Opinion
1:21-cv-00952-CL
05-11-2023
ELLI-HOU FARMS, LLC, an Oregon limited liability company, Plaintiffs, v. EHAB ABU FARIE, a.k.a. EHAB ABUFARIE, an individual, AHMAD ABU FARIE, a.k.a. AHMAD ABUFARIE, an individual, MOHAMED ABU FARIE, a.k.a. MOHAMMED ABU FARIE, a.k.a. MOHAMMAD ABU FARIE, a.k.a. MOHAMMAD ABUFARIE, an individual, E-JUICE VAPOR, INC., a California corporation, Defendants.
FINDINGS AND RECOMMENDATION
MARK D. CLARKE, UNITED STATES MAGISTRATE JUDGE
Plaintiff moves the Court for a default judgment against all defendants. For the reasons below, Plaintiffs' Motion (#42) should be GRANTED.
Facts in this section are as alleged in the First Amended Complaint (#27) and are assumed to be true for the purposes of this motion and Order. The Court does not assume that the legal claims contained the Amended Complaint are true.
Plaintiff is a limited liability company with is principal place of business in Medford, Oregon. All of the members of Elli-Hou are citizens of the State of Oregon. Elli-Hou began operating a 63-acre hemp farm in Medford, Oregon, in 2019, focusing on the production of industrial hemp for premium CBD flower. Elli-Hou sells top-shelf CBD hemp flower directly to consumers and at wholesale to retailers of CBD hemp flower and other hemp products via its website and direct inquiries. The hemp flower Elli-Hou sells contains less than 0.3% delta-9-tetrahydrocannabinol ("THC").
Defendants Ehab Abu Farie, Ahmad Abu Farie, and Mohammad Abu Farie (collectively, the “Individual Defendants”) are individuals residing in the State of California. Defendant E-Juice Vapor, Inc. ("E-Juice"; referred to together with the Individual Defendants collectively herein as "Defendants") is a California corporation with its principal place of business in Fountain Valley, California.
In or about December 2019, Defendants were introduced to Elli-Hou through a broker. After initiating this contact, Defendants communicated to Elli-Hou that they were interested in purchasing large quantities of hemp products from Elli-Hou on an ongoing basis. Each of the Individual Defendants then travelled from California to Elli-Hou's farm in Medford, Oregon, where they met with representatives of Elli-Hou to negotiate the terms of a potential agreement. During this visit, Defendants inspected Elli-Hou's hemp products and made their first purchase. Defendants represented to Elli-Hou that they were negotiating the purchase of CBD hemp flower and biomass for use and sale by their companies, “Labalux” and E-Juice, in addition to themselves. Elli-Hou understood that Defendants would order the products from EIli-Hou and allocate the product amongst themselves after delivery.
Plaintiff alleges that no legal entity operating under the name “Labalux” and affiliated with any of the Individual Defendants or E-Juice actually exists.
Through these negotiations, Defendants reached an agreement with Elli-Hou, pursuant to which each of Defendants agreed to purchase from Elli-Hou, and Elli-Hou agreed to supply, hemp biomass at a price of $15.00 per pound and CBD hemp flower at a price of $250.00 per pound as part of future orders on an ongoing basis (the "Agreement"). Pursuant to the Agreement, full payment for each order was due within 45 days of delivery of the ordered product. Each of Defendants agreed to be responsible for these payment obligations.
Based on Defendants' representations that Labalux was their primary business, Elli-Hou understood that the bulk of their purchases would be received and used by Labalux. This understanding was reinforced by Elli-Hou's observations that Defendants used the “Labalux” name in connection with much of their product packaging, warehousing, and product sales.
In total, between December 2019 and March 10,2020, Defendants ordered and received 2,725.4 pounds of CBD hemp flower and 785 pounds of hemp biomass from Elli-Hou for a total purchase price of $693,125.00. Defendants paid Elli-Hou a total of only $183,500.00. Plaintiff claims that Defendants continue to possess, market, and sell at least some of the products they received from Elli-Hou and for which they have not paid. In addition to sustaining alleged damages in the amount of $509,625.00, Elli-Hou claims that it incurred substantial expenses and commitments in foreseeable reliance on the parties' Agreement. Those expenses and commitments, which included extended lodging and transportation, exceeded $10,000. Based on the above allegations, Plaintiffs brings claims against the Defendants for Breach of Contract, Fraud, and Conversion, and in the alternative, Unjust Enrichment.
LEGAL STANDARD
The decision to grant or deny a motion for default judgment is within the. discretion of the court. Draper v. Coombs, 792 F.2d 915, 924 (9th Cir. 1986). In exercising its discretion, the court must consider seven factors, often referred to as the Eitel factors: (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 favoring decisions on the merits. Eitel v. McCool, 782 F.2d 1470,1471-72 (9th Cir. 1986).
Upon entry of default, a plaintiffs well-pleaded allegations of fact regarding liability, except allegations relating to the amount of damages, will be taken as true. Geddes v. United Fin-Group, 559 F.2d 557, 560 (9th Cir. 1978). Plaintiff must establish damages by proof, unless the amount is liquidated or otherwise susceptible of computation. Davis v. Fendler, 650 F.2d 1154, 1161 (9th Cir. 1981) (internal citation omitted). Relief for cases of default judgment “must not differ in kind from, or exceed in amount, what is demanded in the pleadings.” Rule 54(c).
DISCUSSION
The Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1332, because plaintiff is a citizen of a different state from all defendants and the amount in controversy exceeds $75,000. Venue is proper in this district pursuant to 28 U.S.C. § 1391(b)(2) because the events giving rise to the claims occurred in this district and judicial division, and all parties are subject to this Court's personal jurisdiction with respect to this suit because Elli-Hou's claims arise from injuries to property resulting from acts or omissions by Defendants within the State of Oregon. The parties' underlying agreement was negotiated during a meeting that Defendants attended in person in Oregon. Defendants further made the subject promises and representations to Elli-Hou while in Oregon, and they took delivery of Elli-Hou products in Oregon.
On November 18, 2022, Plaintiff moved for a clerk's entry of default against the Defendants. The Defendants had not filed an appearance in this action, nor had they provided Plaintiff a written notice of intent to file an appearance. Because Defendants failed to plead or otherwise defend in response to Elli-Hou's Complaint (#1) or First Amended Complaint (#27) in this action within the time required by Rule 12, the motion was granted, and a Clerk's Entry of Default (#41) was entered on November 22, 2022. To date, Defendants have not appeared or otherwise responded, and have not proceeded to defend the case in any way.
I. The Eitel factors weigh in favor of entering default judgment against the Defendants.
All of the factors weigh in favor of granting the motion for default judgment against the Defendants.
a. The possibility of prejudice to Plaintiff weighs in favor of default judgment.
First, if default judgment were denied, Plaintiff would be denied a legal remedy against the defaulting Defendants for their allegedly unlawful actions and “would be left without a remedy given defendant's failure to appear and defend themselves.” J & J Sports Prods., Inc. v. Frei, No. 4:12-cv-0127-BLW, 2013 WL 3190685, *1 (D. Idaho Jun. 21, 2013).
b. The sufficiency of the complaint and the merits of Plaintiffs' substantive claims also weigh in favor of default judgment.
Next, Plaintiffs Amended Complaint sufficiently states a claim for relief, thus meeting the second, and third Eitel factors. See Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978) (stating the second and third factors require a plaintiffs allegation “state a claim on which the [plaintiff] may recover”). Because the Clerk of the Court has entered default, the well-pleaded allegations of the complaint are taken as true and are binding against the defaulting parties. Garcia v. Pacwest Contracting LLC, 2016 WL 526236, 1 (D. Or. Feb 9, 2016) (citing Televideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917 (9th Cir. 1987). Thus, the question is whether Plaintiff is entitled to recover on the facts set forth in the Complaint, The Court concludes that Plaintiff is so entitled. Plaintiff has adequately stated a claim for relief for breach of contract, fraud, and conversion, and in the alternative, unjust enrichment.
c. The possibility of a dispute concerning material facts is a neutral factor, or it weighs in favor of granting default judgment.
As discussed above, the Defendants in this case have been properly served but have not appeared. Without an appearance by the defendants and their version of the facts, or any other countervailing evidence, and because all well-pleaded allegations of the complaint are deemed true after entry of default, there is “no likelihood that any genuine issue of material fact exists” after default has been entered. Elektra Entm't Grp. Inc v. Crawford, 226 F.R.D. 388, 393 (C.D, Cal. 2005). This factor is neutral or weighs in favor of granting default judgment.
d. The sum of money at stake in the action weighs in favor of granting default judgment.
“One of the factors the court is free to consider in exercising its discretion to grant or deny default judgment is the sum of money at stake.” J& J Sports Prods., Inc. v. Rafael, No. CIV S-l0-1046 LKK GGH, 2011 WL 445803, at *2 (E.D. Cal. Feb 8, 2011). Under this factor, a court considers the sum of money “in relation to the seriousness of [the defendant's] conduct.” PepsiCo, Inc. v. Cal. Sec. Cans, 238 F.Supp.2d 1172, 1176 (C.D. Cal. 2002). Here, Plaintiff seeks damages in the amount of $519,625, plus pre-judgment interest in the amount of $142,636 through January 31, 2023, plus pre-judgment interest at the statutory rate of 9& per annum on the principal amount from January 31,2023 through the date of entry of judgment, plus costs and post-judgment interest on the foregoing amount at the statutory rate of 9% per annum. This sum of money in relation to the seriousness of the Defendants' conduct weighs in favor of granting Plaintiffs motion.
e. No evidence suggests default was due to excusable neglect; this factor is neutral or weighs in favor of granting default judgment.
No evidence exists to suggest the Defendants' failure to respond to the Complaint or Amended Complaint was due to excusable neglect. On December 16, 2021, the Court granted Plaintiffs Motion for Alternative Service, ordering that Plaintiff serve the Individual Defendants by publishing copies of summonses in the Orange County Register, in Orange County, California, once per week for four consecutive weeks. Plaintiff provided sworn proof of service of process as to Defendant E-Juice Vapor on December 17, 2021. After filing the Amended Complaint, Plaintiff filed a second Motion for Service by Publication, which was granted for all the same reasons. An affidavit of service and proof of publication was filed on September 22, 2022. No evidence of excusable neglect exists or is apparent in the record. This factor is neutral or weighs in favor of granting default judgment.
f. Policy favors a decision on the merits of the case; this factor weighs against default judgment.
The one factor that weighs in favor of the defendants, and against default judgment, is the strong policy favoring decisions on the merits. However, this factor, without more, is not sufficient to preclude default judgment. “Although ‘cases should be decided upon their merits whenever reasonably possible,' ‘the mere existence of Fed.R.Civ.P. 55(b) indicates that this preference, standing alone, is not dispositive.'” Garcia v. Pacwest Contracting LLC, 2016 WL 526236, at *4 (D. Or. Feb. 9, 2016) (quoting PepsiCo, Inc., 238 F.Supp.2d. at 1177). Here, the defendants' “failure to defend against [Plaintiffs'] claims makes a decision on the merits impossible. Accordingly, the policy favoring decision on the merits does not preclude the Court from entering default judgment against [the defendants].” Id.,
g. Conclusion
The Eitel factors weigh in favor of granting Plaintiffs motion for default judgment because the only factor that weighs against default judgment is the final, policy factor, which is not dispositive. Without an appearance by the Defendants and their side of the facts or any other countervailing evidence, the factors weigh in Plaintiffs' favor, and the Court cannot find a reason to deny the motion for default judgment.
IL Plaintiffs' request for damages and motion for attorney fees should be granted.
Rule 54(c) of the Federal Rule of Civil Procedure provides that “[a] default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings.” Here, Plaintiffs Amended Complaint includes a prayer for relief requesting payment of the principal amount of contract damages, which is $519,625. The Prayer for Relief includes the alternative amounts, depending on the success of each type of claim. In moving for default judgment, Plaintiff recognizes these to be alternative requests of the same functional amount of damages. Therefore, the motion for default judgment, and proposed final judgment, prays for relief as follows, to be adjudged against each Defendant jointly and severally:
a. The principal amount of $519,625.00; plus
b. Pre-judgement interest on the principal amount in the amount of $ 142,636.70 through January 31, 2023; plus
c. Pre-judgment interest at the statutory rate of 9% per annum on the principal amount from January 31, 2023 through the date of entry of judgment; plus
d. Costs and disbursements to be determined under the procedures contained in Fed.R.Civ.P. 54(d) and LR 54; plus
e. Post-judgment interest on the foregoing amounts at the statutory rate of 9% per annum.The Court finds the demand to be consistent with the form and substance of the Prayer for Relief.
RECOMMENDATION
For the reasons above, the Court recommends that Plaintiffs Motion (#42) be GRANTED. Default Judgment should be entered in favor of Plaintiff against Defendants, in the form of final judgment as proposed in (#43-1).
SCHEDULING
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Federal Rule of Appellate Procedure Rule 4(a)(1) should not be filed until entry of the district court's judgment or appealable order. The Report and Recommendation will be referred to a district judge. Objections to this Report and Recommendation, if any, are due fourteen (14) days from today's date. If objections are filed, any response to the objections is due fourteen (14) days from the date of the objections. See Fed.R.Civ.P. 72, 6.