Gallagher-Kaiser Corporation v. Liberty Duct, LLC ( 2024 )

1 UNITED STATES DISTRICT COURT 2 DISTRICT OF NEVADA 3 4 GALLAGHER-KAISER CORP., 5 Plaintiff, Case No.: 2:14-cv-00869-GMN-DJA vs. 6 ORDER GRANTING IN PART AND LIBERTY DUCT, LLC, et al., DENYING IN PART MOTION FOR 7 DEFAULT JUDGMENT 8 Defendants. 9 10 Pending before the Court is the Motion for Default Judgment, (ECF No. 210), filed by 11 Cross-Claimant NGM Insurance Company against Cross-Defendant Liberty Duct. Liberty did 12 not file a Response.1 For the reasons discussed below, the Court GRANTS in part and 13 DENIES in part NGM’s Motion for Default Judgment against Liberty Duct. 14 I. BACKGROUND 15 This action arises from a construction defect during the construction of an air traffic 16 control tower and terminal radar approach control at Harry Reid International Airport. (Fourth 17 Am. Compl. ¶ 1, ECF No. 153). The Federal Aviation Administration (“FAA”) hired Archer 18 Western Constructors (“AWC”) as the Prime Contractor. (Id. ¶ 13). AWC contracted with 19 Gallagher-Kaiser (“GK”) to be the mechanical subcontractor on the project. (Id. ¶ 1). GK in 20 turn contracted with Liberty for the fabrication and delivery of all HVAC duct work and 21 accessories per the Project plans and specifications, including anti-microbial coatings as 22 required. (Id. ¶ 12). 23 24 25 1 Liberty Duct, LLC’s status is listed as “permanently revoked” on the Secretary of State’s business entity search engine. At the hearing on November 29, 2023, the Court established on the record that Liberty is defunct and no longer participating in this case. 1 NGM is an insurance company that issued a policy, (“the NGM Policy”), on behalf of 2 Liberty. (Id. ¶ 4). The contract between GK and Liberty required Liberty to add GK as an 3 additional insured to its insurance policies. (Id. ¶ 14). The NGM Policy included a Business 4 Liability section stating that NGM “will have the right and duty to defend the insured against a 5 ‘suit’ seeking [] damages” to which the insurance applies. (NGM Policy at NGM_000337, Ex. 6 A to Mot. Dismiss, ECF No. 188-1); (Mot. Default J. 2:19–23). The NGM Policy was intended 7 to be in effect from October 15, 2012, to October 15, 2023, but NGM cancelled the policy 8 before the end of the policy term because Liberty failed to pay the premium. (NGM Policy at 9 NGM_000287, Ex. A to Mot. Dismiss); (Policy Change, Ex. B to Mot. Dismiss, ECF No. 188- 10 2); (Mot. Default J. 2:13–15). The cancellation was effective May 11, 2013. (Id.). Thus, the 11 Policy Period for the NGM Policy was October 15, 2012, to May 11, 2013. Liberty then 12 delivered replacement ductwork. (Id. 4:18–19). NGM alleges that the last delivery occurred on 13 May 13, 2013. (Id. 4:19–20). On January 28, 2014, during the start-up and testing of the 14 systems, the antimicrobial coating of the duct work began flaking and delaminating. (Id. 4:20– 15 22). The FAA subsequently issued a Non-Conformance Report and rejected all the duct work. 16 (Id. 4:24–28). 17 GK subsequently brought this suit against Liberty for its allegedly defective duct work 18 and the costs GK incurred to remove and replace it. (Id. 4:26–28). Liberty initially tendered its 19 defense of the suit to NGM in 2014. (Id. 5:1–2). At that time, NGM issued a denial letter to 20 Liberty that explained its position that the Policy did not provide coverage for the claims 21 asserted against Liberty in this action. (Id. 5:2–4). Plaintiff subsequently pursued 22 administrative claims through the FAA’s Office of Dispute Resolution (“ODRA”) process, 23 challenging the FAA’s directive that all of the duct work was defective and needed to be 24 replaced. (Id. 5:5–8). GK appealed the ODRA Decision, and the United States Court of 25 1 Appeals for the District of Colombia Circuit affirmed. (Id. 5:8–9). Throughout this process, 2 Liberty did not provide NGM with notice of the ODRA proceedings or appeal. (Id. 5:11–13). 3 NGM filed a Crossclaim for Declaratory Relief against Liberty in April of 2024. NGM 4 seeks a determination that (1) Plaintiff asserts no claims against Liberty for which there is 5 potential coverage under the Policy; (2) NGM has no duty to defend Liberty in connection with 6 the claims asserted by Plaintiff against it in this suit; and (3) NGM has no duty to indemnify 7 Liberty in connection with the claims asserted by Plaintiff against it in this suit. (Crossclaim for 8 Declaratory Relief 8:1–12, ECF No. 202). Liberty was served with the Crossclaim by mail at 9 Liberty’s last known address in April of 2024, and was served again by mail at two alternative 10 addresses in May of 2024. (Mot. Default J. 6:3–6). Liberty failed to appear or respond to the 11 Crossclaim by the deadline. (Id. 6:6–7). NGM filed an Application for Entry of Default, (ECF 12 No. 203), and the Clerk subsequently entered Default against Liberty, (ECF No. 206). NGM 13 now moves for default judgment under Federal Rule of Civil Procedure 55(b). 14 II. LEGAL STANDARD 15 Obtaining default judgment is a two-step process governed by Rule 55 of the Federal 16 Rules of Civil Procedure (“FRCP”). See Eitel v. McCool, 782 F.2d 1470, 1471 (9th Cir. 1986). 17 First, the moving party must seek an entry of default from the clerk of court. FRCP 55(a). 18 Entry of default is only appropriate when a party “has failed to plead or otherwise defend.” Id. 19 After the clerk enters the default, a party must then separately seek entry of default judgment 20 from the court in accordance with Rule 55(b). Upon entry of a clerk’s default, the court takes 21 the factual allegations in the complaint as true, except those relating to the amount of damages. 22 See TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917–18 (9th Cir. 1987) (per curiam). 23 In determining whether to grant default judgment, courts are guided by the following 24 seven factors: (1) the possibility of prejudice to the plaintiff; (2) the merits of the plaintiff’s 25 substantive claims; (3) the sufficiency of the complaint; (4) the sum of money at stake in the 1 action; (5) the possibility of a dispute concerning material facts; (6) whether the default was 2 due to excusable neglect; and (7) the strong public policy favoring decisions on the merits. 3 Eitel, 782 F.2d at 1471–72. 4 III. DISCUSSION 5 As an initial matter, NGM has met the first step of the two-step process for obtaining 6 default judgment. Pursuant to FRCP 55(a), the Clerk of the Court correctly entered default 7 against Liberty because it has not appeared since NGM filed its Crossclaim against Liberty. 8 (See Entry Default, ECF No. 206). Thus, the Court, in its discretion, may order a default 9 judgment based on a balance of the Eitel factors. 10 A. Possibility of Prejudice to the NGM 11 A defendant’s failure to respond or otherwise appear in a case “prejudices a plaintiff’s 12 ability to pursue its claims on the merits.” See, e.g., Nationstar Mortg. LLC v. Operture, Inc., 13 No: 2:17-cv-03056-GMN-PAL, 2019 WL 1027990, at *2 (D. Nev. Mar. 4, 2019); PepsiCo, 14 Inc. v. Cal. Sec. Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002) (“If Plaintiffs’ motion for 15 default judgment is not granted, Plaintiffs will likely be without other recourse for recovery.”). 16 The first Eitel factor weighs in favor of granting NGM’s motion because it will 17 otherwise be denied recourse for a final determination of its policy obligations. See Liberty Ins. 18 Underwriters Inc. v. Scudier, 53 F. Supp. 3d 1308, 1318 (D. Nev. 2013). NGM filed its 19 Crossclaim in order to determine its rights or duties with regard to the claims asserted against 20 Liberty. Without the entry of default judgment, NGM could be asked to defend or indemnify 21 Liberty against the claims filed in the underlying suit. Thus, the Court finds this potential 22 prejudice weighs in favor of granting a default judgment. See Scudier, 53 F. Supp. 3d at 1318; 23 see also Progressive Universal Ins. Co. v. Minica, No. 2:22-CV-01573-HL, 2023 WL 5435976, 24 at *3 (D. Or. July 18, 2023), report and recommendation adopted, 2023 WL 5432527 (D. Or. 25 Aug. 23, 2023). 1 B. Plaintiffs’ Substantive Claims and the Sufficiency of the Complaint 2 The second and third factors focus on the merits of NGM’s substantive claims and the 3 sufficiency of the complaint. See Eitel, 782 F.2d at 1471. These factors, often analyzed 4 together, require courts to determine whether a plaintiff has “state[d] a claim on which [it] may 5 recover.” PepsiCo, 238 F. Supp. 2d at 1175. Courts often consider these factors “the most 6 important.” Vietnam Reform Party v. Viet Tan – Vietnam Reform Party, 416 F. Supp. 3d 948, 7 962 (N.D. Cal. 2019). If a district court has “serious reservations” about the merits of a 8 plaintiff’s claims based on the pleadings, these factors weigh in favor of denying default 9 judgment. See Eitel, 782 F.2d at 1472. “A claim has facial plausibility when the plaintiff 10 pleads factual content that allows the court to draw the reasonable inference that the defendant 11 is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell 12 Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007)). “Where the allegations in a complaint 13 are not ‘well-pleaded,’ liability is not established by virtue of the defendant’s default and 14 default judgment should not be entered.” See Adobe Sys., Inc. v. Tilley, No. C 09-1085 PJH, 15 2010 WL 309249, at *3 (N.D. Cal. Jan. 19, 2010). 16 NGM states a plausible claim that no coverage exists under its policies for the claims 17 against Liberty. (See generally Crossclaim¸ ECF No. 202). Upon default, “the factual 18 allegations of the complaint, except those relating to the amount of damages, will be taken as 19 true.” Geddes v. United Financial Group, 559 F.3d 557, 560 (9th Cir. 1997). NGM alleges that 20 the damage did not occur until after the policy period expired. (Crossclaim ¶ 26). The NGM 21 Policy was effective from October 15, 2011, to October 15, 2012, and was renewed for the 22 October 15, 2012, to October 15, 2013, policy period until it was cancelled for non-payment of 23 premium in May 2013. (Id. ¶ 4–5). NGM alleges that the antimicrobial coating of the duct 24 work started to peel off on January 28, 2014, and the FAA subsequently issued a Non- 25 Conformance Report and rejected all the duct work. (Id. ¶ 9). Because the peeling that led to 1 the FAA’s rejection of the duct work and ultimately led to this lawsuit did not occur until 2 January 28, 2014, and the policy was cancelled as of May 2013, NGM plausibly alleges that 3 there was no coverage at the time of the alleged “damages.” These allegations meet the 4 standard for default judgment because they plausibly allege that the damage occurred outside 5 the NGM policy period.2 6 C. The Sum of Money at Stake in the Action 7 The fourth Eitel factor addresses the damages at stake in the action. See Eitel, 782 F.2d 8 at 1471. The Court considers “the amount of money requested in relation to the seriousness of 9 the defendant’s conduct, whether large sums of money are involved, and whether ‘the recovery 10 sought is proportional to the harm caused by [the] defendant’s conduct.’” Next Gaming, LLC v. 11 Glob. Gaming Grp., Inc., No. 214CV00071MMDCWH, 2016 WL 3750651, at *3 (D. Nev. 12 July 13, 2016) (quoting Landstar Ranger, Inc. v. Parth Enters., Inc., 725 F. Supp. 2d 916, 921 13 (N.D. Cal. 2010)). NGM seeks only equitable relief in the form of an adjudication of the 14 parties’ rights and obligations. (Crossclaim 8:2–12). Because there is no money directly at 15 stake in this litigation the court finds that this factor weighs in favor of granting default 16 judgment. See PepsiCo, Inc., 238 F. Supp. 2d at 1177; Scudier, 53 F. Supp. 3d at 1318. 17 D. Possibility of a Dispute Concerning Material Facts 18 The fifth Eitel factor evaluates the possibility of dispute as to any material facts in the 19 case. PepsiCo., Inc., 238 F. Supp. 2d at 1177. Once the Clerk of Court enters default, all well- 20 pleaded facts in complaint, except those relating to damages, are taken as true. Id. Here, NGM 21 filed a well-pleaded Crossclaim alleging the facts necessary to establish its claims, and the 22 Clerk entered default against Liberty. Thus, no dispute has been raised regarding the material 23 24 25 2 While NGM has plausibly alleged this fact in its crossclaim in satisfaction of the default judgment standard, this Order does not decide the issue of whether the policy covered the alleged damages in this case as it pertains to GK’s coverage. 1 averments of the complaint, and the likelihood that any genuine issue may exist is not high. 2 This factor therefore favors the entry of default. 3 E. Excusable Neglect 4 The sixth factor considers whether Liberty’s default is due to excusable neglect. Id. If a 5 defendant is “properly served with the Complaint, the notice of entry of default, as well as the 6 papers in support of the instant motion,” the default “cannot be attributed to excusable neglect.” 7 Shanghai Automation Instrument Co. v. Kuei, 194 F. Supp. 2d 995, 1005 (N.D. Cal. 2001). 8 Liberty was properly served with NGM’s pleading, as well as with NGM’s request for entry of 9 default and renewed motion for default judgment. (ECF Nos. 205-1, 213-1). Thus, Liberty had 10 notice of NGM’s intent to pursue a default judgment against it, yet it has not filed anything in 11 response to the filings. The Court established at a hearing in November of 2023 that Liberty 12 Duct is defunct and no longer participating in this case. This factor therefore weighs in favor of 13 default judgment. 14 F. Policy for Deciding on the Merits 15 The final favor weighs against default judgment. As the Ninth Circuit explained in 16 Eitel, “default judgments are ordinarily disfavored.” 782 F.2d at 1472. “Cases should be 17 decided upon their merits whenever reasonably possible.” Id. But the existence of Rule 55(b) 18 “indicates that this preference, standing alone, is not dispositive.” PepsiCo, Inc., 238 F. Supp. 19 2d at 1177. Liberty’s failure to answer or otherwise respond to the complaint “makes a 20 decision on the merits impractical, if not impossible.” Id. 21 G. Conclusion Regarding the Eitel Factors 22 Evaluating the Eitel factors as applied to this case, the Court finds that the majority of 23 the factors support the entry to default judgment. Having reviewed NGM’s Motion and 24 evidence previously submitted in this case, and having considered the Eitel factors, the Court 25 concludes that the entry of default judgment against Liberty is appropriate. 1 H. Terms of the Judgment to be Entered 2 After determining that a party is entitled to entry of default judgment, the Court must 3 || determine the terms of the judgment to be entered. Here, NGM’s claim for relief is the entry of 4 ||a declaratory judgment that NGM has no obligation to defend or indemnify Liberty. As 5 || discussed above, NGM’s well-pled allegations, when taken as true, show that it is entitled to 6 || such relief. Accordingly, the Court GRANTS NGM’s claim for declaratory judgment that 7 || NGM has no duty to defend or indemnify Liberty in connection with the claims asserted against g || Liberty in this suit.° 9 || V. CONCLUSION 10 IT IS HEREBY ORDERED that Cross-Claimant NGM’s Motion for Default 11 || Judgment, (ECF No. 210), is GRANTED in part and DENIED in part. The Court 12 || GRANTS declaratory judgment that NGM does not have a duty to defend or indemnify 13 || Liberty in connection with the claims asserted against Liberty in this suit. The Court 14 || DENIES NGM’s request for attorney’s fees and costs without prejudice. 15 DATED this 29 day of October, 2024. “hp, Lf Gloria IM. Navarro, District Judge 18 U D STATES DISTRICT COURT 19 20 21 22 23 24 3 NGM also requests “reasonable attorney’s fees and costs.” (Mot. Default J., 12:11). A motion for attorney’s fees must 25 || comply with the requirements set forth in Federal Rule of Civil Procedure 54(d)(2)(B) and Local Rule 54-14. Because the motion does not comply with these requirements, the Court denies the Motion for Default Judgment with respect to the request for attorney’s fees and costs without prejudice. Page 8 of 8