Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_08-cv-01279/USCOURTS-casd-3_08-cv-01279-7/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1335 Interpleader Action

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 The Complaint also names Richard Wier and Monnye Gross as defendants; however,

on November 13, 2008, they were dismissed with prejudice. (ECF No. 20). 

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

HARTFORD LIFE INSURANCE

COMPANY,

Plaintiff,

CASE NO. 08cv1279 WQH (WVG)

ORDER

vs.

MARY BANKS, et al.

Defendants.

HAYES, Judge:

The matter before the Court is the Motion to Enter Default Judgment against CrossDefendant North American Mercantile, Inc. (“NAM”) filed by Defendant and Cross-Plaintiff

Sanberg Phoenix & Von Gontard P.C. (“Sandberg”) (ECF No. 126). 

 On July 16, 2008, Plaintiff Hartford Life Insurance Company (“Hartford”) initiated

this action by filing the Complaint in Interpleader (“Complaint”) against Sandberg, Mary

Banks (“Banks”), Beryl Rayford (“Rayford”), Umar Almajid (“Almajid”), and NAM.1

 (ECF

No. 1). This case concerns a dispute over the inheritance of two annuities owned by Cleona

Bailey Shortridge. The Complaint alleges that Almajid and Rayford, Shortridge’s nephew and

niece, were named as the beneficiaries of the annuities in a revocable trust executed on August

4, 1997, with Banks as the successor trustee. Id. at 5. The Complaint alleges that on June 2,

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2002, Shortridge changed the beneficiary of the annuities to NAM. Id. at 4. 

The Complaint alleges that after Shortridge’s death, Banks and Rayford filed a Petition

in the Circuit Court of the city of St. Louis, Missouri (“St. Louis action”) which disputed

ownership of the annuities. Id. at 5. The Complaint alleges that Sandberg, a law firm,

represented Almajid and NAM in the St. Louis action. Id. at 5. The Complaint alleges that

a settlement was memorialized in writing on July 10, 2007. Id. at 6. The Complaint alleges

that Hartford sent forms to allow the disbursement of funds pursuant to the settlement to

Sandberg for Almajid and NAM to complete. Id. at 6. The Complaint alleges that the forms

were never returned. Id. The Complaint alleges that Almajid sent a letter to Hartford stating

that there was a dispute between Almajid, NAM, and Sandberg. Id. at 7. The Complaint

alleges that Hartford requested confirmation from Almajid and NAM that Sandberg still

represented them, but received no response. Id. The Complaint alleges that the dispute over

disbursement of proceeds necessitated this interpleader action by Hartford. Id. Hartford

deposited $36,329.06 with this Court which represented Annuity 2. (ECF No. 4). 

On March 18, 2009, this Court issued an Order discharging and dismissing Plaintiff

Hartford Life Insurance Company with prejudice from this action and awarding Hartford the

sum of $8,500.00 as reasonable attorney’s fees and costs. (ECF No. 38). 

On March 25, 2009, this Court dismissed Almajid’s Cross-Claim in its entirety for

failure to state a claim. (ECF No. 39). On July 17, 2009, the Court granted Sandberg’s Motion

for Leave to File Cross-Complaint Against North American Mercantile, Inc. (ECF No. 48).

On July 20, 2009, the Court struck the Answer that Almajid filed on behalf of NAM, holding

that Almajid may not represent NAM because Almajid is not an attorney. (ECF No. 48). Also

on July 20, 2009, the Court granted Almajid’s Motion for Leave to File an Amended Answer

and Cross-Complaint. Id. 

On August 3, 2009, Sandberg filed a Cross-Claim against NAM for breach of contract.

(ECF No. 49). Sandberg alleges that on “April 15, 2005, Sandberg and NAM entered into an

agreement whereby Sandberg agreed to provide legal representation to NAM for defense of

the St. Louis Action and various other legal matters, and NAM agreed to pay Sandberg for said

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legal representation.” Id. at 2. “Sandberg alleges, “NAM has breached its contract with

Sandberg by failing to pay for legal services and costs provided by Sandberg in connection

with the St. Louis Action.” Id. Sandberg alleges that it “has complied with all conditions

precedent under the contract, and is not now and never has been in breach of the contract.” Id.

at 3. Sandberg alleges that “NAM has a remaining balance due to Sandberg in the amount of

$56,236.70 for costs and legal services provided to NAM in the St. Louis action.” Id. at 2. 

NAM did not file an answer to Sandberg’s Cross-Claim. 

On August 12, 2009, Almajid filed his amended Answer and Cross-Complaint against

Sandberg, Banks, Rayford, Gross, and Wier. (ECF No. 52). In his Answer, Almajid denies

“that Defendant Banks, Rayford, or Sandberg has any legitimate or bona fide interest in the

accounts . . . .” Id. at 2. The Cross-Claim alleges claims for (1) civil RICO violations, (2)

conspiracy, (3) interference with contractual relationship, (4) fraudulent concealment and (5)

accounting. Id. at 23-26.

On September 2, 2009, Sandberg filed a Request for Entry of Clerk’s Default against

NAM under Federal Rule of Civil Procedure 55(a) for NAM’s failure to respond to the

Complaint and the Cross-Complaint. (ECF No. 55). On September 4, 2009, the Clerk of the

Court entered default against NAM on the Cross-Claim. (ECF No. 58). 

On October 2, 2009, Sandberg filed a Motion for Clerk’s Default Judgment against

NAM pursuant to Federal Rule of Civil Procedure 55(b)(1) for the amount of $56,236.70.

(ECF No. 64). On October 2, 2009, the Clerk of the Court entered default judgment in favor

of Sandberg against NAM in the amount of $56,236.70 on the Cross-Claim. (ECF No. 65).

On January 26, 2010, the Court denied Almajid’s Motion to Drop Defendant (ECF

No. 56), which sought to substitute Almajid for NAM as the defendant to Sandberg’s CrossClaim. (ECF No. 86). In the same order, the Court denied Banks, Rayford, and Sandberg’s

Motion for Judgment on the Pleadings (ECF No. 69) and granted Sandberg’s Motion to

Dismiss Cross-Complaint (ECF No. 54). Also on January 26, 2010, the Court issued five

orders to show cause (ECF Nos. 80-84). The Court issued Orders to Show Cause to Banks

(ECF No. 81), Rayford (ECF No. 80), and NAM (ECF No. 82) requiring them to show cause

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why they should not be dismissed as to the complaint in interpleader for failure to file an

answer. The Court issued two orders to show cause to Almajid, requiring him to show cause

why his Cross-Claim against Gross and Wier should not be dismissed for failure to serve them

within the 120 day period allowed pursuant to Federal Rule of Civil Procedure 4(m) and to

show cause why his Cross-Claims against Banks and Rayford should not be dismissed for

failure to move for default judgment within the time allowed pursuant to Local Civil Rule 55.1

after obtaining a clerk’s default. (ECF Nos. 83, 84).

On February 19, 2010, Banks filed an answer to the Complaint in Interpleader (ECF

No. 88) and a declaration stating she had previously failed to file an answer because she cannot

afford counsel and is “not familiar with the Rules of Court” and therefore “was not aware that

[she] had to respond to the Complaint . . .” (ECF No. 88-1). 

On February 22, 2010, Almajid filed responses to orders to show cause issued as to him

and as to NAM. (ECF Nos. 89-91). In his filing on behalf of NAM, Almajid contended “[t]he

statutory provision requiring NAM to retain counsel is unduly prejudicial and

burdensome . . . .” (ECF No. 89 at 3). Almajid sought to “excuse NAM from answering the

Complaint in Interpleader . . . .” Id.

On February 23, 2010, Rayford filed an answer to the complaint in interpleader. (ECF

No. 93). On February 26, 2010, the Court ordered Rayford to file a proof of service on her

answer to the Complaint in Interpleader within ten days. (ECF No. 94). On March 9, 2010,

Rayford filed her proof of service. (ECF No. 99).

On May 18, 2009, the Court issued four orders in this case. (ECF Nos. 102-05). The

Court struck Almajid’s response to the order to show cause issued to NAM. (ECF No. 105 at

8). The Court declined to sanction Almajid for the filing, but warned Almajid that further

filings on behalf of NAM could result in sanctions. Id. The Court dismissed NAM as a party

to the Complaint in Interpleader for failure to file an answer. (ECF No. 102 at 1). The Court

denied Almajid’s motion for an enlargement of time to serve Gross and Wier and dismissed

Almajid’s Cross-Claim against them. (ECF No. 104 at 1). The Court ruled that Almajid had

shown cause as to why his Cross-Claims should not be dismissed as to Banks and Rayford for

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 On October 20, 2010, Hartford complied with this Court’s Order and deposited $37,128.72 with the Court which represented the liquidated Annuity 1. (ECF Nos. 122-23).

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failure to move for default judgment. (ECF No. 103 at 2).

On May 28, 2010, Sandberg moved for summary judgment on the Complaint in

Interpleader. (ECF No.106). Also on May 28, 2010, Almajid filed a motion to reconsider

dismissal of the Cross-Complaint against Sandberg or, in the alternative, for leave to file a

second amended answer and cross-complaint. (ECF No. 108). On October 8, 2010, this Court

issued an Order granting Sanberg’s motion for summary judgment and ordering Hartford to

liquidate Annuity 1 and deposit it with the Court.2

 (ECF No. 121 at 5-8, 11). This Court stated

the following:

Pursuant to the settlement agreement, NAM was to receive the entire proceeds

of Annuity 1, which was at that time worth $33,802.41. The proceeds of

Annuity 2, which at that time was worth $36,030.09 were to be divided as

follows: $25,000.00 to Sandberg, $4,930.59 to NAM, $4,246.50 to Rayford,

$1,353.00 to Banks as partial payment of her fee as trustee, and $1,000.00 to

Banks to be held in a separate trust checking account ‘for preparation of final

Federal and State Fiduciary Tax Returns for the Trust.’....

NAM did not enter an appearance in this case and has defaulted.

Sandberg contends that it is entitled to the proceeds awarded to defaulted

defendant NAM in the settlement agreement to satisfy Sandberg's default

judgment against NAM on Sandberg's cross claim. The Court concludes that

Sandberg has thus far failed to establish that Sandberg is entitled to NAM's

share of the settlement. Sandberg, Banks, and Rayford may file further

briefing as to the proper resolution of this case as to the share of the annuities

which the settlement agreement awarded to defaulted defendant NAM.

Id. at 7-8 (citations omitted). The Court denied Almajid’s motion to reconsider dismissal of

his Cross-Complaint against Sandberg. 

On October 28, 2010, Defendants Banks, Rayford, and Sandberg filed a Joint Response

to this Court’s Order. (ECF No. 124). Banks, Rayford, and Sandberg stated that they “have

agreed to the proper resolution of this case with respect to the amount awarded NAM under

the settlement agreement ....” (ECF No. 124 at 2). The parties agreed to distribute the funds

as follows: $3,353.00 to Banks which includes $2,353.00 under the St. Louis action settlement

agreement and $1,000.00 “for her share of NAM’s funds”; $9,475.90 to Rayford which

includes $4,246.50 under the St. Louis action settlement agreement and $5,229.40 “for her

share of NAM’s funds” as well as the balance of any funds not otherwise distributed; and

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$52,236.70 to Sandberg which includes $25,000.000 under the St. Louis action settlement

agreement and $27,236.70 for its “share of NAM’s funds.” (ECF No. 124 at 3). The parties

stated that they agreed to this distribution, in part, to satisfy Sandberg’s default judgment

against NAM on the Cross-Claim which was entered by the Clerk of the Court on October 2,

2009 (ECF No. 65). 

On April 11, 2011, this Court vacated the October 2, 2009 entry of default judgment

against NAM by the Clerk of the Court under Federal Rule of Civil Procedure 55(b)(1).

On May 11, 2011, Sandberg filed a Motion to Enter Default Judgment pursuant to

Federal Rule of Civil Procedure 55(b)(2) against Cross-Defendant NAM in the amount of

$56,236,70 for fees and costs incurred in the St. Louis action. (ECF No. 126). Sandberg

submitted the Declarations of Kenneth White and Martin Daesch along with detailed billing

records regarding Sandberg’s fees and costs associated with its representation of NAM in the

St. Louis action. Daesch states that Sandberg incurred fees of $66,889.50 for its representation

of NAM in the St. Louis action. (ECF No. 126-3 at 2). Daesch states that Sandberg incurred

$6,346.85 in expenses for its representation of NAM in the St. Louis Action. Id. Daesch states

that NAM made one payment of $15,000 and $2,000 remains in a trust account from NAM

which was paid as an initial retainer. Id. Daesch states that NAM currently owes Sandberg

$56,236.70. Id. 

On June 2, 2011, the Declaration of Witness Jesse Mallinger in Support of Opposition

to Sandberg’s Motion for Entry of Default Judgment Against NAM was filed. (ECF No. 128).

Mallinger states: “Though I expressly do not represent any party in this case, I have reviewed

some evidence and documents in this case with [Almajid] related to the matters before the

Court ....” Id. at 2. Mallinger states: “That review of documents has led me to believe that

...Almajid retained Martin Daesch of [Sandberg] to defend himself and NAM.” Id. Mallinger

states that Sandberg, “prepared and filed a response to [the St. Louis Action] solely on behalf

of Almajid.” Id. Mallinger states that Sandberg, “did apparently draft (but did not file?) an

answer on behalf of NAM in which they repeatedly state that allegations were not directed

toward NAM, nor was relief sought from NAM.” Id. Mallinger states that Sandberg’s Motion

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to Enter Default Judgment against NAM “is supported with billing entries sent to Almajid for

services connected to [Sandberg’s] representation.” Id. 

DISCUSSION

Rule 55(a) of the Federal Rules of Civil Procedure requires that the Clerk of the Court

enter default “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.” Fed. R. Civ.

P. 55(a). 

Rule 55(b)(2) of the Federal Rules of Civil Procedure provides that the court may grant

a default judgment after default has been entered by the Clerk of the Court. Fed. R. Civ. P.

55(b)(2). The Ninth Circuit has articulated the following factors for courts to consider in

determining whether default judgment should be granted:

(1) the substantive merit of the plaintiff’s claims, (2) the sufficiency of the

complaint, (3) the amount of money at stake, (4) the possibility of prejudice to

the plaintiff if relief is denied, (5) the possibility of disputes to any material facts

in the case, (6) whether default resulted from excusable neglect, and (7) the

public policy favoring resolutions of cases on the merits.

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

“The general rule of law is that upon default the factual allegations of the complaint,

except those relating to the amount of damages, will be taken as true.” TeleVideo Sys., Inc. v.

Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (quotation omitted). “Plaintiff is required

to prove all damages sought in the complaint. In addition, [a] judgment by default shall not

be different in kind [or] exceed in amount that prayed for in the [complaint]. In determining

damages, a court can rely on the declarations submitted by the plaintiff or order a full

evidentiary hearing.... If proximate cause is properly alleged in the complaint, it is admitted

upon default. Injury is established and plaintiff need prove only that the compensation sought

relates to the damages that naturally flow from the injuries pled.” Phillip Morris USA, Inc. v.

Castworld Prods., 219 F.R.D. 494, 498 (C.D. Cal. 2003) (citations omitted). 

A default judgment in favor of one party on one claim must comply with Federal Rule

of Civil Procedure 54(b) which provides: “[T]he court may direct entry of a final judgment as

to one or more, but fewer than all, claims or parties only if the court expressly determines that

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there is no just reason for delay. Otherwise, any order ... that adjudicates fewer than ... all the

parties does not end the action as to any of the claims or parties and may be revised at any time

before the entry of a judgment adjudicating all the claims and all the parties' rights and

liabilities.” Fed. R. Civ. P. 54(b).

The Clerk of the Court has entered default against Cross-Defendant NAM and in favor

of Sandberg. The Court accepts the factual allegations in the Cross-Claim as true. Sandberg

asserts a cross-claim for breach of contract and alleges that on “April 15, 2005, Sandberg and

NAM entered into an agreement whereby Sandberg agreed to provide legal representation to

NAM for defense of the St. Louis Action and various other legal matters, and NAM agreed to

pay Sandberg for said legal representation.” (ECF No. 49 at 2). “Sandberg alleges, “NAM has

breached its contract with Sandberg by failing to pay for legal services and costs provided by

Sandberg in connection with the St. Louis Action.” Id. Sandberg alleges that “NAM has a

remaining balance due to Sandberg in the amount of $56,236.70 for costs and legal services

provided to NAM in the St. Louis action.” Id. at 2. Sandberg’s Cross-Claim establishes that

Sandberg is entitled to prevail against Cross-Defendant NAM for fees and costs incurred in the

St. Louis action.

The Court has considered the factors articulated in Eitel and the Court concludes that

default judgment against Cross-Defendant NAM is appropriate pursuant to Rule 55(b)(2).

Plaintiff will be prejudiced and potentially left without recourse for recovery if default

judgment is denied. It is unlikely that the default of Cross-Defendant NAM is the result of

excusable neglect. The Court has reviewed the Cross-Claim and the evidence submitted in

support of Sandberg’s Motion for Default Judgment and concludes that Plaintiff has presented

substantial evidence to establish that it is entitled to recover $56,236.70. The Court grants the

Motion for Default Judgment as to Cross-Defendant NAM. 

DISTRIBUTION OF FUNDS

On October 28, 2010, Defendants Banks, Rayford, and Sandberg filed a Joint Response

to this Court’s Order. (ECF No. 124). Banks, Rayford, and Sandberg contend that they “have

agreed to the proper resolution of this case with respect to the amount awarded NAM under

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the settlement agreement, and therefore, this Court should award the interpleaded funds ....”

(ECF No. 124 at 2). The parties have agreed to distribute the funds according to the St. Louis

action settlement agreement. The parties have agreed to distribute the funds awarded to NAM

under the St. Louis action settlement agreement as follows: $27,236.70 to Sandberg to satisfy

Sandberg’s judgment against NAM; $1,000.00 to Banks as additional trustee fees for her

involvement in this litigation; and the remaining balance to Rayford because she was a named

beneficiary prior to NAM. “The parties agree that such a distribution is the most equitable

distribution and is in the interests of justice.” Id. at 3. 

Thus, the parties have agreed and request this Court make the following distribution of

funds: 

1. $52,236.70 to Sandberg which is comprised of $25,000.00 under the terms of the

settlement agreement and $27,236.70 for Sandberg’s share of the amount

awarded to NAM under the settlement agreement;

2. $9,475.90 to Rayford which is comprised of $4,246.50 under the terms of the

settlement agreement and $5,229.40 for her share of the amount awarded to

NAM under the settlement agreement;

3. $3,353.00 to Banks which is comprised of $2,353.00 under the terms of the

settlement agreement and $1,000.00 for her share of the amount awarded to

NAM under the settlement agreement; and

4. to the extent any funds remain due to per diem interest at the time the Court

enters its order for distribution, such funds shall be distributed to Rayford. 

In an interpleader action, the court may approve a settlement as proposed if the

settlement is reasonable and consistent with the record. See U.S. Specialty Ins. Co. v. Estate

of Schurrer, Cause No. 4:09CV353, 2010 WL 2598269 at *2 (E.D. Tex. 2010) (“Having

reviewed the record and heard the arguments of counsel, and recognizing the Court’s equitable

powers in this proceeding, the Court finds that the apportionment requested by the remaining

should be made as agreed.”). Potential claimants should be provided with notice of the

settlement. American Intern. Speciality Lines Ins. Co. v. Nat’l Ass’n of Bus. Owners & Prof’ls,

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253 F. Supp. 2d 468, 475 (E.D. N.Y. 2003). “‘[N]otice is adequate so long as it is reasonably

calculated to apprise the parties of the terms of a proposed settlement and the options available

in connection with the judicial proceeding.’” American Intern. Speciality Lines Ins. Co., 253

F. Supp. 2d at 475 (quoting In re Drexel Burnham Lambert Group Inc., 995 F.2d 1138, 1144

(2d Cir. 1993)). 

CONCLUSION

IT IS HEREBY ORDERED that the Motion to Enter Default Judgment against CrossDefendant North American Mercantile, Inc. in the amount of $56,236.70 filed by Defendant

and Cross-Plaintiff Sanberg Phoenix & Von Gontard P.C. (ECF No. 126) is GRANTED. The

Joint Response to this Court’s Order filed by Defendants Mary Banks, Beyrl Rayford, and

Sanberg Phoenix & Von Gontard P.C. (ECF No. 124) remains pending. The Clerk of the

Court shall mail a copy of this Order to Umar Almajid and North American Mercantile, Inc.

as notice of the terms of the proposed settlement. Any party may file a response or opposition

to the proposed settlement by no later than July 22, 2011. 

DATED: June 21, 2011

WILLIAM Q. HAYES

United States District Judge

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