UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
April 26, 2013
RICHARD E. HASKINS, ET AL., PLAINTIFFS,
FULLER-O'BRIEN, INC., ET AL.,
ORDER SETTING ASIDE DEFAULT AND DISMISSING CLAIMS AGAINST DEFENDANT FULLER-O'BRIEN, INC. Re: ECF No. 83
Plaintiffs Richard E. Haskins, Arthur L. Haskins, and the Estate of Arthur "Buzz" Haskins ("Haskins") obtained an entry of default in this action against Defendant Fuller-O'Brien, Inc. 16 ("FOB"), a dissolved Indiana corporation. ECF No. 13. FOB now moves to set aside default and 17 to dismiss the claims against it. ECF No. 83. Having considered the arguments of the parties at 18 oral argument held April 18, 2013, the moving papers, and good cause appearing, the Court 19 hereby GRANTS the motion. 20
A. Factual and Procedural Background
FOB claims, and Haskins does not dispute, that Fuller-O'Brien, Inc. was a surrendered Delaware corporation incorporated in 1967 as a wholly owned subsidiary of the O'Brien 24 Corporation, an Indiana corporation.*fn1 Declaration of Thomas F. Karaba ("Karaba Decl.") at ¶ 3, 25 ECF No. 86. Haskins alleges that FOB owned a paint manufacturing facility in South San 26 Francisco from the late 1800s to the late 1900s, and that FOB owned the land on which the factory 27 sat from approximately 1968 to 1999. Amended Complaint, ECF No. 14, ¶ 11. Haskins further 2 alleges that, in 1999, FOB conveyed that parcel ("the FOB property") to Cherokee Acquisition 3 Corporation, Cherokee Grand Avenue, Cherokee San Francisco and Cherokee Investment Partners 4 II (the "Cherokee Parties"). Id., ¶¶ 6-9. 5
Jerome Crowley ("Crowley Decl."), ECF No. 85.*fn2 On March 29, 2000, pursuant to Indiana's 7 corporate dissolution statute, FOB published notices of dissolution in newspapers in San 8 Francisco, advising that any claims against the corporation would be barred unless commenced 9 within two years of that date. Id.*fn3
On December 23, 2010, Haskins sent a Notice of Endangerment ("NOE"), pursuant to the FOB filed articles of dissolution on March 27, 2000. Exhs. A and B to Declaration of 11 federal Resource Conservation and Recovery Act ("RCRA"), to FOB's last known registered 12 agent. Exh. 1 to Declaration of Bret A. Stone ("Stone Decl."), ¶ 2, ECF No. 95.*fn4 When the NOE was returned, Haskins then sent it to Jerome Crowley, FOB's former president. Stone Decl., ¶ 3, 14 Exh. 2. Mr. Crowley did not respond, and a year later, Haskins sent another letter to Mr. Crowley 15 with a draft complaint. Id., ¶ 5, Exh. 3. On October 12, 2011, FOB's former counsel Thomas 16 Karaba wrote to Haskins to state that "any purported service upon Mr. Crowley is ineffective as he 17 is no longer an agent, officer or director of O'Brien." Id., ¶ 6, Exh. 4. 18
Haskins brought this action against FOB and the Cherokee Parties on October 20, 2011, 19 alleging that hazardous wastes released at the FOB property had contaminated Haskins' 20 neighboring property, and seeking relief under RCRA and the federal Comprehensive 21 Environmental Response, Compensation and Liability Act ("CERCLA"), among other causes of 2 action. ECF No. 1. On November 1, 2011, Haskins served a copy of the summons and complaint 3 on Mr. Crowley. ECF No. 8. A week later, Mr. Karaba wrote a letter in response, repeating the 4 arguments that he made in his October 12 letter, stating this time that Mr. Crowley "is not an 5 agent, officer or director" of FOB. Exh. A to Karaba Decl. 6
The Clerk of Court granted entry of default against FOB on December 9, 2011. ECF No. 13. In October and November 2012, Haskins subpoenaed Mr. Crowley for production of 8 documents related to FOB, and for his deposition. Stone Decl., ¶¶ 9 & 10, Exhs. 5 & 6. Haskins 9 moved for default judgment a year later, and wrote to inform to Mr. Karaba of the same. ECF No. 10 53; Exh. 7 to Stone Decl.. On January 25, 2013, FOB moved to set aside entry of default, but 11 withdrew the motion on February 6. ECF Nos. 64 & 69. On March 15, 2013, FOB filed a 12 renewed motion to set aside default and dismiss the case, which the Court now considers. ECF No. 83. 14
Haskins and the Cherokee parties filed a notice of settlement on March 20. ECF No. 92.
Haskins' primary causes of action arise under federal statutes RCRA and CERCLA.
Therefore, this Court has jurisdiction pursuant to those statutes' jurisdictional provisions, 42 18 U.S.C. §§ 6972(a), 9607 & 9613. The Court also exercises supplemental jurisdiction over the 19 remaining clams pursuant to 28 U.S.C. § 1367, because they arise out of the same nucleus of 20 operative facts. 21
C. Legal Standard
The Court may set aside entry of default upon a showing of good cause. Fed. R. Civ. Pro. 55(c). In determining whether a defendant has shown good cause, the court considers: 1) whether 24 the defendant engaged in culpable conduct that led to the default, 2) whether the defendant has a 25 meritorious defense, and 3) whether reopening the default judgment would prejudice the plaintiff. 26 Franchise Holding II, LLC v. Huntington Restaurants Group, Inc., 375 F.3d 922, 925-26 (9th Cir. 27 2004); TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir. 2001). 28
FOB also moves to dismiss the complaint, on the same ground that it moves to set aside its default - that it has a meritorious and complete defense. "Dismissal under Rule 12(b)(6) is 2 appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support 3 a cognizable legal theory." Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th 4 Cir. 2008). Dismissal is also proper where the complaint alleges facts that demonstrate that the 5 complaint is barred as a matter of law. See Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 6 (9th Cir. 1990); Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980). 7
Dismissal is normally without prejudice unless "it is clear on de novo review that the 8 complaint could not be saved by amendment." Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 9 1048, 1052 (9th Cir. 2003). When a plaintiff "cannot, as a matter of law, prevail" on a claim, 10 dismissal with prejudice is appropriate. Johnson v. Lucent Technologies, 653 F.3d 1000, 1012 11 (9th Cir. 2011); see also Miller v. Yokohama Tire Corp., 358 F.3d 616, 623 (9th Cir. 2004) 12 (dismissal with prejudice is appropriate when "amendment would, as a matter of law, be futile").
III. MOTION TO SET ASIDE DEFAULT
The court need not address the question of prejudice in detail because Haskins 15 acknowledges that it will suffer little prejudice if the default is set aside. The case is still pending; 16
Haskins only recently tentatively settled with the Cherokee parties; and Haskins has lost no legal 17 rights in the time it has taken FOB to appear in this action. "[M]erely being forced to litigate on 18 the merits cannot be considered prejudicial for purposes of lifting a default judgment." Knoebber, 19 244 F.3d at 701. However, Haskins nonetheless urges the Court not to set aside default solely 20 because FOB has failed to show that default was not due to FOB's own culpable conduct. Opp. at 21 6:8-7:13. 22
While there are cases in which this factor alone allows a default to stand, this is not such a 23 case. For one thing, Haskins' argument hinges on the contention that FOB was validly served in 24 2011 but failed to respond. Haskins has failed to demonstrate that it validly served FOB. 25
"Once service is challenged, plaintiffs bear the burden of establishing that service was 26 valid under Rule 4." Brockmeyer v. May, 383 F.3d 798, 801 (9th Cir. 2004). Rule 4 permits a 27 party to serve a corporation by serving an "officer, a managing or general agent or to any other 28 agency authorized by appointment or by law to receive service of process." Fed. R. Civ. Pro. 4(h).
The Rules do not specify how this is altered by corporate dissolution, but they do state that, in 2 determining the validity of service upon a corporation, federal courts "follow state law for 3 serving a summons in an action brought in courts of general jurisdiction in the state where the 4 district court is located or where service is made." Fed. R. Civ. Pro. 4(e)(1) & 4(h)(1)(A). 5
Under California law, "[a] summons may be served on a corporation that . . . has dissolved, 6 by delivering a copy of the summons and of the complaint" either "[t]o a person who is a trustee 7 of the corporation and of its stockholders or members," or alternatively through various provisions 8 of the California Corporations Code (§§ 2011 or 2114, or the versions of §§ 3301-3303 or 6500-9 6504 that were in effect in 1976), if those provisions are applicable. Cal. Civ. Proc. Code § 10 416.20 ("Section 416.20"). It is Haskins' burden to show that service was proper, and it has not 11 demonstrated - or even alleged - that Mr. Crowley is "a person who is a trustee of the corporation and o other provisions of the Corporations Code cited in Section 416.20 apply to this situation.*fn5 Haskins 14 has therefore failed to demonstrate that service was proper on FOB. 15
Moreover, even assuming for the sake of argument that FOB was validly served or had f its stockholders or members." Neither has he demonstrated that that any of the 16 actual notice of the suit at some point before 2013, the Court would not find that its conduct is so 17 culpable as to require entering a default judgment against a party with a meritorious defense. In 18 maintaining default against a party for culpable conduct alone, "[m]ost courts require evidence 19 that a defendant's failure to respond was 'willful, deliberate, or evidence of bad faith.'" 20
Schwarzer et al., Cal. Prac. Guide Fed. Civ. Pro. Before Trial, § 6.199. In the only case Haskins 21 cites which supports default on the basis of culpable conduct alone, Meadows v. Dominican 22 Republic, 817 F.2d 517, 521 (9th Cir. 1987), the Ninth Circuit upheld a district court who had 23 refused to set aside a $240,000 default judgment against agencies of the Dominican Republic, who 2 had "received actual notice of the complaint and intentionally declined to answer." Those 3 defendants' only excuse for failing to answer -- that they had received advice of counsel not to 4 appear -- was undermined by the counsel in question's denial of responsibility for the decision. 5
Id., 817 F.2d at 521-22. While the Meadows court was apparently persuaded that the defendants' 6 conduct rose to the level of "willful, deliberate, or [in] bad faith," this Court does not see FOB's 7 conduct in the same light. See Brooks v. Hilton Casinos, Inc., 959 F.2d 757, 768, n. 10 (the use of 8 default judgment "must be tempered by careful exercise of judicial discretion to assure that its 9 imposition is merited"). 10
Haskins will suffer no prejudice if default is not entered, there is no evidence of intentional 11 bad faith on the part of FOB, and - as discussed immediately below - FOB has presented a 12 meritorious defense. Therefore, the Court finds good cause to set aside the entry of default.
IV. MOTION TO DISMISS
FOB offers two arguments for dismissal: that service was ineffective and that, as a 15 dissolved corporation, FOB is immune from suits arising more than two years after dissolution. 16 As discussed at Part III, supra, Haskins has not satisfied its burden to show that service was valid. 17 Haskins argues that FOB has waived its ability to raise the defense of ineffective service, but the 18 Court finds it unnecessary to reach this question because FOB has demonstrated that it is immune 19 from suit. It has not waived its ability to raise that defense. 20
The Federal Rules of Civil Procedure provide that a corporation's "capacity to sue and be 23 sued is determined . . . by the law under which it was organized." Fed. R. Civ. Pro. 17(b). Under 24 Indiana law, if a corporation publishes a newspaper notice regarding its pending dissolution in the 25 county of its principal office and the location of its registered agent, claimants are barred from 26 bringing any action against the dissolved corporation after two years of the publication date. 27
Indiana Code § 23-1-45-7(c). Such notice was published in 2000. While this would seem to bar 28 Haskins' claim against FOB, Haskins had hoped to take advantage of California Corporations Code § 2010(a) ("Section 2010(a)"), which provides an open-ended period in which to bring suit 2 against a dissolved corporation. Some courts interpreted this law to leave the door open to 3 claimants bringing suit against non-California corporations who have done business in the state, 4 even if the state in which the corporations were organized would not permit such claims. See 5 North American Asbestos Corp. v. Superior Court, 180 Cal. App. 3d 902, 905 (1986). 6
The California Supreme Court recently closed this door. In Greb v. Diamond Intl. Corp., 56 Cal.4th 243, 246 (2013), the Supreme Court held that Section 2010(a) does not apply to non-8 California corporations. Haskins offers no argument why Greb does not bar its claim, but instead 9 argues that Haskins should be barred from invoking it because it withdrew the first motion in 10 which it raised the argument. Opp. at 7:16-8:7. Unlike its insufficient service defense, FOB 11 explicitly raised its lack of capacity defense in its first motion, as part of its argument that it had a See meritorious defense. Notice of Motion and Motion to Set Aside Clerk's Entry of Default and Points and Authorities, ECF No. 65, at 7:18-8:22. In a motion to set aside default, that is the most 14 explicit manner in which to raise a defense. Haskins cites no case, and this Court is aware of 15 none, in which a defendant moving to set aside default was found to have waived all of its 16 defenses, even those it initially raised, upon withdrawing its first motion to the court. Haskins 17 also argues, almost in passing, that "estoppel and laches principles" should bar the assertion of the 18 defense, but again provides no citations to case law in which a court applied those concepts in 19 similar circumstances. Opp. at 8:3-7. 20
Haskins' only other argument to avoid the effect of Greb is that CERCLA should preempt 21 state laws which limit the capacity of corporations to be sued for environmental remediation costs. 22
As Haskins acknowledges, however, the Ninth Circuit has held to the contrary. In Levin Metals 23 Corp. v. Parr-Richmond Terminal, 817 F.2d 1448, 1451 (9th Cir. 1987), the Ninth Circuit held 24 that a federal district court properly ruled that plaintiffs could not bring a suit against a dissolved 25 corporation for a cause of action arising after dissolution, since California corporations law barred 26 such a claim. The court explicitly held that CERCLA did not preempt state laws which limited the 27 capacity of corporations to be sued. Since state law now clearly also bars suit against FOB, the 28 same argument applies here.
Haskins does not attempt to distinguish Levin Metals, and provides no reason not to apply 2 it to the case at bar besides that the opinion is "flawed" and "has been the subject of . . . poignant 3 criticism by federal courts around the country."*fn6 Opp. at 7:15-8:5. The Ninth Circuit has given no 4 indication that Levin Metals's holding has weakened over time and, in fact, it re-affirmed Levin 5 Metals six years later. See Louisiana Pacific Corp. v. Asarco, Inc., 5 F.3d 431, 433-45 (9th Cir. 6 1993). 7
The Court recognizes that many courts and commentators have made colorable public 8 policy and statutory construction arguments that CERCLA should preempt state laws that 9 immunize corporations from suit. But those arguments were considered and rejected by the Levin 10 Metals court. The Court also recognizes that, after Greb, non-California corporations may have 11 received greater immunity from environmental harm than anyone anticipated at the time of Levin Metals. See Opp. at 8:18-9:5. But these considerations do not give a district court the authority to ignore binding precedent. Haskins could be correct that this is the right time to reconsider Levin 14
Metals. But this is not the right court. 15
For the foregoing reasons, the Court hereby SETS ASIDE THE ENTRY OF DEFAULT, 17 and DISMISSES the Complaint insofar as it brings claims against Defendant Fuller-O'Brien, Inc. 18
There are no additional facts Haskins could plead which could alter the fact that its claims against 19 FOB are barred as a matter of law. Therefore, dismissal on that ground is WITH PREJUDICE. 2
See Johnson, 653 F.3d at1012; Miller, 358 F.3d at 623. 3
IT IS SO ORDERED.
United States District Court Northern District of California