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ATAIN Specialty Insurance Co. v. Szetela

United States District Court, E.D. California

June 16, 2016

ATAIN SPECIALTY INSURANCE COMPANY, Plaintiff,
v.
RICHARD SZETELA d.b.a. D&D PILOT CAR SERVICES, et al., Defendants.

          ORDER AND FINDINGS AND RECOMMENDATIONS

          KENDALL J. NEWMAN UNITED STATES MAGISTRATE JUDGE.

         Presently pending before the court is plaintiff Atain Specialty Insurance Company's ("plaintiff") motion for default judgment against defendant Richard Szetela d.b.a. D&D Pilot Car Services ("Szetela").[1] (ECF No. 52.) To date, Szetela has not opposed plaintiff's motion, or otherwise made an appearance in this action. Pursuant to the court's minute order issued on June 10, 2016, plaintiff's motion for default judgment was taken under submission on the papers and without oral argument. (ECF No. 55.) For the reasons stated below, the undersigned recommends that plaintiff's motion for default judgment be granted, that judgment be entered in plaintiff's favor and against Szetela, and a declaratory judgment be issued declaring that plaintiff owes no duty to defend or indemnify Szetela for the claims asserted against him in Sacramento Superior Court Case No. 34-2013-00148105.

         I. BACKGROUND

         The background facts are taken from plaintiff's complaint, unless otherwise noted. (See ECF No. 1.) Plaintiff alleges that defendant Szetela, a pilot car driver for oversized loads, is the insured under an insurance policy issued by plaintiff, numbered CIP112913, for a period commencing January 11, 2012, through January 11, 2013 (the "Insurance Policy"). (Id. ¶ 10.) Plaintiff alleges that on July 17, 2013, defendant Alterra American Insurance Company ("Alterra") filed an action in the Sacramento County Superior Court against Szetela, Case No. 34-2013-00148105 ("Underlying Action"). (Id. ¶ 12.) On or about September 16, 2014, defendants Duffy Crane, Inc. d/b/a Duffy Crane and Hauling, Inc. ("Duffy Crane") and Duffy Holdings, LLC ("Duffy Holdings") filed a complaint in intervention in the Underlying Action. (Id. ¶ 13.)

         In the Underlying Action, Alterra alleges that it insured Duffy Holdings, a hauling business, in the transport of a UE Compression filter skid to from Henderson, Colorado to Desert Springs, California. (Id. ¶¶ 14-15.) Duffy Holdings allegedly contracted with Szetela to secure pilot car services for the transport of the UE Compression filter skid on April 2, 2012, ("Duffy/Szetela Contract"). (Id. ¶ 15.) That contract allegedly required Szetela to "select the transportation route, secure and pay all permits and fees necessary for proper execution and completion of the route, and take all reasonable safety precautions with respect to completion of the route." (Id. ¶ 16.) The contract allegedly provided further that Szetela shall include Duffy Crane "as an additional insured on [his] General Liability and Commercial Automobile Insurance Policy." (Id. ¶ 17.) Under the alleged terms of the Duffy/Szetela Contract, Szetela agreed "to defend, indemnify and hold [Duffy Crane], harmless from any and all claims, suits, losses or liability" arising out of Szetela's performance or breach of that agreement. (Id. ¶ 18.) Alterra, Duffy Crane, and Duffy Holdings allege in the Underlying Action that Szetela breached the Duffy/Szetela Contract and acted negligently "by failing to prevent the UE Compression filter skid from striking [an] overpass" when he was engaging in pilot car services pursuant to the Duffy/Szetela Contract. (Id. ¶ 19.) They allege further that Szetela breached the Duffy/Szetela Contract "by failing to indemnify Duffy [Crane] and/or Duffy Holdings for damages incurred as a result of the collision." (Id. ¶ 20.)

         Plaintiff alleges that Szetela tendered the claims made against him in the Underlying Action to plaintiff "who accepted [Szetela's] tender under a full and complete reservation of rights." (Id. ¶ 22.) Plaintiff alleges that it "has paid and continues to pay a portion of the defense fees and costs incurred in the defense of the Underlying Action." (Id. ¶ 23.) It alleges further that the Insurance Policy contains a "Professional Services Exclusion" clause and a "Contractual Liability Exclusion" clause that exclude certain activities from coverage.[2] Plaintiff alleges that "[i]n selecting the route of transportation for the UE Compression filter . . . and in escorting Duffy's driver on that route, [Szetela] was rendering a professional service." (Id. ¶ 28.) Accordingly, plaintiff alleges, Szetela's activities at issue in the Underlying Action fell within both the "Professional Services Exclusion" and the "Contractual Liability Exclusion" in the Insurance Policy, therefore meaning that plaintiff "owes no duty to defend or indemnify [Szetela] against the claims made by Alterra, Duffy [Crane] or Duffy Holdings." (Id. ¶ 29.)

         Based on the above allegations, plaintiff seeks relief in the form of a declaratory judgment pursuant to 28 U.S.C. § 2201 that plaintiff owes no duty to defend or indemnify Szetela for the claims asserted in the Underlying Action and that Alterra, Duffy Crane, and Duffy Holdings have no right of subrogation or contribution against plaintiff for claims asserted in the Underlying Action. (Id. at 7.) Plaintiff also seeks recovery of the attorney fees and costs it incurred in defending Szetela in the Underlying Action. (Id.)

         Plaintiff's complaint and summons were served upon defendant Alterra's agent for service on January 7, 2015, by substituted service at Alterra's place of business. (ECF No. 7.) Summonses were served on defendants Duffy Crane's and Duffy Holdings' agent for service on January 8, 2015, by personal service at those defendants' shared place of business. (ECF Nos. 8, 9.) Plaintiff's complaint and summons were served upon defendant Szetela on January 15, 2015, by personal service at his address. (ECF No. 10.)

         On February 27, 2015, Alterra answered the complaint and filed a counterclaim seeking a declaratory judgement finding that the events alleged in the Underlying Action are not excluded from plaintiff's coverage of Szetela under the Insurance Policy. (ECF No. 12.) None of the other defendants answered the complaint or otherwise appeared in this action. Accordingly, on May 1, 2015, plaintiff filed a request for entry of default against Szetela. (ECF No. 16.) On May 5, 2015, the Clerk of Court entered defendant Szetela's default. (ECF No. 18.) On May 20, 2015, plaintiff dismissed defendants Duffy Crane and Duffy Holding from this action. (ECF No. 23.)

         Plaintiff and defendant Alterra filed cross-motions for summary judgment, and plaintiff also filed a motion for default judgment against Szetela. (ECF Nos. 24, 31.) On March 23, 2016, Judge Mueller granted plaintiff's motion for summary judgement and denied Alterra's motion for summary judgment. (ECF No. 45.) In granting plaintiff's motion, Judge Mueller found that Szetela's actions giving rise to the claims in the Underlying Action fell within the professional services exclusion in the Insurance Policy, thereby withdrawing those claims from coverage. (Id.) Judge Mueller also denied plaintiff's motion for default judgment against Szetela without prejudice on procedural grounds.[3] (Id.) On May 18, 2016, plaintiff filed a renewed motion for default judgment against Szetela. (ECF No. 52.) Despite being served with process and all papers filed in connection with plaintiff's requests for entry of default and renewed motion for default judgment, defendant Szetela failed to respond to any of these filings and has yet to make an appearance in this action.

         II. LEGAL STANDARDS

         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 conclusively establishes that party's liability, but it does not establish the amount of damages. Geddes, 559 F.2d at 560.

         III. DISCUSSION

         A. Appropriateness of the Entry of Default Judgment Under the Eitel Factors For the reasons stated below, the undersigned finds that the material allegations of the complaint support plaintiff's request for 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 potentially face prejudice if the court did not enter a default judgment. Specifically, plaintiff could be forced to incur additional costs in defending Szetela in the Underlying Action absent entry of a default judgment. ...


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