supp.2d at 1005-06 (citations omitted). “A default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings.” Fed.R.Civ.P. 54(c).
B. Discussion
1. Jurisdiction and Service of Process
a. Subject Matter Jurisdiction
In evaluating whether to enter default judgment, the Court first determines whether it has jurisdiction over the subject matter and the parties. See In re Tuli, 172 F.3d at 712.
Pursuant to 28 U.S.C. § 1332(a)(1), district courts have original jurisdiction over “all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens of different States[.]” In determining whether diversity exists, a corporation is a citizen of the state it was incorporated in and the state where it has its principal place of business. 28 U.S.C. § 1332(c)(1).
Here, the requirements for diversity jurisdiction are satisfied. Plaintiff seeks more than $75,000.00. See generally Compl. Additionally, Plaintiff and Defendants are citizens of different states. Plaintiff is incorporated in Delaware and has its principal place of business in New Jersey. Id. ¶ 1. Defendant SJ is incorporated and has its principal place of business in California. Id. ¶ 2. Defendant Garibyan resides and is domiciled in California. Id. ¶ 3. Thus, Plaintiff is a citizen of Delaware and New Jersey, while Defendants are citizens of California.
Therefore, the Court has diversity jurisdiction over this claim under 28 U.S.C. § 1332.
b. Personal Jurisdiction
Personal jurisdiction is also satisfied. Defendants are citizens of California, where this Action is brought. Defendants conduct a substantial portion of their business and own property in California. Thus, Defendants have “certain minimum contacts” with California such that exercising personal jurisdiction over Defendants would not “offend traditional notions of fair play and substantial justice.” Calder v. Jones, 465 U.S. 783, 788 (1984).
c. Service of Process Is Proper
Service of process is met because Plaintiff served Defendant SJ with the Summons and Complaint on July 26, 2022. Plaintiff served the Summons and Complaint on Defendant SJ's agent for service of process. Furthermore, Plaintiff served Defendant Garibyan on August 4, 2022. Plaintiff served the Summons and Complaint on Defendant Garibyan at Defendant Garibyan's office or usual place of business.
2. Procedural Requirements
Plaintiff has met the procedural requirements for default judgment pursuant to Federal Rules of Civil Procedure 55 and Central District Local Rule 55-1. Under Rule 55(a), the Clerk properly entered default against Defendants on September 29, 2022 [13]. Plaintiff moved pursuant to Rule 55(b) for entry of default judgment on January 6, 2023 [14].
Plaintiff has also established the Local Rule 55-1 requirements. The Clerk entered default against Defendants on September 29, 2022. Defendants are neither minors, nor incompetent persons nor in the military service nor otherwise exempted under the Servicemembers Civil Relief Act, 50 U.S.C. App. § 521. Furthermore, Defendants were properly served with the Motion for Default Judgment.
3. Eitel Factors
In considering whether entry of default judgment is warranted, courts consider several factors: “(1) the possibility of prejudice; (2) the merits of plaintiff's substantive claims; (3) the sufficiency of the complaint; (4) the sum of money at stake; (5) the possibility of a dispute concerning the material facts; (6) excusable neglect; and (7) the strong public policy favoring decisions on the merits.” Eitel, 782 F.2d at 1471-72.
a. Risk of Prejudice to Plaintiff “
The first Eitel factor considers whether a plaintiff will suffer prejudice if a default judgment is not entered.” Vogel, 992 F.Supp.2d at 1007.
This factor weighs in favor of granting default judgment. Defendants neither filed nor requested an extension to submit an opposition. As such, Defendants have failed to participate in the litigation and, without default judgment, Plaintiff would be unable to recoup damages for harm suffered. IO Grp., Inc. v. Jordon, 708 F.Supp.2d 989, 997 (N.D. Cal. 2010).
b. Sufficiency of the Complaint and Likelihood of Success on the Merits
The second and third Eitel factors consider the merits of the plaintiff's substantive claims and the sufficiency of the complaint. “Under an [Eitel] analysis, [these factors] are often analyzed together.” Dr. JKL Ltd. V. HPC IT Educ. Ctr., 749 F.Supp.2d 1038, 1048 (N.D. Cal. 2010). Here, while Plaintiff has asserted a meritorious claim for breach of contract, Plaintiff has not asserted a meritorious claim for unjust enrichment.
i. Breach of Contract
To properly plead a breach of contract claim, a plaintiff must prove: (1) the existence of a valid contract; (2) plaintiff performed its obligations under the contract; (3) defendant failed to perform its obligations under the contract; and (4) this nonperformance resulted in damages to the plaintiff. Sheldon Abend Revocable Tr. v. NBC Universal, Inc., No. CV 11-37 DSF (SHX), 2011 WL 13220378, at *1 (C.D. Cal. June 28, 2011).
Here, Plaintiff and Defendants entered a valid contract, the Agreement, to buy and sell Refinish Products. See generally Mot.; Ex. A, ECF No. 2. There is no evidence to suggest that Defendants did not intend to be legally bound by the Agreement and its terms. Moreover, Plaintiff alleges it has performed and fulfilled all obligations and conditions required under the Agreement. Compl. ¶ 28.
Furthermore, Plaintiff alleges Defendants failed to meet their obligations as required by the Agreement. Id. ¶¶ 24-25. Specifically, Defendants failed to meet the Minimum Purchase Requirement under the Agreement, with an outstanding balance of $275,849.00 owed. Id. As part of the Agreement, Defendants also failed to refund 110% of the Consideration. Id. ¶ 26. Therefore, Plaintiff has sufficiently alleged a breach of contract claim against both Defendants.
ii. Unjust Enrichment
Generally, California law does not permit a standalone cause of action for unjust enrichment. Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1167 (9th Cir. 1996). Unjust enrichment is a quasi-contract that is implied by law to return the aggrieved party to the position they were in before they provided the benefit to the unjustly enriched party. Id. An unjust enrichment cause of action also fails if the parties are bound by an enforceable express contract. Durell v. Sharp Healthcare, 183 Cal.App.4th 1350, 1370 (2010). Here, because the Court finds the Agreement to be an existing valid contract, Plaintiff's unjust enrichment claim fails as a matter of law.
For these reasons, the Court DENIES Plaintiff's Motion with respect to Plaintiff's claim for unjust enrichment.
c. Sum of Money at Stake in the Action “
Under the [fourth] Eitel factor, the court must consider the amount of money at stake in relation to the seriousness of [the] [d]efendant's conduct.” PepsiCo, Inc. v. Cal. Sec. Cans, 238 F.Supp.2d 1172, 1176 (C.D. Cal. 2002). The Court will review declarations, calculations, and other damages documentation to determine whether the sum of money at stake is appropriate. HICA Educ. Loan Corp. v. Warne, No. 11-CV-04287-LHK, 2012 WL 1156402, at *3 (N.D. Cal. Apr. 6, 2012).
Here, Plaintiff requests $275,849.00 in expectation damages for the Defendants' non-fulfillment of the Minimum Purchase Requirement, as well $22,000.00 as liquidated damages pursuant to the Consideration repayment term in the Agreement. Mot. at 8:26-28.
While the Court finds that Plaintiff's request for a refund on the Consideration is reasonable considering Defendants' alleged breach, an award of the remaining balance does not reflect the actual damages incurred by Plaintiff.
An award of contract damages is meant to compensate the aggrieved party “for the loss of his ‘expectational interest' - the benefit of his bargain which full performance would have brought.” Runyan v. Pac. Air Indus., Inc., 2 Cal.3d 304, 316 n.15 (1970). “The goal is to put the plaintiff in as good a position as [it] would have occupied if the defendant had not breached the contract.” Lewis Jorge Constr. Mgmt., Inc. v. Pomona Unified Sch. Dist., 34 Cal.4th 960, 967 (2004) (internal quotation marks omitted). However, “[d]amages must, in all cases, be reasonable, and where an obligation of any kind appears to create a right to unconscionable and grossly oppressive damages, contrary to substantial justice, no more than reasonable damages can be recovered.” Cal. Civ. Code § 3359.
Here, Plaintiff fails to support its request for expectation damages in the amount of $275,849.00. The measure of damages here should be for the profit Plaintiff would have made had Defendants fulfilled the Agreement and purchased the Minimum Purchase Requirement. Plaintiff does not offer any evidence or calculation method for determining its lost profit. See generally Mot. Instead, Plaintiff fails to explain how awarding $275,849.00 would not amount to a windfall, in that Plaintiff would possess both (1) compensation for the products not actually sold to Defendants, as well as (2) retain the Refinish Products, which Plaintiff may now sell to another buyer.
Therefore, the Court finds that awarding Plaintiff $275,849.00 is unsupported, unreasonable, and would be “oppressive” and “contrary to substantial justice.” Cal. Civ. Code § 3359. Accordingly, the Court DENIES Plaintiff's request for $275,849.00 in expectation damages.
Given Plaintiff's failure to substantiate why it should recover the remaining balance on the Refinish Products it did not actually supply, the Court finds that the fourth Eitel factor does not weigh in favor of entering default. See generally Compl.; Mot.
d. The Possibility of a Dispute Concerning the Material Facts
The fifth Eitel factor examines the likelihood of a dispute between the parties regarding the material facts in the case. A defendant is “deemed to have admitted all well-pleaded factual allegations” in the complaint upon entry of default. DirecTV, Inc. v. Hoa Huynh, 503 F.3d 847, 851 (9th Cir. 2007).
This factor weighs towards granting default judgment. There is a low possibility of dispute as the Complaint aptly demonstrates that Defendants breached the Agreement by not fulfilling the Minimum Purchase Requirement and in turn, not refunding the Consideration it was required to return. See generally Compl. Additionally, due to Defendants' lack of response after default was entered against them, they have failed to dispute any material facts.
e. The Possibility of Excusable Neglect Excusable neglect considers factors such as “prejudice . . ., the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.” J.L. v. Moreno Valley Unified Sch. Dist., No. CV 09-1978 ODW (PJWx), 2010 WL 1708839, at *1 (C.D. Cal. Apr. 20, 2010) (internal quotation marks and citations omitted).
Excusable neglect is negligible, as Defendants received the Summons, Complaint, and instant Motion. Defendants failed to either oppose the Motion or request an extension to file an opposition. Thus, this factor weighs in favor of default.
f. Public Policy Favoring Decisions on the Merits
The Ninth Circuit has stated that “[c]ases should be decided upon their merits whenever reasonably possible.” Eitel, 782 F.2d at 1472. However, “this preference, standing alone, is not dispositive.” PepsiCo, 238 F.Supp.2d at 1177. The breach of contract claim cannot be adjudicated, as Defendants failed to answer or appear in this Action. While this factor may weigh against entering default judgment, in total, the Eitel factors weigh towards granting in part and denying in part default judgment.
Therefore, the Court GRANTS in part and DENIES in part the Motion considering the remaining factors.
4. Character and Amount of Plaintiff's Recovery Plaintiff requests $275,849.00 in expectation damages, $22,000.00 in liquidated damages, $402.00 for filing fees in accordance with Local Rule 54-3.1, and $240.90 for service of process fees in accordance with Local Rule 54-3.2. See generally Mot.
a. Breach of Contract Damages
Where there is a successful claim for a breach of contract, the baseline measurement for damages is determined by what would make the prevailing, nonbreaching party “‘whole,' that is, enough to place the non-breaching party in the same position as if the breach had not occurred.” Postal Instant Press, Inc. v. Sealy, 43 Cal.App.4th 1704, 1709 (1996) (quoting Applied Equip. Corp. v. Litton Saudi Arabia, Ltd., 7 Cal.4th 503, 515 (1994)).
In this case, these damages are addressed as expectation damages. As previously discussed above, Plaintiff's request for $275,849.00 in expectation damages is unsupported, and it would be unreasonable or “contrary to substantial justice” to award Plaintiff such damages. Cal. Civ. Code § 3359; see BASF Corp. v. ENS, Inc., No. 2:22-cv-00577-ODW (GJSx), 2022 U.S. Dist. LEXIS 208357, at *12-13 (C.D. Cal. Nov. 16, 2022) (holding under very similar facts that a plaintiff's request for expectation damages was unsupported and unreasonable because the plaintiff offered no evidence or calculation method in determining said damages).
Therefore, Plaintiff's request for expectation damages of $275,849.00 is DENIED.
b. Liquidated Damages
Plaintiff's request for the return of the Consideration pursuant to a provision in the Agreement qualifies as a request for liquidated damages. See BASF Corp. v. Al's Body Shop of Huntington Park, Inc., No. CV 19-4306-RSWL-JPR, 2019 U.S. Dist. LEXIS 194985, at *15 (C.D. Cal. Nov. 7, 2019). “Liquidated damages constitute a sum which a contracting party agrees to pay or a deposit which he agrees to forfeit for breach of some contractual obligation.” ABI, Inc. v. City of Los Angeles, 153 Cal.App.3d 669, 684.
To determine whether liquidated damages are appropriate, the Court must examine whether the liquidated damages clause would be unenforceable as a penalty. See McGuire v. More-Gas Invs., LLC, 220 Cal.App.4th 512, 522 (2013). If the liquidated damages are disproportionate compared to the actual damages anticipated, then the provision is considered a penalty. Howard v. Babcock, 6 Cal.4th 409, 425 (1993). As a result, the penalty is deemed ineffective, and the plaintiff can only recover the actual damages sustained. Perdue v. Crocker Nat'l Bank, 38 Cal.3d 913, 931 (1985).
Here, Defendants fulfilled less than 20% of the Minimum Purchase Requirement, and therefore Plaintiff may recover $22,000.00 as liquidated damages, provided the liquidated damages term does not constitute a penalty. The Agreement sets forth decreasing percentages of a refund in the event that Defendants fulfilled a greater portion of the Minimum Purchase Requirement. Thus, the total refund amount is reasonably proportionate to anticipated actual damages and directly linked to the circumstances of any breach. Accordingly, the Court concludes the liquidated damages term is not disproportionate to the actual damages anticipated and is not viewed as a penalty. See, e.g., BASF Corp. v. SSM Auto. Grp., Inc., No. 5:21-cv-01191-MEMF (SHKx), 2022 U.S. Dist. LEXIS 119750, at *14-15 (C.D. Cal. May 17, 2022) (finding that a similar liquidated damages provision was not disproportionate and should not be viewed as a penalty).
Therefore, Plaintiff's request of liquidated damages pursuant to the provision in the Agreement is GRANTED in the amount of $22,000.00.
c. Clerk's Fees and Fees for Service of Process
Finally, Plaintiff seeks to recover $402.00 for Clerk's filing fees and $240.90 for service of process on Defendants. Mot. at 10:1-2. Local Rule 54-1 and Federal Rule of Civil Procedure 54(d) provide that a prevailing party is entitled to an award of costs incurred.
Accordingly, Plaintiff's request for Clerk's filing fees and service of process is GRANTED in the amount of $642.90.
III. CONCLUSION
Based on the foregoing, the Court GRANTS Plaintiff's Motion for Default Judgment as to the breach of contract claim and DENIES Plaintiff's Motion as to the unjust enrichment claim. In sum, Plaintiff has sufficiently pled breach of contract and is awarded $22,642.90: $22,000.00 in liquidated damages; $402.00 in Clerk's fees pursuant to Local Rule 54-3.1; and $240.90 in fees for service of process pursuant to Local Rule 54-3.2.
IT IS SO ORDERED.