Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-03127/USCOURTS-cand-3_14-cv-03127-2/pdf.json

Parties Involved:
AmeriCom Automation Services, Inc.
Defendant
McMillan Data Communications, Inc.
Plaintiff
Traci Pelayo
Defendant
Justin L. Pelayo
Defendant

Document Text:

Case No. 14-cv-03127 JD (NC)

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

MCMILLAN DATA 

COMMUNICATIONS, INC.,

Plaintiff,

v.

AMERICOM AUTOMATION 

SERVICES, INC., TRACI PELAYO,

JUSTIN L. PELAYO

Defendants.

Case No. 14-cv-03127 JD (NC)

REPORT AND 

RECOMMENDATION TO GRANT 

MOTION FOR DEFAULT 

JUDGMENT

Re: Dkt. No. 27

Plaintiff McMillan Data Communications, Inc. moves for entry of default judgment 

against defendants AmeriCom Automation Services, Inc., Traci Pelayo, and Justin Pelayo 

in this breach-of-contract action. McMillan alleges that AmeriCom hired McMillan to do 

construction work, but AmeriCom failed to pay for the services rendered. McMillan 

further alleges that Traci Pelayo and Justin Pelayo breached their promises to pay 

AmeriCom’s debt. 

Because McMillan has shown that AmeriCom, Traci Pelayo, and Justin Pelayo 

breached agreements with McMillan, this Court recommends to the district court that 

McMillan’s motion for default judgment be GRANTED as to McMillan’s claims for 

breach-of-contract, common counts (monies due, account stated, quantum meruit), breach 

of guarantee, and breach of promissory note, and hold defendants jointly and severally 

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liable for amounts owed. Specifically, the Court recommends that judgment be entered in 

McMillan’s favor in the amount of $389,930.39.

I. BACKGROUND

A. The Parties

Plaintiff McMillan Data Communications is a California corporation that executes

construction contracts. Dkt. No. 1 at ¶¶ 1-2. Defendant AmeriCom Automation Services, 

Inc. is a New Mexico corporation doing business in San Francisco, California. Id. at ¶ 3.

Defendant Traci Pelayo is the Chief Financial Officer of AmeriCom and a New Mexico 

citizen. Id. at ¶ 5. Defendant Justin Pelayo is the President and CEO of AmeriCom and a 

New Mexico citizen. Id. at ¶ 4.

B. Alleged Facts

McMillan executed a business contract with AmeriCom on February 21, 2013. Id.

at ¶ 14. Under this subcontract agreement, McMillan agreed to “supply labor, equipment, 

materials, and services” and complete work that AmeriCom directed McMillan to perform 

on a federal public works construction project located at Pacific Rim Region, 50 United 

Nations Plaza, San Francisco, California, in exchange for payment from AmeriCom. Id.

On February 22, 2013, AmeriCom CFO Traci Pelayo executed and delivered a

“written personal and continuing guarantee for the benefit” of McMillan. Id. at ¶ 39.

Under this personal guarantee, McMillan alleges that Traci Pelayo and defendants “jointly, 

severally, and individually guaranteed and promised to pay McMillan for all indebtedness 

of the AmeriCom Defendants to McMillan.” Id. at ¶ 39. This guarantee further specified 

that AmeriCom would pay McMillan within 30 days from the date of the invoices 

McMillan submitted to AmeriCom for work performed, and that a 1.5% per month fee 

would be applied to outstanding balances, computed on a daily basis. Id. at 31 (personal 

guarantee agreement).

McMillan states that it timely submitted invoices demanding payment for work 

performed, totaling $422,872.75. Id. at ¶ 17. According to McMillan, payments received 

from AmeriCom, or on AmeriCom’s behalf, total only $114,413.35, leaving an 

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outstanding amount due of at least $308,459.40. Dkt. No. 27-2 at ¶ 7. Despite demands 

for payment, neither AmeriCom nor Traci Pelayo has paid the $308.459.40 sum. Dkt. No. 

1 at ¶ 41. 

On September 5, 2013, AmeriCom president Justin L. Pelayo and AmeriCom 

entered into and executed a written promissory note to McMillan in the principle amount 

of $301,873.25, with interest. Id. at ¶ 43. This promissory note provided that AmeriCom 

and Justin Pelayo would pay McMillan monthly installments of $9,176.93 each. Id. at 

¶ 44. Under this promissory note, AmeriCom and Justin Pelayo “jointly and severally”

promised to pay not just the $301,873.25 principal, but also any “unpaid sums for which 

AmeriCom may become liable to McMillan, plus interest on the unpaid balance at six 

percent (6%) per annum[.]” Id. at 33 (promissory note). Since the promissory note’s 

execution, however, neither AmeriCom nor Justin Pelayo has made payments to 

McMillan. Id. at ¶ 46.

McMillan alleges that while it properly performed its work under the AmeriCom 

subcontract and timely submitted invoices to AmeriCom, defendants AmeriCom, Traci

Pelayo, and Justin Pelayo breached their respective contracts by failing to pay the balance 

owed to McMillan according to the terms of their agreements. Id. at 9-10.

C. Procedural History

McMillan filed its complaint on July 10, 2014, against AmeriCom, Traci Pelayo, 

and Justin Pelayo. Id. The complaint brings claims for breach of contract, common counts

(monies due, account stated, quantum meruit), breach of personal guarantee, and breach of 

promissory note. Id.

Because none of the defendants answered or responded to the complaint, McMillan 

filed a motion for entry of default, which the Clerk entered. Dkt. Nos. 17 (as to 

AmeriCom), 23 (as to Traci Pelayo and Justin Pelayo). McMillan then moved for default 

judgment. Dkt. No. 27. On April 17, 2015, the district court referred McMillan’s motion 

to this Court. Dkt. No. 35. After reviewing the motion, this Court ordered McMillan to 

show cause why it was entitled to triple the original amount of debt owed, double the 

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amount of attorney’s fees incurred, and why Justin Pelayo’s and AmeriCom’s promissory

note is not a novation. Dkt. No. 36. 

McMillan filed a response to the order to show cause, clarifying that it does not 

seek a multiple of its damages or attorney’s fees incurred; rather, McMillan states it “is 

only entitled to recover no more than McMillan’s compensable damages.” Dkt. No. 37 at 

1-2. Specifically, McMillan states that AmeriCom and Traci Pelayo (as a result of the 

personal guarantee) became jointly and severally liable to McMillan for the amount owed 

under the subcontract agreement, and “AmeriCom and Justin Pelayo, as co-signors on the 

Promissory Note, separately became jointly and severally liable for the principal amount of 

the Promissory Note, plus interest at 6% per annum and attorney’s fees.” Id. 

Put differently, “McMillan’s position is that it is entitled to recover a maximum of 

$389,930.39” from AmeriCom, with Traci Pelayo jointly and severally liable to the extent 

of $378,884.48 (as a function of the personal guarantee), and Justin Pelayo jointly and 

severally liable to the extent of $340,851.82 (as a function of the promissory note). Id. at 

2.

II. LEGAL STANDARD

A default may be entered against a party who fails to plead or otherwise defend an 

action and against whom a judgment for affirmative relief is sought. Fed. R. Civ. P. 55(a). 

After entry of default, a court has discretion to grant default judgment on the merits of the 

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

Federal Rule of Civil Procedure 55(b)(2) provides that a party must apply to the Court for 

default judgment. “If the party against whom a default judgment is sought has appeared 

personally or by a representative, that party or its representative must be served with 

written notice of the application at least 7 days before the hearing.” Fed. R. Civ. P. 

55(b)(2). “No party in default is entitled to 55(b)(2) notice unless he has ‘appeared’ in the 

action.” Wilson v. Moore & Assocs., Inc., 564 F.2d 366, 368 (9th Cir. 1977).

At the default judgment stage, the factual allegations of the complaint, except those 

concerning damages, “together with other competent evidence submitted” is deemed 

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admitted by the non-responding parties. Shanghai Automation Instrument Co. v. Kuei, 194 

F. Supp. 2d 995, 1000 (N.D. Cal. 2001); see also Geddes v. United Fin. Grp., 559 F.2d 

557, 560 (9th Cir. 1977). “However, a defendant is not held to admit facts that are not 

well-pleaded or to admit conclusions of law.” DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 

847, 854 (9th Cir. 2007) (quoting Nishimatsu Constr. Co. v. Houston Nat’l Bank, 515 F.2d 

1200, 1206 (5th Cir. 1975) (quotation marks omitted)). Therefore, “necessary facts not 

contained in the pleadings, and claims which are legally insufficient, are not established by 

default.” Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992) (citing

Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978)) (emphasis added); accord

DIRECTV, 503 F.3d at 854. 

In deciding whether to grant default judgment, the Court may then consider the 

following factors: (1) the possibility of prejudice to the plaintiff; (2) the merits of the 

plaintiff’s substantive claims; (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 favoring decisions on 

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

III. DISCUSSION

A. Jurisdiction

In considering whether to enter a default judgment, a district court first must 

determine whether it has jurisdiction over the subject matter and the parties. In re Tuli, 

172 F.3d 707, 712 (9th Cir. 1999). “[T]he district court is not restricted to the face of the 

pleadings, but may review any evidence, such as affidavits and testimony, to resolve 

factual disputes concerning the existence of jurisdiction.” McCarthy v. United States, 850 

F.2d 558, 560 (9th Cir. 1988) (considering subject matter jurisdiction on a 12(b)(1)

motion).

1. Subject Matter Jurisdiction

The Court has subject matter jurisdiction under 28 U.S.C. § 1332(a)(3), which gives 

federal district courts “original jurisdiction of all civil actions where the matter in 

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controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is 

between . . . citizens of different States and in which citizens or subjects of a foreign state 

are additional parties.” With McMillan claiming $389,930.39 total in damages, the

amount in controversy requirement is met. 

There is also complete diversity. McMillan is a California corporation with its 

principal place of business in California. Dkt. No. 1 at ¶ 1. AmeriCom is a corporation 

“organized and existing under the laws of the State of New Mexico” and a citizen of New 

Mexico. Dkt. No. 1 at ¶ 3. Traci Pelayo and Justin Pelayo are citizens of the State of New 

Mexico. Dkt. No. 1 at ¶¶ 4-5.

Because all defendants are diverse from plaintiff and the amount in controversy 

requirement is satisfied, the Court finds that it has diversity jurisdiction.

2. Personal Jurisdiction

“Without a proper basis for [personal] jurisdiction, or in the absence of proper 

service of process, the district court has no power to render any judgment against the 

defendant’s person or property unless the defendant has consented to jurisdiction or 

waived the lack of process.” S.E.C. v. Ross, 504 F.3d 1130, 1138-39 (9th Cir. 2007).

a. Basis for Personal Jurisdiction

To enter default judgment, the Court must also have a basis for the exercise of 

personal jurisdiction over the defendants in default. In re Tuli, 172 F.3d at 712. 

Traditional bases for conferring a court with personal jurisdiction include a defendant’s 

consent to jurisdiction, personal service of the defendant within the forum state, or a 

defendant’s citizenship or domicile in the forum state. J. McIntyre Mach., Ltd. v. Nicastro, 

131 S. Ct. 2780, 2787 (2011). Absent one of the traditional bases for jurisdiction, the Due 

Process Clause requires that the defendant have “certain minimum contacts with the forum 

‘such that the maintenance of the suit does not offend traditional notions of fair play and 

substantial justice.’” Int’l Shoe Co. v. State of Wash., 326 U.S. 310, 316 (1945) (citations 

and internal quotation marks omitted). 

In determining whether the exercise of personal jurisdiction over a nonresident 

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defendant is proper, a district court must apply the law of the state in which it sits where, 

as here, there is no applicable federal statute governing personal jurisdiction. Panavision 

Int’l, L.P. v. Toeppen, 141 F.3d 1316, 1320 (9th Cir. 1998). District courts in California 

may exercise personal jurisdiction over a nonresident defendant to the extent permitted by 

the Due Process Clause of the Constitution. Cal. Code. Civ. P. § 410.10.

The party seeking to invoke jurisdiction has the burden of establishing that 

jurisdiction is proper. Flynt Distrib. Co. v. Harvey, 734 F.2d 1389, 1392 (9th Cir. 1984). 

That party need only make a prima facie showing of jurisdictional facts when the court 

does not conduct an evidentiary hearing regarding personal jurisdiction. Fiore v. Walden, 

657 F.3d 838, 846 (9th Cir. 2011) (citation omitted). However, “mere ‘bare bones’

assertions of minimum contacts with the forum or legal conclusions unsupported by 

specific factual allegations will not satisfy a plaintiff’s pleading burden.” Fiore, 657 F.3d 

at 846-47 (citation omitted). 

Personal jurisdiction may be founded on either general jurisdiction or specific 

jurisdiction.

i. General Jurisdiction 

General jurisdiction exists when a nonresident defendant is domiciled in the forum 

state or his activities in the forum are “substantial” or “continuous and systematic.” 

Panavision, 141 F.3d at 1320 (internal quotation marks omitted). To determine whether a 

nonresident defendant’s contacts are sufficiently substantial or continuous and systematic, 

a court must consider their “longevity, continuity, volume, economic impact, physical 

presence, and integration into the state’s regulatory or economic markets.” Mavrix Photo, 

Inc. v. Brand Techs., Inc., 647 F.3d 1218, 1224 (9th Cir. 2011) (citations and internal 

quotation marks omitted).

Here, McMillan does not contend that the Court has general jurisdiction over 

defendants and alleges no facts to establish that the defendants’ contacts with California 

are substantial or continuous and systematic. Therefore, the exercise of general personal 

jurisdiction over defendants is unjustified.

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ii. Specific Jurisdiction 

Yet when the nonresident defendant’s contacts with the forum are insufficiently 

pervasive to subject him to general personal jurisdiction, the court must ask whether the 

“nature and quality” of his contacts are sufficient to exercise specific personal jurisdiction 

over him. Data Disc, Inc. v. Sys. Tech. Assocs., Inc., 557 F.2d 1280, 1287 (9th Cir. 1977). 

A court may exercise specific personal jurisdiction over a nonresident defendant if (1) the 

nonresident defendant purposefully directs his activities at the forum or performs some act 

by which he purposefully avails himself of the privilege of conducting activities in the 

forum, thereby invoking the benefits and protections of its laws; (2) the plaintiff’s claim 

arises out of the forum-related activities of the nonresident defendant; and (3) the exercise 

of jurisdiction over the nonresident defendant is reasonable. Schwarzenegger v. Fred 

Martin Motor Co., 374 F.3d 797, 802 (9th Cir. 2004). The plaintiff bears the burden of 

satisfying the first two of these three elements; if the plaintiff fails to establish either of 

them, specific personal jurisdiction over the nonresident defendant is improper. Id. 

(citations omitted). If the plaintiff satisfies the first two prongs, the burden then shifts to 

the defendant to “present a compelling case” that the exercise of jurisdiction would not be 

reasonable. Id. (citations and internal quotation marks omitted).

The first prong of the specific jurisdiction test is satisfied by either “purposeful 

availment” or “purposeful direction” by the defendant. Brayton Purcell LLP v. Recordon 

& Recordon, 606 F.3d 1124, 1128 (9th Cir. 2010); see also Yahoo! Inc. v. La Ligue Contre 

Le Racisme Et L’Antisemitisme, 433 F.3d 1199, 1206 (9th Cir. 2006) (noting that the first 

step “may be satisfied by purposeful availment of the privilege of doing business in the 

forum; by purposeful direction of activities at the forum; or by some combination 

thereof.”). “A purposeful availment analysis is most often used in suits sounding in 

contract. A purposeful direction analysis, on the other hand, is most often used in suits 

sounding in tort.” Schwarzenegger, 374 F.3d at 802 (internal citations omitted).

Under a purposeful availment analysis, “[a] showing that a defendant purposefully 

availed himself of the privilege of doing business in a forum state typically consists of 

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evidence of the defendant’s actions in the forum, such as executing or performing a 

contract there.” Id. By taking such actions, a defendant “purposefully avails itself of the 

privilege of conducting activities within the forum State, thus invoking the benefits and 

protections of its laws.” Id. (internal quotation marks and citation omitted). “This 

purposeful availment requirement ensures that a defendant will not be haled into a 

jurisdiction solely as a result of random, fortuitous, or attenuated contacts. . . .” Burger 

King v. Rudzewicz, 471 U.S. 462, 475 (1985) (internal quotation marks and citations 

omitted). 

When the exercise of personal jurisdiction over a defendant is based on the 

execution or performance of a contract, the court must “use a highly realistic approach that 

recognizes that a contract is ordinarily but an intermediate step serving to tie up prior 

business negotiations with future consequences which themselves are the real object of the 

business transaction.” Id. at 479 (internal quotation marks and citation omitted). 

Accordingly, to determine whether the purposeful availment requirement is met, the court 

must look to the contract’s “prior negotiations and contemplated future consequences, 

along with the terms of the contract and the parties’ actual course of dealing. . . .” Id.

Here, turning to defendants’ minimum contacts, the purposeful availment 

requirement is met for all of McMillan’s claims. In February 2013, AmeriCom executed a 

subcontract agreement with McMillan to perform work on a construction project located in 

California. See, e.g., Dkt. No. 1 at 16 (invoice identifying the project’s address as “50 

UNITED NATIONS PL” located in San Francisco). The agreement specifically identified 

McMillan’s principal place of business as located in San Francisco, California. Id. at 12.

As to the invoices that McMillan submitted to AmeriCom demanding payment for work 

performed under the subcontract, nearly all of them list “450 Golden Gate, San Francisco, 

CA 94102” as the shipping address. Id. at 17-29. In addition to the subcontract 

agreement, AmeriCom CFO Traci Pelayo also entered into a Credit Application for a 

Business Account, by which she personally agreed to guarantee and promised to pay 

AmeriCom’s obligations to McMillan for the work completed in California. Id. at 31. 

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Seven months after the subcontract agreement’s formation, CEO Justin Pelayo and 

AmeriCom executed a promissory note to pay McMillan for the work completed on the 

San Francisco project in monthly installments. This promissory note specifically states 

that it must be construed according to and governed by California state law. Id. at 35.

According to McMillan, it did receive payments from AmeriCom of $114,413.35. Dkt. 

No. 27-2 at ¶ 7.

To summarize, in executing agreements related to a project located in California

with a California-based entity, and agreeing to make continual payments to a Californiabased entity on the basis of submitted invoices concerning materials shipped to California 

and labor performed in California, defendants purposefully availed themselves of the 

privileges of doing business in this forum state. See JBR, Inc. v. Cafe Don Paco, Inc., No. 

12-cv-02377 NC, 2014 U.S. Dist. LEXIS 142866, at *19 (N.D. Cal. Aug. 25, 2014)

(“Negotiating three loan agreements with a California corporation, having continuing 

obligations to make payments on these loans in the form of coffee shipments to California, 

and the choice of law provision are sufficient to show that [defendant] purposefully availed 

itself of the privilege of conducting activities in California.”).

McMillan’s claims also arise out of the forum-related activities of nonresident 

defendants, AmeriCom, Traci Pelayo, and Justin Pelayo. See McGee v. Int’l Life Ins. Co., 

355 U.S. 220, 223 (1957) (holding that “the Due Process Clause did not preclude the 

California court from entering a judgment binding on [the defendant]” because “the suit 

was based on a contract which had substantial connection with that State”). McMillan’s 

claims arise out of defendants’ failure to fully repay McMillan for services performed on a 

California project. Dkt. No. 1 at ¶¶ 13-47. Given the nature of the relationship between 

each of three defendants and McMillan, the Court finds that personal jurisdiction over 

defendants AmeriCom, Traci Pelayo, and Justin Pelayo is reasonable. 

b. Service of Process

Personal jurisdiction also requires notice that is “reasonably calculated, under all the 

circumstances, to apprise interested parties of the pendency of the action and afford them 

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an opportunity to present their objections.” Mullane v. Cent. Hanover Bank & Trust Co., 

339 U.S. 306, 314 (1950). “A federal court does not have jurisdiction over a defendant 

unless the defendant has been served properly under [Federal Rule of Civil Procedure 4].” 

Direct Mail Specialists, Inc. v. Eclat Computerized Techs., Inc., 840 F.2d 685, 688 (9th 

Cir. 1988). 

Here, the Court finds that defendants AmeriCom, Traci Pelayo, and Justin Pelayo 

were properly served with a summons and complaint. Dkt. Nos. 16 (as to AmeriCom), 22 

(as to Traci Pelayo and Justin Pelayo). Defendants have failed to plead or otherwise 

defend themselves in this action and therefore judgment may be entered against them. See

Fed. R. Civ. P. 55(a). 

3. Venue

“[V]enue, like jurisdiction over the person, may be waived. A defendant, properly 

served with process by a court having subject matter jurisdiction, waives venue by failing 

seasonably to assert it, or even simply by making default.” Hoffman v. Blaski, 363 U.S. 

335, 343 (1960). Given that all defendants have been properly served, default was entered 

as to all defendants, and they have failed to object to venue in the Northern District, venue 

has been waived.

B. Default Judgment

The seven Eitel factors weigh in favor of entering default judgment as to all claims

against AmeriCom, Traci Pelayo, and Justin Pelayo. The Court examines each of these 

factors below.

1. Prejudice to McMillan

The first factor the Court considers is the possibility of prejudice to the plaintiff if 

default judgment is not granted. Eitel, 782 F.2d at 1471. If plaintiff would be without a 

remedy if default judgment is denied, this factor weighs in favor of granting default 

judgment. See, e.g., IO Grp., Inc. v. Jordon, 708 F. Supp. 2d 989, 997 (N.D. Cal. 2010) 

(finding that plaintiffs in copyright infringement action would be prejudiced because they 

would be without recourse to stop defendant’s infringement or to recover for the harm and 

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damages suffered).

Here, McMillan has spent the past year trying to resolve this matter in court. Dkt. 

No. 1. If default judgment is not granted, McMillan would have no other recourse to 

recover for the harm defendants have caused them. As such, McMillan will suffer 

prejudice if default judgment is not granted.

Thus, this Court finds that this factor favors granting default judgment.

2. Merits and Sufficiency of the Claim

The second and third Eitel factors focus on the merits of plaintiff’s substantive 

claims and the sufficiency of the complaint. Eitel, 782 F.2d at 1471. “Together, these 

factors require that plaintiff assert claims upon which it may recover.” IO Grp., 708 F.

Supp. 2d at 989 (citing Philip Morris USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 

500 (C.D. Cal. 2003)). In this procedural posture, a court must take “the well-pleaded 

factual allegations” in the complaint as true; however, the “defendant is not held to admit 

facts that are not well-pleaded or to admit conclusions of law.” DIRECTV, 503 F.3d at 854 

(internal quotation marks and citation omitted). “[N]ecessary facts not contained in the 

pleadings, and claims which are legally insufficient, are not established by default.”

Cripps, 980 F.2d at 1267 (citation omitted). Here, McMillan moves for default judgment 

on three separate breach-of-contract claims against defendants as well as common counts 

claims against AmeriCom.

As a threshold matter, this Court finds that, under California choice of law rules, 

contracting parties may agree to what law controlled “unless the choice is contrary to a 

fundamental interest of a state with a materially greater interest.” Cripps, 980 F.2d at 1267; 

see Rennick v. O.P.T.I.O.N. Care, Inc., 77 F.3d 309, 313 (9th Cir. 1996) (“A district court 

sitting in diversity generally must apply the choice of law rules for the state in which it 

sits.”). 

Here, the parties specifically chose to apply New Mexico law to the AmeriCom 

subcontract agreement, Dkt. No. 1 at 14, and California law to the promissory note, id. at 

35. Thus, this Court will apply New Mexico law to McMillan’s breach-of-contract claim 

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as to the AmeriCom subcontract agreement. For all other claims, this Court will apply 

California law.

a. Breach of Contract against AmeriCom

The elements of a breach of contract under New Mexico law are existence of the 

contract, breach of the contract, causation, and damages. See Abreu v. N.M. Children, 

Yough and Families Dep’t, 797 F. Supp. 2d 1199, 1247 (D.N.M. 2011) (citing Camino 

Real Mobile Home Park P’ship v. Wolfe, 119 N.M. 436, 442 (1995)).

Here, McMillan has alleged facts sufficient to establish a breach-of-contract claim 

against AmeriCom. McMillan alleges that AmeriCom breached an agreement to provide 

payment for construction services. Dkt. No. 1 at ¶¶ 13-20. The terms of the contract 

stated that McMillan would perform construction work and send regular invoices to 

AmeriCom, and that AmeriCom would pay the amounts owed. Id. McMillan alleges that 

it performed as required under the contract by providing all necessary labor, materials, 

equipment, and services under the subcontractor agreement and timely submitting invoices 

demanding payment for work performed. Id. at ¶¶ 16-17. According to the complaint, 

AmeriCom breached that contract by failing to pay McMillan as promised, resulting in 

damages to McMillan of at least $308,459.40 Id.

Accepting all factual allegations as true, McMillan has adequately demonstrated a 

substantial likelihood of success on the merits of its breach-of-contract claim.

b. Common Counts against AmeriCom

In addition to McMillan’s breach-of-contract claim, the facts also support 

McMillan’s actions for monies due, account stated, and quantum meruit against 

AmeriCom. 

i. Monies Due 

The elements of an action for money or goods had and received are “(1) a statement 

of indebtedness of a certain sum, (2) the consideration made by the plaintiff, and (3) 

nonpayment of the debt.” Don Paco, 2014 U.S. Dist. LEXIS 142866, at *19 (citing First 

Interstate Bank v. State of California, 197 Cal. App. 3d 627, 635 (1987)). The Court finds 

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that the same factual allegations that support McMillan’s breach of contract claim, 

accepted as true, also support a monies-due claim. See Bank of the W. v. RMA Lumber 

Inc., No. 07-cv-06469 JSW, 2008 WL 2474650, at *4 (N.D. Cal. June 17, 2008) (finding 

allegations that established a breach of contract claim also established a claim for money 

due). Thus McMillan has established a likelihood of success on the merits on the monies 

due claim.

ii. Account Stated

“An account stated is an agreement, based on prior transactions between the parties, 

that the items of an account are true and that the balance struck is due and owing.” Luxul 

Tech., Inc. v. Nectarlux, LLC, No. 14-cv-03656 LHK, 2015 U.S. Dist. LEXIS 8802, at *33 

(N.D. Cal. Jan. 26, 2015) (citing Maggio, Inc. v. Neal, 196 Cal. App. 3d 745 (1987)). The

three essential elements of an account-stated claim include: “(1) previous transactions 

between the parties establishing the relationship of debtor and creditor; (2) an agreement 

between the parties, express or implied, on the amount due from the debtor to the creditor; 

(3) a promise by the debtor, express or implied, to pay the amount due.” Id. (citing Zinn v. 

Fred R. Bright Co., 271 Cal. App. 2d 597, 600 (1969)).

Here, McMillan alleges that AmeriCom, being indebted to McMillan upon accounts 

stated between them, promised to pay McMillan on the basis of the amounts listed on 

McMillan’s submitted invoices. Dkt. No. 1 at ¶ 29, 12 (“Section 3. Price and Payment 

Terms”). McMillan further alleges that AmeriCom received the invoices but failed to

satisfy the outstanding invoices and pay amounts due. Id. at ¶¶ 17, 30. Taking 

McMillan’s factual allegations as true, the Court concludes that McMillan will likely 

succeed on the merits of this claim.

iii. Quantum Meruit

“Quantum meruit (or quasi-contract) is an equitable remedy implied by the law 

under which a plaintiff who has rendered services benefiting the defendant may recover

the reasonable value of those services when necessary to prevent unjust enrichment of the 

defendant.” Chunghwa Telecom Global, Inc. v. Medcom, LLC, 13-cv-02104 HRL, 2013 

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U.S. Dist. LEXIS 149165, 20-21 (N.D. Cal. Oct. 16, 2013) (citing In re De Laurentiis 

Entertainment Group, Inc., 963 F.2d 1269, 1272 (9th Cir. 1992)). 

Here, McMillan alleges that it rendered services (e.g., labor, goods, and materials) 

that benefited AmeriCom, who would indeed be unjustly enriched if McMillan was not 

compensated the over $300,000 it is owed. Dkt. No. 1 at ¶ 26-27. Thus McMillan has 

established a likelihood of success on the merits on this quantum-meruit claim.

c. Breach of Guarantee against Traci Pelayo

In California, a complaint for breach of guarantee requires: (1) the existence of a 

contract; (2) plaintiff’s performance or excuse for non-performance under the contract; (3) 

defendant’s breach under the contract; and (4) damages. Kennedy Funding, Inc. v. 

Chapman, No. 09-cv-01957 RS, 2010 U.S. Dist. LEXIS 60475, at *18 (N.D. Cal. June 18, 

2010) (citing Acoustics, Inc. v. Trepte Constr. Co., 14 Cal. App. 3d 887, 913 (1992)); see 

also, Bank of Sierra v. Kallis, 2006 WL 3513568, at *7 (E.D. Cal. Dec. 6, 2006) (breach of 

a written guarantee is a contractual cause of action and requires proof of the same elements 

as breach of contract).

Here, McMillan has alleged facts sufficient to establish a breach-of-guarantee claim 

against Traci Pelayo. McMillan alleges that Traci Pelayo breached an agreement in the 

form of a personal guarantee, a copy of which McMillan also attached to the complaint. 

Dkt. No. 1 at 31. According to McMillan, Traci Pelayo “jointly, severally and individually 

guaranteed and promised to pay McMillan for all indebtedness of the AmeriCom 

Defendants to McMillan.” Id. at ¶ 39. Indeed, the terms of the personal guarantee state “I 

hereby personally, individually and unconditionally guarantee payment of whatever 

amount, which at any time shall be owing to [McMillan] on account of goods and services 

and delivered, after the date thereof.” Id. at 31. McMillan alleges that it performed under 

the contract by submitting invoices and that Traci Pelayo breached her guarantee by failing 

to pay McMillan as promised. Id. at ¶ 38-41. McMillan alleges that it suffered damages in 

the amount of at least $308,459.40 because of Traci Pelayo’s breach. Id. at ¶ 41. 

Accepting all factual allegations as true, McMillan has adequately demonstrated a 

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substantial likelihood of success on the merits of its breach-of-guarantee claim.

d. Breach of Promissory Note Against AmeriCom and Justin Pelayo

The elements of a breach of contract under California law are “the existence of the 

contract, performance by the plaintiff or excuse for nonperformance, breach by the 

defendant and damages.” First Commercial Mortg. Co. v. Reece, 89 Cal. App. 4th 731, 

745 (2001).

Here, McMillan alleges that AmeriCom and Justin Pelayo breached an agreement to 

provide payment for construction services. The terms of the promissory note stated that 

AmeriCom or Justin Pelayo would pay McMillan monthly installments of $9,176.93. Dkt. 

No. 1 at ¶ 44. McMillan alleges that it performed as required under the promissory note. 

Id. at ¶ 45. According to the complaint, AmeriCom and Justin Pelayo breached the 

promissory note by failing to pay McMillan as promised, resulting in damages to 

McMillan of at least $301,873.25 (the principal balance on the promissory note). Id. at 46. 

Accepting all factual allegations as true, McMillan has adequately demonstrated a 

substantial likelihood of success on the merits of its breach-of-contract claim against 

AmeriCom and Justin Pelayo based on the promissory note.

3. Sum of Money at Stake

The fourth factor weighs in favor of default judgment for McMillan. Under this 

factor, “the Court must consider the amount of money at stake in relation to the seriousness 

of [d]efendant’s conduct.” Dr. JKL Ltd., v. HPC IT Educ. Ctr., 749 F. Supp. 2d 1038, 

1050 (N.D. Cal. 2010) (internal quotation marks and citation omitted). “If the sum of 

money at issue is reasonably proportionate to the harm caused by the defendant’s actions, 

then default judgment is warranted.” Walters v. Statewide Concrete Barrier, Inc., No. 04-

cv-02559 JSW (MEJ), 2006 WL 2527776, at *4 (N.D. Cal. 2006). In determining if the 

amount at stake is reasonable, the Court may consider a plaintiff’s declarations, 

calculations, pay stubs, and other documentation of damages. See Truong Giang Corp. v. 

Twinstar Tea Corp., No. 06-cv-03594 JSW, 2007 WL 1545173, at *12 (N.D. Cal. 2007).

Here, plaintiff seeks a maximum of $389,930.39 from AmeriCom (consisting of 

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$308,459.40 in principal, plus $62,490.49 in prejudgment interest, and $18,980.50 for 

attorneys’ fees and costs). Dkt. No. 37 at 2. Additionally, McMillan seeks to hold Traci 

Pelayo jointly and severally liable to the extent of $378,884.48 (consisting of $308,459.40 

in principal, plus $70,425.08 in prejudgment interest), and Justin Pelayo jointly and 

severally liable to the extent of $340,851.82 (consisting of $301,873.25 in principal, plus 

$19,998.07 in prejudgment interest, and $18,980.50 for attorneys’ fees and costs). Id. 

McMillan concedes that its total amount of recovery is limited by its actual damages of 

$389,930.39. Id.

The Court finds that the amount at stake, though significant, is reasonably 

proportionate to the harm caused by defendant’s breach. See Canadian Nat. Ry. Co. v. 

Phoenix Logistics, Inc., No. 11-cv-04589 EMC, 2012 WL 1476978, at *2 (N.D. Cal. 2012) 

(finding default judgment warranted where plaintiff’s damages were “limited to damages 

that would be reasonably expected to put Plaintiff in the same position had Defendant 

fulfilled its contractual obligations”); but cf. Truong Giang Corp. v. Twinstar Tea Corp., 

No. 06-cv-03594 JSW, 2007 WL 1545173, at *12 (N.D. Cal. May 29, 2007) (“Default 

judgment is disfavored where the sum of money at stake is too large or unreasonable in 

light of defendant’s actions.”).

The Court also finds the prejudgment interest that McMillan seeks reasonable. As 

to the subcontract agreement with AmeriCom, McMillan seeks a prejudgment amount of 

15 percent annually on its compensatory damages based on New Mexico law, which 

allows prejudgment interest in the amount of 15 percent annually in cases on money due 

by contract. Dkt. No. 27-1 at 20; N.M. Stat. Ann. § 56-8-3. For the Traci Pelayo 

guarantee agreement, McMillan seeks a prejudgment amount of 18 percent annually on the 

balance due. Dkt. No. 27-1 at 20. The Court notes that usury law in California limits 

interests rates on a loan or forbearance to the higher of either 10 percent, or five percent 

above the interbank rate charged by the Federal Reserve Bank of San Francisco. Cal. 

Const. art. XV, § 1. This case, however, involves debtor Traci Pelayo’s voluntary default, 

which, under state law, renders the agreement not subject to usury law. See Southwest 

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Concrete Prods. v. Gosh Constr. Corp., 51 Cal.3d 701, 706 (1990) (“[A] debtor cannot 

bring his creditor to the penalties of the Usury Law by his voluntary default in respect to 

the obligation involved where no violation of law is present at the inception of the 

contract.”) (quoting Sharp v. Mortgage Sec. Co., 215 Cal. 287, 291 (1933)) (internal 

quotation marks omitted); see also Chevron TCI, Inc. v. Carbone Properties Manager, 

LLC, No. 08-cv-00782 JCS, 2009 WL 929060, at *7 (N.D. Cal. Apr. 3, 2009) (discussing 

exceptions to usury law application under California law). Finally, as to the AmeriCom 

and Justin Pelayo promissory note, the Court also finds the much lower 6 percent per 

annum interest rate specified in the agreement reasonable. 

4. Possibility of a Dispute of Material Fact

The fifth Eitel factor—possibility of a dispute concerning the material facts—also 

weighs in favor of default judgment. Because the defendants have not made an effort to 

challenge the complaint, there is nothing to suggest that a dispute in the facts exists. See 

Transamerica Life Ins. Co. v. Estate of Ward, No. 11-cv-00433 JAM (EFB), 2011 WL 

5241257, at *4 (E.D. Cal. 2011) (finding that “there is a very low likelihood that any 

genuine issue of fact exists” because “the court [assumes] the truth of the well-pleaded 

facts in the complaint following the clerk’s entry of default”); see also W. Reserve Life 

Assur. Co. of Ohio v. Canul, No. 11-cv-07151 AWI (JLT), 2012 WL 844589, at *3 (E.D.

Cal. 2012) (“[T]here is little possibility of dispute concerning material facts because (1) 

based on the entry of default, the Court accepts all allegations in Plaintiff’s Complaint as 

true and (2) Defendant has not made any effort to challenge the Complaint or otherwise 

appear in this case.”).

5. Excusable Neglect

The sixth Eitel factor—whether the default was due to excusable neglect—also 

weighs in favor of default judgment. Excusable neglect is an equitable concept and “takes 

account of factors such as ‘prejudice, the length of the delay and impact on judicial 

proceedings, the reason for the delay, including whether it was within the reasonable 

control of the [defendant], and whether the [defendant] acted in good faith.’” TCI Grp. 

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Life Ins. Plan v. Knoebber, 224 F.3d 691, 696 (9th Cir. 2001) (quoting Pioneer Inv. Servs. 

Co. v. Brunswick Assocs. L.P., 507 U.S. 380, 395 (1993)). Generally, courts will not find a 

defendant’s failure to participate excusable where the defendant has been properly served 

and has notice of the entry of default and the motion for default judgment. Shanghai 

Automation Instrument, 194 F. Supp. 2d at 1005.

Here, the defendants were all properly served with the summons, complaint, and the 

motion for default judgment. There is presently no evidence before the Court that would 

suggest that default was due to excusable neglect. Thus, this factor weights in favor of 

granting default judgment against the defendants.

6. Policy favoring a decision on the merits

Finally, there is a strong policy favoring decisions on the merits that weighs against 

entering default judgment. Eitel, 782 F.2d at 1472. The existence of Federal Rule of Civil 

Procedure 55(b), however, shows that this policy is not dispositive. Kloepping v. 

Fireman’s Fund, No. 94-cv-02684 TEH, 1996 WL 75314, at *3 (N.D. Cal. Feb. 13, 1996). 

And a defendant’s failure to appear makes a decision on the merits impracticable, if not 

impossible. Craigslist, Inc. v. Naturemarket, Inc., 694 F. Supp. 2d 1039, 1061 (N.D. Cal. 

2010) (internal citation and quotation marks omitted). Given AmeriCom’s, Traci Pelayo’s, 

and Justin Pelayo’s failure to respond to this action, a decision on the merits is impractical 

in this case. W. Conference of Teamsters Pension Plan v. Jennings, No. 10-cv-03629 

EDL, 2011 WL 2609858, at *4 (N.D. Cal. June 6, 2011).

In light of the other factors in favor of default judgment, this policy factor is not 

dispositive and the Court finds that, on the balance, the Eitel factors weigh in favor of 

entering default judgment against AmeriCom, Traci Pelayo, and Justin Pelayo. See 

Transamerica Life Ins., 2011 WL 5241257, at *4 (finding that the policy favoring 

decisions on the merits does not by itself preclude entry of default judgment).

C. Damages

1. Principal and Prejudgment Interest

McMillan has the burden of “proving up” its damages. See Bd. of Trs. of the 

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Boilermaker Vacation Trust v. Skelly, Inc., No. 04-cv-02841 CW, 2005 WL 433462, at *2 

(N.D. Cal. 2005) (“Plaintiff has the burden of proving damages through testimony or 

written affidavit.”). “It is well settled that a default judgment for money may not be 

entered without a hearing unless the amount claimed is a liquidated sum or capable of 

mathematical calculation.” Davis v. Fendler, 650 F.2d 1154, 1161 (9th Cir. 1981).

Here, the Court finds that McMillan, by providing the AmeriCom subcontract 

agreement, as well as evidence of invoices detailing the unpaid amounts, has sufficiently 

proven its actual damages under the contract in the amount of $308,459.40 in principal,

plus $62,490.49 in prejudgment interest, for a total of $370,949.89. Dkt. Nos. 1 at 11-29, 

27-3 at 1-15. Additionally, as already stated, Traci Pelayo is jointly and severally liable to 

the extent of $378,884.48 ($308,459.40 in principal, plus $70,425.08 in prejudgment 

interest), and Justin Pelayo is jointly and severally liable to the extent of $321,871.32

($301,873.25 in principal, plus $19,998.07 in prejudgment interest). The Court finds these 

damages capable of calculation without a hearing.

2. Attorneys’ Fees and Costs

In addition, McMillan has sufficiently supported its claims for attorneys’ fees under 

the AmeriCom subcontract agreement and the Justin Pelayo promissory note. The 

AmeriCom subcontract agreement states that the “[p]revailing party in any dispute shall be 

entitled to an award of its attorney’s fees and costs incurred.” Dkt. No. 1 at 14 (Section 

10.2). AmeriCom’s and Justin Pelayo’s promissory note also states “Makers [Justin 

Pelayo and AmeriCom], and each of them, agree to pay reasonable attorney’s fees, costs, 

and expenses incurred in any attempt to enforce this Note . . . .” Dkt. No. 1 at 34 

(paragraph 6 entitled “Collection Costs”). 

To determine a reasonable attorneys’ fee, or “lodestar,” the starting point is the 

number of hours reasonably expended multiplied by a reasonable hourly rate. See Hensley 

v. Eckerhart, 461 U.S. 424, 433 (1983). The Court, in considering what constitutes a 

reasonable hourly rate, looks to the prevailing market rate in the relevant community. 

Blum v. Stenson, 465 U.S. 886, 895 (1984).

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Here, McMillan’s attorney Patricia Walsh submitted a sworn declaration accounting 

for hours and costs spent on this litigation through the time just before filing the default 

judgment motion. Dkt. Nos. 27-4 (declaration), 27-5 (billing entries and draft bill for 

time). The declaration and exhibits account for plaintiff’s attorneys’ time in sufficient

detail, and given the nature of the claims and motions filed, the Court finds the total 

claimed hours spent on this case to be reasonable. Dkt. No. 27-5 (totaling approximately 

53 hours and $721.50 in costs).

As to the hourly rate, Patricia Walsh attests that her hourly rate in 2013 was $375, 

and in 2014, $385. Dkt. No. 27-4 at ¶¶ 13-14. She also attests that the hourly wages of the 

other attorneys working on the case, Michael M. Lum and Deborah L. Goodman, were

$355 and $315, respectively. Id. Patricia Walsh has practiced law since 1985; Michael M. 

Lum since 2001; and Deborah Goodman since 2011. The billing invoices establish that 

McMillan incurred $18,259.00 in fees. 

The Court finds the hourly rate to be reasonable in this case and awards a total of 

$18,980.50 in attorneys’ fees and costs. Because it is the AmeriCom subcontract 

agreement, and AmeriCom’s and Justin Pelayo’s promissory note that provides for the 

recovery of attorneys’ fees and costs, the Court holds AmeriCom and Justin Pelayo jointly 

and severally liable as to this $18,980.50 amount.

//

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IV. CONCLUSION

The Court recommends that the default judgment be GRANTED as to McMillan’s

claims for breach of contract, common counts, breach of guarantee, and breach of 

promissory note. Accordingly, the Court recommends that damages be awarded to 

McMillan in the maximum amount of $389,930.39 from AmeriCom (consisting of 

$308,459.40 in principal, plus $62,490.49 in prejudgment interest, and $18,980.50 for 

attorneys’ fees and costs), with Traci Pelayo jointly and severally liable to the extent of 

$378,884.48 (consisting of $308,459.40 in principal, plus $70,425.08 in prejudgment 

interest), and Justin Pelayo jointly and severally liable to the extent of $340,851.82 

(consisting of $301,873.25 in principal, plus $19,998.07 in prejudgment interest, and 

$18,980.50 for attorneys’ fees and costs). 

Any party may object to this recommendation within 14 days. Fed. R. Civ. P. 72. 

IT IS SO ORDERED.

Dated: June 30, 2015 _____________________________________

NATHANAEL M. COUSINS

United States Magistrate Judge

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