Lopez v. Cardiosom LLC et al

Filing 33

ORDER granting 32 Second Amended Application for for Default Judgment. Damages are awarded in favor of Luis A. Lopez and against Cardiosom, LLCand Dormir, Inc., jointly and severally, in the amount of $385,805.70. The Clerk of the Court shall enter judgment accordingly. (see attached pdf for complete information) Signed by Judge Jennifer G Zipps on 7/13/2012.(GCP)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Luis A. Lopez, Plaintiff, 10 11 vs. 12 13 14 Cardiosom, LLC, an Arizona foreign limited liability company; Dormir, Inc., an Indiana corporation; John and Jane Does 1-10, inclusive; and XYZ Partnerships, 1-10, inclusive. 15 Defendants. 16 ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) CV-11-615-TUC-JGZ ORDER 17 18 Pending before the Court is Plaintiff’s Second Amended Application for Default 19 Judgment. (Doc. 32.) For the following reasons, Plaintiff’s Application for Default 20 Judgment is granted. FACTUAL AND PROCEDURAL BACKGROUND 21 22 This action involves a dispute between Plaintiff Luis Lopez and Defendants 23 Cardiosom, LLC and Dormir, Inc.1 over Defendants’ failure to compensate Lopez according 24 25 26 27 28 1 The pleadings do not explain the relationship between Defendants Cardiosom and Dormir; however, it appears undisputed that each Defendant was in an employment relationship with Plaintiff. The offer of employment refers to Cardiosom and Dormir interchangeably: “CardioSom LLC/Dormir LLC.” (Doc. 29-3.) Both Cardiosom and Dormir removed this action from Pima County Superior Court to this Court. (Doc. 1.) Cardiosom and Dormir also filed an Answer referring to themselves as “collectively Defendants.” (Doc. 6.) 1 to the commission schedule in his employment agreement. (Complaint, Doc. 1-3 at pg. 2.) 2 Defendants removed this matter from Pima County Superior Court (Doc. 1) and filed an 3 Answer on October 4, 2011. (Doc. 6.) On November 29, 2011, a Scheduling Conference 4 was held in this matter. (Doc. 14.) Defendants appeared at the Scheduling Conference 5 through counsel. On February 22, 2012, the Court granted Defendants’ counsel’s Application 6 for Leave to Withdraw and ordered Defendants to notify the Court within 20 days that new 7 counsel has been retained to defend this matter. (Doc. 21.) Defendants failed to do so. 8 Consistent with the Scheduling Order, Plaintiff attempted to conduct discovery; however, 9 Defendants failed to respond to Plaintiff’s requests for production dated November 29, 2011 10 and February 2, 2012. Plaintiff also scheduled a Rule 30(b)(6) deposition for February 29, 11 2012, which Defendants failed to attend. 12 Plaintiff moved for an order to compel discovery or alternatively to impose sanctions. 13 (Doc. 23.) The Court set a hearing on Plaintiff’s Motion to Compel. (Doc. 25.) In that 14 Order, the Court stated that “Defendants shall appear, represented by counsel, prepared to 15 defend the matter. Defendants are admonished that failure to comply with the Court’s orders 16 will result in the imposition of sanctions, including default.” (Doc. 25.) Defendants failed 17 to appear at the hearing. Based on Defendants’ failure to defend this action, the Court 18 ordered that Defendants’ Answer to the Complaint be stricken, that the Clerk of the Court 19 enter default against Defendants, and that Plaintiff submit an application for default 20 judgment. (Doc. 27.) Plaintiff was also ordered to serve written notice of application for 21 default judgment upon Defendants at least seven days prior to the hearing. (Doc. 27.) On 22 May 2, 2012, the Clerk entered default against Defendants. (Doc. 28.) 23 On May 24, 2012, the Court held a hearing concerning entry of default judgment and 24 proof of damages. Lopez testified in support of his claim for damages. In addition, the 25 following documents were admitted into evidence: an e-mail to Lopez, dated April 26, 2011, 26 from Dormir’s president, Jay Jarrell; Letter Offer of Employment dated January 4, 2007, and 27 attached Commission Schedule; and Defendants’ Annual Income Statements from 2008 28 through the first quarter of 2011. The evidence showed that Lopez was hired by -2- 1 Cardiosom/Dormir in February of 2007 and that he resigned his employment in July of 2011. 2 Pursuant to the contract between Lopez and Defendants, Lopez was to receive a yearly salary 3 of $64,000, plus bonuses calculated at 7.5% of the net income of the Tucson office.2 Lopez 4 testified that he was paid his yearly salary in accordance with the contract, but Defendants 5 failed to pay Lopez his final commission of $4,000. (See also Complaint, Doc. 1-3 at pg. 3.) 6 Defendants also failed to compensate Lopez for bonuses. In the e-mail dated April 6, 2011, 7 Jay Jarrell, the President of Dormir, acknowledged that Lopez was owed $60,224 in unpaid 8 bonuses. (Doc. 29-2.) His e-mail states: Luis, 9 I’m looking forward to meeting you. I also am aware of the prior special bonus program issue. I am sorry it has taken so long for Dormir to resolve, but we have done so. Paula, our CFO, finally was able to review all the support we could find, and we have calculated the bonus under this special prior plan that relates to your years at Tucson through March 2010 to be $60,224. Let’s find some time Thursday for the two of us to discuss. 10 11 12 13 14 I hope you understand that no one at the Company was trying to avoid paying what was owed and due to you. The prior management simply did not document anything formally and never communicated anything at Corporate. Therefore, we were faced with documenting support for the calculation. Again, I am sorry it took so long. 15 16 17 Jay A. Jarrell President Dormir, Inc. 18 19 20 (Id.) Subsequent to the e-mail, Cardiosom paid Lopez $30,075. (Affidavit of Luis Lopez, 21 Doc. 32-1.) 22 In his Second Amended Application for Default Judgment, Plaintiff requests that the 23 Court enter judgment in his favor and award him unpaid bonuses in the amount of 24 $127,245.33, his unpaid commission in the amount of $4,000, and that the Court treble the 25 26 27 28 2 Lopez testified at the evidentiary hearing that his contract provided for bonuses equal to 4.5% of the Tucson office’s net income. In fact, the contract states that Lopez is entitled to 7.5% of net income earned by the Tucson office. (See Doc. 29-3.) Lopez submitted an affidavit correcting his testimony. (Doc. 32-1.) -3- 1 damages pursuant to A.R.S. § 23-355(A), on account of Defendants’ failure to compensate 2 him pursuant to the terms of the contract. 3 4 DISCUSSION A. Default Judgment 5 The entry of default by the Clerk is a necessary prerequisite to an entry of default 6 judgment. Vongrabe v. Sprint PCS, 312 F.Supp.2d 1313, 1318 (S.D.Cal. 2004). The Clerk 7 has properly entered default against Defendants. (Doc. 28.) After entry of a default, a court 8 may grant a default judgment on the merits of the case. See Fed.R.Civ.P. 55. “The district 9 court's decision whether to enter a default judgment is a discretionary one.” Aldabe v. 10 Aldabe, 616 F.2d 1089, 1092 (9th Cir.1980). Factors that a court may consider in exercising 11 its discretion include: 12 15 (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. 16 Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). As default has been entered, the 17 Court may take as true all factual allegations in Plaintiff’s Complaint except for those related 18 to the amount of damages. See TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th 19 Cir. 1987). 13 14 20 21 In considering the Eitel factors, the Court concludes that entering default judgment against Defendants Cardiosom and Dormir is appropriate. 22 1. The possibility of prejudice to Lopez 23 Jay Jarrell’s e-mail acknowledges that Lopez is owed payments earned while 24 employed as a sales representative for Defendants. Lopez would suffer prejudice if his 25 motion for default judgment were denied because he would be “without other recourse for 26 recovery.” PepsiCo, Inc. v. California Security Cans, 238 F.Supp.2d 1172, 1177 (C.D.Cal. 27 2002). This factor greatly weighs in favor of entering default judgment. 28 -4- 1 2. Merits of the Substantive Claim & Sufficiency of the Complaint 2 Eitel "require[s] that a plaintiff state a claim on which the [plaintiff] may recover." 3 Philip Morris U.S.A., Inc. v. Castworld Products, Inc., 219 F.R.D. 494, 499 (C.D.Cal. 2003) 4 (internal quotation marks omitted). Plaintiff’s Complaint is grounded in a claim for breach 5 of contract. The elements of a breach of contract claim are (1) a contract, (2) breach of the 6 contract, and (3) resulting damages. Chartone, Inc. v. Bernini, 83 P.3d 1103, 1111 (Ariz. 7 App. 2004). Lopez presented evidence demonstrating the existence of a contract with 8 Defendants, Defendants’ breach of the contract, and Lopez’s resulting damages. Again, Jay 9 Jarrell’s e-mail acknowledges that as of April of 2011, Defendants owed Lopez $60,224.00 10 in overdue bonuses. Lopez has stated a claim for breach of contract. 11 3. Sum at Stake 12 This factor requires the Court to consider the amount of money at stake in relation to 13 the seriousness of defendants' conduct. Eitel, 782 F.2d at 1471-72. Here Defendants have 14 failed to pay Lopez monies he earned despite the company’s acknowledgment that the 15 monies are owed. The amount of money at stake is substantial; Lopez requests payment for 16 bonuses and commission that he earned, but did not receive, the total amount of which 17 exceed his annual salary, and that the total amount be trebled pursuant to A.R.S. § 23- 18 355(A). Lopez’s request is grounded in the contract and supported by law. This factor 19 weighs in favor of default judgment. 20 4. Possible Dispute Concerning Material Facts 21 In light of Jay Jarrell’s email acknowledging Defendants’ non-payment, the Court 22 finds that there is little possibility of dispute concerning the material fact that Defendants 23 owe Lopez for outstanding commissions. In addition, on entry of default, the court may 24 accept as true all well-pleaded facts in the complaint, except those relating to damages, and 25 any later provided evidence in the form of affidavits and exhibits. See TeleVideo Sys., Inc., 26 826 F.2d at 917-18. Lopez’s Complaint and testimony establish Defendants’ breach of the 27 employment agreement. The Court accepts Plaintiff’s averments as true. Moreover, 28 -5- 1 Defendants’ answer has been stricken; and Defendants have failed to appear since counsel 2 withdrew. Thus, this factor also weighs in favor of default judgment. 3 5. Excusable Neglect 4 Usually, a court will ask whether a defendant’s failure to answer is due to excusable 5 neglect. See Eitel, 782 F.2d at 1472 (noting that the fact that the parties were engaged in 6 settlement negotiations excused defendant from failing to answer). In the instant case, 7 Defendants were properly served, they answered the complaint, and they appeared at the case 8 management conference through counsel. Given these circumstances, it is unlikely that 9 Defendants’ failure to defend this matter was a result of excusable neglect. See Shanghai 10 Automation Instrument Co., Ltd. v. Kuei, 194 F.Supp.2d 995, 1005 (N.D.Cal. 2001) (finding 11 no excusable neglect where defendants “were properly served with the Complaint, the notice 12 of entry of default, as well as the papers in support of the instant motion”). 13 6. Strong Policy Favoring Decisions on the Merits 14 Generally, default judgments are disfavored because “cases should be decided upon 15 their merits whenever reasonably possible.” Eitel, 782 F.2d at 1472. However, because a 16 discretionary standard is applied, “default judgments are more often granted than denied.” 17 PepsiCo v. Triunfo-Mex, Inc., 189 F.R.D. 431, 432 (C.D.Cal. 1999). Indeed, the mere 18 existence of Fed. R. Civ. P. 55(b) indicates that the seventh Eitel factor is not dispositive. 19 California Security Cans, 238 F.Supp.2d at 1177. Here, Defendants’ failure to defend this 20 matter makes a decision on the merits impractical, if not impossible. 21 correspondence between Lopez and Jay Jarrell indicates that Lopez attempted to resolve this 22 matter with Defendants prior to the filing of this lawsuit. Litigation followed and Defendants 23 have failed to respond to Lopez’s discovery requests and this Court’s orders. Therefore, the 24 policy encouraging decisions of cases on their merits does not weigh against granting default 25 judgment here. 26 27 28 -6- The e-mail 1 B. Damages 2 Having determined that entry of default judgment is proper, the Court now turns to 3 the matter of damages. “A default judgment must not differ in kind from, or exceed in 4 amount, what is demanded in the pleadings.” Fed.R.Civ.P. 54(c). Because the allegations 5 in the complaint are taken as true “[i]njury is established and plaintiff need prove only that 6 the compensation sought relates to the damages that naturally flow from the injuries pled.” 7 Black & Decker (U.S.), Inc. v. All Spares, Inc., 2010 WL 3034887, *3 (D.Ariz. Aug.3, 2010) 8 (citing Philip Morris USA, Inc. v. Castworld Products, Inc., 219 F.R.D. 494, 498 (C.D.Cal. 9 2003)). While the Court is not required to issue findings of fact as to liability, it must do so 10 as to damages. Adriana Intern. Corp. v. Thoeren, 913 F.2d 1406, 1414 (9th Cir. 1990). 11 1. Compensatory Damages 12 Lopez has demonstrated that he is entitled to compensation from Defendants’ breach 13 of the employment agreement. The employment agreement provides for an annual salary of 14 $64,000 per year, plus commissions pursuant to the Commission Schedule attached to the 15 agreement as Schedule “A”. The Commission Schedule provides: “Employee will be paid 16 7.5% of the net income for the Tucson branch on top of other commissions.” (Doc. 29-3, pg. 17 2.) The contract specified that the bonus commission would be paid out yearly for on-going 18 operations and be paid in total if the Tucson branch or company was ever sold. (Id.) 19 In proof of his damages, Plaintiff produced the annual net income statements for the 20 Tucson branch for years 2008 through 2011. Plaintiff could not acquire an annual income 21 statement for 2007, but Plaintiff stated in his affidavit that, to the best of his knowledge, the 22 Tucson branch’s net income in 2007 was approximately the same as in 2008. (Doc. 32-1, 23 p.1-2.) The Court accepts Plaintiff’s averment as reasonable. The Court notes that the 24 average of Defendants’ annual net income for years 2008, 2009, 2010, and 2011 is 25 $460,158.25, which is greater than the $449,028.00 Plaintiff seeks to utilize for 2007.3 See 26 27 28 3 Plaintiff attempted to obtain the company’s records through discovery. Defendants’ refusal to participate in discovery should not be to Plaintiff’s detriment. -7- 1 Short v. Riley, 724 P.2d 1252, 1255 (Ariz. App. 1986) (“In the case of an established 2 business, certainty may also be proved when the plaintiff presents some reasonable method 3 of computing his net profit or loss.”) Thus, the annual bonuses earned by Plaintiff during 4 his employment with Defendants are as follows: 5 Year 6 Net Annual Income for Tucson Branch 7.5% Bonus Earned 7 2007 $411, 609.004 $30,870.67 8 2008 $449,028.00 $33,677.10 9 2009 $443,804.00 $33,285.30 10 2010 $492, 081.00 $36,906.08 2011 $265,836.675 $19,937.75 $2,062,358.67 $154,676.90 11 Totals: 12 13 14 15 Plaintiff testified that Defendants had paid him $30,075 of his bonuses, but had failed to compensate him for his final commission in the amount of $4,000. Thus, the total amount of compensatory damages owed to Lopez is $128,601.90 as calculated below. Total Bonus Earned Bonus Paid by Defendants Subtotal Final Commission Owed Total Amount Owed 16 17 18 19 $154,676.90 - 30,075.00 $124,601.90 + 4,000.00 $128,601.90 20 2. Statutory Damages 21 Plaintiff further requests treble damages pursuant to A.R.S. § 23-355(A), which 22 provides “if an employer, in violation of this chapter, fails to pay wages due any employee, 23 the employee may recover in a civil action against an employer or former employer an 24 25 26 27 28 4 The Court reduced the Net Annual Income for 2007 by 1/12th as Plaintiff commenced employment in February 2007. 5 To determine Defendants’ annual income for the seven months of Plaintiff’s employment in 2011, the Court calculated the Defendants’ average monthly net income as shown in Defendants’ first quarterly net income statement for that year and multiplied it by seven. -8- 1 amount that is treble the amount of the unpaid wages.” An employer is prohibited from 2 withholding any portion of an employee’s wages unless “there is a reasonable good faith 3 dispute as to the amount of wages due . . . .” A.R.S. § 23-352; Apache East, Inc. v. 4 Wiegand, 580 P.2d 769, 773 (Ariz. App. 1978). This provision includes the failure to pay 5 commissions and bonuses. Schade v. Diethrich, 760 P.2d 1050, 1061 (Ariz. 1988). 6 Here, Dormir’s president has admitted in an e-mail that bonus payments were owed 7 to Lopez. Defendants have failed to pay Plaintiff the full amount of bonuses due and owing. 8 As Defendants’ Answer has been stricken and they have failed to defend this matter, there 9 is no evidence to support a finding that Defendants withheld Plaintiff’s wages in good faith. 10 Therefore, the Court concludes that Lopez is entitled to treble the amount of unpaid wages: 11 $128,601.90 x 3 = $385,805.70. 12 Accordingly, IT IS ORDERED: 13 1. 14 15 Plaintiff’s Second Amended Application for Default Judgment (Doc. 32) is GRANTED. 2. 16 Damages are awarded in favor of Luis A. Lopez and against Cardiosom, LLC and Dormir, Inc., jointly and severally, in the amount of $385,805.70. 17 3. The Clerk of the Court shall enter judgment accordingly. 18 4. The Clerk of the Court shall mail a copy of this Order and a copy of the 19 20 21 22 judgment to: Dormir, Inc., c/o Gregory J. Morical 615 W. Carmel Dr. Ste. 100 Carmel, Indiana 46032 DATED this 13th day of July, 2012. 23 24 25 26 27 28 -9-

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