Harley-Davidson Credit Corp. v. Chancellor Services, LLC, et al., No. 2:2014cv01703 - Document 18 (E.D. Cal. 2015)
Court Description: FINDINGS and RECOMMENDATIONS signed by Magistrate Judge Edmund F. Brennan on 9/10/15 RECOMMENDING that Plaintiff's application for default judgment 10 be granted; Plaintiff's claims against Walter Fletscher and Phillip Price be dismiss ed without prejudice; the court enter judgment against defendant Chancellor in the amount of$1,130,826.40, plus interest at the rate of 7.05% per annum; and Plaintiff's request for costs and attorney's fees be denied without prej udice to a timely motion brought under Local Rule 292 and 293. Matter referred to District Judge Morrison C. England, Jr.. Within 14 days after being served with these findings and recommendations, any party may file written objections with the court and serve a copy on all parties. (Kastilahn, A)
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Harley-Davidson Credit Corp. v. Chancellor Services, LLC, et al. Doc. 18 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 HARLEY-DAVIDSON CREDIT CORP., 12 Plaintiff, 13 14 No. 2:14-cv-1703-MCE-EFB v. FINDINGS AND RECOMMENDATIONS CHANCELLOR SERVICES, LLC, et al., 15 Defendants. 16 17 This matter came before the court on February 4, 2015, for hearing on plaintiff’s motion 18 for default judgment against defendant Chancellor Services, LLC (“Chancellor”).1 ECF No. 10. 19 Attorney Geronimo Perez appeared on behalf of plaintiff; no appearance was made by 20 Chancellor. For the reasons stated below, plaintiff’s motion must be granted. 21 I. 22 Background Plaintiff brought suit against defendants Chancellor, Walter Fletscher, and Phillip Price on 23 July 18, 2014, alleging a breach of contract claim against Chancellor and breach of guaranty 24 claims against Fletcher and Price. ECF No. 1. The docket reflects that on August 29, 2014, 25 plaintiff personally served Robin Fletscher, Chancellor’s registered agent for service, with a copy 26 of the summons and complaint. ECF No. 5. Plaintiff requested entry of Chancellor’s default 27 28 1 This case was referred to the undersigned pursuant to Eastern District of California Local Rule 302(c)(19) and 28 U.S.C. § 636(b)(1). 1 Dockets.Justia.com 1 (ECF No. 7), which the Clerk entered on October 1, 2014. ECF No. 8. Plaintiff subsequently 2 filed the instant motion for default judgment against defendant Chancellor. ECF No. 10.2 3 According to the complaint, plaintiff is a Nevada corporation with its principal place of 4 business in Carson City, Nevada. Id. ¶ 1. Defendant Chancellor is a limited liability company 5 organized and existing under the laws of Oregon, with its principal place of business in Oregon. 6 Id. ¶ 2. Walter Fletscher and Phillip Price reside in California and are members of Chancellor. 7 Id. ¶¶ 3-4. 8 9 On February 14, 2007, Chancellor executed an Aircraft Security Promissory Note (the “note”) in favor of Eaglemark Savings Bank (“Eaglemark”) in the principal sum of $1,775,000.00 10 plus interest. Id. ¶ 8, Ex. A. Under the note, Chancellor promised to make 240 monthly 11 payments of $13,814.88 by the 18th of each month, with interest accruing at 7.05% per annum. 12 Id. To secure repayment under the Note, Chancellor executed a security agreement that granted 13 to Eaglemark a security interest in a Cessna Citation, 428 Aircraft, serial number N550PF 14 (“aircraft”). Id. ¶ 9. To induce Eaglemark to extend credit to Chancellor, defendants Price and 15 Fletscher executed and delivered to Eaglemark Unconditional and Continuing Guarantees. 16 Specifically, Price and Fletcher agreed to be held liable for any and all expenses paid or incurred 17 in connection with the collection of all sums and obligations guaranteed, including all reasonable 18 attorneys’ fees and costs. Id. ¶¶ 10-11. Pursuant to the loan documents, Eaglemark automatically 19 assigned the note, security agreement, the Unconditional and Continuing Guarantees of Price and 20 Fletcher, and all related loan documents, to plaintiff. Id. ¶ 17. 21 After execution of the note and security agreement, Chancellor defaulted by failing to pay 22 the amount due under the note. Id. ¶ 13. In an effort to satisfy the total amount due, Chancellor 23 sold the aircraft with plaintiff’s permission. Id. ¶ 14; see ECF No. 16 n.1. The aircraft proceeds 24 were insufficient to cover the total sum due, and a deficiency balance remained in the amount of 25 ///// 26 27 28 2 Plaintiff’s motion only seeks default judgment against Chancellor. At the February 4 hearing, plaintiff moved for dismissal of the individual defendants. The court recommends that request be granted and defendant Fletscher and Price be dismissed without prejudice. 2 1 $1,130,826.40. Id. ¶ 15. Despite plaintiff’s demand for payment, defendants have failed to pay 2 the balance due under the Note. Id. ¶ 17. 3 II. 4 Legal Standard Pursuant to Federal Rule of Civil Procedure 55, default may be entered against a party 5 against whom a judgment for affirmative relief is sought who fails to plead or otherwise defend 6 against the action. See Fed. R. Civ. P. 55(a). However, “[a] defendant’s default does not 7 automatically entitle the plaintiff to a court-ordered judgment.” PepsiCo, Inc. v. Cal. Sec. Cans, 8 238 F. Supp. 2d 1172, 1174 (C.D. Cal. 2002) (citing Draper v. Coombs, 792 F.2d 915, 924-25 9 (9th Cir. 1986)). Instead, the decision to grant or deny an application for default judgment lies 10 within the district court’s sound discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 11 1980). In making this determination, the court considers the following factors: 12 13 14 15 (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. 16 Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). “In applying this discretionary 17 standard, default judgments are more often granted than denied.” Philip Morris USA, Inc. v. 18 Castworld Products, Inc., 219 F.R.D. 494, 498 (C.D. Cal. 2003) (quoting PepsiCo, Inc. v. 19 Triunfo-Mex, Inc., 189 F.R.D. 431, 432 (C.D. Cal. 1999)). 20 As a general rule, once default is entered, the factual allegations of the complaint are taken 21 as true, except for those allegations relating to damages. TeleVideo Systems, Inc. v. Heidenthal, 22 826 F.2d 915, 917-18 (9th Cir. 1987) (citations omitted). However, although well-pleaded 23 allegations in the complaint are admitted by defendant’s failure to respond, “necessary facts not 24 contained in the pleadings, and claims which are legally insufficient, are not established by 25 default.” Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992). A party’s 26 default conclusively establishes that party’s liability, although it does not establish the amount of 27 damages. Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977) (stating that although 28 a default established liability, it did not establish the extent of the damages). 3 1 2 3 4 III. Discussion A. Appropriateness of the Entry of Default Judgment Under the Eitel Factors 1. Factor One: Possibility of Prejudice to Plaintiff The first Eitel factor considers whether the plaintiff would suffer prejudice if default 5 judgment is not entered, and such potential prejudice to the plaintiff militates in favor of granting 6 a default judgment. See PepsiCo, Inc., 238 F. Supp. 2d at 1177. Here, plaintiff would potentially 7 face prejudice if the court does not enter a default judgment. Absent entry of a default judgment, 8 plaintiff would be without any recourse for recovery. Accordingly, the first Eitel factor favors the 9 entry of a default judgment. 10 11 12 2. Two and Three: The Merits of Plaintiff’s Substantive Claims and Sufficiency of the Complaint The merits of plaintiff’s substantive claims and the sufficiency of the complaint should be 13 discussed together because of the relatedness of the two inquires. The court must consider 14 whether the allegations in the complaint are sufficient to state a claim that supports the relief 15 sought. See Danning, 572 F.2d at 1388; PepsiCo, Inc., 238 F. Supp. 2d at 1175. 16 Here, the complaint asserts a single breach of contract claim against Chancellor. The 17 question arises as to whether Nevada or California law applies to the claim. Plaintiff argues that 18 Nevada law governs this action pursuant to the choice-of-law clause contained in the parties’ 19 agreement. ECF No. 10-1 at 4-5. Plaintiff further contends that the complaint sufficiently alleges 20 a breach of contract claim under Nevada law. Id. at 5. 21 A federal court sitting in diversity applies the rules of the state in which it sits. Klaxon 22 Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 796 (1941). Thus, this court looks to California’s 23 choice-of-law rules. In California, “a freely and voluntarily agreed-upon choice of law provision 24 in a contract is enforceable ‘if the chosen state has a substantial relationship to the parties or the 25 transaction or any other reasonable basis exists for the parties’ choice of law.’” 1–800–Got Junk? 26 LLC v. Super. Ct., 189 Cal.App.4th 500, 513-14 (2010) (quoting Trust One Mortg. Corp. v. Invest 27 Am. Mortg. Corp., 134 Cal.App.4th 1302, 1308 (2005)). There is “a strong policy in favor 28 enforcing such provisions.” Id. at 513. 4 1 “[I]f the proponent of the clause demonstrates that the chosen state has a substantial 2 relationship to the parties or their transaction, or that a reasonable basis otherwise exists for the 3 choice of law, the parties’ choice generally will be enforced unless the other side can establish 4 both that the chosen law is contrary to a fundamental policy of California and that California has 5 a materially greater interest in the determination of the particular issue.” Id. at 514 (emphasis in 6 original). 7 Plaintiff is a Nevada corporation with its principal place of business in Carson City, 8 Nevada. Declaration of Amy Kappen ISO Pl.’s Mot. Default J. (ECF No. 10-3) ¶ 3. Thus, 9 Nevada has a substantial relationship to a party to this action. See Application Group, Inc. v. 10 Hunter Group, Inc., 61 Cal.App.4th 881, 899 (1998) (“[T]he mere fact that one of the parties 11 resides in the chosen state provides a ‘reasonable basis’ for the parties’ choice of law.”); 12 Restatement (Second) of Conflict of Laws § 187 cmt f (recognizing that a substantial relationship 13 exists “where one of the parties is domiciled or has his principal place of business.”). As 14 Chancellor has not appeared in this action and therefore has not demonstrated that Nevada law is 15 contrary to a fundamental policy of California and that California has a materially greater interest 16 in the issue before the court, it is appropriate to apply Nevada law to plaintiff’s breach of contract 17 claim, as contemplated by the parties’ contract. 18 To succeed on a breach of contract claim under Nevada law, a plaintiff must “show (1) the 19 existence of a valid contract, (2) a breach by the defendant, and (3) damage as a result of the 20 breach.” Rivera v. Peri & Sons Farms, Inc., 735 F.3d 892, 899 (9th Cir. 2013). 21 Here, the complaint sufficiently alleges a claim for breach of contract under Nevada law. 22 Plaintiff alleges that on February 14, 2007, Chancellor executed an Aircraft Secured Promissory 23 Note in favor of Eaglemark in the principle sum of $1,775,000. ECF No. 1 ¶ 8. Under the note, 24 Chancellor was required to make 240 equal monthly payments of $13,814.88 by the 18th of each 25 month with interest accruing at 7.05%. Id. To secure payment under the note, Chancellor 26 granted to Eaglemark a security interest in an airplane pursuant to an Aircraft Security 27 Agreement. Id. ¶ 9. Under the terms of the loan documents, the Note and security agreement, 28 and all related loan documents, were automatically assigned to plaintiff. Id. ¶ 16. After the 5 1 execution of the note and security agreement, Chancellor defaulted under the note by failing to 2 pay the amount due. Id. ¶ 13. Although Chancellor sold the aircraft securing the debt in an effort 3 to satisfy the debt owed, a deficiency balance remained in the amount of $1,130,826.40. Id. 4 ¶¶ 14-15. 5 6 7 These allegations are sufficient to support plaintiff’s claim for breach of contract under Nevada law. Accordingly, the second and third Eitel factors weigh in favor of default judgment. 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.” PepsiCo, Inc., 238 F. Supp. 2d at 10 1177; see also Philip Morris USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 500 (C.D. Cal. 11 2003). Plaintiff seeks damages in the amount of $1,130,826.40, plus interest. Although the 12 amount of money at stake in this case is large, the amount sought is not excessive in relation to 13 Chancellor’s conduct and the value of the aircraft that was financed. Indeed, plaintiff only seeks 14 to recover what it is owed under the contract. 15 4. Factor Five: The Possibility of Dispute Concerning Material Facts 16 The court may assume the truth of well-pleaded facts in the complaint (except as to 17 damages) following the clerk’s entry of default. See, e.g., Elektra Entm’t Group Inc. v. Crawford, 18 226 F.R.D. 388, 393 (C.D. Cal. 2005) (“Because all allegations in a well-pleaded complaint are 19 taken as true after the court clerk enters default judgment, there is no likelihood that any genuine 20 issue of material fact exists.”); accord Philip Morris USA, Inc., 219 F.R.D. at 500; PepsiCo, Inc., 21 238 F. Supp. 2d at 1177. Accepting the plaintiff’s allegations as true, there will likely be no 22 dispute concerning a material fact. 23 24 5. Factor Six: Whether the Default Was Due to Excusable Neglect The record reflects that Chancellor’s default was not due to excusable neglect. Chancellor 25 was served a copy of the complaint and summon on August 29, 2014. ECF No. 5. Plaintiff also 26 served Chancellor a copy of the motion for default judgment. ECF Nos. 10-9, 13. Thus, it 27 appears that Chancellor had notice of the pending action but has decided not to defend against 28 plaintiff’s claim. 6 1 6. Factor Seven: The Strong Policy Favoring Decisions on the Merits 2 “Cases should be decided upon their merits whenever reasonably possible.” Eitel, 782 3 F.2d at 1472. However, district courts have concluded with regularity that this policy, standing 4 alone, is not dispositive, especially where a defendant fails to appear or defend itself in an action. 5 PepsiCo, Inc., 238 F. Supp. 2d at 1177; see also Craigslist, Inc. v. Naturemarket, Inc., 694 F. 6 Supp. 2d 1039, 1061 (N.D. Cal. 2010); ACS Recovery Servs., Inc. v. Kaplan, 2010 WL 144816, at 7 *7 (N.D. Cal. Jan. 11, 2010); Hartung v. J.D. Byrider, Inc., 2009 WL 1876690, at *5 (E.D. Cal. 8 June 26, 2009). Accordingly, this factor should not preclude entry of default judgment. 9 On balance, the Eitel factors weigh in favor of granting plaintiff’s motion for default 10 judgment. The court must therefore determine the amount of damages plaintiff is entitled to 11 receive. 12 B. Damages 13 Plaintiff submitted the declaration of Amy Kaffen, an Operations Manager for Harley- 14 Davidson Credit Corporation. ECF No. 10-3. She included as an exhibit the Note, showing that 15 Chancellor promised to repay the sum of $1,775,000, plus interest accruing at 7.05%. ECF No. 16 10-4 at Ex. A. The note was immediately assigned to plaintiff upon funding. Id. ¶ 10. To secure 17 repayment of the obligations under the Note, Chancellor granted Eaglemark a security interest in 18 an aircraft. ECF No. 10-5. Ms. Kaffen declares that Chancellor failed to pay the amount due 19 under the note. ECF No. 10-3 ¶ 14. Chancellor, with plaintiff’s approval, sold the aircraft in a 20 short sale on September 27, 2011. Suppl. Kaffen Decl., ECF No. 16 ¶ 3. The total net proceeds 21 to plaintiff after broker fees and an escrow service fee was $499,230.00. Id. ¶¶5-9, Ex. A. After 22 crediting this amount to the outstanding debt of $1,630,056.40, Chancellor owes plaintiff 23 $1,130,826.40, plus interest. ECF No. 10-3 ¶ 16; see ECF No. 10-1 at 8. Plaintiff is therefore 24 entitled to damages in this amount on the breach of contract claim against Chancellor. 25 C. Costs and Attorney’s Fees 26 Plaintiff also requests attorneys’ fees and costs in the amount of $17,930.00. Local Rule 27 provide that motions for awards of attorney’s fees and costs shall be filed not later than 28 days 28 after the entry of final judgment. See E.D. Cal. L. R. 292, 293. Rule 293 further requires a party 7 1 seeking an award of attorney’s fees to submit an affidavit addressing certain criteria that the court 2 will consider in determining whether an award of attorney’s fees is appropriate. See E.D. Cal. L. 3 R. 293(b) and (c). The local rules also provide that “[w]ithin fourteen (14) days after entry of 4 judgment or under which costs may be claimed, the prevailing party may serve on all other parties 5 and file a bill of costs conforming to 28 U.S.C. § 1924.” E.D. Cal. L. R. 292. Under 28 U.S.C. 6 § 1924, a party claiming any item of cost must submit a bill of costs and attach thereto an 7 affidavit demonstrating that the “item is correct and has been necessarily incurred in the case 8 . . . .” 9 Although plaintiff has submitted two declarations in support of its request for attorney’s 10 fees, the declarations do not address all of the criteria listed in Local Rule 293.3 Plaintiff has also 11 failed to submit a bill of cost conforming to 28 U.S.C. § 1924. See E.D. Cal. L.R. 292. For each 12 of these reasons, plaintiff’s requests for attorney’s fees and costs shall be addressed by an 13 appropriate motion filed in conformance with Local Rule 292 and 293. 14 IV. Conclusion 15 For the reasons state above, it is hereby RECOMMENDED that: 16 1. Plaintiff’s application for default judgment (ECF No. 10) be granted; 17 2. Plaintiff’s claims against Walter Fletscher and Phillip Price be dismissed without 18 19 20 21 22 prejudice; 3. The court enter judgment against defendant Chancellor in the amount of $1,130,826.40, plus interest at the rate of 7.05% per annum; and 4. Plaintiff’s request for costs and attorney’s fees be denied without prejudice to a timely motion brought under Local Rule 292 and 293. 23 These findings and recommendations are submitted to the United States District Judge 24 assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(l). Within fourteen days 25 3 26 27 28 Plaintiff does not address the novelty and difficulty of the legal questions presented, or the skill required to perform the legal services properly. See E.D. Cal. L.R. 293. Furthermore, while plaintiff identifies the total number of hours worked by 7 attorneys and 3 paralegals, plaintiff does not identify the specific tasks performed by each individual. Accordingly, it is difficult to determine the reasonableness of the request for attorneys’ fees. 8 1 after being served with these findings and recommendations, any party may file written 2 objections with the court and serve a copy on all parties. Such a document should be captioned 3 “Objections to Magistrate Judge’s Findings and Recommendations.” Failure to file objections 4 within the specified time may waive the right to appeal the District Court’s order. Turner v. 5 Duncan, 158 F.3d 449, 455 (9th Cir. 1998); Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991). 6 DATED: September 10, 2015. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9
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