Wells Fargo Equipment Finance, Inc. v. Virk Systems, Inc. ( 2021 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 WELLS FARGO EQUIPMENT No. 2:20-cv-0143 TLN DB FINANCE, INC., a Minnesota corporation, 12 13 Plaintiff, FINDINGS AND RECOMMENDATIONS 14 v. 15 VIRK SYSTEMS, INC. a California corporation; LAKHWIMDER SINGH 16 VIRK, an individual, 17 Defendants. 18 19 This matter came before the undersigned on August 7, 2020, pursuant to Local Rule 20 302(c)(19), for hearing of plaintiff’s motion for default judgment. (ECF No. 13.) Attorney 21 Michael Gomez appeared via Zoom on behalf of the plaintiff. No appearance was made by, on 22 behalf of, either defendant. At that time, oral argument was heard and the motion was taken 23 under submission. Having considered all written materials submitted with respect to the motion, 24 and after hearing oral argument, the undersigned recommends that the motion for default 25 judgment be granted as explained below. 26 BACKGROUND 27 Plaintiff Wells Fargo Equipment Finance, Inc., (“Wells Fargo”), commenced this action 28 through counsel on January 21, 2020, by filing a complaint and paying the required filing fee. 1 (ECF No. 1.) The complaint alleges generally that in August of 2017 and April of 2018 plaintiff 2 entered into three loan agreements with defendant Virk Systems, Inc., (“Virk Systems”). (Compl. 3 (ECF No. 1) at 3-12.1) The loans were secured by collateral and a guarantee of repayment by 4 defendant Lakhwimder Singh Virk (“Virk”). (Id. at 3-17.) Defendants breached the loan 5 agreements by failing to make payments. (Id.) The complaint alleges state law causes of action 6 for breach of contract, claim and delivery, conversion, and breach of guaranty.2 (Id. at 1.) 7 On February 24, 2020, plaintiff filed proof of service on the defendant. (ECF Nos. 5 & 6.) 8 The following day plaintiff filed a request for entry of defendants’ default. (ECF No. 8.) The 9 Clerk entered defendants’ default on February 27, 2020. (ECF No. 8.) On April 17, 2020, 10 plaintiff filed a motion for default judgment. (ECF No. 9.) Plaintiff, however, failed to file a 11 memorandum in support. 12 Accordingly, on June 16, 2020, the undersigned issued an order continuing the hearing of 13 plaintiff’s motion to August 7, 2020, ordering plaintiff to file a memorandum in support, and 14 ordering plaintiff to file proof of service of the memorandum in support and the June 16, 2020 15 order on the defendants. (ECF No. 11.) Plaintiff filed a memorandum is support along with 16 proof of service on July 7, 2020. (ECF No. 12.) 17 The matter came before the undersigned on August 7, 2020, pursuant to Local Rule 18 302(c)(19), for hearing of plaintiff’s motion for default judgment. (ECF No. 13.) Attorney 19 Michael Gomez appeared via Zoom on behalf of the plaintiff. Despite being served with 20 plaintiff’s motion and notice of the hearing, there was no appearance by, or on behalf of, either 21 defendant. Oral argument was heard and plaintiff’s motion taken under submission. 22 LEGAL STANDARD 23 Federal Rule of Civil Procedure 55(b)(2) governs applications to the court for default 24 judgment. Upon entry of default, the complaint’s factual allegations regarding liability are taken 25 1 Page number citations such as this are to the page number reflected on the court’s CM/ECF 26 system and not to the page numbers assigned by the parties. 27 2 Jurisdiction over these claims is based on the court’s diversity jurisdiction. (Compl. (ECF No. 28 1) at 2.) 1 as true, while allegations regarding the amount of damages must be proven. Dundee Cement Co. 2 v. Howard Pipe & Concrete Prods., 722 F.2d 1319, 1323 (7th Cir. 1983) (citing Pope v. United 3 States, 323 U.S. 1 (1944); Geddes v. United Fin. Group, 559 F.2d 557 (9th Cir. 1977)); see also 4 DirectTV v. Huynh, 503 F.3d 847, 851 (9th Cir. 2007); TeleVideo Sys., Inc. v. Heidenthal, 826 5 F.2d 915, 917-18 (9th Cir. 1987). 6 Where damages are liquidated, i.e., capable of ascertainment from definite figures 7 contained in documentary evidence or in detailed affidavits, judgment by default may be entered 8 without a damages hearing. Dundee, 722 F.2d at 1323. Unliquidated and punitive damages, 9 however, require “proving up” at an evidentiary hearing or through other means. Dundee, 722 10 F.2d at 1323-24; see also James v. Frame, 6 F.3d 307, 310-11 (5th Cir. 1993). 11 Granting or denying default judgment is within the court’s sound discretion. Draper v. 12 Coombs, 792 F.2d 915, 924-25 (9th Cir. 1986); Aldabe v. Aldabe, 616 F.2d. 1089, 1092 (9th Cir. 13 1980). The court is free to consider a variety of factors in exercising its discretion. Eitel v. 14 McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Among the factors that may be considered by 15 the court are 16 (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) 17 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 18 excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. 19 20 Eitel, 782 F.2d at 1471-72 (citing 6 Moore’s Federal Practice ¶ 55-05[2], at 55-24 to 55-26). 21 ANALYSIS 22 A. Appropriateness of the Entry of Default Judgment under the Eitel Factors 23 Plaintiff’s motion for default judgement seeks judgement on the complaint’s claims for 24 breach of contract and claim and delivery causes of action.3 (Pl.’s MDJ (ECF No. 12) at 11, 13.) 25 The factual allegations of plaintiff’s complaint are taken as true pursuant to the entry of default 26 against the defendants. 27 3 Plaintiff’s motion for default judgment dismisses the complaint’s “Conversion Cause of Action 28 without prejudice.” (Pl.’s MDJ (ECF No. 12) at 11.) 1 1. Factor One: Possibility of Prejudice to Plaintiff 2 The first Eitel factor considers whether plaintiff would suffer prejudice if default 3 judgment is not entered. When a defendant has failed to appear and defend the claims, a plaintiff 4 will be without recourse and suffer prejudice unless default judgment is entered. Vogel v. Rite 5 Aid Corp., 992 F.Supp.2d 998, 1007 (C.D. Cal. 2014) (granting a default judgement for a 6 disabled plaintiff suing under the ADA and Unruh Act, relying upon this rationale). Here, the 7 defendants were served with notice of this action but have refused to defend against plaintiff’s 8 claims.4 Absent entry of default judgement, plaintiff would likely be without recourse against the 9 defendants. Because plaintiff will suffer prejudice if left without recourse, this factor favors an 10 entry of default judgment. 11 2. Factors Two and Three: The Merits of Plaintiff’s Substantive Claims and the 12 Sufficiency of the Complaint 13 The second and third factors are (1) the merits of plaintiff’s substantive claim, and (2) the 14 sufficiency of the complaint. Eitel, 782 F.2d at 1471-72. Thus, the second and third Eitel factors 15 require plaintiff to state a claim on which plaintiff can recover. PepsiCo, Inc. v. California 16 Security Cans, 238 F.Supp.2d, 1172, 1175 (2002); see Danning v. Lavine, 572 F.2d 1386, 1388 17 (9th Cir. 1978). Given the close relationship between the two inquiries, factors two and three are 18 considered together. As noted above, plaintiff seeks default judgment on the complaint’s claims 19 for breach of contract and claim and delivery. 20 (1) Breach of Contract 21 The elements of a cause of action for breach of contract are: (i) existence of the contract, 22 (ii) plaintiff’s performance or excuse for nonperformance, (iii) defendant’s breach, and (iv) 23 resulting damages to the plaintiff. Oasis West Realty, LLC v. Goldman, 51 Cal. App. 4th 811, 24 821 (2011) (citing Reichert v. General Ins. Co., 68 Cal. 2d 822, 830 (1968)). Here, the complaint 25 alleges that on August 9, 2017, plaintiff extended defendant Virk Systems a loan of $178,779.50 26 27 4 At the August 7, 2020 hearing plaintiff’s counsel stated that the defendants had contacted plaintiff’s counsel after this lawsuit was initiated, further indicating that the defendants are aware 28 of plaintiff’s claims and have chosen not to defend. 1 (“Loan 1”). (Compl. (ECF No. 1) at 3.) Pursuant to this loan, defendant Virk Systems agreed to 2 make forty-eight monthly payments beginning on October 5, 2017. (Id.) On August 14, 2017, 3 plaintiff extended a second loan to defendant Virk Systems in the amount of $235,650 (“Loan 4 2”). (Id. at 6.) Again, defendant Virk Systems agreed to repay the loan in forty-eight monthly 5 payments. (Id.) And on April 30, 2018, the parties entered into a third loan agreement under 6 these same terms with plaintiff loaning defendant Virk Systems $523,700 (“Loan 3”). (Id. at 9.) 7 Defendant Virk executed “a Continuing Guaranty” in which defendant Virk “unconditionally” 8 guaranteed plaintiff “pull and prompt payment and performance when due of any and all 9 Indebtedness” of defendant Virk Systems. (Id. at 17-18.) 10 Despite plaintiff’s funding of these loans, defendants defaulted on each of them on 11 September 4, 2019, and each month thereafter, by failing to make the required monthly payment. 12 (Id. at 4, 8, 11.) Additionally, attached to the complaint are copies of the parties’ executed 13 “Combination Loan and Security Agreement.” (Id. at 27-33, 41-47, 49-55.) Based on these 14 allegations, the undersigned finds that the complaint has stated claims for breach of contract. 15 (2) Claim and Delivery 16 “Claim and delivery” is “a method of recovering property that is wrongfully being 17 withheld by another.” Trans Pacific Nat. Bank v. UBS AG, No. C 09-4617 SBA, 2010 WL 18 2354165, at *4 (N.D. Cal. June 9, 2010). “Claim and delivery is not a separate action but is a 19 remedy that permits a prevailing party to recover both specific property and incidental damages.” 20 Xerox Corporation v. AC Square, Inc., Case No. 15-cv-4816 DMR 2016 WL 5898652, at *3 21 (N.D. Cal. Sept. 1, 2016). To be entitled to this remedy, the plaintiff “must show (1) that it has a 22 right to possess the equipment in question and (2) that [the defendant] is in wrongful possession 23 of the equipment.” Xerox Corporation v. CBFS, Inc., 2013 WL 12203040, at *4 (C.D. Cal. May 24 23, 2013). 25 As noted above, plaintiff has stated causes of action for breach of contract. Pursuant to 26 Loan 1, Loan 2, and Loan 3, defendant Virk Systems executed “Security Interest” agreements, 27 entitling plaintiff to “first-priority interest” in several “Trailers” identified by VIN and serial 28 //// 1 numbers. (Compl. (ECF No. 1) at 4, 7, 10-11.) These agreements entitle plaintiff to take 2 possession of this collateral as a result of defendants’ default. (Id. at 13-15.) 3 Based on these allegations, the undersigned finds that plaintiff has stated a claim for claim 4 and delivery. See Xerox Corporation v. AC Square, INC., Case No. 15-cv-4816 DMR, 2016 WL 5 1237828, at *3 (N.D. Cal. Mar. 30, 2016) (“Since Plaintiff adequately pled breach of contract, it 6 has sufficiently stated claim and delivery for all contracts concerning leased products.) 7 3. Factor Four: The Sum of Money at Stake in the Action 8 Under the fourth factor cited in Eitel, “the court must consider the amount of money at 9 stake in relation to the seriousness of Defendant’s conduct.” Eitel, 782 F.2d at 1471-72; see also 10 Philip Morris USA, Inc v. Castworld Prods., Inc., 219 F.R.D. 494, 500. (C.D. Cal. 2003). Here, 11 plaintiff seeks an award of $625,285.39 as well as possession of the identified collateral. (Pl.’s 12 MDJ (ECF No. 12) at 13.) Although the amount at stake is significant, it is in relation to the 13 seriousness of the defendants’ conduct. Moreover, “[i]f and when the equipment is recovered and 14 sold, Plaintiff will apply the proceeds from the sale of its collateral to the amount owed by the 15 Defendants on the monetary judgment and submit a partial satisfaction of judgment, reducing the 16 Defendants’ indebtedness under the judgment.” (Id. at 14.) 17 Accordingly, the undersigned does not find the overall sum of money at stake to be so 18 large or excessive as to militate against the entry of default judgment. 19 4. Factor Five: The Possibility of a Dispute Concerning Material Facts 20 This Eitel factor considers the possibility that material facts are disputed. “Upon entry of 21 default, all well-pleaded facts in the complaint are taken as true, except those relating to 22 damages.” PepsiCo, Inc., 238 F.Supp.2d at 1177. Here, there appears to be no material facts in 23 dispute. This factor weighs in favor of a default judgment. 24 5. Factor Six: Whether the Default Was Due to Excusable Neglect 25 This Eitel factor considers the possibility that the defendants’ default was the result of 26 excusable neglect. Here, defendants were repeatedly served with notice of this action. (ECF Nos. 27 5, 6, 12.) Defendants, however, have taken no action to respond to plaintiff’s complaint or 28 motion for default judgment. Accordingly, the record suggests that the defendants have chosen 1 not to defend this action, and that the default did not result from excusable neglect. Accordingly, 2 this Eitel factor favors the entry of default judgment. 3 6. Factor Seven: The Strong Policy Underlying the Federal Rules of Civil 4 Procedure Favoring Decisions on the Merits 5 The final Eitel factor examines whether the strong policy favoring deciding cases on the 6 merits prevents a court from entering default judgment. Eitel, 782 F.2d at 1472. Generally, 7 default judgments are disfavored, and a case should be decided on the merits whenever possible. 8 See Pena v. Seguros La Comercial, S.A., 770 F.2d 811, 814 (9th Cir. 1985). However, where a 9 defendant’s failure to appear “makes a decision on the merits impracticable, if not impossible,” 10 entry of default judgment is warranted. PepsiCo, Inc., 238 F.Supp.2d at 1177; see also Craigslist, 11 Inc. v. Naturemarket, Inc., 694 F.Supp.2d 1039, 1061 (N.D. Cal. 2010). Because the defendants 12 have failed to respond in this matter, a decision on the merits is impossible. Therefore, the 13 seventh Eitel factor does not preclude the entry of default judgment. 14 7. Summary of Eitel Factors 15 In sum, upon consideration of all the Eitel factors the undersigned finds that plaintiff is 16 entitled to a default judgment against the defendants and recommends that such a default 17 judgment be entered. The undersigned therefore turns to plaintiff’s requested relief. 18 B. Terms of the Judgment to Be Entered 19 1. Damages 20 After determining that a party is entitled to entry of default judgment, the court must 21 determine the terms of the judgment to be entered. See Landstar Ranger, Inc. v. Path Enterprises, 22 Inc., 725 F.Supp.2d 916, 920 (C.D. Cal. 2010.). 23 Here, plaintiff seeks $604,237.60 in damages. (Pl.’s Prop. Judg. (ECF No. 9-3) at 2.) Of 24 this amount, $552,970.47 represents defendants’ unpaid principal, $18,322.62 in accrued interest, 25 $11,353.04 in late charges, and $9,953.37 in miscellaneous fees. (Pl.’s MDJ (ECF No. 12) at 11.) 26 These figures are supported by a declaration from Shawn K. Mulgrew, a Vice President for 27 plaintiff Wells Fargo. (Mulgrew Decl. (ECF No. 9-1) at 1-17.) Plaintiff is entitled to these fees 28 //// 1 pursuant to the parties’ loan agreements. (Compl. (ECF No. 1) at 27-28, 30, 41, 44, 49, 51-52.) 2 Moreover, defendant Virk guaranteed payment of these amounts. (Id. at 57.) 3 Plaintiff also seeks recovery of $10,911.50 in attorneys’ fees and $726.60 in costs. (Pl.’s 4 MDJ (ECF No. 12) at 12.) This request is supported by a declaration from plaintiff’s counsel. 5 (Gomez Decl. (ECF No. 9-2) at 2.) The parties’ loan agreements provide that plaintiff “may 6 recover from Debtor . . . the legal fees and expense incurred” in obtaining payment. (Compl. 7 (ECF No. 1) at 30, 44, 52.) 8 Having reviewed plaintiff’s arguments and submissions, the undersigned finds that 9 plaintiff is entitled to an award of $ $604,237.60. 10 2. Security Interest 11 Plaintiff’s motion for default judgment also “seeks to enforce its security interests” in the 12 collateral noted above “by obtaining a judgment of possession as to the equipment.” (Pl.’s MDJ 13 (ECF No. 12) at 14.) Plaintiff’s entitlement to possession is supported by the parties’ loan 14 agreements and the declaration of Shawn Mulgrew. (Compl. (ECF No. 1) at 28, 42, 55; Mulrgew 15 Decl. (ECF No. 9-1) at 16-17.) 16 Accordingly, the undersigned finds that plaintiff has established entitlement to the 17 property at issue and will recommend plaintiff be granted possession of the property. See 18 Ascentium Capital, LLC v. Aero Transport, Inc., Case No. 1:16-cv-1575 LJO BAM, 2017 WL 19 1968335, at *5 (E.D. Cal. May 12, 2017) (“The Court finds that Plaintiff has established its right 20 to possession of the Vehicle, as well as Defendants’ wrongful possession of the same.”); Xerox 21 Corporation v. AC Square, Inc., Case No. 15-cv-4816 DMR, 2016 WL 5898652, at *8 (N.D. Cal. 22 Sept. 1, 2016) (“The court finds that Plaintiff has established its right to possession of the leased 23 property, as well as Defendant’s wrongful possession of the same.”). 24 CONCLUSION 25 For the reasons set forth above, IT IS HEREBY RECOMMENDED that: 26 1. Plaintiff’s April 17, 2020 motion for default judgment (ECF No. 9) be granted; 27 2. Judgment be entered against defendant Virk Systems, Inc., and defendant Lakhwimder 28 Singh Virk; 1 3. Defendants be ordered to pay $604,237.60 in damages; 2 4. Defendants be ordered to given plaintiff immediate possession of: 3 One (1) Used 2015 Freightliner Cascadia Tractor, VIN 3AKJGLD57FSGB8362; 4 One (1) Used 2014 Kenworth T680 Tractor, VIN IXKYD49X7EJ407981, 5 INCLUDING ALL ATTACHMENTS AND ACCESSORIES; 6 Three (3) 2014 Utility Reefer Trailers With Thermo-King Refrigeration 7 Units: VIN 1UYVS2533EU902223 TK S/N 6001145293, VIN 8 1UYS2535EU902224 TK S/N 6001145290, VIN lUYVS2533EU902206 TK 9 S/N 6001146993, 10 Two (2) 2013 Utility Reefer Trailers With Thermo-King Refrigeration Units: 11 VIN 1UYVS2537DU596402 TK S/N 6001114924, VIN 1UYVS2536DU641510 TK S/N 12 6001119147 INCLUDING ALL ATTACHMENTS AND ACCESSORIES; 13 Twelve (12) 2015 Utility Reefer Trailers with Thermoking S600 Reefer 14 Units: 15 Vins: Serial Numbers: 16 1UYVS253XFU182811 6001158856 17 IUYVS2535FU182814 6001158851 18 1UYVS2537FU182815 6001156549 19 1UYVS2537FU182846 6001163005 20 1UYVS2539FU182847 6001160835 21 1UYVS2537FU182863 6001163019 22 IUYVS2530FU182865 6001166790 23 1UYVS2534FU182884 6001166782 24 1UYVS253XFU182890 6001138478 25 1UYVS2535FU182893 6001138485 26 1UYVS2537FU182894 6001138486 27 IUYVS2532FU182818 6001156717 28 INCLUDING ALL ATTACHMENTS AND ACCESSORIES; 1 5. Plaintiff be ordered to apply the proceeds from the sale of the above collateral to the 2 | amount owed by the defendants on the monetary judgment and submit a partial satisfaction of 3 | judgment, reducing the defendants’ indebtedness under the judgment; and 4 6. This case be closed. 5 These findings and recommendations will be 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 thirty (30) days 7 | after these findings and recommendations are filed, any party may file written objections with the 8 | court. A document containing objections should be titled “Objections to Magistrate Judge’s 9 | Findings and Recommendations.” Any reply to the objections shall be served and filed within 10 | fourteen (14) days after service of the objections. The parties are advised that failure to file 11 | objections within the specified time may, under certain circumstances, waive the right to appeal 12 | the District Court’s order. See Martinez v. YIst, 951 F.2d 1153 (9th Cir. 1991). 13 | Dated: February 1, 2021 14 15 16 ORAH BARNES UNITED STATES MAGISTRATE JUDGE 17 18 19 20 21 22 23 24 DLB:6 45 DB\orders\orders.civil\wellsfargo0143.mdj.f&rs 26 27 28 10