Diane Schroeder v. Stephen Hundley ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 DIANE SCHROEDER, an individual, Case No.: 17-CV-919 JLS (LL) AND EQUITY TRUST COMPANY 12 CUSTODIAN FBO DIANE ORDER (1) GRANTING IN PART 13 SCHROEDER IRA, AND DENYING IN PART PLAINTIFFS’ MOTION, 14 Plaintiffs, (2) STRIKING DEFENDANTS’ 15 v. ANSWERS, AND (3) DIRECTING CLERK OF COURT TO ENTER 16 STEPHEN HUNDLEY; JASON DEFAULT CHAPPELL; AND DISTRESSED 17 ACQUISITIONS, (ECF No. 53) 18 Defendants. 19 20 Presently before the Court is Plaintiffs Diane Schroeder and Equity Trust Company 21 Custodian fbo Diane Schroeder IRA’s Motion to Strike Answer and for Default and Default 22 Judgment (“Mot.,” ECF No. 53), as well as Plaintiffs’ Response to Order Requesting 23 Additional Briefing in Support of Motion (“Resp.,” ECF No. 59). Defendant Stephen 24 Hundley filed an untimely Opposition to Default & Motion to Strike/Dismiss (“Opp’n,” 25 ECF No. 65), to which Plaintiffs filed an opposition (“Reply,” ECF No. 66). The Court 26 deems this matter suitable for resolution on the papers without oral argument pursuant to 27 Civil Local Rule 7.1(d)(1). Having carefully considered the pleadings, the Parties’ 28 arguments and evidence, and the law, the Court GRANTS IN PART AND DENIES IN 1 PART Plaintiffs’ Motion (ECF No. 53); STRIKES Hundley’s and Defendant Jason 2 Chappell’s Answers (ECF Nos. 15, 17); and DIRECTS the Clerk of Court to enter default 3 against Hundley, Chappell, and Defendant Distressed Acquisitions. 4 BACKGROUND 5 In 2010, Plaintiffs invested funds with a small real estate investment firm, Distressed 6 Acquisitions, which was owned and managed by Hundley and Chappell, in exchange for 7 assignment of mortgages to certain properties in Florida. Decl. of Diane Schroeder 8 (“Schroeder Decl.,” ECF No. 53-2) ¶ 2. Although Plaintiffs received the promised 9 mortgage payments for a time, the checks eventually stopped. Id. Schroeder told 10 Defendants that she intended to foreclose on the property, at which time Plaintiffs learned 11 that their interest in the property had never been recorded and that Defendants had sold the 12 property to a third party. Id. 13 Defendants agreed to a promissory note in the amount of $107,407.45 with interest 14 at a rate of 7.5 percent per year to return Plaintiffs’ investment. Id. The promissory note 15 also provided for a late fee of 5 percent of any payment due, which amounts to $87.50. Id. 16 Because Defendants defaulted on the promissory note, Plaintiffs filed the instant lawsuit 17 on May 5, 2017, alleging causes of action for breach of written contract, breach of the 18 covenant of good faith and fair dealing, breach of implied contract, negligent 19 misrepresentation, and fraudulent misrepresentation. Id. ¶ 3; see also ECF No. 1 20 (“Compl.”). 21 Defendants responded to the Complaint on May 30, 2017, requesting additional time 22 to obtain counsel. See ECF Nos. 3–5. Plaintiffs filed a motion for judgment on the 23 pleadings on June 5, 2017, see ECF No. 6, which both Hundley and Chappell opposed. 24 See ECF Nos. 9, 11. On September 13, 2017, the Court concluded that it was inappropriate 25 to enter judgment on the pleadings at the time but struck Defendants’ answers and directed 26 them to file answers complying with Federal Rule of Civil Procedure 8. See ECF No. 14. 27 On October 13, 2017, both Hundley and Chappell timely answered the Complaint. See 28 ECF Nos. 15, 17. 1 Magistrate Judge Jan M. Adler held case management conferences on November 27, 2 2017, see ECF No. 22; January 29, 2018, see ECF No. 24; March 29, 2018, see ECF No. 3 27; and May 2, 2018, see ECF No. 29. Magistrate Judge Adler then set a case management 4 conference for June 15, 2018, see ECF No. 30, which Defendants failed to attend, see ECF 5 No. 31. Magistrate Judge Adler therefore entered an Order “requiring Defendants to 6 strictly comply with all Court Orders.” See ECF No. 32. Judge Adler explicitly “warn[ed] 7 Defendants that sanctions may be imposed pursuant to Civil Local Rule 83.1 and any 8 other applicable authorities for the failure to strictly comply with any future order of 9 the Court.” Id. at 2 (emphasis in original). Magistrate Judge Adler also entered a 10 Scheduling Order, setting a Mandatory Settlement Conference for May 16, 2019, see id. at 11 4, and a Final Pretrial Conference for June 27, 2019, see id. at 5. 12 During this time, Defendants failed to respond to any of Plaintiffs’ discovery 13 requests. See Mot. at 3. Although Plaintiffs propounded interrogatories, requests for 14 production of documents, and requests for admission, neither Hundley nor Chappell 15 responded. See id. at 3–4. 16 On October 29, 2018, this action was transferred from the calendar of Magistrate 17 Judge Adler to the calendar of Magistrate Judge Linda Lopez. See ECF No. 34. Magistrate 18 Judge Lopez reset the Mandatory Settlement Conference for May 8, 2019, see ECF No. 19 35, but the Parties failed to appear, see ECF No. 36. Magistrate Judge Lopez therefore 20 ordered the Parties to show cause why sanctions should not be imposed and reset the 21 Mandatory Settlement Conference for June 7, 2019. See ECF No. 37. She again warned 22 the Parties that “[a] failure to comply with this Court order may result in sanctions being 23 imposed, including, inter alia, monetary sanctions, dismissal, or an entry of default 24 judgment.” ECF No. 37 at 3 (citing Estrada v. Speno & Cohen, 244 F.3d 1050, 1060–61 25 (9th Cir.), as amended on denial of reh’g and reh’g en banc (May 24, 2001)). Magistrate 26 Judge Lopez subsequently granted Hundley leave to appear at the Mandatory Settlement 27 Conference telephonically, again warning that “[a] failure to comply with this Court order 28 may result in sanctions being imposed, including, inter alia, monetary sanctions, dismissal, 1 or an entry of default judgment.” See ECF No. 40 at 2 (citing Estrada, 244 F.3d at 1060– 2 61). 3 On May 30, 2019, Plaintiffs filed their memorandum of facts and contentions of law, 4 see ECF No. 42, as required by the Scheduling Order. See ECF No. 32 at 4. Defendants 5 failed to file their memorandum of facts and contentions of law, see generally Docket, or 6 to attend the June 7, 2019 Mandatory Settlement Conference, see ECF No. 44. In light of 7 “Mr. Hundley’s and Mr. Chappell’s continued non-compliance,” Magistrate Judge Lopez 8 imposed monetary sanctions on both, noting that “they have each been advised by the Court 9 on at least two prior occasions (three for Mr. Hundley) that self-represented litigants must 10 follow the same rules of procedures that govern other litigants, and that a failure to do so 11 may result in sanctions being imposed.” ECF No. 45 at 3 (citing ECF Nos. 32, 37, 40). 12 On June 20, 2019, Plaintiffs, Hundley, and Chappell filed a Proposed Joint Pretrial 13 Order. See ECF No. 46. The Proposed Joint Pretrial Order included brief, one-paragraph 14 statements from Hundley and Chappell. See id. at 3–4. Defendants asserted no affirmative 15 defenses and listed no witnesses or exhibits. See id. at 7–8. Defendants then objected on 16 the grounds that “Defendant Stephen Hundley lost everything upon losing his business and 17 father” and “Defendant Jason Chappell has been in and out of the hospital for the past two 18 years” and “has not been in the right state of mind.” Id. at 12. 19 The Court held the Final Pretrial Conference on June 27, 2019, at which no 20 Defendant appeared. See ECF No. 47. At Plaintiffs’ request, the Court invited Plaintiffs 21 to file a request for default. See id. On July 1, 2019, the Court received Hundley’s request 22 for a ninety-day continuance of the Final Pretrial Conference. See ECF Nos. 48–49. The 23 Court denied Hundley’s request as moot, see ECF No. 50, noting that, “although this case 24 has been pending for over two years, it would appear that Defendants have failed 25 meaningfully to defend this action, attend hearing[s], or comply with Court-ordered 26 deadlines since at least June 2018,” id. at 2 (citing ECF Nos. 31–32, 36, 44–45). The Court 27 therefore reiterated: 28 / / / 1 FRa]uilluerse, wofi t.h .t h. ea nFye dpearratly R tuol ecso mofp Clyi vwili t.h . t.h Pe[r oDceisdturircet,’ so rL wocitahl 2 any order of the court may be grounds for imposition by the court 3 of any and all sanctions authorized by statute or rule or within the inherent power of the court, including, without limitation, . . . 4 entry of default, finding of contempt, imposition of monetary 5 sanctions or attorneys’ fees and costs, and other lesser sanctions. 6 Id. at 2–3 (quoting S.D. Cal. CivLR 83.1(a)). 7 Plaintiffs filed the instant Motion on August 26, 2019. See generally ECF No. 53. 8 On February 12, 2020, the Court requested additional briefing concerning the factors to be 9 weighed in ruling on a motion for entry of default for failure to comply with court orders, 10 specifically the availability of less drastic sanctions. See generally ECF No. 55. After 11 receiving a three-week extension of time, see ECF Nos. 56, 57, Plaintiffs filed their 12 Response on March 18, 2020. See ECF Nos. 59, 60 (“Mirch. Decl.”). 13 On March 24, 2020, the Court received a motion to continue filed by Chappell, 14 seeking “a continuance of 45–60 days so that Defendant Jason M Chappell can heal, 15 become financially stable, and retain an attorney.” See generally ECF No. 62. On April 16 1, 2020, Hundley filed his untimely Opposition, see generally ECF No. 65, to which 17 Plaintiffs filed a Reply on April 8, 2020, see generally ECF No. 66. 18 LEGAL STANDARD 19 “Pursuant to Federal Rule of Civil Procedure 41(b), the district court may dismiss 20 an action for failure to comply with any order of the court.” Ferdik v. Bonzelet, 963 F.2d 21 1258, 1260 (9th Cir.), as amended (May 22, 1992). A court also may impose sanctions, 22 including dismissal and default, where a party fails to comply with a discovery-related 23 order, Fed. R. Civ. P. 37(b)(2)(A)(v)–(vi); fails to respond to discovery, Fed. R. Civ. P. 24 37(d)(3); fails to appear at a scheduling or other pretrial conference, Fed. R. Civ. P. 25 16(f)(1)(A); or fails to obey a scheduling or other pretrial order, Fed. R. Civ. P. 16(f)(1)(C). 26 District courts also “have inherent power to control their dockets” and, “[i]n the exercise 27 of that power they may impose sanctions including, where appropriate, default or 28 / / / 1 dismissal.” Thompson v. Housing Auth., 782 F.2d 829, 831 (9th Cir.) (citing Link v. 2 Wabash R.R. Co., 370 U.S. 626 (1961)), cert. denied, 107 S. Ct. 112 (1986). 3 “Dismissal, however, is so harsh a penalty it should be imposed as a sanction only 4 in extreme circumstances.” Id. (citing Henderson v. Duncan, 779 F.2d 1421, 1423 (9th 5 Cir. 1986); Raiford v. Pounds, 640 F.2d 944, 945 (9th Cir. 1981) (per curiam); Indus. Bldg. 6 Materials, Inc. v. Interchemical Corp., 437 F.2d 1336, 1339 (9th Cir. 1970)). Such 7 circumstances include “failure to comply with pretrial procedures mandated by local rules 8 and court orders.” Id. (citing Buss v. W. Airlines, Inc., 738 F.2d 1053 (9th Cir. 1984), cert. 9 denied, 469 U.S. 1192 (1985); Chism v. Nat’l Heritage Life Ins. Co., 637 F.2d 1328 (9th 10 Cir. 1981); Transam. Corp. v. Transam. Bancgrowth Corp., 627 F.2d 963 (9th Cir. 1980)). 11 Because dismissal is such a severe remedy, however, 12 [a] district court must weigh five factors in determining whether to dismiss a case for failure to comply with a court order: “(1) 13 the public’s interest in expeditious resolution of litigation; (2) the 14 court’s need to manage its docket; (3) the risk of prejudice to the defendants; (4) the public policy favoring disposition of cases on 15 their merits; and (5) the availability of less drastic sanctions.” 16 17 Malone v. U.S. Postal Serv., 833 F.2d 128, 130 (9th Cir. 1987) (quoting Thompson, 782 18 F.2d at 831). 19 ANALYSIS 20 I. Plaintiffs’ Motion 21 Pursuant to Federal Rule of Civil Procedure 55(b), Plaintiffs request that the Court 22 issue “an Order striking the Defendants’ Answers, defaulting the Defendants, and 23 ent[ering] . . . judgment against all Defendants.” See Mot. at 1. Because default has not 24 been entered, however, the Court concludes that Plaintiffs seek dismissal for failure to 25 comply with a Court Order. The Court therefore applies the factors articulated by the Ninth 26 Circuit in Malone, which Plaintiffs addressed in their additional briefing. See generally 27 Resp. 28 / / / 1 Here, “[t]he first two dismissal factors . . . support . . . dismiss[al] . . . [because 2 Defendants’] dilatory conduct greatly impeded resolution of the case and prevented the 3 district court from adhering to its trial schedule.” Malone, 833 F.2d at 131 (citing Chism 4 v. Nat’l Heritage Life Ins. Co., 637 F.2d 1328, 1331–32 (9th Cir. 1981), overruled on other 5 grounds by Bryant v. Ford Motor Co., 844 F.2d 602 (9th Cir. 1987)). 6 The prejudice to Plaintiffs also weighs in favor of striking Defendants’ answers and 7 entering default. “Plaintiffs have suffered prejudice in that defendant[s’] . . . non- 8 participation in this litigation prevents plaintiffs from further prosecuting their claims.” 9 Animal Blood Bank, Inc. v. Hale, No. 2:10-CV-02080 KJM, 2012 WL 2160960, at *3 (E.D. 10 Cal. June 13), report and recommendation adopted, 2012 WL 13035477 (E.D. Cal. 11 Aug. 21, 2012). “Defendant[s’] . . . delay of this litigation is unreasonable, and is thus 12 presumed to be prejudicial.” Id. (citing In re Phenylpropanolamine (PPA) Prods. Liab. 13 Litig., 460 F.3d 1217, 1227 (9th Cir. 2006)). 14 As for the consideration of less drastic alternatives, 15 the following factors are of particular relevance in determining whether a district court has considered alternatives to dismissal: 16 (1) Did the court explicitly discuss the feasibility of less drastic 17 sanctions and explain why alternative sanctions would be inadequate? (2) Did the court implement alternative methods of 18 sanctioning or curing the malfeasance before ordering dismissal? 19 (3) Did the court warn the plaintiff of the possibility of dismissal before actually ordering dismissal? 20 21 Malone, 833 F.2d at 132. “[E]xplicit discussion of alternatives is unnecessary if the district 22 court actually tries alternatives before employing the ultimate sanction of dismissal.” Id. 23 (collecting cases). “Finally, the case law suggests that warning a plaintiff that failure to 24 obey a court order will result in dismissal can suffice to meet the ‘consideration of 25 alternatives’ requirement.” Id. (collecting cases). 26 Here, Defendants have failed to respond to discovery requests, see Mot. at 3; failed 27 to respond to an order to show cause, see ECF Nos. 37, 45; been ordered to pay monetary 28 sanctions, see ECF No. 45; and been warned—repeatedly—that failure to comply with 1 Court Orders could result in sanctions up to, and including, dismissal, see ECF Nos. 32, 2 37, 40, 45, 50. Nonetheless, Defendants failed to appear for the final pretrial conference, 3 see ECF No. 47, or to timely to respond to the instant Motion. “[T]he court has actually 4 pursued remedies that are less drastic than a recommendation of dismissal,” to no avail. 5 See Animal Blood Bank, Inc. v. Hale, No. 2:10-CV-02080 KJM, 2012 WL 2160960, at *4 6 (E.D. Cal. June 13) (citing Malone, 833 F.2d at 132), report and recommendation 7 adopted, 2012 WL 13035477 (E.D. Cal. Aug. 21, 2012). Accordingly, “[a]t this point, the 8 undersigned finds no suitable alternative to . . . default and dismissal.” See id. 9 “Although th[e fifth dismissal] factor weighs against dismissal, it is not sufficient to 10 outweigh the other four factors, which in this case support dismissal.” See Malone, 833 11 F.2d at 133. Accordingly, the Court concludes that default is appropriate. See, e.g., PNC 12 Equip. Fin. LLC v. Cal. Fairs Fin. Auth., No. CV116248MMMDTBX, 2013 WL 13 12128689, at *2 (C.D. Cal. June 13, 2013) (“In light of the arguments contained in [the 14 plaintiff]’s motion, as well as [the defendant]’s failure to appear and to comply with court 15 orders, its failure to respond to the court’s order to show cause, and its failure to file [an] 16 opposition to [the plaintiff]’s motion to strike, the court grants the motion, and directs the 17 clerk to strike [the defendant]’s amended counterclaim and its answer, and enter its default 18 on [the plaintiff]’s claims against it.”) (collecting cases). 19 II. Hundley’s Opposition 20 As Plaintiffs note, see Reply at 2, Hundley’s opposition was neither timely nor 21 responsive to the Motion. Instead, Hundley argues that: (1) Plaintiffs are barred from 22 litigating about the Bradenton deal because of a settlement agreement; (2) Plaintiffs’ claims 23 are time-barred; (3) it is impossible for Plaintiffs to prove fraud; and (4) Plaintiffs have 24 failed to satisfy the amount-in-controversy requirement because they have included 25 interest, fees, and penalties. See generally Opp’n at 3–7. Hundley therefore requests that 26 these allegations be stricken from Plaintiffs’ Complaint and/or that Plaintiffs’ Complaint 27 be dismissed. See id. at 7. 28 / / / 1 Defendant Hundley’s opportunity to move to strike or to dismiss the Complaint has 2 long expired; nonetheless, the Court concludes that Hundley’s arguments are without merit. 3 First, Plaintiffs’ claim is for breach of the “settlement,” which was actually a promissory 4 note. See Reply at 3–5 (quoting Compl. ¶¶ 13–28). The failure to make payments 5 consistent with the promissory note is a breach of contract supporting a new, actionable 6 claim for breach of contract separate and apart from the underlying investment transaction. 7 Second, Hundley applies the wrong statute of limitations and calculates the 8 limitations period from the wrong date. Section 1658 of Title 28 of the United States Code 9 applies to “civil action[s] arising under an Act of Congress.” See 28 U.S.C. § 1658(a). 10 Here, Plaintiffs allege only claims arising under California law. See generally Compl. The 11 proper statutes of limitations are therefore provided by California law. As Plaintiffs note, 12 see Reply at 7–11, the applicable statutes of limitations are four years for breach of written 13 contract, see Cal. Civ. Proc. Code § 337; two years for breach of implied contract, see Cal. 14 Civ. Proc. Code § 339; and three years for fraud, see Cal. Civ. Proc. Code § 338(d). 15 Further, the date from which the limitations period is calculated is the date on which 16 Defendants made their last payment pursuant to the promissory note (May 15, 2015) or, 17 for the fraud claims, the date through which Defendants made misrepresentations to 18 Plaintiffs (sometime in 2016). See Reply at 7–11. Each of Plaintiffs’ claims, filed on 19 May 5, 2017, see Compl., is therefore timely. 20 Third, a claim for fraud does not require Plaintiffs to prove that they could predict 21 the future; rather, Plaintiffs need only establish “(a) misrepresentation (false representation, 22 concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to 23 defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” Kearns 24 v. Ford Motor Co., 567 F.3d 1120, 1126 (9th Cir. 2009) (quoting Engalla v. Permanente 25 Med. Group, Inc., 15 Cal. 4th 951, 974 (1997)) (emphasis in original). Plaintiffs’ 26 Complaint includes such allegations, see Compl. ¶¶ 65–87, with the requisite specificity, 27 see Fed. R. Civ. P. 9(b). 28 / / / ] Fourth and finally, Plaintiffs adequately allege an amount in controversy exceeding 2 $75,000 for purposes of establishing jurisdiction pursuant to section 1332 of Title 28 of the 3 || United States Code. The $106,296.24 alleged in Plaintiffs’ Complaint were contractual 4 damages calculated before prejudgment interest, and although the amount included interest 5 || and penalties accruing under the terms of the promissory note, those amounts are properly 6 ||included in the contractual damages. See Wright & Miller, 14AA Federal Practice and 7 || Procedure § 3712 (4th ed.) (“[I]nterest due on . . . interest bearing instruments should be 8 |/includible for amount in controversy purposes. ... Interest also may be included when it 9 ||can be considered a penalty and therefore a damage element.”’); see also Edwards v. Bates 10 || Cnty., 163 U.S. 269, 272-73 (1896). In any event, Plaintiffs also allege damages for 11 ||emotional distress and punitive damages that well exceed the jurisdictional threshold. See 12 ||Compl. at Prayer 9 1, 4-5. 13 Accordingly, Hundley’s arguments in opposition do not change the Court’s 14 |/conclusion that default is warranted, and Hundley is not entitled to the relief he requests. 15 CONCLUSION 16 In light of the foregoing, the Court GRANTS IN PART AND DENIES IN PART 17 || Plaintiffs’ Motion (ECF No. 53). Specifically, the Court DIRECTS the Clerk of Court to 18 ||STRIKE Hundley’s and Chappell’s Answers (ECF Nos. 15, 17) and to ENTER default 19 against Hundley, Chappell, and Distressed Acquisitions. Plaintiffs MAY RENEW their 20 || motion for default judgment in accordance with Civil Local Rule 55.1. 21 IT IS SO ORDERED. 22 || Dated: November 5, 2020 tt 23 jt Janis L. Sammartino United States District Judge 24 25 26 27 28