Pacific Elements, LLC v. Interface Protein Technology, Inc.

Filing 20

FINDINGS and RECOMMENDATIONS recommending that 1) Defendant's responsive pleadings (ECF Nos. 9 , 15 , and 16 ) be STRICKEN; 2) Plaintiff's Motion for Default Judgment against Defendant Interface Protein Technology, Inc. (ECF No. 8 ) be GRANTED; 3) Plaintiff's request for attorneys' fees and costs against Defendant be GRANTED; and, 4) Plaintiff be awarded $114,944.50 in damages, $3,310.40 in interest, $2,100.00 in attorneys' fees, and $125.00 in co sts, for a total sum of $120,479.90. Findings and Recommendations referred to Chief Judge Lawrence J. O'Neill, with objections due within fourteen days of service of this order. Order signed by Magistrate Judge Erica P. Grosjean on 1/18/2017. (Rooney, M)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 PACIFIC ELEMENTS, LLC, Plaintiff, 12 13 v. 14 15 16 INTERFACE PROTEIN TECHNOLOGY, INC., Defendant. Case No. 1:16-cv-01247-LJO-EPG FINDINGS AND RECOMMENDATIONS RECOMMENDING THAT PLAINTIFF’S MOTION FOR DEFAULT JUDGMENT BE GRANTED (ECF No. 8) OBJECTIONS, IF ANY, DUE WITHIN 14 DAYS 17 18 19 20 21 22 Plaintiff Pacific Elements, LLC filed a Motion for Default Judgment against Defendant Interface Protein Technology, Inc. on October 21, 2016. (ECF No. 8.) Charles Han, Defendant’s CEO, filed an untimely opposition to the Motion on December 6, 2016. Han is not a lawyer and is not a named defendant in this action. On December 9, 2016, the Court heard testimony and 23 argument on the Motion. Plaintiff’s counsel G. Andrew Slater appeared for Plaintiff. Cindy Zhao, 24 Han’s personal assistant, appeared telephonically for Defendant. Zhao is not a lawyer and is not a 25 named defendant in this action. After taking the testimony of Plaintiff’s general manager, Charles 26 27 28 Cummings, the matter was taken under submission pursuant to Local Rule 230(g). Defendant was directed to find an attorney and appear in this action no later than January 6, 2017, and the parties were informed that the Motion would be held in abeyance until that date. Defendant has yet to 1 1 appear as directed. The Court thus recommends that Plaintiff’s Motion for Default Judgment be 2 GRANTED. 3 I. BACKGROUND 4 Plaintiff filed this action on August 23, 2016 seeking damages arising out of a breach of 5 contract by Defendant. (ECF No. 1.) Plaintiff is a manufacturer of livestock feed and contracted 6 to sell Defendant over one million pounds of wheat bran pellets. Under the Purchase Agreement, 7 Defendant agreed to pay Plaintiff $221,147.49. This amount was divided into two invoices for the 8 shipment of these pellets—one for $119,926.93 and another for $101.220.56. Payment was due 9 within 60 days of the dates of each invoice. Plaintiff shipped the pellets to Defendant, but 10 Defendant failed to pay Plaintiff $114,944.50, the remaining balance between the two invoices. 11 The contract also contained a clause entitling Plaintiff to reasonable attorneys’ fees and costs 12 required to enforce the terms of the contract. The Complaint and summons were personally served on Charles Han, the president of 13 14 Defendant, on September 15, 2016. (ECF No. 4.) On October 7, 2016, 22 days after the 15 Complaint had been served, Plaintiff requested entry of default against Defendant. (ECF No. 5.) 16 The Clerk of the Court then entered default against Defendant on October 11, 2016 and Plaintiff 17 notified Defendant of the entry of default on October 18, 2016. (ECF Nos. 6, 7.) On October 20, 18 2016, Han filed a document, which purported to be a “Joint Answer and Counter Claim.” (ECF 19 No. 9.) The next day, Plaintiff filed this Motion. (ECF No. 8.) A hearing was set for December 9, 20 2016. 21 Three days before the hearing, on December 6, 2016, Han again filed the same “Joint 22 Answer and Counter Claim,” as well as an opposition to the Motion. (ECF Nos. 15, 16.) The 23 opposition stated that Defendant had been unable to obtain legal representation, but intended to 24 respond to the complaint. Han did not appear at the hearing, however, and sent his personal 25 assistant, Cindy Zhao, to speak on his behalf. Zhao stated that Defendant was still attempting to 26 find an attorney and that it would like 30 more days to do so. After hearing argument and 27 testimony regarding the Motion, the Court took the Motion under submission to hold in abeyance 28 until January 6, 2017 to allow Defendant to obtain a lawyer and respond appropriately. Zhao was 2 1 further advised that, pursuant to Local Rule 183, she and Han were not able to represent 2 Defendant before the Court. No attorney has appeared for Defendant. Including interest, costs, 3 and attorneys’ fees, Plaintiff requests judgment in the amount of $120,479.90. (ECF No. 8-2.) 4 II. DISCUSSION 5 A. Defendant’s Responsive Pleadings 6 As noted above, Defendant has attempted to file two answers/counterclaims to the 7 Complaint, as well as an opposition brief to the Motion. (ECF Nos. 9, 15, 16.) All were filed after 8 the Clerk of the Court entered default against Defendant. 9 A corporation or other business entity may only appear in federal court through counsel. 10 Local Rule 183(a); Rowland v. Cal. Men’s Colony, Unit II Men’s Advisory Council, 506 U.S. 11 194, 201-02 (1993) (“It has been the law for the better part of two centuries . . . that a corporation 12 may appear in the federal courts only through licensed counsel.”). Defendant was advised of this 13 fact at the hearing on the Motion, via minute order, and was provided a more than adequate 14 opportunity to retain counsel. (ECF No. 18.) Despite this, Defendant has not retained counsel. 15 Thus, the Court recommends that the answers (ECF Nos. 9, 15) and opposition brief (ECF No. 16 16) be stricken. Rojas v. Hawgs Seafood Bar, Inc., Case No. C08-03819 JF (PVT), 2009 WL 17 1255538, at *1 (N.D. Cal. May 5, 2009) (“When a corporation fails to retain counsel to represent 18 it in an action, its answer may be stricken and a default judgment entered against it.”), citing 19 Employee Painters’ Trust v. Ethan Enters., Inc., 480 F.3d 993 (9th Cir. 2007). 20 B. Default Judgment 21 The Federal Rules of Civil Procedure provide for the court-ordered entry of a default 22 judgment following the entry of a default by the Clerk of the Court. Fed. R. Civ. P. 55(a), (b)(2); 23 see Eitel v. McCool, 782 F.2d 1470, 1471 (9th Cir. 1986) (distinguishing Clerk’s entry of default 24 under Rule 55(a) from court’s entry of default judgment under Rule 55(b)). It is within the sound 25 discretion of the district court to grant or deny an application for default judgment. Aldabe v. 26 Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980) (per curiam). “‘The general rule of law is that upon 27 default the factual allegations of the complaint, except those relating to the amount of damages, 28 will be taken as true.’” TeleVideo Systems, Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 3 1 1987) (per curiam), quoting Geddes v. United Financial Group, 559 F.2d 557, 560 (9th Cir. 1977) 2 (per curiam). Those well-pleaded factual allegations must be sufficient to establish plaintiff’s 3 entitlement to a judgment under the applicable law. DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847, 4 855 (9th Cir. 2007) (district court properly refused to grant default judgment where the complaint 5 failed to state violations of the relevant statute), cert. denied, 555 U.S. 937 (2008); Cripps v. Life 6 Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992) (“claims which are legally insufficient, 7 are not established by default”). 8 9 Even when a default judgment is warranted, the propriety of its entry is committed to the sound discretion of the court. Eitel, 782 F.2d at 1471 (although all requirements for default 10 judgment were met, “[t]he denial of a default judgment here was within the court’s discretion”). 11 Factors that may be considered by courts in exercising discretion as to the entry of a default 12 judgment include: (1) the possibility of prejudice to the plaintiff; (2) the merits of plaintiff’s 13 substantive claim; (3) the sufficiency of the complaint; (4) the sum of money at stake in the 14 action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due 15 to excusable neglect; and, (7) the strong policy underlying the Federal Rules of Civil 16 Procedure favoring decisions on the merits. Eitel, 782 F.2d at 1471-72. 17 C. Analysis 18 Plaintiff's motion sufficiently establishes that the Eitel factors weigh in favor of default 19 judgment. Plaintiff would suffer prejudice absent entry of default judgment because it would be 20 unable to obtain relief for Defendant’s failure to pay as agreed in the purchase agreement. Such 21 an inability is adequate to establish the first Eitel factor. Philip Morris, USA, Inc. v. Castworld 22 Prods., Inc., 219 F.R.D. 494, 499 (C.D. Cal. 2003). 23 Plaintiff has also sufficiently alleged a claim for breach of contract. To state a breach of 24 contract claim, a plaintiff must allege (1) the existence of a contract, (2) plaintiff's performance or 25 excuse for nonperformance, (3) the defendants' breach, and (4) damage to plaintiff. Zardain v. 26 Ipacpa US, Inc., No. 2:15-CV-1207-MCE-EFB, 2016 WL 737380, at *2 (E.D. Cal. Feb. 25, 27 2016), citing Amelco Elec. v. City of Thousand Oaks, 27 Cal. 4th 228, 243 (2002). Plaintiff 28 alleges that it entered into a purchase agreement with Defendant. (Complaint ¶ 7, ECF No. 1.) 4 1 Over the course of two years, Plaintiff sold Defendant wheat bran pellets and included invoices in 2 the amounts of $101,220.56 and $119,926.93. (Id., Exhs. C, D.) Payment was due within 60 days 3 of each invoice. Under the purchase agreement, Defendant agreed to pay 18% in annual interest 4 on any amounts owed and agreed “to pay such additional costs and reasonable attorney fees 5 associated with any such action taken to enforce payment.” (Id., Exh. B.) Despite the shipment of 6 the pellets and the terms of the agreement, Defendant still has a balance of $114,944.50 owed for 7 the pellets.1 (Id. ¶ 25.) These allegations are sufficient to establish a breach of contract claim 8 under California law.2 9 The sum of money at stake in this action weighs in favor of default judgment. “Default 10 judgment is disfavored where the sum of money at stake is too large or unreasonable in light of 11 defendant’s actions.” Truong Giang Corp. v. Twinstar Tea Corp., Case No. C 06-03594 JSW, 12 2007 WL 1545173, at *12 (N.D. Cal. May 29, 2007). Here, Plaintiff is seeking precisely the 13 amount of money that it is owed under the contract between the parties, in addition to 14 contractually agreed upon interest and fees. The amount of money at stake is thus directly 15 proportional to the “seriousness of Defendant’s conduct.” PepsiCo, Inc. v. California Security 16 Cans, 238 F.Supp.2d 1172, 1176 (C.D. Cal. 2002). Accepting the Complaint’s factual allegations as true, the likelihood that there is a dispute 17 18 of material fact is minimal. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 19 1987) (“The general rule of law is that upon default the factual allegations of the complaint, 20 except those relating to the amount of damages, will be taken as true.”); Elektra Entertainment 21 Group Inc. v. Crawford, 226 F.R.D. 388, 393 (C.D. Cal. 2005) (“Because all allegations in a 22 1 Plaintiff also introduced the purchase agreement and invoices into evidence at the hearing on the Motion. Plaintiff pleads three other causes of action for: (1) breach of oral contract; (2) quantum meruit; and, (3) common count. Each of these is pleaded in the alternative, however, and thus need not be addressed because Plaintiff has adequately pleaded its breach of contract claim. DPR Constr. v. Shire Regenerative Medicine, Inc., Case No. 14-cv2399-JAH (MDD), 2016 WL 4597520, at *10 (S.D. Cal. Aug. 29, 2016), quoting Wal-Noon Corp. v. Hill, 45 Cal.App.3d 605, 613 (1975) (“There cannot be a valid, express contract and an implied contract, each embracing the same subject matter, existing at the same time.”); Sierra View Local Health Care Dist. v. Influence Health, Inc., Case No. 1:15-cv-00689-DAD-SAB, 2016 WL 2346799, at *6 (E.D. Cal. May 4, 2016) (“Parties are entitled to pursue both contract claims and quantum meruit claims arising out of the same transaction, but can seek only one recovery. A party cannot recover in quantum meruit if an expressed contract exists governing the subject of their compensation.”), citing In re De Laurentis Entertainment Group Inc., 963 F.2d 1269, 1272 (9th Cir. 1992); McBride v. Broughton, 123 Cal.App.4th 379, 394-95 (2004) (common count claim, when “used as an alternative way of seeking the same recovery demanded in a specific cause of action . . . must stand or fall” with that cause of action). 2 23 24 25 26 27 28 5 1 well-pleaded complaint are taken as true after the court clerk enters default judgment, there is no 2 likelihood that any genuine issue of material fact exists.”). 3 Nor was the default the result of excusable neglect. Defendant was personally served with 4 the Complaint and summons on September 15, 2016. (ECF No. 4.) Despite this, Defendant did 5 not attempt to respond to the Complaint until after default was entered. (ECF No. 7.) Even when 6 it did respond, it responded in an impermissible manner, as detailed above. The Court explained 7 that Defendant was required to retain counsel and provided Defendant with additional time to 8 retain counsel, but Defendant failed to retain counsel or otherwise properly participate in the 9 litigation. 10 Finally, the last Eitel factor, which recognizes the policy in favor of deciding actions on 11 their merits, weighs against default judgment. This factor, however, is inadequate on its own to 12 overcome the weight of the other factors. Zardain v. Ipacpa US, Inc., Case No. 2:15-cv-1207- 13 MCE-EFB, 2016 WL 737380, at *3 (E.D. Cal. Feb. 25, 2016) (“although ‘[c]ases should be 14 decided upon their merits whenever reasonably possible,’ district courts have concluded with 15 regularity that this policy, standing alone, is not dispositive, especially where a defendant fails to 16 appear or defend itself in an action.”). The Eitel factors weigh in favor of entry of default 17 judgment against Defendant. 18 D. Relief Sought 19 While analysis of the Eitel factors supports a default judgment, the Court also considers 20 21 the proof of the damages and the terms of the judgment sought by Plaintiff. Plaintiff’s Complaint seeks damages of $114,944.50 for the breach of contract, in addition 22 to interest in the amount of $3,310.40 and attorneys’ fees and costs in the amount of $2,225.00. 23 The total amount sought is thus $120,479.90. Under California Civil Code § 3300, which defines 24 damages for a breach of contract, “the measure of damages . . . is the amount which will 25 compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the 26 ordinary course of things, would be likely to result therefrom.” Where a breach of contract 27 consists solely of a failure to pay money, “[t]he detriment caused by the breach . . . is deemed to 28 be the amount due by the terms of the obligation, with interest thereon.” Cal. Civ. Code § 3302. 6 1 Plaintiff contends that it performed its obligations under the purchase agreement by 2 delivering the wheat bran pellets that were ordered by Defendant. Defendant, however, did not 3 pay the full amount owed by the terms of the agreement. Plaintiff has adequately established that 4 Defendant has failed to pay $114,944.50. (Declaration of Charles Cummings (“Cummings 5 Decl.”) ¶ 7, ECF No. 8-2.) Moreover, the terms of the contract provide that any unpaid balance 6 will be subject to an 18% annual interest rate. Id. Plaintiff has calculated the amount of interest 7 due based on an 18% annual rate beginning with a principal of $114,944.50 on August 23, 2016 8 (the date the Complaint was filed) and running for 58 days (until the Motion was filed). Id. at ¶ 9 10. Based on these calculations, Plaintiff is owed $3,310.40 in interest. The Court does not find 10 11 any fault with these calculations or the exhibits substantiating them. Plaintiff also requests attorneys’ fees and costs incurred in pursuing this action. 12 Specifically, Plaintiff’s counsel G. Andrew Slater submits a declaration, along with billing 13 statements, indicating that he has billed six hours of his time at $350/hour in this case. 14 (Declaration of G. Andrew Slater (“Slater Decl.”) ¶ 7, ECF No. 8-1.) He has also spent $125 to 15 personally serve the Complaint and summons on Defendant. Id. The total amount for these fees 16 and costs is thus $2,225. 17 In California, “a prevailing party may recover attorney’s fees only when a statute or an 18 agreement of the parties provides for fee shifting.” Kirby v. Immoos Fire Protection, Inc., 53 19 Cal.4th 1244, 1248 (2012). According to California Civil Code § 1717: “In any action on a 20 contract, where the contract specifically provides that attorney's fees and costs, which are 21 incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing 22 party, then the party who is determined to be the party prevailing on the contract, whether he or 23 she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in 24 addition to other costs.” 25 The purchase agreement that Defendant entered into provided for the payment of 26 attorneys’ fees incurred in the enforcement of the terms of the contract. (Cummings Decl., Exh. 27 B, ECF No. 8-2 (“If suit be brought or referral of the account for collection be made to enforce 28 payment on my/our account, I/We agree to pay such additional costs and reasonable attorney fees 7 1 associated with any such action taken to enforce payment.”). Thus, under California law, Plaintiff 2 is entitled to the costs and reasonable attorneys’ fees incurred in bringing this action. The Court 3 finds that the requested fees are reasonable. Millan v. Cascade Water Servs., Case No. 1:12-cv- 4 01821-AWI-EPG, 2016 WL 3077710, at *11 (E.D. Cal. June 2, 2016) (“In the Fresno Division of 5 the Eastern District, the hourly rate for competent and experienced attorneys is between $250 and 6 $400, ‘with the highest rates generally reserved for those attorneys who are regarded as 7 competent and reputable and who possess in excess of 20 years of experience.’”). Thus, the Court 8 recommends that Plaintiff’s request for costs and attorneys’ fees be granted. 9 III. CONCLUSION 10 For the reasons discussed above, the Court RECOMMENDS that: 11 1. Defendant’s responsive pleadings (ECF Nos. 9, 15, 16) be STRICKEN; 12 2. Plaintiff’s Motion for Default Judgment against Defendant Interface Protein Technology, Inc. (ECF No. 8) be GRANTED; 13 14 3. Plaintiff’s request for attorneys’ fees and costs against Defendant be GRANTED; and, 15 4. Plaintiff be awarded $114,944.50 in damages, $3,310.40 in interest, $2,100 in attorneys’ fees, and $125 in costs, for a total sum of $120,479.90. 16 17 These findings and recommendations are submitted to the district judge assigned to this 18 action, pursuant to 28 U.S.C. § 636(b)(1)(B). Within fourteen (14) days of service of these 19 findings and recommendations, any party may file written objections with the Court and serve a 20 copy on all parties. Such a document should be captioned “Objections to Magistrate Judge's 21 Findings and Recommendations.” The district judge will review the magistrate judge's findings 22 and recommendations pursuant to 28 U.S.C. § 636(b)(1)(C). 23 \\\ 24 \\\ 25 \\\ 26 \\\ 27 \\\ 28 \\\ 8 1 The parties are advised that failure to file objections within the specified time may waive the 2 right to appeal the district judge's order. Wilkerson v. Wheeler, 772 F. 3d 834, 839 (9th Cir. 3 2014); Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991). 4 5 6 7 8 IT IS SO ORDERED. Dated: January 18, 2017 /s/ UNITED STATES MAGISTRATE JUDGE 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9

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