Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_07-cv-01820/USCOURTS-caed-1_07-cv-01820-4/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1964 Racketeering (RICO) Act

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28 Defendant SMS Holding Company, LLC was dismissed on January 23, 2008. Defendant Bernard L. 1

Mock, Jr., was dismissed on June 10, 2008, after reaching a settlement. 

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

DEAN LANE AND DEBORAH LANE, ) 

et al., , )

)

)

)

Plaintiffs, )

)

v. )

)

SMILING EARTH ENERGY, LLC, et al., )

)

)

)

Defendants. )

 )

1:07cv01820 DLB

ORDER GRANTING PLAINTIFFS’ 

MOTION FOR DEFAULT JUDGMENT

(Document 30)

Plaintiffs Dean Lane and Deborah Lane, as Trustees of the Dean and Deborah Lane

Living Trust, Jenni Braunberger and Rick Foy (“Plaintiffs”) filed the instant motion for default

judgment on June 3, 2008. The matter was heard on July 25, 2008, before the Honorable Dennis

L. Beck, United States Magistrate Judge. James Ciampa appeared on behalf of Plaintiffs. 

Defendants did not appear. 

Pursuant to 28 U.S.C. § 636(c), the parties have consented to the jurisdiction of the

United States Magistrate Judge for all purposes. 

BACKGROUND

Plaintiffs filed this breach of contract action on December 13, 2007. The remaining

Defendants are Smiling Earth Energy, LLC (“SEE”) and Clifford M. Cowles. Plaintiffs assert 1

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causes of action for violation of the Racketeer Influenced and Corrupt Organization Act

(“RICO”), breach of contract, fraud, breach of the implied covenant of good faith and fair

dealing, conversion and money had and received.

On January 25, 2008, Plaintiffs filed Certificates of Service with the Court indicating that

Defendants SEE and Cowles were served with the summons and complaint on December 28,

2007. Cowles was personally served individually and as the authorized agent for SEE.

On February 11, 2008, Plaintiffs requested that the Clerk enter default against SEE and

Cowles. Default was entered on February 12, 2008. 

On June 3, 2008, Plaintiffs filed the instant motion for default judgment, seeking a total

judgment of $847,671.67. Plaintiffs state that this amount is subject to offset by the sum of

$35,000- the amount for which Plaintiffs settled the action with Defendant Mock. 

FACTS AND CAUSES OF ACTION ALLEGED IN THE COMPLAINT

The causes of action arise out of three promissory notes dated July 16, 2007, between

Plaintiffs and SEE, broken down as follows: (1) By promissory note dated July 16, 2007,

Plaintiff Lane lent SEE the sum of $100,000 in exchange for SEE’s promise to repay the loan

with an “investment return” of $25,000 on or before October 1, 2007. The note was to be

secured by a recorded interest against the property known as 19329 South Lake Road, Taft,

California (“Taft Property”); (2) By promissory note dated July 16, 2007, Plaintiff Braunberger

lent SEE the sum of $100,000 in exchange for SEE’s promise to repay the loan with an

“investment return” of $25,000 on or before October 1, 2007. The note was to be secured by the

Taft Property; and (3) By promissory note dated July 16, 2007, Plaintiff Foy lent SEE the sum of

$50,000 in exchange for SEE’s promise to repay the loan with an “investment return” of $12,500

on or before October 1, 2007. The note was to be secured by the Taft Property.

On or about October 12, 2007, Plaintiffs Lane and Braunberger agreed with Defendant

SEE to extend the maturity dates to November 12, 2007, in exchange for a return of interest on

the original principal at the rate of 15 percent per annum.

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On November 15, 2007, all Plaintiffs informed SEE, through communication with

Cowles, that SEE was in default under all three promissory notes. Plaintiffs demanded that all

monies owed be paid by November 16, 2007.

Defendants have not made any payments on the notes, nor have they recorded the notes

against the Taft Property. 

The First Cause of Action for violation of RICO alleges that SEE develops biodiesel fuel

products and builds biodiesel plants, and is engaged in interstate commerce. It further alleges

that it induced Plaintiffs, including through the use of electronic transmissions, to sign

promissory notes and wire funds for SEE’s benefit by promising to repay Plaintiffs and to secure

the notes with the Taft Property. Plaintiffs allege that this was a scheme devised by Defendants

to obtain money from Plaintiffs by wire transfer, and constituted wire fraud. 18 U.S.C. § 1343. 

The acts were committed against each Plaintiff, which constitutes a pattern of racketeering

activity. 18 U.S.C. § 1961(5). As a result of Defendants’ conduct, Lane suffered damages in the

approximate amount of $150,000, Braunberger in the approximate amount of $150,000 and Foy

in the amount of $90,000. Lane and Braunberger seek treble damages in the amount of $450,000

each, and Foy seeks treble damages in the amount of $270,000. 18 U.S.C. § 1964(c). Plaintiffs

also seek attorneys’ fees and costs. 18 U.S.C. § 1964(c).

The Second, Third and Fourth Causes of Action allege breach of contract based on

Defendants’ failure to repay the money and record the notes. Plaintiffs seek the principal sum

they advanced and investment return and pre-judgment interest thereon, as well as attorneys’ fees

and costs, as provided for in the promissory notes.

The Fifth, Sixth and Seventh Causes of Action allege fraud based on Defendants’

intentional misrepresentations made with the intent to induce Plaintiffs to advance money. 

Plaintiffs request actual damages, as well as exemplary and punitive damages. 

In the Eighth Cause of Action, Plaintiffs allege that Defendants breached the implied

covenant of good faith and fair dealing by failing to perform their obligations under the

promissory notes. Plaintiffs seek damages, as well as an investment return and pre-judgment

interest.

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In the Ninth Cause of Action, Plaintiffs allege that Defendants, by false, fraudulent and

deceptive means, misappropriated and converted to their personal use and possession, the

principal amounts lent by each Plaintiff. They seek damages in the amount of money Defendants

converted, interest, and exemplary and punitive damages.

The Tenth Cause of Action states a claim for money had and received by all Plaintiffs. 

They seek the principal sum advanced and interest thereon.

PLAINTIFFS’ DECLARATIONS

Plaintiffs submit their declarations in support of the motion for default judgment. The

declarations provide more detail about the events leading up to the execution of the promissory

notes. Plaintiff Foy explained that as an engineer, he had previously worked with SEE and

Cowles and had been consulted on their plans for the Taft biodiesel plant. Declaration of Rick

Foy (“Foy Dec.”), ¶ 7. On or about July 13, 2007, Defendant Mock sent Foy an e-mail

requesting help to raise $500,000 to purchase the Taft Property. He indicated that SEE would

pay interest on any loan and that it would be secured by a recorded interest in the Taft Property. 

Foy Dec., ¶ 8. Later that day, Foy called friends and co-Plaintiffs Lane and Braunberger. Foy

Dec., ¶ 9, Declaration of Dean Lane (“Lane Dec.”), ¶ 8, Declaration of Jennie Braunberger

(“Braunberger Dec.”), ¶ 7. 

On or about July 14, 2007, Cowles provided Foy with documents showing that SEE was

in the process of obtaining a corporate loan of close to forty million dollars from SWS Financial,

as initial capital funding to construct the plant. Foy Dec., ¶ 10, Exh. A. Cowles emphasized that

the loan evidenced SEE’s strong initial working capital and that it would be able to repay the

loans. Cowles also stated that SEE needed to purchase the Taft Property before any funding and

development of its project could proceed. Foy Dec., ¶ 10. Foy shared these documents with

Lane and Braunberger. Lane Dec., ¶ 9, Braunberger Dec., ¶ 8. 

On or about July 15, 2007, Cowles arranged a conference call with a representative from

SWS Financial, Braunberger, Lane and Foy. SWS Financial informed Plaintiffs that the

corporate loan was certain to be approved and was on the verge of being issued. Foy Dec., ¶ 11,

Lane Dec., ¶ 10, Braunberger Dec., ¶ 10. 

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Based on the assurances made by Cowles, Mock and SWS Financial, Plaintiffs decided

that a loan to SEE would be a financially sound investment. Plaintiffs executed promissory

notes, which were sent electronically, on July 16, 2007. Foy Dec., ¶ 12, Exh. B. Lane Dec., ¶ 11,

Exh. A., Braunberger Dec., ¶ 11, Exh. A.

SEE and Cowles insisted that the funds be transmitted to its bank via electronic wire

transfer and Foy therefore wired $150,000 (his $50,000 and Braunberger’s $100,000) from his

bank to Ticor Title Co., in Bakersfield, on July 19, 2007. Foy Dec., ¶ 13, Braunberger Dec., ¶

12. Lane wired $100,000 to Washington Mutual on or around July 31, 2007. Lane Dec., ¶ 12. 

DISCUSSION

 A. Legal Standard

Plaintiffs move for entry of default judgment pursuant to Federal Rule of Civil Procedure

55(b)(2), which provides that judgment may be entered:

(2) By the Court. In all other cases the party entitled to a judgment by default

shall apply to the court therefor; but no judgment by default shall be entered

against an infant or incompetent person unless represented in the action by a

general guardian, committee, conservator, or other such representative who has

appeared therein. If the party against whom judgment by default is sought has

appeared in the action, the party (or, if appearing by representative, the party's

representative) shall be served with written notice of the application for judgment

at least 3 days prior to the hearing on such application. If, in order to enable the

court to enter judgment or to carry it into effect, it is necessary to take an account

or to determine the amount of damages or to establish the truth of any averment

by evidence or to make an investigation of any other matter, the court may

conduct such hearings or order such references as it deems necessary and proper

and shall accord a right of trial by jury to the parties when and as required by any

statute of the United States.

“Upon default, the well pleaded allegations of the complaint relating to liability are taken

as true.” Dundee Cement Co. v. Highway Pipe and Concrete Products, 722 F.2d 1319, 1323 (7th

Cir. 1983); Televideo Systems, Inc. v. Heidenthal, 826 F.2d 915, 917 (9th Cir. 1987). Thus, “[a]t

the time of entry of default, the facts alleged by the plaintiff in the complaint are deemed

admitted.” 10 J. Moore, Moore's Federal Practice §55.11 (3d ed. 2000). 

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

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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, 1471-1472 (9th

Cir. 1986).

Defendants were served with the complaint on December 28, 2007. The Clerk entered

default on February 12, 2008. There is no evidence that Defendants are infants or incompetent

persons, or in the military service or otherwise exempted under the Soldiers’ and Sailors’ Civil

Relief Act of 1940. 

B. Plaintiffs’ Claims

Plaintiffs action has two main components- one based in RICO and the other in breach of

contract. Insofar as Plaintiffs request that their damages be trebled as provided for in 18 U.S.C. §

1964(c), the request is denied. Plaintiffs’ RICO claim is tenuous, at best, and does not support an

award of treble damages. 

Plaintiffs’ breach of contract-based claims are, however, sufficiently pled and well

supported. Plaintiffs are therefore entitled to recover the principal amount invested, as well as 15

percent of that amount as investment return. Although the promissory notes provide for a 25

percent return, the Court finds this amount to be usurious, in part because it is based on a loan

term of less than three months. Cal. Civ. Code § 1916-1, et seq. Plaintiffs are also entitled to

prejudgment interest at the rate of 10 percent per annum. Cal. Civ. Code § 3289. The total

amount is to be offset by $35,000. 

Plaintiffs are also entitled to attorneys’ fees and costs, as provided for in the promissory

notes, in the total amount of $15,568.81 ($14,521.16 in legal fees and $1,047.65 in costs). Foy

Dec., ¶ 22, Lane Dec., ¶ 22, Braunberger Dec., ¶ 23. 

ORDER

For the reasons discussed above, the Court ORDERS that:

1. Plaintiffs’ motion for default judgment be GRANTED;

2. Plaintiffs’ be AWARDED damages as follows:

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Lane Plaintiffs: $115,000, plus interest at a rate of 10 percent per annum, from

November 12, 2007.

Braunberger: $115,000, plus interest at a rate of 10 percent per annum, from

November 12, 2007.

Foy: $57,500, plus interest at a rate of 10 percent per annum, from October 1,

2007.

The total amount of damages ($287,500, plus interest) is subject to a $35,000

offset, representing the amount of the settlement with Defendant Mock. 

3. Plaintiffs be AWARDED attorneys’ fees and costs in the total amount of

$15,568.81.

IT IS SO ORDERED. 

Dated: August 3, 2008 /s/ Dennis L. Beck 

3b142a UNITED STATES MAGISTRATE JUDGE

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