XIFIN, Inc. v. FireflyDiagnostics, Inc.

Filing 10

ORDER granting 7 Motion to File Documents Under Seal; granting 9 Motion for Default Judgment in the amount of $891,322.14. Plaintiffs motions to seal and for default judgment are granted. The Clerk of Court shall enter judgment in favor of Plaintiff in the amount of $891,322.14 in total damages. Signed by Judge Roger T. Benitez on 3/9/2018. (anh)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 XIFIN, INC., Case No.: 3:17-cv-00742-BEN-KSC Plaintiff, 12 13 v. 14 ORDER: FIREFLY DIAGNOSTICS, INC., 15 1) GRANTING PLAINTIFF’S MOTION TO FILE DOCUMENTS UNDER SEAL; and Defendant. 16 2) GRANTING PLAINTIFF'S MOTION FOR ENTRY OF DEFAULT JUDGMENT 17 18 19 Plaintiff brought this breach of contract action against Defendant seeking recovery 20 of damages. Plaintiff now moves for an entry of default judgment against Defendant. 21 Defendant did not respond to Plaintiff’s motion, and has not made an appearance in this 22 case. For the reasons set forth below, Plaintiff’s motions are GRANTED. 23 24 BACKGROUND XIFIN, Inc. (“XIFIN”) is a San Diego healthcare information technology company 25 incorporated in California that provides its clients with cloud-based billing services. 26 (Docket No. 1, “Compl.” ¶¶ 5, 7.) Firefly Diagnostics, Inc. (“Firefly”) is a company that 27 provides certain testing and diagnostic goods and services to healthcare providers; it is 28 incorporated and maintains its principal place of business in Ohio. (Id. ¶¶ 6, 9.) 1 3:17-cv-00742-BEN-KSC 1 On June 12, 2015, XIFIN entered into two written contracts with Firefly: (1) the 2 “RPM1 Contract,” and (2) the “LIS2 Contract” (together, the “Contracts”). Pursuant to 3 the RPM Contract, XIFIN provided Firefly with cloud-based laboratory diagnostic billing 4 services and outsourced accounts receivable and billing management services. (Id. ¶ 11.) 5 Pursuant to the LIS Contract, XIFIN provided cloud-based laboratory information 6 services to Firefly for pathology services “including, but not limited to, histology 7 workflow management, web-based remote specimen accessioning, barcode-based 8 specimen tracking, integration of digital pathology devices for slide image capturing, and 9 clinical history and case review.” (Id. ¶ 119.) 10 Beginning in December 2016, Firefly became delinquent in paying service fees 11 under both contracts. (Declaration of Tammy Lawrence (“Lawrence Decl.”) ¶ 16.) 12 XIFIN advised Firefly’s CEO, Jeff Garshon, on several occasions regarding its 13 delinquent account by both email and teleconference. (Id. ¶ 17.) Firefly did not dispute 14 the amount of service fees owed or claim that XIFIN itself breached either contract, and 15 ultimately failed to pay the amounts due. (Id. ¶¶ 16-17.) On December 13, 2016, XIFIN 16 provided notice of Firefly’s material breach of both contracts. (Id. ¶ 18.) On February 17 14, 2017, XIFIN terminated both contracts because Firefly had still failed to pay the 18 amounts due. (Id. ¶ 19.) 19 On April 12, 2017, XIFIN filed this action against Firefly for breach of the 20 Contracts. (Docket No. 1.) On April 26, 2017, XIFIN filed a proof of service, indicating 21 it had properly served Firefly. (Docket No. 4.) When Firefly failed to respond to its 22 Complaint, XIFIN filed a request for entry of default, which the Clerk of Court granted 23 24 25 26 27 28 1 RPM is an acronym for Revenue Performance Management system, which is the “proprietary internet-based accounts receivable and billing management system” XIFIN developed to provide its cloud-based billing services. (Compl. ¶ 7.) 2 LIS is an acronym for laboratory information system, which is “a separate cloudbased laboratory information system to manage diagnostic, financial, and clinical information.” (Compl. ¶ 8.) 2 3:17-cv-00742-BEN-KSC 1 on July 10, 2017. (Docket No. 6.) XIFIN now moves for default judgment against 2 Firefly. 3 4 DISCUSSION A. Motion to Seal 5 XIFIN files a copy of the RPM and LIS contracts requesting they be filed under 6 seal. (Docket No. 7.) “[T]he courts of this country recognize a general right to inspect 7 and copy public records and documents, including judicial records and documents.” 8 Nixon v. Warner Commc’ns, Inc., 435 U.S. 589, 597 (1978). “Unless a particular court 9 record is one ‘traditionally kept secret,’ a ‘strong presumption in favor of access’ is the 10 starting point.” Kamakana v. City & Cnty. of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 11 2006) (citing Foltz v. State Farm Mut. Auto Ins. Co., 331 F.3d 1122, 1135 (9th Cir. 12 2003)). A party seeking to seal a judicial record bears the burden of overcoming the 13 strong presumption of access. Foltz, 331 F.3d at 1135. Since the contracts that XIFIN 14 requests to file under seal are “more than tangentially related to the merits of the case,” 15 XIFIN must show “compelling reasons” for the request to seal. Ctr. for Auto Safety v. 16 Chrysler Grp., LLC, 809 F.3d 1092, 1096-98 (9th Cir. 2016). 17 XIFIN asserts both contracts “contain commercially sensitive business information 18 including . . . Plaintiff’s pricing structure for the rendition of services under the contracts 19 and proprietary protocols and processes.” (Docket No. 9.) Counsel for XIFIN explains 20 that “[p]ublic release of this information would harm . . . XIFIN, if those terms were to be 21 obtained by either current or future clients or competitors in the same market as XIFIN.” 22 (Declaration of John D. Hershberger in Support of Motion to Seal, Docket No. 7-2 ¶ 3.) 23 The Court finds the potential harm to XIFIN’s competitive standing constitutes 24 “compelling reasons,” and therefore GRANTS Plaintiff’s Motion to Seal. See Nixon, 25 435 U.S. at 598. 26 B. 27 28 Motion for Default Judgment Federal Rule of Civil Procedure 55(b)(2) provides for the entry of default judgment by the court. “The district court’s decision whether to enter a default judgment 3 3:17-cv-00742-BEN-KSC 1 is a discretionary one.” Microsoft Corp. v. Ricketts, No. C 06-06712 WHA, 2007 WL 2 1520965, at *1 (N.D. Cal. May 24, 2007) (quoting Aldabe v. Aldabe, 616 F.2d 1089, 3 1092 (9th Cir. 1980)). A district court considers the following factors: 4 8 (1) the possibility of prejudice to 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. 9 Microsoft Corp., 2007 WL 1520965, at *1-2 (quoting Eitel v. McCool, 782 F.2d 1470, 5 6 7 10 11 1471-72 (9th Cir. 1986)). In determining the merits of a motion for default judgment “well-pleaded factual 12 allegations are taken as true, except as to the amount of damages.” Id. at *2 (citing Fair 13 Hous. Of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002). The Court has considered 14 the Eitel factors and finds these factors favor entry of default against Firefly. 15 1. 16 XIFIN claims Firefly used its services without paying amounts due under the Possibility of Prejudice to Plaintiff 17 Contracts. Firefly has refused to participate in these proceedings. If a default judgment 18 is not entered, XIFIN will suffer prejudice because it will be without other recourse for 19 recovery. See Philip Morris USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 499 20 (C.D. Cal. 2003) (finding that without a default judgment, plaintiff would have no other 21 recourse and suffer prejudice). Therefore, this factor weighs in favor of granting default 22 judgment against Firefly. 23 2. 24 The second and third Eitel factors look to the merits of the plaintiff’s substantive Merits of Plaintiff's Claim & Sufficiency of Complaint 25 claim, and the sufficiency of the complaint. Eitel, 782 F.2d at 1471-72. The Ninth 26 Circuit has suggested that these two factors require that a plaintiff “state a claim on which 27 the [plaintiff] may recover.” Kloepping v. Fireman’s Fund, No. C 94-2684 TEH, 1996 28 WL 75314, at *2 (N.D. Cal. Feb. 13, 1996) (citing Danning v. Lavine, 572 F.2d 1386, 4 3:17-cv-00742-BEN-KSC 1 1388 (9th Cir. 1978)). In its complaint, XIFIN asserts two breach of contract claims, one 2 for the RPM Contract and one for the LIS Contract. XIFIN attached a copy of each 3 contract, and alleges that it fully performed on the contracts, that Firefly failed to 4 perform, and it was damaged as a result. Therefore, XIFIN alleges sufficient allegations 5 in the Complaint, and the allegations appear to have merit. See Reichert v. Gen. Ins. Co. 6 of Am., 68 Cal. 2d 822, 830 (1968) (elements of breach of contract include: existence of a 7 contract, plaintiff’s performance, defendant’s breach, and resulting damages to the 8 plaintiff). Thus, these two factors also favor entry of default judgment. 9 3. 10 Amount of Money at Stake Under the fourth Eitel factor, a court considers the amount of money at stake in 11 relation to the seriousness of a party’s conduct. PepsiCo, Inc. v. Cal. Sec. Cans, 238 F. 12 Supp. 2d 1172, 1176-77 (C.D. Cal. 2002). Here, Plaintiff seeks an award of 13 $696,132.013 in damages for breach of the RPM Contract, and $195,190.134 for breach of 14 the LIS Contract. The amount requested is supported by the evidence and proportionate 15 to the harm caused by Firefly’s purported breach of the contracts. Accordingly, this 16 factor weighs in favor of granting default judgment. 17 4. 18 Firefly has not filed an answer or responded to XIFIN’s Complaint, or filed an Possibility of Dispute Over Material Facts 19 opposition or responded to the instant motion or XIFIN’s motion for the clerk’s entry of 20 default judgment. As a result, no dispute concerning material facts has arisen. Therefore, 21 this factor also weighs in favor of granting default judgment against Firefly. 22 /// 23 24 25 26 27 28 3 This amount consists of $256,758.94 in service fees, $19,373.07 in finance charges, and $420,000 in Minimum Service Fees pursuant to the RPM Contract. (Lawrence Decl. ¶ 35.) 4 This amount consists of $83,862.50 in service fees, $6,327.63 in finance charges, and $105,000 in accelerated Subscription Fees, pursuant to the LIS Contract. (Lawrence Decl. ¶ 46.) 5 3:17-cv-00742-BEN-KSC 1 5. 2 A court may consider whether there are circumstances surrounding a party’s failure Whether Default was Due to Excusable Neglect 3 to respond constitutes excusable neglect. See Eitel, 782 F.2d at 1472. However, a court 4 may find excusable neglect to be lacking where a defendant was properly served with the 5 complaint and notice of default judgment. See Shanghai Automation Instrument Co. v. 6 Kuei, 194 F. Supp. 2d 995, 1005 (N.D. Cal. 2001). Here, the possibility of excusable 7 neglect is remote. Firefly was properly served with the Complaint, the motion for clerk’s 8 default judgment, the Clerk of the Court’s entry of default, and the instant motion for this 9 Court’s entry of default judgment. (Docket Nos. 4, 5-6, 9). Yet Firefly failed to answer 10 the Complaint and did not oppose the above-referenced motions or object to the Clerk of 11 the Court’s entry of default. Accordingly, this factor also weighs in favor of granting 12 default judgment against Firefly. 13 6. 14 The policy favoring resolution of the case on the merits always weighs against 15 default judgment. In this case, however, the other Eitel factors outweigh this general 16 policy because of Firefly’s “failure to answer Plaintiff's [c]omplaint makes decision on 17 the merits impractical, if not impossible.” PepsiCo, 238 F. Supp. 2d at 1177. Policy Favoring Decisions on the Merits 18 In sum, other than the policy of deciding cases on the merits, the totality of the 19 Eitel factors weigh in favor of default judgment against Firefly. Therefore, Plaintiff’s 20 motion for default judgment is GRANTED. 21 C. 22 Damages XIFIN seeks damages due under the RPM and LIS Contracts. Under Rule 8(a)(3), 23 a plaintiff’s demand for relief must be specific, and he “must ‘prove up’ the amount of 24 damages.” Philip Morris USA Inc. v. Banh, No. CV 03–4043 GAF (PJWx), 2005 WL 25 5758392, at *6 (C.D. Cal. Jan. 14, 2005); Elektra Entmn’t Grp., Inc. v. Bryant, No. CV 26 03–6371GAF(JTLX), 2004 WL 783123, at *5 (C.D. Cal. Feb. 13, 2004) (“Plaintiffs must 27 ‘prove up’ the amount of damages that they are claiming.”). Rule 54(c) limits the relief 28 that can be sought in a motion for entry of default judgment to that identified in the 6 3:17-cv-00742-BEN-KSC 1 complaint. Fed. R. Civ. P. 54(c) (“A default judgment must not differ in kind from, or 2 exceed in amount, what is demanded in the pleadings.”). See also PepsiCo, 238 F. Supp. 3 2d at 1174 (stating that a default judgment “shall not be different in kind from or exceed 4 in amount that prayed for in the [complaint]”). Also, as noted, a defaulting defendant is 5 not deemed to have admitted facts concerning damages alleged in the complaint. See id. 6 at 1177 (“Upon entry of default, all well pleaded facts in the complaint are taken as true, 7 except those relating to damages.”) (citing TeleVideo Sys., 826 F.2d at 917-18). 8 9 XIFIN seeks an award of monetary damages in the amounts of $696,132.01 for the RPM Contract and $195,190.13 for the LIS Contract. To support its damages, XIFIN 10 attached copies of the Contracts, the Declaration of XIFIN’s Associate Vice President of 11 Financial Operations, and copies of the invoices reflecting the outstanding balances, 12 which establishes $256,758.94 in service fees are due under the RPM Contract, and 13 $83,862.50 in service fees are due under the LIS Contract. (Lawrence Decl. ¶¶ 20-35, 14 36-46.) XIFIN also points to the clauses in the Contracts that allow finance charges in 15 the amount of 1.5% per month on overdue balances, which in this case totals $19,373.07 16 for the RPM Contract and $6,327.63 for the LIS Contract. (Id.) XIFIN further identifies 17 the clauses in the Contracts that provide for acceleration of minimum service fees, which 18 amount to $420,000 for the RPM Contract and $105,000 for the LIS Contract. (Id.) 19 Thus, XIFIN has sufficiently proven up the amount of damages it is claiming. 20 CONCLUSION 21 For the foregoing reasons, Plaintiff’s motions to seal and for default judgment are 22 GRANTED. The Clerk of Court shall enter judgment in favor of Plaintiff in the amount 23 of $891,322.14 in total damages. 24 25 IT IS SO ORDERED. Dated: March 9, 2018 26 27 28 7 3:17-cv-00742-BEN-KSC

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