Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_09-cv-01719/USCOURTS-cand-5_09-cv-01719-1/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 26:7422 IRS: Refund Taxes

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1 NO. C 09-01719 RS 

 ORDER

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United States District Court

For the Northern District of California 

*E-Filed 01/15/2010* 

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF CALIFORNIA 

SAN JOSE DIVISION 

UNITED STATES OF AMERICA, 

 Plaintiff, 

 v. 

WATERBABIES, LLC, 

 Defendant. 

____________________________________/

No. C 09-01719 RS 

ORDER GRANTING MOTION FOR 

DEFAULT JUDGMENT 

I. INTRODUCTION 

 This matter is before the Court on the Government’s motion for default judgment. For the 

reasons stated below, the motion will be granted and default judgment will be entered against 

defendant Waterbabies, LLC, in the amount of $18,012.78. 

II. BACKGROUND 

The Government filed the instant action in April 2009. According to the allegations of the 

complaint, a business called Water Babies Swimming Schools, Inc. (“Water Babies, Inc.”) was 

operating at 973 Apricot Avenue, Campbell, California, for a period of time prior to 2003. In 2003, 

Water Babies, Inc., sold its Apricot Avenue property to another business with a similar name, called 

Waterbabies, LLC. Water Babies, Inc., then moved to 1027 Cherry Avenue in San Jose, California, 

and properly notified the IRS of its move. 

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United States District Court

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In 2007, the IRS determined that Water Babies, Inc., was entitled to a tax refund in the 

amount of $15,745.35, due to an overpayment that had occurred in 1999. Accordingly, it issued a 

refund check made out to Water Babies Swimming Schools, Inc. Instead of sending the check to 

Water Babies, Inc., at the Cherry Avenue address, however, the IRS mistakenly sent the check to 

Waterbabies, LLC, at the old Apricot Avenue address. Waterbabies, LLC, cashed the check. 

The complaint further alleges that representatives of Waterbabies, LLC, have acknowledged 

that they received the refund in error and recognized their obligation to repay the $15,745.35. 

Nonetheless, the refund has not been repaid. Defendant Waterbabies, LLC, has made no appearance 

in this lawsuit. Pursuant to the Government’s motion, the Clerk of Court entered default on October 

2, 2009. The Government now brings this motion for default judgment, requesting $18,012.78, 

which is the original $15,745.35 plus statutorily-defined interest. The motion was heard on January 

13, 2010. Defendant did not appear. 

III. STANDARD 

 Following entry of default, courts are authorized to grant default judgment in their 

discretion. See Fed. R. Civ. P. 55; Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In 

exercising its discretion, the court must consider the following factors: (1) the merits of the 

plaintiff's substantive claim; (2) the sufficiency of the complaint; (3) prejudice to the plaintiff; (4) 

the sum of money at stake; (5) potential disputes concerning material facts; (6) whether default was 

due to excusable neglect; and (7) the Federal Rules of Civil Procedure’s strong policy favoring 

decisions on the merits. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). In considering 

the factors above, all factual allegations in the plaintiff's complaint are taken as true, except for 

those relating to damages. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987). 

IV. DISCUSSION 

In this case, virtually all of the Eitel factors weigh in favor of granting the Government’s 

motion for default. As to the first three steps in the analysis, all of which relate to the merits of the 

Government’s claim, there can be no question that these factors favor the Government. The United 

States has statutorily-conferred authority to sue a taxpayer to recover an erroneous refund, plus 

interest. 26 U.S.C. §§ 6602, 7405. As to the fourth and fifth factors—the sum of money at stake 

and the possibility of dispute over the facts—the original amount in controversy is fixed at 

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United States District Court

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$15,745.35. It is difficult to imagine how this amount could be controverted, as the Government has 

provided a copy of the check that the IRS erroneously sent to Waterbabies, LLC. The interest on 

this amount is determined by I.R.S. regulation and is similarly unassailable. See I.R.C. §§ 6621, 

6602. That interest has now accrued to $2,267.43, bringing the total to $18,012.78. 

With respect to the sixth factor, it seems apparent that defendant’s default was not due to 

excusable neglect. The record contains an affidavit from IRS Officer Norwood Maddry, who avers 

that he served the complaint, summons, and case management order on Joey Dimicelli, the owner of 

Waterbabies, LLC. Thus, there is little doubt the defendant was aware of the instant lawsuit; and 

indeed, taking the complaint as stated for these purposes, it appears that several months of 

negotiations took place prior to the filing of the lawsuit. It is thus unlikely that excusable neglect is 

the reason for the defendant’s failure to appear before the Court. 

Finally, of course, the Federal Rules’ policy against entering default judgments must be 

considered. Generally speaking, “[c]ases should be decided upon their merits whenever reasonably 

possible.” Eitel, 782 F.2d at 1472. Here, Waterbabies, LLC, has been aware of this lawsuit since at 

least June 12, 2009, the day it was served; and it appears to have been conscious of its liability in 

this matter even longer. Yet it has failed to respond in any way. At this point, a decision on the 

merits is unlikely to be “reasonably possible.” Moreover, the other six Eitel factors all weigh in the 

Government’s favor. As a result, the courts’ general reluctance to enter default judgment should be 

overcome in this instance. Default judgment therefore is appropriate in this case. 

V. CONCLUSION 

Accordingly, the Government’s motion for default judgment is granted. A judgment is filed 

in accordance herewith. 

IT IS SO ORDERED. 

Dated: 01/15/2010 _______________________________ 

 RICHARD SEEBORG 

 United States District Judge 

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