Mt. Hawley Insurance Company v. Crane Development Corporation, et al.

Filing 24

FINDINGS and RECOMMENDATIONS signed by Magistrate Judge Edmund F. Brennan on 03/08/17 RECOMMENDING that Crane Development Corp's 16 Motion to Set Aside Default be denied; that plaintiff's 11 Motion for Default Judgment be granted and that Plaintiff be awarded a declaration that it has no obligation to indemnify or defend Crane Development Corporation for any judgment or settlement that it becomes obligated to pay in the state court case; and that this case be closed. Referred to Judge John A. Mendez; Objections to F&R due within 14 days. (Benson, A)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 12 MT. HAWLEY INSURANCE COMPANY, an Illinois corporation authorized to transact business in California, 13 14 15 16 17 Plaintiff, No. 2:16-cv-0892-JAM-EFB FINDINGS AND RECOMMENDATIONS v. CRANE DEVELOPMENT CORPORATION, a California corporation; ABA-ROSEVILLE, LLC, a Delaware limited liability company, and DOES 1-25, Defendants. 18 19 20 This case was before the court on October 26, 2016, for hearing on plaintiff Mt. Hawley 21 Insurance Company’s (“Mt. Hawley”) motion for default judgment (ECF No. 11) and defendant 22 Crane Development Corporation’s (“Crane”) motion to set aside the clerk’s entry of default (ECF 23 No. 16). Attorney Dean Burnick appeared on behalf of plaintiff; attorney James Han appeared on 24 behalf of Crane. For the reasons stated below, it is recommended that defendant’s motion to set 25 aside default be denied and plaintiff’s motion for default judgment be granted. 26 ///// 27 ///// 28 1 1 I. 2 Facts and Procedural History Plaintiff is an insurance company organized under Illinois Law. It filed this declaratory 3 relief action against defendants Crane and ABA-Roseville LLC (“ABA”), pursuant to the 4 Declaratory Judgment Act, 28 U.S.C. § 2201, seeking a determination that it does not have a duty 5 to defend or indemnify the defendants for liability they may sustain in a state court case entitled 6 ABA Roseville, LLC v. Crane Development Corp., San Diego County Superior Court Case No. 7 37-2014-00005108-CU-CD-CTL (“underlying case”).1 ECF No. 1. 8 9 The complaint alleges that ABA and Crane contracted for construction of a hotel operated under the name Hyatt Place Roseville. ECF No. 1 ¶ 26. Crane was to serve as the general 10 contractor and it contracted with a number of subcontractors, manufacturers, and an architect who 11 either worked on, or supplied material or professional services for, the project. Id. Work on the 12 project was substantially completed in January 2010, and the hotel opened for business later that 13 year. Id. However, after completion of the project, the hotel suffered leaks and other problems 14 allegedly as a result of poor construction. Id. ¶ 27. These problems were known to ABA prior to 15 June 12, 2012. Id. 16 The complaint further alleges that Mt. Hawley and Crane entered into a series of separate 17 insurance contracts, each having a one-year term and running consecutively from June 12, 2012 18 to June 12, 2015. ECF No. 1 ¶ 8. The contracts included three Commercial General Liability 19 (“CGL”) policies and three Excess Liability policies; one CGL and one Excess Liability policy 20 for each one-year term. Id. The CGL policies have a $1 million per occurrence limit of liability 21 for covered claims, subject to a $2 million aggregate limit. Id. ¶ 10; see ECF No. 1-1 at 3; ECF 22 No. 1-2 at 3; ECF No. 1-3 at 3. Each also includes a Continuous or Progressive Injury and 23 Damage Exclusion, which provides that the policy does not provide coverage for property 24 damage: 25 ///// 26 27 28 1 On October 3, 2016, the court approved plaintiff and defendant ABA’s stipulation to dismiss ABA from this action without prejudice. ECF No. 19. Accordingly, this action now proceeds only against defendant Crane. 2 1 a. Which first existed, or are alleged to have first existed, prior to the inception date of this Policy; or 2 3 4 5 6 7 8 9 b. Which are, or are alleged to be, in the process of taking place prior to the inception date of this Policy, even if the actual or alleged . . .“property damage,” . . . continues during this policy period; or c. Which were caused, or are alleged to have been caused, by any defect, deficiency, inadequacy or condition which first existed prior to the inception date of this Policy. ECF No. 1-1 at 54; ECF No. 1-2 at ; ECF No. 1-3. Each of the corresponding Excess Liability policies provided additional coverage for loss resulting from an occurrence insured by underlying insurance, but “(a) only in excess of the 10 underlying insurance; (b) only after the underlying insurance has been exhausted by payment of 11 the limits of liability of such insurance; and (c) only if caused by an occurrence which takes place 12 during the policy period.” ECF No. 1-4 at 8; ECF No. 1-5 at 8; ECF No. 1-6 at 8. The terms of 13 the policies further state that “[if] the underlying insurance does not pay a loss, for reasons other 14 than exhaustion of an aggregate limit of liability, then we shall not pay such loss.” Id. 15 Significantly, the Excess Liability policies also provide that they are “subject to all of the 16 conditions, agreements, exclusions, and limitations of and shall follow the underlying insurance 17 in all respects. This includes changes by endorsement.” Id. 18 In March 2014, ABA filed suit against Crane in state court, asserting claims for (1) 19 negligence; (2) breach of contract; (3) breach of express warranties; (4) breach of implied 20 warranties; (5) strict liability; (6) tortious interference with prospective advantage; (7) recovery 21 on performance bond; (8) negligent misrepresentation; and (9) negligent breach of fiduciary duty. 22 Id. ¶¶ 28-31. These claims, with the exception of ABA’s negligent misrepresentation and breach 23 of fiduciary duty claims, are based on defective construction of the hotel. Id. In its negligent 24 misrepresentation claim, ABA alleges that Crane submitted requests for draws (i.e., payments for 25 phases of the construction) that overstated the dollar amount owed for work performed under 26 subcontracts or approved change orders, which resulted in substantial overpayment to Crane. Id. 27 ¶ 32. In its ninth claim, ABA alleges that Crane owed it a fiduciary duty, which it breached by: 28 altering invoices and/or lien releases of subcontractors to state incorrect amounts; submitting 3 1 incorrect invoices for payment; submitting construction draw requests seeking inflated sums; 2 accepting ABA’s payment of inflated construction draw request amounts; keeping surplus funds 3 generated by submitting inflated construction draw requests; and failing to perform proper 4 accounting.2 Id. ¶ 33. 5 After the underlying case was commenced, Crane submitted multiple requests to Mt. 6 Hawley for it to defend and indemnify it under the CGL and Excess Liability policies. Id. ¶ 38, 7 41, 45, 47. Mt. Hawley denied the requests, advising Crane that the policies did not afford 8 coverage for the allegations in the underlying case. Id. ¶¶ 39, 42, 47, 48. 9 Mt. Hawley filed this action on April 28, 2016, seeking a declaratory judgment that it does 10 not have a duty to defend or indemnify Crane for liability Crane may sustain in the underlying 11 case. ECF No. 1. Plaintiff filed a certificate of service indicating that it served Crane with a copy 12 of the summons and complaint on May 26, 2016. ECF No. 6. Crane failed to timely file an 13 answer, and plaintiff requested Crane’s default be entered. ECF No. 7. Crane’s default was 14 entered on June 28, 2016 (ECF No. 10), and plaintiff moved for default judgment on August 29, 15 2016 (ECF No. 11). Crane thereafter appeared in this action on September 12, 2016, and moved 16 to set aside the clerk’s entry of default. ECF No. 16. 17 II. 18 Motion to Set Aside Default Crane moves to set aside the entry of its default, arguing that its failure to timely file an 19 answer was due to excusable neglect. Crane also argues that it has a meritorious defense and that 20 plaintiff will not suffer prejudice if the default is set aside. ECF No. 16 at 4-7. Following oral 21 argument in which the court indicated an inclination toward granting Crane’s motion, the matter 22 was submitted. After further consideration of the moving papers and the arguments of the parties, 23 the court finds that setting aside Crane’s default is not appropriate in this case. 24 Under Rule 55(a), the court must enter default against a party who has “failed to plead or 25 otherwise defend.” The court also has the power to set aside the entry of default “for good 26 cause.” Fed. R. Civ. P. 55(c). The United States Court of Appeals for the Ninth Circuit treats the 27 28 2 The underlying case also involves a cross-complaint filed by Crane against 18 subcontractors, alleging various claims related to construction defects. Id. ¶¶ 34, 35. 4 1 standard for good cause to set aside an entry of default under Rule 55(c) the same as the 2 excusable neglect standard for relief from judgment under Rule 60(b) (1). TCI Group Life Ins. 3 Plan v. Knoebber, 244 F.3d 691, 697 (9th Cir. 2001); Franchise Holding II, LLC v. Huntington 4 Restaurants Group, Inc., 375 F.3d 922, 925-26 (9th Cir. 2004). Although there is considerable 5 discretion under the rule, the Ninth Circuit has admonished generally that Rule 60(b) is “remedial 6 in nature and . . . must be liberally applied.” Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984) (per 7 curiam ). 8 Three factors derived from the “good cause” standard under Rule 55(c) govern the lifting 9 of entries of default as well as the vacating of a default judgment. See TCI Group Life Ins. Plan 10 v. Knoebber, 244 F.3d 691, 696 (9th Cir. 2001), overruled on other grounds by Egelhoff v. 11 Egelhoff, 532 U.S. 141 (2001). “Those factors are: whether the defendant’s culpable conduct led 12 to the default; whether the defendant has a meritorious defense; and whether reopening the 13 default judgment would prejudice the plaintiff.” Id. “[T]his tripartite test is ‘disjunctive,’ 14 meaning that the district court is free to deny the motion if any of these three factors is shown to 15 exist.” American Ass’n of Naturopathic Physicians v. Hayhurst, 227 F.3d 1104, 1108-09 (9th 16 Cir. 2000). It is a “well-established proposition that a finding of culpability on the part of a 17 defaulting defendant is sufficient to justify the district court’s exercise of its discretion to deny 18 relief from a default judgment.” Brandt v. American Bankers Ins. Co. of Florida, 653 F.3d 1108, 19 1111 (9th Cir. 2011). Therefore, before turning to the other factors the court should first 20 addresses the question of culpable conduct by examining the reason for the default, including 21 whether it was within the reasonable control of the defense, and whether the defendant acted in 22 good faith. 23 As to “culpable conduct,” the Ninth Circuit has observed that “a defendant’s conduct is 24 culpable if he has received actual or constructive notice of the filing of the action and 25 intentionally failed to answer.” TCI Group Life Ins. Plan, 244 F.3d at 697 (emphasis in original) 26 (quoting Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988), and citing 27 Meadows v. Dominican Republic, 817 F.2d 517, 521 (9th Cir. 1987)). In Pincay v. Andrews, 389 28 F.3d 853, 855 (9th Cir. 2004) (en banc), the Ninth Circuit further noted that the concept of 5 1 culpable conduct must be viewed in the context of Pioneer Investment Services Co. v. Brunswick 2 Associates Ltd. Partnership, 507 U.S. 380, 394 (1993), which notes that “for purposes of Rule 3 60(b), ‘excusable neglect’ is understood to encompass situations in which the failure to comply 4 with a filing deadline is attributable to negligence.” The Supreme Court pointedly observed in 5 Pioneer Investment Services that ‘[t]his leaves of course, the Rule’s requirement that the party’s 6 neglect of the [filing deadline] be ‘excusable.’” Id. at 395. At bottom, this determination is “an 7 equitable one, taking account of all relevant circumstances surrounding the party’s omission[,]” 8 including “the danger of prejudice to the [plaintiff], the length of the delay and its potential 9 impact on judicial proceedings, the reason for the delay, including whether it was within the 10 reasonable control of the movant, and whether the movant acted in good faith.” Id. 11 Here, Crane’s failure to timely respond to the complaint is problematic. It was not due to 12 excusable neglect. Crane concedes that it was served with a copy of the summons and complaint 13 on May 27, 2016, and that it was required to file a responsive pleading by June 17, 2016, but 14 failed to do so. ECF No. 16 at 3; see ECF No. 6 (certificate of service). 15 16 17 18 19 20 21 22 Crane argues that its failure to file a responsive pleading was excusable because: unlike situations with a defendant not well-versed in the legal process, here Crane is too involved in the Underlying Action, and along with its counsel has devoted over two years to an incredibly complicated and multi-faceted lawsuit. Quite simply, Crane has over one half-dozen additional insurance carriers defending it in that matter, in addition to its own, along with two attorneys working exclusively on the matter. Crane does not dispute that it indeed failed to appropriately filed [sic] a responsive pleading, but the extraneous issues caused it to miss the deadline. ECF No. 16 at 5. This convoluted explanation sheds little light on why Crane failed to timely respond. 23 Distinguishing Crane from defendants “not well versed in the law” is a distinction that 24 undermines, not supports, the case for excusable neglect. Similarly, pointing out that Crane and 25 its counsel view the matter as complicated and have assigned two attorneys to work exclusively 26 on the matter undermines the case for excusable neglect in defaulting on the complaint. 27 In the same vein, the declaration from Jon Hammerbeck, Crane’s counsel, fails to justify Crane’s 28 failure to properly calendar and comply with the deadline for filing a timely response. Mr. 6 1 Hammerbeck states that on “July 6, 2016, my firm and I first became aware of the entry of default 2 against Crane by checking the online civil docket with the United States District Court, Eastern 3 District of California.” Declaration of Jon Hammerbeck, ECF No. 16-2 ¶ 5. He also details the 4 efforts he made to try and reach a stipulation with plaintiff to set aside default. But the date on 5 which counsel learned of the entry of default and his reaction to that discovery does not explain 6 why the deadline was missed in the first place. Moreover, at the October 26 hearing counsel for 7 Crane was unable to provide any reasonable justification. Instead, counsel vaguely argued that 8 Crane was “inundated” with the underlying litigation and thus too busy to file a response. 9 Whatever can be said of this too-busy-to respond explanation, it does not excuse Crane from 10 11 seeking an extension of time to file a response. See Fed. R. Civ. P. 6(b). Furthermore, Crane’s “too busy” theory is not supported by the record before the court. In 12 support of its motion, Crane submitted emails between the parties’ counsel. In an email sent on 13 July 8, 2016, Crane’s counsel conceded that Crane was served on May 27, 2016, but represented 14 that a responsive pleading was not timely filed because Crane was “awaiting a response from 15 [insurance] carriers as to whether [Ford, Walker, Haggerty & Behar]3 would be retained to 16 represent Crane Development in the action, but unfortunately no response had been provided.” 17 ECF No. 16-2 at 23. This email indicates that Crane received actual notice of this action but, 18 rather than obtaining its own attorney to represent its interests, it decided to delay filing a 19 responsive pleading until after an insurance company agreed to foot the legal bill for defending 20 this suit. There may be reasons for this deliberate and considered decision not to file a response 21 by the deadline, but it hardly excuses the choice to do so without seeking and obtaining an 22 extension of time. 23 In short, Crane’s culpable conduct led to the entry of its default and there is no reason to 24 set it aside. TCI Group Life Ins. Plan, 244 F.3d at 697 (“[A] defendant’s conduct is culpable if he 25 has received actual or constructive notice of the filing of the action and intentionally failed to 26 answer.”) (emphasis in original); Brandt, 653 F.3d at 1111 (“[A] finding of culpability on the part 27 28 3 Ford, Walker, Haggerty & Behar is the firm representing Crane in this action. 7 1 of a defaulting defendant is sufficient to justify the district court’s exercise of its discretion to 2 deny relief from a default judgment.”). But there is a further reason not to set aside the clerk’s 3 entry of default. Crane has failed to establish that it has a meritorious defense. 4 To justify setting aside its default, Crane must also “present the district court with specific 5 facts that would constitute a defense.” Franchise Holding II, LLC v. Huntington Restaurant 6 Group, Inc., 375 F.3d 922, 926 (9th Cir. 2004). “[C]onclusory statements that a dispute existed” 7 or provided a “general denial without facts to support it is not enough to justify vacating a default 8 or default judgment.” Id. (quotations omitted). 9 Crane argues that its “defenses to the lawsuit all revolve around the basic premise that 10 Plaintiff, indeed, does owe Crane a duty to defend and duty to indemnify Crane for any judgment 11 or settlement that Plaintiff become [sic] obligated to pay in the Underlying Action. Obviously, 12 these are questioned based upon (1) the language of the insurance policies, and (2) the as-yet- 13 unachieved conclusion to the Underlying Action.” ECF No. 16 at 6; ECF No. 16-1 ¶ 8. Crane 14 does not, however, cite to any language in the insurance policy or identify any facts that, if 15 accepted as true, would support its conclusory contention that it has a meritorious defense. 16 Furthermore, as discussed below regarding Mt. Hawley’s motion for default judgment, the 17 information and evidence that is before the court demonstrates that Crane lacks any such defense. 18 The lack of a meritorious defense provides an additional basis for declining to set aside Crane’s 19 default. See Hayhurst, 227 F.3d at 1108-09 (9th Cir. 2000) (the three part test for setting aside 20 default is disjunctive, “meaning that the district court is free to deny the motion if any of these 21 three factors is shown to exist.”). 22 23 Accordingly, Crane’s motion to set aside default should be denied. III. 24 Motion for Default Judgment Mt. Hawley moves for default judgment against Crane, seeking a judicial declaration that 25 it has no duty to defend or indemnify Crane for liabilities it may sustain in the underlying case. 26 ECF No. 11. 27 ///// 28 ///// 8 1 A. 2 Pursuant to Federal Rule of Civil Procedure 55, default may be entered against a party Legal standards 3 against whom a judgment for affirmative relief is sought who fails to plead or otherwise defend 4 against the action. See Fed. R. Civ. P. 55(a). However, “[a] defendant’s default does not 5 automatically entitle the plaintiff to a court-ordered judgment.” PepsiCo, Inc. v. Cal. Sec. Cans, 6 238 F. Supp. 2d 1172, 1174 (C.D. Cal. 2002) (citing Draper v. Coombs, 792 F.2d 915, 924-25 7 (9th Cir. 1986)). Instead, the decision to grant or deny an application for default judgment lies 8 within the district court’s sound discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 9 1980). In making this determination, the court considers the following factors: 10 (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 the 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. 11 12 13 Eitel, 782 F.2d at 1471–72. “In applying this discretionary standard, default judgments are more 14 often granted than denied.” Philip Morris USA, Inc. v. Castworld Products, Inc., 219 F.R.D. 494, 15 498 (C.D.Cal.2003) (quoting PepsiCo, Inc. v. Triunfo–Mex, Inc., 189 F.R.D. 431, 432 16 (C.D.Cal.1999)). 17 As a general rule, once default is entered, the factual allegations of the complaint are taken 18 as true, except for those allegations relating to damages. Tele Video Systems, Inc. v. Heidenthal, 19 826 F.2d 915, 917–18 (9th Cir.1987) (citations omitted). However, although well-pleaded 20 allegations in the complaint are admitted by defendant’s failure to respond, “necessary facts not 21 contained in the pleadings, and claims which are legally insufficient, are not established by 22 default.” Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992). 23 B. Appropriateness of the Entry of Default Judgment Under the Eitel Factors 24 1. Factor One: Possibility of Prejudice to the Defendant 25 The first Eitel factor considers whether the plaintiff would suffer prejudice if default 26 judgment is not entered, and such potential prejudice to the plaintiff militates in favor of granting 27 a default judgment. See Cal. Sec. Cans, 238 F. Supp. 2d at 1177. Here, Crane has now appeared 28 9 1 in this action and has represented that it intends to defend against plaintiff’s claim. Accordingly, 2 this factor weighs against default judgment. 3 2. 4 Factors Two and Three: The Merits of Defendant’s Substantive Claims and the Sufficiency of the Complaint 5 The merits of plaintiff’s substantive claim and the sufficiency of the complaint should be 6 discussed together because of the relatedness of the two inquires. The court must consider 7 whether the allegations in the complaint are sufficient to state a claim that supports the relief 8 sought. See Danning v. Lavine, 572 F.2d 1386, 1388(9th Cir. 1978); Cal. Sec. Cans, 238 F. Supp. 9 2d at 1175. 10 The complaint asserts a single claim seeking a judicial declaration that plaintiff does not 11 have a duty to defend or indemnify Crane under the terms of the parties’ insurance policies. ECF 12 No. 1. Under the Declaratory Judgment Act, the court has authority to “declare the rights and 13 other legal relations” of parties to “a case of actual controversy.” 28 U.S.C. § 2201(a). District 14 courts have discretion in determining whether to entertain actions for declaratory relief. Public 15 Affairs Associates v. Rickover, 369 U.S. 111, 112 (1962) (The Declaratory Judgment Act “gave 16 the federal courts competence to make a declaration of rights; it did not impose a duty to do so.”); 17 Gov’t Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1223 (9th Cir. 1989); Government Employees 18 Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998) (the decision to entertain a claim for 19 declaratory relief is discretionary, “for the Declaratory Judgment Act is ‘deliberately cast in terms 20 of permissive, rather than mandatory, authority.’”). 21 A suit seeking declaratory relief must present an actual case or controversy within the 22 meaning of Article III, section 2 of the United States Constitution. Dizol, 133 F.3d at 1222. If 23 the case is ripe for review, “declaratory relief is appropriate (1) when the judgment will serve a 24 useful purpose in clarifying and settling the legal relationships in issue, and (2) when it will 25 terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the 26 proceeding.” Eureka Fed. Sav. & Loan Assn. v. American Cas. Co., 873 F.2d 229, 231 (9th Cir. 27 1989) (quotations omitted). 28 ///// 10 1 The instant case, which seeks a judicial determination regarding Mt. Hawley’s obligation 2 to defend and indemnify Crane in the underlying case presents an actual case or controversy 3 within the meaning Article III. See American States Ins. Co. v. Kearns, 15 F.3d 142 (9th Cir. 4 1994) (finding a sufficiently ripe case or controversy “where the insurer sought a declaration 5 regarding its duty to defend and indemnify its insured in a pending state court liability suit.”). 6 Moreover, declaratory relief is appropriate in this case because such relief will terminate 7 uncertainty by clarifying Mt. Hawley’s obligations under the insurance policies. 8 Further, the complaint alleges sufficient facts to establish plaintiff’s entitlement to a 9 declaration that it is not liable to Crane for any liability Crane may sustain in relation to the 10 underlying case. With the exception of ABA’s negligent misrepresentation and breach of 11 fiduciary duty claims, the claims allege that Crane is responsible for various construction defects 12 in relation to the construction of the hotel, which was completed in January 2010. ECF No. 1 13 ¶¶ 28-31. However, the insurance policies, which were effective from June 12, 2012 to June 12, 14 2015, excluded coverage for damages sustained by defects that predated the inception of the 15 policies. The Continuous or Progressive Injury and Damage Exclusion (“CPID Exclusion”) of 16 the CGL policies precludes coverage for conditions “which were caused, or . . . alleged to have 17 been caused, by any defect, deficiency, inadequacy or condition which first existed prior to the 18 inception date of” the policy. ECF No. 1-1 at 54; ECF No. 1-2 at 54; ECF No. 1-3 at 61. The 19 CPID exclusion contained in the CGL policies was also applicable to the Excess Liability 20 policies. ECF No. 1-4 at 8; ECF No. 1-5 at 8; ECF No. 1-6 at 8 (stating that the Excessive 21 Liability policies are “subject to all of the conditions, agreements, exclusions, and limitations of 22 and shall follow the underlying insurance in all respects. This includes changes by 23 endorsement.”). 24 As the construction of the project was completed in January 2010, any construction defect 25 must have existed prior to the issuance of the insurance policies. As the CPID exclusion 26 precludes coverage for defects that “first existed prior to the inception date” of the policies, Mt. 27 Hawley is not required to defend or indemnify Crane for any liability is sustains related to the 28 construction defect claims. 11 1 As for ABA’s negligent misrepresentation and breach of fiduciary duty claims—which are 2 the only claims against Crane not predicated on construct defects—these claims do not involve 3 “property damage” and therefore are not covered under the policies.4 Under the policies, property 4 damages includes “a. Physical injury to tangible property, including all resulting loss of use of 5 that property . . .; or b. Loss of use of tangible property that is not physically injured.” ECF No. 6 1-1 at 22; ECF No. 1-2 at 22; ECF No. 1-3 at 22. 7 In its negligent misrepresentation claim and breach of fiduciary duty claim, ABA alleges 8 that Crane submitted incorrect invoices for payment; altered lien releases of subcontractors to 9 state incorrect amounts; submitted construction draw requests that overstated the dollar amount 10 owed; failed to perform proper accounting; and accepted overpayment from ABA based on its 11 fraudulent invoices. Id. ¶¶ 32, 33. These claims do not concern physical injury or loss of use of 12 tangible property as defined by the policies. Accordingly, these claims are not covered by the 13 insurance policies. 14 Thus, the complaint’s allegations, as well as the insurance policies appended to the 15 complaint, establish that Mt. Hawley has no obligation to defend or indemnify Crane in the 16 underlying action. Accordingly these Eitel factors favor an entry of default judgment. 17 3. 18 Factor Four: The Sum of Money at Stake in the Action Under the fourth factor cited in Eitel, “the court must consider the amount of money at 19 stake in relation to the seriousness of Defendant’s conduct.” Cal. Sec. Cans, 238 F. Supp. 2d at 20 1177; see also Philip Morris USA, Inc., 219 F.R.D. at 500. “If the sum of money at stake is 21 completely disproportionate or inappropriate considering the defendant’s actions, default 22 ///// 23 24 25 26 27 28 4 In addition to covering “bodily injury and property damage,” the policies cover “personal and advertising injury” and “medical payments.” See ECF No. 1-1; ECF No. 1-2; ECF No. 1-3. The policies define “personal and advertising injury” to include bodily injury arising out of false arrest; malicious prosecution; wrongful eviction; wrongful invasion of the right of private occupancy; slander or libel; or use of another’s advertising idea, copyright, trade dress or slogan. ECF No. 1-1 at 22; ECF No. 1-2 at 22; ECF No. 1-3 at 22. The negligent misrepresentation claim and breach of fiduciary duty claim do not involve “personal and advertising injury” or medical payments. 12 1 judgment is disfavored.” Webb v. Indigenous Glob. Dev. Corp., No. C-04-3174 MJJ, 2005 WL 2 1200203, at *4 (N.D. Cal. May 16, 2005). 3 According to the complaint, the policies issued to Crane have limits of $10 million. ECF 4 No. 1 ¶ 6. While this amount is very substantial, its significance here is tempered by the low 5 probability that Mt. Hawley has any obligation to Crane for sums sought in the underlying state 6 court litigation. The complaint and its attachments indicate that alleged damages Crane may 7 sustain in the underlying action are not covered by the insurance policies. Accordingly, the sum 8 of money at stake does not make the entry of default judgment inappropriate. 9 4. Factor Five: The Possibility of Dispute Concerning Material Facts 10 The court may assume the truth of well-pleaded facts in the complaint (except as to 11 damages) following the clerk’s entry of default. See Elektra Entm’t Group Inc. v. Crawford, 226 12 F.R.D. 388, 393 (C.D. Cal. 2005) (“Because all allegations in a well-pleaded complaint are taken 13 as true after the court clerk enters default judgment, there is no likelihood that any genuine issue 14 of material fact exists.”); accord Philip Morris USA, Inc., 219 F.R.D. at 500; Cal. Sec. Cans, 238 15 F. Supp. 2d at 1177. Accepting the plaintiff’s allegations as true, there will likely be no dispute 16 concerning a material fact. Therefore, this Eitel factor favors the entry of a default judgment. 17 18 5. Factor Six: Whether Default was Due to Excusable Neglect The sixth factor—whether Crane’s default was due to excusable neglect—also weighs in 19 favor of default judgment. As discussed above, Crane’s culpable conduct is responsible for the 20 entry of its default. Accordingly, this factor weighs in favor of default judgment. 21 22 6. Factor Seven: The Strong Policy Favoring Decisions on the Merits “Cases should be decided upon their merits whenever reasonably possible.” Eitel, 782 23 F.2d at 1472. “Default judgments are generally disfavored; whenever it is reasonably possible, 24 cases should be decided on their merits.” Schwab v. Bullock’s Inc., 508 F.2d 353, 355 (9th Cir. 25 1974). However, district courts have concluded with regularity that this policy, standing alone, is 26 not dispositive . . . .” PepsiCo, Inc., 238 F. Supp. 2d at 1177; see also Craigslist, Inc. v. 27 Naturemarket, Inc., 694 F. Supp. 2d 1039, 1061 (N.D. Cal. 2010); ACS Recovery Servs., Inc. v. 28 Kaplan, 2010 WL 144816, at *7 (N.D. Cal. Jan. 11, 2010); Hartung v. J.D. Byrider, Inc., 2009 13 1 WL 1876690, at *5 (E.D. Cal. June 26, 2009). While Crane has now belatedly appeared in this 2 action and moved to set aside default, indicating its willingness to litigate the merits of this case, 3 the court does not find that this should preclude entry of default judgment. 4 On balance, the Eitel factors weigh in favor of granting plaintiff’s motion for default 5 judgment. 6 IV. Conclusion 7 Accordingly, it is hereby RECOMMENDED that: 8 1. Defendant Crane Development Corporation’s motion to set aside default (ECF No. 16) 9 be denied; 10 2. Plaintiff’s motion for default judgment (ECF No. 11) be granted; 11 3. Plaintiff be awarded a declaration that it has no obligation to indemnify or defend 12 Crane Development Corporation for any judgment or settlement that it becomes obligated to pay 13 in the state court case entitled ABA Roseville, LLC v. Crane Development Corp., San Diego 14 County Superior Court Case No. 37-2014-00005108-CU-CD-CTL; and 15 4. The Clerk be directed to close the case. 16 These findings and recommendations are submitted to the United States District Judge 17 assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(l). Within fourteen days 18 after being served with these findings and recommendations, any party may file written 19 objections with the court and serve a copy on all parties. Such a document should be captioned 20 “Objections to Magistrate Judge’s Findings and Recommendations.” Failure to file objections 21 within the specified time may waive the right to appeal the District Court’s order. Turner v. 22 Duncan, 158 F.3d 449, 455 (9th Cir. 1998); Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991). 23 DATED: March 8, 2017. 24 25 26 27 28 14

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