Penavico Shenzhen Logistics Ltd v. DGS Logistics LLC et al
Filing
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ORDER DENYING MOTION TO SET ASIDE DEFAULT AGAINST DEFENDANT DGS LOGISTICS,LLC WITHOUT PREJUDICE 12 by Judge Otis D. Wright, II (lc)
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UNITED STATES DISTRICT COURT
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CENTRAL DISTRICT OF CALIFORNIA
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PENAVICO SHENZEN LOGISTICS,
LTD.,
v.
Plaintiff,
DGS LOGISTICS, LLC; PATRICK
JACOB; DOES 1–20,
Case No. 2:13-cv-08757-ODW(FFMx)
ORDER DENYING MOTION TO
SET ASIDE DEFAULT AGAINST
DEFENDANT DGS LOGISTICS,
LLC WITHOUT PREJUDICE [12]
Defendants.
I.
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INTRODUCTION
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On January 3, 2014, Defendant Patrick Jacob filed a Motion to Set Aside Entry
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of Default against Defendant DGS Logistics, LLC. (ECF No. 12.) DGS has been
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unable to obtain counsel to represent itself because Plaintiff Penavico Shenzen
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Logistics, Ltd. and Jacob must both agree on the selection. Penavico filed an untimely
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opposition to the Motion, so the Court accordingly struck it. (ECF Nos. 13, 14.) On
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February 3, 2014, the Court held a hearing on the matter, indicating that Jacob lacked
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standing to set aside DGS’s default in his individual capacity. The Court therefore
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DENIES Jacob’s Motion WITHOUT PREJUDICE.
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II.
FACTUAL BACKGROUND
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Penavico and Jacob joined together to form DGS Logistics—each being a
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member of the limited-liability company. Penavico and DGS then entered into an
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agreement under which Penavico was to provide cargo flights for DGS’s benefit.
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(Compl. ¶ 9.) As a result of Penavico performing its services, DGS owes Penavico
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some $734,425.88. (Id. ¶ 14.) This amount remains outstanding. (Id. ¶ 16.) DGS
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also caused Penavico to incur a $74,360 judgment in a Chinese court as the result of
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failing to supply a proper bill of lading for one shipment. (Id. ¶¶ 17–20.)
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Beginning in May 2013, Penavico requested that Jacob, a managing member of
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DGS, account for DGS’s capital and turn over accounting records. (Id. ¶ 22–24.)
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Jacob never complied. (Id. ¶ 25.)
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On August 30, 2013, Penavico filed suit against DGS and Jacob both on behalf
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of itself and derivatively on behalf of DGS Logistics. (Not. of Removal Ex. A.)
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Penavico alleged breach-of-contract and related claims against DGS and breach of
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fiduciary duty against Jacob. (Id.) Defendants thereafter removed the action to this
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Court. (ECF No 1.)
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On October 17, 2013, Penavico served DGS with the summons and Complaint.
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(Wu Decl. ¶ 4.) Since DGS never responded, the Clerk of Court entered default
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against it per Penavico’s request. (ECF Nos. 10, 11.) Jacob—not DGS—then filed
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this Motion to Set Aside Entry of Default against DGS. (ECF No. 12.)
III.
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LEGAL STANDARD
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Under Rule 55(c), a court may set aside entry of default for good cause. The
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Ninth Circuit has identified three factors to consider in assessing Rule 55(c)’s good-
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cause standard: (1) whether the moving party engaged in culpable conduct,
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(2) prejudice to the nonmoving party, and (3) whether the moving party has any
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meritorious defenses. TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th
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Cir. 2001). A finding of any one of these factors suffices to decline to set aside
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default. United States v. Signed Pers. Check No. 730 of Yubran S. Mesle, 615 F.3d
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1085, 1091 (9th Cir. 2010). But judgment by default is only appropriate in “extreme
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circumstances,” as the Federal Rules of Civil Procedure favor judgment on the merits.
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Id.
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IV.
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DISCUSSION
At the hearing on the Motion, the Court indicated that Jacob lacked standing to
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move to set aside default against DGS.
Under Article III of the United States
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Constitution, federal courts can only hear actual cases and controversies. U.S. Const.,
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art. III, § 2. Generally, that means that “a litigant must assert his own legal rights and
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interests, and cannot rest his claim to relief on the legal rights or interests of third
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parties.” U.S. Dep’t of Labor v. Triplett, 494 U.S. 715, 720 (1990) (internal quotation
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marks omitted). Rather, to have standing to bring suit, a plaintiff must allege “(1) an
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injury that is (2) ‘fairly traceable to the defendant’s allegedly unlawful conduct’ and
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that is (3) ‘likely to be redressed by the requested relief.’” Lujan v. Defenders of
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Wildlife, 504 U.S. 555, 590 (1992).
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The United States Supreme Court has recognized third-party standing in limited
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contexts. Powers v. Ohio, 499 U.S. 400, 410–11 (1991). The plaintiff must have
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suffered an “injury in fact” himself, have a close relationship to the third party, and
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“there must exist some hindrance to the third party’s ability to protect his or her own
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interests.” Id. at 411.
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This case presents a seemingly insoluble, Seven Bridges of Königsberg
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problem. As a limited-liability company, DGS has a legal, corporate existence. But
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DGS is really only made up of Penavico—the plaintiff—and Jacob—one of the
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defendants. For DGS to do business, a natural person must act. It appears that both
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Penavico and Jacob must agree for DGS to hire counsel. So Penavico—the party
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which stands to gain the most from the default—has the power to veto whether DGS
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can obtain the counsel it needs to set aside default. Penavico seems to have exercised
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that veto, thus leaving DGS unrepresented. And it is well-settled that a company may
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not represent itself in federal court. Rowland v. Cal. Men’s Colony, Unit II Men’s
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Advisory Council, 506 U.S. 194, 201–02 (1993).
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Jacob may want to set aside default as to DGS, but he lacks standing to do so.
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First, DGS is a separate legal entity from DGS. Jacob admits that much when he
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himself moved to set aside DGS’s default in his individual capacity. He therefore
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does not have first-person standing to act for DGS.
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Second, Jacob and his counsel have an inherent conflict of interest with DGS.
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Not only has Penavico sued Jacob, but Penavico has also sued Jacob derivatively on
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behalf of DGS. Jacob is thus both a friend and foe to DGS. In this Janus-esque
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situation, Jacob’s interests are not sufficiently aligned with DGS’s interests to satisfy
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the third-party-standing requirements. See Pony v. Cnty. of L.A., 433 F.3d 1138, 1147
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(9th Cir. 2006). Without anyone invoking proper Article III standing, the Court
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cannot entertain whether Rule 55(c) favors setting aside DGS’s default.
V.
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CONCLUSION
The Court therefore DENIES Jacob’s Motion to Set Aside Entry of Default
WITHOUT PREJUDICE. (ECF No. 12.)
IT IS SO ORDERED.
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February 4, 2014
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____________________________________
OTIS D. WRIGHT, II
UNITED STATES DISTRICT JUDGE
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