Capitol Specialty Insurance Corporation v. Chaldean LLC

• Court: District Court, D. Arizona
• Decided: July 26, 2022
• Docket: 2:21-cv-00342
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Capitol Specialty Insurance Corporation, No. CV-21-00342-PHX-MTL

10 Plaintiff, ORDER

11 v.

12 Chaldean LLC, et al.,

13 Defendants. 14 15 Plaintiff Capitol Specialty Insurance Corporation (“Plaintiff” or “Capitol”) moves 16 for default judgment against the remaining defendants in this action: Chaldean, LLC 17 (“Chaldean”), George Jajo (“Jajo”), and Isrrael Millan (“Millan”) (collectively 18 “Defendants”) pursuant to Fed. R. Civ. P. 55(b)(2). (Doc. 46.) For the following reasons, 19 Plaintiff’s motion is granted in part and denied in part. 20 I. BACKGROUND 21 Plaintiff filed its Complaint on February 26, 2021, (Doc. 1) and then its First 22 Amended Complaint on May 5, 2021 (“FAC”). (Doc. 22.) The Court takes the FAC’s 23 factual allegations as true because the Clerk entered default (Doc. 45). See Geddes v. 24 United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977) (“The general rule of law is that upon 25 default the factual allegations of the complaint, except those relating to the amount of 26 damages, will be taken as true.”). 27 The FAC alleges claims for common law fraud and statutory fraud against all 28 Defendants, breach of contract against Defendants Jajo and Chaldean, and unjust 1 enrichment against Defendant Millan. (Doc. 22 ¶¶ 53-79.) The Court has jurisdiction to 2 hear this action and over the Defendants.1 3 The basis for this action is as follows: On May 31, 2019, Defendant Millan, along 4 with another individual who is not named in this suit, rented a U-Haul truck and purchased 5 $1,000,000 in liability coverage through an entity called Repwest. (Id. ¶ 17.) On June 2, 6 2019, that U-Haul truck “intentionally . . . backed into the Sunshine Market storefront,” 7 which is owned and operated by Defendants Chaldean and Jajo. (Id. ¶¶ 12, 20-21.) 8 On June 6, 2019, Defendant Jajo opened Claim No. 197363 with Plaintiff, “alleging 9 that a U-Haul vehicle . . . backed into the Sunshine Market storefront, causing damage to 10 the building and personal property inside the building, including contents and inventory.” 11 (Id. ¶ 20.) Around that time, Defendant Jajo “hired” Defendant Millan and his company, 12 Patron Construction, “to act as the general contractor to repair and remediate the self- 13 inflicted damage to Sunshine Market.” (Id. ¶ 23.) When another entity was hired to adjust 14 Sunshine Market’s loss, it observed that “the entire interior was gutted, including all 15 fixtures and inventory.” (Id. ¶ 25.) Although Defendant Jajo claimed that Defendant 16 Millan and his company “disposed of all the broken and damaged inventory and personal 17 property . . . [he] [did] not have documentation of the items that were allegedly tossed 18 away.” (Id. ¶ 26.) 19 Plaintiff then retained another entity, Servpro, to assist “with documenting and 20 counting the Sunshine Market inventory to determine the amount of damages and/or 21 expired items remaining in the store.” (Id. ¶ 28.) However, Defendant Jajo fired Servpro 22 and it was never able to complete its work, and Defendant Millan tried to further interfere 23 by reaching out to another person to “dispute Servpro’s work and pricing.” (Id. ¶¶ 31–32.) 24 After Defendant Jajo fired Servpro, it “hired” Defendant Millan to “assist Chaldean in 25 documenting its business personal property loss.” (Id. ¶ 33.) 26 1 Before assessing the merits of Plaintiff’s motion for default judgment, the Court 27 must confirm that it has subject-matter jurisdiction over the case and personal jurisdiction over Defendants. See In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). Here, the Court has 28 subject-matter jurisdiction pursuant to 28 U.S.C. § 1332. (Doc. 1 ¶¶ 1–4, 8.) The Court also has personal jurisdiction over each defendant. (Id. ¶¶ 2–4.) 1 Documents were created, collected, and presented to Plaintiff, and Plaintiff paid 2 Defendant Chaldean, pursuant to Claim No. 197363 and the policy, the following amounts: 3 (1) $171,176.96 in building coverage; (2) $21,938.14 in business personal property 4 coverage; and (3) $9,256.00 in business income coverage. (Id. ¶¶ 34–37.) 5 After Plaintiff’s investigation into the claim, it concluded that Defendant Jajo, “in 6 collusion” with Defendant Millan (and another individual), “orchestrated” the June 2, 2019 7 incident and filed a fraudulent insurance claim. (Id. ¶ 44.) Plaintiff asserts that the June 8 2, 2019 incident does not constitute a covered cause of loss under its policy because “it 9 was a result of Defendants’ dishonest and/or criminal acts.” 2 (Id. ¶¶ 43, 45.) Plaintiff seeks 10 monetary damages in the amount it paid to Defendant Chaldean, which totals $202,371.10. 11 (Id. at 14, ¶ 1.) 12 Despite being served with the Complaint and summons (Docs. 6, 7, 31), Defendants 13 failed to file an answer or otherwise respond to the Complaint or FAC. To date, 14 Defendants’ counsel only filed two notices of appearances—one from April 2021 and one 15 less than a week ago—as well as a response to an order to show cause why he failed to 16 appear at a court-ordered status conference. (Docs. 10, 53, 54.) Plaintiff applied for default 17 against Defendants (Doc. 43), which the Clerk of Court entered on February 18, 2022. 18 (Doc. 45.) Plaintiff filed the pending motion on February 18, 2022 (Doc. 46), and 19 Defendants have failed to respond. 20 II. DISCUSSION 21 A. Default Judgment 22 Once a default is entered, the district court has discretion to grant default judgment. 23 See Fed. R. Civ. P. 55(b)(2); Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980); Brooke 24 v. Sai Ashish Inc., No. 1:21-cv-00967-AWI-SAB, 2021 WL 4804220, at *5 (E.D. Cal. Oct. 25 14, 2021) (explaining that default judgment “is a two-step process: an entry of default 26 judgment must be preceded by an entry of default”). 27 2 The United States Attorney’s Office indicted Defendant Jajo and Defendant Millan 28 for multiple counts of conspiracy, wire fraud, and transactional money laundering in connection with these events. (Id. ¶ 41.) 1 The following factors, known as the Eitel factors, may be considered when deciding 2 whether default judgment is appropriate: 3 (1) the possibility of prejudice to the plaintiff; (2) the merits of 4 the claim; (3) the sufficiency of the complaint; (4) the sum of 5 money at stake; (5) the possibility of a dispute concerning material facts; (6) whether default was due to excusable 6 neglect; and (7) the strong policy underlying the Federal Rules 7 of Civil Procedure favoring a decision on the merits.

8 Eitel v. McCool, 782 F.2d 1470, 1471–72 (9th Cir. 1986); New Gen, LLC v. Safe Cig, LLC, 9 840 F.3d 606, 616 (9th Cir. 2016). As the party seeking default judgment, Capitol “bears 10 the burden of demonstrating to the Court that the complaint is sufficient on its face and that 11 the Eitel factors weigh in favor of granting default judgment.” Ronald Norris v. Shenzhen 12 IVPS Tech. Co., No. CV-20-01212-PHX-DWL, 2021 WL 4844116, at *2 (D. Ariz. Oct. 13 18, 2021). Capitol also bears the burden of proving all damages. Assaf v. Carp, 2018 WL 14 6051514, at *1 (C.D. Cal. June 5, 2018) (“On a motion for default judgment, Plaintiffs 15 carry the burden of proving up their damages” by providing “detailed affidavits and 16 supporting exhibits.”). 17 1. Possible Prejudice to Plaintiff 18 The first Eitel factor weighs in favor of granting the motion because Plaintiff will 19 be prejudiced if default judgment is not entered. The record reflects that Plaintiff gave 20 proper notice (Docs. 6, 7, 31), but Defendants, some of whom are represented by counsel, 21 have not responded. 22 “Normally, an appearance in an action involves some presentation or submission to 23 the court. . . [b]ut because judgments by default are disfavored, a court usually will try to 24 find that there has been an appearance by defendant.” Direct Mail Specialists, Inc. v. Eclat 25 Computerized Techs., Inc., 840 F.2d 685, 689 (9th Cir. 1988) (internal citations and 26 quotations omitted). Despite the Court’s best efforts to “try to find that there has been an 27 appearance by [Defendants]” it cannot ignore the fact that Defendants’ counsel has failed 28 to litigate this case, failed to adhere to a Court order requiring him to file a joint status 1 report, and failed to attend a required status conference by Court order, which resulted in 2 an order to show cause. (Docs. 49, 51.) The Court also cannot ignore that Defendants’ 3 response to the order to show cause—after failing to appear at the status conference or 4 participate in the joint status report—did not at all indicate whether they intend to defend 5 this action that was initiated almost a year and a half ago. (Docs. 51, 53.) 6 If Plaintiff’s motion is not granted, it “will likely be without other recourse for 7 recovery.” PepsiCo, Inc. v. Cal. Sec. Cans., 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002). 8 Therefore, the first factor weighs in favor of default judgment. 9 2. Merits of Plaintiff’s Claims 10 The second Eitel factor also weighs in favor of granting the motion. This factor 11 requires a plaintiff to “state a claim on which the [plaintiff] may recover.” PepsiCo, Inc., 12 238 F. Supp. 2d at 1175. 13 Plaintiff alleges that Defendant Jajo and Defendant Chaldean breached the 14 underlying insurance contract/ policy. (Doc. 22 ¶¶ 53–56.) Plaintiff sufficiently alleges 15 that there was “a contract, a breach of contract, and damages.” Best W. Int’l, Inc. v. Patel, 16 523 F. Supp. 2d 979, 988 (D. Ariz. 2007) (citing Graham v. Asbury, 112 Ariz. 184, 185 17 (1975)). 18 Plaintiff alleges an unjust enrichment claim against Defendant Millan. (Doc. 22 ¶¶ 19 76–79.) Plaintiff alleges that there was an “(1) an enrichment, (2) an impoverishment, (3) 20 a connection between the enrichment and impoverishment, (4) the absence of justification 21 for the enrichment and impoverishment, and (5) the absence of a remedy provided by law.” 22 Premier Funding Grp. LLC v. Aviva Life & Annuity Co., No. CV-14-01633-PHX-DGC, 23 2014 WL 6885732, at *9 (D. Ariz. Dec. 8, 2014) (quoting Freeman v. Sorchych, 226 Ariz. 24 242, 251 (Ct. App. 2011)). 25 Plaintiff also alleges that all Defendants committed common law fraud. (Doc. 22 26 ¶¶ 57–63.) Plaintiff appropriately alleges Defendants made “(1) a representation; (2) that 27 was false; (3) material; (4) the speaker had knowledge of its falsity or ignorance of its truth; 28 (5) the speaker intended that it should be acted upon by the person and in the manner 1 reasonably contemplated; (6) the listener was ignorant of its falsity; (7) relied on its truth; 2 (8) such reliance was justified; and (9) the listener suffered consequent and proximate 3 injury.” Blau v. Am.’s Servicing Co., No. CV-08-773-PHX-MHM, 2009 WL 3174823, at 4 *3 (D. Ariz. Sept. 29, 2009) (citing Enyart v. Transamerica Insurance Co., 195 Ariz. 71 5 (Ct. App. 1998)). 6 Based on the facts described above and in the FAC, Plaintiff has pled a prima facia 7 case that all Defendants engaged in common law fraud, Defendants Jajo and Chaldean 8 breached the insurance contract/ policy, and that Defendant Millan has been unjustly 9 enriched. 10 Plaintiff also alleges that all Defendants engaged in fraudulent activities pursuant to 11 A.R.S. §§ 20-463, 44-1220, and 13-2310. (Doc. 22 ¶¶ 64–75.) The Court will deny default 12 judgment as to this claim, Count III, because Plaintiff seeks relief under criminal statutes, 13 and “[t]here is no private right of action for violations of criminal statutes.” McKenna v. 14 HP Inc., No. CV-21-08271-PCT-JAT, 2021 WL 5988598, at *2 (D. Ariz. Dec. 17, 2021) 15 (citing Allen v. Gold Country Casino, 464 F.3d 1044, 1048 (9th Cir. 2006)). The Court 16 will also dismiss Court III because, as explained above, Plaintiff cannot possibly win relief 17 under this claim. Parker v. Arizona, No. CV-21-01143-PHX-DJH, 2021 WL 3623148, at 18 *1 (D. Ariz. Aug. 9, 2021) (“[T]he Court retains the inherent authority to sua sponte 19 dismiss a claim under Federal Rule of Civil Procedure 12(b)(6) . . . [s]uch a dismissal may 20 be made without notice where the claimant cannot possibly win relief.”) (citing Wong v. 21 Bell, 642 F.2d 359, 361–62 (9th Cir. 1981)). 22 3. Sufficiency of the FAC 23 The third Eitel factor also favors granting the motion. Based on the Court’s analysis 24 of the merits of Plaintiff’s claim, nothing suggests that the FAC fails to state a facially 25 plausible claim for relief for breach of contract, common law fraud, or unjust enrichment. 26 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). As discussed above, Plaintiff’s claim for 27 statutory fraud will be dismissed without prejudice. 28 1 4. Amount at Stake 2 Under the fourth Eitel factor, the Court considers the amount of money at stake in 3 relation to the seriousness of the defendants’ conduct. See PepsiCo, Inc., 238 F. Supp. 2d 4 at 1176. If the sum of money at stake is completely disproportionate or inappropriate, 5 default judgment is disfavored. See Twentieth Century Fox Film Corp. v. Streeter, 438 F. 6 Supp. 2d 1065, 1071 (D. Ariz. 2006). In contrast to a complaint’s other allegations, 7 allegations pertaining to damages are not taken as true when considering a motion for 8 default judgment. See Fair Housing of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002). 9 A district court has “wide latitude” in determining the amount of damages to award upon 10 default judgment. James v. Frame, 6 F.3d 307, 310 (9th Cir. 1993). 11 Here, Plaintiff seeks $202,371.10 plus pre- and post-judgment interest in 12 compensatory damages, as well as attorneys’ fees and costs. (Doc. 46 at 11.) As discussed 13 below, the Court will award the requested damages. The Court finds that, based on 14 Plaintiff’s claim for breach of contract, common law fraud, and unjust enrichment, the 15 stated damages are not disproportionate, and Plaintiff is entitled to $202,371.10 plus pre- 16 and post-judgment interest in damages. 17 5. Possible Dispute Concerning Material Facts 18 The fifth Eitel factor favors granting the motion because there is no dispute 19 concerning material facts. Defendants have not responded to this action in the nearly 20 fifteen months that it has been pending. (Doc. 1.) As noted, upon entry of default, the 21 factual allegations of the FAC are taken as true (except those relating to the amount of 22 damages). See Fair Housing of Marin., 285 F.3d at 906. There is therefore no dispute 23 concerning material facts at this juncture. 24 6. Whether Default Was Due to Excusable Neglect 25 The sixth Eitel factor also favors granting the motion. Defendants, some of whom 26 are represented by counsel, have had multiple opportunities to respond to action over the 27 past seven months but have failed to do so, and they offered no explanation for their failure 28 to appear. It is therefore highly unlikely that Defendants’ “failure to answer and the 1 resulting default was a result of excusable neglect.” Gemmel v. Systemhouse, Inc., No. 2 CIV 04-198-TUC-CKJ, 2008 WL 65604, at *5 (D. Ariz. Jan. 3, 2008). 3 7. Policy Underlying the Federal Rules of Civil Procedure 4 The final factor—the strong policy underlying the Federal Rules of Civil Procedure 5 favoring decisions on the merits—weighs against default judgment. “Cases should be 6 decided upon their merits whenever reasonably possible.” Eitel, 782 F.2d at 1472. The 7 existence of Fed. R. Civ. P. 55(b), however, indicates that “this preference, standing alone, 8 is not dispositive.” PepsiCo, Inc., 238 F. Supp. 2d at 1177 (internal citation omitted). Rule 9 55 permits termination of a case before the Court hears the merits when a defendant fails 10 to defend an action. Moreover, a defendant’s failure to contest the FAC or seek relief from 11 the Clerk’s entry of default “makes a decision on the merits impractical, if not impossible.” 12 Id. The final Eitel factor is therefore insufficient to preclude the Court from entering 13 default judgment. 14 Having reviewed Plaintiff’s motion and analyzed the factors set forth in Eitel, the 15 Court finds that factors one through six weigh in favor of granting Plaintiff’s motion. The 16 final Eitel factor is not sufficient to outweigh the first six factors. Therefore, for the reasons 17 set forth herein, the Court concludes that Plaintiff is entitled to default judgment. 18 B. Damages 19 Having found that entry of a default judgment is proper, the only remaining issue is 20 one of damages. In contrast to the other allegations in a complaint, allegations pertaining 21 to damages are not taken as true when considering a motion for default judgment. Fair 22 Housing of Marin, 285 F.3d at 906. Nonetheless, a district court has “wide latitude” in 23 determining the amount of damages to award upon default judgment. James, 6 F.3d at 310. 24 Plaintiff requests entry of judgment without a damages’ hearing in the amount of 25 $202,371.10, which was paid to Chaldean under Claim No. 197363 and the policy. (Doc. 26 22 ¶ 37.) That amount comprises of (1) $171,176.96 in building coverage; (2) $21,938.14 27 in business personal property coverage; and (3) $9,256.00 in business income coverage. 28 (Id.; Doc. 46 at 11.) Plaintiff also seeks pre- and post-judgment interest, and attorneys’ 1 fees and costs. (Id.) This is less than the amount prayed for in the FAC, which, in addition 2 to the aforementioned items, also requested interest on punitive damages, pre- and post- 3 judgment interest, and attorneys’ fees and costs. (Doc. 22 at 14-15.) 4 Rule 54(c) of the Federal Rules of Civil Procedure requires that a default judgment 5 “not differ in kind from, or exceed in amount, what is demanded in the pleadings.” Fed. 6 R. Civ. P. 54(c). Plaintiff’s motion for default judgment requests a subset of those damages 7 requested in the FAC; it does not request damages “different in kind” or in excess of those 8 in the FAC. Id. The Court concludes that Plaintiff’s FAC provided Defendants with 9 “sufficient notice . . . of the potential award,” enabling them “to decide whether to respond 10 to the complaint in the first instance.” Fisher Printing Inc. v. CRG LTD II LLC, No. CV- 11 16-03692-PHX-DJH, 2018 WL 603299, at *3 (D. Ariz. Jan. 22, 2018). 12 The Court may enter a default judgment without a damages hearing when, as here, 13 “the amount claimed is a liquidated sum or capable of mathematical calculation.” HTS, 14 Inc. v. Boley, 954 F. Supp. 2d 927, 947 (D. Ariz. 2013) (quoting Davis v. Fendler, 650 F.2d 15 1154, 1161 (9th Cir. 1981)). In this case, the requested damages are a definite sum 16 comprised of specified payments that Plaintiff made to Defendant Chaldean comprising of 17 building coverage, business personal property, and business income coverage. (Doc. 46 at 18 9.) The requested damages are also supported by the Declaration of Charles Lynch, 19 Plaintiff’s Claims Counsel, and accompanying documents. (Docs. 46-1, 46-2.) See Doe v. 20 United States, No. CV-17-01991-PHX-GMS (JZB), 2018 WL 2431774, at *8 (D. Ariz. 21 May 30, 2018) (“In determining damages, a court can rely on declarations submitted by 22 the plaintiff[.]”) (citing Philip Morris USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 23 498 (C.D. Cal 2003)). 24 The Court finds that Plaintiff’s motion, the Declaration of Charles Lynch, and 25 attached exhibits sufficiently establish the amount of damages suffered by Plaintiff. (Docs. 26 46, 46-1, 46-2.) The Court will enter default judgment against Defendants, jointly and 27 severally, in the amount of $202,371.10, plus pre- and post-judgment interest. Should 28 Plaintiff seek attorneys’ fees and costs, it shall file its fee application with the Court. I. CONCLUSION 2 Accordingly, 3 IT IS ORDERED granting Capitol Specialty Insurance Corporation’s Motion for Entry of Default Judgment (Doc. 46) with respect to Counts I, I, and IV, and denying 5 || default judgment with respect to Count IIL. 6 IT IS FURTHER ORDERED dismissing Count III without prejudice. 7 IT IS FURTHER ORDERED awarding Capitol Specialty Insurance Corporation $202,371.10 plus pre- and post-judgment interest at the applicable statutory rate in 9 || compensatory damages against Defendants, jointly and severally. 10 IT IS FINALLY ORDERED directing the Clerk of the Court to close this case and 11 || to enter judgment accordingly. 12 Dated this 25th day of July, 2022. 13 Wicked T. diburde Michael T. Liburdi 16 United States District Judge 17 18 19 20 21 22 23 24 25 26 27 28

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