Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-4_05-cv-00486/USCOURTS-azd-4_05-cv-00486-2/pdf.json

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

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opinion

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

EL PASO NATURAL GAS

COMPANY, 

Plaintiff, 

vs.

DUCTOS DE NOGALES, L.L.C., et al.,

Defendants. 

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No. CIV 05-486-TUC-CKJ

ORDER

On April 13, 2007, this Court directed Plaintiff El Paso Natural Gas Company ("El

Paso") to submit a renewed motion for default judgment against Ductos de Nogales, L.L.C.,

("Ductos") a motion to dismiss as to Ductos, or some alternate statement regarding the status

of the proceedings against Ductos, on or before April 30, 2007. El Paso did not comply with

the Court's Order. On May 10, 2007, this Court ordered El Paso to show cause why Ductos

should not be dismissed with prejudice from this matter by filing a writing with this Court

on or before May 21, 2007. On May 21, 2007, El Paso filed a Brief Regarding Ductos de

Nogales, L.L.C., [Doc. # 81] and a Renewed Motion for Default Judgment [Doc. # 82].

Order to Show Cause

The Court finds dismissal is not appropriate.

Case 4:05-cv-00486-CKJ Document 85 Filed 06/01/07 Page 1 of 13
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Factual and Procedural Background

El Paso and Ductos entered into a Construction Facilities Agreement ("Agreement")

on November 22, 1999, for the construction, operation, and installation of a meter station and

a natural gas lateral line located in Santa Cruz County, Arizona. On December 17, 2001,

Dwight H. Cumming ("Cumming") executed a Guaranty in favor of El Paso, guarantying the

punctual payment when due of any and all indebtedness, liabilities, and obligations of any

kind relating to all agreements entered into between El Paso and Ductos and Cumming Gas

Transmission, LLC ("Cumming Gas"). On December 28, 2001, El Paso entered into a Letter

Amendment with Ductos and Cumming Gas to add Cumming Gas as a co-party to the

November 22, 1999, Agreement.

On September 24, 2002, El Paso completed the construction of the facilities. On

February 26, 2003, El Paso mailed an invoice to Ductos in the amount of $1,578,684.41 for

the cost of completion of the constructed facilities. 

On August 3, 2005, El Paso filed suit against Defendants for breach of contract and

breach of guaranty asserting that Defendants have failed to pay El Paso for the expenses El

Paso incurred in its performance of the Agreement between El Paso, Ductos, and Cumming

Gas.

El Paso, Cumming and Cumming Gas have submitted a Stipulation for Entry of

Judgment.

The Complaint was served on Ductos on August 18, 2005. After Ductos failed to

respond, El Paso asked for entry of default. The Clerk of the Court entered default on

November 22, 2005, and El Paso has now filed a renewed motion for a default judgment.

Adequacy of Service of Process

As a preliminary matter, the Court addresses the adequacy of the service of process

on Ductos. See e.g., Carimi v. Royal Carribean Cruise Line, Inc., 959 F.2d 1344, 1345 (5th

Cir. 1992) (Where default "is based on a void judgment under rule 60(b)(4), the district court

has no discretion-the judgment is either void or it is not. If a court lacks jurisdiction ...

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1

The resident agent information was obtained from the website of the Nevada

Secretary of State. 

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because of insufficient service of process, the judgment is void and the district court must set

it aside.); Mason v. Genisco Tech. Corp., 960 F.2d 849, 851-52 (9th Cir. 1992) (finding that

where a plaintiff "failed to serve [defendant] properly ... the default judgments [wa]s void").

Based on the Motion for Entry of Default [Doc. # 14], including Exhibit A, it appears

that the Complaint was properly served on Ductos. The complaint was served on Cyndy

Woodgate of CSC Services, Inc, in Carson City, Nevada. CSC Services, Inc., is a resident

agent for Ductos as recorded by the Nevada Secretary of State1

. See Fed.R.Civ.P. 4(h)

(discussing service of process on a corporation, which includes service pursuant to the law

of the state in which the district court is located or service effected); Ca.Civ.Pro. § 416.10

(service upon corporations). Therefore, with the Complaint being properly served to the

authorized agent of Ductos, El Paso satisfied the service requirements necessary to obtain a

default judgment.

Default Judgment and Eitel Factors

Because service appears to have been proper, the Court now addresses the merits of

El Paso's renewed motion for default judgment. After entry of a default, a court may grant

a default judgment on the merits of the case. See Fed.R.Civ.P. 55. "The district court's

decision whether to enter a default judgment is a discretionary one." Aldabe v. Aldabe, 616

F.2d 1089, 1092 (9th Cir.1980). Factors that a court may consider in exercising that

discretion 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 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). As default has already been

entered in this case, the Court must take as true all factual allegations in El Paso's Complaint

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except for those related to the amount of damages. See Televideo Sys., Inc. v. Heidenthal, 826

F.2d 915, 917-18 (9th Cir. 1987) ("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.") (internal quotation marks omitted); Rio Properties, Inc. v. Rio International

Interlink, 284 F.3d 1007 (9th Cir. 2002).

Possibility of Prejudice to Plaintiffs

The Court first considers whether the plaintiff will suffer prejudice if default judgment

is not entered. Eitel. Based on the documents submitted by El Paso, it appears that Ductos

does not contest the fact that it owes El Paso at least $1,028,684.41, and, since 30 days after

February 26, 2003, when El Paso mailed the invoice to Ductos, this sum has been due

without even a partial payment by Ductos. The Court concludes that El Paso would suffer

prejudice if its motion for default judgment were denied because it would be "without other

recourse for recovery." Pepsico, Inc. v. California Security Cans, 238 F.Supp.2d 1172, 1177

(C.D.Cal. 2002).

Merits of Plaintiff's Substantive Claim and Sufficiency of the Complaint

The Court also considers that Eitel "require[s] that a plaintiff state a claim on which

the [plaintiff] may recover." Philip Morris U.S.A. Inc. v. Castworld Prods., 219 F.R.D. 494,

499 (C.D.Cal.2003) (internal quotation marks omitted). In the instant case, El Paso's claim

for relief must be based on Texas law because the Agreement specifically provides that the

"AGREEMENT SHALL BE INTERPRETED UNDER THE LAWS OF THE STATE OF

TEXAS[.]" Complaint, Ex. 1, ¶ 14.

El Paso has sufficiently stated a valid claim for a breach of the Agreement under

Texas contract law. To establish a prima facie case for breach of contract, El Paso must

show " (1) the existence of a valid contract between plaintiff and defendant, (2) the plaintiff's

performance or tender of performance, (3) the defendant's breach of the contract, and (4) the

plaintiff's damage as a result of the breach." Talley Construction Company v. Rodriguez,

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2006 WL 23405 *3 (Tex.App.-Houston 2006), citing Prime Prods., Inc. v. S.S.I. Plastics,

Inc., 97 S.W.3d 631, 636 (Tex.App.-Houston [1st Dist.] 2002, pet. denied). In its Complaint,

El Paso alleges that El Paso and Ductos entered into an Agreement for the construction,

operation and installation of a meter station and a natural gas lateral line and, on September

24, 2002, El Paso completed the construction of the facilities. El Paso further alleges that

the Agreement provided that Ductos agreed to "reimburse El Paso within 30 days after

presentation of El Paso's invoice for the costs incurred to purchase and install the facilities

. . . and for all other construction costs incurred by El Paso." Complaint, Ex. 1, ¶ 3. El Paso

further alleges that, on February 26, 2003, El Paso mailed Ductos an invoice in the amount

of $1,578,684.41 and that Ductos has failed to pay El Paso for the expenses incurred by El

Paso in its performance of the Agreement. Further, El Paso alleges that it has made all

reasonable efforts to mitigate damages (in the amount of $550,000). Given these allegations

and the Court's acceptance of these allegations as true, the Court finds that El Paso has

adequately shown a breach of the Agreement.

Sum of Money at Stake in Action

For the fourth Eitel factor, "the court must consider the amount of money at stake in

relation to the seriousness of Defendant's conduct." Pepsico, 238 F.Supp.2d at 1176. If the

sum of money at stake is completely disproportionate or inappropriate, default judgment is

disfavored. In this case, the main damage award sought by El Paso is the payment of

$1,578,684.41, minus the $550,000 mitigation, for the completion of the constructed

facilities. The requested amount is supported by an itemized statement of costs. Motion for

Default Judgment, Ex. B. This detailed damage request is specifically related to the

completion of the facilities as set forth in the Agreement and is specifically related to the

breach by Ductos. The Court finds that the amount of money at stake is not completely

disproportionate or inappropriate considering the defendant's actions. 

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Possibility of Dispute Concerning Material Facts

The Court also considers the possibility of dispute as to any material facts in the case.

Here, there is little possibility of dispute concerning material facts because (1) based on the

entry of default, the Court accepts all allegations in El Paso's complaint as true (except for

those relating to damages) and (2) Ductos has not made any attempt to challenge El Paso's

Complaint or even appear in this case. Moreover, the Agreement states that any "cost

estimate by El Paso is solely a good faith estimate and in no way limits [Ductos'] obligation

to reimburse El Paso for all costs associated with the subject project." Complaint, Ex. 1, ¶

3. 

Whether Default Was Due to Excusable Neglect

Usually, a court will ask whether the failure to answer is due to excusable neglect. See

Eitel, 782 F.2d at 1472 (noting that the fact that the parties were engaged in settlement

negotiations excused defendant from failing to answer). In the instant case, Ductos was

properly served with the Summons and Complaint on August 18, 2005, was mailed the

Motion for Entry of Default on November 16, 2005, was mailed the Motion for Default

Judgment on December 6, 2005, and was mailed the Renewed Motion for Default Judgment

on May 21, 2007. Given these circumstances, it is unlikely that Ductos' failure to answer and

the resulting default was a result of excusable neglect. Cf. Shanghai Automation Instrument

Co. v. Kuei, 194 F.Supp.2d 995, 1005 (N.D.Cal. 2001) (concluding no excusable neglect

because defendants "were properly served with the Complaint, the notice of entry of default,

as well as the papers in support of the instant motion").

Policy Underlying Federal Rules of Civil Procedure

Generally, default judgments are disfavored because "cases should be decided upon

their merits whenever reasonably possible." Eitel, 782 F.2d at 1472. However, because a

discretionary standard is applied, "default judgments are more often granted than denied."

Pepsico v. Triunfo-Mex, Inc., 189 F.R.D. 431, 432 (C.D.Cal. 1999). El Paso submitted the

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invoice to Ductos prior to the initiation of this lawsuit and has specifically pled facts

supporting its claim; therefore, the policy encouraging decisions of cases on their merits does

not weigh against granting default judgment here. See Elektra Entertainment Group Inc.,

2004 WL 783123, at *5 (stating that "the mere existence of Fed.R.Civ.P. 55(b) indicates that

[this factor] is not alone dispositive" given the impossibility of deciding a case on the merits

when the defendant fails to respond).

Summary

Based on all the Eitel factors discussed above, the Court finds that El Paso's Motion

for Default Judgment should be granted.

Damages

Having determined that the Motion for Default Judgment should be granted, the Court

now turns to the matter of damages. El Paso seeks $1,028,684.41 in general damages,

attorneys' fees and costs, and post-judgment interest thereon at the rate of ten percent (10%)

per annum until paid in full. 

Breach of Contract Damages

El Paso seeks payment of $1,578,684.41, minus the $550,000 mitigation, for the

completion of the constructed facilities. The requested amount is supported by an itemized

statement of costs. Motion for Default Judgment, Ex. B. The Agreement and itemized

statement of costs constitute sufficient proof that El Paso has sustained damages for the

breach of contract in the amount of $1,028,684.41.

Pre-Judgment Interest

The Court notes that the Motion for Default Judgment does not specifically request

pre-judgment interest. However, the Complaint requests interest and the proposed form of

order includes an award for prejudgment interest. 

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In its proposed form of order, El Paso has requested pre-judgment interest at the rate

of 10% per annum. However, the Agreement provides that the "AGREEMENT SHALL BE

INTERPRETED UNDER THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD

TO ITS CONFLICTS OF LAWS PROVISIONS." Complaint, Ex. 1, ¶ 14. Therefore, Texas

law applies to a determination of pre-judgment interest. Morever, even if the Court were to

consider conflicts of laws provisions, Texas law provides that "[j]udgment interest rates are

a matter of substantive law[.]" Bergstrom A.F.B. Fed. Credit v. Mellon Mortgage, 674

S.W.2d 845, 851 (Tex.App.--Tyler 1984, writ ref'd n.r.e.). The Court, therefore, will apply

Texas law in its determination of pre-judgment interest.

Damages awarded for breach of contract bear prejudgment interest. Adams v. H &

H Meat Products, Inc., 41 S.W.3d 762, 780 (Tex.App.-Corpus Christi 2001, no pet.).

"Prejudgment interest is compensation allowed by law as additional damages for lost use of

the money due as damages during the lapse of time between accrual of the claim and the date

of judgment." Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507,

528 (Tex.1998). Plaintiffs in contract disputes have been permitted to recover prejudgment

interest on both liquidated and unliquidated claims. See Preston Farm & Ranch Supply, Inc.

v. Bio-zyme Enterprises., 625 S.W.2d 295, 298-99 (Tex.1981) (applying rate set by contract

as rate for prejudgment interest). In Phillips Petroleum Co. v. Stahl Petroleum Co., 569

S.W.2d 480, 485 (Tex.1978), the Texas Supreme Court recognized two separate bases for

the award of prejudgment interest: (1) an enabling statute; and (2) general principles of

equity. However, statutory prejudgment interest applies only to judgments in wrongful

death, personal injury, property damage, and condemnation cases. Tex. Fin.Code Ann. §§

304.102, 304.201; Johnson & Higgins of Texas, Inc. v. Kenneco Energy, 962 S.W.2d 507,

530 (Tex. 1998).

 El Paso is entitled to recover pre-judgment interest based on the breach of contract

claim against Ductos. See Adams, 41 S.W.3d at 780. Any award of prejudgment interest is

governed by the common law rather than by any statute. Kenneco Energy, 962 S.W.2d at

530; Adams, 41 S.W.3d at 780. Based on Texas law, where no enabling statute applies

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"prejudgment interest in a breach-of-contract action is properly awarded pursuant to section

304.003 of the Finance Code." ExxonMobil Corp. v. Valence Operating Co., 174 S.W.3d

303 (Tex.App.-Houston 2005).

Tex.Fin.Code § 304.003(c)(1) provides that the postjudgment interest rate is "the

prime rate as published by the Board of Governors of the Federal Reserve System on the date

of computation." The Consumer Credit Commission is to determine that rate of interest.

Tex.Fin.Code § 304.003(b). The current judgment rate of interest is 8.25%. See,

http://www.occc.state.tx.us/pages/int_rates/Index.html. Accordingly, El Paso is entitled to

pre-judgment interest at the rate of 8.25 per cent per annum. 

The Court notes that "[p]rejudgment interest is computed as simple interest and does

not compound." Qwest Communications International, Inc. v. AT&T Corp., 114 S.W.3d 15,

38 (Tex.App.-Austin 2003), reversed on other grounds. Moreover, pre-judgment interest

begins to accrue on "the earlier of (1) 180 days after the date a defendant receives written

notice of a claim or (2) the date suit is filed." Ellis v. City of Dallas, 111 S.W.3d 161, 168

(Tex.App.-Houston 2003). Kenneco Energy, 962 S.W.2d 507, 5312005 WL 1252326

(Tex.Sup.Ct. 2005).

El Paso mailed an invoice to Ductos on February 26, 2003. Pre-judgment interest

begins to accrue, therefore, on August 25, 2003. Simple interest of 8.25% on $1,028,684.41

for 3 years, 9 months is $318,249.21. The Court, therefore, will award $318,249.21 in prejudgment interest to El Paso.

Post-Judgment Interest

"A judgment for money damages for breach of contract also bears interest from the

date of the judgment until it is paid." Adams, 41 S.W.2d at 780. Again, the rate is governed

by Tex.Fin.Code § 304.003. The Court finds El Paso is entitled to post-judgment interest at

the rate of 8.25 per cent per annum.

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2

See Exhibit A.

3

See Exhibit B.

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Attorneys' Fees and Costs

El Paso requests an award of attorneys' fees and costs. In its original motion for

default judgment, El Paso requested an award of attorneys' fees and costs in the amount of

$4,254.56. In its renewed motion for default judgment, El Paso asserts that it has incurred

$97,419.39 in attorneys' fees and costs and requests a reasonable sum for the services

performed in connection with this matter, together with interest at the rate of 10 % per anuum

from the date judgment is entered until paid in full. The Court finds an award of $6,521.332

to be reasonable.

Furthermore, El Paso has requested an award of costs. Fed.R.Civ.P. 54(d) provides:

"Except when express provision therefor is made either in a statute of the United States or

in these rules, costs shall be allowed as of course to the prevailing party unless the court

otherwise directs." The discretion granted by Rule 54(d) is "solely a power to decline to tax,

as costs, the items enumerated in [28 U.S.C.] § 1920." Crawford Fitting Co. v. J.T. Gibbons,

Inc., 107 S.Ct. 2494, 2498 (1987). Section 1920 "defines the term 'costs' as used in Rule

54(d)" and "enumerates expenses that a federal court may tax as a cost under the

discretionary authority found in Rule 54(d)." Id. at 2497.

Under Rule 54(d), the prevailing party is entitled to costs unless the court rules

otherwise. Chavez v. Tempe Union High School Dist. # 213, 565 F.2d 1087, 1095 (9th

Cir.1977). A trial court must state reasons for the denial of costs so that the appellate court

will be able to determine whether or not the trial court abused its discretion. Subscription

Television, Inc. v. Southern Cal. Theatre Owners Ass'n, 576 F.2d 230, 234 (1978). The

Court finds the requested award of $711.753

 in costs to be appropriate. El Paso's request for

attorneys' fees and costs will be granted.

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Rule 54(b), Fed.R.Civ.P.

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." Rule 54(b), Fed.R.Civ.P.

El Paso, Cumming, and Cumming Gas have submitted a stipulated judgment. The Court

finds there is no just reason for delay of the default judgment.

Accordingly, IT IS ORDERED:

1. El Paso's Renewed Motion for Default Judgment [Doc. # 82] is GRANTED;

2. Granting judgment in favor of El Paso and against Ductos;

3. Awarding El Paso compensatory damages in the amount of $1,028,684.41

against Ductos;

4. Awarding El Paso pre-judgment interest in the amount of $318,249.21 against

Ductos;

5. Awarding El Paso its reasonable attorneys’ fees and costs in the amount of

$7233.08;

6. Therefore, El Paso is awarded judgment against Ductos in the amount of

$1,354,166.70, plus post-judgment interest thereon at the rate of 8.25 per cent per annum

from the date judgment is entered until paid in full, and;

7. The Clerk of the Court shall enter judgment in favor of El Paso and against

Ductos.

DATED this 31st day of May, 2007.

Case 4:05-cv-00486-CKJ Document 85 Filed 06/01/07 Page 11 of 13
EXHIBIT A

Attorneys' fees as set forth in the

original motion for default judgment: $ 3662.70

11/28/05 $ 780.30

11/28/05 $ 114.75

12/5/05 $ 28.90

12/6/05 $ 43.35

1/30/06 $ 43.35

2/7/06 20% of $ 72.25 $ 14.45

4/5/06 60% of $ 72.25 $ 43.35

4/29/06 $ 231.20

5/1/06 $ 76.50

5/9/06 56% of $ 520.20 $ 291.31

5/10/06 14% of $ 722.50 $ 101.15

5/15/06 20% of $ 361.25 $ 72.25

5/16/06 5% of $ 910.35 $ 45.52

5/23/06 $ 38.25

5/10/07 $ 17.00

5/10/07 $ 45.00

5/11/07 $ 17.00

5/14/07 $ 34.00

5/15/07 $ 90.00

5/16/07 $ 85.00

5/17/07 $ 510.00

5/21/07 $ 136.00

TOTAL ATTORNEYS' FEES $ 6521.33

Case 4:05-cv-00486-CKJ Document 85 Filed 06/01/07 Page 12 of 13
EXHIBIT B

Costs as set forth in the original

motion for default judgment: $ 631.86

4/30/06 $ 18.69

5/4/06 $ 55.30

5/16/06 $ 2.40

5/17/06 $ 3.50

TOTAL COSTS $ 711.75

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