Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-02620/USCOURTS-caed-2_05-cv-02620-5/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

SECURITY INSURANCE COMPANY NO. CIV.S-05-2620 DFL DAD

OF HARTFORD, et al.,

 Plaintiffs, 

 

 v. FINDINGS AND RECOMMENDATIONS

CIBUS INSURANCE SERVICES,

INC., et al.,

 Defendants.

_________________________/

This matter came before the court on December 1, 2006, for

hearing on plaintiff Security Insurance Company of Hartford’s motion

for default judgment against defendant Cibus Insurance Services, Inc.

(“Cibus”). Robert Fleischman appeared on behalf of plaintiff. There

was no appearance on behalf of defendant Cibus. Having considered

all written materials submitted with respect to the motion, and after

hearing oral argument, for the reasons set forth below the court will

recommend that plaintiff’s motion be granted.

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PROCEDURAL BACKGROUND

Plaintiff Security Insurance Company of Hartford initiated

this action by filing its complaint on December 27, 2005. The named

defendants in the complaint are Cibus as well as the individuals

George P. Hagosian and Jason A. Gamache. Despite being served with

process, Cibus did not answer or defend plaintiff’s complaint.

Therefore, pursuant to plaintiff’s request, on February 24, 2006, the

Clerk of the Court entered default against Cibus. On October 20,

2006, plaintiff filed the instant motion along with various

declarations addressing damages. Despite being served with all

papers filed in connection with the motion for default judgment,

defendant Cibus has not responded to it. Following the hearing on

the motion and as directed by the court, counsel for plaintiff filed

a supplemental declaration addressing attorney fees. 

LEGAL STANDARDS

Federal Rule of Civil Procedure 55(b)(2) governs

applications to the court for entry of default judgment. Upon entry

of default, the complaint’s factual allegations regarding liability

are taken as true, while allegations regarding the amount of damages

must be proven. Dundee Cement Co. v. Howard Pipe & Concrete

Products, 722 F.2d 1319, 1323 (7th Cir. 1983)(citing Geddes v. United

Fin. Group, 559 F.2d 557 (9th Cir. 1977)); see also TeleVideo Sys.,

Inc. v. Heidenthal, 826 F.2d 915, 917 (9th Cir. 1987). It is

improper for the court to consider liability issues without first

providing notice to plaintiff that the merits will be addressed. 

Black v. Lane, 22 F.3d 1395, 1398 (7th Cir. 1994). Where damages are

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liquidated (i.e., capable of ascertainment from definite figures

contained in the documentary evidence or in detailed affidavits),

judgment by default may be entered without a damages hearing. See

Dundee, 722 F.2d at 1323. Unliquidated and punitive damages,

however, require “proving up” at an evidentiary hearing or through

other means. Dundee, 722 F.2d at 1323-24; see also James v. Frame, 

6 F.3d 307, 310 (5th Cir. 1993).

Granting or denying default judgment is within the court’s

sound discretion, see Draper v. Coombs, 792 F.2d 915, 924-25 (9th

Cir. 1986) (citations omitted), and the court is free to consider a

variety of factors in exercising that discretion, see Eitel v.

McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). The court may

consider such factors as:

(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, 782 F.2d at 1471-72 (citing 6 Moore’s Federal Practice, ¶ 55-

05[2], at 55-24 to 55-26). 

ANALYSIS

Plaintiff initiated this action to recover funds due under

a guaranty and indemnity agreement issued by defendant Cibus to

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 Three plaintiffs are identified in the complaint: Security Insurance 1

Company of Hartford, The Fire & Casualty Insurance Company of Connecticut

and The Connecticut Indemnity. The three original plaintiffs have now been

merged into a single entity with Security Insurance Company of Hartford as

the surviving entity. Therefore, the findings and recommendations

refer to a single plaintiff.

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plaintiff. Plaintiff’s complaint also seeks to recover damages for 1

breach of agreements between Cibus, as program administrator for an

insurance program for food service and distribution risks, and

plaintiff, as underwriting company for that insurance program. The

complaint also seeks damages due to the tortious acts and omissions

of Cibus and its officers, individual defendants Hagosian and

Gamache. In particular, the complaint alleges causes of action for

(1) breach of contract (against Cibus); (2) recovery under the

guaranty (against Cibus and Hagosian); (3) breach of fiduciary duty

(against all defendants); (4) tortious interference with contractual

relationship (against all defendants); (5) negligent

misrepresentation (against all defendants); and (6) conversion

(against all defendants).

Weighing the factors outlined in Eitel v. McCool, 782 F.2d

at 1471-72, the undersigned has determined that default judgment

against defendant Cibus is appropriate. Defendant has made no

showing that its failure to defend was due to excusable neglect. The

complaint is sufficient, and while the amount of money at stake is

substantial, that amount is merely a result of the nature of the

business transaction in which the parties engaged. There also is no

apparent possibility of a dispute concerning the material facts

underlying the action and there is no reason to doubt the merits of

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 The court agrees with plaintiff’s suggestion that only the 1

expenses and costs directly related to activities undertaken with

respect to Cibus, as opposed to Cibus and all of the other

defendants, are recoverable. (See Supp. Decl. of Robert L.

Fleischman filed December 7, 2006, at paras. 9-12.) In this

relatively straightforward default judgment matter against Cibus

only, it would be unreasonable at this stage to award the fees and

costs pertaining to activities related to the individual defendants

as well. 

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plaintiff’s substantive claims. The relevant factors weigh in

plaintiff’s favor. Accordingly, while recognizing the public policy

favoring decisions on the merits, the court will recommend that

default judgment be granted. 

Upon determining that entry of default judgment is

warranted, the court must next determine the terms of the judgment. 

Through the instant motion, plaintiff seeks default judgment against

Cibus only on the claims for relief against Cibus based on recovery

under the guaranty and for breach of contract (i.e., the first and

second causes of action). According to the declarations on file,

Cibus owes plaintiff $1,650,086.10 under the guaranty. Cibus also

owes plaintiff $99,005.17 in prejudgment interest on the principal

amount due under the guaranty. Finally, plaintiff has demonstrated

that, pursuant to the terms of the guaranty, Cibus owes plaintiff

$68,145.48 to repay plaintiff for all reasonable out-of-pocket costs

and expenses incurred by plaintiff in connection with the enforcement

of the guaranty. These figures are supported by the allegations of 1

the complaint and consistent with the prayer for relief. Therefore,

the undersigned will recommend that the assigned district judge grant

plaintiff’s motion for default judgment.

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Finally, plaintiff requests certification under Federal

Rule of Civil Procedure 54(b). Rule 54(b) requires as follows:

When more than one claim for relief is presented

in an action ... the court may direct the entry

of a final judgment as to one or more but fewer

than all of the claims or parties only upon an

express determination that there is no just

reason for delay and upon an express direction

for the entry of judgment.

Fed. R. Civ. P. 54(b); see Baker v. Limber, 647 F.2d 912, 916 (9th

Cir. 1981)(applying Rule 54(b) to default judgment). With respect to

judgments under Rule 54(b), the Ninth Circuit has stated as follows:

Judgments under Rule 54(b) must be reserved for

the unusual case in which the costs and risks of

multiplying the number of proceedings and of

overcrowding the appellate docket are outbalanced

by pressing needs of the litigants for an early

and separate judgment as to some claims or

parties. The trial court should not direct entry

of judgment under Rule 54(b) unless it has made

specific findings setting forth the reasons for

its order. Those findings should include a

determination whether, upon any review of the

judgment entered under the rule, the appellate

court will be required to address legal or

factual issues that are similar to those

contained in the claims still pending before the

trial court. A similarity of legal or factual

issues will weigh heavily against entry of

judgment under the rule, and in such cases a Rule

54(b) order will be proper only where necessary

to avoid a harsh and unjust result, documented by

further and specific findings.

Morrison-Knudsen Co., Inc. v. Archer, 655 F.2d 962, 965 (9th Cir.

1981).

Here, the court finds that it is unlikely that Cibus will

appeal any entry of default judgment since it did not even file

opposition to the pending motion. If Cibus were to proceed to

appeal, the court recognizes that plaintiff’s claims against

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defendants arise from the same factual events and that such a factual

similarity weighs against Rule 54(b) certification. Nonetheless, the

papers filed in support of plaintiff’s motion indicate that Cibus is

likely a fleeting entity. As explained in the motion and on the

record during the hearing, a currently pending action in state court

seeks, among other things, the dissolution of Cibus. Therefore, any

further delay would prejudice plaintiff’s attempt to begin enforcing

a judgment against Cibus, which would amount to a “harsh and unjust

result.” Morrison-Knudsen Co., Inc., 655 F.2d at 965.

Further, plaintiff’s first cause of action for breach of

contract is brought against Cibus only. The second cause of action

for recovery under the guaranty is brought against Cibus and

Hagosian, but the liability of Cibus, a corporation, is based on a

legal theory different from the one under which the Hagosian, an

individual, is being sued. These circumstances also favor the

entering of judgment now as requested. See Angelo Iafrate Const.,

LLC v. Potashnick Const., Inc., 370 F.3d 715, 722 (8th Cir.

2004)(“Parties are not similarly situated and a default judgment does

not establish inconsistent judgments, however, if the liability of

the defaulting party is based on independent wrongful acts or a legal

theory distinct from the one under which the answering party

prevailed.”). Therefore, the undersigned will further recommend that

the district judge expressly determine that there is no just reason

for delay and direct the entry of judgment against defendant Cibus.

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CONCLUSION

Accordingly, for the reasons stated above, the court HEREBY

RECOMMENDS that:

1. Plaintiff’s motion for default judgment be granted;

2. The district court expressly determine pursuant to Rule

54(b) that there is no just reason for delay and direct the entry of

default judgment against defendant Cibus; and

3. Default judgment be entered in favor of plaintiff

against defendant Cibus in the amount of $1,817,236.75 on plaintiff’s

claims for breach of contract and recovery under the guaranty.

These findings and recommendations are submitted to the

United States District Judge assigned to the case pursuant to the

provisions of 28 U.S.C. § 636(b)(l). Within ten (10) 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. Such a document should be captioned “Objections to Findings

and Recommendations.” 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).

DATED: December 19, 2006.

DAD:th

Ddad1\orders.civil\securityinsurance.f&r.default

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