Opinion
CV F 03 6586 OWW SMS.
November 17, 2005
FINDINGS AND RECOMMENDATIONS RE: PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT (DOC. 27)
Plaintiff is proceeding with a civil action in this Court. The matter has been referred to the Magistrate Judge pursuant to 28 U.S.C. § 636(b) and Local Rules 72-302(c)(1) and 72-303.
I. Background
Plaintiff Royal Speciality Underwriting, Inc., an insurer, filed a complaint for indemnification on November 12, 2003, against Defendant Himax Furniture Industry Corporation, Ltd. On December 6, 2004, Plaintiff moved for entry of default, submitting a memorandum of points and authorities and a declaration in support thereof; on April 28, 2005, Plaintiff filed a certificate of service, translated, with attachments. On May 18, 2005, Plaintiff's motion for entry of default was granted, and on the same date the clerk entered the default of Defendant Himax Furniture Industry Corporation, Ltd.
On June 29, 2005, Plaintiff filed a notice of motion and motion for default judgment and declaration of Alex Gortinsky with exhibits in support thereof; on October 14, 2005, and again on November 4, 2005, Plaintiff filed a supplemental brief.
On November 14, 2005, Mr. Gortinsky substituted out and Mr. Nielsen substituted in as Plaintiff's counsel.
Some portion of the delay in the hearing of this motion has resulted from Plaintiff's counsel's failure to file a substitution of attorneys and order in compliance with the Local Rules, and by extensions of time sought for the submission of the supplemental brief.
On November 17, 2005, the Court vacated the hearing on Plaintiff's motion for default judgment and deemed the matter submitted on the basis of the papers submitted with respect to the motion.
Plaintiff's counsel was notified by telephone on the morning of November 17, 2005 of the order vacating the hearing.
II. Requirements for Entitlement to Default Judgment
A court has the discretion to enter a default judgment against one who is not an infant, incompetent, or member of the armed services where the claim is for an amount that is not certain on the face of the claim and where 1) the defendant has been served with the claim; 2) the defendant's default has been entered for failure to appear; 3) if the defendant has appeared in the action, the defendant has been served with written notice of the application for judgment at least three days before the hearing on the application; and 4) the court has undertaken any necessary and proper investigation or hearing in order to enter judgment or carry it into effect. Fed.R.Civ.P. 55(b); Alan Neuman Productions, Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988). Factors that may be considered by courts in exercising discretion as to the entry or setting aside of a default judgment include the nature and extent of the delay, Draper v. Coombs, 792 F.2d 915, 924-925 (9th Cir. 1986); the possibility of prejudice to the plaintiff, Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986); the merits of plaintiff's substantive claim, id.; the sufficiency of the allegations in the complaint to support judgment, Alan Neuman Productions, Inc., 862 F.2d at 1392; the amount in controversy, Eitel v. McCool, 782 F.2d at 1471-1472; the possibility of a dispute concerning material facts, id.; whether the default was due to excusable neglect, id.; and the strong policy underlying the Federal Rules of Civil Procedure that favors decisions on the merits, id. A default judgment generally bars the defaulting party from disputing the facts alleged in the complaint, but the defaulting party may argue that the facts as alleged do not state a claim. Alan Neuman Productions, Inc. v. Albright, 862 F.2d 1388, 1392. Thus, well pleaded factual allegations, except as to damages, are taken as true; however, necessary facts not contained in the pleadings, and claims which are legally insufficient, are not established by default. Cripps v. Life Ins. Co. of North America, 980 F.2d 1261, 1267 (9th Cir. 1992); TeleVideo Systems, Inc. v. Heidenthal, 826 F.2d 915, 917 (9th Cir. 1987).
A. Status of the Parties, Service, Notice, and Entry of Default
The Court takes judicial notice of its order granting Plaintiff's motion for entry of default, filed on May 18, 2005 (Doc. 25), in which the Court determined that Plaintiff had proved that the service of the complaint and summons was in conformity with the Hague Convention and was legally adequate under Fed.R.Civ.P. 4(f) and (l). The Court has not been informed of any fact that would change its conclusion regarding the adequacy of service, and thus the Court confirms the adequacy of Plaintiff's proof of service on the Defendant entity. The Court further notes that there is no indication that Defendant answered within the pertinent time period permitted by the rules, and thus the entry of Defendant's default on the same date was correct.
The Court may take judicial notice of court records. Fed.R.Evid. 201(b); United States v. Bernal-Obeso, 989 F.2d 331, 333 (9th Cir. 1993); Valerio v. Boise Cascade Corp., 80 F.R.D. 626, 635 n. 1 (N.D. Cal. 1978), aff'd, 645 F.2d 699 (9th Cir. 1981).
The Plaintiff's motion for default judgment was not served on Defendant. Although Fed.R.Civ.P. 55(b)(2) requires written notice of an application for default judgment be served at least three days prior to the hearing on the defaulting party, it requires that such notice be given only to a party, or a representative thereof, who has appeared in the action. An appearance for the purpose of Rule 55 need not be a formal one and may consist even of informal contacts made by the defaulting party where the defaulting party demonstrates a clear purpose to defend the suit. In re Roxford Foods v. Ford, 12 F.3d 875, 879-81 (9th Cir. 1993) (holding in a declaratory relief action that communications by a trustee in bankruptcy regarding an identical claim in a related bankruptcy action to be sufficient to demonstrate a clear intention to defend where time had been given to the trustee to retain counsel for representation on the merits). Here, there was no formal appearance; further, Plaintiff's counsel declares that Defendant has not appeared in this action. Thus, no notice was necessary.
Fed.R.Civ.P. 55(d) and 54(c) require that a judgment by default shall not be different in kind from or exceed in amount that prayed for in the demand for judgment. Plaintiff expressly alleged in the complaint that Plaintiff sought damages that included $125,000.00 paid by Plaintiff insurance company to the injured party, Marilyn Beeler, in settlement of her action against Plaintiff's insured, plus attorney's fees and costs incurred in connection with the underlying tort action. (Complt. at 3.)
Because Plaintiff sought only $125,000.00 paid in the action (Complt. at p. 3), the demand for $137,500.00 set forth in the declaration of Gortinsky as the amount of the settlement exceeds the demand of the complaint. Accordingly, with respect to the amount paid in settlement (as distinct from other elements of damage claimed), only $125,000.00 should be awarded. Fong v. United States, 300 F.2d 400, 412-13 (9th Cir. 1962).
Plaintiff prayed for judgment that included costs incurred and paid in defense of the claim brought by Beeler due to the faulty manufacturing of the chair, as well as costs of the present suit. (Complt. at 3.) It has been held that where a type of damages is requested in the complaint in an amount to be proved, but the amount was not specified, recovery in excess of an amount stated is permitted. Henry v. Sneiders, 490 F.2d 315, 317 n. 2 (9th Cir. 1974), cert. denied Sneiders v. Henry, 419 U.S. 1060 (1974). Thus, it appears that the prayer for costs provides sufficient notice.
In his declaration, Alex Gortinsky declares that Defendant is not an infant, incompetent, or member of the armed forces. (Decl. at 2.)
In summary, there is no defect with respect to notice, status or interest of the parties, or presence of a member of the armed forces, which would render entry of default judgment inappropriate. Further, there is no indication that there would be any material dispute as to facts, or that any other factor warrants a trial on the merits in this action. Accordingly, the entry of default judgment appears to be appropriate.
B. Sufficiency of the Complaint
1) Jurisdiction
Plaintiff alleges that Plaintiff Royal Speciality Underwriting, Inc., is a corporation incorporated in the state of Georgia and has its headquarters and principal place of business in North Carolina; Defendant Himax Furniture Industry Corporation, Ltd., is a citizen of China with its principal place of business in China; and the amount in controversy exceeds $75,000.00. (Complt at 1.) Gortinsky declares that Defendant is a foreign corporation doing business under the laws of China. (Decl. at ¶ 5.)
These allegations are sufficient to establish subject matter jurisdiction in this Court pursuant to 28 U.S.C. § 1332(a)(2), which recognizes original jurisdiction in the district courts of civil actions involving matters in controversy exceeding $75,000.00 and between citizens of a state and citizens of subjects of a foreign state. A corporation created under the laws of a foreign state is deemed to be a citizen or subject of the foreign state. JPMorgan Chase Bank v. Traffic Stream (BVI) Infrastructure Ltd., 536 U.S. 88, 91-92 (2002).
2. Indemnity
The complaint alleges that Plaintiff insured Numark Industries, which operated and maintained a furniture distribution business, under a general insurance liability policy. Defendant Himax manufactured and supplied a defective chair to the insured, which in turn distributed it to Office Max, an office supply store located in Stanislaus County, which in turn sold it to the County of Stanislaus Probation Department; Marilyn Beeler, an employee of the Probation Department, was injured by the chair when it collapsed, and she sued in the California Superior Court, County of Stanislaus, where it was determined that her injury was a direct result of Defendant Himax's defective manufacture of the chair. Beeler recovered damages from Numark, the insured, based on Numark's participation in the marketing chain, and its strict liability for the injuries sustained by Beeler, despite Numark's not being negligent or otherwise at fault; Plaintiff settled the action in good faith pursuant to an agreement with Beeler for the sum of $125,000.00, which was reasonable in light of the injuries sustained. Plaintiff also sustained expenses in connection with the Stanislaus County action, including attorney's fees and costs. (Complt. at 1-3.)
The principle of subrogation applies in all cases in which one person, not a volunteer, pays a debt for which another is primarily answerable and which, in equity and good conscience, should have been discharged by the latter. Caito v. United California Bank, 20 Cal.3d 694, 704 (1978); Fireman's Fund Ins. Co. v. Maryland Cas. Co., 65 Cal.App.4th 1279, 1292 (1998). Equitable subrogation is a right implied by law by virtue of the nature of the contract of insurance, independent of a provision in the contract itself, Offer v. Superio Court, 194 Cal. 114, 118 (1924); its purpose is to place the burden for a loss on the party ultimately liable or responsible for it and by whom it should have been discharged, and to relieve entirely the insurer who indemnified the loss and who in equity was not primarily liable therefor, Fireman's Fund Ins. Co. v. Maryland Cas. Co., 65 Cal.App.4th at 1296. An insurer who has paid an insured loss caused by a third party may pursue the insured's rights and remedies against that party. Employers Mutual Liability Insurance Coa. v. Tutor-Saliba Corp., 17 Cal.4th 632, 639 (1998). A supplier of a product who is without fault but who has become strictly liable because of its mere presence in the chain of distribution of a defective product has a right to indemnity from the manufacturer, which is strictly liable. Ford Motor Co. v. Robert J. Poeschl, 21 Cal.App.3d 694, 697-98 (1971).
The essential elements of an insurer's cause of action for equitable subrogation are as follows: 1) the insured suffered a loss for which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or because the defendant is legally responsible to the insured for the loss caused by the wrongdoer; 2) the claimed loss was one for which the insurer was not primarily liable; 3) the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable; 4) the insurer has paid the claim of its insured to protect its own interest and not as a volunteer; 5) the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer; 6) the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends; 7) justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and 8) the insurer's damages are in a liquidated sum, generally the amount paid to the insured. Fireman's Fund Ins. Co. v. Maryland Cas. Co., 65 Cal.App.4th at 1292.
Here, Plaintiff alleged the primary liability of Defendant for the loss suffered by the party who successfully sued the insured and the Plaintiff's payment of the insured's liability to the injured party. It has further been alleged that the insured was without fault, and that the liability towards the injured party was based on the manufacturer's strict liability. The facts pleaded sufficiently stated a claim for equitable subrogation.
Attachments to the declaration of Gortinsky demonstrate that the chair was defective due to a poor weld, a manufacturing defect. (Ex. B.)
C. Damages
Exhibit C to the declaration of Gortinsky reveals that the insured settled the lawsuit against it by agreeing to pay to the injured party, Marilyn Beeler, $137,500.00, but $12,000.00 was paid to the County of Stanislaus, which had intervened in the action. Thus, the insured was obligated to pay $125,000.00 to the injured party, the amount demanded in the complaint.
Plaintiff also claims $12,350.20 in costs in the underlying products liability action as well as costs of $1,183.25 in the present action. Costs were prayed for in the complaint.
As to the costs and fees paid in the underlying action in which the insured was sued by the injured party, Plaintiff argues that a person who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover compensation for the reasonably necessary loss of time, attorney's fees, and other expenditures thereby suffered or incurred. Prentice v. North American Title Guaranty Corp., Alameda Division, 59 Cal. 2d 618, 620 (1963) (holding that where a vendor of land was required by the negligence of a third party to bring a quiet title suit to protect its interests, the vendor was entitled to recover from the third party the expenditures and attorney's fees paid in the quiet title suit). Gortinsky's declaration states that the costs and expenditures of the state court action, consisting of court fees and costs; expenditures for discovery, subpoenas, medication, experts, translation; and miscellaneous expenses of photocopying, mailing, and telephone were incurred, and he has submitted copies of the invoices supporting the costs requests. (At 5, and Ex. E.)
The Court finds that costs in the products liability action of $12,350.20 should be awarded.
As to costs in this action, costs recoverable under Fed.R.Civ.P. 54(d) include those enumerated in 28 U.S.C. § 1920 and other applicable statutes. Local Rule 54-292(a). Federal courts are limited to assessing only those costs enumerated under 28 U.S.C. § 1920, but courts are free to interpret the meaning of costs within section 1920. Haagen-Daz v. Double Rainbow Gourmet Ice Creams, 920 F.2d 587, 588 (9th Cir. 1990) (citing Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 441-42 (1987)).
Plaintiff's costs of filing fees and fees for service of process, which include the translation fees of the service documents required for proof of service in this Court, are allowable pursuant to 28 U.S.C. §§ 1920(a), 1921; Local Rule 54-292(f) (fees of the clerk and marshal). Private process servers' fees are recoverable. Afflex Corp. v. Underwriters Laboratories, Inc., 914 F.2d 175, 178 (9th Cir. 1990).
However, with respect to claimed costs of photocopying, Title 28 U.S.C. § 1920(4) and Local Rule 54-292(f) provide that items taxable as costs include fees for exemplification and copies of papers "necessarily obtained for use in the case." It is not required that the document be introduced at a hearing or trial or otherwise into the record. Haagen-Daz v. Double Rainbow Gourmet Ice Creams, 920 F.2d 587, 588 (9th Cir. 1990). Recovery is allowed for costs for copies reasonably and necessarily procured in connection with discovery and use in presenting arguments and evidence to the Court, but not for in-house copying made for the convenience of counsel. Frederick v. City of Portland, 162 F.R.D. 139, 144 (D. OR 1995). The costs of printing pleadings and other papers required to be served on opposing parties and the Court are recoverable under § 1920(3) ("fees and disbursements for printing and witnesses"). McMillan v. United States, 891 F.Supp. 408, 415 (WD MI 1995).
Plaintiff does not indicate the purpose or nature of the copying costs of $2.13 claimed. Thus, that portion of the costs claimed has not been shown to have been necessarily incurred and should be excluded.
Accordingly, the Court finds that Plaintiff should be awarded $1181.12 in costs in this action.
III. Recommendation
Accordingly, it IS RECOMMENDED that:
1. Plaintiff's motion for entry of a default judgment BE GRANTED in part; and
2. The Clerk BE DIRECTED to enter judgment in favor of Plaintiff Royal Specialty Underwriting, Inc., and against Defendant Himax Furniture Industry Corporation, Ltd., for damages, consisting of $125,000.00 spent in settlement of the state court action and $12,350.20 in expenses in the state action; and for costs in this action in the amount of $1181.12.
This report and recommendation is submitted to the United States District Court Judge assigned to the case, pursuant to the provisions of 28 U.S.C. § 636 (b)(1)(B) and Rule 72-304 of the Local Rules of Practice for the United States District Court, Eastern District of California. Within thirty (30) days after being served with a copy, any party may file written objections with the Court and serve a copy on all parties. Such a document should be captioned "Objections to Magistrate Judge's Findings and Recommendations." Replies to the objections shall be served and filed within ten (10) court days (plus three days if served by mail) after service of the objections. The Court will then review the Magistrate Judge's ruling pursuant to 28 U.S.C. § 636 (b)(1)(C). The parties are advised that failure to file objections within the specified time may waive the right to appeal the District Court's order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991).
IT IS SO ORDERED.