Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Shores

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff, v. DONA SHORES, Defendant.

Case No. 1:19-cv-01113-NONE-SAB

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA

June 3, 2020

FINDINGS AND RECOMMENDATIONS RECOMMENDING GRANTING PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT

ORDER VACATING JUNE 10, 2020 HEARING

(ECF No. 14)

OBJECTIONS DUE WITHIN FOURTEEN DAYS

National Union Fire Insurance Company of Pittsburgh, PA ("Plaintiff") filed this action against Dona Shores ("Defendant") on August 15, 2019, alleging fraud, breach of fiduciary duty, and unjust enrichment due to the embezzlement of funds from the Visalia Public Cemetery District ("the Cemetery District"). (ECF No. 1.) Defendant was personally served on October 9, 2019. (ECF No. 5.) On November 26, 2019, at the request of Plaintiff, default was entered against Defendant. (ECF Nos. 9, 10.) Currently before the Court is Plaintiff's motion for default judgment, filed March 17, 2020, which has been referred to the undersigned pursuant to 28 U.S.C. § 636(b)(1)(B) and Local Rule 302.

The Court, having reviewed the record, finds this matter suitable for decision without oral argument. See Local Rule 230(g). Accordingly, the previously scheduled hearing set on June 10, 2020 will be vacated and the parties will not be required to appear at that time.

I.LEGAL STANDARD

"Our starting point is the general rule that default judgments are ordinarily disfavored," as "[c]ases should be decided upon their merits whenever reasonably possible." NewGen, LLC v. Safe Cig, LLC, 840 F.3d 606, 616 (9th Cir. 2016) (quoting Eitel v. McCool, 782 F.2d 1470, 1472 (9th Cir. 1986). Pursuant to Federal Rules of Civil Procedure 55, obtaining a default judgment is a two-step process. Entry of default is appropriate as to any party against whom a judgment for affirmative relief is sought that has failed to plead or otherwise defend as provided by the Federal Rules of Civil Procedure and where that fact is made to appear by affidavit or otherwise. Fed. R. Civ. P. 55(a). After entry of default, a plaintiff can seek entry of default judgment. Fed. R. Civ. P. 55(b). Federal Rule of Civil Procedure 55(b)(2) provides the framework for the Court to enter a default judgment:

(b) Entering a Default Judgment.

(2) By the Court. In all other cases, the party must apply to the court for a default judgment. A default judgment may be entered against a minor or incompetent person only if represented by a general guardian, conservator, or other like fiduciary who has appeared. If the party against whom a default judgment is sought has appeared personally or by a representative, that party or its representative must be served with written notice of the application at least 7 days before the hearing. The court may conduct hearings or make referrals—preserving any federal statutory right to a jury trial—when, to enter or effectuate judgment, it needs to:

(A) conduct an accounting;

(B) determine the amount of damages;

(C) establish the truth of any allegation by evidence; or

(D) investigate any other matter.

Fed. R. Civ. P. 55.

Entry of default judgment is not a matter of right and is within the discretion of the court. PepsiCo, Inc. v. California Security Cans, 238 F.Supp.2d 1172, 1174 (C.D. Cal. 2002): Shanghai Automation Instrument Co. v. Kuei, 194 F.Supp.2d 995, 999 (N.D. Cal. 2001); Eitel, 782 F.2d at 1471. The Ninth Circuit has set forth the following seven factors (the "Eitel factors") that theCourt may consider in exercising its discretion to enter default judgment:

(1) the possibility of prejudice to the 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 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.

Eitel, 782 F.2d at 1471-72.

Generally, once default has been entered, "the factual allegations of the complaint, except those relating to damages, will be taken as true." Garamendi v. Henin, 683 F.3d 1069, 1080 (9th Cir. 2012) (quoting Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977)); see also Fed. R. Civ. P. 8(b)(6) ("An allegation--other than one relating to the amount of damages--is admitted if a responsive pleading is required and the allegation is not denied."). Accordingly, the amount of damages must be proven at an evidentiary hearing or through other means. Microsoft Corp. v. Nop, 549 F.Supp.2d 1233, 1236 (E.D. Cal. 2008). Additionally, "necessary facts not contained in the pleadings, and claims which are legally insufficient, are not established by default." Cripps v. Life Ins. Co. of North America, 980 F.2d 1261, 1267 (9th Cir. 1992) (internal citation omitted). The relief sought must not be different in kind or exceed the amount that is demanded in the pleadings. Fed. R. Civ. P. 54(c).

II.DISCUSSION

Plaintiff seeks default judgment for actual damages totaling $1,342,387.00 and post-judgment interest calculated pursuant to 28 U.S.C. § 1961(a).

A. Jurisdiction

Initially, the Court considers whether it has jurisdiction in this action. Plaintiff brought this action pursuant to 28 U.S.C. § 1332. District courts have original jurisdiction of all civil actions between citizens of different States in which "the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs." 28 U.S.C. § 1332(a). This requires complete diversity of citizenship and the presence "of a single plaintiff from the same State as a single defendant deprives the district court of original diversity jurisdiction over the entire action." Abrego v. The Dow Chemical Co., 443 F.3d 676, 679 (9th Cir. 2006) (citationsomitted).

Plaintiff is a Pennsylvania corporation with its principal place of business at 175 Water Street, New York, New York. (Compl. ¶ 4.) A corporation is deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business. Lincoln Prop. Co. v. Roche, 546 U.S. 81, 94 (2005) (quoting 28 U.S.C. § 1332(c)(1)). Plaintiff is a citizen of Pennsylvania and New York.

Defendant is alleged to be a resident of Lindsay, California, at all times relevant to the complaint. (Compl. ¶ 5.) Defendant worked for the Cemetery District in and around Tulare County. (Id.) Absent an attack to the allegations in the complaint, the allegations of citizenship are accepted as true. NewGen, LLC, 840 F.3d at 610. Defendant is a citizen of California.

As Plaintiff is a citizen of Pennsylvania and New York and Defendant is a citizen of California, complete diversity of citizenship exists.

The amount in controversy in the is action is over $1.3 million dollars (Assignment and Release, ECF No. 1-1.), so the jurisdictional requirement is met. The Court finds that it has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1332(a).

B. Procedural Requirements

"A default judgment may be entered against a minor or incompetent person only if represented by a general guardian, conservator, or other like fiduciary who has appeared." Fed. R. Civ. P. 55. Plaintiff has submitted a declaration stating that Defendant is not an infant nor an incompetent person. (Decl. of Katherine A. Mushbach ("Mushbach Decl.") ¶ 13, ECF No. 14-1.) Further, Plaintiff has established that Defendant is not currently serving in the military. (Id.; Status Report Pursuant to Servicemembers Civil Relief Act, ECF No. 1 at 11.)

Service of the summons and complaint is the procedure by which a court having venue and jurisdiction of the subject matter of the suit obtains jurisdiction over the person being served. Mississippi Publishing Corp. v. Murphree, 326 U.S. 438, 444-45 (1946); see Direct Mail Specialists, Inc. v. Eclat Computerized Techs., Inc., 840 F.2d 685, 688 (9th Cir. 1988) ("A federal court does not have jurisdiction over a defendant unless the defendant has been served properly under Fed. R. Civ. P. 4."). Plaintiff was personally served with the summons andcomplaint in this action on October 9, 2019, at the Tulare County Courthouse. (ECF No. 5.) Personal service was proper under Rule 4. Fed. R. Civ. P. 4(e)(2)(A). The Court has jurisdiction over Defendant.

Default was entered against defendant on November 26, 2019. (ECF No. 10.)

C. Consideration of the Eitel Factors

For the reasons discussed below, the Court finds that consideration of the Eitel factors weigh in favor of granting default judgment for Plaintiff.

1. The Possibility of Prejudice to Plaintiff

The Court first considers whether a plaintiff will suffer prejudice if a default judgment is not entered. Denying default judgment here would deprive Plaintiff of a proper remedy. See Pepsico, Inc., 238 F.Supp.2d at 1177 (stating plaintiffs would have no other recourse for recovery if default judgment was not granted). Plaintiff alleges that Defendant embezzled approximately $1.3 million dollars which they were required to cover due to her employer's insurance policy. Denial of a remedy is unwarranted given that Plaintiff has been required by the insurance policy to cover the losses incurred due to Defendant's misconduct. As the facts in the complaint are deemed true, see Geddes, 559 F.2d at 560, the Court finds that Plaintiff would suffer prejudice if default judgment is not entered.

2. The Merits of Plaintiff's Substantive Claim and the Sufficiency of the Complaint

The next relevant Eitel factors include an evaluation of the merits of the substantive claims alleged in the complaint as well as the sufficiency of the complaint itself. This requires the Court to look to the complaint to determine if the allegations contained within are sufficient to state a claim for the relief sought. Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978). "[Although] the factual allegations of [the] complaint together with other competent evidence submitted by...