Case No. CV 14-1196 SS
MEMORANDUM DECISION AND ORDER GRANTING PLAINTIFFS' REQUEST FOR ENTRY OF DEFAULT AGAINST DEFENDANTS AMERICAN INTERNATIONAL INDUSTRIES, INC. AND NORTHEASTERN PLASTICS, INC. (Dkt. No. 125)
Plaintiffs Aaron & Andrew, Inc. and Aaron Design, Inc. filed the instant patent infringement action against Defendants Sears Holdings Management Corp. ("Sears"), Kmart Corporation ("Kmart"), American International Industries, Inc. ("AII"), and Northeastern Plastics, Inc. ("NPI") on February 14, 2014. AII was personally served with the Complaint through its registered agent for service of process on March 3, 2014. (Dkt. No. 30). NPI was personally served through its registered agent for service of process on March 4, 2014. (Dkt. No. 23). On March 26, 2014, all four Defendants jointly appeared. (Dkt. No. 27). Although represented by the same counsel, Miclean Gleason LLP ("Miclean"), Defendants separately filed Answers to the Complaint on May 23, 2014. (See Dkt. Nos. 44 (AII), 45 (Kmart), 46 (NPI), & 47 (Sears)).
On April 23, 2014, Defendants jointly filed a Statement of Consent to Proceed before United States Magistrate Judge. (Dkt. No. 35). Because Plaintiffs had already consented to magistrate jurisdiction, (Dkt. No. 20), the instant matter was assigned to the undersigned Magistrate Judge on the same date for all purposes pursuant to 28 U.S.C. § 636(C) and Fed. R. Civ. P. 73(b). (See Dkt. No. 37).
On December 12, 2014, Miclean filed a motion to withdraw as Defendants' counsel of record. (Dkt. No. 96). Sears and Kmart filed requests for substitution of attorney, (Dkt. Nos. 97-102, 104), which the Court granted on December 23-24, 2014. (Dkt. Nos. 105-110). On January 13, 2015, the Court held a hearing on Miclean's motion to withdraw, which by that date concerned only Miclean's representation of AII and NPI. Miclean informed the Court that NPI had not indicated whether it would seek new representation despite having been advised that corporations may not appear pro se in federal court. Counsel further stated that all efforts to reach AII directly were unsuccessful.
The Court granted Miclean's motion to withdraw on January 15, 2015. (Dkt. No. 116). The Order authorizing the withdrawal of counsel reminded the parties that corporations "may not appear in any action or proceeding pro se." (Id. at 3) (citing, inter alia, Rowland v. California Men's Colony, 506 U.S. 194, 202 (1993), and C.D. Cal. L.R. 83-2.10.1). The Court granted AII and NPI thirty days, i.e., until February 17, 2015, "to reconsider any decision to forego representation in this matter and to engage substitute counsel." (Dkt. No. 116 at 4). Neither AII nor NPI moved to substitute counsel by the Court's deadline. Accordingly, on April 20, 2015, Plaintiffs filed the instant "Request for Entry of Default" against AII and NPI. ("Request," Dkt. No. 125). The Request is supported by the declaration of Plaintiffs' counsel Drexel A. Bradshaw. ("Bradshaw Decl.," Dkt. No. 125-1).
On April 30, 2015, the Court issued a Briefing Schedule and Order requiring Plaintiffs to serve copies of their Request, along with copies of the Court's April 30, 2015 Briefing Schedule and Order, on AII and NPI "through their respective registered agents for service of process within three days of the date of [the Court's] Order." (Dkt. No. 127 at 4). On May 4, 2015, Plaintiffs filed a "Notice of Service of Order Pursuant to Minute Order Dated April 30, 2015", which included a proof of service reflecting that Plaintiffs had served the required documents on AII's and NPI's registered agents for service of process on May 1, 2015. (Dkt. No. 128). AII and NPI were required to file their respective Oppositions to the Request for Entry of Default, if any, within ten days after service of the Order on their registered agents, i.e., by May 11, 2015. (Dkt. No. 116 at 4). As of the date of this Order, no Opposition has been filed. Accordingly, for the reasons stated below, the Court GRANTS Plaintiff's Request for Entry of Default against AII and NPI.
The following day, on May 5, 2015, Plaintiffs filed an amended notice clarifying that the Notice itself, as opposed to the underlying documents, was served on all parties, including AII and NPI, on May 5, 2015. (Dkt. No. 129).
STANDARDS FOR ENTRY OF DEFAULT
Plaintiffs seek entry of default pursuant to Federal Rule of Civil Procedure 55(a), which provides: "When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default." "Entry of default effects an admission of all well-pleaded allegations in the complaint by the defaulted party." Johnson v. Patel, 2014 WL 3421002, at *1 (E.D. Cal. July 14, 2014) (citing Geddes v. United Financial Group, 559 F.2d 557 (9th Cir. 1977)). Entry of default, which "precludes a party from contesting liability," is a prerequisite to, but independent of, entry of default judgment, "which decides all aspects of the litigation." Lowe v. Elite Recovery Solutions, L.P., 2008 WL 324777, at *1 n.1 (E.D. Cal. Feb. 5, 2008); Vongrabe v. Sprint PCS, 312 F. Supp. 2d 1313, 1318 (S.D. Cal. 2004) ("[E]ntry of default . . . is a prerequisite to an entry of default judgment."). "A defendant's default does not automatically entitle the plaintiff to a court-ordered judgment" and may be challenged under the provisions of Rule 55(c). PepsiCo, Inc. v. California Security Cans, 238 F. Supp. 2d 1172, 1174 (C.D. Cal. 2002); see also O'Connor v. Nevada, 27 F.3d 357, 364 (9th Cir. 1994) ("The court's discretion is especially broad where, as here, it is entry of default that is being set aside, rather than a default judgment.") (quoting Mendoza v. Wight Vineyard Management, 783 F.2d 941, 945 (9th Cir. 1986) (internal quotation marks omitted)).
"[T]he entry of default [under Rule 55(a)] (as opposed to the issuance of a default judgment) normally is a ministerial task for the Clerk of the Court[.]" Abur v. Republic of Sudan, 437 F. Supp. 2d 166, 169 (D. D.C. 2006) (brackets added; emphasis and parentheses in original); Alarcon v. Shim Inc., 2007 WL 2701930, at *3 (N.D. Cal. Sept. 13, 2007) (entry of default is "a ministerial, not judicial, act"). However, even though entering default is a task normally delegated to the court clerk, the court retains authority to rule on a request for entry of default. As one court explained:
Despite the Rule's explicit statement that the ministerial act of entering a party's default on the record of the case 'must' be accomplished by 'the clerk,' courts and commentators alike have held that a court also may enter a party's default. For example, Professors Wright, Miller, and Kane's definitive treatise contains this statement, distilled from an examination of numerous cases: "The fact that Rule 55(a) gives the clerk authority to enter a default is not a limitation on the power of the court to do so." 10A Charles Alan Wright et al., Federal Practice and
Procedure § 2682, at 19 (3d ed.1998) (emphasis supplied, footnote omitted).
Liberty Mut. Ins. Co. v. Fleet Force, Inc., 2013 WL 3357167, at *1 (N.D. Ala. July 1, 2013) (citing cases). "A district judge's decision about whether he or she should perform the ministerial function of entering default that is assigned to the clerk by the text of Rule 55(a) is vested within the judge's sound discretion." Id. at 2.
The court's authority to enter default is properly exercised where entry of default is sought after a party has appeared. Unlike situations where the defendant entirely fails to appear or defend, "[e]ntry of default after a party has appeared in an action operates as a sanction" and requires the Court to weigh the following five factors:
(1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its docket; (3) the risk of prejudice to the other party; (4) the public policy favoring the disposition of cases on their merits; and (5) the availability of less drastic sanctions.
LegalZoom.com , Inc. v. Macey Bankruptcy Law, P.C., 2014 WL 961832, at *2 (C.D. Cal. Mar. 12, 2014) (quoting Adriana Int'l Corp. v. Thoeren, 913 F.2d 1406, 1412 (9th Cir. 1990)). Notably, the Ninth Circuit has explicitly found that a corporate defendant's failure to secure or retain counsel following an appearance is a sufficient ground for entry of default. See Employee Painters' Trust v. Ethan Enterprises, Inc., 480 F.3d 993, 998 (9th Cir. 2007) ("[W]e have recognized default as a permissible sanction for failure to comply with local rules requiring representation by counsel."); see also United States v. High Country Broadcasting, Co., Inc., 3 F.3d 1244, 1245 (9th Cir. 1993) (entry of default judgment "perfectly appropriate" where corporate defendant fails to retain counsel for the duration of the litigation); LegalZoom.com, 2014 WL 961832, at *3 ("[S]triking [defendants'] answers and entering default is an appropriate sanction for [corporate defendants'] failure to retain new counsel.").
The standards for entry of default judgment are more stringent than those for entry of default. Following entry of default, district courts are authorized to grant default judgment so long as the judgment does not "differ in kind from, or exceed in amount, what is demanded in the pleadings." Fed. R. Civ. P. 54(c). "Factors which may be considered by courts in exercising discretion as to the entry of a default judgment include: (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 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." Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). In considering the Eitel factors, "all factual allegations in the complaint are taken as true, except for those relating to damages." Solis v. Patel, 2012 WL 5389822, at *1 (N.D. Cal. Nov. 2, 2012). However, in keeping with the federal policy favoring resolution of disputes on the merits, "default judgments are ordinarily disfavored." Eitel, 782 F.2d at 1472.
The Court finds that the five factors a court must consider when default is requested following a defendant's appearance favor entry of default here. See Adriana Int'l Corp., 913 F.2d at 1412.
A. Expeditious Resolution And The Court's Need To Manage Its Docket
In the instant action, the first two factors -- the public's interest in expeditious resolution of litigation and the Court's need to manage its docket -- favor entry of default. The failure of AII and NPI to secure counsel hinders the Court's ability to move this case toward disposition and indicates that AII and NPI do not intend to litigate this action diligently. As a result, the first two factors favor entry of default.
B. The Risk Of Prejudice To The Party Seeking Entry Of Default
The third factor -- prejudice to the other party -- also favors entry of default. "Unreasonable delay is the foundation upon which a court may presume prejudice." Southwest Marine Inc. v. Danzig, 217 F.3d 1128, 1138 (9th Cir. 2000). Here, neither AII nor NPI has offered any excuse for their failure to obtain substitute counsel. Accordingly, this factor favors entry of default.
C. Less Drastic Alternatives
The fourth factor -- the availability of less drastic alternatives -- also favors entry of default. The Court afforded ample notice and opportunity to AII and NPI to obtain substitute counsel, first by granting thirty days to obtain substitute counsel when the Court approved Miclean's motion to withdraw, then by granting an additional ten days to obtain counsel to oppose Plaintiffs' Request for Entry of Default. However, AII and NPI failed on both occasions to comply with the Court's Order. Alternatives other than entry of default are not appropriate given the extended period the Court has provided to AII and NPI to obtain substitute counsel and AII's and NPI's failure to do so.
D. Public Policy Favoring Disposition On The Merits
The final factor -- the public policy favoring the disposition of cases on their merits -- ordinarily weighs against entry of default. However, this litigation is at an impasse with respect to Plaintiffs' claims against AII and NPI due to AII's and NPI's prolonged refusal to obtain counsel. Under these circumstances, the public policy favoring the resolution of disputes on the merits does not outweigh AII's and NPI's unexplained failure to secure substitute counsel and does not preclude entry of default. See Solis, 2012 WL 5389822, at *2 (default judgment warranted where defendants' failure to appear despite knowledge of the pending litigation renders it "unlikely that a decision on the merits is reasonably possible").
For the foregoing reasons, Plaintiffs' Request for Entry of Default against Defendants AII and NPI is GRANTED. The Answers to the Complaint filed by AII (Dkt. No. 44) and NPI (Dkt. No. 46) are hereby STRICKEN. The Clerk of the Court is DIRECTED to enter default against AII and NPI pursuant to Federal Rule of Civil Procedure 55(a). Counsel for Plaintiffs is ORDERED to serve copies of this Order by United States mail on AII's and NPI's registered agents for service of process and to file the proof of service with the Court within seven days of the date of this Order.
IT IS SO ORDERED. DATED: June 5, 2015
SUZANNE H. SEGAL
UNITED STATES MAGISTRATE JUDGE