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Randell v. California State Compensation Insurance Fund

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA


July 29, 2008

DEBRA LYNN RANDELL, DBA CUSTOM PERSONNEL, PLAINTIFF,
v.
CALIFORNIA STATE COMPENSATION INSURANCE FUND, JAMES C. TUDOR, PRESIDENT, DEFENDANT.

The opinion of the court was delivered by: Gregory G. Hollows U. S. Magistrate Judge

FINDINGS AND RECOMMENDATIONS

Pursuant to motions filed April 30, 2008 and May 9, 2008, defendant State Compensation Insurance Fund moves, respectively, to set aside the default entered by the Clerk of Court on April 15, 2008, and to dismiss plaintiff's complaint. These matters, previously scheduled for hearing on June 12, 2008, were submitted for decision on the papers by order filed June 9, 2008. Also pending is plaintiff's request made April 23, 2008, that the Clerk enter default judgment.

For the reasons set forth below, the court recommends that defendant's motion to set aside default be granted and plaintiff's motion for default judgment be denied, and that defendant's motion to dismiss the complaint be granted without leave to amend pursuant to Fed. R. Civ. P. 12(b)(1).

BACKGROUND

Plaintiff owns Custom Personnel, "an employee leasing company, providing employees to a large number of diversified customers." CDI Decision,*fn1 at p. 1; Complaint, at p. 2. Defendant California State Compensation Insurance Fund ("SCIF" or "Fund") is a "public fund enterprise" within the California Department of Industrial Relations, created for the purpose of ensuring that all California businesses may obtain mandatory workers' compensation insurance coverage. See Cal. Const. Art XIV, § 4 (authorizing California Legislature "to create, and enforce a complete system of workers' compensation"); see also, Cal. Labor Code § 56 (SCIF created as a division of the Department of Industrial Relations); Cal. Ins. Code § 11773 ("[t]he fund shall be organized as a public enterprise fund"). Additionally named defendant "James C. Tudor, President," "was no longer employed by the State Fund at the time the suit was filed." Motion to Set Aside Default, at p. 2.

In her complaint filed December 21, 2007, plaintiff alleges she was denied "substantive due process" by SCIF's presentation of a final bill for payment of workers compensation insurance premiums for the calendar year 2005, which included notice that failure to make payment in full by December 31, 2007 would result in cancellation of coverage for plaintiff's employees "with the resultant closure of business." Complaint, at p. 3. Plaintiff also alleges that this "enforcement of a fictitious debt" imposes upon her "involuntary servitude in violation of the Thirteen Amendment to the Federal Constitution." Id. at p. 2. Plaintiff seeks damages in the "sum certain" amount of $46 million "[f]or the legal coercion and the attendant mental anguish, emotional stress and financial loss, of threatening to cancel 'insurance coverage' for the nonpayment of a fictitious debt. . ." Complaint, at pp. 3-4.

Contemporaneous with filing her complaint, plaintiff filed an application for temporary restraining order which was denied by the district judge by order filed January 3, 2008.

On February 13, 2008, plaintiff filed a return averring that service of process had been made upon defendant on December 22, 2007 "by U.S. Mail (priority mail) to address on front of summons," specifically, "James C. Tudor acting President (or his successor)," at SCIF's San Francisco location. On February 26, 2008, plaintiff requested entry of default by the Clerk of Court on the ground that defendant had been properly served yet failed to answer within the 20 days prescribed by Fed. R. Civ. P. 12(a). The Clerk entered defendant's default on April 15, 2008.

On April 23, 2008, plaintiff requested that the Clerk enter default judgment against defendant based on the alleged certainty of plaintiff's damages. See Fed. R. Civ. P. 55(b)(1) (upon request, default judgment must be entered by the Clerk against a non-appearing defendant "[i]f the plaintiff's claim is for a sum certain or a sum that can be made certain by computation").

On April 30, 2008, defendant SCIF moved to set aside the entry of default based on improper service of process, and to dismiss the complaint. The motions, erroneously noticed before the district judge, were properly renoticed before the undersigned and thereafter submitted for decision on the papers.

DISCUSSION

A. Motion to Set Aside Default

"When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default." Fed. R. Civ. P. 55(a).

" 'Absent an abuse of discretion, there is no error in setting aside a default where the judge finds good cause to do so.' Curry v. Jensen, 523 F.2d 387, 388 (9th Cir.1975). The court's discretion is especially broad where, as here, it is entry of default that is being set aside, rather than a default judgment. See Meehan v. Snow, 652 F.2d 274, 276 (2d Cir.1981). A decision on a motion to set aside a default is not an abuse of discretion unless the court is "clearly wrong" in its determination of good cause. Provident Security Life Insurance Co. v. Gorsuch, 323 F.2d 839, 842 (9th Cir.1963). ' " 'Where timely relief is sought from a default . . . and the movant has a meritorious defense, doubt, if any, should be resolved in favor of the motion to set aside the [default] so that cases may be decided on their merits.' " Schwab v. Bullock's Inc., 508 F.2d 353, 355 (9th Cir.1974) (quoting 7 J. Moore, Moore's Federal Practice ¶ 60.19, at 232-33)." Mendoza v. Wight Vineyard Management, 783 F.2d 941, 945-946 (9th Cir. 1986).

Defendant has demonstrated good cause for setting aside the Clerk's entry of default. Service of the summons and complaint by mail was inadequate.*fn2 The Federal Rules of Civil Procedure provide that a "state-created governmental organization that is subject to suit must be served by: (A) delivering a copy of the summons and of the complaint to its chief executive officer; or (B) serving a copy of each in the manner prescribed by that state's law for serving a summons or like process on such a defendant." Fed. R. Civ. P. 4(j)(2). In California, service of process upon a public entity shall be made "by delivering*fn3 a copy of the summons and of the complaint to the clerk, secretary, president, presiding officer, or other head of its governing body." Cal. Code of Civil Procedure § 415.60(a). Thus, pursuant to either the Federal Rules or California procedure, plaintiff was required to serve process by personal -- not postal -- delivery upon SCIF's current -- not former -- chief executive officer.*fn4

Notwithstanding plaintiff's errors in serving the summons and complaint, defendant received actual notice of this action and has now appeared.

Accordingly, good cause having been shown, defendant's motion to set aside the Clerk's entry default will be granted.

B. Motion for Default Judgment

For the reasons supporting good cause to set aside the Clerk's entry of default, plaintiff's motion for default judgment pursuant to Fed. R. Civ. P. 55(b)*fn5 is rendered moot and should, therefore, be denied.

C. Motion to Dismiss

Defendant moves to dismiss the complaint in its entirety on the following grounds: (1) lack of subject matter jurisdiction based on Eleventh Amendment immunity; (2) principles of abstention set forth in Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746 (1971); and (3) failure to state a claim under the Thirteenth Amendment. Due to the court's conclusion that plaintiff's complaint fails to establish federal subject matter jurisdiction, defendant's first and third contentions are addressed only parenthetically, and its second contention need not be reached.

1. Subject Matter Jurisdiction Pursuant to Fed. R. Civ. P. 12(b)(1)

A federal court is a court of limited jurisdiction, and may adjudicate only those cases authorized by the Constitution and by Congress. See Kokkonen v. Guardian Life Ins. Co, 511 U.S. 375, 377, 114 S.Ct. 1673, 1675 (1994). The basic federal jurisdiction statutes, 28 U.S.C. §§ 1331 and 1332, confer "federal question" and "diversity" jurisdiction, respectively, while statutes regulating specific subject matter may also confer federal jurisdiction. See generally, W.W. Schwarzer, A.W. Tashima & J. Wagstaffe, Federal Civil Procedure Before Trial § 2:5. Lack of subject matter jurisdiction is so fundamental that it may be raised at any time by any party or by the court. See Attorneys Trust v. Videotape Computer Products,Inc., 93 F.3d 593, 594-95 (9th Cir. 1996).

"When subject matter jurisdiction is challenged under Federal Rule of Procedure 12(b)(1), the plaintiff has the burden of proving jurisdiction in order to survive the motion. A plaintiff suing in a federal court must show in his pleading, affirmatively and distinctly, the existence of whatever is essential to federal jurisdiction, and, if he does not do so, the court, on having the defect called to its attention or on discovering the same, must dismiss the case, unless the defect be corrected by amendment." Tosco Corporation v. Communities for a Better Environment, 236 F.3d 495, 499 (9th Cir. 2001) (citations and internal quotations omitted).

Ordinarily, when "matters outside the pleadings are presented to . . . the court, the motion shall be treated as one for summary judgment." Fed. R. Civ. P. 12(c). However, when there is a factual question about whether a court has jurisdiction, the trial court may consider affidavits or any other evidence properly before the court. Sommatino v. United States, 255 F.3d 704, 710 (9th Cir. 2001); Am. Med. Colleges v. United States, 217 F.3d 770, 778 (9th Cir. 2000). Thus, unlike the strict limitations under Rule 12(b)(6) against considering matters outside the complaint, a Rule 12(b)(1) motion may refer to evidence extraneous to the complaint without converting it into a Rule 56 motion for summary judgment. Sun Valley Gas v. Ernst Enters., Inc., 711 F.2d 138,139 (9th Cir. 1983).

2. James Tudor

While this issue is mooted by the court's recommendation that the complaint be dismissed in its entirety, James Tudor should be dismissed from this action. He is no longer employed by defendant SCIF and plaintiff does not allege he was responsible for the challenged conduct other than as SCIF's presiding officer. Moreover, since plaintiff's complaint is premised on this court's jurisdiction pursuant to 42 U.S.C. § 1983 (discussed infra), naming SCIF's presiding officer in his official capacity is indistinguishable from naming SCIF itself. See Monell v. Department of Social Services of City of New York, 436 U.S. 658, 691, n. 55, 98 S.Ct. 2018, 2036 (1978) ("official-capacity suits generally represent only another way of pleading an action against an entity of which an officer is an agent -- at least where Eleventh Amendment considerations do not control analysis. . ."). See also, Cal. Insur. Code § 11772 ("There shall not be any liability in a private capacity on the part of . . . any officer or employee of the fund for or on account of any act performed or obligation entered into in an official capacity, when done in good faith, without intent to defraud and in connection with the administration, management or conduct of the fund or affairs relating thereto").

3. The Complaint

Additional facts need be presented, and are drawn from the September 5, 2007 decision in this matter by the California Department of Insurance, Administrative Hearing Bureau ("CDI Decision" (see n. 1, supra)). Plaintiff challenged SCIF's 2005 payroll audit of her policy, which assessed an additional premium of $190,035.35. Plaintiff alleged that SCIF misapplied the premium payments she had already made, improperly calculated the amount outstanding, and was tardy in filing required statistical reports with the Workers Compensation Insurance Rating Board ("WCIRB"), resulting in the Board's belated issuance of "experience modification factors" ("ex mods")*fn6 which increased plaintiff's premiums but were issued too late to be passed along to plaintiff's customers.

According to defendant, the parties' disputes were initially submitted to the SCIF's Customer Assistance Program (CAP), which upheld the Fund's audit. It is plaintiff's contention that she sought a hearing from SCIF, but the request was denied and the Fund rendered its decision without a hearing. Plaintiff appealed SCIF's decision to the California Department of Insurance (CDI), and "also appealed [SCIF's] late publication and application of the experience modifications . . . reported to the Workers' Compensation Insurance Rating Bureau." Defendant's Memorandum in Support of Motion to Dismiss, at p. 2.

On September 5, 2007, CDI's Administrative Hearing Bureau issued a "Summary Denial on Appeal" pursuant to California Insurance Code § 11737(f),*fn7 as reiterated in California Code of Regulations, Title 10, section 2509.53(e)*fn8, and a written opinion explaining that CDI was without jurisdiction to decide the parties' dispute. Noting that its jurisdiction was limited to disputes concerning "the manner in which the rating system has been applied in connection with the insurance afforded or offered," citing Cal. Ins. Code § 11737(f),*fn9 the Department found that the disputes at issue were instead private contractual matters. CDI explained (CDI Decision, at pp. 3-4):

Appellant [plaintiff herein] does not claim SCIF has incorrectly applied its own rating system or that it is violating a system the Commissioner has approved -- rather it claims that SCIF has misapplied premiums Appellant remitted. The claim is for an accounting and for damage resulting from SCIF's alleged failure to honor its commitment to apply premium payments correctly under its policy contract. Similarly, an additional claim may be for damages resulting from SCIF's late reporting statistical data to the WCIRB, preventing Appellant from immediately passing along the additional costs resulting from increased ex mods. Appellant has not, however, claimed the ex mods issued by the WCIRB were erroneous or in violation of any rules or regulations governing WCIRB's conduct. The only claim is that WCIRB did not issue the ex mods as early as Appellant would have preferred. WCIRB blames SCIF for this problem because of late data reporting. SCIF, in turn, pushes it back to Appellant for failure to co-operate and provide necessary audit data and access. Thus, the dispute relates ultimately to SCIF's allegedly misapplying premium payments and to its alleged tardiness in reporting data to WCIRB. In each instance the asserted wrong is a breach of the obligation owed by SCIF to Appellant under its insurance policies, or a breach of the covenant of good faith and fair dealing implicit in the contract. These are the types of private disputes between an insured employer and its workers' compensation insurer over which the Commissioner does not have jurisdiction . . .

Thus, CDI found the parties' disputes to be private, actionable in contract or tort, and without an administrative remedy, similar to the claims addressed in Tricor California, Inc. v. State Compensation Ins. Fund, 30 Cal. App. 4th 230 (1994) (authorized private causes of action for an accounting, fraud, breach of contract, and breach of the implied covenant of good faith and fair dealing, the latter based on allegations that SCIF failed adequately to investigate and pay claims, set premium rates and permit the review and audit of its files); Security Officers Service, Inc. v. State Compensation Ins. Fund, 17 Cal. App. 4th 887 (1993) (authorized private cause of action for breach of the implied covenant of good faith and fair dealing, and for negligence, based on allegations that SCIF delayed claims processing and overestimated reserves, thus adversely impacting plaintiff's premiums and dividends); and Lance Camper Manufacturing Corp. v. Republic Indemnity Co., 44 Cal. App.4th 194 (1996) (authorizing private causes of action for breach of contract and bad faith based on challenges to private insurer's claims handling practices that allegedly adversely impacted plaintiff's premiums, reserves, losses and dividends). Relying on these cases, CDI concluded, "As in Lance Camper, this appeal present[s] private claims by an insured employer for breach of contract or tortious misconduct against its insurer, for which the Legislature has not created an administrative remedy within the Commissioner's jurisdiction." CDI Decision, at p. 6.

CDI's decision informed the parties they could seek judicial review pursuant to California Code of Regulations, title 10, § 2509.76.*fn10 However, the record does not indicate any request for state judicial review or the pendency of any parallel state court proceeding.

Plaintiff's "substantive due process" challenge is based upon the following: (1) SCIF's presentation of a final bill for the calendar year 2005 without providing notice to plaintiff that she could dispute the bill pursuant to "a hearing . . . or appeals process or dispute resolution process of any kind as mandated by the statutes governing [SCIF's] operations;" (Count 1); (2) SCIF's denial of a hearing (Count 2); (3) the Insurance Commissioner's dismissal of plaintiff's appeal for lack of jurisdiction without addressing SCIF's denial of hearing and without reviewing the details of the challenged audit (Count 3); and (4) SCIF's "enforcement of a fictitious debt," demonstrated by its notice to plaintiff that failure timely to pay the disputed premium would result in the cancellation of plaintiff's insurance (Count 4). Plaintiff also claims that SCIF's "enforcement of a fictitious debt" imposes upon her involuntary servitude in violation of the Thirteenth Amendment. Complaint, at pp. 2-3.

This court has carefully considered plaintiff's claims, and the contentions of defendant in support of its motion to dismiss. For the following reasons, the court concludes that plaintiff's "complaint states no facts which involve a federal right," Dinneen v. Williams, 219 F.2d 428, 429 (9th Cir. 1955), and should therefore be dismissed for want of jurisdiction, Bell v. Hood, 327 U.S. 678, 683, 66 S.Ct. 773 (1946).

Plaintiff premises this court's jurisdiction in this nondiversity case on federal subject matter (28 U.S.C. § 1331), based on her contentions she has been denied "substantive due process" (Fourteenth Amendment) and subjected to involuntary servitude (Thirteenth Amendment). These constitutional challenges are implicitly and necessarily made pursuant to 42 U.S.C. § 1983. "Section 1983 does not create any substantive rights, but is instead a vehicle by which plaintiffs can bring federal constitutional and statutory challenges to actions by state and local officials." Anderson v. Warner, 451 F.3d 1063, 1067 (9th Cir. 2006). To succeed on a § 1983 claim, a plaintiff must demonstrate a deprivation of a right secured by the Constitution or laws of the United States, and that the defendant acted under color of state law.*fn11 West v. Atkins, 487 U.S. 42, 48, 108 S.Ct. 2250 (1988).

Plaintiff's first and second claims, and part of her third claim, are based on SCIF's failure to afford plaintiff a hearing. However, state law requires only that workers compensation insurers, including SCIF, provide written decisions in response to complaints by their insureds.*fn12

There is no provision for a hearing unless the insured appeals the insurer's decision to the California Department of Insurance ("CDI"), assuming the parties' dispute is within CDI's jurisdiction. See Cal. Insur. Code § 11737(f), n. 9, supra.

Thus, plaintiff's contention she was entitled to a hearing before SCIF is inconsistent with state law and fails to acknowledge that hearings are provided by the Department of Insurance on matters within its jurisdiction. As discussed below, given the alternative of a private right of action on matters outside CDI's jurisdiction, plaintiff's due process contention before this court is no more than a smokescreen.

"[T]he Due Process Clause of the Fourteenth Amendment confers both procedural and substantive rights." Armendariz v. Penman, 75 F.3d 1311, 1318 (en banc) (9th Cir. 1996). While still theoretically viable, substantive due process is a disfavored analysis and has been largely discredited in matters of economics and property rights. Id.at 1318-1319.*fn13 When available in the context of economic regulation, a substantive due process claim is generally premised on an allegedly irrational or arbitrary interference with one's property rights. Bateson v. Geisse, 857 F.2d 1300, 1303 (9th Cir. 1988). "'A property interest in a benefit protected by the due process clause results from a 'legitimate claim of entitlement' created and defined by an independent source, such as a state or federal law.'" Bateson, 857 F.2d at 1305, quoting Parks v. Watson, 716 F.2d 646, 656 (9th Cir.1983). "Although the underlying substantive interest is created by 'an independent source such as state law,' federal constitutional law determines whether that interest rises to the level of a 'legitimate claim of entitlement' protected by the Due Process Clause."*fn14 Memphis Light, Gas and Water Division v. Craft, 436 U.S. 1, 2, 98 S.Ct. 1554, 1560 (1978) (citations omitted).

Construed most favorably, the "underlying substantive interest" or "property interest" which plaintiff seeks to protect is her statutorily-created right to a fairly and uniformly assessed workers compensation insurance rate and premium.*fn15 However, "an employer's workers' compensation insurance premium does not implicate a fundamental right akin to basic human economic needs. . . . To the extent that economic regulations may implicate fundamental rights, the substantive limits on a state's power of economic regulation are found where the state requires a business to engage in activities which result in economic waste and are merely incidental to the state's interest in regulation." Dinwiddie Construction Company v. Dept. of Insurance, State of Calif., 745 F. Supp. 589, 594 (N.D. Cal. 1990), citing Burlington Northern R. Co. v. Dept. of Public Serv., 763 F.2d 1106, 1112 (9th Cir. 1985).*fn16

In Dinwiddie Construction, 745 F. Supp. at 595, the District Court rejected plaintiff contractor's constitutional challenges to a statutory rule (since superseded) that eliminated consideration of an employer's past experience in setting workers compensation insurance rates. The court rejected plaintiff's substantive due process contention for failure to present any evidence that application of the rule threatened plaintiff's business. Similarly, plaintiff here makes only a generalized contention that defendant's additional charge creates a (predictable) "financial loss." Complaint, at p. 4. It is not plaintiff's contention that the state has arbitrarily or irrationally impaired her right to a fairly assessed premium. As concluded by CDI -- and uncontested here -- plaintiff makes no claim that SCIF violated the Commissioner's rating system, or incorrectly applied its own rating system, or that the ex mods issued by WCIRB were erroneous or violated any rules or regulations. Plaintiff challenges neither the law underlying the state's insurance industry rating system, nor its application to her. Rather, it is plaintiff's claim that an additional premium was imposed upon her without benefit of a hearing, a claim grounded, if at all, in procedural, not substantive, due process.

"In a procedural due process claim, it is not the deprivation of property or liberty that is unconstitutional; it is the deprivation of property or liberty without due process of law -- without adequate procedures."*fn17 Daniels v. Williams, 474 U.S. 327, 339, 106 S.Ct. 677, 678 (1986). "'[T]he root requirement' of the Due Process Clause [is] 'that an individual be given an opportunity for a hearing before he is deprived of any significant protected interest."*fn18

Cleveland Board of Education v. Loudermill, 470 U.S. 532, 542, 105 S.Ct. 1487, 1493 (1985), quoting Boddie v. Connecticut, 401 U.S. 371, 379, 91 S.Ct. 780, 786 (1971) (original emphasis).

Plaintiff has not yet paid the disputed premium (Defendant's Motion to Dismiss, at 3:3-4), and so continues to challenge "pre-deprivation" procedures. However, in addition to the notice and administrative procedures already accorded her, plaintiff was informed that additional state court procedures remained available, both to challenge CDI's jurisdictional decision and to pursue private contract and tort claims against SCIF. It is instructive that the District Court in Dinwiddie Construction, 745 F. Supp. at 595, found that plaintiff "was not entitled to a hearing on any basis other than the Department's own procedure," because he had demonstrated no greater property interest than a uniform application of the state's rating system. Similarly, here, the availability to plaintiff of further "pre-deprivation" procedures that are entirely dependent upon state law renders plaintiff's federal due process contention -- insofar as it challenges SCIF's failure to provide a hearing and CDI's failure to order one -- "plainly unsubstantial," Hannis Distilling Co. v. City of Baltimore, 216 U.S. 285, 288, 30 S.Ct. 326 (1910), and insufficient to sustain this court's subject matter jurisdiction, id. at 294-295; Bell v. Hood, 327 U.S. at 683.

The remainder of plaintiff's third claim challenges the Insurance Commissioner's dismissal of plaintiff's appeal without reviewing the details of the challenged audit. The Commissioner and California Department of Insurance are not named defendants in this action, appropriately so because they are protected from suit in federal court by the Eleventh Amendment.*fn19 Moreover, as plaintiff was informed, CDI's decision is directly reviewable in state court and plaintiff may seek state judicial review of SCIF's audit. Accordingly, this court finds that plaintiff's third claim fails to present a federal due process challenge or any other federal issue, and therefore fails to establish this court's federal subject matter jurisdiction.

Plaintiff's fourth due process claim challenges SCIF's "enforcement of a fictitious debt" pursuant to its demand for payment under threat of canceling plaintiff's insurance. This challenge is elsewhere characterized by plaintiff as imposition of involuntary servitude in violation of the Thirteenth Amendment. Both characterizations are frivolous, the due process allegations for the reasons previously stated. Absent a state court determination overturning CDI's jurisdictional finding or assessing differently the parties' respective contractual rights and obligations, it is within SCIF's discretion to enforce its audit. Plaintiff's challenge to such enforcement based on a claim of involuntary servitude is supercilious. "[T]he term 'involuntary servitude' necessarily means a condition of servitude in which the victim is forced to work for the defendant by the use or threat . . . of coercion through law or the legal process." United States v. Kozminski, 487 U.S. 931, 952, 108 S.Ct. 2751, 2765 (1988); see also, United States v. Mussry, 726 F.2d 1448, 1453 (9th Cir.), cert. denied, 469 U.S. 855, 105 S.Ct. 180 (1984) (violation of the thirteenth amendment "occurs when an individual coerces another into his service by improper or wrongful conduct that is intended to cause, and does cause, the other person to believe that he or she has no alternative but to perform the labor"). In stark contrast, requiring payment of premiums as a condition for continued insurance coverage is an accepted business practice, and plaintiff is free to obtain insurance from a more competitive provider. Thus, plaintiff's fourth and final claim fails to establish this court's jurisdiction.

The Supreme Court has recognized that "a suit may sometimes be dismissed for want of jurisdiction where the alleged claim under the Constitution or federal statutes clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous." Bell v. Hood, 327 U.S. at 682-683. Although the Bell Court found that the case before it presented prima facie meritorious issues warranting federal adjudication, it established the standard for distinguishing between cases that do, and do not, create federal subject matter jurisdiction. See, Bell v. Hood, 327 U.S. at 685 ("the right of the petitioners to recover under their complaint will be sustained if the Constitution and laws of the United States are given one construction and will be defeated if they are given another"); cf., Franklin v. State of Oregon, 662 F.2d 1337, 1342 (9th Cir. 1981) ("'the federal courts are without power to entertain claims otherwise within their jurisdiction if they are "'so attenuated and unsubstantial as to be absolutely devoid of merit,'" "'wholly insubstantial,'" '"obviously frivolous,"' '"plainly unsubstantial,"' or '"no longer open to discussion"') (quoting Hagans v. Lavine, 415 U.S. 528, 536-37, 94 S.Ct. 1372 (1974) (citations omitted)); Dinneen v. Williams, 219 F. 2d at 429 ("The complaint states no facts which involve a federal right. It is therefore obvious that there is not here a defective statement of a violation of a federal right."); accord, Wheeldin v. Wheeler, 373 U.S. 647, 650, 83 S.Ct. 1441(1963) ("the facts alleged do not establish a violation of the Fourth Amendment [a]nd the provisions of the Civil Rights Act are clearly inapplicable").

Accordingly, this court finds that plaintiff has failed to establish this court's federal subject matter jurisdiction and recommends that this case be dismissed pursuant to Fed. R. Civ. P. 12(b)(1), without leave to amend. However, plaintiff is hereby informed that "[d]ismissal for lack of jurisdiction . . . does not operate as a judgment on the merits, and thus allows a plaintiff the opportunity to seek relief in the state courts or to assert a claim for which the federal courts have jurisdiction." Franklin v. State of Oregon, 662 F.2d at 1343. CONCLUSION

For the foregoing reasons, IT IS HEREBY RECOMMENDED that:

(1) Defendant's motion to set aside entry of default (Doc. #11) be granted;

(2) Plaintiff's motion for default judgment (Docs. #10 and #21) be denied;

(3) Defendant's motion to dismiss the complaint (Doc. #18) be granted;

(4) Defendant James Tudor be dismissed from this action;

(5) This action be dismissed pursuant to Fed. R. Civ. P. 12(b)(1), without leave to amend; and

(6) Judgment be entered for defendants State Compensation Insurance Fund and James Tudor.

These findings and recommendations are submitted to the District Judge assigned to this case, pursuant to the provisions of 28 U.S.C. § 636(b)(l). Within ten days after being served with these findings and recommendations, plaintiff may file written objections with the court. The document should be captioned "Objections to Magistrate Judge's Findings and Recommendations." Plaintiff is advised that failure to file objections within the specified time may waive the right to appeal the District Court's order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991).


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