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Phillips 66 Co. v. California Pride, Inc.

United States District Court, E.D. California

July 5, 2017

PHILLIPS 66 CO., Plaintiff,
v.
CALIFORNIA PRIDE, INC., et al., Defendants.

          FINDINGS AND RECOMMENDATIONS THAT THE COURT GRANT IN PART PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT AS TO DEFENDANT CALIFORNIA PRIDE, INC. OBJECTION PERIOD: 21 DAYS (Doc. 15)

          SHEILA K. OBERTO UNITED STATES MAGISTRATE JUDGE

         Before the Court is Plaintiff's Motion for Default Judgment. (Doc. 15.) For the reasons provided herein, the undersigned recommends that the presiding district court judge GRANT IN PART Plaintiff's Motion for Default Judgment, (id.), to the extent that Plaintiff request that the Court enter default judgment against Defendant California Pride, Inc.

         I. BACKGROUND

         This action involves a contractual dispute between the provider of certain goods and services, Plaintiff, and the owners and/or operators of a gas station, Defendants. Plaintiff “is a Delaware corporation with its principal place of business in Houston, . . . Texas.” (Doc. 1 ¶ 2.) “Defendant California Pride, Inc. . . . is an inactive California corporation . . . .” (Id. ¶ 3.) Defendants Steven Coldren and Rebecca Coldren (together, the “Individual Defendants”) are individuals who reside in Kingsburg, California. (Id. ¶¶ 4-5.)

         A. Background Facts and the Parties' Agreements

         Defendant California Pride, Inc. “operated a gas station in Fresno, California and purchased motor fuels and related products from ConocoPhillips Company” (“ConocoPhillips”). (Id. ¶ 8.) On September 22, 2005, the Individual Defendants “executed a personal guaranty under which each absolutely and unconditionally guaranteed the prompt payment of any and all present and future indebtedness of [Defendant California Pride, Inc.] to ConocoPhillips” (the “Guaranty”). (Id. ¶ 15; see Id. at 80-82 (the Guaranty).)

         “On December 4, 2006, Defendant California Pride, Inc. . . . entered into a 15-year [b]randed [r]eseller [a]greement with ConocoPhillips Company” (the “Reseller Agreement”). (Doc. 15, Ex. 3 ¶ 2; see Doc. 1 at 12-59 (the Reseller Agreement).) Under this Reseller Agreement, Defendant California Pride, Inc. “agreed to promote and sell . . . branded motor fuel at its station, including purchasing minimum amounts of . . . branded motor fuel for resale, participating in ConocoPhillips's marketing programs, and complying with ConocoPhillips's guidelines on operation and image standards.” (Doc. 1 ¶ 9.)

         “Pursuant to [the Reseller Agreement], ConocoPhillips advanced $250, 000 to [Defendant California Pride, Inc.] for improvements to the [gas] station.” (Id. ¶ 10.) “On or about December 11, 2006, [Defendant California Pride, Inc.] executed a [p]romissory [n]ote in favor of ConocoPhillips, ” (Doc. 13, Ex. 3 ¶ 2), “to secure the loan” of $250, 000, (Doc. 1 ¶ 10).

         Subsequently, Defendant California Pride, Inc. “requested” that ConocoPhillips “reduce” its quotas under the Reseller Agreement for “annual minimum amount of fuel purchase.” (Id. ¶ 11.) ConocoPhillips and Defendant California Pride, Inc. then executed an addendum to the Reseller Agreement “on or about January 22, 2010, ” as well as an amended promissory note. (Id. ¶¶ 11-12.)

         In May 2012, “ConocoPhillips spun off its downstream assets into newly formed [Plaintiff].” (Id. ¶ 16.) “On or about May 1, 2012, ConocoPhillips assigned all rights” to the Reseller Agreement, the related promissory notes, and the Guaranty to Plaintiff, “including all rights to collect the indebtedness due to ConocoPhillips under” these agreements. (Doc. 15, Ex. 3 ¶ 4.)

         In roughly 2013, Defendant California Pride, Inc. “again requested” that Plaintiff “reduce its annual minimum fuel purchase requirement.” (Doc. 1 ¶ 13.) Defendant California Pride, Inc. and Plaintiff entered into another addendum to the Reseller Agreement with an effective date of July 1, 2013. (Id. ¶ 13.) Additionally, Defendant California Pride, Inc. executed another amended promissory note with an effective date of July 1, 2013 (the “Amended Note”). (Id. ¶ 14; see Id. at 74-77.) At the time of the execution of the Amended Note, the balance of Defendant California Pride, Inc.'s debt to Plaintiff was $195, 501. (Id. at 74.)

         Under the Amended Note, Defendant California Pride, Inc. agreed to “make quarterly principal and interest payments” to Plaintiff “in the amount of $6, 240.00.” (Id. at 75.) The Amended Note provides an interest rate on the principal of the loan―which is defined in the Amended Note as the “Note Rate”―of “10.00% per annum.” (Id.) The Amended Note also states that, “in the event of a default under the [Amended] Note, . . . the principal shall bear interest at a default rate of two percent . . . higher than the Note Rate”―which the Amended Note defines as the “Default Rate.” (Id.) The Amended Note further states that Plaintiff “may declare the unpaid principal balance of the [Amended] Note immediately due and payable” in the event of a default on the Amended Note by Defendant California Pride, Inc. (Id.)

         On the issue of attorneys' fees, the Amended Note states the following: “[Defendant California Pride, Inc.] agrees to reimburse [Plaintiff] on demand for all legal fees and other costs and expenses incurred in collection or enforcing this [Amended] Note and protecting or realizing on any collateral, together with interest at the Default Rate.” (Id. at 76) As to choice of law, the Amended Note states that “the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the internal laws of the State of California without regard to principles of conflicts of law.” (Id.)

         In 2015, Defendant California Pride, Inc. “fail[ed] to purchase the minimum amounts of . . . branded motor fuel and . . . fail[ed] to timely pay for fuel purchase, ” as required by the Reseller Agreement and its addenda. (Id. ¶ 17.) Defendant California Pride, Inc. also “fail[ed] to timely make the quarterly payments due” under the Amended Note. (Id. ¶ 26.)

         The parties subsequently entered into a Mutual Termination and General Release Agreement with an effective date of September 1, 2015 (the “Termination Agreement”). (Id. at 84-86.) In this Termination Agreement, Defendant California Pride, Inc. and Plaintiff state that they “agree to mutually cancel and terminate” the Reseller Agreement, as well as “any and all amendments, exhibits, attachments and assignments thereof.” (Id. at 84.) The Termination Agreement further states that, pursuant to the January 22, 2010 addendum to the Reseller Agreement, “an early termination of the [Reseller Agreement] should result in payment of the . . . [l]oan balance owed by [Defendant California Pride, Inc.] to [Plaintiff] in the amount of . . . $187, 548.60.” (Id. at 85.) “[A]s consideration for” the Termination Agreement, Plaintiff agreed to “$100, 000 in consideration of a full release of the . . . [l]oan [b]alance.” (Id.) The Termination Agreement further states that Plaintiff “accepts such payoff provided that no later than November 30, 2015, [Defendant California Pride, Inc.] has sold the [gas station] to a company or individual that is approved by [Plaintiff] and agrees to rebrand the [gas station] with [Plaintiff] and sell [Plaintiff's] motor fuels.” (Id.; cf. Doc. 15, Ex. 3 ¶ 5 (providing the declaration of Chad Cunningham, Plaintiff's “Director, U.S. Marketing, Lubes & Specialty Products, ” in which Mr. Cunningham states that “the amount due under the Amended Note was due and payable” on November 17, 2015).)

         Defendant California Pride, Inc. “failed to pay [Plaintiff] $100, 000 and failed to timely sell its gas station.” (Id. ¶ 18.) As such, Plaintiff asserts that Defendant California Pride, Inc. failed to satisfy the terms of the release provided in the Termination Agreement. (Id.) As of November 7, 2015, the “principal and regular accrued interest under the Amended Note” was “$187, 469.39.” (Id. ¶ 22.)

         B. Procedural Posture

         Plaintiff filed its Complaint for Breach of Contract (the “Complaint”) in this Court on July 29, 2016. (Doc. 1.) The Complaint includes a single claim for breach of contract against all Defendants. (See Id. ¶¶ 24-34.) In particular, the Complaint alleges that Defendant California Pride, Inc. breached the Amended Note, while the Individual Defendants breached the Guaranty. (See id.) The Complaint includes the following requests for relief: (1) “actual damages of $187, 469.39, ” (2) “costs of court, ” (3) “reasonable and necessary attorneys' fees, ” (4) prejudgment interest allowed by law, ” and (5) “post judgment interest at the highest legal rate from the date of judgment until the judgment is satisfied.” (Id. at 6-7.)

         Plaintiff effectuated service of the Complaint on all Defendants on October 8, 2016. (See Docs. 6-8.) To date, no Defendant has filed a response to the Complaint.

         Plaintiff filed a Request for Entry of Default against all Defendants on November 15, 2016. (Doc. 9.) The Clerk then entered default against all Defendants on November 18, 2016. (Doc. 13.)

         On January 25, 2017, Plaintiff filed its Motion for Default Judgment, in which it requests default judgment against all Defendants. (Doc. 15.) To date, no Defendant has filed a response to this motion. In an order entered on February 21, 2017, the undersigned found that Plaintiff's Motion for Default Judgment was “suitable for decision without oral argument” and vacated the hearing regarding this motion. (Doc. 16.)

         On April 4, 2017, the Individual Defendants filed a Notice of Automatic Stay Pursuant to 11 U.S.C. § 362 (the “Bankruptcy Notice”), in which the Individual Defendants state that they “filed a petition for relief under provisions of Chapter 7 of Title 11, U.S.C., . . . Case Number 17-11261, in the Eastern District of California.” (Doc. 18.) In an order entered on April 10, 2017, the undersigned noted that the bankruptcy stay applied only to the Individual Defendants and not Defendant California Pride, Inc. (Doc. 19 at 1.) The undersigned then directed Plaintiff to “file a brief addressing whether the Court should rule on Plaintiff's pending Motion for Default Judgment . . . as to only the non-debtor Defendant―California Pride, Inc.” (Id. at 2.) On April 24, 2017, Plaintiff filed a responsive brief, in which it requested that “the Court consider the pending motion for default judgment and issue an order as it relates to” Defendant California Pride, Inc. (Doc. 20 at 1.)

         As such, Plaintiff's Motion for Default Judgment is fully briefed and ready for disposition as to Defendant California Pride, Inc.[1]

         II. EFFECT OF PENDING BANKRUPTCY PROCEEDINGS

         Prior to turning to the merits of Plaintiff's Motion for Default Judgment, the undersigned must first address preliminary issues relating to the bankruptcy proceedings that were recently initiated by the Individual Defendants.

         A. Scope of Bankruptcy Stay

          On April 4, 2017, the Individual Defendants filed the Bankruptcy Notice, in which these Defendants notified the Court that they “filed a petition for relief under the provisions of Chapter 7 of Title 11, U.S.C., . . . Case Number 17-11261, in the Eastern District of California” on April 3, 2017.[2] (Doc. 18 at 1.) As the Individual Defendants correctly state in the Bankruptcy Notice, the instant judicial proceeding is automatically stayed against the Individual Defendants under Section 362(a)(1). See, e.g., 11 U.S.C. § 362(a)(1) (stating that, except for certain delineated exceptions that are inapplicable here, “a petition filed under section 301, 302, or 303 of this title . . . operates as a stay, applicable to all entities, of . . . the commencement or continuation . . . of a judicial . . . proceeding against the debtor that was . . . commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title”); Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1214 (9th Cir. 2002) (“The plain language of § 362(a)(1) prohibits the continuation of judicial actions.”). See generally 11 U.S.C. § 301(a) (“A voluntary case under a chapter of this [bankruptcy] title is commenced by the filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter.”).

         The next pertinent query is whether this bankruptcy stay extends to Defendant California Pride, Inc. The April 3, 2017 bankruptcy petition only lists the Individual Defendants as “debtor[s].” Case Number 17-11261, Doc. 1 at 1 (Bankr. E.D. Cal. Apr. 3, 2017). Nonetheless, this petition lists Defendant California Pride, Inc. as a business that Defendant Steven Coldren “used in the last 8 years.” Id. at 2. Indeed, the Individual Defendants signed the agreements that are the subject of this litigation on behalf of Defendant California Pride, Inc. (See, e.g., Doc. 1 at 35 (the Reseller Agreement); id. at 77 (the Amended Note).) Clearly, the Individual Defendants and Defendant California Pride, Inc. are related to some extent.

         However, “[a]s a general rule, the automatic stay of section 362(a) protects only the debtor, property of the debtor or property of the estate.” In re Chugach Forest Prods., Inc., 23 F.3d 241, 246 (9th Cir. 1994) (citation omitted). “It does not protect non-debtor parties or their property.” Id. (citation omitted). “Thus, section 362(a) does not stay actions against guarantors, sureties, corporate affiliates, or other non-debtor parties liable on the debts of the debtor.” Id. (citation omitted).

         Some courts have recognized an “unusual circumstances” exception to this general rule where “the judgment against the non-debtor defendant would in effect be a judgment or finding against the debtor.” Totten v. Kellogg Brown & Root, LLC, 152 F.Supp.3d 1243, 1268 (C.D. Cal. 2016). Under this exception, the bankruptcy stay may be extended to non-debtors. See, e.g., Placido v. Prudential Ins. Co. of Am., No. C 09-00668 WHA, 2010 WL 334744, at *1 (N.D. Cal. Jan. 22, 2010). Nonetheless, the bankruptcy court―and not the district court―“would first need to extend the automatic stay under its equity jurisdiction.” Boucher v. Shaw, 572 F.3d 1087, 1093 n.3 (9th Cir. 2009); see also Placido, 2010 WL 334744, at *1 (stating that district courts “do[] not have the jurisdiction to extend the stay to a non-debtor party”). Indeed, “[s]uch extensions, although referred to as extensions of the automatic stay, [are] in fact injunctions issued by the bankruptcy court after hearing and the establishment of unusual need to take this action to protect the administration of the bankruptcy estate.” Boucher, 572 F.3d at 1093 n.3 (quoting In re Chugach, 23 F.3d at 247 n.6).

         In this case, no party has indicated that the bankruptcy court extended the Section 362(a)(1) stay of litigation to the non-debtor Defendant, California Pride, Inc. Further, there is no indication on the docket for the bankruptcy proceedings that that bankruptcy court has elected to extend the stay. See Case Number 17-11261 (Bankr. E.D. Cal.). Absent such an action by the bankruptcy court, the Section 362(a)(1) automatic stay does not extend to the non-debtor Defendant, California Pride, Inc., and this matter may properly proceed against this Defendant. See, e.g., Totten, 152 F.Supp.3d at 1268 (“In the absence of a bankruptcy court order extending the automatic stay to the non-debtor in this action, this case will go forward as to [the non-debtor defendant].”).

         B. Default Proceedings May Proceed Against Defendant California Pride, Inc.

         The undersigned must address the additional preliminary issue of whether default proceedings may proceed against only Defendant California Pride, Inc.

         Federal Rule of Civil Procedure 54(b) provides, in part, that “[w]hen an action presents more than one claim for relief . . . or when multiple parties are involved, the court may direct entry of a final judgment as to one or more, but fewer than all, claims or parties only if the court expressly determines that there is no just reason for delay.” “[U]nder certain circumstances, the court should not enter a default judgment against one or more defendants which is, or likely to be, inconsistent with judgment on the merits in favor of the remaining answering defendants.” Shanghai Automation Instrument Co. v. Kuei, 194 F.Supp.2d 995, 1005 (N.D. Cal. 2001) (citing Frow v. De La Vega, 82 U.S. (15 Wall.) 552 (1872)).

         In Travelers Casualty & Surety Co. of America v. Evans, the presiding district court judge in the present matter addressed facts that are materially indistinguishable from those in the instant action. No. 1:10-cv-2003 LJO GSA, 2012 WL 4468422, at *1 (E.D. Cal. Sept. 26, 2012). Specifically, in Evans, the proceedings were stayed against an individual defendant due to a “pending bankruptcy.” Id. Nonetheless, the court noted that “[t]he purpose of [Rule 54(b)] is to avoid inconsistent judgments against defaulting defendants and the remaining answering defendants” and these policy considerations “do not apply” where “default has been entered against all [d]efendants.” Id. (citation omitted). The court therefore found that there was “no just reason to delay these proceedings” against the remaining defendants due to an individual defendant's bankruptcy proceedings. Id.; cf. Morici v. Hashfast Techs. LLC, Case No. 5:14-cv- 00087 EJD, 2014 WL 4983854, at *3 (N.D. Cal. Oct. 6, 2014) (finding “that the interests of judicial efficiency [were] not served by continuing the stay on all claims, ” including the claims against the non-debtor defendants, where the claims against the non-debtor defendants were “unique to them” and “[w]hile there may be some factual overlap between those claims and the ones against [the debtor defendant], ” the non-debtor defendants did “not persuasively explain[] why the claims specific to them [could not] proceed on an earlier track in an efficient way”). But see Wordtech Sys., Inc. v. Integrated Network Sols., Inc., No. 2:04-cv-01971-MCE-EFB, 2012 WL 6049592, at *3 (E.D. Cal. Dec. 5, 2012) (England, J.) (stating that the claims against the defendants were “substantially similar and related” and finding “that judicial resources [would] be conserved by staying the entire action pending the conclusion of the bankruptcy proceedings, rather than continuing the litigation on a piecemeal basis”); J & J Sports Prods., Inc. v. Brar, No. 2:09-cv-3394-GEB-EFB, 2012 WL 4755037, at *2 (E.D. Cal. Oct. 3, 2012) (Brennan, M.J.) (noting that the debtor and non-debtor defendants were “served at the same address . . . and the claims [the] plaintiff assert[ed] against both defendants [were] identical” and finding “that the better course [was] to stay the claims against [the non-debtor defendant] pursuant to the court's inherent authority pending resolution of [the debtor defendant's] bankruptcy petition”); Zurich Am. Ins. Co. v. Trans Cal Assocs., No. CIV. 2:10-01957 WBS KJN, 2011 WL 6329959, at *3 (E.D. Cal. Dec. 16, 2011) (Shubb, J.) (stating that “a later trial of the claims against the [debtor] defendants would involve the relitigation of most if not all of the issues litigated in the first proceeding involving the [non-debtor] defendants” and finding “that the better course [was] to stay the claims against the [non-debtor] defendants . . . pursuant to the court's inherent authority”).

         Here, as in Evans, the Clerk entered default against all three Defendants. (See Doc. 13.) Consequently, under the rationale provided by the presiding district court judge in Evans, “there is no risk of inconsistent results among” the three Defendants and there is “no just reason to delay these proceedings.” 2012 WL 4468422, at *1. Following the presiding district court judge's approach in Evans, the undersigned recommends that―notwithstanding the automatic stay as to the Individual Defendants―the presiding district court judge find that this matter may proceed against only Defendant California Pride, Inc.

         III. MOTION FOR DEFAULT JUDGMENT

         The undersigned now turns to the merits of Plaintiff's Motion for Default Judgment. For the reasons provided below, the undersigned finds that Plaintiff's request for default judgment has merit as to Defendant California Pride, Inc.

         A. Legal Standard

         Federal Rule of Civil Procedure 55(b) permits a court-ordered default judgment following the entry of default by the clerk of the court under Rule 55(a). See Fed. R. Civ. P. 55(b)(2). “[D]efault does not entitle the non-defaulting party to a default judgment as a matter of right . . . .” Dreith v. Nu Image, Inc., 648 F.3d 779, 785 (9th Cir. 2011). Rather, “[t]he district court's decision whether to enter a ...


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