BVD Petroleum US Inc v. MB Xpress Inc. ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 BVD PETROLEUM US INC., No. 2:19-cv-02137-KJM-KJN 12 Plaintiff, ORDER WITHDRAWING PREVIOUS FINDINGS AND RECOMMENDATIONS 13 v. and ENTRY OF FINDINGS AND 14 MB XPRESS INC. ET AL, RECOMMENDATIONS 15 Defendants. (ECF No. 10, 15) 16 17 Presently pending before the Court is plaintiff BVD Petroleum US Inc.’s motion for 18 default judgment against defendants MB Xpress Inc. and Jitenderpal Singh Bains.1 To date, 19 defendants have not opposed BVD’s motion or otherwise made an appearance in this action. 20 On March 23, 2020, the court entered findings and recommendations, to which BVD 21 objected. (ECF Nos. 15, 16.) For good cause, the court WITHDRAWS the previous findings and 22 recommendations (ECF No. 15.) In its place, the undersigned recommends that BVD’s motion 23 for default judgment be GRANTED IN FULL, and that BVD be awarded final judgment in the 24 amount of $242,561.75. 25 /// 26 /// 27 1 This motion is referred to the undersigned by Local Rule 302(c)(19) for the entry of findings 28 and recommendations. See 28 U.S.C. § 636(b)(1)(B). 1 I. BACKGROUND2 2 BVD provides fuel products and services to trucking companies, including fuel cards for 3 use by truck drivers to purchase fuel and other items at truck stops located throughout the United 4 States and Canada. (ECF No. 1.) Defendant MB Xpress Inc. is a trucking company that operates 5 throughout the United States, and defendant Bains is the owner and Chief Executive Officer of 6 MB Xpress Inc. (Id.) On July 16, 2019, BVD and MB Xpress executed a contractual agreement 7 titled “Authorization for Pre-Authorized Debit(s) and Cardlock Agreement,” for which Bains was 8 a guarantor. (See ECF No. 1 at 9, 15.) Contemporaneously, Bains signed a “Personal Guaranty,” 9 which stated that Bains “unconditionally guaranteed MB Xpress’ obligations under the 10 Authorization Agreement.” (ECF No. 1 at 4.) Under the Authorization Agreement, BVD issued 11 fuel cards to MB Xpress for use by their truck drivers or agents to purchase fuel and other 12 products at truck stops. In turn, the truck stops billed BVD for the charges incurred by 13 defendants’ truck drivers or agents, and BVD paid those charges directly to the truck stops. BVD 14 issued weekly invoices to MB Xpress, and the amount of each invoice was debited from the 15 financial account provided by MB Xpress on the invoice due date. 16 Beginning on September 20, 2019, BVD attempted to debit MB Xpress’s account for 17 three separate outstanding invoices pursuant to the Authorization Agreement. Several days after 18 attempting to debit invoice No. 1071044 for $ 66,989.52, BVD was notified that MB Xpress’s 19 account had insufficient funds. After informing MB Express and Bains of the issue, defendants 20 promised to pay but delayed payment while continuing to charge the fuel cards. As of this 21 lawsuit, defendants owe $217,102.07 (the principal sum of the three outstanding invoices), plus 22 accruing interest, attorney’s fees, and costs (as provided for in the Authorization Agreement). 23 On October 22, 2019 BVD brought this diversity action against defendants for breach of 24 contract and breach of guaranty. (ECF No. 1.) BVD alleges that it has complied with all of its 25 obligations under the Authorization Agreement and Guaranty and that it has been damaged as a 26 result of defendants’ failure to pay the three outstanding invoices. 27 28 2 All facts derive from BVD’s complaint unless otherwise noted. (See ECF No. 1.) 1 BVD’s complaint and summons were served personally upon Bains—MB Xpress’s agent 2 for service—on October 25, 2019, at defendants’ address of record. (ECF Nos. 5, 6.) Defendants 3 failed to answer or otherwise respond, and the Clerk of the Court entered default. (ECF Nos. 7, 8, 4 9.) On December 20, 2019, BVD moved for a default judgment and served defendants via mail. 5 (See ECF No. 10.) Defendants failed to respond to BVD’s motion. Out of an abundance of 6 caution, the court vacated the January 23, 2020 hearing and provided defendants an additional 7 opportunity to oppose. (ECF No. 11.) BVD served a copy of this order on defendants via mail 8 on January 16, 2020. (ECF No. 13.) On February 14, 2020, BVD informed the court that it had 9 not received opposition to its Motion for Default Judgment. (ECF No. 14.) 10 The court entered findings and recommendations to grant the default judgment on 11 liability, but to deny on damages, noting discrepancies. (ECF No. 15.) BVD filed objections 12 with supplemental information, and now seeks judgment in the amount of $242,561.75 be entered 13 against defendants. (ECF No. 16 at 3.) 14 II. LEGAL STANDARD 15 Pursuant to Federal Rule of Civil Procedure 55, default may be entered against a party 16 against whom a judgment for affirmative relief is sought who fails to plead or otherwise defend 17 against the action. See Fed. R. Civ. P. 55(a). However, “[a] defendant’s default does not 18 automatically entitle the plaintiff to a court-ordered judgment.” PepsiCo, Inc. v. Cal. Sec. Cans, 19 238 F. Supp. 2d 1172, 1174 (C.D. Cal. 2002) (citing Draper v. Coombs, 792 F.2d 915, 924-25 20 (9th Cir. 1986)). Instead, the decision to grant or deny an application for default judgment lies 21 within the district court’s sound discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 22 1980). In making this determination, the court considers the following factors: 23 1. the possibility of prejudice to the plaintiff, 2. the merits of plaintiff’s substantive claim and the sufficiency of the complaint; 24 3. the sum of money at stake in the action; 4. the possibility of a dispute concerning material facts; 25 5. whether the default was due to excusable neglect, and 6. the strong policy underlying the Federal Rules of Civil Procedure favoring decisions 26 on the merits. 27 Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Default judgments are ordinarily 28 disfavored. Id. at 1472. 1 As a general rule, once default is entered, well-pleaded factual allegations in the operative 2 complaint are taken as true, except for those allegations relating to damages. TeleVideo Sys., Inc. 3 v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (per curiam) (citing Geddes v. United Fin. 4 Group, 559 F.2d 557, 560 (9th Cir. 1977) (per curiam)); accord Fair Housing of Marin v. Combs, 5 285 F.3d 899, 906 (9th Cir. 2002). In addition, although well-pleaded allegations in the 6 complaint are admitted by a defendant’s failure to respond, “necessary facts not contained in the 7 pleadings, and claims which are legally insufficient, are not established by default.” Cripps v. 8 Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992) (citing Danning v. Lavine, 572 F.2d 9 1386, 1388 (9th Cir. 1978)); accord DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847, 854 (9th Cir. 10 2007) (stating that a defendant does not admit facts that are not well-pled or conclusions of law); 11 Abney v. Alameida, 334 F. Supp. 2d 1221, 1235 (S.D. Cal. 2004) (“[A] default judgment may not 12 be entered on a legally insufficient claim.”). A party’s default conclusively establishes that 13 party’s liability, but it does not establish the amount of damages. Geddes, 559 F.2d at 560. 14 III. DISCUSSION 15 A. Appropriateness of the Entry of Default Judgment Under the Eitel Factors 16 The undersigned finds that the weight of the Eitel factors entitles BVD to a default 17 judgment against defendants MB Xpress and Bains on both of BVD’s claims, and recommends 18 default judgment be entered with respect to liability. 19 1. BVD is prejudiced by defendants’ non-responsiveness. 20 The first Eitel factor considers whether BVD would suffer prejudice if default judgment is 21 not entered, as prejudice to a plaintiff weighs in favor of a default judgment. See PepsiCo, Inc., 22 238 F. Supp. 2d at 1177. Here, because BVD has unsuccessfully attempted to recover on 23 defendants’ defaults and defendants have been silent in this matter, BVD would be left without 24 any other recourse against defendants. Accordingly, the first Eitel factors favors the entry of 25 default judgment. 26 2. BVD’s two claims are meritorious and sufficiently pleaded. 27 The second and third factors (the merits of the substantive claims and the sufficiency of 28 the complaint) are considered in tandem, due to the relatedness of the two inquiries. The court 1 must consider whether the allegations in the complaint are sufficient to state a claim that supports 2 the relief sought. See Danning, 572 F.2d at 1388; PepsiCo, Inc., 238 F. Supp. 2d at 1175. 3 Here, BVD seeks recovery under two causes of action: breach of contract; and breach of 4 guaranty. The Authorization Agreement and Guaranty provide that they shall be construed 5 according to Delaware law. (See ECF No. 1 at 7, 9.) Accordingly, the Court evaluates each 6 claim pursuant to Delaware state law. 7 a. Breach of Contract 8 Under Delaware law, the elements of a breach of contract claim are: “(1) the existence of 9 a contract, whether express or implied; (2) the breach of an obligation imposed by that contract; 10 and (3) the resultant damage to the plaintiff.” Avaya Inc., RP v. Telecom Labs, Inc., 838 F.3d 11 354, 389 (3rd Cir. 2016) (citation omitted). 12 In its complaint, BVD alleges that on July 16, 2019, BVD and MB Xpress entered into the 13 Authorization Agreement (a signed copy is appended to the complaint), which set forth the 14 parties’ relevant information and the nature of the agreement in significant detail. (See ECF No. 15 1 at 9-13.) Under the Authorization Agreement, BVD would issue fuel cards to defendant MB 16 Xpress for use by MB Xpress’s drivers or agents at truck stops, and would pay the charges 17 incurred by MB Xpress’s drivers or agents directly to the truck stops. BVD would then debit the 18 amounts accrued from MB Xpress’s checking account. In the months following, MB Express’s 19 drivers incurred charges, and BVD paid the invoices (copies of three outstanding invoices are 20 attached to the complaint, which outline incurred by each driver, including their name and 21 assigned vehicle number, and the location, date, and time of each transaction). (See id. at 18.) 22 BVD attempted to contact defendants for payment, to no avail. (See id. at 4-5.) This conduct 23 constitutes a breach of the Authorization Agreement. As a result, BVD has suffered monetary 24 damages in the amount of the outstanding invoices. BVD also seeks interest, attorneys’ fees, and 25 costs, as provided for in the Authorization Agreement upon MB Xpress’s default of payment. 26 (Id. at 5-7.) 27 Taking these well-pled allegations as true, the undersigned finds that BVD has adequately 28 pled a breach of contract claim under Delaware law. See Fair Housing of Marin, 285 F.3d at 906. 1 b. Breach of Guaranty 2 Under Delaware law, “a contract of guaranty is the promise to answer for the payment of 3 some debt or for the performance of some obligation by another on the default of that third person 4 who is liable in the first instance.” Falco v. Alpha Affiliates, Inc., 1997 U.S. Dist. LEXIS 20122, 5 at *15 (D. Del. Dec. 10, 1997) (“[I]n order for a guaranty to be enforceable it must, with 6 reasonable clearness, evidence an intent on the part of a party to become liable on an obligation in 7 the event of default by the primary obligor.”) (citations and internal quotes omitted). 8 On July 16, 2019, BVD and Bains executed the Guaranty. (See ECF No. 1 at 6, 15.) The 9 Guaranty provides that any default by MB Xpress under the Authorization Agreement shall be a 10 default by Bains. The signed guaranty appended to BVD’s complaint clearly provides that Bains 11 agreed to pay the debt of MB Xpress in case of MB Xpress’s default under the Authorization 12 Agreement. (See ECF No. 1 at 15.) Accordingly, MB Xpress’s breach of contract under the 13 Authorization Agreement, as discussed above, constitutes a breach of guaranty by Bains. Thus, 14 BVD adequately pled a breach of guaranty claim. See Fair Housing of Marin, 285 F.3d at 906. 15 3. The amount of damages is proportional to plaintiff’s harm. 16 Next, the court considers “the amount of money at stake in relation to the seriousness of 17 [d]efendant's conduct." PepsiCo, Inc., 238 F. Supp. 2d at 1176-77; see also Philip Morris USA, 18 Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 500 (C.D. Cal. 2003). 19 While the $242,561.75 in damages sought by BVD in its motion for default judgment is a 20 substantial sum of money, it is the same as the amount of loss and costs incurred by BVD. In 21 addition to BVD’s request for the principal amount of $217,102.07 owed under the three 22 outstanding invoices, BVD seeks $8,186.20 in accrued pre-judgment interest, $16,646.00 in 23 attorneys’ fees, and $627.48 in costs, all of which are provided for under the Authorization 24 Agreement. (See ECF No. 10-1 at 8.) Therefore, the requested award for damages is reasonable 25 and proportional given the well-pled allegations. See Coach Servs. v. YNM, Inc., 2011 U.S. Dist. 26 LEXIS 52482, at *8-9 (C.D. Cal. May 6, 2011) (“The amount of money sought by plaintiff is 27 consistent with the allegations in the [c]omplaint and the claim asserted.”). Accordingly, this 28 factor weighs in favor of entry of default judgment. 1 4. The material facts are not in dispute. 2 The facts of this case are relatively straightforward, and BVD has provided the Court with 3 well-pleaded allegations and documentation supporting its claims. Specifically, BVD has 4 provided signed copies of the relevant agreements, as well as copies of the outstanding invoices 5 and other signed affidavits, further attesting to BVD’s claims set forth in its complaint. (See ECF 6 Nos. 1, 10.) The Court may assume the truth of well-pleaded facts in the complaint (except as to 7 damages) following the clerk's entry of default, and thus, there is no likelihood that any genuine 8 issue of material fact exists. See, e.g., Elektra Entm't Group Inc. v. Crawford, 226 F.R.D. 388, 9 393 (C.D. Cal. 2005) ("Because all allegations in a well-pleaded complaint are taken as true after 10 the court clerk enters default judgment, there is no likelihood that any genuine issue of material 11 fact exists."); accord Philip Morris USA, Inc., 219 F.R.D. at 500; PepsiCo, Inc., 238 F. Supp. 2d 12 at 1177. The undersigned finds that this factor favors the entry of a default judgment. 13 5. The court sees no excusable neglect. 14 Upon review of the record before the Court, the undersigned finds that the default was not 15 the result of excusable neglect. See Pepsi Co, Inc., 238 F. Supp. 2d at 1177. 16 Defendants have had ample notice in this lawsuit. As an initial matter, BVD attempted to 17 contact defendants before bringing this suit in order to recoup payment for the outstanding 18 invoices. (ECF No. 1 at 4.) BVD then served its complaint upon defendants personally at BVD’s 19 address of record. (See ECF Nos. 1 at 9; 5; 6.) BVD also served defendants, by mail, its motion 20 for default judgment and the court’s order providing an additional opportunity to respond to the 21 default. (ECF No. 3, 11). Defendants have not filed anything in response to BVD’s filings or 22 otherwise made an appearance in this case. Accordingly, there is no indication that defendants’ 23 default resulted from excusable neglect and this factor favors the entry of a default judgment. 24 6. The policy favoring disposition on the merits is outweighed by other factors. 25 "Cases should be decided upon their merits whenever reasonably possible." Eitel, 782 26 F.2d at 1472. However, this policy, standing alone, is not dispositive, especially where a 27 defendant fails to appear or defend itself in an action. PepsiCo, Inc., 238 F. Supp. 2d at 1177; see 28 also Craigslist, Inc. v. Naturemarket, Inc., 694 F. Supp. 2d 1039, 1061 (N.D. Cal. 2010). 1 Here, although the undersigned is cognizant of the policy in favor of decisions on the 2 merits—and consistent with existing policy would prefer that this case be resolved on the 3 merits—that policy does not, by itself, preclude the entry of default judgment. 4 B. Terms of the Judgment to be Entered 5 Pursuant to the above analysis, the Eitel factors weigh in favor of entering default on 6 liability against both defendants. Further, the principal amount of damages corresponds to the 7 invoices submitted, and so $217,102.07 appears an appropriate amount of damages, and $627.48 8 in costs is appropriate. Based on BVD’s Objections (ECF No. 16) to the court’s Findings and 9 Recommendations in this matter (ECF No. 15) and for the reasons stated below, the undersigned 10 recommends that BVD be awarded final judgment in the amount of $242,561.75, inclusive of pre- 11 judgment interest and attorneys’ fees. 12 1. Pre-judgment Interest 13 Pre-judgment interest is a substantive part of a plaintiff’s claim, and state law generally 14 governs the award of pre-judgment interest in diversity actions. Oak Harbor Freight Lines, Inc. v. 15 Sears Roebuck & Co., 513 F.3d 949, 961 (9th Cir. 2008). “When a contract includes a valid 16 choice of law provision, the court applies the law of the chosen state to find the appropriate 17 prejudgment interest.” Phillips 66 Co. v. Petros Rai Stations, LLC, 2016 U.S. Dist. LEXIS 18 56325, at *21-23 (E.D. Cal. April 26, 2016); see also In re FKF 3, LLC, 2018 U.S. Dist. LEXIS 19 183087, at *40-41 (S.D.N.Y Oct. 24, 2018) (“When determining the applicable prejudgment 20 interest rate, courts look to the source of the law underlying a party's claim . . . ‘where 21 prejudgment interest can only be awarded on the basis of what is solely a state claim, it is 22 appropriate to use the state interest rate.’”) (emphasis added). 23 Here, the Authorization Agreement provides that “any default in payment shall incur an 24 interest charge at a rate equal to the lesser of (a) 24% per annum, and (b) the highest rate 25 permitted by law.” (ECF No. 1 at 13.) The Authorization Agreement states that Delaware law 26 governs this dispute, a finding on which plaintiff agrees. (See ECF Nos. 1 at 12; 16 at 2.) 27 Delaware Law provides that the maximum interest rate must not exceed the Federal Reserve 28 discount rate by more than 5%. See Del. Code Ann. tit. 6, § 2301 (2020). Thus, the court finds 1 that BVD properly determined the applicable pre-judgment interest rate to be 7.5%. (See ECF 2 No. 16.) Accordingly, the court finds that the new requested award for pre-judgment interest in 3 the amount of $8,186.20 is appropriate. 4 2. Attorneys’ Fees 5 “A federal court siting in diversity applies the law of the forum state regarding an award 6 of attorneys’ fees.” Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877, 883 (9th Cir. 2000). 7 Under California law, reasonable attorneys’ fees and costs are available to the prevailing party in 8 a contract action if the contract specifically provides for such an award. Cal. Civ. Code § 1717 9 (2020). An award for attorneys’ fees is calculated using the “lodestar method,” whereby the 10 number of hours reasonably expended on litigation is multiplied by a reasonable hourly rate. See 11 Hensley v. Eckerhart, 461 U.S. 424, 433 (1983). Hours that are “excessive, redundant, or 12 otherwise unnecessary” should be excluded. See id. at 434. In determining the reasonable hourly 13 rate, the district court should generally consider the prevailing market rates for attorneys of 14 comparable skill, experience and reputation within the community in which the district court sits. 15 See Chalmers v. City of Los Angeles, 796 F.2d 1205, 1210-11 (9th Cir. 1986); Camacho v. 16 Bridgeport Fin. Inc., 523 F.3d 973, 979 (9th Cir. 2008) (citation omitted). The party seeking the 17 award for attorneys’ fees bears the burden to show that the amount it seeks is reasonable. See 18 Phillips 66 Co. v. Cal. Pride Inc., 2017 U.S. Dist. LEXIS 104555, at *38 (E.D. Cal. July 5, 2017). 19 Here, BVD is entitled to reasonable attorneys’ fees and costs under the Authorization 20 Agreement, which provides that “[i]n the event of non-payment and collection or court 21 proceedings are required; the undersigned agree that they will pay for all costs and expenses 22 incurred in collecting any and all unpaid indebtedness including all legal and collection fees . . . .” 23 (ECF No. 1 at 13.) BVD’s requests attorneys’ fees for three attorneys at hourly rates of $535, 24 $395, and $315, all of whom work for Sherman Oaks, California based law firm Levinson, 25 Arshonsky & Kurtz, LLP. (See ECF No. 10-2.) 26 As an initial matter, BVD’s lead counsel Anne C. Manalili failed to explain in her 27 declaration (ECF No. 10-2) whether BVD sought local counsel in this matter and why Manalili’s 28 firm, as opposed to a firm in Sacramento, was necessary. See Gates v. Deukmejian, 987 F.2d 1 1392, 1405 (9th Cir. 1992) (finding that non-forum rates may be used “if local counsel 2 [is] unavailable, either because they are unwilling or unable to perform because they lack the 3 degree of experience, expertise, or specialization required to handle properly the case”) (citations 4 omitted). More importantly, Manalili failed to explain the qualifications of her firm and the other 5 assigned attorneys, as well as how the requested hourly rates are compatible with the prevailing 6 rates for contract-dispute litigation in the Eastern District of California. See Suretec Ins. v. BRC 7 Constr., Inc., 2013 U.S. Dist. LEXIS 124792, at *2-3 (E.D. Cal. Aug. 30, 2013). A recent 8 comprehensive analysis of attorneys’ fees in the Eastern District of California found the following 9 hourly rates to be reasonable: $450 for partners with at least 20 years of experience; $400 for 10 partners with between 10 and 20 years of experience; and $250 for associates with between four 11 and 10 years of experience. See Firstsource Solutions, USA, LLC v. Tulare Regional Medical 12 Center, 2019 U.S. Dist. LEXIS 109895, at *8 (E.D. Cal. June 28, 2019). 13 Thus, the rates of partner Steve Kurtz and associate Sonia Roham appear to be too high 14 for the Eastern District of California. For this reason, the undersigned recommends that BVD be 15 awarded $16,646.00 in attorney’s fees, accounting for a rate of $450 for Mr. Kurtz and $250 for 16 Ms. Roham.3 17 IV. CONCLUSION 18 Based on the reasons stated herein, the undersigned recommends that BVD be granted 19 default judgment against defendants jointly and severally with respect to liability for breach of 20 contract and breach of guaranty. Additionally, the undersigned recommends that BVD’s request 21 for damages be granted and that BVD be awarded final judgment in the amount of $242,561.75, 22 inclusive of pre-judgment interest, attorneys’ fees and costs.4 23 /// 24 /// 25 3 BVD agrees that this reduced award for attorneys’ fees is appropriate. (See ECF No. 16 at 2.) 26 4 This recommended award is based in part on BVD’s Objections (ECF No. 16) to the 27 undersigned’s Findings and Recommendations (ECF No. 15) in this matter. The undersigned finds that BVD’s Objections cured the undersigned’s concerns as set forth in its Findings and 28 Recommendations regarding BVD’s calculation of damages. 1 Accordingly, it is HEREBY RECOMMENDED that: 2 1. Plaintiff's Motion for Default Judgment (ECF No. 10) be GRANTED; 3 2. Plaintiff be awarded final judgment in the amount of $242,561.75; and 4 3. BVD be entitled to post-judgment costs and interest at the legal rate 5 These findings and recommendations are submitted to the United States District Judge 6 | assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(1). Within seven (7) days 7 | after being served with these findings and recommendations, any party may file written 8 | objections with the court and serve a copy on all parties. Such a document should be captioned 9 | “Objections to Magistrate Judge’s Findings and Recommendations.” Any reply to the objections 10 | shall be served on all parties and filed with the court within seven (7) days after service of the 11 | objections. The parties are advised that failure to file objections within the specified time may 12 | waive the right to appeal the District Court’s order. Turner v. Duncan, 158 F.3d 449, 455 (9th 13 | Cir. 1998); Martinez v. YIst, 951 F.2d 1153, 1156-57 (9th Cir. 1991). 14 | Dated: April 1, 2020 Aectl Aharon 16 KENDALL J. NE UNITED STATES MAGISTRATE JUDGE 17 BVD.2137 18 19 20 21 22 23 24 25 26 27 28 11