FINDINGS AND RECOMMENDATIONS
This matter came before the court on June 10, 2011, for hearing on plaintiff Certain Underwriters at Lloyds, London's ("plaintiff") motion for default judgment (Doc. No. 47). Ted Smith, Esq. appeared for plaintiff. No appearance was made by or on behalf of defendants Triduanum Financial, Inc. ("Triduanum") and Scott Edward Cavell ("Cavell") (sometimes collectively, "defendants").
After considering plaintiff's argument and all written materials submitted in connection with plaintiff's motion and for the reasons set forth below, the undersigned recommends that the motion be granted and that default judgment be entered against defendants.
Plaintiff initiated this diversity action by filing its complaint on January 15, 2010 against Triduanum, Cavell and two other defendants, Christopher Jared Warren ("Warren") and Johnny E. Grivette, Jr. ("Grivette"). Plaintiff filed its complaint after Triduanum tendered an underlying lawsuit to plaintiff captioned Taylor, Bean & Whitaker Mortgage Corporation v. Triduanum Financial, Inc., Johnny E. Grivette, Jr., Christopher Jared Warren, and Scott Edward Cavell, Case No. 2:09-CV-954 KJM/EFB, filed in this court on April 8, 2009 (the "Underlying Lawsuit"). Plaintiff's complaint seeks rescission of a professional liability policy and fidelity bond and a declaration of no coverage under the policy of insurance. Plaintiff does not seek monetary damages. After being served with the complaint, Warren and Grivette entered stipulations with plaintiff and were dismissed from the case. (Doc. Nos. 37 & 41.) Defendant Triduanum was served via its principal, Warren, at the Nevada County Jail, and defendant Cavell was served via publication in the Sacramento Bee. (Doc. Nos. 7, 16 & 23.) Despite being served, defendants Triduanum and Cavell failed to appear in the action. Pursuant to plaintiff's request, the Clerk of the Court entered default against these defendants on April 6 and May 7, 2010, respectively. (Doc. Nos. 22 & 29.) Plaintiff filed the instant motion for default judgment, noticing it to be heard before the undersigned pursuant to E.D. Cal. L.R. 302(c)(19).
Federal Rule of Civil Procedure 55(b)(2) governs applications to the court for default judgment. Upon entry of default, the complaint's factual allegations regarding liability are taken as true, while allegations regarding the amount of damages must be proven. Dundee Cement Co. v. Howard Pipe & Concrete Prods., 722 F.2d 1319, 1323 (7th Cir. 1983) (citing Pope v. United States, 323 U.S. 1 (1944); Geddes v. United Fin. Group, 559 F.2d 557 (9th Cir. 1977)); see also TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987).
Where damages are liquidated, i.e., capable of ascertainment from definite figures contained in documentary evidence or in detailed affidavits, judgment by default may be entered without a damages hearing. Dundee, 722 F.2d at 1323. Unliquidated and punitive damages, however, require "proving up" at an evidentiary hearing or through other means. Dundee, 722 F.2d at 1323-24; see also James v. Frame, 6 F.3d 307, 310-11 (5th Cir. 1993).
Granting or denying default judgment is within the court's sound discretion.
Draper v. Coombs, 792 F.2d 915, 924-25 (9th Cir. 1986). The court is free to consider a variety of factors in exercising its discretion. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Among the factors that may be considered by the court are (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 underlying the Federal Rules of Civil Procedure favoring decisions on the merits.
Eitel, 782 F.2d at 1471-72 (citing 6 Moore's Federal Practice ¶ 55-05, at 55-24 to 55-26).
I. Propriety of Entering Default Judgment
The factual allegations of plaintiff's complaint, taken as true pursuant to the entry of default against defendants, establish the following. On August 13, 2008, defendant Triduanum submitted an Application for Mortgage Bankers Professional Liability Insurance, Mortgagee's E&O Insurance and a Mortgage Bankers Fidelity Bond (the "Application") to plaintiff. Warren has admitted that, as Executive Vice President of Triduanum, he signed and submitted the Application to plaintiff. (Warren Stip., Doc. No. 37 at 2:1-3.) Although the Application also shows that Grivette, the former President of defendant Triduanum, also signed the Application, Grivette denies that he signed the Application and asserts that his signature is a forgery made without his knowledge or approval. (Grivette Stip., Doc. No. 41 at 2:7-9.) Based on answers provided by defendant Triduanum in the Application, plaintiff issued a Mortgage Bankers and Mortgage Brokers Professional Liability Policy, No. MB5913, with a policy period beginning October 1, 2008 and expiring October 1, 2009 ("the Policy"). (Ex. B to Compl (Doc. No. 1).) Also, based on answers provided by defendant Triduanum ...