Atain Specialty Insurance Co. v. Green Earth Management, LLC

          ORDER GRANTING MOTION FOR DEFAULT JUDGMENT

          WILLIAM ALSUP UNITED STATES DISTRICT JUDGE

         INTRODUCTION

         In this insurance action, plaintiff moves for default judgment. For the reasons stated herein, the motion is Granted.

         STATEMENT

         Defendant Green Earth Management, LLC is a wood-chipping and green-waste recycling business in San Jose. In November 2017, a fire of unknown cause broke out on its property. At the time, it had an insurance policy from plaintiff Atain Specialty Insurance Company. The policy provided coverage for Green Earth's building or personal property, business income or extra expenses, and specific equipment. Under each part, the policy stated that coverage would be void in any case of fraud, misrepresentation, or intentionally concealed material facts. On the same day as the fire, Green Earth notified Atain of property loss and allegedly demanded payment for damage resulting from “suspected arson.” Green Earth supported its claim with an expense report alleging loss to real and personal property along with lost income and extra expenses (Dkt. No. 22 at 4-11).

         Atain retained forensic accountants to review Green Earth's report of income loss. Atain also used an independent adjuster and fire consultant to assist in investigating the rest of the reported damage. The adjuster and consultant interviewed Green Earth personnel and inspected the premises from November 2017 through January 2018. During the investigation, Atain “determined that Green Earth's claim was rife with intentional material misrepresentations regarding losses under both Coverage Parts” (Dkt. No. 32 at 8, 13-15).

         After adjusting the claim amounts, Atain made three payments to Green Earth which collectively amounted to $83, 326.05. With each payment, Atain reserved the right to adjust or seek reimbursement for amounts not covered by the policy. Because Green Earth subsequently disagreed with the amount paid under the policy, Atain demanded an appraisal. Both parties, however, agreed to suspend the appraisal because Green Earth amended its claim in August 2018. Although Green Earth adjusted some amounts, Atain alleges that the amended claim still contradicted the damages calculated in its investigation (Dkt. No. 22 at 11-14).

         In December 2018, Atain filed a complaint for declaratory judgment and reimbursement and served Green Earth two weeks later. Originally assigned to Magistrate Judge Nathanael Cousins, this action was reassigned to the undersigned because Atain did not consent to the jurisdiction of a magistrate judge. In February 2019, the clerk entered default against Green Earth. Green Earth failed to respond to Atain's complaint and failed to appear at the case management conferences in March and April 2019 (Dkt. Nos. 1, 8, 11, 14).

         On April 5, 2019, Atain filed an amended complaint and served Green Earth by process server three days later, rendering an answer due by April 29, 2019 (Dkt. No. 23). On April 25, 2019, an order required Atain to notify Green Earth's prior counsel in “attempt to promptly alert defendant of the possibility of a default judgment” (Dkt. No. 25). Five days later, Atain moved for entry of default against Green Earth on the ground that Green Earth failed to appear or otherwise respond to the amended complaint (Dkt. No. 27). The clerk entered default judgment against Green Earth on May 1, 2019. On October 23, 2019, Atain moved for default judgment. Green Earth “has been effectively unreachable throughout this litigation” (Dkt. No. 25). This order follows oral argument.

         ANALYSIS

         1. Default Judgment.

         After entry of default, a court may exercise its discretion to grant default judgment on the merits of the case. See Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980); see also FRCP 55. The factual allegations of the complaint, except those concerning damages, are deemed to have been admitted by the non-responding party and are taken as true. Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977). The following factors may be considered in determining whether or not to enter default judgment: (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).

         The majority of the Eitel factors support default judgment. First, if this motion were to be denied, then Atain would likely be left without a remedy given Green Earth's failure to appear or otherwise defend this action. See Pepsico, Inc. v. Cal. Sec. Cans, 238 F.Supp.2d 1172, 1176-77 (C.D. Cal. 2002) (Judge Nora Margaret Manella). Second, Atain properly served Green Earth with both complaints and there is no evidence in the record that Green Earth's failure to appear and otherwise defend this action was the result of excusable neglect. Third, the sum of money being sought by Atain is reasonable in that it is “directly proportional to the harm that [Atain] suffered in paying out insurance policy benefits” for Green Earth's misrepresentation and fraudulent claims (Dkt. No. 32 at 12). Fourth, because Green Earth has not answered the complaint or otherwise appeared in this action, the possibility of a dispute concerning material facts is unknown. Finally, a decision on the merits is impossible due to Green Earth's failure to respond.

         Having determined that on balance the Eitel factors discussed above support Atain's motion, this order turns to the merits of Attain's substantive claims and the sufficiency of the evidence (the second and third Eitel factors). These factors require Atain to state a ...