General Electric Capital Corporation v. Rhino Business Systems, Inc.
Filing
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FINDINGS and RECOMMENDATIONS signed by Magistrate Judge Craig M. Kellison on 02/17/2017 RECOMMENDING that Plaintiff's 29 Motion for default judgment be granted; and Default judgment be entered in favor of Plaintiff in the amount of $431,674.22. Referred to District Judge Kimberly J. Mueller. Objections due within 14 days after being served with these findings and recommendations. (Jackson, T)
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IN THE UNITED STATES DISTRICT COURT
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FOR THE EASTERN DISTRICT OF CALIFORNIA
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GENERAL ELECTRIC CAPITAL
CORPORATION,
No. 2:16-CV-0029-KJM-CMK
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Plaintiff,
FINDINGS AND RECOMMENDATIONS
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vs.
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RHINO BUSINESS SYSTEMS, INC.,
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Defendant.
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Invoking the court’s diversity jurisdiction, plaintiff brings this civil action for
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breach of contract. Defendant was properly served (see Doc.6) but failed to respond to the
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complaint. Defendant’s default was entered on March 30, 2016 (see Doc. 16). On May 11,
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2016, the District Judge issued an order granting plaintiff’s unopposed motion for a pre-judgment
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writ of attachment (see Doc. 22). Pending before the court is plaintiff’s unopposed motion (Doc.
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29) for default judgment in the amount of $404,164.18, plus attorney’s fees and costs pursuant to
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the contract.
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I. PLAINTIFF’S ALLEGATIONS
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This action proceeds on the original complaint (Doc. 1), filed on January 1, 2016.
Plaintiff alleges the following facts (see Doc. 1, ¶¶ 9-25):
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Defendant is an office equipment broker/dealer and leases, sells, and
services office equipment and products.
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On October 20, 2011, plaintiff and defendant entered into a
“Strategic Alliance Agreement” (see Doc. 1, Ex. A).
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Plaintiff agreed to provide financing for customers that intended to
purchase or lease office equipment (“Transactions”).
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Defendant entered into various Transactions financed by plaintiff
(collectively, the “Indemnified Accounts”; see Doc. 1, Ex. B).
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Defendant breached the contract with respect to the Indemnified Accounts
by: (a) upgrading and refinancing, through a source other than plaintiff, the
Transactions without plaintiff’s knowledge or consent; and (b) failing to
comply with the “Buyout to Keep” and similar provisions as to each of the
Transactions.
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Defendant also breached the contract by: (a) advising the customers
associated with the Indemnified Accounts that defendant would fulfill the
customers’ obligations to plaintiff; and/or (b) advising the customers that
their obligations to plaintiff were forgiven.
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Plaintiff sent defendant two Notices of Demand, the first on July 15, 2015,
in the amount of $113,751.37 (see Doc. 1, Ex. C), and the second on
October 6, 2015, in the amount of $363,775.86 (see Doc. 1, Ex. D).
8.
Defendant has not satisfied either demand.
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Plaintiff claims damages for breach of contract, interference with contract, and conversion.1
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In the complaint, plaintiff also seeks injunctive relief, but does not seek such relief
in the current motion for default judgment.
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II. STANDARD FOR DEFAULT JUDGMENT
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Whether to grant or deny default judgment is within the discretion of the court.
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See Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In exercising this discretion, the
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court considers the following factors: (1) the possibility of prejudice to the plaintiff if relief is
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denied; (2) the substantive merits of plaintiff’s claims; (3) the sufficiency of the claims raised in
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the complaint; (4) the sum of money at stake; (5) the possibility of a dispute concerning material
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facts; (6) whether the default was due to excusable neglect; and (7) the strong policy favoring
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decisions on the merits when reasonably possible. See Eitel v. McCool, 782 F.2d 1470, 1471-72
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(9th Cir 1986). Regarding the last factor, a decisions on the merits is impractical, if not
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impossible, where defendants refuse to defend. See Pepsico, Inc. v. Cal. Sec. Cans, 238 F. Supp.
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2d 1172, 1177 (C.D. Cal. 2002).
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Where a defendant has failed to respond to the complaint, the court presumes that
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all well-pleaded factual allegations relating to liability are true. See Geddes v. United Financial
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Group, 559 F.2d 557, 560 (9th Cir. 1977) (per curiam); Danning v. Lavine, 572 F.2d 1386 (9th
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Cir. 1978); Televideo Systems, Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (per
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curiam); see also Discovery Communications, Inc. v. Animal Planet, Inc., 172 F. Supp. 2d 1282,
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1288 (C.D. Cal. 2001). Therefore, when determining liability, a defendant's default functions as
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an admission of the plaintiff's well-pleaded allegations of fact. See Panning v. Lavine, 572 F.2d
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1386 (9th Cir. 1978). However, the court has the responsibility of determining whether the facts
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alleged in the complaint state a claim which can support the judgment. See Danning v. Lavine,
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572 F.2d 1386, 1388 (9th Cir. 1978). For this reason, the district court does not abuse its
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discretion in denying default judgment where the factual allegations as to liability lack merit.
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See Aldabe, 616 F.2d at 1092-93.
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While factual allegations concerning liability are deemed admitted upon a
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defendant’s default, the court does not presume that any factual allegations relating to the amount
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of damages suffered are true. See Geddes, 559 F.2d at 560. The court must ensure that the
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amount of damages awarded is reasonable and demonstrated by the evidence. See id. In
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discharging its responsibilities, the court may conduct such hearings and make such orders as it
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deems necessary. See Fed. R. Civ. P. 55(b)(2). In assessing damages, the court must review the
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facts of record, requesting more information if necessary, to establish the amount to which
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plaintiff is lawfully entitled. See Pope v. United States, 323 U.S. 1 (1944).
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Where actual damages are not proved, it may be appropriate in some cases to
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award nominal damages to vindicate the deprivation of certain “absolute” rights. See Cummings
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v. Connell, 402 F.3d 936, 942 (9th Cir. 2005). Nominal damages may be appropriate under
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California law for the torts of trespass, see Consterisan v. Tejon Ranch Co., 255 Cal.App.2d 57,
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60 (5th Dist. 1967), assault, see Liljefelt v. Blum, 33 Cal.App.721 (1st Dist. 1917) (per curiam),
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loss of publicity, see Ericson v. Playgirl, Inc., 73 Cal.App.3d 850, 859 (2nd Dist. 1977), as well
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as breach of contract, see id.. As the term implies, nominal damages is defined as a mere token
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or trifle. See Cummings, 402 F.3d at 943.
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III. DISCUSSION
In this case, the Eitel factors favor granting plaintiff’s motion. As to the second
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and third factors, the District Judge found in the May 11, 2016, order that plaintiff “has
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established a prima facie case for breach of contract, and has demonstrated it will more likely
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than not prevail on its breach of contract claim.” Therefore, plaintiff’s breach of contract claim
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is sufficient to support the judgment and has substantive merit. Given defendant’s breach,
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specifically its non-compliance with the “Buyout to Keep” provision, plaintiff is prejudiced by
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continued non-payment of over $400,000 on the Indemnified Accounts. As to the possibility of a
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dispute concerning material facts and the preference for a resolution of the merits, defendant’s
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refusal to participate in the litigation renders it impossible to litigate the merits of any potential
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disputes. Finally, there is no evidence that defendant’s non-appearance in the action is due to
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excusable neglect. Plaintiff is entitled to a default judgment in the amount of $404,164.18.2
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Plaintiff is also entitled to attorney’s fees and costs. Under Paragraph 6 of the
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contract, plaintiff is entitled to “reasonable attorney’s fees and costs.” Plaintiff’s counsel has
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submitted declarations establishing reasonable attorney’s fees and costs through August 31,
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2016, in the amount of $25,684.84. Counsel has also submitted a declaration establishing
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reasonable additional attorney’s fees through September 30, 2016, in the amount of $1,825.20.
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Plaintiff is also entitled to recover these amounts.
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IV. CONCLUSION
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Based on the foregoing, the undersigned recommends that:
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Plaintiff’s motion for default judgment (Doc. 29) be granted; and
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Default judgment be entered in favor of plaintiff in the amount of
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$431,674.22.
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These findings and recommendations are submitted to the United States District
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Judge assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(l). Within 14 days
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after being served with these findings and recommendations, any party may file written
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objections with the court. Responses to objections shall be filed within 14 days after service of
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objections. Failure to file objections within the specified time may waive the right to appeal.
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See Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991).
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DATED: February 17, 2017
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CRAIG M. KELLISON
UNITED STATES MAGISTRATE JUDGE
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This amount reflects a reduction from the total amount sought in plaintiff’s
Notices of Demand by $73,363.05 reflecting that the account with Big Valley Joint Unified
School District is being paid and is current.
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