Axis Reinsurance Company v. Telekenex, Inc. et al

Filing 139

ORDER by Judge Samuel Conti granting 128 Motion for Default Judgment; granting 129 Motion for Default Judgment; granting 130 Motion for Default Judgment (sclc1, COURT STAFF) (Filed on 2/19/2014)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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AXIS REINSURANCE COMPANY,

For the Northern District of California

United States District Court

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Plaintiff,

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v.

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TELEKENEX, INC.; ANTHONY ZABIT;
KAREN SALAZAR; BRANDON CHANEY;
DEANNA CHANEY; MARK PRUDELL; JOY
PRUDELL; MARK RADFORD; NIKKI
RADFORD; JOSHUA SUMMERS; JULIA
SUMMERS; IXC HOLDINGS, INC.;
STRAITSHOT COMMUNICATIONS, INC.;
and STRAITSHOT RC, LLC,

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Defendants.
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) Case No. 12-2979 SC
)
) ORDER GRANTING MOTIONS FOR
) DEFAULT JUDGMENT
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I.

INTRODUCTION
Plaintiff Axis Reinsurance Company ("Axis") now moves for

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entry of default judgment against Defendants Mark and Nikki

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Radford, Joshua and Julia Summers, and Mark and Joy Prudell

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(collectively, "Defendants in default").

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Mot."), 129 ("Radford DJ Mot."), 130 ("Summers DJ Mot."). 1

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Defendants in default have not opposed the motions.

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ECF No. 128 ("Prudell DJ

The Court

At the Court's request, Axis also submitted a supplemental brief
on personal jurisdiction. ECF No. 138 ("Supp. Br.").

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finds the matter appropriate for determination without oral

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argument per Civil Local Rule 7-1(b), and GRANTS the motions.

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II.

BACKGROUND

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A.

Factual Background

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This case is an insurance coverage dispute arising out of an

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underlying action captioned Straitshot Communications, Inc. v.

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Telekenex, Inc., et al., No. C10-268 TSZ (W.D. Wash) (the

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"Straitshot action").

ECF No. 15 ("FAC").

In the Straitshot

United States District Court

For the Northern District of California

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action, Straitshot alleged that Telekenex stole its trade secrets

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and confidential customer information and covered up this theft

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through the destruction of evidence.

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Straitshot sued Mr. Zabit, Telekenex's president, Mr. Chaney,

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Telekenex's Chief Executive Officer ("CEO"), and Messrs. Prudell,

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Radford, and Summers, former Straitshot employees who allegedly

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funneled business opportunities to Telekenex before resigning from

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Straitshot.

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spouses, including Mss. Prudell, Radford, and Summers, on the

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ground that the other individual defendants' unlawful acts were

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taken on behalf of the marital community.

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In addition to Telekenex,

Straitshot also sued the individual defendants'

The Straitshot action ultimately went to trial.

The jury

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returned a $6.49 million verdict in favor of Straitshot, finding

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for Straitshot on its claims for: (1) breach of contract against

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Messrs. Prudell and Radford; (2) breach of the duty of loyalty

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against Messrs. Prudell and Summers; (3) interference with

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contractual relations against Telekenex and Messrs. Prudell,

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Radford, Summers, Zabit, and Chaney; and (4) violation of the

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Consumer Protection Act against Telekenex and Messrs. Zabit,

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Chaney, Prudell, and Radford.

The jury found against Straitshot on

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its claims for misappropriation of trade secrets and false

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statements in violation of the Lanham Act.

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judgment against all defendants.

The Court entered a

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Following the trial, the court issued additional Findings of

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Fact and Conclusions of Law awarding Straitshot sanctions for Mr.

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Summers's spoliation of evidence and failure to produce documents

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during discovery.

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connection with these findings, the Court concluded that Mr.

Smith Decl. Ex. 10 ("Spoliation FFCL").

In

United States District Court

For the Northern District of California

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Summers intentionally and wrongfully used a Straitshot laptop and,

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in bad faith, made substantial alterations and deletions to that

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laptop in violation of multiple temporary restraining orders.

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¶ 24.

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sanctions from Telekenex for the spoliation under the doctrine of

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respondeat superior.

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Id.

The Court also found that Straitshot was entitled to

Id. ¶ 31.

Sometime after the Straitshot action was filed, Telekenex

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submitted an insurance claim to Axis.

The Axis policy provides

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coverage for claims against directors and officers (a.k.a., "D&O

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liability"), employment practices liability, fiduciary liability,

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and outside executive liability, among other things.

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Ex. 1 ("Policy") § I.

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exclusions, including an "Unlawful Advantage Exclusion" for losses

ECF No. 39

The Policy carves out a number of

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based upon, arising out of, directly or indirectly
resulting from, in consequence of or in any way
involving: the gaining of any profit, remuneration, or
advantage to which the Insured was not legally
entitled . . . if evidenced by any judgment, final
adjudication, alternate dispute resolution proceeding
or a document or written statement by an Insured.

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Id. § IV.A.5.

Axis agreed to accept the duty to defend under the

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Policy and retained the law firm of Littler Mendelson to defend

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Telekenex and the individual defendants in the Straitshot action.

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B.

Procedural History

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On June 8, 2012, Axis filed the instant action against

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Telekenex, Straitshot, IXC Holdings, Inc., Mr. Zabit, Ms. Salazar,

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and Brandon and Deanna Chaney (collectively, the "responding

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Defendants"), as well as the Defendants in default.

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action, Telekenex seeks a declaration that the Policy does not

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cover the damages awarded in the Straitshot action or the defense

Through this

United States District Court

For the Northern District of California

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costs incurred in that action.

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seven of which are relevant here: (I) Declaratory Relief - Unlawful

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Advantage Exclusion; (II) Declaratory Relief - Insurance Code §

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533; (III) No Coverage for Spoliation Penalties; (IV) Declaratory

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Relief - No Coverage for Breach of Duty of Loyalty; (VI)

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Declaratory Relief - Allocation for Uncovered Amounts; (VII)

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Equitable Indemnity; and (VIII) Reimbursement.

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default did not respond to the complaint.

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Axis's FAC asserts eight counts,

Defendants in

Later in 2012, Axis moved for partial summary judgment against

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all defendants.

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granted in part and denied in part.

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Policy's unlawful advantage exclusion barred coverage for the $6.49

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million judgment in the Straitshot action, but did not bar coverage

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for the spoliation sanctions.

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Court also found that California Insurance Code section 533

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precluded coverage for damages flowing from Straitshot's claims for

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interference with contractual relations, but not for damages

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flowing from the spoliation sanctions.

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As to the responding Defendants, the motion was
The Court found that the

ECF No. 68 ("SJ Order") at 27.

The

Id.

The Court denied the motion with respect to the Defendants in

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default.

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already been entered against the Radfords and the Summerses, and

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the Prudells were served well after Axis moved for summary

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judgment.

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enter judgment against the Radfords and the Summerses, then it

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should move for default judgment.

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against the Prudells, then it should provide them with adequate

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time to respond."

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the Clerk entered default against the Prudells.

United States District Court

For the Northern District of California

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Id. at 2 n.1.

Id.

The Court reasoned that default had

The Court stated: "If Axis wishes the Court to

Id.

If it wishes for a judgment

About a month after the order was filed,
ECF No. 76.

Defendants in default have yet to appear in this action.

Axis

now moves for entry of default judgment against all six of them.

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III. LEGAL STANDARD
After entry of a default, the Court may enter a default

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judgment.

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so, while discretionary, is guided by several factors.

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Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980).

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matter, the Court must "assess the adequacy of the service of

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process on the party against whom default is requested."

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Trs. of the N. Cal. Sheet Metal Workers v. Peters, No. 00–0395,

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2000 U.S. Dist. LEXIS 19065, at *2 (N.D. Cal. Jan. 2, 2001).

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Court should also determine whether the exercise of personal

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jurisdiction is appropriate.

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Cir. 1999).

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Fed. R. Civ. P. 55(b)(2).

Its decision whether to do
Aldabe v.

As a preliminary

Bd. of

The

In re Tuli, 172 F.3d 707, 712 (9th

If the Court determines that service was sufficient and the

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exercise of personal jurisdiction is proper, it should consider

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whether the following factors support the entry of default

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judgment: (1) the possibility of prejudice to the plaintiff; (2)

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the merits of plaintiff's substantive claim; (3) the sufficiency of

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the complaint; (4) the sum of money at stake in the action; (5) the

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possibility of a dispute concerning material facts; (6) whether the

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default was due to excusable neglect; and (7) the strong policy

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underlying the Federal Rules of Civil Procedure favoring decisions

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on the merits.

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1986).
"The general rule of law is that upon default the factual

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

allegations of the complaint, except those relating to the amount

United States District Court

For the Northern District of California

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of damages, will be taken as true."

Geddes v. United Fin. Grp.,

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559 F.2d 557, 560 (9th Cir. 1977).

"However, necessary facts not

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contained in the pleadings, and claims which are legally

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insufficient, are not established by default."

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Co., 980 F.2d 1261, 1267 (9th Cir. 1992).

Cripps v. Life Ins.

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IV.

DISCUSSION

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A.

Service of Process

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As an initial matter, the Court finds that service of process

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on Defendants in default was sufficient.

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by mail on June 27, 2012, and subsequently returned a waiver of

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service of summons.

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and returned written waivers after receiving copies of Axis's

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original complaint and FAC.

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Radfords and Summerses were properly served pursuant to Federal

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Rule of Civil Procedure 4(d)(4).

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served on December 1, 2012.

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served on December 3, 2012, by leaving a copy of the summons and

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complaint at his usual dwelling with his wife.

ECF Nos. 13, 14.

The Radfords were served

The Summerses also signed

ECF Nos. 16, 17.

Accordingly, the

Mrs. Prudell was personally

ECF No. 67.

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Mr. Prudell was properly

ECF No. 66, Fed R.

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Civ. P. 4(e)(2)(B).

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B.

Personal Jurisdiction

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"When a court is considering whether to enter a default

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judgment, it may dismiss an action sua sponte for lack of personal

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jurisdiction."

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California and all six Defendants in default reside in Washington,

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FAC ¶¶ 6-8, the Court requested supplemental briefing on the issue

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of personal jurisdiction.

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Court is satisfied that the exercise of personal jurisdiction is

United States District Court

For the Northern District of California

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Tuli, 172 F.3d at 712.

As this Court sits in

Having reviewed Axis's briefing, the

proper.
The Radfords and Prudells have expressly consented to the

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Court's exercise of personal jurisdiction.

These four defendants

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entered into a settlement agreement with Axis whereby they agreed

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"that the Court . . . has power to enter default judgment against

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them on Axis's [FAC] therein, and submit to th[e] Court exercising

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personal jurisdiction over them accordingly."

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("Smith Decl.") Ex. A § 3, Ex. B § 3.

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jurisdiction requirement is a waivable right, there are a variety

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of legal arrangements by which a litigant may give express or

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implied consent to the personal jurisdiction of the court."

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King Corp. v. Rudzewicz, 471 U.S. 462, 473 n.14 (1985).

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finds the Radfords and Prudells have waived the personal

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jurisdiction requirement through their agreements with Axis.

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The Court also finds that the exercise of personal

ECF No. 138-1

"Because the personal

Burger

The Court

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jurisdiction over Mr. Summers is appropriate because he purposely

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availed himself of the privilege of conducting activities in

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California, and this suit arises out Mr. Summers's contacts with

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California.

Id. at 475.

As an employee of Telekenex, a San

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Francisco-based company, Mr. Summers frequently worked in

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California.

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he lived in Washington, he often stayed in San Francisco during the

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work week, and that his company laptop generally stayed in

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California.

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Straitshot action, as well as the instant insurance coverage

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dispute, arose, at least in part, out of Mr. Summers's employment

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with Telekenex in California, and his attempts to siphon business

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to Telekenex.

United States District Court

For the Northern District of California

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Mr. Summers's trial testimony indicates that, though

Smith Decl. Ex. C.

Moreover, the underlying

Finally, Mr. Summers has yet to present a compelling

case that the exercise of jurisdiction would be unreasonable.
This leaves Mrs. Summers, another resident of Washington.

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Axis argues that Mr. Summers' forum contacts are attributable to

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Mrs. Summers as a matter of agency and marital community law.

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Dated Washington law tends to support this assertion.

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Goldberg, 20 Wash. App. 472, 481 (Wash. Ct. App. 1978) (holding

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"that the transaction by the husband as manager of the community,

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is all that is necessary to subject the wife to jurisdiction,

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particularly where she had knowledge of the transaction.").

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event, Mrs. Summers has yet to contest the Court's exercise of

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personal jurisdiction.

In any

For these reasons, the Court finds that the exercise of

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See Barer v.

personal jurisdiction is proper.

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C.

Eitel Factors

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Since service of process and the exercise of personal

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jurisdiction are proper, the Court next turns to the Eitel factors

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to determine whether default judgment is appropriate.

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finds that the Eitel factors favor default judgment here.

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///

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The Court

i.

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Possibility of Prejudice

The first factor considers the possibility of prejudice

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against the plaintiff if default judgment is not entered.

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Court finds that because Axis may be without recourse for recovery

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if default judgment is not entered, this factor weighs in favor

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of default judgment.

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Supp. 2d 1172, 1177 (C.D. Cal. 2002).
ii.

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The

See PepsiCo, Inc. v. Cal. Sec. Cans, 238 F.

The Merits of Axis's Claims

The second and third Eitel factors require that a plaintiff's

United States District Court

For the Northern District of California

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allegations state a claim upon which it can recover.

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to Count I and II, the Court has already held that Policy's

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unlawful advantage exclusion and California Insurance Code section

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533 bar coverage for the $6.49 million judgment in the Straitshot

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action.

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With respect

SJ Order at 13-14, 24.

As to Count III, the Court previously held that the section

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533 did not preclude coverage as to Telekenex for spoliation

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sanctions.

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indemnification for a principal where it is held vicariously liable

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for the willful acts of its agents, and the court in the Straitshot

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action only held Telekenex liable for spoliation sanctions on the

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basis of vicarious liability.

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new argument on the spoliation sanctions, contending that fines or

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penalties do not constitute a covered "loss" as defined by the

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Policy.

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of a motion for default judgment.

The Court reasoned that the statute does not bar

Id. at 22-24.

Axis now asserts a

The Court finds this argument sufficient for the purposes

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As to Count IV, the Court finds plausible Axis's allegation

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that it is not liable for any damages awarded in connection with

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the defaulting Defendant's breaches of their duty of loyalty.

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In

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the Straitshot action, Messrs. Prudell and Summers were held liable

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for breaches of their duty of loyalty to Straitshot.

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were also found liable because the actions were taken to benefit

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the marital community.

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for Telekenex employees when they are acting within the scope of

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their employment.

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took or failed to take on behalf of Straitshot are not covered by

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the Policy.

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Their wives

However, the Policy only provides coverage

Thus, any actions Messrs. Prudell and Summers

Axis also moves for default judgment on Count VI as to all of

United States District Court

For the Northern District of California

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the defaulting Defendants.

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what relief it is seeking with respect to this count, but the

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pleadings suggest that Axis seeks a declaration that any amounts

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Axis advanced in connection with the defense of the Straitshot

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action are not covered by the Policy.

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of the findings above, the Court finds the pleadings plausible in

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this respect.

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Axis could be clearer about exactly

See FAC ¶¶ 72-73.

In light

Finally, Axis moves for summary judgment as to the Summerses

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on Counts VII and VIII, which essentially seek reimbursement for

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any defense costs advanced on the Summerses behalf.

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Straitshot's claims were not covered by the Policy, the Court finds

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reimbursement appropriate.

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Since

In sum, the Court finds that the second and third Eitel
factors favor default judgment.
iii. The Amount of Money
As to the fourth Eitel factor, the Court must consider "the

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amount of money at stake in relation to the seriousness of

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defendant's conduct."

N. Cal. Sheet Metal Workers, 2000 U.S. Dist.

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LEXIS 19065, at *4–5.

"The Court considers Plaintiff's

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declarations, calculations, and other documentation of damages in

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determining if the amount at stake is reasonable."

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Corp. v. Twinstar Tea Corp., No. 06–CV–03594, 2007 WL 1545173, at

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*12 (N.D. Cal. May 29, 2007).

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from the Prudells and the Radfords, and seeks only $39,471.11

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against the Summerses.

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default judgment.
iv.

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Truong Giang

Axis does not seek monetary relief

This factor weighs in favor of the entry of

The Remaining Eitel Factors

The Court finds that the remaining Eitel factors also favor

United States District Court

For the Northern District of California

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entry of default judgment.

The material facts of this case are not

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reasonably likely to be subject to dispute, and there is no support

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for finding that the defendants' default is due to excusable

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neglect.

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year ago, and all of them have yet to enter an appearance.

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Moreover, while "[c]ases should be decided upon their merits

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whenever reasonably possible," Eitel, 782 F.3d at 1472,

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"Defendant's failure to answer Plaintiff['s] Complaint makes a

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decision on the merits impractical if not impossible, PepsiCo, 238

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F. Supp. 2d at 1177.

All six of the defaulting Defendants were served over a

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D.

Damages

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A plaintiff moving for entry of default judgment must prove up

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its requested damages.

Philip Morris USA, Inc. v. Castworld

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Products, Inc., 219 F.R.D. 494, 501 (C.D. Cal. 2003).

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has submitted a declaration from one of its assistant vice

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presidents in support of its requested damage award against the

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Summerses.

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attorney $39,471.11 in connection with the Straitshot action.

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Court finds the declaration sufficient for the purposes of default

Here, Axis

The declaration states that Axis paid the Summerses'

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The

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judgment.

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V.

CONCLUSION
For the reasons set forth above, Plaintiff Axis Reinsurance

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Company's motion for default judgment is GRANTED.

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The Court shall

enter judgment separately.

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IT IS SO ORDERED.

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United States District Court

For the Northern District of California

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Dated: February 19, 2014
UNITED STATES DISTRICT JUDGE

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