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Randell v. California State Compensation Insurance Fund

July 29, 2008


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


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).


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.


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 ...

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