United States District Court, E.D. California
ORDER AND FINDINGS AND RECOMMENDATIONS
KENDALL J. NEWMAN, Magistrate Judge.
Presently pending before the court is plaintiff American Boat Racing Association d/b/a H1 Unlimited's motion for default judgment against defendants Bob Richards, Jr. ("Richards"); BWW LLC ("BWW") and 41Live (collectively "defendants"), which are the only named defendants in this action. (ECF No. 13.) After defendants failed to file an opposition to the motion in accordance with Local Rule 230(c), the court vacated the February 19, 2015 hearing on plaintiff's motion, requested supplemental briefing from plaintiff no later than March 5, 2015, and provided defendants with an additional opportunity to oppose plaintiff's motion, including the supplemental briefing, in writing no later than March 19, 2015. (ECF No. 23.) Thereafter, plaintiff timely filed its supplemental briefing (ECF No. 27), but defendants again failed to respond to the motion by the new required deadline.
For the reasons discussed below, the court now recommends that plaintiff's motion for default judgment be GRANTED IN PART on the terms outlined below.
Plaintiff, a non-profit corporation incorporated in the State of Washington and with its principal place of business in the State of Washington, commenced this diversity action against defendants, who are business entities and an individual based in California. (See Complaint, ECF No. 1 ["Compl."] ¶¶ 1, 3-6; Declaration of Sam Cole, ECF No. 15 ["Cole Decl."] ¶¶ 3, 5-7, Exs. A-C.) Plaintiff alleges that, around May 26, 2013, plaintiff and defendant 41Live entered into a "Race Agreement, " whereby plaintiff granted to 41Live all of the rights to organize, promote, and stage a hydroplane race competition entitled "Big Wake Weekend" (the "Event"), which was scheduled to take place at Folsom Lake, California from May 31, 2013 to June 2, 2013. (Compl. ¶ 8; Cole Decl. ¶ 13.) The Race Agreement was signed by defendant Richards as "Event Director" on behalf of 41Live. (Cole Decl. ¶ 13, Ex. D.) In consideration for the grant of such rights, 41Live agreed to pay plaintiff a sum of $170, 000.00 in installments, with the final installment due on June 2, 2013. (Compl. ¶ 8; Cole Decl. ¶ 14, Ex. D.) 41Live also agreed to reimburse plaintiff for the premium related to a regatta liability insurance policy covering the Event, which plaintiff had paid in the amount of $18, 851.00. (Compl. ¶ 9; Cole Decl. ¶¶ 15-17, Ex. E.) The Race Agreement provided that it "shall be governed by and construed in all respects in accordance with the laws of Washington State." (Cole Decl. Ex. D.)
Subsequently, on or about June 2, 2013, and June 7, 2013, defendants tendered to plaintiff checks in the amounts of $20, 000.00 and $25, 000.00, respectively, in partial satisfaction of 41Live's obligations under the Race Agreement. (Compl. ¶¶ 10-11; Cole Decl. ¶¶ 18-19, Exs. F, G.) Both checks were drawn on the bank account of defendant BWW and were signed by defendant Richards. (Cole Decl. ¶ 24.) However, on June 19, 2013, the checks were dishonored for insufficient funds. (Compl. ¶¶ 10-11; Cole Decl. ¶ 20, Ex. H.) Plaintiff claims that although it has performed all of its obligations under the Race Agreement, no other amounts have been tendered or paid by defendants, despite plaintiff's repeated requests for payment. (Compl. ¶¶ 12-13, 16; Cole Decl. ¶¶ 22-23.)
Plaintiff's complaint asserts causes of action for breach of contract, intentional misrepresentation, and statutory enforcement of dishonored checks against defendants. (Compl. ¶¶ 14-30.) The complaint seeks relief in the form of compensatory damages; prejudgment interest; punitive and exemplary damages; statutory damages for dishonored checks; and reasonable attorneys' fees and costs. (Compl. at 7.) The complaint asserts that defendants are jointly liable to plaintiff, because:
there exists such a unity of interest between Defendants BOB RICHARDS, JR., on the one hand, and BWW LC and 41LIVE, on the other hand, that in fact BWW LLC and 41LIVE are alter egos of BOB RICHARDS, JR. Plaintiff is further informed and believes, and thereon alleges, that, at all times relevant herein, BOB RICHARDS, JR. has exercised unfettered control over the affairs of Defendants BWW LLC and 41LIVE and has failed to follow the record keeping and organizational requirements under California law imposed on limited liability companies such that BWW LLC and 41LIVE should not be recognized to exist as separate and independent legal entities. Assets belonging to all defendants named herein have been commingled or otherwise misappropriated by BOB RICHARDS, JR. leaving Defendants BWW LLC and 41LIVE undercapitalized.
(Compl. ¶ 7; see also Cole Decl. ¶ 24 [asserting that BWW and 41Live are "mere shells though which Richards carries on business and over which he exercises complete control"; that the address for BWW and 41Live is the same as the address for Richards's personal residence; and that the checks tendered in payment of 41Live's obligations under the Race Agreement were drawn on the bank account of BWW and signed by Richards].)
After plaintiff effectuated service of process on defendants on August 18, 2014 (ECF Nos. 6-8), defendants failed to respond to the complaint. As such, upon plaintiff's request, the Clerk of Court entered defendants' default on September 11, 2014. (ECF Nos. 9-11.) The instant motion for default judgment followed. (ECF No. 13.)
Plaintiff's motion for default judgment seeks compensatory damages for breach of contract; prejudgment interest; statutory damages for dishonored checks; and attorneys' fees and costs. Such relief was specifically requested in plaintiff's complaint. Plaintiff's motion does not seek the award of punitive or exemplary damages, or any other type of relief, based on plaintiff's claim for intentional misrepresentation.
Pursuant to Federal Rule of Civil Procedure 55, default may be entered against a party against whom a judgment for affirmative relief is sought who fails to plead or otherwise defend against the action. See Fed.R.Civ.P. 55(a). However, "[a] defendant's default does not automatically entitle the plaintiff to a court-ordered judgment." PepsiCo, Inc. v. Cal. Sec. Cans, 238 F.Supp.2d 1172, 1174 (C.D. Cal. 2002) (citing Draper v. Coombs, 792 F.2d 915, 924-25 (9th Cir. 1986)). Instead, the decision to grant or deny an application for default judgment lies within the district court's sound discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In making this determination, the court considers the following 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 underlying the Federal Rules of Civil Procedure favoring decisions on the merits.
Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Default judgments are ordinarily disfavored. Id. at 1472.
As a general rule, once default is entered, well-pleaded factual allegations in the operative complaint are taken as true, except for those allegations relating to damages. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (per curiam) (citing Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977) (per curiam)); accord Fair Housing of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002). In addition, although well-pleaded allegations in the complaint are admitted by a defendant's failure to respond, "necessary facts not contained in the pleadings, and claims which are legally insufficient, are not established by default." Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992) (citing Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978)); accord DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847, 854 (9th Cir. 2007) (stating that a defendant does not admit facts that are not well-pled or conclusions of law); Abney v. Alameida, 334 F.Supp.2d 1221, 1235 (S.D. Cal. 2004) ("[A] default judgment may not be entered on a legally insufficient claim"). A party's default does not establish the amount of damages. Geddes, 559 F.2d at 560.
Appropriateness of the Entry of Default Judgment Under the Eitel Factors
1. Factor One: Possibility of Prejudice to Plaintiff
The first Eitel factor considers whether the plaintiff would suffer prejudice if default judgment is not entered, and such potential prejudice to the plaintiff militates in favor of granting a default judgment. See PepsiCo, Inc., 238 F.Supp.2d at 1177. Here, plaintiff would face prejudice if the court did not enter a default judgment, because plaintiff would be without another ...