Phila. Indem. Ins. Co. v. United Revolver Club of Sacramento, Inc., 2:18-cv-2960 KJM DB

PHILADELPHIA INDEMNITY INSURANCE COMPANY,a Pennsylvania corporation, Plaintiff, v. UNITED REVOLVER CLUB OF SACRAMENTO, INC.,a California corporation, Defendant.

No. 2:18-cv-2960 KJM DB

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA

February 14, 2020

FINDINGS AND RECOMMENDATIONS

This matter came before the undersigned on December 6, 2019, pursuant to Local Rule 302(c)(19), for hearing of plaintiff's motion for default judgment. (ECF No. 19.) Attorney Stephen Soskin appeared on behalf of the plaintiff. No appearance was made on behalf of the defendant. At that time, oral argument was heard and the motion was taken under submission.

Having considered all written materials submitted with respect to the motion, and after hearing oral argument, the undersigned recommends that the motion for default judgment be granted as explained below.

BACKGROUND

Plaintiff Philadelphia Indemnity Insurance Company, ("Philadelphia Indemnity"), commenced this action on November 9, 2018, by filing a complaint and paying the required filing fee. (ECF No. 1.) Plaintiff is proceeding on an amended complaint filed on November 26, 2018. (ECF No. 5.) Therein, plaintiff alleges generally as follows. Plaintiff issued Commercial Lines Polices ("polices") to defendant United Revolver Club of Sacramento covering periods from September 16, 2011, through September 16, 2016. (Am. Compl. (ECF No. 5) at 2.¹)

In 2015, a lawsuit was filed in the Sacramento County Superior Court entitled Willis v. City of Sacramento, et al., 34-2015-00185035 ("Willis"). (Id. at 1.) A second lawsuit was filed in the Sacramento County Superior Court in 2016, entitled Gosling v. City of Sacramento, et al., 34-2016-00194832 ("Gosling") (Willis and Gosling actions collectively "Consolidated Action"). (Id.) The plaintiffs in the consolidated action alleged that they were exposed to lead found at a shooting range due to defendant's actions resulting in injury to those plaintiffs. (Id. at 2.)

Plaintiff here undertook defendant's defense in the consolidated action. (Id.) However, the policies issued to defendant contained a "Total Pollution Exclusion Endorsement" which precluded coverage for injuries caused by "pollutants." (Id.) Based on these factual allegations the amended complaint asserts causes of action for declaratory relief and unjust enrichment. (Id. at 8-9.)

Plaintiff filed proof of service of the amended complaint on defendant on January 18, 2019. (ECF No. 7.) On March 29, 2019, plaintiff filed a request for entry of default. (ECF No. 9.) The Clerk of the Court entered defendant's default on April 2, 2019. (ECF No. 10.) On August 22, 2019, plaintiff filed the pending motion for default judgment. (ECF No. 14.) Plaintiff's motion seeks an order declaring plaintiff has no obligation to defend or indemnify defendant in either the Willis or Gosling matter and seeks $143,336.12 in costs spent defending defendant in the consolidated action. (Id. at 1-2.)

Plaintiff, however, failed to serve defendant with a copy of the motion. Accordingly, on September 25, 2019, the undersigned issued an order continuing the hearing of the motion. (ECF No. 15.) Plaintiff filed proof of service of the motion for default judgment on defendant on October 8, 2019. (ECF No. 16.)

The matter came for hearing before the undersigned on November 1, 2019. (ECF No. 17.) Attorney Stephen Soskin appeared on behalf of the plaintiff. Attorney Bart Hightower attempted to appear as an individual and sought to speak on behalf of the defendant.² Attorney Hightower explicitly refused to appear as an attorney representing the defendant. (ECF No. 17.) Such an appearance is not permissible. Nonetheless, out of an abundance of caution the undersigned continued the hearing of plaintiff's motion to December 6, 2019. (ECF No. 18.)

The matter again came for hearing before the undersigned on December 6, 2019. (ECF No. 19.) Attorney Stephen Soskin appeared on behalf of the plaintiff. No appearance was made on behalf of the defendant.

LEGAL STANDARDS

I. Default Judgment

Federal Rule of Civil Procedure 55(b)(2) governs applications to the court for default judgment. Upon entry of default, the complaint's factual allegations regarding liability are taken as true, while allegations regarding the amount of damages must be proven. Dundee Cement Co. v. Howard Pipe & Concrete Prods., 722 F.2d 1319, 1323 (7th Cir. 1983) (citing Pope v. United States, 323 U.S. 1 (1944); Geddes v. United Fin. Group, 559 F.2d 557 (9th Cir. 1977)); see also DirectTV v. Huynh, 503 F.3d 847, 851 (9th Cir. 2007); TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987).

Where damages are liquidated, i.e., capable of ascertainment from definite figures contained in documentary evidence or in detailed affidavits, judgment by default may be entered without a damages hearing. Dundee, 722 F.2d at 1323. Unliquidated and punitive damages, however, require "proving up" at an evidentiary hearing or through other means. Dundee, 722 F.2d at 1323-24; see also James v. Frame, 6 F.3d 307, 310-11 (5th Cir. 1993).

Granting or denying default judgment is within the court's sound discretion. Draper v. Coombs, 792 F.2d 915, 924-25 (9th Cir. 1986); Aldabe v. Aldabe, 616 F.2d. 1089, 1092 (9th Cir.1980). The court is free to consider a variety of factors in exercising its discretion. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Among the factors that may be considered by the court are

(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 (citing 6 Moore's Federal Practice ¶ 55-05[2], at 55-24 to 55-26).

ANALYSIS

I. Plaintiff's Motion for Default Judgment

A. The Eitel Factors Favor Entry of Default Judgment

Examining the amended complaint and plaintiff's motion for default judgment in light of the Eitel factors, the undersigned finds that overall the Eitel factors weigh in favor of granting plaintiff's motion for default judgment.

1. Possibility of Prejudice to the Plaintiffs

The first Eitel factor contemplates the possibility of prejudice to the plaintiff if a default judgment is not entered. Eitel, 782 F.2d at 1471. Prejudice may be shown where failure to enter a default judgment would leave plaintiff without a proper remedy. Landstar Ranger, Inc. v. Parth Enterprises, Inc., 725 F. Supp. 2d 916, 920 (C.D. Cal. 2010) (citing Pepsico, Inc. v. California Security Cans, 238 F. Supp.2d 1172, 1177 (C.D. Cal. 2010)).

Here, plaintiff seeks injunctive relief and monetary damages which can only be obtained through a judgment. (Pl.'s MDJ (ECF No. 14) at 11.) And "without entry of default [plaintiff] would be continuously exposed to liability in the underlying" consolidated action. Aspen Ins. UK Ltd. v. Killarney Const. Co., Inc., No. C 11-1294 RS, 2012 WL 1831498, at *2 (N.D. Cal. May 18, 2012). Because defendant has refused to defend this action, if default judgment is not entered, plaintiff would be left without a proper remedy. Accordingly, the first Eitel factor weighs in favor of granting default judgment on behalf of the plaintiff.

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2. Sufficiency of the Complaint and the Likelihood of Success on the Merits

The second and third Eitel factors are (1) the merits of plaintiff's substantive claim, and (2) the sufficiency of the complaint. Eitel, 782 F.2d at 1471-72. The court considers the two factors together given the close relationship between the two inquiries. Craigslist, Inc. v. Naturemarket, Inc., 694 F. Supp.2d 1039, 1055 (2010). These two factors will favor entry of default judgment where the complaint sufficiently states a claim for relief upon which the plaintiff may recover. PepsiCo, Inc., 238 F. Supp.2d at 1175; see Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978).

As noted above, the amended complaint asserts causes of action for: (1) declaratory relief; and (2) unjust enrichment, specifically seeking reimbursement for costs incurred defending defendant in the consolidate action. (Am. Compl. (ECF No. 5) at 8-9.) Specifically, declaratory judgment is sought pursuant to the declaratory judgment act, 28 U.S.C. § 2201. (Id. at 1.) Where, as is the case here, a declaratory judgment action is based on diversity jurisdiction California law controls. See St. Paul Mercury Ins. Co. v. Ralee Eng'g Co., 804 F.2d 520, 522 (9th Cir. 1986). "California and federal courts have held that declaratory relief is appropriate to negate an insurer's duty to defend." Mesa Underwriters Specialty Insurance Co. v. Paradise Skate, Inc., Case No. 15-cv-1253 YGR (JSC), 2016 WL 9045622, at *5 (N.D. Cal. Apr. 11, 2016).

"The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy." Horace Mann Ins. Co. v. Barbara B., 4 Cal.4th 1076, 1081 (Cal. 1993).

If any facts stated or fairly inferable in the complaint, or otherwise known or discovered by the insurer, suggest a claim potentially covered by the policy, the insurer's duty to defend arises and is not extinguished until the insurer negates all facts suggesting potential coverage. On the other hand, if, as a matter of law, neither the complaint nor the known extrinsic facts indicate any basis for potential coverage, the duty to defend does not arise in the first instance.

Scottsdale Ins. Co. v. MV Transportation, 36 Cal.4th 643, 655 (Cal. 2005).

Here, the amended complaint alleges that in the consolidated action the plaintiffs there alleged that from August 1, 2010, through January 18, 2015, they suffered bodily injury as the result of exposure to toxic materials, including lead, associated with defendant's gun...