(PS) Smith v. Brewer ( 2022 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 DEAN T. SMITH, No. 2:19-cv-1918 TLN DB 12 Plaintiff, 13 v. ORDER 14 DENNIS BREWER, an individual domiciled in New Jersey; WINNETT 15 PERICO, INC., a Colorado corporation, d.b.a. WINNETTORGANICS; 16 WINNETTORGANICS, a business entity of unknown type; WINNETTORGANICS 17 CATTLE COMPANY, INC., a Colorado corporation; WINNETT CATTLE 18 COMPANY, INC. a Colorado corporation, 19 Defendants. 20 21 Pending before the undersigned are plaintiff’s motion for default judgment and defendant 22 Dennis Brewer’s motion to set aside the entry of default. (ECF Nos. 20 & 30.) For the reasons 23 stated below, the undersigned recommends that plaintiff’s motion for default judgment be denied 24 and defendant’s motion to set aside entry of default be granted. 25 FACTUAL BACKGROUND 26 Plaintiff commenced this action on September 20, 2019, by filing a complaint and paying 27 the required filing fee. (ECF No. 1.) The allegations of the complaint generally concern breach 28 //// 1 of contract and fraud with respect to plaintiff’s investment in defendants’ business ventures.1 2 Plaintiff filed proofs of service on October 4, 2019. (ECF Nos. 5-8.) On October 28, 2019, 3 plaintiff requested entry of defendants’ default. (ECF No. 9.) The Clerk entered defendants’ 4 defaults the following day. (ECF No. 10.) 5 On May 8, 2020, plaintiff filed a motion for default judgment. (ECF No. 12.) That 6 motion, however, was denied after plaintiff failed to appear at the hearing of the motion. (ECF 7 No. 16.) On August 4, 2020, plaintiff again filed a motion for default judgment. (ECF No. 17.) 8 That motion, however, was also denied due to several defects. (ECF No. 19.) 9 Plaintiff filed the pending motion for default judgment on August 12, 2021. (ECF No. 10 20.) Defendant Dennis Brewer, appearing pro se, filed responses on September 8, 2021, and 11 September 10, 2021. (ECF Nos. 21 & 22.) Plaintiff filed a reply on September 16, 2021. (ECF 12 No. 23.) The motion came for hearing before the undersigned on September 24, 2021. (ECF NO. 13 26.) Attorneys Geoffrey Evers and Richard Lambert appeared via Zoom on behalf of the plaintiff 14 and Dennis Brewer appeared pro se also via Zoom. (Id.) Thereafter, defendant Brewer was 15 granted leave to file a motion seeking to set aside entry of default. (ECF No. 27.) 16 On October 22, 2021, defendant Brewer filed the pending motion to set aside entry of 17 default. (ECF No. 30.) Plaintiff filed an opposition on November 19, 2021. (ECF No. 33.) The 18 motion was taken under submission on November 29, 2021. (ECF No. 34.) 19 I. Plaintiff’s Motion For Default Judgment 20 Federal Rule of Civil Procedure 55(b)(2) governs applications to the court for default 21 judgment. Upon entry of default, the complaint’s factual allegations regarding liability are taken 22 as true, while allegations regarding the amount of damages must be proven. Dundee Cement Co. 23 v. Howard Pipe & Concrete Prods., 722 F.2d 1319, 1323 (7th Cir. 1983) (citing Pope v. United 24 States, 323 U.S. 1 (1944); Geddes v. United Fin. Group, 559 F.2d 557 (9th Cir. 1977)); see also 25 DirectTV v. Huynh, 503 F.3d 847, 851 (9th Cir. 2007); TeleVideo Sys., Inc. v. Heidenthal, 826 26 F.2d 915, 917-18 (9th Cir. 1987). 27 28 1 Jurisdiction over this action is premised on the parties’ diversity. (Compl. (ECF No. 1) at 1.) 1 Where damages are liquidated, i.e., capable of ascertainment from definite figures 2 contained in documentary evidence or in detailed affidavits, judgment by default may be entered 3 without a damages hearing. Dundee, 722 F.2d at 1323. Unliquidated and punitive damages, 4 however, require “proving up” at an evidentiary hearing or through other means. Dundee, 722 5 F.2d at 1323-24; see also James v. Frame, 6 F.3d 307, 310-11 (5th Cir. 1993). 6 Granting or denying default judgment is within the court’s sound discretion. Draper v. 7 Coombs, 792 F.2d 915, 924-25 (9th Cir. 1986); Aldabe v. Aldabe, 616 F.2d. 1089, 1092 (9th Cir. 8 1980). The court is free to consider a variety of factors in exercising its discretion. Eitel v. 9 McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Among the factors that may be considered by 10 the court are 11 (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) 12 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 13 excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. 14 15 Eitel, 782 F.2d at 1471-72 (citing 6 Moore’s Federal Practice ¶ 55-05[2], at 55-24 to 55-26). 16 On February 12, 2021, the undersigned denied plaintiff’s prior motion for default 17 judgment without prejudice to renewal. (ECF No. 19.) That order explained that plaintiff’s 18 motion for default judgment failed to discuss the “Eitel factors” and “failed to identify which 19 claims and/or against which defendants plaintiff [was] seeking default judgment.” (Id. at 2.) The 20 order explained that was “particularly problematic . . . given plaintiff’s briefing.” (Id.) 21 In this regard, the order explained that the complaint asserts a cause of action for breach of 22 contract, purports to provide a copy of the contract, but does not. (Id.) The complaint also asserts 23 a claim for fraud but fails to provide any specificity to support that claim. (Id. at 2-3.) The 24 complaint also “refers vaguely to a ‘CLASS ACTION’ claim.” (Id.) 25 In response to that order, plaintiff filed the pending motion for default judgment. 26 Although that motion does discuss the Eitel factors, it does not remedy the other defects noted in 27 the February 12, 2021 order. In this regard, it is still unclear which claims and against which 28 defendant plaintiff is seeking default judgment. Moreover, plaintiff’s motion for default 1 judgment does not address each claim upon which plaintiff seeks default judgment, the elements 2 of each claim, and how the complaint alleges factual allegations establishing each element. Nor 3 has plaintiff explained the complaint’s reference to a class action. 4 Under these circumstances, the undersigned cannot find that plaintiff has established the 5 merits of plaintiff’s substantive claims or the sufficiency of the complaint. Accordingly, the 6 undersigned will recommend that plaintiff’s motion for default judgment be denied. 7 II. DEFENDANT’S MOTION TO SET ASIDE DEFAULT2 8 Defendant’s motion to set aside entry of default is brought pursuant to Rule 55(c) of the 9 Federal Rules of Civil Procedure. “Rule 55(c) provides that a court may set aside a default for 10 ‘good cause shown.’” Franchise Holding II, LLC. v. Huntington Restaurants Group, Inc., 375 11 F.3d 922, 925 (9th Cir. 2004) (quoting Fed. R. Civ. P. 55(c)). The good cause standard under 12 Rule 55(c) is the same standard applied to motions seeking to vacate default judgment brought 13 pursuant to Rule 60(b). Id. at 925-26. “To determine ‘good cause’, a court must ‘consider[ ] 14 three factors: (1) whether [the party seeking to set aside the default] engaged in culpable conduct 15 that led to the default; (2) whether [it] had [no] meritorious defense; or (3) whether reopening the 16 default judgment would prejudice’ the other party.” U.S. v. Signed Personal Check No. 730 of 17 Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (quoting Franchise Holding II, 375 F.3d at 18 925-26). 19 A. Defendant’s Conduct 20 A “defendant’s conduct is culpable if he has received actual or constructive notice of the 21 filing of the action and intentionally failed to answer.” Alan Neuman Productions, Inc. v. 22 Albright, 862 F.2d 1388, 1392 (9th Cir. 1988). “Neglectful failure to answer as to which the 23 24 2 Having found the plaintiff’s motion for default judgment should be denied the undersigned will also recommend that plaintiff be granted leave to file an amended complaint. Thus, it is unclear 25 to what extent defendant Brewer’s motion to set aside entry of default is moot. See Schneider v. 26 Bank of America N.A., No. 2:11-cv-2953 JAM EFB PS, 2015 WL 13651208, at *2 (E.D. Cal. Feb. 27, 2015) (“by adding new claims and new allegations against Home Retention Group to the 27 second amended complaint, that party’s default is opened and the plaintiff was required to serve that defendant with a copy of the second amended complaint”). For purposes of thoroughness the 28 undersigned will analyze the motion in full. 1 defendant offers a credible, good faith explanation negating any intention to take advantage of the 2 opposing party, interfere with judicial decision making, or otherwise manipulate the legal process 3 is not ‘intentional[.]’” TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 697 (9th Cir. 2001), 4 overruled on other grounds by Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141, 147-50 (2001). 5 Here, defendant Brewer concedes that “Defendant failed to answer within the required 6 deadline.” (Def.’s Mot. Set Aside (ECF No. 30) at 2.) Defendant Brewer explains that defendant 7 lacked “sufficient financial resources to mount a defense at that time.” (Id.) The undersigned 8 finds defendant’s assertion to be a credible, good faith explanation negating any intention to take 9 advantage of the opposing party, interfere with judicial decision making, or otherwise manipulate 10 the legal process. 11 B. Meritorious Defense 12 “[T]he burden on a party seeking to vacate a default judgment is not extraordinarily 13 heavy.” TCI, 244 F.3d at 700. “All that is necessary to satisfy the ‘meritorious defense’ 14 requirement is to allege sufficient facts that, if true, would constitute a defense[.]” U.S. v. Signed 15 Personal Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1094 (9th Cir. 2010) (quoting TCI, 16 244 F.3d at 700); see also In re Stone, 588 F.2d 1316, 1319 n.2 (10th Cir. 1978) (“the purpose of 17 the requirement is to show the trial court that a sufficient defense is assertible”). “[T]he question 18 whether the factual allegation [i]s true’ is not to be determined by the court when it decides the 19 motion to set aside the default. Rather, that question ‘would be the subject of the later 20 litigation.’” Mesle, 615 F.3d at 1094 (quoting TCI, 244 F.3d at 700). 21 Here, defendant Brewer has submitted an answer that appears to assert several meritorious 22 defenses, if true, including issues related to jurisdiction and a denial of the complaint’s 23 allegations. (ECF No. 22.) Rule 8 of the Federal Rules of Civil Procedures allow that a “party 24 that intends in good faith to deny all the allegations of a pleading--including the jurisdictional 25 grounds--may do so by a general denial.” Fed. R. Civ. P. 8(b)(3); see also Sanchez, 2013 WL 26 3457072, at *2 (“Quiroz’s statement that he is not liable for any of the damages alleged by 27 Sanchez is in the nature of a general denial.”). 28 //// 1 C. Prejudice 2 Plaintiff’s opposition to defendant’s motion to set aside entry of default fails to address 3 the issue of prejudice with specificity. (Pl.’s Opp.’n (ECF No. 33) at 5.) Moreover, “[t]o be 4 prejudicial, the setting aside of a judgment must result in greater harm than simply delaying 5 resolution of the case. Rather, ‘the standard is whether [plaintiff’s] ability to pursue his claim 6 will be hindered.’” TCI, 244 F.3d at 701 (quoting Falk 739 F.2d at 463). “[T]he delay must 7 result in tangible harm such as loss of evidence, increased difficulties of discovery, or greater 8 opportunity for fraud or collusion.” Thompson v. American Home Assur. Co., 95 F.3d 429, 433- 9 34 (6th Cir. 1996). 10 The undersigned finds that setting aside defendant Brewer’s default would not prejudice 11 plaintiff’s ability to pursue any claim. 12 D. Extreme Circumstances 13 “[D]ue to the strong federal policy in favor of deciding cases on the merits whenever 14 possible, ‘judgment by default is a drastic step appropriate only in extreme circumstances[.]’” 15 Francois & Co., LLC v. Nadeau, 334 F.R.D. 588, 596 (C.D. Cal. 2020) (quoting Mesle, 615 F.3d 16 at 1091). “Our rules for determining when a default should be set aside are solicitous towards 17 movants, especially those whose actions leading to the default were taken without the benefit of 18 legal representation.” Mesle 615 F.3d at 1089. “‘The law does not favor defaults; therefore, any 19 doubts as to whether a party is in default should be decided in favor of the defaulting party.’” 20 Bonita Packing Co. v. O’Sullivan, 165 F.R.D. 610, 614 (C.D. Cal. 1995) (quoting Lee v. Bhd. of 21 Maintenance of Way Employees—Burlington N. Sys. Fed’n., 139 F.R.D. 376, 381 (D. Minn. 22 1991)). 23 Here, the undersigned finds an absence of extreme circumstances justifying default. See 24 AF Holdings LLC v. Buck, No. 2:12-cv-1068 LKK KJN, 2013 WL 79949, at *7 (E.D. Cal. Jan. 25 4, 2013) (“In addition to the three factors discussed above, the undersigned gives great weight to 26 the established policies favoring resolution of claims on the merits and disfavoring default 27 judgments, especially when a pro se party is the subject of the default.”); Yagman v. Galipo, No. 28 CV 12-7908 GW (SHx), 2013 WL 1287409, at *9 (C.D. Cal. Mar. 25, 2013) (“the Ninth Circuit 1 has consistently emphasized that courts have ‘especially broad’ discretion in setting aside 2 defaults”); PNC Bank, N.A. v. Smith, No. CIV S-10-1916 JAM EFB, 2011 WL 6696947, at *4 3 (E.D. Cal. Dec. 21, 2011) (“although it is unclear whether defendants’ denials of plaintiff’s claims 4 would be meritorious, there is at least a bona fide chance that defendants could prevail”). 5 In light of the above evaluation, the undersigned will recommend that defendant Brewer’s 6 motion to set aside entry of default be granted. Plaintiff argues that in granting defendant 7 Brewer’s motion, the Court “should so do so as to Defendant Brewer only” as defendant Brewer 8 cannot represent the corporate defendants. (Pl.’s Opp.’n (ECF No. 33) at 1.) That is true. The 9 right to represent oneself pro se is personal to the plaintiff and does not extend to other parties. 10 Simon v. Hartford Life, Inc., 546 F.3d 661, 664 (9th Cir. 2008); see also Russell v. United States, 11 308 F.2d 78, 79 (9th Cir. 1962) (“A litigant appearing in propria persona has no authority to 12 represent anyone other than himself.”). 13 Plaintiff is advised, however, that Rule 54(b) of the Federal Rules of Civil Procedure 14 provides in pertinent part, “when multiple parties are involved, the court may direct entry of a 15 final judgment as to one or more, but fewer than all, claims or parties only if the court expressly 16 determines that there is no just reason for delay.” See also Curtiss-Wright Corp. v. General Elec. 17 Co., 446 U.S. 1, 8 (1980) (noting that the court has discretion to enter a default judgment as to 18 less than all defendants); Shanghai Automation Instrument Co., Ltd. v. Kuei, 194 F. Supp.2d 995, 19 1010 (N.D. Cal. 2001) (“differing judgments against defendant Tsai and the defaulting defendants 20 would not necessarily be illogical”). 21 In this regard, the Supreme Court warned that “absurdity might follow” in instances where 22 a court “can lawfully make a final decree against one defendant . . . while the cause was 23 proceeding undetermined against the others.” Frow v. De La Vega, 82 U.S. 552, 554 (1872). 24 The Ninth Circuit has summarized the Frow standard as follows: “[W]here a complaint alleges 25 that defendants are jointly liable and one of them defaults, judgment should not be entered against 26 the defaulting defendant until the matter has been adjudicated with regard to all defendants.” In 27 re First T.D. & Investment, 253 F.3d 520, 532 (9th Cir. 2001) (citing Frow, 82 U.S. at 554); see 28 also Gulf Coast Fans, Inc. v. Midwest Electronics Importers, Inc., 740 F.2d 1499, 1512 (11th Cir. 1 1984) (“even when defendants are similarly situated, but not jointly liable, judgment should not 2 be entered against a defaulting defendant if the other defendant prevails on the merits”); 3 Employee Painters’ Trust v. Cascade Coatings, No. C12-0101 JLR, 2014 WL 526776, at *3 4 (W.D. Wash. Feb. 10, 2014) (“it would be an abuse of discretion for this court to grant Plaintiffs’ 5 motion for default judgment because Plaintiffs allege the same claims against Mr. Schlatter and 6 the non-defaulted jointly and severally liable co-defendants, Mr. McLaughlin and Cascade 7 Partnership. Supreme Court and Ninth Circuit precedent prohibit default judgment where a 8 default judgment against one defendant could be inconsistent with a judgment on the merits in 9 favor of other defendants”); Helton v. Factor 5, Inc., Case No: C 10-4927 SBA, 2013 WL 10 5111861, at *6 (N.D. Cal. Sept. 12, 2013) (“In the present case, there is a serious risk of 11 inconsistent judgments. Plaintiffs have alleged that Defendants all are jointly and severally liable 12 for the 11 claims alleged in the First Amended Class Action Complaint.”). Here, plaintiff’s 13 motion for default judgment alleges that the defendants acted “jointly and severally.” (Pl.’s MDJ. 14 (ECF No. 20) at 13.). 15 CONCLUSION 16 Accordingly, IT IS HEREBY RECOMMENDED that: 17 1. Plaintiff’s August 12, 2021 motion for default judgment (ECF No. 20) be denied; 18 2. Defendant Brewer’s October 22, 2021 motion to set aside entry of default (ECF No. 19 30) be granted; 20 2. The entry of defendant Brewer’s default be set aside; 21 3. Plaintiff be granted twenty-eight days to file an amended complaint; 22 4. Plaintiff be ordered to serve a copy of the amended complaint on defendant Brewer and 23 file proof of such service within fourteen days thereafter; and 24 5. Defendant Brewer be ordered to file a responsive pleading to the amended complaint 25 within twenty-one days of being served with the amended complaint. 26 These findings and recommendations are submitted to the United States District Judge 27 assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(l). Within thirty days after 28 being served with these findings and recommendations, any party may file written objections with 1 | the court and serve a copy on all parties. Such a document should be captioned “Objections to 2 | Magistrate Judge’s Findings and Recommendations.” Any reply to the objections shall be served 3 || and filed within fourteen days after service of the objections. The parties are advised that failure 4 || to file objections within the specified time may waive the right to appeal the District Court’s 5 || order. Martinez v. YIst, 951 F.2d 1153 (9th Cir. 1991). 6 || Dated: February 8, 2022 7 8 9 ‘BORAH BARNES UNITED STATES MAGISTRATE JUDGE 10 11 12 13 14 15 16 17 18 19 20 21 22 23 || DLB:6 DB\orders\orders.civil\smith1918.set.aside.f&rs 25 26 27 28