Canadian National Railway Company v. Phoenix Logistics, Inc.

Filing 21

ORDER by Judge Edward M. Chen Granting 9 Plaintiff's Motion for Default Judgment in the amount of $151,834.14. (emcsec, COURT STAFF) (Filed on 4/19/2012)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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CANADIAN NATIONAL RAILWAY
COMPANY,

No. C11-4589 EMC

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Plaintiff,
ORDER GRANTING PLAINTIFF’S
MOTION FOR DEFAULT JUDGMENT

v.
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For the Northern District of California

United States District Court

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(Docket No. 9)

PHOENIX LOGISTICS, INC.,
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Defendant.
___________________________________/

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I.

INTRODUCTION

Plaintiff Canadian National Railway Company (“Canadian”), a Canadian corporation, filed

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suit against Phoenix Logistics, Inc. (“Phoenix”), alleging violations of an Agreement for Payment of

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Accounts Receivable between the parties. In its complaint, Plaintiff sought to recover delinquent

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payments owed under the Agreement in the amount of $161,569.95. Compl. ¶ 6. On November 8,

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2011, Plaintiff properly served summons and complaint upon Defendant. See Docket No. 4. When

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Defendant failed to plead or otherwise defend or appear in this action, Plaintiff requested entry of

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default against Defendant on December 20, 2011. Docket No. 5. On December 22, 2011, the clerk

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entered the default against Defendant. Docket No. 8. Pending before the Court is Plaintiff’s Motion

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for Default Judgment. Docket No. 9. For the reasons set forth below, the Court GRANTS the

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motion for default judgment but modifies the damages awarded to $151,834.14.

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II.

FACTUAL & PROCEDURAL BACKGROUND

In the complaint, Plaintiff alleges as follows. Plaintiff is a Canadian Corporation that is a
common carrier by railroad and does business in the United States and Canada. Compl. ¶¶ 2-3.

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Phoenix is a California corporation engaged in freight transportation. Id. ¶ 4. On June 17, 2009, the

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parties entered into an Agreement for Payment of Accounts Receivable (“Agreement”), under which

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Phoenix was to make monthly payments to Canadian to settle arrears of $218,839.48 plus interest.

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Id. ¶ 5 & Ex. A. The parties had previously entered into a credit agreement on August 23, 2005,

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under which Canadian extended a line of credit to Phoenix, which Canadian cancelled. Id. Ex. A.

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Pursuant to the Agreement, Phoenix was to make monthly payments of $7,000 plus 1% interest from

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June-December 2009, and monthly payments of $15,000 plus 1% interest from January-December

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2010, at which point the payments would cease. Id. ¶ 5 & Ex. A. Phoenix appears to have made

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some payments under the Agreement, but at some point it ceased making payments despite
Canadian’s demands. Id. ¶¶ 6-7 & Ex. A, Schedule 1. Plaintiff alleges that the outstanding amount

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For the Northern District of California

United States District Court

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due is $161,569.95. Id. ¶ 6.

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On September 15, 2011, Plaintiff brought suit against Phoenix for the amount owed under

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the Agreement. Docket No. 1. On November 8, 2011, Plaintiff’s process server personally served

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summons, complaint, and other documents upon Fred S. Saul at Phoenix’s corporate headquarters.

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See Docket No. 4. When Defendant failed to plead or otherwise defend or appear in this action,

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Plaintiff requested entry of default against Defendant on December 20, 2011. Docket No. 5. On

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December 22, 2011, the clerk entered the default against Defendant. Docket No. 8. Pending before

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the Court is Plaintiff’s Motion for Default Judgment. Docket No. 9.

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III.
A.

DISCUSSION

Adequacy of Service of Process

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In deciding whether to grant or deny a default judgment, a court must first “assess the

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adequacy of the service of process on the party against whom default is requested.” Board of

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Trustees of the N. Cal. Sheet Metal Workers v. Peters, No. C-00-0395 VRW, 2000 U.S. Dist. LEXIS

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19065, at *2 (N.D. Cal. Jan. 2, 2001). According to Federal Rule of Civil Procedure 4(h)(1), a

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corporation may be served “in the manner prescribed for individuals by subdivision (e)(1),” Fed. R.

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Civ. P. 4(h)(1), and Rule 4(e)(1) in turn allows for service “pursuant to the law of the state in which

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the district court is located.” Fed. R. Civ. P. 4(e)(1).

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Under California law, a summons and complaint may be served on a corporation by

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delivering a copy of the documents (1) to the person designated as agent for service under certain

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provisions of the California Corporations Code or (2) to the “president or other head of the

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corporation, a vice president, a secretary or assistant secretary, a treasurer or assistant treasurer, a

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general manager, or a person authorized by the corporation to receive service of process.” Cal. Code

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Civ. P. § 416.10(a), (b).

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In the instant case, Plaintiff filed a proof of service indicating that the summons and

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complaint had been served on November 8, 2011. See Docket No. 4. The Proof of Service indicates

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that Plaintiff personally served Fred S. Saul, the registered agent of the Defendant entity, pursuant to
Code Civ. P. § 416.10. See Docket No. 1-1 (summons listing Fred Saul as registered agent of

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For the Northern District of California

United States District Court

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Phoenix). The Court could take judicial notice of the fact that the Secretary of State’s website lists

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Mr. Saul as the registered agent for service of process and the address for service at 6850 Regional

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Street #240 in Dublin, which matches the address on the proof of service. Compare Docket No. 4,

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with Business Search, http://kepler.sos.ca.gov/cbs.aspx (enter Phoenix Logistics into the business

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search to produce the correct address) (last visited April 3, 2012). Accordingly, service of the

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summons and complaint was proper.

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B.

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Legal Standard
After entry of default, the Court may grant a default judgment on the merits of the case. See

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Fed. R. Civ. P. 55. The “decision whether to enter a default judgment is a discretionary one” as a

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defendant’s default alone does not entitle a plaintiff to a court-ordered judgment. Aldabe v. Aldabe,

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616 F.2d 1089, 1092 (9th Cir. 1980). In exercising that discretion, the Court considers the following

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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). As a general rule, upon entry of default, a

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court must take as true all factual allegations in the complaint except those related to the amount of

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damages. See Fair Hous. of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002); Geddes v. United

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Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977) (citing Pope v. United States, 323 U.S. 1, 12 (1944)).

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However, “necessary facts not contained in the pleadings, and claims which are legally insufficient,

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are not established by default.” Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978).

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C.

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Merits of Motion for Default Judgment
Although Plaintiff does not address the Eitel factors in its motion for default judgment, it

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does provide sufficient documentation for the Court to conclude that the above factors weigh in

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favor of default judgment. For example, if the motion for default judgment were to be denied, then

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Plaintiff would likely be left without a remedy. See Walters v. Shaw/Guehnemann Corp., No. C
03-04058 WHA, 2004 U.S. Dist. LEXIS 11992, at *7 (N.D. Cal. Apr. 15, 2004) (“To deny

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For the Northern District of California

United States District Court

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plaintiffs’ motion [for default judgment] would leave them without a remedy. Prejudice is also

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likely in light of the merits of their claim.”); Pepsico, Inc. v. Cal. Sec. Cans, 238 F. Supp. 2d 1172,

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1177 (C.D. Cal. 2002) (“If Plaintiffs’ motion for default judgment is not granted, Plaintiffs will

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likely be without other recourse for recovery.”). The remedy sought by Plaintiff is limited to the

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damages that would be reasonably expected to put Plaintiff in the same position had Defendant

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fulfilled its contractual obligations, i.e., payment of amounts owing under the Agreement.

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Therefore, the sum of money at stake is reasonably proportionate to the harm caused to Plaintiff by

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Defendant’s breach. See Walters v. Statewide Concrete Barrier, Inc., No. C-04-2559 JSW (MEJ),

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2006 WL 2527776, at *5 (N.D. Cal., Aug. 30, 2006) (“Given the nature of Defendant’s conduct in

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failing to pay the amounts owed, such resulting damages are reasonable and would naturally be

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expected to flow from Defendants’ breach of contract.”). In addition, because Defendant has not

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filed an answer to the complaint, there is little to suggest that there is a possibility of a dispute

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concerning material facts, and it is unlikely that Defendant’s default was due to excusable neglect,

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especially when Plaintiff served not only the summons and complaint but also the request for entry

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of default and motion for default judgment on Defendant but still received no response. See Docket

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No. 4 (proof of service of summons and complaint); Docket No. 13 (proof of service of motion for

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default judgment). Indeed, Plaintiff’s counsel filed a letter to the Court on March 12, 2012,

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representing that he had spoken with John Saul, Esq., brother of Fred Saul (the registered agent for

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Phoenix), who advised counsel that Phoenix has been out of business and that it does not intend to

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take any action in response to the Motion for Default Judgment.

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The only factors that deserve closer analysis are the second and third factors. These factors

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weigh the substantive merit of the plaintiff’s claims and the sufficiency of the pleadings to support

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these claims. In order for these factors to weigh in favor of entering default judgment, the plaintiffs

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must state a claim upon which they may recover. Pepsico, 238 F. Supp. 2d at 1175. If the court

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determines Plaintiff would have likely succeeded on the merits of its substantive claim had

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Defendant not defaulted, then default judgment would be appropriate. Aldabe v. Adabe, 616 F.2d

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1089, 1089 (9th Cir. 1980).
Under California law,1 a party bringing a breach of contract claim must demonstrate the

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For the Northern District of California

United States District Court

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following elements: (1) the existence of a contract; (2) performance by the plaintiff; (3) breach by

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the defendant; and (4) damages. See First Commercial Mortgage Co. v. Reece, 89 Cal. App. 4th

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731, 745 (2001) (citing 4 Witkin, Cal. Procedure (Pleading) § 476 (4th ed. 1997)); Shanghai

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Automation Instrument Co., Ltd. v. Kuei, 194 F. Supp. 2d 995, 1004 (N.D. Cal. 2001). Here,

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Plaintiff properly alleges all the facts necessary to establish the elements of their claim. First,

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Defendant is a party to the Agreement and expressly agreed to be bound by its terms. Compl. ¶ 5 &

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Ex. A. Second, Plaintiff has performed under the contract by extending the time in which Defendant

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could pay the amounts owed pursuant to a specific payment plan, and by surrendering certain rights

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and privileges so long as Defendant did not default. Id. Ex. A. Third, under the Agreement,

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Defendant agreed to make monthly payments to pay off its accrued debt through December 2010.

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Id. Based on Plaintiff’s complaint, Defendant failed to contribute according to the terms of the

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agreement. Compl. ¶ 6 & Ex. A, Schedule 1. Fourth, accepting all factual allegations as true, the

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complaint establishes that Defendant violated the terms of the agreement and caused Plaintiff

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damages in the form of lost payments. Therefore, Plaintiff has adequately demonstrated a

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substantial likelihood of success on merits of its claim.

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The Agreement provides that California law governs its interpretation. Compl. Ex. A, ¶ 7.

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D.

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Damages
Because default judgment is warranted, the Court must determine what damages are

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appropriate. In its motion for default judgment, Plaintiff asks for $161,569.95, the amount they

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allege is still outstanding under the Agreement’s payment schedule. Anderson Decl., Docket No. 9-

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1, ¶ 4. Plaintiff has the burden of “proving up” its damages. See Board of Trustees of the

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Boilermaker Vacation Trust v. Skelly, Inc., No. 04-02841 CW, 2005 WL 433462, at *2 (N.D. Cal.

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Feb. 24, 2005) (“Plaintiff has the burden of proving damages through testimony or written

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affidavit.”).

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Based on the evidence submitted to the Court, Plaintiff has met its burden of proof regarding
the majority of its claimed damages. Although Carol Anderson, the Development Officer for

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For the Northern District of California

United States District Court

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Revenue Management, declares that $161,569.95 is outstanding, Anderson Decl. ¶ 4, the evidence

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submitted in support of such a claim is confusing and inconclusive. However, Plaintiff provides a

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January 2010 email from Fred Saul, the agent for Defendant, in which Defendant admits it owes

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$151,834.14 as of January 26, 2010. Id. Ex. D. The letter states that Defendant had just made a

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$10,000 payment a week prior, bringing its balance to $151,834.14. While Plaintiff disputes that

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Defendant actually made such a payment, see Anderson Supp. Decl. ¶¶ 7-8, it cannot prove such on

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the basis of the documents provided given Defendant’s direct statement to the contrary.

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As Defendant has admitted to owing $151,834.14, the Court concludes that Plaintiff has met

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its burden of proof as to this amount only. See Webb v. Indigenous Global Dev. Corp., C-04-3174

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MJJ, 2005 WL 1200203, at *5 (N.D. Cal. May 16, 2005) (finding evidence sufficient where plaintiff

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“provided the Court with a copy of the promissory note signed by IGDC which specifically states

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that IGDC must ‘repay the principal sum of $250,000 to [Mr. Webb] on or before May 11, 2004,’”

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along with “a copy of the audit letter sent to him by IGDC, which acknowledges the $250,000

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debt”). Indeed, Plaintiff conceded at oral argument that it could not provide any additional proof or

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explanation of sums beyond that which Defendant admitted to owing. Accordingly, the Court

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GRANTS default judgment in Plaintiff’s favor with damages in the amount of $151,834.14.

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IV.

CONCLUSION

For the foregoing reasons, the Court GRANTS Plaintiff’s motion for default judgment and
awards damages in the amount of $151,834.14. The Clerk shall close the file.
This Order disposes of Docket No. 9.

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IT IS SO ORDERED.

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Dated: April 19, 2012

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_________________________
EDWARD M. CHEN
United States District Judge

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For the Northern District of California

United States District Court

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