Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_18-cv-07314/USCOURTS-cand-3_18-cv-07314-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:2201 Declaratory Judgement (Insurance)

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

ATAIN SPECIALTY INSURANCE

COMPANY, a Michigan Corporation,

Plaintiff,

 v.

GREEN EARTH MANAGEMENT, LLC,

Defendant. /

No. C 18-07314 WHA

ORDER GRANTING MOTION

FOR DEFAULT JUDGMENT

INTRODUCTION

In this insurance action, plaintiff moves for default judgment. For the reasons stated

herein, the motion is GRANTED.

STATEMENT

Defendant Green Earth Management, LLC is a wood-chipping and green-waste recycling

business in San Jose. In November 2017, a fire of unknown cause broke out on its property. 

At the time, it had an insurance policy from plaintiff Atain Specialty Insurance Company. 

The policy provided coverage for Green Earth’s building or personal property, business income

or extra expenses, and specific equipment. Under each part, the policy stated that coverage

would be void in any case of fraud, misrepresentation, or intentionally concealed material facts. 

On the same day as the fire, Green Earth notified Atain of property loss and allegedly demanded

payment for damage resulting from “suspected arson.” Green Earth supported its claim with an

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United States District Court

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expense report alleging loss to real and personal property along with lost income and extra

expenses (Dkt. No. 22 at 4–11). 

Atain retained forensic accountants to review Green Earth’s report of income loss. 

Atain also used an independent adjuster and fire consultant to assist in investigating the rest

of the reported damage. The adjuster and consultant interviewed Green Earth personnel and

inspected the premises from November 2017 through January 2018. During the investigation,

Atain “determined that Green Earth’s claim was rife with intentional material misrepresentations

regarding losses under both Coverage Parts” (Dkt. No. 32 at 8, 13–15). 

After adjusting the claim amounts, Atain made three payments to Green Earth which

collectively amounted to $83,326.05. With each payment, Atain reserved the right to adjust or

seek reimbursement for amounts not covered by the policy. Because Green Earth subsequently

disagreed with the amount paid under the policy, Atain demanded an appraisal. Both parties,

however, agreed to suspend the appraisal because Green Earth amended its claim in August

2018. Although Green Earth adjusted some amounts, Atain alleges that the amended claim

still contradicted the damages calculated in its investigation (Dkt. No. 22 at 11–14).

In December 2018, Atain filed a complaint for declaratory judgment and reimbursement

and served Green Earth two weeks later. Originally assigned to Magistrate Judge Nathanael

Cousins, this action was reassigned to the undersigned because Atain did not consent to the

jurisdiction of a magistrate judge. In February 2019, the clerk entered default against Green

Earth. Green Earth failed to respond to Atain’s complaint and failed to appear at the case

management conferences in March and April 2019 (Dkt. Nos. 1, 8, 11, 14). 

On April 5, 2019, Atain filed an amended complaint and served Green Earth by process

server three days later, rendering an answer due by April 29, 2019 (Dkt. No. 23). On April 25,

2019, an order required Atain to notify Green Earth’s prior counsel in “attempt to promptly alert

defendant of the possibility of a default judgment” (Dkt. No. 25). Five days later, Atain moved

for entry of default against Green Earth on the ground that Green Earth failed to appear or

otherwise respond to the amended complaint (Dkt. No. 27). The clerk entered default judgment

against Green Earth on May 1, 2019. On October 23, 2019, Atain moved for default judgment. 

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Green Earth “has been effectively unreachable throughout this litigation” (Dkt. No. 25). 

This order follows oral argument.

ANALYSIS

1. DEFAULT JUDGMENT.

After entry of default, a court may exercise its discretion to grant default judgment on

the merits of the case. See Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980); see also

FRCP 55. The factual allegations of the complaint, except those concerning damages, are

deemed to have been admitted by the non-responding party and are taken as true. Geddes v.

United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977). The following factors may be considered

in determining whether or not to enter default judgment: (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).

The majority of the Eitel factors support default judgment. First, if this motion were to

be denied, then Atain would likely be left without a remedy given Green Earth’s failure to

appear or otherwise defend this action. See Pepsico, Inc. v. Cal. Sec. Cans, 238 F. Supp. 2d

1172, 1176–77 (C.D. Cal. 2002) (Judge Nora Margaret Manella). Second, Atain properly served

Green Earth with both complaints and there is no evidence in the record that Green Earth’s

failure to appear and otherwise defend this action was the result of excusable neglect. Third, the

sum of money being sought by Atain is reasonable in that it is “directly proportional to the harm

that [Atain] suffered in paying out insurance policy benefits” for Green Earth’s

misrepresentation and fraudulent claims (Dkt. No. 32 at 12). Fourth, because Green Earth has

not answered the complaint or otherwise appeared in this action, the possibility of a dispute

concerning material facts is unknown. Finally, a decision on the merits is impossible due to

Green Earth’s failure to respond. 

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Having determined that on balance the Eitel factors discussed above support Atain’s

motion, this order turns to the merits of Attain’s substantive claims and the sufficiency of the

evidence (the second and third Eitel factors). These factors require Atain to state a claim on

which it may recover. Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978). 

The amended complaint states three claims for relief. First, Atain seeks declaratory

judgment that it has no duty to indemnify Green Earth for any additional amount under the

policy with respect to the amended claim and that it has either overpaid for the claim or owes

nothing pursuant to the terms and conditions of its policy. Second, Attain seeks declaratory

judgment that Green Earth engaged in fraud, intentional concealment, or misrepresentation of

material fact with respect to the claim and amended claim. Finally, Attain asks for monetary

judgment against Green Earth for reimbursement and restitution of benefits unjustly paid under

the policy in the amount of $83,326.05 (Dkt. No. 22 at 24–27).

Atain supports its claim that Green Earth misrepresented material facts with

well-documented evidence gathered from the investigation conducted by independent

adjusters juxtaposed with Green Earth’s inconsistent claims. If this allegation of fraud and

misrepresentation is true, then Atain would not be obligated to indemnify Green Earth because

the policy would subsequently be rendered void. Atain brings sufficient evidence to support

these claims and Green Earth has never responded. Atain’s first two claims, therefore, state a

claim on which it may plausibly recover on its merits. In sum, after careful consideration of

all of the Eitel factors, Atain is entitled to default judgment on its first two claims against

Green Earth. 

2. DAMAGES.

Once default is entered, the well-pled factual allegations in the complaint are taken as

true, except for those relating to the amount of damages. Heidenthal, 826 F.2d at 917–18. 

“[N]ecessary facts not contained in the pleadings, and claims which are legally insufficient,

are not established by default.” Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir.

1992); see also DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847, 854 (9th Cir. 2007). A court has

“wide latitude” and discretion in determining the amount of damages to award upon default

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judgment. James v. Frame, 6 F.3d 307, 310 (9th Cir. 1993). Atain must provide evidence of

its damages, and the damages “must not differ in kind, form, or exceed in amount, what is

demanded in the pleadings.” Rule 54(c).

Our court of appeals holds that an insurer is entitled to recover the “full payment made

under the policy” if the policy “provides that it is void if the insured misrepresents any material

fact” and it is determined that the insured violated the provision. Perovich v. Glens Falls Ins.

Co., 401 F.2d 145, 147 (9th Cir. 1968). Atain’s motion for default judgment seeks $83,326.05

for “restitution of benefits paid under the Policy to which Green Earth was not entitled” (Dkt.

No. 32 at 10). This amount is the full payment Atain gave to Green Earth in connection with

Green Earth’s original claim. Because Atain seeks reimbursement in “the amount that it paid

to Green Earth under the Policy in response to this claim before it discovered the fraud”, Atain is

entitled to the full amount claimed (id. at 12).

CONCLUSION

For the reasons stated above, the motion for default judgment is GRANTED.

Judgment shall be entered separately. 

IT IS SO ORDERED.

Dated: December 9, 2019. 

WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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