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Rath v. Defy Media, LLC

United States District Court, C.D. California

July 12, 2019

DAVID RATH and KARA WELKER, Plaintiffs,
v.
DEFY MEDIA, LLC, a Delaware limited liability company; MATTHEW DIAMOND, an individual; KEITH RICHMAN, an individual; and DOES 1 through 20, inclusive, Defendants.

          ORDER GRANTING PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT AGAINST DEFY MEDIA, LLC [18]

          OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         Presently before the Court is Plaintiffs David Rath and Kara Welker's (“Plaintiffs”) Motion for Default Judgment (“Motion”) against Defendant Defy Media, LLC (“Defy Media”). (ECF No. 18.) For the following reasons, the Court GRANTS Plaintiffs' Motion for Default Judgment and awards Plaintiffs $100, 000.[1]

         II. BACKGROUND

         Plaintiffs owned and operated Generate Holdings, Inc. (“Generate”), a talent agency in which they managed clients. (Compl. ¶ 10, ECF No. 1.) Generate placed its clients in entertainment and commercial projects and collected the revenues due to the clients. (Id.) Plaintiffs placed the funds owed to the clients into a segregated and protected client trust account. (Id.) Plaintiffs allege at some point in 2011, AdGen, LLC, a wholly owned subsidiary of Alloy Digital, LLC, purchased Generate. (Id. ¶ 11.) Approximately two years later, Alloy Digital, LLC merged into the entity Defy Media, LLC. (Id. ¶ 12.) Plaintiffs allege that as a result of the merger, Defy Media assumed the obligations set forth under Plaintiffs' respective Employee Covenants Agreement and Equity Incentive Letter Agreement. (Id.) Defy Media personnel assumed certain accounting functions Plaintiffs performed, including the collection of Plaintiffs' client revenue and management fees. (Id. ¶ 14.)

         In 2017, Plaintiffs discussed with Defy Media through its agents, Defendants Matthew Diamond (“Diamond”) and Keith Richman (“Richman”), the possibility of extricating Generate from Defy Media so that Plaintiffs could operate Generate independently. (Id. ¶ 15.) Diamond is Defy Media's CEO, and Richman is Defy Media's President. (Id. ¶¶ 4-5.) Both are alleged to be the principal, agent, or employee of Defy Media and to have acted within the scope of that relationship at all relevant times. (Id. ¶ 7.) Defendants[2] assured Plaintiffs that they were working to extricate Generate but needed more time to ensure a smooth transition. (Id. ¶ 16.) Defendants promised to pay Plaintiffs additional compensation through 2018, totaling at least $100, 000, to incentivize Plaintiffs to remain with Defy Media until an exit strategy materialized. (Id.) Plaintiffs allege that Defendants made these representations knowing that it did not intend to help Plaintiffs extricate Generate nor pay Plaintiffs the increased compensation they promised, and that Defendants purposefully kept Plaintiffs in the dark about the true state of its business operations. (Id. ¶ 17.) This was because Defendants wanted Plaintiffs and Generate's revenue under Defy Media's umbrella for as long as possible to artificially inflate its account. (Id. ¶¶ 17, 21, 22.)

         Without notice, Defendants notified Plaintiffs that Defy Media was ceasing all operations on November 6, 2018. (Id. ¶ 19.) Plaintiffs were required to continue servicing their clients without infrastructure or equipment, while Defy Media continued to hold around $200, 000 that was due to Plaintiffs' clients. (Id. ¶ 20.) Defendants did not place this money into a separate client trust account but rather in Defy Media's general operating account. (Id.)

         As a result of Defendants' fraudulent conduct, Plaintiffs are seeking $100, 000 in compensatory damages, $300, 000 in punitive damages, as well as recovery of Generate's email server and its contents, the telephone numbers associated with Generate, and all trademarks and copyrights pertaining to the Generate trade name and logos. (Mot. 9-11.)

         Plaintiffs filed their Complaint on November 14, 2018. (See generally Compl.) Defy Media was served pursuant to Federal Rule of Civil Procedure 4(e) on November 27, 2018. (Proof of Service, ECF No. 12.) After Defy Media's failure to answer the Complaint, Plaintiffs filed a Request to Enter Default against Defy Media on December 20, 2018. (Req. for Entry of Default, ECF No. 15.) The Clerk entered default against Defy Media on December 21, 2018. (ECF No. 17.) Plaintiffs moved for default judgment on April 5, 2019. (Mot.)

         III. LEGAL STANDARD

         Pursuant to Federal Rule of Civil Procedure (“Fed. R. Civ. P.”) 55(b), a court may grant default judgment after the Clerk enters default under Rule 55(a). See PepsiCo Inc., v. Cal. Security Cans, 238 F.Supp.2d 1172, 1174 (C.D. Cal. 2002). A district court has discretion whether to enter default judgment. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In exercising its discretion, a court must consider several factors, including: the possibility of prejudice to plaintiff; the merits of plaintiff's substantive claim; the sufficiency of the complaint; the sum of money at stake; the possibility of a dispute concerning material facts; whether the defendant's default was due to excusable neglect; and 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).

         Upon default, the defendant's liability generally is conclusively established, and the well-pleaded factual allegations in the complaint are accepted as true. Televideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-19 (9th Cir. 1987) (per curiam) (citing Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977)). If the allegations sufficiently establish liability, the court must then determine the “amount and character” of the relief that should be awarded. Elektra Entm't Grp. Inc. v. Crawford, 226 F.R.D. 388, 394 (C.D. Cal. 2005).

         IV. DISCUSSION

         A. Procedural Requirements

         Before a court can enter default judgment, the requesting party must satisfy the procedural requirements set forth in Fed.R.Civ.P. 55, as well as the Local Rules of this district. PepsiCo, 238 F.Supp.2d at 1174. Central District of California Local Rule 55-1 requires the movant to submit a declaration establishing: (1) when and against whom the default was entered; (2) identification of the pleading to which default was entered; (3) whether the defaulting party is a minor, an incompetent person, or exempt under the Servicemembers Civil Relief Act; and (4) that the defaulting party was served with notice, if required by Fed.R.Civ.P. 55(b)(2). Vogel v. Rite Aid Corp., 992 F.Supp.2d 998, 1006 (C.D. Cal. 2014); C.D. Cal. L.R. 55-1.

         In accordance with Fed.R.Civ.P. 55 and Local Rule 55-1, the Court finds that the procedural requirements are satisfied. The Clerk of the Court entered default against Defy Media on December 21, 2018. (ECF No. 17.) The default was entered as requested by Plaintiffs as to their November 14, 2018 Complaint. (ECF No. 15.) Defy Media is neither a minor nor an incompetent person, and is not exempt under the Servicemembers Civil Relief Act. (Decl. of Peter D. Scott in Supp. of Pls.' Req. for Entry of Default ¶¶ 5-6, ECF No. 15-1.) Finally, Defy Media has not appeared in this action, and as such, notice of default judgment is unnecessary under Rule 55(b)(2), as referenced by Local Rule 55-1(e). (Id. ¶ 3-4.) Accordingly, the Court finds that Plaintiffs have complied with all procedural requirements.

         B. Plaintiffs' Motion for Default Judgment

         The Court finds that the Eitel factors favor default judgment. The Court will address each factor in turn.

         1. First Eitel Factor: Plaintiffs Would Suffer Prejudice if Default is Not Entered

         The first Eitel factor considers whether Plaintiffs will suffer prejudice if default judgment is not entered. PepsiCo, 238 F.Supp.2d at 1177. When a defendant fails to appear and defend the claims against it, the plaintiff would be without recourse and suffer prejudice unless default judgment is entered. Id.

         Given Defy Media's failure to defend this suit, Plaintiffs would be prejudiced if denied a remedy against Defy Media. As a result, the first Eitel factor weighs in favor of entering default judgment.

         2. Second and Third Eitel Factors: Plaintiffs' Claims are ...


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