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Kolb v. Telling

United States District Court, E.D. California

May 25, 2018

KYLE KOLB, Plaintiff,
v.
DAVID TELLING, et al., Defendants.

          FINDINGS AND RECOMMENDATIONS RECOMMENDING GRANTING IN PART PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT OBJECTIONS DUE WITHIN FOURTEEN DAYS (ECF NOS. 12, 19)

         Currently before the Court is Plaintiff Kyle Kolb's motion for default judgment against Defendants David Telling (“Defendant Telling”) and Wakecraft Boats II, Inc. (“Defendant Wakecraft”). The matter has been referred to the undersigned pursuant to 28 U.S.C. § 636(b)(1)(B) and Local Rule 302. Having considered the moving papers, the declarations attached thereto, the April 5, 2018 hearing, Plaintiff's supplemental briefing, the declarations and exhibits attached thereto, as well as the Court's file, the Court issues the following findings and recommendations.

         I.

         BACKGROUND

         On or about February 27, 2015, Plaintiff entered into a sales agreement with Defendant Wakecraft for the manufacture and purchase of a 2015 ZR8 Boat (“the boat”). The boat was to be delivered by June 13, 2015. Upon executing the sales agreement, Plaintiff wired $85, 000.00 to Defendant Wakecraft. However, Defendant Wakecraft did not manufacture and deliver the boat according to the sales agreement. Defendant Telling assured that the boat would be ready and delivered by July 3, 2015, but Defendants failed to deliver the boat by the July 3, 2015 delivery date. Defendant Telling provided multiple dates upon which the boat would be completed and delivered to Plaintiff.

         On or about October 15, 2015, Plaintiff had a conversation with Defendant Telling. Defendant Telling told Plaintiff that he was having financial difficulties that prevented him from completing the boat by the agreed upon dates, but he guaranteed that the boat would be completed and delivered by March 15, 2016. Plaintiff and Defendants entered into an agreement entitled “Boat Delivery Agreement, ” which provided that it superseded all prior written or oral agreements between the parties. The Boat Delivery Agreement provided that the boat would be completed and delivered by March 15, 2016, or that the $85, 000 that Plaintiff paid Defendant would be returned by March 15, 2016.

         However, Defendants did not manufacture and deliver the boat by March 15, 2016, and have failed and/or refused to return Plaintiff's $85, 000.00. Defendant Telling told Plaintiff that the boat was almost complete, but that he needed an additional $25, 415.00 to upgrade the boat to a 2017 ZR8. Defendant Telling requested that Plaintiff loan $25, 415 to Defendants. Thereafter, Plaintiff and Defendants entered into an agreement entitled “Amendment to Boat Agreement” (the “Amendment”), which provides that Defendants would upgrade the boat to a 2017 ZR8 that would be completed by July 15, 2016, and that Plaintiff would loan $25, 415 to Defendants which would be repaid with monthly payments of $2, 000 that would begin 30 days after Plaintiff loaned the funds to Defendants.

         On July 18, 2017, Plaintiff filed the complaint. (ECF No. 1.) Plaintiff brought claims for breach of contract, unjust enrichment, and breach of the covenant of good faith and fair dealing against Defendants and a claim for intentional misrepresentation against Defendant Telling.

         The defendants were served with the complaint and summonses on August 29, 2017, and September 6, 2017. (ECF Nos. 7, 8.) On December 13, 2017, Plaintiff requested that the Clerk of Court enter default against Defendants because they had not filed a responsive pleading. (ECF No. 9.)[1] On December 15, 2017, the Clerk of Court entered default against Defendants. (ECF No. 10.)

         On February 23, 2018, Plaintiff filed a motion for default judgment against Defendants. (ECF No. 12.) The motion was served on Defendants.

         On April 5, 2018, Magistrate Judge Michael J. Seng held a hearing on the motion. Edward Stepans appeared telephonically on behalf of Plaintiff. Defendants did not appear. Plaintiff was ordered to file supplemental briefing and competent evidence to explain and justify the judgment requested. On April 19, 2018, this action was reassigned to the undersigned due to the retirement of Magistrate Judge Seng. (ECF No. 18.) Plaintiff filed his supplemental briefing on April 26, 2018. (ECF No. 19.)

         II.

         LEGAL STANDARD

         Pursuant to Rule 55 of the Federal Rules of Civil Procedure, unless a claim is for a sum certain or a sum that can be made certain by computation, a party must apply to the court for a default judgment. Fed.R.Civ.P. 55(b). Upon entry of default, the complaint's factual allegations regarding liability are taken as true. Geddes v. United Financial Group, 559 F.2d 557, 560 (9th Cir. 1977); Garamendi v. Henin, 683 F.3d 1069, 1080 (9th Cir. 2012). However, the complaint's factual allegations relating to the amount of damages are not taken as true. Geddes, 559 F.2d at 560. Accordingly, the amount of damages must be proven at an evidentiary hearing or through other means. Microsoft Corp. v. Nop, 549 F.Supp.2d 1233, 1236 (E.D. Cal. 2008). “[N]ecessary facts not contained in the pleadings, and claims which are legally insufficient, are not established by default.” Cripps v. Life Ins. Co. of North America, 980 F.2d 1261, 1267 (9th Cir. 1992). Pursuant to Federal Rule of Civil Procedure 54(c), “[a] default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings.” Entry of default judgment is not a matter of right and it is within the discretion of the court whether default judgment should be entered. Shanghai Automation Instrument Co. v. Kuei, 194 F.Supp.2d 995, 999 (N.D. Cal. 2001); Eitel v. McCool, 782 F.2d 1470, 1471 (9th Cir. 1986). The Ninth Circuit has set forth the following factors for the court to consider in exercising its discretion:

(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.

         III. DISCUSSION

         In the motion for default judgment and supplement, Plaintiff seeks default judgment and requests monetary damages, prejudgment interest, post-judgment interest, attorneys' fees, and costs.[2]

         A. Jurisdiction

         1. Subject Matter Jurisdiction

         Federal courts are courts of limited jurisdiction and their power to adjudicate is limited to that granted by Congress. U.S v. Sumner, 226 F.3d 1005, 1009 (9th Cir. 2000). Here, Plaintiff alleges that diversity jurisdiction exists. District courts have original jurisdiction of all civil actions between citizens of different States in which “the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs.” 28 U.S.C. § 1332(a). This requires complete diversity of citizenship and the presence “of a single plaintiff from the same State as a single defendant deprives the district court of original diversity jurisdiction over the entire action.” Abrego Abrego v. The Dow Chemical Co., 443 F.3d 676, 679 (9th Cir. 2006) (citations omitted).

         Here, Plaintiff is a citizen of Colorado. (Compl. at ¶ 1.) Defendant Telling is a citizen of California. (Id. at ¶ 2.) Defendant Wakecraft is a California Corporation with its principal place of business in California. (Id. at ¶ 2.) A corporation is deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business. Lincoln Prop. Co. v. Roche, 546 U.S. 81, 94 (2005) (quoting 28 U.S.C. § 1332(c)(1)). Therefore, Defendant Wakecraft is a citizen of California. Since Plaintiff is not a citizen of the same state as Defendants, complete diversity of citizenship exists.

         Plaintiff alleges that the amount in controversy exceeds $75, 000.00. (Compl. at ¶ 4.) Plaintiff contends that Defendants breached a contract by failing to deliver the 2017 boat, failing to return the $85, 000.00 paid for the boat, and failing to repay the $25, 415.00 loan. (Id. at ¶ 36.) Plaintiff seeks damages of at least $75, 000. The Court finds that Plaintiff has sufficiently alleged that the amount in controversy meets the jurisdictional requirement. Therefore, the Court has original jurisdiction under 28 U.S.C. § 1332(a).

         2. Service of Process

         a. Service on Defendant Telling

         Rule 4 of the Federal Rules of Civil Procedure sets forth the requirements for the manner of service on an individual. Rule 4(e) provides that an individual may be served by personally delivering a copy of the summons and a complaint. Fed.R.Civ.P. 4(e)(2).

         Here, Defendant Telling was personally served with the summons, the cover sheet, and new case documents. (ECF No. 8.) However, the proof of service does not indicate that the complaint was served. Rule 4 is flexible and should be liberally construed so long as it gives the party to be served sufficient notice of the complaint. Direct Mail Specialists, Inc. v. Eclat Computerized Technologies, Inc., 840 F.2d 685, 688 (9th Cir. 1988). While the proof of service does not indicate that Defendant Telling was served with the complaint, his counsel, Cyril Lawrence, corresponded with Plaintiff's counsel regarding an extension of time to file an answer which indicates that the complaint was served. (February 23, 2018 Declaration of Robert J. Berens (“Berens Decl.”) at ¶ 8.) Therefore, the Court finds that Defendant Telling was served sufficiently.

         b. Service on Defendant Wakecraft

         The Federal Rules of Civil Procedure provide for two ways to effectuate service on a corporation. Pursuant to Federal Rule of Civil Procedure 4(h), a corporation must be served “in a manner prescribed by Rule 4(e)(1) for serving an individual; or . . . by delivering a copy of the summons and of the complaint to an officer, a managing or general agent or any agent, authorized by appointment or by law to receive service of process. . . .” Here, Defendant Wakecraft was served by personal service on Cyril Lawrence, the person authorized to receive service of process for Defendant Wakecraft. (ECF No. 7 at 1, Berens Decl. at ¶ 6.) The proof of service indicates that Defendant Wakecraft was personally served with the summons, the cover sheet, and new case documents. While the proof of service does not indicate that Defendant Wakecraft was served with the complaint, the fact that its counsel, Mr. Lawrence, contacted Plaintiff's counsel regarding an extension of time to file an answer indicates that it was served with the complaint. Therefore, the Court finds that Defendant Wakecraft was sufficiently served.

         B. The Eitel Factors Weigh in Favor of Default Judgment

         As discussed below, consideration of the Eitel factors weigh in favor of granting default judgment in this instance against Defendants.

         1. Possibility of Prejudice to Plaintiff

         The first factor weighs in favor of entry of default judgment. If default judgment is not entered, Plaintiff is effectively denied a remedy for the violations alleged in this action unless Defendants appear. Defendants may never appear to defend this action. Therefore, this factor weighs heavily in favor of granting default judgment.

         2. The Merits of Plaintiff's Substantive Claims and Sufficiency of Complaint

         The next relevant Eitel factors include an evaluation of the merits of the substantive claims alleged in the complaint as well as the sufficiency of the complaint itself. This requires the Court to look to the complaint to determine if the allegations contained within are sufficient to state a claim for the relief sought. Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978). “[F]acts which are not established by the pleadings of the prevailing party, or claims which are not well-pleaded, are not binding and cannot support the judgment.” Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988) (finding it error to award default judgment where the complaint was insufficient to state a claim).

         In Plaintiff's motion for default judgment, he states that counts one through four allege that Defendants breached the Agreement by not timely delivering the 2017 boat and not repaying the loan that Plaintiff made to Defendants. Plaintiff also states that he has demonstrated the merits of his substantive claim against Defendants.

         Plaintiff brings a claim for breach of contract under California law. The elements of a cause of action for breach of contract are: (i) existence of the contract, (ii) plaintiff's performance or excuse for nonperformance, (iii) defendant's breach, and (iv) resulting damages to the plaintiff. See CDF Firefighters v. Maldonado, 158 Cal.App.4th 1226, 1239 (2008) (citation omitted).

         The Court first determines whether a valid contract existed. Plaintiff's complaint alleges that he and Defendants entered into a Boat Delivery Agreement on October 15, 2015, and an Amendment on or about June 20, 2016. Plaintiff alleges that the Boat Delivery Agreement, as amended by the Amendment, was a valid contract. Plaintiff attaches the Purchase Agreement, Boat Delivery Agreement, and Amendment to the complaint. Plaintiff alleges that Defendants have breached the terms of the Boat Delivery Agreement, which was amended by the Amendment.

         The Boat Delivery Agreement was signed by both parties and provided that Plaintiff was willing to hold off on bringing a civil complaint against Defendants pursuant to the Boat Delivery Agreement and Defendants would manufacture the boat and deliver the boat to Plaintiff's home address or return the $85, 000.00 to Plaintiff on or before March 15, 2016. Therefore, the Boat Delivery Agreement is a valid contract.

         Plaintiff contends that the Amendment was a valid amendment to the original Boat Delivery Agreement. However, Section 3d of the Boat Delivery Agreement states that “[t]his Agreement may only be modified or amended if the amendment is made in writing and is signed by both parties.” (ECF No. 1-2.) A review of the Amendment reveals that it was not signed by Plaintiff. (ECF No. 1-4.)

         Here, the express language of the Boat Delivery Agreement makes it clear that it can only be amended if the amendment is made in writing and is signed by both parties. Plaintiff does not present any argument or evidence that this was not what was intended by the parties or that this should be interpreted differently. When a court is determining the meaning of a written contract, the court first decides whether the language is ambiguous and reasonably susceptible to the interpretation urged. See Winet v. Price, 4 ...


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