Yuanxiang Zhang v. Bing's Restaurant, Inc. ( 2019 )

FILED
NOT FOR PUBLICATION
MAY 31 2019
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
YUANXIANG ZHANG; CANWEN No. 17-35596
ZHANG; LIQIONG DENG,
D.C. No. 3:13-cv-00838-MO
Plaintiffs-Appellees,
v. MEMORANDUM*
BING’S RESTAURANT, INC., an Oregon
domestic business corporation,
Defendant-Appellant,
and
PAUL JOE; SUE JOE,
Defendants.
YUANXIANG ZHANG; CANWEN No. 17-35600
ZHANG; LIQIONG DENG,
D.C. No. 3:13-cv-00838-MO
Plaintiffs-Appellants,
v.
BING’S RESTAURANT, INC., an Oregon
domestic business corporation,
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Defendant-Appellee,
and
PAUL JOE; SUE JOE,
Defendants.
Appeal from the United States District Court
for the District of Oregon
Michael W. Mosman, District Judge, Presiding
Submitted May 15, 2019**
Portland, Oregon
Before: N.R. SMITH, WATFORD, and R. NELSON, Circuit Judges.
Bing’s Restaurant Inc. (“the Restaurant”) appeals the district court’s denial
of its two motions to set aside the entry of default against it. YuanXiang Zhang,
Canwen Zhang, and Liqiong Deng (collectively, “Plaintiffs”) appeal the district
court’s sua sponte dismissal of their claims against individuals Paul Joe and Sue
Joe (“the Joes”)—against whom default had also been entered. We have
jurisdiction under 28 U.S.C. § 1291, and we vacate and remand.
1. Plaintiffs moved for entry of default against the Restaurant for its failure to
be represented by counsel. Plaintiffs separately moved for entry of default against
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
2
the Restaurant and the Joes (collectively, “Defendants”) as a sanction for their
failure to respond to Plaintiffs’ discovery requests. The district court granted both
motions in a docket entry without explanation or analysis, and the clerk of court
entered default against all Defendants.
The Restaurant moved to set aside the entry of default for its failure to be
represented by counsel, arguing that good cause existed under Federal Rule of
Civil Procedure 55(c). Separately, all Defendants moved to set aside the entry of
default for their discovery violations, arguing both good cause under Rule 55(c)
and that the entry of default was an inappropriate sanction. The district court found
Defendants culpable for the discovery violations and denied both motions.
Although the district court purported to deny the motion to set aside the
entry of default for the Restaurant’s failure to be represented by counsel, it did not
directly address that motion nor did it find the Restaurant culpable for its failure to
be represented. Thus, it is not clear whether the district court meaningfully
reviewed that motion to set aside or on what basis that motion was denied.
Additionally, the district court did not address whether the entry of default
was an appropriate sanction for Defendants’ discovery violations. Before imposing
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the extreme sanction of default, the district court must consider certain factors.1
The district court did not address the factors before it granted Plaintiffs’ motion
and entered default as a sanction, nor did it address the factors when it denied the
motion to set aside the entry of default on that basis.
Because the district court denied the motions to set aside the entry of default
without addressing the Restaurant’s arguments, we vacate the denial and remand.
2. The district court erred in dismissing Plaintiffs’ claims against the Joes. A
district court may not sua sponte dismiss a plaintiff’s claims without providing the
plaintiff an opportunity to respond, “unless the plaintiff[] cannot possibly win
relief.” Sparling v. Hoffman Constr. Co., 864 F.2d 635, 637-38 (9th Cir. 1988)
(internal quotation marks and alteration omitted). Thus, the district court must take
the well-pleaded factual allegations in the light most favorable to the plaintiff to
determine whether she could possibly win relief. Cf. Daniels-Hall v. Nat’l Educ.
Ass’n, 629 F.3d 992, 998 (9th Cir. 2010).
Despite having entered default against the Joes, the district court sua sponte
dismissed Plaintiffs’ claims against them by determining that Plaintiffs failed to
1
These factors include: “(1) the public’s interest in expeditious resolution of
litigation; (2) the court’s need to manage its dockets; (3) the risk of prejudice to the
party seeking sanctions; (4) the public policy favoring disposition of cases on their
merits; and (5) the availability of less drastic sanctions.” Wanderer v. Johnston,
910 F.2d 652, 656 (9th Cir. 1990) (alteration and citation omitted).
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establish individual liability. In reaching that conclusion, the district court
disregarded well-pleaded allegations in the complaint, which allege that the Joes
exercised economic and managerial control over the Restaurant and thus were
individually liable as employers. Those allegations support a claim against the Joes
on which Plaintiffs could possibly win relief. Thus, we vacate the district court’s
dismissal of Plaintiffs’ claims and remand for further proceedings.
VACATED and REMANDED.
The parties shall bear their own costs on appeal.
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FILED
MAY 31 2019
Zhang v. Bing’s Restaurant, Inc., No. 17-35596, 17-35600 MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
R. Nelson, Circuit Judge, concurring in part, dissenting from the result in part:
I concur in the majority’s decision to vacate the district court’s sua sponte
dismissal of Defendants Paul Joe and Sue Joe from the action and to remand
because the district court abused its discretion in denying, without analysis, the
Restaurant’s motion to set aside the default judgment for failure to be represented
by counsel. I write separately, however, because I believe the district court abused
its discretion in entering default as a discovery sanction and the entry of default
was procedurally improper in the first instance.
First, as the majority recognizes, a district court must weigh certain factors
before imposing the “extreme sanction of dismissal or default” for discovery
violations. Wanderer v. Johnston, 910 F.2d 652, 656 (9th Cir. 1990). The district
court must consider: “(1) the public’s interest in expeditious resolution of
litigation; (2) the court’s need to manage its dockets; (3) the risk of prejudice to the
party seeking sanctions; (4) the public policy favoring disposition of cases on their
merits; and (5) the availability of less drastic sanctions.” Id. (citation and internal
brackets omitted). Notably, we have held that “[w]hile a district court need not
make explicit findings regarding each of these factors, if it does not, the appellate
court must review the record independently to determine whether the sanction was
an abuse of discretion.” Id. (emphasis added).
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Applying these factors, I find that the district court abused its discretion in
entering default as a discovery sanction. “The first two of these factors favor the
imposition of sanctions in most cases, while the fourth cuts against a default or
dismissal sanction. Thus the key factors are prejudice and availability of lesser
sanctions.” Id. Here, however, it is not even clear that the public’s interest in
expeditious resolution of litigation was best served by entry of default given the
parties were actively engaged in settlement discussions and Defendants had
requested an extension of the discovery deadlines to further pursue settlement.
While hindsight is 20/20, allowing the parties to pursue settlement may have
avoided the roughly five years of litigation resulting from the district court’s entry
of default.
The two “key” factors also weigh in favor of Defendants. As the district
court found, Plaintiffs would not be meaningfully prejudiced by allowing this case
to proceed on its merits. Moreover, the availability of less drastic sanctions weighs
strongly in favor of Defendants. “[W]e have held that the district court abuses its
discretion if it imposes a dismissal sanction without first considering the impact of
the sanction and the adequacy of less drastic sanctions.” U.S. for Use & Ben. of
Wiltec Guam, Inc. v. Kahaluu Const. Co., 857 F.2d 600, 604 (9th Cir. 1988)
(internal quotation marks omitted). Only “in exceptional cases, where it is clear
that no other alternative would have been reasonable, [may we] affirm a dismissal
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or default judgment despite the absence of such a discussion.” Id. Here, despite
Plaintiffs seeking lesser sanctions and given that no motions to compel or other
discovery motions were filed, the district court did not discuss the availability of
lesser sanctions before it entered default. Accordingly, I find the district court
abused its discretion in entering default as a discovery sanction and would vacate
that order as to all Defendants.
Second, although the parties did not raise the issue,1 under Federal Rule of
Civil Procedure 55(b)(2), “[i]f 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.”
Because Defendants appeared by answering the complaint, they were entitled to
seven days’ notice before entry of default. That notice was never provided as
Plaintiffs filed and served their motion for default judgment on June 17, 2014 (the
day of the discovery deadline), and the district court entered an order summarily
granting the motion on June 18, 2014, without a hearing. “The failure to provide
55(b)(2) notice, if the notice is required, is a serious procedural irregularity that
usually justifies setting aside a default judgment or reversing for the failure to do
1
“[A] court of appeals may review issues sua sponte . . . where to not do so would
be unduly harsh to one or both of the parties.” United States v. Hoyt, 888 F.2d
1257, 1258 (9th Cir. 1989).
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so.” Wilson v. Moore & Assocs., Inc., 564 F.2d 366, 369 (9th Cir. 1977). There is
good reason for this requirement. It provides a party faced with the extreme
sanction of default an opportunity to respond before default is entered. Defendants
were given no such opportunity. However, because this issue was not directly
raised before the district court or this court, I concur in the majority’s decision to
remand to the district court for further proceedings as to whether the Restaurant’s
default judgment should be set aside, on this ground or others.
Accordingly, I would vacate the default judgement as to the Joes, and
remand to the district court for further proceedings only on whether to set aside the
default judgement against the Restaurant for failure to be represented by counsel.
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