Sunbelt Rentals, Inc. v. Three Brothers Electrical Contractors, Inc. ( 2022 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 SUNBELT RENTALS, INC., Case No. 1:21-cv-01357-JLT-SKO 11 Plaintiff, FINDINGS AND 12 RECOMMENDATIONS THAT PLAINTIFF’S MOTION FOR v. 13 DEFAULT JUDGMENT BE DENIED 14 THREE BROTHERS ELECTRICAL (Doc. 14) 15 CONTRACTORS, INC., and ALEX JONES, OBJECTIONS DUE: 14 DAYS 16 Defendants. 17 _________________________________ ____ / 18 19 On December 9, 2021, Plaintiff Sunbelt Rentals, Inc. (“Plaintiff”) filed a motion for default 20 judgment against Defendant Three Brothers Electrical Contractors, Inc. (“Three Brothers”), 21 pursuant to Fed. R. Civ. P. 55(b). (Doc. 14). No opposition to the motion has been filed. (See 22 Docket.) 23 After having reviewed the papers and supporting material, the matter was deemed suitable 24 for decision without oral argument pursuant to E.D. Cal. Local Rule 230(g), and the Court vacated 25 the hearing set for January 12, 2022. (Doc. 17.) For the reasons set forth below, the undersigned 26 recommends that the motion for default judgment be denied without prejudice.1 27 28 1 The motion for default is referred to the undersigned by E.D. Cal. Local Rule 302(c)(19) for the entry of findings and 1 2 Plaintiff rents equipment to its customers for use primarily in construction projects. (Doc. 1 3 (“Compl.”) ¶ 6.) Three Brothers is an electrical contractor that services residential and commercial 4 entities. (Id. ¶ 7.) Defendant Alex Jones (“Jones”) is the chief executive officer (CEO) of Three 5 Brothers. (Id. ¶ 3.) 6 In November 2018, Jones, in his capacity as Three Brothers’ CEO, executed Plaintiff’s 7 online credit application (the “Application”). (Compl. ¶ 8; Doc. 1-1 at 1–2.) In connection with the 8 Application, Jones also signed an individual personal guaranty (the “Guaranty”), in which he agreed 9 to “personally guarantee prompt payment and performance of any obligations” of Three Brothers to 10 Plaintiff. (Compl. ¶ 9; Doc. 1-1 at 3.) 11 Upon Plaintiff’s approval of the Application, an open account was established through which 12 Three Brothers could rent equipment from Plaintiff on credit (the “Open Account”). (Compl. ¶¶ 13 10–11; Doc. 1-2.) From August 2020 through February 2021, Plaintiff rented equipment to Three 14 Brothers, which Plaintiff alleges Three Brothers has failed to pay. (Compl. ¶¶ 12–13; Docs. 1-3 & 15 1-4.) 16 According to Plaintiff, the total unpaid principal amount owed as of December 6, 2021, is 17 $80,711.99. (Doc. 14-1 ¶ 14.) The Open Account terms provide for a service charge that accrues 18 at a rate of one and one-half percent (1.5%) per month on the balance of delinquent invoices until 19 the invoices are fully paid. (Compl. ¶ 17.) According to Plaintiff, Three Brothers owes Plaintiff 20 services charges on the unpaid principal in the amount of $15,375.70. (Doc. 14-1 ¶ 14.) Thus, the 21 total amount owed to Plaintiff by Three Brothers as of December 6, 2021, is $96,087.69. (Doc. 14- 22 1 at 4.) 23 On September 10, 2021, Plaintiff filed this action in diversity against Three Brothers and 24 Jones, alleging that they failed to pay Plaintiff the amounts that Three Brothers owes to Plaintiff for 25 its rental of equipment. (See generally Compl.) 26 2 Upon entry of default, “the factual allegations of the complaint, except those relating to the amount of damages, will 27 be taken as true.” TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917–18 (9th Cir. 1987) (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 28 to the amount of damages — is admitted if a responsive pleading is required and the allegation is not denied.”). 1 On September 19, 2021, Plaintiff served the summons and complaint on Jones and Three 2 Brothers by personally serving Jones, in his personal capacity and as the registered agent for service 3 of process of Three Brothers. (Docs. 5 & 6.) On October 12, 2021, Jones filed an answer that 4 purported to be on behalf of himself and Three Brothers. (Doc. 10.) The Clerk of Court entered 5 default against Jones and Three Brothers on October 13, 2021. (Docs. 8 & 9.) On October 15, 2021, 6 the Court vacated entry of default against Jones. (Doc. 11.) The Court further ordered stricken the 7 answer filed by Jones on behalf of Three Brothers, a corporate entity, on grounds that there was no 8 indication that Jones was an “attorney” as defined by the Court’s Local Rule 183 such that he would 9 be authorized to appear and file an answer on behalf of Three Brothers. (Id.) Three Brothers did 10 not thereafter file an answer. 11 On December 9, 2021, Plaintiff filed the instant motion for default judgment against Three 12 Brothers. (Doc. 14.) Plaintiff seeks a default judgment against Three Brothers for the unpaid 13 principal of $80,711.99; accrued service charges through December 6, 2021, in the amount of 14 $15,375.70 and additional service charges that will continue to accrue until the unpaid principal 15 amount is fully collected; pre-judgment interest at a rate of 10% from June 30, 2021 until December 16 6, 2021, in the amount of $3,515.49, and all interest that subsequently accrues through the date of 17 the judgment; post-judgment interest under 28 U.S.C. §1961(a); and a declaration that Three 18 Brothers is liable for Plaintiff’s reasonable and necessary attorney’s fees and costs, the amount of 19 which the Court will determine in response to a post-judgment motion by Plaintiff. (Doc. 15 at 10– 20 12.) 21 II. LEGAL STANDARDS 22 Pursuant to Federal Rule of Civil Procedure 55, when a party against whom a judgment for 23 affirmative relief is sought has failed to plead or otherwise defend, and the plaintiff does not seek a 24 sum certain, the plaintiff must apply to the court for a default judgment. Fed. R. Civ. P. 55. 25 As a general rule, cases should be decided on the merits as opposed to by default, and, 26 therefore, “any doubts as to the propriety of a default are usually resolved against the party seeking 27 a default judgment.” JUDGE WILLIAM W. SCHWARZER ET AL., CALIFORNIA PRACTICE GUIDE: 28 FEDERAL CIVIL PROCEDURE BEFORE TRIAL ¶ 6:11 (citing Pena v. Seguros La Comercial, S.A., 770 1 F.2d 811, 814 (9th Cir. 1985)). Granting or denying a motion for default judgment is a matter within 2 the court’s discretion. Draper v. Coombs, 792 F.2d 915, 924–25 (9th Cir. 1986); Aldabe v. Aldabe, 3 616 F.2d. 1089, 1092 (9th Cir. 1980). 4 The Ninth Circuit has directed that courts consider the following factors in deciding whether 5 to enter default judgment: (1) the possibility of prejudice to plaintiff; (2) the merits of plaintiff’s 6 substantive claims; (3) the sufficiency of the complaint; (4) the sum of money at stake in the action; 7 (5) the possibility of a dispute concerning the material facts; (6) whether defendant’s default was 8 the product of excusable neglect; and (7) the strong policy favoring decisions on the merits. See 9 Eitel v. McCool, 782 F.2d 1470, 1471–72 (9th Cir. 1986). 10 III. DISCUSSION 11 It is important to note at the outset that Plaintiff has moved for entry of default judgment 12 only against Three Brothers--one of two defendants named in this action. Plaintiff has not moved 13 for default judgment against Jones nor has Plaintiff dismissed him from this action. In this regard, 14 Federal Rule of Civil Procedure 54(b) provides in pertinent part: 15 [W]hen multiple parties are involved, the court may direct entry of a 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. 17 See also Curtiss-Wright Corp. v. General Elec. Co., 446 U.S. 1, 8 (1980) (noting that the court has 18 discretion to enter a default judgment as to less than all defendants). 19 Although the Court has discretion under Rule 54 depending on the circumstances before it, 20 the Supreme Court long ago warned that “absurdity might follow” in instances involving motions 21 for default judgment s where a court “can lawfully make a final decree against one defendant . . . 22 while the cause was proceeding undetermined against the others.” Frow v. De La Vega, 82 U.S. 23 552, 554 (1872). The Ninth Circuit has characterized the rule announced in Frow as follows: 24 “[W]here a complaint alleges that defendants are jointly liable and one of them defaults, judgment 25 should not be entered against the defaulting defendant until the matter has been adjudicated with 26 regard to all defendants.” In re First T.D. & Investment, Inc., 253 F.3d 520, 532 (9th Cir. 2001) 27 (citing Frow). In that case the Ninth Circuit also adopted the Eleventh Circuit’s extension of the 28 rule announced in Frow “to defendants who are similarly situated, even if not jointly and severally 1 liable.”3 In re First T.D. & Inv. Inc., 253 F.3d at 532 (“We therefore hold that the bankruptcy court 2 violated the Frow principle and abused its discretion by entering final default judgments, pursuant 3 to Fed. R. Civ. P. 54(b)[.]”). See also Garamendi v. Henin, 683 F.3d 1069, 1082 (9th Cir. 2012) 4 (“Here . . . the district court followed the proper procedure. After Hénin defaulted, the court waited 5 until completion of trial against the non-defaulting defendants before fixing damages and entering 6 default judgments against Hénin.”); United States Small Bus. Admin. v. Rocket Ventures II, L.P., 7 No. 10–cv–04425–JSW, 2013 WL 4835371, at *15 (N.D. Cal. Sept. 10, 2013) (“Frow’s 8 applicability turns on the key question of whether under the theory of the complaint, liability of all 9 the defendants must be uniform.” (quotation marks omitted). 10 Therefore, despite the discretion accorded pursuant to Rule 54, in the default judgment 11 context courts of this circuit have consistently applied Frow and First T.D. when default judgment 12 is sought as to a non-answering defendant while the action is proceeding against answering 13 defendants. See Societe d’Equipments Internationaux Nigeria, Ltd v. Dolarian Cap., Inc., No. 1:15- 14 cv-01553-DAD-SKO, 2016 WL 6868023, at *2 (E.D. Cal. Nov. 21, 2016) (denying motion for 15 default judgment without prejudice “because to do so could, potentially, be inconsistent with a 16 judgment on the merits with respect to the answering defendant”); Zardain v. Ipacpa U.S., Inc., No. 17 2:15-cv-1207-MCE-EFB, 2016 WL 737380, at *3-4 (E.D. Cal. Feb. 25, 2016) (recommending 18 denial without prejudice of a request for an “interlocutory default judgment” against one defendant 19 because each defendant’s potential liability is too interwoven with the other’s to permit entry of 20 judgment against IPACPA at this time”); Employee Painters’ Trust v. Cascade Coatings, No. C12- 21 0101 JLR, 2014 WL 526776, at *3 (W.D. Wash. Feb. 10, 2014) (“it would be an abuse of discretion 22 for this court to grant Plaintiffs’ motion for default judgment because Plaintiffs allege the same 23 claims against Mr. Schlatter and the non-defaulted jointly and severally liable co-defendants, Mr. 24 McLaughlin and Cascade Partnership. Supreme Court and Ninth Circuit precedent prohibit default 25 judgment where a default judgment against one defendant could be inconsistent with a judgment on 26 3 As the Ninth Circuit explained, in the case initially giving rise to this extension of Frow, “[a]lthough defendants were 27 not jointly liable, the court vacated the default judgment against the exporter because ‘[i]t would be incongruous and unfair to allow [the plaintiff] to collect a half million dollars from [the defaulting defendant] on a contract that a jury 28 found was breached by [the plaintiff].’ “ In re First T.D. & Inv. Inc., 253 F.3d at 532 (quoting Gulf Cost Fans, Inc. v. 1 the merits in favor of other defendants”); Helton v. Factor 5, Inc., Case No: C 10-4927 SBA, 2013 2 WL 5111861, at *6 (N.D. Cal. Sept. 12, 2013) (“In the present case, there is a serious risk of 3 inconsistent judgments. Plaintiffs have alleged that Defendants all are jointly and severally liable 4 for the 11 claims alleged in the First Amended Class Action Complaint.”). 5 Here, Plaintiff seeks the very type of default judgment frowned upon by Frow (and First 6 T.D.). Courts have applied Frow in similar circumstances where a lender has sought a default 7 judgment against borrowers and guarantors, some of whom had not defaulted. See United States v. 8 Mobile XL, LLC, No. 2:16-cv-08832-CAS(AGRx), 2017 WL 3427960, at *3 (C.D. Cal. Aug. 8, 9 2017) (collecting cases, and denying motion for default against borrower-defendants where the 10 guarantor-defendant had appeared and answered). Plaintiff alleges that the personal guaranty 11 “obligates [] Jones to, among other things, pay any outstanding amounts owed by Three Brothers to 12 [Plaintiff].” (Compl. ¶ 21.) Plaintiff seeks a judgment that Three Brothers and Jones are “both 13 liable” and requests the same monetary relief against both defendants. (Id. at 5.) Accordingly, it 14 appears that Plaintiff in this case is seeking relief against both defendants jointly and severally. 15 At the very least, the claims, facts, and legal issues asserted in the complaint relative to each 16 of the two defendants are quite similar.4 See In re First T.D. & Inv. Inc., 253 F.3d at 532 (The Frow 17 principle applies to circumstances in which counterclaim parties have closely related defenses or 18 are otherwise “similarly situated.”). Jones has also raised at least some defenses in his answer (see 19 Doc. 10 at 3), and it appears that he does not assert any defenses that are not derivative of the 20 defenses that Three Brothers might raise (as indicated by Jones’ attempt to submit the pleading on 21 behalf of both him and Three Brothers, see id. at 2). Default judgment against Three Brothers would 22 therefore result in inconsistent obligations should Jones succeed in a potential defense against 23 Plaintiff’s claims. See In re First T.D., 253 F.3d at 532 (finding that judgment against defaulting 24 25 4 Plaintiff asserts that default judgment is appropriate in this case because “Jones is a guarantor of Three Brother’s debt to [Plaintiff], and his liability to Sunbelt is an extension of, and relies on, Three Brother’s liability to [Plaintiff].” (Doc. 26 15 at 4.) However, as Plaintiff’s complaint demonstrates, in that it seeks joint liability and the same monetary relief, this is not a case that “turns on facts proven with respect to” Jones’ own conduct and involvement, in which default 27 judgment would not be appropriate. Cf. Shanghai Automation Instrument Co. v. Kuei, 194 F. Supp. 2d 995, 1009 (N.D. Cal. 2001). As observed above, district courts both inside and outside this circuit have declined to enter default judgment 28 in circumstances such as this, where a lender has sought a default judgment against borrowers and guarantors, some of 1 defendants was “incongruous and unfair” where transactions between defaulting and non-defaulting 2 defendants “followed an identical pattern with almost identical legal documents”). See also Mobile 3 XL, 2017 WL 3427960, at *3; Societe d’Equipments Internationaux Nigeria, Ltd, 2016 WL 4 6868023, at *3; Unilin Beheer B.V. v. NSL Trading Corp., No. 14–cv–02210–BRO–SS, 2014 WL 5 12577061, at *3 (C.D. Cal. Oct. 2, 2014) (finding that “the claims, facts, and legal theories” in the 6 case suggest there may be a potential for inconsistent rulings as between the defaulting and non- 7 defaulting defendants); Rocket Ventures, 2013 WL 4835371, at *15 (finding that, although the 8 answering defendants “may raise purely individual defenses . . . , they may also raise defenses” that 9 involve the defaulting-defendants and thus, default judgment is inappropriate). 10 Following Frow and its progeny, the undersigned finds that entering default judgment 11 against Three Brothers would be inappropriate at this time. 12 IV. CONCLUSION AND RECOMMENDATION 13 In accordance with the foregoing, IT IS HEREBY RECOMMENDED that Plaintiff’s motion 14 for entry of default judgment against Defendant Three Brothers Electrical Contractors, Inc. (Doc. 15 14) be DENIED without prejudice to its renewal at the conclusion of this action, upon disposition 16 of Plaintiff’s claims against Jones. 17 These findings and recommendations are submitted to the district judge assigned to this 18 action, pursuant to 28 U.S.C. § 636(b)(1)(B) and this Court’s Local Rule 304. Within fourteen (14) 19 days of service of this recommendation, any party may file written objections to these findings and 20 recommendations with the Court and serve a copy on all parties. Such a document should be 21 captioned “Objections to Magistrate Judge’s Findings and Recommendations.” The district judge 22 will review the magistrate judge’s findings and recommendations pursuant to 28 U.S.C. 23 § 636(b)(1)(C). The parties are advised that failure to file objections within the specified time may 24 waive the right to appeal the district judge’s order. Wilkerson v. Wheeler, 772 F.3d 834, 839 (9th 25 Cir. 2014). 26 IT IS SO ORDERED. 27 28 Dated: January 13, 2022 /s/ Sheila K. Oberto . 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28