Nautilus Insurance Company v. Jona Enterprises, Inc. et al
Filing
138
MEMORANDUM Opinion and Order Signed by the Honorable Edmond E. Chang on 1/30/2012:Mailed notice(slb, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
NAUTILUS INSURANCE
COMPANY,
Plaintiff,
v.
JONA ENTERPRISES, INC.;
JOSEPH KOMES;
JOSEPH CACCIATORE & COMPANY;
MARQUETTE NATIONAL BANK as
Trustee of Trust #14-803;
1100 HUNTER COMPANY;
1100 WEST CERMAK PROPERTY, INC.;
and OSVALDO PASTRANA as
Independent Administrator of the
Estate of Paulino Pastrana, Deceased,
Defendants.
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Case No. 09 C 04654
Judge Edmond E. Chang
MEMORANDUM OPINION AND ORDER
Plaintiff Nautilus Insurance Company filed this declaratory-judgment action1
to determine whether it has a duty to defend or indemnify Jona Enterprises, Inc. or
Joseph Komes against a state-court wrongful death action filed by Defendant Osvaldo
Pastrana as the administrator of Paulino Pastrana’s estate. Defendant Pastrana filed
the state-court action against entities that are defendants in this action too: Joseph
Cacciatore & Company; Marquette National Bank as Trustee of Trust #14-803; 1100
1
This Court has jurisdiction under 28 U.S.C. § 1332(a)(1) because the parties are of
diverse citizenship and the amount in controversy exceeds $75,000.
Hunter Company; and 1100 West Cermak Property, Inc.2 In this action, Nautilus
moves for summary judgment. R. 82. Of the seven named defendants, only three have
responded to Nautilus’s motion: Marquette National Bank, 1100 Hunter Company, and
1100 West Cermak Property (collectively, the “Marquette Defendants”).3 R. 103. The
Marquette Defendants filed a cross-motion for summary judgment. R. 113. For the
reasons discussed below, Nautilus’s motion is granted, and the Marquette Defendants’
motion is denied.
I.
In deciding the parties’ cross-motions for summary judgment, the Court views
the evidence in the light most favorable to the respective non-moving party. In July
2005, Nautilus issued a commercial general liability insurance policy to Jona
Enterprises, a construction company. R. 85, Pl.’s Stmt. of Material Facts (PSOF) ¶¶ 16,
22-23. The policy was effective for one year. Id. ¶ 23. In December 2007, Osvaldo
Pastrana filed a state-court action against several defendants, including Joseph
Cacciatore & Company; Marquette National Bank as Trustee of Trust #14-803; 1100
Hunter Company; and 1100 West Cermak Property, Inc. Id. ¶ 9. The complaint in
2
In addition to Joseph Cacciatore & Company, Marquette National Bank as Trustee of
Trust #14-803, 1100 Hunter Company, and 1100 West Cermak Property, Inc., there are four
other defendants named in the Pastrana action, but they are not relevant to this case.
3
Default orders were entered against Defendants Jona Enterprises, Inc., Joseph Komes,
and Osvaldo Pastrana. R. 13, 76. Defendant Joseph Cacciatore & Company appeared in the
case, but has not answered the complaint. The district judge previously assigned to this case
denied Cacciatore’s motion to dismiss for lack of subject-matter jurisdiction [R. 74] on May 26,
2010. R. 80. Cacciatore has not filed anything with the Court since that date and thus is in
default for failing to answer the complaint and failing to otherwise defend the case.
2
Pastrana alleges that on or about May 27, 2006, Paulino Pastrana died while
performing construction work at 1100 West Cermak Road, Chicago, Illinois. Id. ¶ 10.
Pastrana alleges that the named defendant-tortfeasors are liable for Paulino’s death
under Illinois tort law. Id. ¶ 11. (Osvaldo Pastrana is Paulino’s son. R. 102-3 (Defs.’
Exh. 3).)
In August 2008, Joseph Cacciatore & Company filed, in the state-court action,
a third-party complaint against Jona Enterprises. PSOF ¶ 12. Cacciatore alleges that
Jona was negligent in supervising Paulino Pastrana, who was allegedly Jona’s
employee, and, as a result, should pay Cacciatore contribution in an amount
commensurate with Jona’s assessed percentage of liability for Paulino’s injuries. Id.
¶¶ 13-14. In November 2008, Marquette National Bank, 1100 Hunter Company, and
1100 West Cermak Property filed a third-party complaint against Jona and its alleged
subcontractor, an individual named Joseph Komes. Id. ¶ 15. Marquette’s third-party
complaint alleges that Paulino was employed by Komes at the time of his death, and
Jona and Komes were negligent for failing to supervise Paulino and/or to provide him
with safe working conditions (among other things). Id. ¶ 16. Like Defendant
Cacciatore, the Marquette Defendants allege that in the event Pastrana recovers from
the Marquette Defendants, the Marquette Defendants are entitled to contribution from
Jona and Komes in an amount commensurate with Jona and Komes’s respective
assessed percentages of liability. Id. ¶¶ 16-17.
Gina Prima, the owner of Jona Enterprises, tendered the Cacciatore and
Marquette third-party complaints to Nautilus for coverage. R. 115, Defs.’ Stmt. of
3
Material Facts (DSOF) ¶¶ 22, 24. In October 2008, Nautilus issued a reservation of
rights letter to Prima, stating that Nautilus did not believe that the policy covered
Jona in connection with the Pastrana action or the Cacciatore third-party complaint.
Id. ¶ 25.4 Nautilus then filed this declaratory judgment action in July 2009. R. 1.
Nautilus seeks a declaration that it owes no duty to defend or indemnify Jona
or Komes against the underlying Pastrana action pending in Illinois state court. R. 1
¶ 34. Nautilus contends that the insurance policy it issued to Jona does not cover the
claims against Jona in the Pastrana action. Id. ¶¶ 28-31. Specifically, because Paulino
Pastrana was Jona’s employee, the policy’s “Employee Exclusion” precludes any
potential or actual coverage for the lawsuit. Id. ¶ 28. Nautilus further claims that the
result would not be different even if Paulino was considered Komes’s employee because
the policy’s “Contractors and Subcontractors Exclusion” would preclude coverage in
that case. Id. ¶ 29.
Nautilus has filed a motion for summary judgment. R. 82. The Marquette
Defendants were the only named defendants to respond to Nautilus’s motion. See R.
103. The Marquette Defendants also filed a cross-motion for summary judgment,
4
Nautilus states that it did not receive notice of the Marquette Defendants’ third-party
complaint until April 2009, when it received a letter from Marquette’s counsel informing
Nautilus that it filed a third-party complaint in Pastrana. See R. 118 (Pl.’s Resp. Br.) at 10-11;
R. 118-1, Pl.’s Exh. 1; see also R. 120 (Pl.’s Resp. to DSOF) ¶¶ 24-26. Nautilus states that it did
not issue a second reservation of rights letter to Jona; instead, Nautilus responded by filing the
instant action against Jona and the other Defendants three months after receiving notice of
the Marquette third-party complaint. The Marquette Defendants claim that Nautilus received
notice of the Marquette third-party complaint in 2008, but their citations to the record simply
confirm that Prima tendered both third-party complaints to Nautilus (the date of tender is not
specified). See DSOF ¶ 24. It is undisputed that Nautilus has retained counsel for Jona and
Komes in Pastrana under the reservation of rights letter. Id. ¶ 28.
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seeking a declaration that Nautilus does have a duty to defend and indemnify Jona and
Komes in the underlying Pastrana action. R. 113.
II.
Summary judgment must be granted “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). The same standard applies to cross-motions for
summary judgment. Int’l Bhd. of Elec. Workers, Local 176 v. Balmoral Racing Club,
Inc., 293 F.3d 402, 404 (7th Cir. 2002). Rule 56 “mandates the entry of summary
judgment, after adequate time for discovery and upon motion, against a party who fails
to make a showing sufficient to establish the existence of an element essential to that
party’s case, and on which that party will bear the burden of proof at trial.” Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986). All facts, and any inferences to be drawn
from them, must be viewed in the light most favorable to the non-moving party. Wis.
Cent., Ltd. v. Shannon, 539 F.3d 751, 756 (7th Cir. 2008).
In this diversity action, state law governs the substance of Nautilus’s claim. See
Integrated Genomics v. Gerngross, 636 F.3d 853, 861 (7th Cir. 2011). The parties
assume that Illinois law governs, and the Court will proceed on that basis.5 See Health
Care Indus. Liability Ins. Program v. Momence Meadows Nursing Ctr., 566 F3d 689,
693 (7th Cir. 2009).
5
The insurance policy does not contain a choice-of-law provision. See R. 1-2, Exh. D
attached to Complaint.
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III.
The insurance policy at issue in this case is between Nautilus and Jona
Enterprises.6 Neither Jona nor Komes (the proprietor of Jona) have defended against
Nautilus’s claim that the policy does not cover the Pastrana case. The other
Defendants in this action – Joseph Cacciatore & Company, Marquette National Bank,
1100 Hunter Company, and 1100 West Cermak Property – are not parties to the
insurance contract. Whether these strangers to the contract have a right to enforce the
policy was not addressed in the parties’ summary judgment brief, and the Court called
for supplemental briefing on the issue. R. 133. Nautilus and the Marquette Defendants
filed supplemental briefs. R. 134, 135.
First, Nautilus responds that it only named the Cacciatore and Marquette
Defendants “out of an abundance of caution,” and now realizes that these Defendants
actually do not have a right to enforce the insurance policy between Nautilus and Jona.
R. 134 at 1-2. Indeed, Illinois law provides that “[t]here is a strong presumption that
the parties to a contract intend that the contract’s provisions apply only to them, and
not to third parties.” Martis v. Grinnell Mut. Reinsurance Co., 905 N.E.2d 920, 924 (Ill.
App. Ct. 2009). There are exceptions to this general rule (as is true for most legal
rules). For instance, in Illinois, injured members of the general public are considered
beneficiaries of liability insurance policies. See Reagor v. Travelers Ins. Co., 415 N.E.2d
6
In August 2006, Defendant Joseph Komes’s name was added to the insurance policy,
but only to the extent that he was doing business as Jona Enterprises. See R. 1-2, Exh. D
attached to Complaint.
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512, 514 (Ill. App. Ct. 1980). “Illinois public policy dictates that insurance is not
necessarily a private matter between an insurer and its insured, and as such, an
injured party’s rights against the liability insurer vest at the moment of the accident
giving rise to the underlying claim.” State Farm Fire & Cas. Co. v. Perez, 899 N.E.2d
1231, 1234 (Ill. App. Ct. 2008) (citations and quotation omitted). “Such vested rights
may not be defeated by the joint efforts of the insured and insurer.” Id. So the alleged
tort victim, Paulino Pastrana (or more specifically, his representative, Osvaldo
Pastrana) could seek to enforce the policy between Nautilus and Jona. Nautilus argues,
however, that the “injured victim” public-policy exception does not apply to the
Cacciatore and Marquette Defendants in this case. According to Nautilus, these
Defendants may not seek to enforce Jona’s coverage (if any) under the insurance
contract.
The Marquette Defendants argue that they have a right to enforce the contract
because they are third-party plaintiffs in the underlying Pastrana action. R. 135. They
cite Record-a-Hit v. National Fire Insurance Company of Hartford, 880 N.E2d 205, 207
(Ill. App. Ct. 2007), as support for their position. R. 135 at 6-7. However, the plaintiff
in Record-a-Hit alleged that it had been injured by the insured’s tortious conduct. 880
N.E.2d at 206-07. Thus, the injured plaintiff – as a beneficiary of the insurance policy
– had a sufficient relationship with the insurer to enable it to litigate the scope of
coverage afforded to the tortfeasor. Id. at 207-08. But here the Marquette Defendants
do not stand in the same intended-beneficiary shoes as the victim, Pastrana. Rather,
the Marquette Defendants are alleged co-tortfeasors. They do not cite any case in
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which alleged co-tortfeasors were permitted to enforce an insurance policy. Nor do they
explain any public-policy reason for such enforcement akin to the reason why Illinois
permits victims of an insured’s contract to enforce the contract. Indeed, allowing
alleged tortfeasors to enforce the insured’s contract in contribution cases like this one
could have the adverse effect of encouraging individuals or corporations to not obtain
insurance themselves, or to under-insure by purchasing policies with less coverage, in
the hope that a co-tortfeasor’s policy would provide coverage.
For these reasons, the Court concludes that the Marquette Defendants cannot
enforce the insurance policy between Nautilus and Jona. The Marquette Defendants’
motion for summary judgment is denied, and Nautilus’s motion is granted.
IV.
Even if the Marquette Defendants could sue to enforce the insurance policy, the
Court would conclude that, under the policy’s terms, Nautilus is not obligated to defend
Jona with respect to the third-party complaints filed against Jona in the Pastrana
lawsuit. “Under Illinois law, the interpretation of an insurance policy is a question of
law that is properly decided by way of summary judgment.” Twenhafel v. State Auto
Prop. & Cas. Ins. Co., 581 F.3d 625, 628 (7th Cir. 2009) (citation omitted). An
insurance policy is a contract and subject to the general rules of contract construction.
Hobbs v. Harford Ins. Co. of the Midwest, 823 N.E.2d 561, 564 (Ill. 2005).
“In Illinois, an insurer has a broad duty to defend its insured in any action
where the allegations in the complaint are even potentially within the scope of the
policy’s coverage.” Nat’l Cas. Co. v. Forge Indus. Staffing Inc., 567 F.3d 871, 874 (7th
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Cir. 2009). Therefore, when deciding “whether an insurer has a duty to defend” courts
examine “the underlying complaint and the language of the insurance policy.” Nat’l
Cas. Co. v. McFatridge, 604 F.3d 335, 338 (7th Cir. 2010); see also Ace Am. Ins. Co. v.
RC2 Corp., 600 F.3d 763, 766 (7th Cir. 2010). Nautilus may justifiably refuse to defend
only if it is clear from the underlying complaints that the alleged incident does not fall
within, or potentially within, the policy’s coverage. Nautilus Ins. Co. v. 1452-4 N.
Milwaukee Ave., LLC, 562 F.3d 818, 821 (7th Cir. 2009) (citing Outboard Marine Corp.
v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1212 (Ill. 1992)).
Here, Nautilus argues that it has no duty to defend Jona in the Pastrana
litigation because two exclusions in the insurance contract preclude coverage for the
claims against Jona in the Cacciatore and Marquette Defendants’ third-party
complaints. First, the Cacciatore third-party complaint alleges that Jona employed
Paulino Pastrana at the time of the accident that resulted in Paulino’s death. R. 85-2,
Pl.’s Exh. B (Cacciatore Compl.) ¶ 4. The insurance policy issued to Jona contains an
exclusion for liability to an employee. PSOF ¶ 27; R. 85-5, Pl.’s Exh. E (Insurance
Policy). Specifically, this Employee Exclusion provides that the insurance policy does
not apply to:
“Bodily injury” to:
(1) An “employee” of the insured arising out of and in the course of:
(a) Employment by the insured; or
(b) Performing duties related to the conduct of the insured’s business; or
(2) The spouse, child, parent, brother or sister of that “employee” as a
consequence of Paragraph (1) above.
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This exclusion applies:
(1) Whether the insured may be liable as an employer or in any other capacity;
and
(2) To any obligation to share damages with or repay someone else who must
pay damages because of the injury.
PSOF ¶ 27. With respect to the Employee Exclusion, an “‘employee’ shall include, but
is not limited to, any person . . . hired by, loaned to, leased to, contracted for, or
volunteering services to the insured, whether or not paid by the insured.” Id.
The Marquette Defendants’ third-party complaint first names Jona and Joseph
Komes as third-party defendants in the Pastrana lawsuit. R. 85-3, Pl.’s Exh. C
(Marquette Compl.).7 The Marquette Defendants allege that they entered into a
contract with Jona in March 2006. Pursuant to the contract, Jona was to provide
construction services on a project at 1100 West Cermak Road. The Marquette
Defendants allege that Jona, in turn, hired Komes as a subcontractor to perform the
construction work. According to Marquette’s third-party complaint, Pastrana was
employed by Komes at the time he was injured in May 2006. The insurance policy also
contains an exclusion for contractors and subcontractors. PSOF ¶ 28; R. 85-5, Pl.’s Exh.
7
The Marquette Defendants attached the Second Amended Third Party Complaint filed
in the Pastrana action to their supplemental summary judgment brief, see R. 135-1, Defs.’ Exh.
A (Marquette Second Am. Compl.). The Second Amended Complaint adds Jona Enterprises and
Jona Enterprises, LLC as named third party defendants, but does not modify the allegations
at issue in the present litigation – namely, whether Paulino Pastrana was an employee of Jona.
Like the original third-party complaint, Marquette’s amended complaint alleges that Paulino
was employed by Jona’s subcontractor, Joseph Komes, at the time he was injured. And the
allegations pertaining to Jona and Komes’s negligence in paragraph 15 of the original thirdparty complaint remain exactly the same in the amended version (see Marquette Second Am.
Compl. ¶ 16).
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E (Insurance Policy). It states that “[t]his insurance does not apply to ‘bodily injury’ . . .
arising out of operations performed for you by contractors or subcontractors you hire
or your acts or omissions in connection with your general supervision of such
operations.” Id.
Nautilus first argues that it need not defend or indemnify Jona in connection
with the third-party complaints filed in Pastrana because, in light of the Employee
Exclusion, Paulino Pastrana’s fatal injuries are not within the policy’s coverage. The
Cacciatore third-party complaint clearly alleges that Paulino sustained bodily injury
while employed by Jona. Cacciatore alleges that Jona was negligent for failing to
supervise Paulino’s work. Thus, the facts alleged in the Cacciatore third-party
complaint demonstrate that Paulino qualified as an “employee” under the definition
of the Employee Exclusion. The Court concludes that Nautilus does not have a duty to
defend or indemnify Jona in connection with the Cacciatore third-party complaint.
Next, Nautilus argues that although the allegations in the Marquette (as
distinct from the Cacciatore) third-party complaint posit Paulino Pastrana as an
employee of Jona’s subcontractor (rather than Jona itself), the Employee Exclusion still
precludes coverage. Nautilus argues that Paulino falls within the Employee Exclusion’s
definition of “employee” because Paulino was a person Jona “contracted for” to perform
work on the 1100 West Cermak construction project. R. 84 at 6. Nautilus urges the
Court to follow the reasoning employed by the majority in Nautilus Insurance
Company v. Matthew David Events, Ltd., 893 N.Y.S.2d 529 (N.Y. App. Div. 2010). In
that case, the court agreed with Nautilus’s position that “the ‘contract for’ language of
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the Employee Exclusion clearly contemplates that a contractor could be retained by a
party other than the insured on the insured’s behalf, and that an injury to the
contractor or its employee would fall within the scope of the exclusion.” Id. at 532. The
court reasoned that if it were to interpret the “contract for” language to apply only to
persons who contract directly to work for the insured, then the explanatory language
that the term “employees” includes those providing “services to the insured, whether
or not paid by the insured” would be rendered a nullity. Id.
Here, Nautilus reasserts the position it took in Matthew David Events, and
argues that the inclusion of persons “volunteering services” in the definition of
“employee” indicates that unpaid workers may qualify as “employees.” R. 84 at 6. Thus,
Nautilus argues that the phrase “whether or not paid by the insured” is meaningful
only if it is interpreted as encompassing workers who are paid by subcontractors
(rather than by Jona) to perform the work. Id.; see Pekin Ins. Co. v. Wilson, 930 N.E.2d
1011, 1023 (Ill. 2010) (courts “will not interpret an insurance policy in a way that any
of its terms are rendered meaningless or superfluous”). Indeed, Marquette claims that
at the time Pastrana was injured, he “was an employee of [Komes].” R. 85-3 ¶ 10.
Komes was working on the site because Jona had contracted with Komes. Thus,
Nautilus argues that, under the insurance policy, Pastrana is an “employee” of Jona.
As such, Nautilus is not obligated under the policy to indemnify or defend Jona against
Marquette’s claim for contribution.
The Court agrees. The Employee Exclusion’s definition of “employee” is broad.
It includes, but is not limited to, any person contracted for, regardless of whether they
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were paid by the insured. This definition is specific to the Exclusion, and replaces the
general definition in Part 5 of the contract, which simply states that an “‘employee’
includes a ‘leased worker’ [and] does not include a ‘temporary worker.’” See R.1-2. In
order to determine whether Nautilus has a duty to defend Jona, the Court must
compare this language from the insurance policy to the factual allegations of
Marquette’s third-party complaint. Amerisure Mut. Ins. Co. v. Microplastics, Inc., 622
F.3d 806, 810 (7th Cir. 2010). The question here is whether the policy excludes
coverage for bodily injury to an employee of the insured’s subcontractor. The Court
concludes that it does. Reading the policy as a whole, it is clear that the parties
intended to expand the definition of “employee” for purposes of the Employee
Exclusion. Marquette alleges that Jona contracted for Komes’s services as a
subcontractor. The policy clearly states that “employees” are not limited to just those
directly hired by the insured. Rather, the definition includes persons that the insured
contracted for, whether or not the person is on the insured’s payroll. In light of this
exclusion, Nautilus does not have a duty to defend the underlying complaint against
Jona.
Alternatively, Nautilus argues that even if Marquette’s allegations do not fall
within the Employee Exclusion, Nautilus does not have a duty to defend or indemnify
Jona because the Subcontractor Exclusion precludes coverage. The Court again agrees.
To repeat, the Subcontractor Exclusion provides that “[t]his insurance does not apply
to ‘bodily injury’ . . . arising out of operations performed for [Jona] by contractors or
subcontractors [Jona] hire[s] or [Jona’s] acts or omissions in connection with [Jona’s]
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general supervision of such operations.” DSOF ¶ 28. The underlying third-party
complaint explicitly alleges that Jona “subcontracted out the work it contracted to do
for [the Marquette Defendants] to Joseph Komes.” R. 85-3 ¶ 7. The Marquette
Defendants further allege that Jona provided the construction services through its
subcontractor Joseph Komes. Id. ¶ 8. Thus, to the extent that the Marquette
Defendants allege that damages arise out of Komes’s conduct or Jona’s conduct in
managing or supervising Komes, coverage is precluded by the Subcontractor Exclusion.
The list of Jona’s alleged negligent conduct included in paragraph 15 of Marquette’s
original third-party complaint contains nothing more than variations of alleged
negligent actions taken by Jona in connection with its general supervision of Komes’s
work on the construction site.
In short, the underlying third-party complaints fail to make allegations that
either actually or potentially bring the cases within the insurance policy’s coverage.
Nautilus has no duty to defend Jona against the claims in the underlying suit. And
because Nautilus has no duty to defend, it also has no duty to indemnify. See Nat’l Cas.
Co. v. McFatridge, 604 F.3d 335, 338 (7th Cir. 2010) (“If an insurer has no duty to
defend, it has no duty to indemnify.”).
V.
For the reasons stated above, Nautilus’s motion for summary judgment [R. 82]
is granted. The Marquette Defendants’ motion for summary judgment [R. 113] is
denied.
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The Court also enters default judgment in favor of Nautilus and against
Defendants Jona Enterprises, Inc.; Joseph Komes; Joseph Cacciatore & Company; and
Osvaldo Pastrana as Independent Administrator of the Estate of Paulino Pastrana,
Deceased. As stated above, Defendants Jona, Komes, and Pastrana failed to appear or
defend against this action and the district judge previously assigned to this case
entered a default order as to these defendants on September 25, 2009. R. 13. Defendant
Cacciatore appeared in the case, but has not answered the complaint or otherwise
defended the lawsuit since its motion to dismiss was denied by the Court in May 2010.
Accordingly, Nautilus’s request for entry of default judgment against Defendants Jona,
Komes, Cacciatore, and Pastrana is granted.
ENTERED:
_________________________
Honorable Edmond E. Chang
DATE: January 30, 2012
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