-EFB United States of America v. Lyon, No. 2:2010cv02549 - Document 16 (E.D. Cal. 2011)
Court Description: FINDINGS and RECOMMENDATIONS signed by Magistrate Judge Edmund F. Brennan on 6/7/11 RECOMMENDING that the 12 Plaintiff's Motion for default judgment against defendant Lyon be granted; plaintiff be awarded $64,289.97 plus additional interest; and that the clerk be directed to close this case. Motion referred to Judge Garland E. Burrell, Jr. Objections due within 14 days after being served with these findings and recommendations. (Donati, J)
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-EFB United States of America v. Lyon Doc. 16 1 2 3 4 5 6 7 8 IN THE UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 UNITED STATES OF AMERICA, Plaintiff, 11 12 vs. 13 No. CIV S-10-2549 GEB EFB SCOTT G. LYON, Defendant. 14 FINDINGS AND RECOMMENDATIONS / 15 This case was referred to the undersigned pursuant to Eastern District of California Local 16 17 Rule 302(c)(19) and 28 U.S.C. § 636(b)(1) for hearing on plaintiff’s motion for entry of default 18 judgment against defendant Scott G. Lyon. Dckt. No. 12. On April 27, 2011, a hearing on the 19 motion was held. Attorney Kurt Didier appeared at the hearing on behalf of plaintiff. No 20 appearance was made on behalf of defendant. For the reasons that follow, and as stated on the 21 record at the hearing, the court recommends that plaintiff’s application for entry of default 22 judgment be granted. 23 I. 24 BACKGROUND Plaintiff initiated this action on September 21, 2010, for violation of Title IV of the 25 Higher Education Act of 1965, 20 U.S.C. §§ 1071-1087ii. Compl., Dckt. No. 1. A certificate of 26 service, filed November 30, 2010, demonstrates that the summons and complaint were 1 Dockets.Justia.com 1 personally served on defendant at the U.S. Marshal’s Office on November 23, 2010. Dckt. No. 2 5. 3 On January 6, 2011, pursuant to plaintiff’s request, the Clerk of Court entered 4 defendant’s default. Dckt. No. 9. On March 8, 2011, plaintiff filed a motion for default 5 judgment, and mail served a copy of the motion on defendant. Dckt. No. 12. Plaintiff’s motion 6 seeks default judgment in favor of the United States and against defendant Lyon in the principal 7 amount of $64,289.97 as of March 3, 2011, plus litigation costs and attorneys fees in the amount 8 of $6,428.99, representing ten percent of the principal amount. Id. at 8. Plaintiff contends that 9 until paid, interest on the unpaid judgment shall accrue at a rate of 4.13 percent per annum, 10 compounded annually. Id. 11 II. 12 DISCUSSION It is within the discretion of the district court to grant or deny an application for default 13 judgment. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In making this 14 determination, the court considers the following factors: 15 16 17 (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action, (5) the possibility of a dispute concerning the material facts, (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. 18 19 Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). “In applying this discretionary 20 standard, default judgments are more often granted than denied.” Philip Morris USA, Inc. v. 21 Castworld Products, Inc., 219 F.R.D. 494, 498 (C.D. Cal. 2003) (quoting PepsiCo, Inc. v. 22 Triunfo-Mex, Inc., 189 F.R.D. 431, 432 (C.D. Cal. 1999)). 23 As a general rule, once default is entered, the factual allegations of the complaint are 24 taken as true, except for those allegations relating to damages. TeleVideo Systems, Inc. v. 25 Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (citations omitted). However, although well- 26 pleaded allegations in the complaint are admitted by defendant’s failure to respond, “necessary 2 1 facts not contained in the pleadings, and claims which are legally insufficient, are not established 2 by default.” Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992). 3 A. 4 The court finds that the majority of the Eitel factors weigh in favor of granting default 5 6 7 Entitlement to Default Judgment judgment to plaintiff. (1) Possibility of Prejudice to Plaintiff The first Eitel factor considers whether the plaintiff would suffer prejudice if default 8 judgment is not entered, and such potential prejudice to the plaintiff militates in favor of entering 9 default judgment. See PepsiCo, Inc., 238 F. Supp.2d at 1177. Here, plaintiff would potentially 10 face prejudice if the court did not enter default judgment because absent entry of default 11 judgment, plaintiff would be without another recourse for recovery. Accordingly, the first Eitel 12 factor favors the entry of default judgment. 13 (2) Merits of Plaintiff’s Substantive Claim and (3) Sufficiency of the Complaint 14 The second and third factors also weigh in favor of plaintiff. “In a suit on a promissory 15 note, the initial burden is on plaintiff to establish, through verified pleadings and exhibits in 16 evidence, the existence of the note, defendant’s default and the amount due.” United States v. 17 Potts, 2006 WL 1009014, at *2 (N.D. Cal. Apr. 18, 2006) (citing United States v. Irby, 517 F.2d 18 1042, 1043 (5th Cir. 1975)). The complaint and its attached exhibits allege that on September 4, 19 2002, defendant executed a promissory note securing his Direct Consolidation Loan from the 20 U.S. Department of Education (“DOE”). The loan amount totaled $55,393.52 and was disbursed 21 on September 10, 2002, at 4.13 interest per annum. Interest on the unpaid balance is capitalized 22 annually. Defendant defaulted on the loan on May 17, 2008, and despite DOE’s demands for 23 payment, defendant has failed to pay the loan indebtedness. 24 25 26 (4) Sum of Money at Stake in the Action The fourth factor also weighs in favor of plaintiff. Under the fourth factor, “the court must consider the amount of money at stake in relation to the seriousness of Defendant’s 3 1 conduct.” PepsiCo, Inc., 238 F. Supp.2d at 1177; see also Philip Morris USA, Inc. v. Castworld 2 Prods., Inc., 219 F.R.D. 494, 500 (C.D. Cal.2003). Here, although the amount plaintiff seeks is 3 significant, defendant took out a loan for nearly the entire amount and agreed to pay interest on 4 that amount, as well as collection costs if defendant failed to pay the amount owed.1 5 6 (5) The Possibility of a Dispute Concerning the Material Facts The fifth factor also weighs in favor of plaintiff. The facts of this case are relatively 7 straightforward, and plaintiff has provided the court with well-pleaded allegations supporting its 8 claims. Here, the court may assume the truth of well-pleaded facts in the complaint (except as to 9 damages) following the clerk’s entry of default and, thus, there is a very low likelihood that any 10 genuine issue of material fact exists. See, e.g., Elektra Entm’t Group Inc. v. Crawford, 226 11 F.R.D. 388, 393 (C.D. Cal.2005) (“Because all allegations in a well-pleaded complaint are taken 12 as true after the court clerk enters default judgment, there is no likelihood that any genuine issue 13 of material fact exists.”); accord Philip Morris USA, Inc., 219 F.R.D. at 500; PepsiCo, Inc., 238 14 F. Supp.2d at 1177. (6) Whether the Default Was Due to Excusable Neglect 15 16 This factor also weighs in favor of plaintiff. Prior to filing suit, plaintiff sent defendant 17 demands for payment. Defendant ignored those demands. Therefore, plaintiff filed and served 18 its complaint, which defendant has failed to answer. The allegations in the complaint are 19 straightforward and documentation substantiating the student loan and the amount of damages 20 21 22 23 24 25 26 1 Additionally, the amount of damages is capable of ascertainment from definite figures. Dundee Cement, 722 F.2d at 1323 (“judgment by default may not be entered without a hearing on damages unless . . . the amount claimed is liquidated or capable of ascertainment from definite figures contained in the documentary evidence or in detailed affidavits.”); Davis v. Fendler, 650 F.2d 1154, 1161 (9th Cir. 1981) (no hearing necessary when documents show judgment amount based on a definite figure); see also Fed. R. Civ. P. 55(b)(2) (the district court has the discretion to conduct or refuse a hearing on default judgment). A hearing on the issue of damages is not required as long as the Court finds there is a basis for the damages specified. Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir.1997). Affidavits or other documentary evidence is sufficient to evaluate the fairness of the amount requested. Tamarin v. Adam Caterers, Inc., 13 F.3d 51, 54 (2d Cir.1993). 4 1 are attached to the complaint. Defendant, as an active member of the California Bar, knows or 2 should know the consequences of failing to file an answer. After defendant’s default in this case, 3 plaintiff’s counsel wrote to and telephoned defendant in an effort to try to resolve the matter. 4 Defendant ignored those contacts as well. 5 (7) Strong Policy Favoring Decisions on the Merits 6 Although this last factor weighs in favor of defendant, district courts have concluded with 7 regularity that this policy, standing alone, is not dispositive, especially where a defendant fails to 8 appear or defend itself in an action. PepsiCo, Inc., 238 F. Supp. 2d at 1177; see Craigslist, Inc. 9 v. Naturemarket, Inc., 2010 WL 807446, at *16 (N.D. Cal. Mar. 5, 2010); ACS Recovery Servs., 10 Inc. v. Kaplan, 2010 WL 144816, at *7 (N.D. Cal. Jan.11, 2010); Hartung v. J.D. Byrider, Inc., 11 2009 WL 1876690, at *5 (E.D. Cal. June 26, 2009). Accordingly, although there is a strong 12 policy favoring decisions on the merits, that policy does not by itself preclude entry of default 13 judgment. 14 Therefore, the undersigned recommends that plaintiff be granted default judgment against 15 defendant Lyon. 16 B. 1. Principal and Interest 17 18 Amount of Judgment As stated in the declaration of Rubio Canlas, a loan analyst for the U.S. Department of 19 Justice, defendant’s indebtedness as of March 3, 2011, exclusive of litigation costs, was 20 $64,289.97 (based on $55,964.90 in unpaid principal and $8,325.07 in unpaid interest). Canlas 21 Decl., Ex. A, Dckt. No. 12-1 at 5. Interest on the unpaid balance accrues at $6.33 per day. 22 Accordingly, any order adopting these findings and recommendations and subsequent judgment 23 will contain an updated total regarding defendant’s indebtedness.2 24 25 26 2 At the hearing, plaintiff was directed to file a supplemental declaration calculating the interest through May 25, 2011 so that a final amount can be calculated as of the date judgment is entered. Plaintiff did so on May 3, 2011. Dckt. No. 15 at 3. 5 1 2 2. Litigation Costs/Surcharge In addition to seeking the unpaid loan balance, plaintiff seeks an award of its litigation 3 costs pursuant to the terms of the underlying promissory note and section 3011(a) of the Federal 4 Debt Collection Procedures Act (“FDCPA”), 28 U.S.C. §§ 3001 et seq., including its reasonable 5 attorney’s fees. The promissory note defendant executed includes a costs and attorney’s fees 6 clause, which provides: “If I fail to make payments on this note when due, I will also pay 7 collection costs including but not limited to attorney’s fees and court costs.” Compl., Ex. A. 8 Additionally, the FDCPA authorizes a ten percent surcharge to the United States in actions to 9 recover a “debt” owed to the United States. 28 U.S.C. § 3011(a). This case is an action to which 10 the FDCPA’s definition of a debt applies: “an amount that is owing to the United States on 11 account of a direct loan, or loan insured or guaranteed by the United States. . . .” 28 U.S.C. 12 § 3002(3)(A). Plaintiff seeks to recover the ten percent surcharge to cover all its costs and 13 attorney’s fees in this action. 14 However, as noted at the April 27 hearing, although plaintiff is entitled to fees and costs, 15 plaintiff’s complaint does not include any allegations regarding the FDCPA or the ten percent 16 surcharge. Plaintiff is required to prove all damages sought in the complaint, and the damages 17 sought cannot be different from what is demanded in the complaint. See Fed. R. Civ. P. 54(c) 18 (“A default judgment must not differ in kind from, or exceed in amount, what is demanded in the 19 pleadings. Every other final judgment should grant the relief to which each party is entitled, 20 even if the party has not demanded that relief in its pleadings.”); see also Televideo Sys., Inc. v. 21 Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1992) (A plaintiff is required to prove all damages 22 sought in the complaint). 23 Moreover, as plaintiff acknowledges, cases validating the United States’s entitlement to 24 the surcharge have diverged on the triggering event for the entitlement. Some cases hold that the 25 surcharge attaches upon the government’s efforts to obtain a judgment. See, e.g., United States 26 v. Mastrovito, 830 F. Supp. 1281 (D. Ariz. 1993), aff’d, 46 F.3d 1147 (9th Cir. 1995) 6 1 (unpublished); United States v. Alphagraphics Franchising, Inc., 973 F.2d 429, 431 (5th Cir. 2 1992). Other courts hold that the surcharge is not proper until the United States seeks the 3 prejudgment or postjudgment remedies enumerated under subchapters B or C of the FDCPA. 4 See 28 U.S.C. § 3011(a); United States v. Sackett, 114 F.3d 1050 (10th Cir. 1997). 5 Even though the Ninth Circuit affirmed, without discussing, the District of Arizona’s 6 conclusory finding in Mastrovito3 that the DOE was entitled to the surcharge along with the 7 judgment, based on the language of the statute itself, the undersigned agrees with the latter line 8 of cases holding that the surcharge is not proper until the United States seeks the prejudgment or 9 postjudgment remedies enumerated under subchapters B or C of the FDCPA. 10 Section 3011(a) provides: “In an action or proceeding under subchapter B or C, and 11 subject to subsection (b), the United States is entitled to recover a surcharge of 10 percent of the 12 amount of the debt in connection with the recovery of the debt, to cover the cost of processing 13 and handling the litigation and enforcement under this chapter of the claim for such debt.” 14 “Under the plain language of § 3011, the government is not entitled to the surcharge as of the 15 date of judgment. Instead, the provision permits recovery of the surcharge only when the 16 government has either sought prejudgment remedies of attachment, receivership, garnishment or 17 sequestration governed under subchapter B, or engaged in post-judgment enforcement 18 proceedings under subchapter C of the Act.” United States v. George, 144 F. Supp.2d 161, 165- 19 66 (E.D.N.Y. 2001) (citing United States v. Sackett, 114 F.3d 1050 (10th Cir. 1997); United 20 States v. Maldonado, 867 F. Supp. 1184, 1199 (S.D.N.Y. 1994); Rendleman v. Shalala, 864 F. 21 Supp. 1007, 1013 (D. Or. 1994); United States v. Smith, 862 F. Supp. 257, 263 (D. Haw.1994); 22 United States v. Mauldin, 805 F. Supp. 35, 36 (N.D. Ala.1992)); see also United States v. 23 Rostoff, 164 F.3d 63, 73 n.14 (1st Cir. 1999) (“we agree with the Tenth Circuit that by the plain 24 language of the statute ‘a surcharge pursuant to § 3011 is not available in an action to obtain a 25 3 26 Neither the district court nor the Circuit in Mastrovito discussed the applicability of the surcharge. Nor did the Fifth Circuit in Alphagraphics Franchising, Inc. 7 1 judgment on a debt, but is instead limited to prejudgment and postjudgment actions or 2 proceedings’”). 3 This action is to obtain judgment on a debt, and was not brought under FDCPA 4 subchapter B or C. As mentioned above, there are no allegations in the complaint relating to the 5 FDCPA. See Rendleman, 864 F. Supp. at 1013 (“Here, the government has not made a claim for 6 attachment, receivership, garnishment or sequestration, and therefore has not proceeded under 7 subchapter B. The language of subchapter C requires a judgment to be entered before the 8 government can proceed to place a lien on the debtor’s property or seek other remedies under 9 subchapter C. The government contends that it will be entitled to a ten percent surcharge upon 10 the filing of the judgment pursuant to section 3201, and Rendleman does not dispute this 11 contention. However, under the plain language of the statute, the court cannot grant the ten 12 percent surcharge at this stage of the proceedings.”). 13 Plaintiff contends that under either line of holdings, it is entitled to the surcharge as it 14 will immediately pursue a postjudgment remedy if the court enters a judgment in its favor. 15 Plaintiff argues that one of the postjudgment remedies available under subchapter C of the 16 FDCPA is the creation of a judgment lien, which occurs upon the judgment creditor’s filing of a 17 “certified copy of the abstract of judgment in the manner in which a tax lien would be filed . . . .” 18 28 U.S.C. § 3201(a). Plaintiff argues that unlike the other postjudgment remedies, this one does 19 not require judicial intervention. Creating judicial liens, however, requires the creditor to take an 20 affirmative act. Plaintiff contends that if default judgment is entered, plaintiff will, at a 21 minimum, record abstracts in the counties where defendant resides or own property to perfect its 22 judgment. Therefore, plaintiff contends that is a proper basis for the ten percent surcharge on the 23 debt. 24 However, as discussed at the April 27 hearing, the undersigned disagrees in light of the 25 plain language in Section 3011(a) which requires that this action be either a pre-judgment or 26 post-judgment proceeding and in light of the fact that plaintiff’s complaint makes no reference to 8 1 the FDCPA or to the surcharge at all. Accordingly, the undersigned recommends that plaintiff’s 2 request that the default judgment include a ten percent surcharge be denied.4 3 III. CONCLUSION 4 Based on the foregoing findings, IT IS HEREBY RECOMMENDED that: 5 1. Plaintiff’s motion for default judgment against defendant Lyon be GRANTED; 6 2. Plaintiff be awarded $64,289.97 (based on $55,964.90 in unpaid principal and 7 $8,325.07 in unpaid interest through March 3, 2011), plus additional interest that has accrued 8 since March 3, 2011 and will continue to accrue through the entry of judgment; and 9 3. The Clerk of Court be directed to close this case. 10 These findings and recommendations are submitted to the United States District Judge 11 assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(l). Within fourteen days 12 after being served with these findings and recommendations, any party may file written 13 objections with the court and serve a copy on all parties. Such a document should be captioned 14 “Objections to Magistrate Judge’s Findings and Recommendations.” Failure to file objections 15 within the specified time may waive the right to appeal the District Court’s order. Turner v. 16 Duncan, 158 F.3d 449, 455 (9th Cir. 1998); Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991). 17 DATED: June 7, 2011. 18 19 20 21 22 4 23 24 25 26 At the April 27 hearing, the undersigned informed plaintiff’s counsel that in lieu of seeking the ten percent surcharge in a post-judgment proceeding, if plaintiff so elected, the undersigned would provide plaintiff an opportunity to supplement the current default judgment motion with a declaration regarding attorney’s fees and costs actually spent in the action. However, plaintiff’s counsel indicated that he would instead prefer to seek the surcharge at a later time. Additionally, in plaintiff’s May 3, 2011 supplemental filing, plaintiff indicated that after judgment is entered, it will pursue an enforcement action pursuant to subchapter C and thereafter seek the ten percent surcharge. Dckt. No. 15 at 2. 9
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