Alaka'i Mechanical Corporation v. RMA Land Construction, Inc. - ECC et al

Filing 52

ORDER REFERRING THE MAGISTRATE JUDGE'S FINDINGS AND RECOMMENDATION BACK TO THE MAGISTRATE JUDGE (ECF No. 51 ). Signed by JUDGE HELEN GILLMOR on 1/15/2016. ~ Pursuant to Fed. R. Civ. P. 55(b)(2), the Court REFERS the Fin dings and Recommendation back to the Magistrate Judge for consideration of the issues raised herein. (ecs, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
ALAKA’I MECHANICAL
CORPORATION,
Plaintiff,
vs.
RMA LAND CONSTRUCTION, INC.
- ECC (A JOINT VENTURE); RMA
LAND CONSTRUCTION, INC.; and
ENVIRONMENTAL CHEMICAL
CORPORATION,
Defendants.
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CIVIL NO. 14-00145-HG-KSC

ORDER REFERRING THE MAGISTRATE JUDGE’S
FINDINGS AND RECOMMENDATION BACK TO THE MAGISTRATE JUDGE
(ECF No. 51)
Plaintiff Alakai Mechanical Corporation has filed a
collection action against a joint venture.
is comprised of two entities.

The joint venture

Only one of the two entities

has appeared before the Court.
The Motion before the Court moves for default judgment
against the non-appearing party, RMA Land Construction, Inc.
The Magistrate Judge has filed a Findings and Recommendation
addressing the default judgment motion.

(ECF No. 51).

No

party has filed an objection to the Magistrate Judge’s
Findings and Recommendation.
The Court REFERS the December 8, 2015 Findings and
Recommendation (ECF No. 51) back to the Magistrate Judge for
1

consideration of the issues raised herein.
BACKGROUND
Defendants RMA Land Construction, Inc. (“RMA”) and
Environmental Chemical Corporation (“ECC”) are partners in a
joint venture, Defendant RMA Land Construction, Inc. - ECC (A
Joint Venture) (“Joint Venture”).

(Morgan Decl. at ¶ 2, ECF

No. 42-2).
On March 10, 2011, Plaintiff Alakai Mechanical
Corporation (“Plaintiff”) entered into a contract with
Defendant Joint Venture for construction-related work at Ford
Island, Hawaii.
7-2).

(Morgan Decl. at ¶ 4, ECF No. 42-2; ECF No.

Plaintiff alleges that it performed its contractual

duties, but the Joint Venture has failed to pay an invoiced
amount of $102,630.80.

(Amended Complaint at ¶¶ 14-15, ECF

No. 7; Morgan Decl. at ¶¶ 6-7, ECF No. 42-2).
On March 24, 2014, Plaintiff filed suit against the Joint
Venture and the two partners which formed the Joint Venture,
RMA and ECC.

(ECF No. 7).

appeared before the Court.

ECC and the Joint Venture have
RMA has not appeared.

On June 26, 2014, ECC and the Joint Venture asked
Plaintiff to dismiss the suit and agree to an arbitration.
(Chung Decl. at ¶¶3-4, ECF No. 8-1).

On November 14, 2014,

Plaintiff, ECC, and the Joint Venture stipulated to a stay in
the case proceedings.

(Stipulation to Stay Proceedings

2

Pending Arbitration; Order at ¶ 1, ECF No. 35).

The stay of

proceedings was requested to allow the parties to resolve
Plaintiff’s claims through arbitration.

(Stipulation to Stay

Proceedings Pending Arbitration; Order at ¶ 1, ECF No. 35).
On February 6, 2015, Plaintiff entered into a settlement
agreement with ECC.

(ECF No. 42-6).

The settlement agreement

required ECC to pay Plaintiff $102,630.80 in three
installments.

(Settlement Agreement. at ¶ 1, ECF No. 42-6).

As consideration for these payments, Plaintiff agreed to
release ECC from any known claims relating to the collection
action.

(ECF No. 42-6).

The settlement agreement did not

involve RMA or the Joint Venture.

(Settlement Agreement at ¶¶

7; 19, ECF No. 42-6).
On April 6, 2015, pursuant to a stipulated request by
Plaintiff, ECC, and the Joint Venture, the Magistrate Judge
lifted the stay of proceedings.

(ECF No. 39).

On August 31, 2015, Plaintiff filed a motion for default
judgment as to Defendant RMA.

(ECF No. 42).

STANDARD OF REVIEW
Federal law affords district courts with considerable
discretion as to the treatment of unchallenged magistrate
findings and recommendations.
149 (1985).

Thomas v. Arn, 474 U.S. 140,

The district court “may accept, reject, or

3

modify, in whole or in part,” the magistrate judge’s findings
and recommendation.

28 U.S.C. § 636(b)(1)(C).

This broad

grant of review recognizes that the district court, not the
magistrate judge, holds the duty of making a final
determination of the facts and the law.

Campbell v. U.S.

Dist. Court for N. Dist. of Cal., 501 F.2d 196, 206 (9th Cir.
1974).
The district court may accept unobjected portions of a
magistrate judge's findings and recommendation if it is
satisfied that there is no clear error on the face of the
record.

Stow v. Murashige, 288 F. Supp. 2d 1122, 1127 (D.

Haw. 2003); Abordo v. State of Hawaii, 938 F. Supp. 656, 658
(D. Haw. 1996).

ANALYSIS
The Magistrate Judge’s Findings and Recommendation (ECF
No. 51) addresses Plaintiff Alakai Mechanical Corporation’s
(“Plaintiff”) Renewed Motion for Default Judgment against RMA
Land Construction, Inc. (“RMA”) (ECF No. 42), and Supplemental
Memorandum in Support (ECF No. 47) (collectively, “Plaintiff’s
Motion”).

Plaintiff is seeking to recover breach of contract

damages, attorneys’ fees and costs, and prejudgment interest
from RMA.

(ECF Nos. 42; 47).

Plaintiff’s Motion contained a proposed Findings and

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Recommendation that was adopted by the Magistrate Judge.

The

Motion and the Findings and Recommendation both state that
default judgment is warranted in this case, as RMA “has failed
to answer, appear or otherwise defend, and the time to
otherwise move or plead has expired and has not been extended
in this action.”

(Renewed Motion for Default Jdgmt. at p. 2,

ECF No. 42; F & R at ¶ 10, ECF No. 51).
The Magistrate Judge’s Findings and Recommendation
recommends a default judgment amount of $62,687.23.
¶¶ 13-14, ECF No. 51).

(F & R at

In support of this amount, the

Findings and Recommendation attaches an exhibit provided by
Plaintiff.

Exhibit A is a table that explains the methodology

applied in the default judgment calculation.

(ECF No. 51-1).

An examination of the table reveals that the recommended
default judgment amount includes the principal damage figure
Plaintiff sued upon, Plaintiff’s attorneys’ fees and costs,
and prejudgment interest on those amounts.

(ECF Nos. 47-1;

51-1).

Default Judgment
The Federal Rules of Civil Procedure allow for entry of
default or default judgment when a party against whom
affirmative relief is sought fails to plead or otherwise
defend against the claim.

Fed. R. Civ. P. 55.

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A defendant's

default does not automatically entitle the plaintiff to a
court-ordered judgment. Aldabe v. Aldabe, 616 F.2d 1089, 1092
(9th Cir. 1980).

The district court has discretion as to the

determination of whether default judgment is appropriate.

Id.

The Ninth Circuit Court of Appeals has instructed
district courts to consider the following factors (the “Eitel
Factors”) when determining whether to enter default judgment:
(1) the possibility of prejudice to the plaintiff if
relief is denied;
(2) the substantive merits of the plaintiff's claims;
(3) the sufficiency of the claims raised in the
complaint; (4) the sum of money at stake in relationship
to the defendant's behavior;
(5) the possibility of a dispute concerning material
facts; (6) whether default was due to excusable neglect;
and
(7) the strong public policy favoring decisions on the
merits.
Eitel v. McCool, 782 F.2d 1470, 1471–1472 (9th Cir.
1986).

At the default judgment stage, well-pleaded factual
allegations, except those related to damages, are deemed

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admitted and are sufficient to establish the unresponsive
defendant's liability.

Geddes v. United Fin. Grp., 559 F.2d

557, 560 (9th Cir. 1977).

The Court must ensure that the

amount of claimed damages is reasonable and substantiated by
the plaintiff's evidence.

See Fed.R.Civ.P. 55(b); LG Elecs.,

Inc. v. Advance Creative Computer Corp., 212 F. Supp. 2d 1171,
1178 (N.D. Cal. 2002).
The Findings and Recommendation does not address whether
a default judgment in this case satisfies the Eitel Factors,
nor does it ascertain whether the amount of claimed damages is
reasonable and substantiated.

Such findings are necessary

prerequisites to an entry of default judgment.

California Law Governs the Determination of Substantive Issues
Relating to the Contract
The contract entered into by Plaintiff with RMA Land
Construction, Inc. - ECC (A Joint Venture) (“Joint Venture”)
states that California law shall govern its terms.
(Subcontract Agreement at §23.2, p. 13, ECF No. 7-2).
Federal courts sitting in diversity must apply the forum
state’s choice of law rules to determine the controlling
substantive law.
2002).

Patton v. Cox, 276 F.3d 493, 495 (9th Cir.

Hawaii courts enforce a contract’s choice of law

provision if the “chosen law has some nexus with the parties
or the contract.”

Del Monte Fresh Produce (Hawaii), Inc. v.
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Fireman's Fund Ins. Co., 183 P.3d 734, 741 (Haw. 2007)
(internal quotations omitted) (quoting Airgo, Inc. v. Horizon
Cargo Transp., 670 P.2d 1277, 1281 (Haw. 1983)(ordering trial
court to apply contract’s choice of law provision to determine
attorneys’ fees and prejudgment interest awards)).
Plaintiff is a Hawaii corporation.

Plaintiff states that

upon information and belief, the two members of the Joint
Venture

(RMA and Environmental Chemical Corporation (“ECC”))

and the Joint Venture itself each have their principal place
of business in California and are domiciled there.

(Amended

Complaint at ¶¶ 2-4, ECF No. 7).
The contract between the Joint Venture and Plaintiff
states that it is “deemed made and to be performed in the
County of Orange, State of California.”
Agreement at §23.3, p. 13, ECF No. 7-2).

(Subcontract
The Supreme Court of

Hawaii has stated that “[o]ne of the prime objectives of
contract law is to protect the justified expectations of the
parties.

When the parties choose the law of a particular

state to govern their contractual relationship and the chosen
law has some nexus with the parties or the contract, that law
will generally be applied.”

Airgo, Inc., 670 P.2d at 1281.

California law appears to govern the determination of any
substantive issue relating to the contract, including the
default judgment amount, applicability of prejudgment

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interest, and Plaintiff’s attorneys’ fees and costs.

Liability of Defendants
Plaintiff avers that Defendants RMA and ECC are partners
that formed Defendant Joint Venture.
ECF No. 42-2).

(Morgan Decl. at ¶ 2,

Plaintiff states that as general partners, RMA

and ECC are jointly and severally liable for any debts
incurred by Defendant Joint Venture.

(Morgan Decl. at ¶¶ 2;

11, ECF No. 42-2).
On February 6, 2015, Defendant ECC and Plaintiff entered
into a settlement agreement.

(ECF No. 42-6).

The terms of

the settlement agreement required ECC to pay Plaintiff
$102,630.80 in three installments.
1, ECF No. 42-6).

(Settlement Agreement at ¶

As consideration for these payments,

Plaintiff agreed to release ECC from any knows claims relating
to the collection action.

(ECF No. 42-6).

The settlement

agreement did not affect the status of Plaintiff’s claims
against the Joint Venture or RMA.

(Settlement Agreement at ¶¶

7; 19, ECF No. 42-6).

Default Judgment Against RMA Requires Special Attention
Where, as here, a party requests that judgment be entered
against fewer than all defendants, concerns regarding fairness
and reasonableness emerge.

Johnson v. Cate, No.

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109 CV 00502 OWW SMS, 2009 WL 1769621, at *2 (E.D. Cal. June
23, 2009).

Before default judgment pursuant to Fed. R. Civ.

P. 55 may be entered, Fed. R. Civ. P. 54(b) requires a court
to “expressly determine[] that there is no just reason for
delay.”

Fed. R. Civ. P. 54(b); In re First T.D. & Inv., Inc.,

253 F.3d 520, 531-533 (9th Cir. 2001) (analyzing Fed. R. Civ.
P. 54(b)); Shanghai Automation Instrument Co. v. Kuei, 194 F.
Supp. 2d 995, 1005 (N.D. Cal. 2001) (same).

In addition,

there must be consideration as to what effect, if any, the
settlement agreement between Plaintiff and ECC has on the
reasonableness of the default judgment levied against RMA.

The Findings and Recommendation’s Computation of the Default
Judgment Amount
The Findings and Recommendation’s computation of the
default judgment amount, $62,687.23, and the daily interest
accrual, $16.89, are incorrect.
In Exhibit A of the Findings and Recommendation, a table
delineates the method by which the proposed order, provided by
the Plaintiff to the Magistrate Judge, calculated the
recommended default judgment amount.

(ECF No. 51-1).

The table begins with the principal balance Plaintiff
alleges Defendants owe in this case: $102,630.80.
line 1, ECF No. 51-1).

(Ex. A at

The table then adds prejudgment

interest of 10 percent per annum to the principal balance for
10

the period between November 1, 2012 through March 12, 2015.
(Ex. A at line 2).

Attorneys’ fees and costs from the same

period are also added.

(Ex. A at lines 4-5).

The table then

deducts the first of three payments ECC provided to Plaintiff,
pursuant to their settlement agreement. (Ex. A at lines 7-8).
After accounting for ECC’s first payment, the table
continues to add attorneys’ fees, (Ex. A at line 9, ECF No.
51-1), and prejudgment interest on the principal balance, (Ex.
A at lines 10-11), to the default judgment amount for the
period between March 13, 2015 and June 2, 2015. (Ex. A at line
12).
On June 2, 2015, Plaintiff received the second of three
payments from ECC.

(Ex. A at line 13, ECF No. 51-1).

As

before, the table credits the ECC payment to the default
judgment balance.

(Ex. A at lines 13-14).

The table,

however, then adds prejudgment interest for the period between
June 3, 2015 through September 2, 2015, to the default
judgment amount.

(Ex. A at lines 15-16).

The default

judgment amount at that point comprised of the remaining
principal (and accompanying prejudgment interest on that
figure), attorneys’ fees, and Plaintiff’s costs.

(Ex. A at

lines 15-16).
A similar pattern continues for the remainder of the
table’s calculation: attorneys’ fees are added to the default

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judgment amount, (Ex. A at line 17, ECF No. 51-1), the third
ECC payment is credited, (Ex A. at lines 19-20), and
prejudgment interest is added.

(Ex. A at lines 21; 23).

An amount of $246.17 of attorneys’ fees is then deducted
from the default judgment amount.
51-1).

(Ex. A at line 25, ECF No.

It is not clear what the amount actually represents,

but it is described in the default judgment table as “Deduct
of Attorney’s Fees Per 25% Assumpsit Cap.”
25).

(Ex. A at line

A final default judgment amount of the calculation is

$62,687.23.

(Ex. A at line 26).

At the bottom of Exhibit A, the default judgment table
announces that interest on the calculated default judgment
amount would “accrue at a rate of $16.89 per day” after
November 17, 2015.

(ECF No. 51-1).

This figure, too, adds

prejudgment interest on the default judgment amount, which is
inclusive of attorneys’ fees and costs.

(Id.).

Inclusion of Attorneys’ Fees in the Default Judgment
Calculation
The Findings and Recommendation’s default judgment table
in Exhibit A (ECF 51-1) should not have included attorneys’
fees and costs in the calculation of a default judgment
amount.

Attorneys’ fees and costs must be tabulated

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separately.
An award of default judgment is considered an award of
damages.

Matera v. McLeod, 51 Cal. Rptr. 3d 331, 343 (Cal.

Ct. App. 2006); Falahati v. Kondo, 26 Cal. Rptr. 3d 104, 109110 (Cal. Ct. App. 2005).

Attorneys’ fees and costs “are not

an ordinary item of actual damages.”

Davis v. Air Tech.

Indus., Inc., 582 P.2d 1010, 1014 (Cal. 1978).

In cases

involving contract actions, the California Code of Civil
Procedure distinguishes between a default judgment for damages
specified in the complaint and an award for attorneys’ fees
and costs.

Cal. Code Civ. Proc. § 585; Becker v. S.P.V.

Constr. Co., 612 P.2d 915 (Cal. 1980) (analyzing a default
judgment award of damages and an award of attorneys’ fees
separately).

California courts look to the complaint’s demand

of damages when discerning the appropriate default judgment
amount to be levied against an unresponsive defendant.
Falahati, 26 Cal. Rptr. at 109-110.
The default judgment table in Exhibit A of the Findings
and Recommendation erroneously computed attorneys’ fees and
costs as part of the default judgment amount.

The default

judgment amount in this case is comprised of (1) any remaining
principal balance, and (2) any prejudgment interest accrual on
the principal.

Attorneys’ fees and costs must be computed

separately.

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Prejudgment Interest on Attorneys’ Fees and Costs
The Findings and Recommendation’s default judgment
calculation table in Exhibit A (ECF 51-1) adds prejudgment
interest to attorneys’ fees and costs.
ECF No. 51-1).

(Ex. A at lines 15-24,

Prejudgment interest must not be based on any

attorneys’ fees or costs.
California regulates prejudgment interest awards by
statute.

See Cal. Civ. Code §§ 3287; 3289.

The plain text of

California law restricts the application of prejudgment
interest to damages.

Cal. Civ. Code § 3287(a).

Prejudgment

interest is limited to damages because it is meant to
compensate the plaintiff for the “accrual of wealth” that
could have been produced, but for the defendant’s failure to
perform its obligations.

Great W. Drywall, Inc. v. Roel

Const. Co., 83 Cal. Rptr. 3d 235, 238-239 (Cal. Ct. App.
2008).

Attorneys’ fees and costs are not ordinarily

considered damages.

Davis, 582 P.2d at 1014.

Attorneys’ fees

and costs are unrelated to Defendant RMA’s failure to perform
on the contract.

The default judgment table in Exhibit A of

the Findings and Recommendation must not add prejudgment
interest on Plaintiff’s attorneys’ fees and costs.
The Contract Between the Parties Regulates Fees and Costs
Related to Litigation in Court
The contract between the parties explicitly authorizes

14

the prevailing party to collect attorneys’ fees and costs
incurred while prosecuting its claim in court.
Agreement at §§ 14.2; 23.7, ECF No. 7-2).

(Subcontract

The contract does

not allow for the collection of fees and costs related to any
arbitration between the parties, (Subcontract Agreement at §
14.2), or legal fees and costs not related to litigation in
court.

(Subcontract Agreement at §§ 14.2; 23.7).

In Exhibit 3 of its Renewed Motion for Default Judgment,
Plaintiff submitted documentation that accounts for legal work
performed in relation to an arbitration.
13, ECF No. 42-5).

(Ex. 3 at pp. 11;

The contract between the parties only

permits recovery of fees and costs relating to litigation in
court.

(Subcontract Agreement at §§ 14.2; 23.7, ECF No. 7-2).

Reasonable Attorneys’ Fees
California law requires Plaintiff’s fees and cost request
be reasonable.

Cal. Civ. Code § 1717(a).

A determination of

reasonableness is a necessary prerequisite to any award of
attorneys’ fees.

Cal. Civ. Code § 1717(a).

Under California law, where a contract explicitly carves
out a prevailing party’s right to claim attorneys’ fees and
costs, that party “shall be entitled to reasonable attorney’s
fees in addition to other costs.”

Cal. Civ. Code § 1717(a).

Section 23.7 of the contract states in part that a

15

prevailing party in litigation is entitled to recover “the
attorneys’ fees and costs of litigation actually incurred.”
(Subcontract Agreement at §23.2, p. 13, ECF No. 7-2).

Under

California law, however, a contractual provision that awards
actual fees does not bind a court to award anything more than
reasonable attorneys’ fees.
511, 519 (Cal. 2000).

PLCM Grp. v. Drexler, 997 P.2d

Plaintiff is due reasonable attorneys’

fees.

Calculation of the Days of Prejudgment Interest
On Lines 15 and 16 of Exhibit A of the Findings and
Recommendation, the interest calculation incorrectly states
the number of days between 6/3/15 through 9/2/15.

There were

in fact 92 days from 6/3/15 through 9/2/15, not 82 as
indicated.

As a result, the calculated prejudgment interest

amount for that period is erroneous.
On Line 21 of Exhibit A of the Findings and
Recommendation,
the prejudgment interest calculation, referred to as “Per
Diem,” for the period between 9/2/15 and 10/13/15 should begin
on 9/3/15, and not 9/2/15.

Throughout Exhibit A, the

calculation of days between dates has included both the
beginning date and end date.

Applying 9/2/15 as a start date

on Line 21 would lead to a double counting of 9/2/15, as Line

16

15 already considers 9/2/15 in its interest calculation.

The

actual tally of days presented, 41, is correct.

Date of Plaintiff’s Renewed Motion for Default Judgment
On Page 1, first paragraph, Line 3, replace “September 8,
2015 [Doc. 47]” with “August 31, 2015 (ECF No. 42).”

The date

for Plaintiff’s Renewed Motion for Default Judgment is
incorrectly stated as September 8, 2015.

The Renewed Motion

was filed on August 31, 2015.

CONCLUSION
Pursuant to Fed. R. Civ. P. 55(b)(2), the Court REFERS
the Findings and Recommendation back to the Magistrate Judge
for consideration of the issues raised herein.
IT IS SO ORDERED.
DATED:

Honolulu, Hawaii, January 15, 2016.

/s/ Helen Gillmor
Helen Gillmor
United States District Judge

Alaka’i Mechanical Corporation v. RMA Land Construction, Inc.
- ECC (A Joint Venture); RMA Land Construction, Inc.; and
Environmental Chemical Corporation, Civil No. 14-00145 HG-KSC,
ORDER REFERRING THE MAGISTRATE JUDGE’S FINDINGS AND
RECOMMENDATION BACK TO THE MAGISTRATE JUDGE (ECF No. 51)
17