Ally Financial Inc. v. Peters

Filing 24

ORDER signed by Magistrate Judge Kendall J. Newman on 10/11/16 ORDERING that Plaintiff's 19 motion for entry of default judgment is GRANTED. Judgment is entered in plaintiff's favor and against defendant. Plaintiff is AWARDED $ 506,954.29 in damages; $59,581.95 in attorneys' fees; and $3,284.20 in costs, for a total of $569,820.44, with post-judgment interest accruing at the applicable legal rate. Plaintiff shall forthwith serve a copy of this order on defendant by U.S. mail at his last-known address, and shall file a proof of service on the docket. CASE CLOSED (Kastilahn, A)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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ALLY FINANCIAL INC.,

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Plaintiff,

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v.

No. 2:15-cv-1522-TLN-KJN

ORDER

MICHAEL G. PETERS,

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Defendant.

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INTRODUCTION
Presently pending before the court is plaintiff Ally Financial Inc.’s (“plaintiff” or “Ally”)

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motion for entry of a default judgment against defendant Michael G. Peters, who is the only

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named defendant in this action. (ECF No. 19.)1 After defendant initially failed to oppose

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plaintiff’s motion in accordance with Local Rule 230, the court vacated the hearing on the motion

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and provided defendant with an additional opportunity to oppose plaintiff’s motion. (ECF No.

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21.) Subsequently, defendant again failed to oppose the motion by the required deadline.
After carefully considering the written briefing, the court’s record, and the applicable law,

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the court GRANTS plaintiff’s motion.

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All parties who appeared in the action have consented to the jurisdiction of a United States
Magistrate Judge for all purposes, including the entry of final judgment, pursuant to 28 U.S.C. §
636(c). (ECF No. 23.)
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BACKGROUND

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The background facts are taken from plaintiff’s operative verified complaint, unless

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otherwise noted. (See Complaint, ECF No. 2 [“Compl.”].) Defendant was the president of

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Central Valley Buick, Olds, Pontiac-GMC, Inc. (“Central Valley”), a car dealership in Manteca,

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California. (Compl. ¶¶ 5-6, 8.) Ally (and/or its predecessors and assignors) provided financing to

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Central Valley pursuant to three loan agreements, which also provided Ally with a security

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interest in Central Valley’s personal property: (a) the Wholesale Agreement and General Security

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Agreement; (b) the Revolving Line of Credit Agreement; and (c) the Commercial Equipment

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Loan and Security Agreement (collectively, the “Loan Agreements”). (Compl. ¶¶ 2-3, 9-15, Exs.

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A-D.) Additionally, pursuant to a written guaranty (the “Guaranty”), defendant himself

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personally guaranteed full payment of all of Central Valley’s debts to Ally, together with all

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costs, expenses, and attorneys’ fees incurred by Ally in connection with any default. (Compl. ¶¶

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16-18, 26, 30, Ex. E.)

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Ultimately, Central Valley defaulted on its obligations under the Loan Agreements, and

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consistent with those agreements, Ally demanded payment in full and surrender of all collateral.

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(Compl. ¶¶ 19-20, 27.) Subsequently, Central Valley voluntarily surrendered the collateral to

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Ally pursuant to a Voluntary Surrender Agreement, which was executed by defendant in his

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capacity as president of Central Valley and acknowledged by defendant in his capacity as a

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guarantor of Central Valley. (Compl. ¶ 21, Ex. F.) Thereafter, Ally disposed of the collateral in a

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commercially reasonable manner, and, after deducting its costs and expenses of disposing of the

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collateral, Ally applied the proceeds to the amounts due to Ally from Central Valley under the

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Loan Agreements, leaving a deficiency of $506,954.29 as of July 15, 2015, exclusive of any

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attorneys’ fees and costs. (Compl. ¶¶ 22-23, 29.) Although Ally has on several occasions

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demanded that defendant pay the deficiency pursuant to the Guaranty, defendant failed to do so.

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(Compl. ¶¶ 24, 27-28, Ex. G.)

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Based on the above, plaintiff commenced this action alleging a single claim for breach of

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personal guaranty against defendant. (Compl. ¶¶ 25-30.)2 In the complaint, plaintiff sought

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damages (together with interest and other charges as allowed by contract), costs, and attorneys’

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fees. (See Complaint at 6, “Prayer.”) After defendant was properly served with process and

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failed to appear in the action, the Clerk of Court, upon plaintiff’s request, entered defendant’s

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default. (ECF Nos. 13-14, 18.) The instant motion for entry of default judgment followed. (ECF

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No. 19.)

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LEGAL STANDARD

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Pursuant to Federal Rule of Civil Procedure 55, default may be entered against a party

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against whom a judgment for affirmative relief is sought who fails to plead or otherwise defend

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against the action. See Fed. R. Civ. P. 55(a). However, “[a] defendant’s default does not

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automatically entitle the plaintiff to a court-ordered judgment.” PepsiCo, Inc. v. Cal. Sec. Cans,

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238 F. Supp. 2d 1172, 1174 (C.D. Cal. 2002) (citing Draper v. Coombs, 792 F.2d 915, 924-25

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(9th Cir. 1986)). Instead, the decision to grant or deny an application for default judgment lies

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within the district court’s sound discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir.

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1980). In making this determination, the court considers the following factors:

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(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.

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Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).

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As a general rule, once default is entered, well-pled factual allegations in the operative

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complaint are taken as true, except for those allegations relating to damages. TeleVideo Sys., Inc.

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v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (per curiam) (citing Geddes v. United Fin.

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Group, 559 F.2d 557, 560 (9th Cir. 1977) (per curiam)); accord Fair Housing of Marin v. Combs,

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The complaint invoked the court’s diversity of citizenship jurisdiction, because plaintiff and
defendant are citizens of different states, and the amount in controversy exceeds $75,000.00. See
28 U.S.C. § 1332.
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285 F.3d 899, 906 (9th Cir. 2002). In addition, although well-pled allegations in the complaint

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are admitted by a defendant’s failure to respond, “necessary facts not contained in the pleadings,

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and claims which are legally insufficient, are not established by default.” Cripps v. Life Ins. Co.

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of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992) (citing Danning v. Lavine, 572 F.2d 1386, 1388

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(9th Cir. 1978)); accord DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847, 854 (9th Cir. 2007) (stating

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that a defendant does not admit facts that are not well-pled or conclusions of law); Abney v.

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Alameida, 334 F. Supp. 2d 1221, 1235 (S.D. Cal. 2004) (“[A] default judgment may not be

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entered on a legally insufficient claim”). A party’s default does not establish the amount of

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damages. Geddes, 559 F.2d at 560.

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DISCUSSION
Appropriateness of the Entry of Default Judgment under the Eitel Factors

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Factor One: Possibility of Prejudice to Plaintiff

The first Eitel factor considers whether the plaintiff would suffer prejudice if default

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judgment is not entered, and such potential prejudice to the plaintiff militates in favor of granting

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a default judgment. See PepsiCo, Inc., 238 F. Supp. 2d at 1177. Here, plaintiff would face

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prejudice if the court did not enter a default judgment, because plaintiff would be without another

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recourse against defendant. Accordingly, the first Eitel factor favors the entry of a default

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judgment.
Factors Two and Three: The Merits of Plaintiff’s Substantive Claim and

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2.

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the Sufficiency of the Complaint

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The court considers the merits of plaintiff’s substantive claim and the sufficiency of the

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complaint together because of the relatedness of the two inquiries. The court must consider

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whether the allegations in the complaint are sufficient to state a claim on which plaintiff may

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recover. See Danning, 572 F.2d at 1388; PepsiCo, Inc., 238 F. Supp. 2d at 1175. Here, plaintiff

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has adequately alleged that defendant incurred the above-mentioned payment obligations to Ally

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by executing the Guaranty, and that defendant has breached the Guaranty by failing to pay the

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amounts due to Ally pursuant to the Guaranty, despite numerous requests for payment by Ally.

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As such, the complaint sufficiently alleges a claim for breach of personal guaranty and has merit.
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Therefore, the second and third Eitel factors favor the entry of default judgment.

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Factor Four: The Sum of Money at Stake in the Action

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Under the fourth factor cited in Eitel, “the court must consider the amount of money at

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stake in relation to the seriousness of Defendant’s conduct.” PepsiCo, Inc., 238 F. Supp. 2d at

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1176-77; see also Philip Morris USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 500 (C.D.

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Cal. 2003). In this case, plaintiff seeks over $500,000.00 from defendant. Although not an

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insignificant amount, a potentially large payment obligation was plainly contemplated when

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defendant personally guaranteed the payment obligations of an automobile dealership.

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Furthermore, failure to honor such a personal guaranty is a serious matter, because Ally relied on

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the personal guaranty to extend credit to Central Valley. Therefore, the sum of money at stake

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does not in itself preclude the entry of a default judgment.

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4.

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Factor Five: The Possibility of a Dispute Concerning Material Facts

The court may assume the truth of well-pled facts in the complaint (except as to damages)

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following the clerk’s entry of default, and defendant has not appeared to dispute any such facts.

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Thus, there is no likelihood that any genuine issue of material fact exists. See, e.g., Elektra

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Entm’t Group Inc. v. Crawford, 226 F.R.D. 388, 393 (C.D. Cal. 2005) (“Because all allegations in

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a well-pleaded complaint are taken as true after the court clerk enters default judgment, there is

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no likelihood that any genuine issue of material fact exists”); accord Philip Morris USA, Inc., 219

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F.R.D. at 500; PepsiCo, Inc., 238 F. Supp. 2d at 1177. Accordingly, the fifth Eitel factor favors

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the entry of default judgment.

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Factor Six: Whether the Default Was Due to Excusable Neglect

In this case, there is no indication in the record that defendant’s default was due to

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excusable neglect. Defendant was not only served with the complaint, but also the request for

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entry of default, the motion for default judgment, and the court’s order providing an additional

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opportunity to oppose that motion. (ECF Nos. 13, 14, 19-8, 22.) Indeed, despite having been

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provided with multiple opportunities to appear and defend his interests, defendant apparently

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declined to do so. Accordingly, the sixth Eitel factor favors the entry of a default judgment.

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6.

Factor Seven: The Strong Policy Underlying the Federal Rules of Civil Procedure

Favoring Decisions on the Merits
“Cases should be decided upon their merits whenever reasonably possible.” Eitel, 782

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F.2d at 1472. However, district courts have concluded with regularity that this policy, standing

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alone, is not dispositive, especially where a defendant fails to appear or defend itself in an action.

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PepsiCo, Inc., 238 F. Supp. 2d at 1177; see also Craigslist, Inc. v. Naturemarket, Inc., 694 F.

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Supp. 2d 1039, 1061 (N.D. Cal. 2010). Accordingly, although the court is cognizant of the policy

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in favor of decisions on the merits—and consistent with existing policy would prefer that this

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case be resolved on the merits—that policy does not, by itself, preclude the entry of default

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judgment.
In sum, upon consideration of all the Eitel factors, the court concludes that plaintiff is

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entitled to a default judgment against defendant. All that remains is a determination of the

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specific relief to which plaintiff is entitled.

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Terms of the Judgment to Be Entered

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After determining that a party is entitled to the entry of default judgment, the court must

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determine the terms of the judgment to be entered. Plaintiff’s motion for default judgment

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requests an award of damages, attorneys’ fees, and costs, which were also requested in the

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complaint.

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Damages
The damages requested by Ally are essentially the deficiency that remains to be paid by

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defendant on Central Valley’s Loan Agreements pursuant to the Guaranty. In support of its

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request for damages, Ally submitted the July 1, 2016 affidavit of Stephen Todd Soukop, a risk

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analyst employed by Ally, which provides a detailed itemization and computation of the damages

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claimed. (See ECF Nos. 19-5, 19-6.) In brief, the affidavit shows that, as of July 1, 2016, the

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balance due under the Loan Agreements is $722,079.06; the expenses incurred in disposing of the

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collateral amount to $93,277.96; and the proceeds from disposition of the collateral amount to

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$308,402.73, thereby resulting in a deficiency of $506,954.29. ($722,079.06 + $93,277.96 -

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$308,402.73 = $506,954.29.) The calculations appear correct and reasonable based on the
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detailed itemization provided, and defendant has not contested them. Because defendant was

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obligated to pay the deficiency pursuant to the Guaranty, and has breached his obligation in that

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regard, the court finds that plaintiff is entitled to $506,954.29 in damages.
Attorneys’ Fees and Costs

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As noted above, the Guaranty requires defendant to personally pay all costs, expenses, and

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attorneys’ fees incurred by Ally in connection with any default by Central Valley. (See Compl.

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Ex. E.) Thus, pursuant to the express terms of the Guaranty, plaintiff is entitled to an award of

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attorneys’ fees and costs. The only question is whether the amount of requested attorneys’ fees

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and costs is reasonable.

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Plaintiff requests attorneys’ fees in the amount of $59,581.95, which represents an

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unadjusted lodestar amount computed by multiplying counsel’s hourly rate by the time spent on

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this matter. Plaintiff does not request any multipliers or enhancements.

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With respect to hourly rates, three attorneys and one paralegal billed plaintiff for work

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involving this matter: (1) attorney Duane Geck, who has 31 years of practice experience and

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billed at an hourly rate of $382.50; (2) attorney Donald Cram, who has 26 years of experience and

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billed at an hourly rate of $292.50; (3) attorney Eleanor Roman, who has 20 years of experience

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and billed at an hourly rate of $265.50; and (4) paralegal Shan Li, who obtained her paralegal

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certificate in 2009 and billed at an hourly rate of $130.50. The court finds that these hourly rates

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are reasonable in light of prevailing market rates for this type of work performed in the

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Sacramento Division of the Eastern District of California.

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Plaintiff’s attorneys spent a total of 198.9 hours working on this matter. (See Declaration

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of Eleanor M. Roman, ECF No. 19-2 [“Roman Decl.”] ¶ 18.) At first blush, the number of hours

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spent may appear to be excessive in a matter where a defendant simply failed to appear.

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However, upon closer inspection, that characterization is not accurate under the circumstances of

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this case.

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As an initial matter, as explained in the Roman Declaration, significant attorney time was

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spent on Central Valley’s default long before this action was even filed. Upon Central Valley’s

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default, Ally was required to take numerous steps to protect its collateral, including, but not
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limited to, conducting investigations, intervening in a state court action implicating the collateral

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to protect Ally’s rights from other creditors, having a receivership on Central Valley’s assets set

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aside, preparing for litigation against Central Valley, negotiating the voluntary surrender of

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Central Valley’s assets, and ultimately disposing of such assets. After ascertaining that a

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deficiency existed, Ally also attempted to obtain, via defendant’s counsel at the time, voluntary

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payment of the deficiency from defendant pursuant to the Guaranty. Moreover, after this action

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was filed, Ally was required to expend significant efforts over several months to locate and serve

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defendant with process. (See Roman Decl. ¶¶ 9-17.) Because defendant agreed to pay all costs,

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expenses, and attorneys’ fees incurred by Ally in connection with Central Valley’s default, Ally is

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entitled to collect fees for all of the above-mentioned work in this breach of guaranty action.
Furthermore, a careful review of Ally’s counsel’s billing records reveals that the time was

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reasonably spent, that such time was actually billed to Ally, and that the overwhelming majority

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of work was performed by the attorney with the lowest hourly rate, Eleanor Roman, who billed at

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an hourly rate of $265.50, as noted above. (Roman. Decl. ¶ 18, Ex. A.)

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Additionally, to the extent that defendant may take issue with any particular item of work

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billed for, or the time spent on such work, defendant had an opportunity to appear and contest

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Ally’s fee request, but elected not to do so.

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Therefore, the court finds that Ally is entitled to its requested amount of $59,581.95 in
attorneys’ fees.
Finally, Ally seeks $3,284.20 in costs. Such costs consist of filing fees and fees paid to

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process servers for the extensive efforts made to locate and serve defendant with process.

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Because the costs were reasonably incurred, the court finds that they should be awarded.

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CONCLUSION

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For the foregoing reasons, IT IS HEREBY ORDERED that:

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1. Plaintiff’s motion for entry of default judgment (ECF No. 19) is GRANTED.

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2. Judgment is entered in plaintiff’s favor and against defendant.

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3. Plaintiff is awarded $506,954.29 in damages; $59,581.95 in attorneys’ fees; and

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$3,284.20 in costs, for a total of $569,820.44, with post-judgment interest accruing at
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the applicable legal rate.
4. Plaintiff shall forthwith serve a copy of this order on defendant by U.S. mail at his
last-known address, and shall file a proof of service on the docket.

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5. The Clerk of Court shall close this case.

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IT IS SO ORDERED.

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Dated: October 11, 2016

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