Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-03556/USCOURTS-cand-3_14-cv-03556-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1331 Fed. Question

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United States District Court 

Northern District of Californi

a

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

WM CAPITAL PARTNERS XXXV, LLC,

Plaintiff, 

v. 

MEN'S WAREHOUSE, INC., THE, 

Defendant. 

Case No. 14-cv-03556-EDL 

REPORT AND RECOMMENDATION 

TO DISMISS EQUITABLE INDEMNITY 

CLAIM; GRANT MOTION FOR 

DEFAULT JUDGMENT 

This action originally involved a claim by Plaintiff WM Capital Partners XXXV, LLC to 

enforce a security interest in the collateral of third-party Interactive Worldwide Corporation 

(“IWC”) pursuant to a vendor agreement signed by IWC and Defendant The Men’s Warehouse, 

Inc. (“TMW”). On December 19, 2014, TMW filed a third-party complaint against IWC for 

breach of contract and equitable indemnity. IWC did not answer or otherwise respond to the thirdparty complaint. On June 29, 2015, Plaintiff and TMW stipulated to dismiss Plaintiff’s complaint 

against TMW, leaving only TMW’s third party complaint against IWC at issue in this litigation. 

On July 17, 2015, the Clerk of Court entered default against IWC, and TMW now moves the 

Court to enter default judgment against IWC in the amount of $232,091.76. IWC has not 

appeared in this litigation or consented to the jurisdiction of this magistrate court. Therefore, the 

Court issues the following Report and Recommendation that TMW’s equitable indemnity claim be 

DISMISSED and its motion for default judgment be GRANTED. The case shall be reassigned to 

an Article III judge. 

I. Background 

 IWC is a manufacturing company that produces displays for retailers. Third Party 

Complaint (“TPC”) ¶ 5. TMW was a customer of IWC, and on or about October 7, 2012 entered 

into a Master Vendor Agreement pursuant to which Third Party Defendant was to provide 

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inventory to Third Party Plaintiff in exchange for payment. Id. ¶ 6, 11. Pursuant to the Master 

Vendor Agreement, TMW paid over $230,000.00 to IWC. Id. ¶ 7, 12. TMW alleges that IWC 

breached the contract by failing to deliver the inventory it was obligated to deliver pursuant to the 

Master Vendor Agreement, despite being paid for it. Id. ¶ 8, 13. TMW further alleges that it is 

not indebted to IWC, and IWC has failed to deliver to TMW over $230,000.00 of inventory for 

which Defendant has already made payment to IWC. Id. ¶ 9. As a proximate result of IWC’s 

breach, TMW has been damaged “in an amount to be proven at trial, but not less than 

$230,000.00, together with interest and attorneys’ fees and costs.” Id. ¶ 15. 

 The third party complaint was personally served on IWC’s owner on January 20, 2015. 

See Dkt. # 31. IWC failed to respond to the third party complaint. The Clerk of Court entered 

default against IWC on July 16, 2015. See Dkt. # 47. 

II. Legal Standard 

A court may not enter a default judgment against an unrepresented minor, an incompetent 

person, or a person in military service. See Fed. R. Civ. P. 55(b)(2). The third party defendant in 

this case, IWC, is a corporation and therefore is not an unrepresented minor, incompetent person, 

person in military service, or otherwise exempted from default judgment. 

Upon default, the factual allegations of the complaint, except those relating to the amount 

of damages, will be taken as true. Televideo Systems, Inc. v. Heidenthal, 826 F.2d 915, 917-918 

(9th Cir. 1987) (per curiam) (citing Geddes v. United Financial Group, 559 F.2d 557, 560 (9th Cir. 

1977). Rule 55(b)(2) allows, but does not require, the court to conduct a hearing on damages, as 

long as it ensures that there is an evidentiary basis for the damages awarded in the default 

judgment. Action S.A. v. Marc Rich & Co. Inc., 951 F.2d 504, 508 (2nd Cir. 1991). Under 

Federal Rule of Civil Procedure Rule 54(c), a default judgment must not “differ in kind from, or 

exceed in amount, what is demanded in the pleadings.” 

Entry of default judgment requires the consideration of several factors, including: (1) the 

possibility of prejudice to the Plaintiffs; (2) the merits of Plaintiffs’ 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) 

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the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. 

See Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). 

III. Discussion

 A. Default Judgment on the Breach of Contract Claim is Warranted 

 Here, the Eitel factors support granting TMW’s motion for default judgment. Given 

IWC’s absence, TMW has no further avenues for collecting the amount owed under the Master 

Vendor Agreement against IWC; thus, failure to grant this motion would cause it prejudice. See 

Pepsico, Inc. v. Cal. Security Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002). Considering the 

merits of TMW’s claims and the sufficiency of the third party complaint, TMW has adequately 

stated claims on which it may recover. Pepsico, 238 F. Supp. 2d at 1175 (noting that second and 

third Eitel factors require that a plaintiff state a claim on which she may recover). The third-party 

complaint outlines TMW’s breach of contract claim and request for relief, including an allegation 

that IWC failed to deliver “over $230,000 of inventory for which [TMW] has already made 

payment to IWC,” although it does not specify the precise amount of damages sought in the third 

party complaint. See TPC at ¶ 7. Because of its default, IWC is deemed to have admitted these 

factual allegations regarding liability. Fed. R. Civ. P. 8(b)(6); TeleVideo Sys., Inc. v. Heidenthal, 

826 F.2d 915, 917-18 (9th Cir.1987). TMW’s breach of contract claim is also substantively 

supported by the Declaration of Stephen Zagorski and the exhibits thereto. See Dkt. # 49-1. The 

sum of money at stake, $232,091.76, is lower or similar to other sums that courts have found 

reasonable. See Eitel, 782 F.2d at 1472 (“Eitel was seeking almost $3 million in damages”); see 

also Church Bros., LLC v. Garden of Eden Produce, LLC, 2012 WL 1155656, at *3 (N.D. Cal. 

Apr. 5, 2012) (holding that a sum of $212,259.21 was a “modest” amount). As IWC has admitted 

to all well-pleaded factual allegations by default, there is little chance of a dispute over material 

fact. Televideo Systems, 826 F.2d at 917-918. IWC was properly served and there is no evidence 

that its default was due to excusable neglect, and the policy favoring decisions on the merits 

standing alone does not preclude default judgment. Pepsico, 238 F. Supp. 2d at 1177. Finally, the 

Court cannot adjudicate the third-party complaint on the merits without IWC. Thus, the Eitel 

factors that can be assessed all support an entry of default judgment for TMW. 

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 B. Damages for Breach of Contract 

 The Declaration of Stephen Zagorski states that, in his capacity as Senior Construction 

Procurement Manager, he gathered all of the data relating to TMW’s business dealings with IWC 

in order to determine the balance owed by IWC to TMW for prepaid invoices where the product 

was never delivered to TMW. Zagorski Decl. ¶ 3. The declaration includes data he used to 

calculate the total amount owed under the contract, as well as a summary of Mr. Zagorski’s 

calculations. See id. Exs. 1-2. This evidence supports TMW’s claim for damages in the amount 

of $232,091.76 and the Court recommends that default judgment in this amount be granted. TMW 

does not seek any damages for costs, fees or interest. 

 C. The Equitable Indemnity Claim 

 TMW’s third party complaint also contains an equitable indemnity claim, alleging that all 

damages allegedly sustained by WM Capital Partners (as set forth in the original complaint that 

has since been dismissed) were caused, entirely or in part, by IWC and “[i]n the event that a 

judgment is entered against [TMW], and/or if [TMW] incurs any expenses in defending against 

the Underlying Complaint, or if [TMW] enters into any settlement of the Underlying Complaint, 

then [TMW] is entitled to indemnity from and judgment against [IWC] for all sums that it incurs 

by reasons of any judgment, defense expenses, or settlement. Id. ¶ 17-19. The third-party 

complaint contains a demand for: (1) an order requiring IWC to indemnify and hold harmless 

TMW from any and all damages assessed against it in this action, and any and all costs incurred 

by them relating to this action, and any other damages incurred by TMW as a result thereof; and 

(2) for an award of damages to be proven at trial. Id., Prayer. If this claim were to remain in the 

case, it could impact the Court’s analysis of TMW’s motion for default judgment. See Fed. R. 

Civ. P. 54(d) (court may order a default judgment on less than all of the claims “only upon an 

express determination that there is no just reason for delay and upon an express direction for the 

entry of such judgment”). However, on November 3, 2015, TMW filed a request for dismissal of 

the equitable indemnity claim and associated relief pursuant to Federal Rule of Civil Procedure 41. 

Dkt. No. 55. The Court recommends that this claim be DISMISSED. 

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For all of the foregoing reasons, the Court recommends that TMW’s motion for default 

judgment and its request for dismissal of its equitable indemnity claim be GRANTED. This case 

is hereby reassigned to a district judge. Any party may serve and file specific written objections to 

this recommendation within fourteen (14) days after being served with a copy. See 28 U.S.C. § 

636(b)(1)(C); Fed. R. Civ. P. 72(b); Civil Local Rule 72-3. Failure to file objections within the 

specified time may waive the right to appeal the District Court’s order. 

IT IS SO ORDERED. 

Dated: November 6, 2015 

________________________ 

ELIZABETH D. LAPORTE 

United States Magistrate Judge 

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