Allegro Consultants, Inc. v. Wellington Technologies, Inc. et al
Filing
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ORDER GRANTING 111 PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT AGAINST DEFENDANT WELLINGTON TECHNOLOGIES, INC.; AND DIRECTING PLAINTIFF TO SUBMIT REVISED PROPOSED DEFAULT JUDGMENT. Signed by Judge Beth Labson Freeman on 4/25/2016. (blflc1S, COURT STAFF) (Filed on 4/25/2016)
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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SAN JOSE DIVISION
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ALLEGRO CONSULTANTS, INC.,
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Case No. 13-cv-02204-BLF
Plaintiff,
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ORDER GRANTING PLAINTIFF’S
MOTION FOR DEFAULT JUDGMENT
AGAINST DEFENDANT
WELLINGTON TECHNOLOGIES,
INC.; AND DIRECTING PLAINTIFF TO
SUBMIT REVISED PROPOSED
DEFAULT JUDGMENT
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[Re: ECF 111]
v.
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WELLINGTON TECHNOLOGIES, INC.,
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United States District Court
Northern District of California
Defendant.
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Plaintiff Allegro Consultants, Inc. brought this suit against Defendant Wellington
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Technologies, Inc. for breach of contract, fraud, and related claims after Wellington failed to pay
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monies due for services rendered by Allegro.1 Allegro has filed a motion for default judgment
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against Wellington. The Court submitted the motion without oral argument pursuant to Civil
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Local Rule 7-1(b). See Order Submitting Motion Without Oral Argument; And Vacating Hearing,
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ECF 112. For the reasons discussed below, the motion is GRANTED. However, Allegro must
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submit a revised Proposed Default Judgment consistent with this order.
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I.
BACKGROUND
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The operative Second Amended Complaint (“SAC”) alleges in relevant part as follows: in
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August 2007, Allegro and Wellington entered into a written Software Support Services Agreement
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(“Services Agreement”). SAC ¶¶ 16, 24 and Exh. A, ECF 76. Allegro fulfilled its obligations
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Allegro sued other entities and individuals as well, but all of those defendants have been
dismissed.
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under the Services Agreement but Wellington defaulted on payment. SAC ¶¶ 24-26. In
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December 2010, Allegro and Wellington entered into a written Vendor Customer Terms
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Modification Agreement (“Modification Agreement”), which provided that Wellington could pay
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all invoices then due – totaling $651,461.34 – over a five-year period, with interest at 5% per year.
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SAC ¶¶ 30-31 and Exh. B. The Modification Agreement required Wellington to make equal
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monthly installment payments of $12,293.88 for a period of sixty months. SAC Exh. B.
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Wellington made payments totaling $128,000 but ultimately defaulted once again. SAC ¶ 31, 36.
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Wellington also failed to pay for later services provided by Allegro under the Services Agreement
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and not covered by the Modification Agreement. SAC ¶ 25 and Exh. B.
Allegro served Wellington with the summons and SAC in May 2015 and, when
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United States District Court
Northern District of California
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Wellington failed to respond, obtained a Clerk’s entry of default against Wellington in June 2015.
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See Return of Service, ECF 97; Clerk’s Entry of Default, ECF 100. Allegro now moves for
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default judgment, seeking the remaining principal owed under the Modification Agreement,2
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$523,461.34, plus contractual interest of 5% per year over five years on that amount, as well as
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$81,266.76 for the additional services not covered by the Modification Agreement, plus statutory
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prejudgment interest of 10% per year on that amount. Allegro waives its costs. See Mot. for Def.
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Jud. at 4, ECF 111.
II.
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LEGAL STANDARD
Pursuant to Federal Rule of Civil Procedure 55, a court may grant default judgment against
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a defendant who has failed to plead or otherwise defend an action. Fed. R. Civ. P. 55(b)(2).
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“When entry of judgment is sought against a party who has failed to plead or otherwise defend, a
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district court has an affirmative duty to look into its jurisdiction over both the subject matter and the
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parties.” In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). The district court also must “assess the
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adequacy of the service of process on the party against whom default is requested.” DFSB
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The SAC alleges that after execution of the Modification Agreement, Allegro and Wellington
entered into an oral Settlement Agreement that increased the amount of principal due to
$742,017.59 and changed the payment schedule. SAC ¶ 36, ECF 76. Allegro’s motion for default
judgment relies on the earlier written Modification Agreement, perhaps because the Modification
Agreement provides that “[t]his Vendor Customer Terms Modification Agreement is not
negotiable and may not be changed or altered orally.” SAC Exh. B.
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Kollective Co., Ltd. v. Bourne, 897 F. Supp. 2d 871, 877 (N.D. Cal. 2012) (internal quotation
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marks and citation omitted).
Even when those requirements are satisfied, the plaintiff is not automatically entitled to a
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default judgment, and “[t]he district court’s decision whether to enter a default judgment is a
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discretionary one.” Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In exercising that
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discretion, courts in this district consider seven factors set forth by the Ninth Circuit in Eitel v.
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McCool (“Eitel factors”): “(1) the possibility of prejudice to the plaintiff, (2) the merits of
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plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in
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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
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United States District Court
Northern District of California
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Procedure favoring decisions on the merits.” Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir.
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1986).
In evaluating these factors, well-pled allegations in the complaint regarding liability are
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taken as true. Fair Housing of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002). “[T]he
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plaintiff is required to provide proof of all damages sought in the complaint.” PepsiCo., Inc. v.
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Cal. Security Cans, 238 F. Supp. 2d 1172, 1175 (C.D. Cal. 2002).
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III.
DISCUSSION
Allegro has satisfied the basic requirements for entry of default judgment against
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Wellington. Accepting all well-pled factual allegations in the SAC as true, the Court has diversity
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jurisdiction over the action. See SAC ¶ 20 (alleging complete diversity of citizenship and an
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amount in controversy exceeding $75,000), ECF 76. The Court has personal jurisdiction over
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Wellington, an Ohio resident, because the action arises from breach of contracts that Wellington
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entered into with Allegro in California. See SAC ¶ 21. Allegro has filed a proof of service
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showing service of process on Wellington. Return of Service, ECF 97.
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The Eitel factors likewise support entry of default judgment, although as discussed below
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Allegro seeks prejudgment interest under the wrong state’s law and thus will be required to submit
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a revised Proposed Default Judgment consistent with this order.
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Prejudice to the Plaintiff
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With respect to the first factor, prejudice to the plaintiff, Allegro would have no recourse
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absent default judgment because Wellington has elected not to respond to the complaint, thereby
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denying Allegro a hearing on its claims that Wellington owes payment for services rendered.
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Merits of Claims and Sufficiency of Complaint
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The second and third factors, addressing the merits of the plaintiff’s claims and the
sufficiency of the complaint, are satisfied when the plaintiff asserts claims upon which it may
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recover. See IO Group, Inc. v. Jordon, 708 F. Supp. 2d 989, 997 (N.D. Cal. 2010). The SAC
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adequately states claims for breach of contract based upon both Wellington’s breach of the
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Modification Agreement and its failure to pay for later services provided under the Services
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United States District Court
Northern District of California
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Agreement. SAC ¶¶ 24-26, 30-33, Exhs. A, B.
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Sum of Money at Stake
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Turning to the fourth factor, the sum of money at stake, Allegro submits the Modification
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Agreement, which recites the original principal amount of $651,461.34; a listing of unpaid
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invoices covered by the Modification Agreement, including the invoice numbers, dates, and
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amounts due; and a declaration of Allegro’s President, Steve Cooper, stating that Wellington paid
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$128,000 of the $651,461.34 referenced in the Modification Agreement but that $523,461.34
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remains owing. Cooper Decl. ¶¶ 1-4 and Exh. B. The Modification Agreement expressly
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provides for payment of interest at a rate of 5% per year over five years. Cooper Decl. Exh. B.
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Allegro submits the declaration of its counsel, Nick Heimlich, who provides the calculation of
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interest due under the Modification Agreement in the amount $130,865.35. Heimlich Decl. ¶ 3.
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This evidence is sufficient to establish that an award of $654,326.69 is appropriate for breach of
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the Modification Agreement, representing an unpaid principal balance of $523,461.34 plus
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contractual interest of $130,326.69.
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With respect to invoice amounts for services provided under the Services Agreement and
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not covered by the Modification Agreement, Allegro submits Cooper’s declaration statements that
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after the parties negotiated the Modification Agreement, additional services were rendered in the
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amount of $81,266.76; those amounts were billed to Wellington; and Wellington did not pay.
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Cooper Decl. ¶ 5. Allegro attaches a copy of the Services Agreement and a listing of the unpaid
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invoices in question, including the invoice numbers, dates, and amounts due. Cooper Decl. Exhs.
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A, B. This evidence is sufficient to establish that an award of $81,266.76 is appropriate for the
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additional services provided under the Services Agreement and not covered by the Modification
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Agreement.
Allegro seeks statutory prejudgment interest on the $81,266.76 under California law,
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which provides that “[i]f a contract entered into after January 1, 1986, does not stipulate a legal
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rate of interest, the obligation shall bear interest at a rate of 10 percent per annum after a breach.”
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Cal. Civ. Code § 3289. However, the Services Agreement under which the services were provided
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and invoiced contains a choice-of-law provision specifying Ohio law. See SAC ¶¶ 24-25, ECF 76;
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United States District Court
Northern District of California
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Services Agreement ¶ 9(B). “Prejudgment interest in a diversity action is . . . a substantive matter
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governed by state law.” United States Fidelity and Guaranty Co. v. Lee Investments LLC, 641
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F.3d 1126, 1139 (9th Cir. 2011) (internal quotation marks and citation omitted) (ellipses in
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original). Under Ohio law, “when money becomes due and payable upon any bond, bill, note, or
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other instrument of writing . . . the creditor is entitled to interest at the rate per annum determined
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pursuant to section 5703.47 of the Revised Code, unless a written contract provides a different rate
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of interest in relation to the money that becomes due and payable, in which case the creditor is
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entitled to interest at the rate provided in that contract.” Ohio Rev. Code § 1343.03(A). Section
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5703.47 provides for a variable interest rate determined by the Ohio Department of Taxation and
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based upon the federal short-term rate. Ohio Rev. Code § 5703.47. For 2016, the rate is 3%. See
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Ohio Dep’t of Taxation Admin., http://www.courtclerk.org/forms/judgment_interest_2016.pdf.
Under California’s choice-of-law rules,3 a contractual choice-of-law provision will be
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enforced if “(1) the chosen jurisdiction has a substantial relationship to the parties or their
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transaction; or (2) any other reasonable basis for the choice of law provision exists . . . unless the
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chosen jurisdiction’s law is contrary to California public policy.” Hatfield v. Halifax PLC, 564
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F.3d 1177, 1183 (9th Cir. 2009). The substantial relationship test is met where one of the parties
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In diversity cases, the district court applies the forum state’s choice-of-law rules. First
Intercontinental Bank v. Anh, 798 F.3d 1149, 1153 (9th Cir. 2015).
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is domiciled in the chosen jurisdiction. See Nedlloyd Lines, BV v. Sup. Ct. of San Mateo Cnty., 3
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Cal. 4th 459, 467 (1992). Wellington is a citizen of Ohio. See SAC ¶ 2, ECF 76. Thus Ohio’s
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prejudgment interest rate applies unless application of that rate would violate California public
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policy. The Court has been unable to discover any authority suggesting that application of another
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state’s prejudgment interest rate, rather than California’s, would violate California public policy.
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Accordingly, Allegro is entitled to prejudgment interest on the $81,266.76 in unpaid invoices
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under Ohio law rather than California law.
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Dispute re Material Facts and Whether Default was due to Excusable Neglect
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The fifth factor, the possibility of a dispute regarding material facts, and the sixth factor,
whether the default was due to excusable neglect, weigh in favor of default judgment. Wellington
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United States District Court
Northern District of California
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has made no effort to challenge the SAC or to oppose default judgment despite notice of the
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present motion. See Proof of Service Re Motion, ECF 111-8. Therefore, there is nothing in the
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record to suggest a factual dispute or excusable neglect.
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Policy Favoring Decision on the Merits
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The seventh and final factor, the strong public policy favoring decisions on the merits,
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does not preclude default judgment when the other Eitel factors favor it. See PepsiCo., 238 F.
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Supp. 2d at 1177. Here, Wellington’s failure to answer the SAC “makes a decision on the merits
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impractical, if not impossible.” Id.
Accordingly, the Court concludes that Allegro has demonstrated its entitlement to default
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judgment in the total principal amount of $604,728.10, plus prejudgment interest. As to the
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$523,461.34 principal amount due under the Modification Agreement, Allegro is entitled to
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contractual interest in the amount of $130,326.69. As to the $81,266.76 principal amount due in
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unpaid invoices under the Services Agreement, Allegro is entitled to statutory prejudgment
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interest under Ohio law. Allegro shall submit a revised Proposed Default Judgment consistent
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with this order. The revised Proposed Default Judgment must be supported by admissible
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evidence as to the applicable interest rate(s) and the amount of prejudgment interest to which
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Allegro is entitled under Ohio law.
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//
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IV.
ORDER
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(1)
Allegro’s motion for default judgment is GRANTED as set forth herein; and
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(2)
Allegro shall file a revised Proposed Default Judgment, consistent with this order,
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on or before May 5, 2016.
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Dated: April 25, 2016
______________________________________
BETH LABSON FREEMAN
United States District Judge
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United States District Court
Northern District of California
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