1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 GORDON KING, et al., No. 2:19-cv-01916-JAM-CKD 12 Plaintiffs, 13 v. ORDER AND FINDINGS AND RECOMMENDATIONS 14 PORTFOLIO PRESERVATION, LLC, et. al., (ECF Nos. 45, 46) 15 Defendants. 16
17 18 On November 18, 2021, the undersigned issued findings and recommendations (ECF No. 19 48) recommending that the court grant plaintiff Donna Rae King’s motions for default judgment 20 against defendant Portfolio Preservation, LLC dba Aegis Shield and defendant Aegis American 21 Risk Management Group (together, the “Aegis defendants”). On December 1, 2021, defendant 22 Kingsley Charles objected to the findings and recommendations on the ground that the findings 23 and recommendations suggested judgment be entered as a result of Charles’s conduct. (ECF No. 24 50.) Having reviewed the objections, the undersigned will vacate the November 18, 2021 findings 25 and recommendations and issue the following modified order and findings and recommendations 26 which contain the same recommendations without any suggestion for judgment to be entered as a 27 result of Charles’s conduct. 28 //// 1 I. BACKGROUND 2 Plaintiff Donna Rae King, and now deceased Gordon King, initiated this action on 3 September 20, 2019, alleging violations of intentional fraud; negligent misrepresentation; 4 professional negligence; breach of fiduciary duty; concealment; conspiracy to commit fraud; 5 financial elder abuse; California’s Unfair Competition Law, Business and Professions Code §§ 6 17200 et seq; the Consumer Legal Remedies Act, Cal. Civ. Code §§ 1750 et seq; and Penal Code 7 § 496. (ECF No. 1.) On October 5, 2020, plaintiff filed a statement of death of her husband and 8 subsequently amended the complaint to substitute herself as his successor in interest. (ECF Nos. 9 19, 20, 22.) 10 Plaintiff alleges defendant Portfolio Preservation, LLC dba Aegis Shield is an expired 11 LLC in Colorado. (ECF No. 1 ¶ 5.) Defendant Aegis American Risk Management Group, LLC is 12 a voluntarily dissolved Colorado Corporation. (Id.) 13 Plaintiff generally alleges that in 2010, the Aegis defendants sold her and her husband a 14 fraudulent tax scheme under the guise of an “investment strategy” based upon taking large 15 deductions as an operating loss on tax returns. (ECF No. 1 ¶ 1.) Thereafter, plaintiff and her 16 husband lost their initial investment and suffered tax penalties and underpayment penalties and 17 interest. (Id.) 18 The Aegis defendants allegedly sold the scheme to plaintiff while defendants’ agent or 19 employee, Kingsley Charles (“Charles”), who is a co-defendant in this action, allegedly followed 20 up with plaintiff on a regular basis to convince plaintiff and her husband to continue with their 21 investment. (ECF No. 1 ¶¶ 11-12.) Plaintiff alleges Charles assisted with setting up Tiogo Pass 22 LLC so plaintiff could place the forward contract into the pass-through company. (Id. ¶ 13.) 23 Based on Charles’ and the Aegis defendants’ alleged representations, plaintiff converted more 24 than $825,0000 from a traditional IRA to a Roth IRA, creating substantial taxable income, and 25 then invested $145,000 in the leveraged forward contract in September or October 2010. (Id. ¶ 26 14.) Plaintiff alleges Charles and the Aegis defendants promised the additional taxable income 27 would not negatively affect plaintiff and her husband because of losses that would be claimed 28 based upon investment into the leveraged forward contract. (Id.) 1 After the investment, plaintiff’s accountant did not know how to take the proposed 2 deductions without triggering an audit examination and, ultimately, tax deficiency and penalties 3 and interest. Plaintiff’s accountant was thus unable to prepare plaintiff’s taxes. (ECF No. 1 ¶ 5.) 4 Plaintiff alleges Charles and the Aegis defendants referred plaintiff to defendant NMS, who 5 would be familiar with this type of investment and tax situation because the Aegis defendants and 6 NMS frequently worked together. (Id. ¶ 16.) Plaintiffs thereby retained NMS to prepare their 7 Federal and California tax returns from 2010 to 2015. (Id. ¶ 18.) 8 In April 2014, plaintiff’s 2011 through 2013 returns were selected for examination and 9 NMS assured plaintiff this was routine and that they would handle the examination. (ECF No. 1 ¶ 10 19.) On November 12, 2015, the IRS provided a proposed assessment of owed taxes and penalties 11 for years 2011 through 2013. (Id. ¶ 20.) NMS advised plaintiff she shouldn’t be concerned and 12 that they would resolve the situation. (Id. ¶ 21.) NMS appealed the decision and allegedly handled 13 the appeal until the IRS sent plaintiff a notice of deficiency on January 12, 2017. (Id.) 14 The IRS determined plaintiff and her husband underpaid taxes due to deductions that 15 should not have been taken based upon the leveraged forward contracts in the amount of 16 $126,708.00 in 2011, $130,413.00 in 2012, and $5,149.00 in 2013. (ECF No. 1 ¶ 22.) The IRS 17 assessed penalties in the amounts of $25,341.60, $26,082.60, and $1,029.80, respectively. (Id.) 18 Plaintiff retained tax counsel for a fee of $50,500, who were able to appeal the Notice of 19 Deficiency to the tax court and mitigate penalties and interest in the final tax court judgment to 20 $117,420, $125,605, and $1,453 for years 2011 through 2013, respectively, with penalties of 21 $23,484, $25,121, and $290.60, respectively. (Id. ¶¶ 24, 25.) 22 As a result of defendants’ conduct, plaintiff alleges she and her husband were damaged in 23 the following amounts: 24 a. $145,000 for their initial investment into the leveraged forward contract scheme; 25 b. $244,508 in Federal taxes paid as a result of the IRA conversion; 26 c. $48,895.60 in Federal tax penalties which plaintiffs paid on the tax deficiencies; 27 d. $74,514.54 in Federal tax interest which plaintiffs paid as a result of the tax 28 deficiencies and penalties; 1 e. State of California tax deficiencies, penalties, and interest; 2 f. $17,000 paid to NMS, including for representation during the audit proceedings; 3 g. $50,500 to plaintiffs’ retained tax counsel. 4 (Id. ¶ 27.) 5 A default judgment was entered in favor of plaintiff and against defendant Charles on 6 April 27, 2021. (ECF No. 30.) Subsequently, plaintiff and defendant Charles filed a stipulation to 7 lift the default judgment and on April 27, 2021, the court ordered the default judgment against 8 defendant Charles be lifted. (ECF No. 37.) 9 The Aegis defendants were both served on May 22, 2021 via hand service to the 10 California Secretary of State pursuant to California Corporations Code section 17701.16(c) and 11 this court’s April 26, 2021 order. (ECF Nos. 32, 33.) Both Aegis defendants have failed to appear 12 or respond to the complaint. As such, plaintiff moved for entry of default and the Clerk of the 13 Court entered default as to both Aegis defendants on June 30, 2021. (ECF Nos. 35, 36, 38, 39.) 14 Plaintiff then brought the pending motions for default judgment, through which she seeks 15 judgment for the claims pleaded in the sum of $2,001,273.58, plus attorneys’ fees and punitive 16 damages. (ECF Nos. 45 & 46 ¶¶ 4, 5.) 17 II. LEGAL STANDARDS 18 Pursuant to Federal Rule of Civil Procedure 55, default may be entered against a party 19 against whom a judgment for affirmative relief is sought if that party fails to plead or otherwise 20 defend against the action. See Fed. R. Civ. P. 55(a). The decision to grant or deny an application 21 for default judgment lies within the sound discretion of the district court. Aldabe v. Aldabe, 616 22 F.2d 1089, 1092 (9th Cir. 1980).
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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 GORDON KING, et al., No. 2:19-cv-01916-JAM-CKD 12 Plaintiffs, 13 v. ORDER AND FINDINGS AND RECOMMENDATIONS 14 PORTFOLIO PRESERVATION, LLC, et. al., (ECF Nos. 45, 46) 15 Defendants. 16
17 18 On November 18, 2021, the undersigned issued findings and recommendations (ECF No. 19 48) recommending that the court grant plaintiff Donna Rae King’s motions for default judgment 20 against defendant Portfolio Preservation, LLC dba Aegis Shield and defendant Aegis American 21 Risk Management Group (together, the “Aegis defendants”). On December 1, 2021, defendant 22 Kingsley Charles objected to the findings and recommendations on the ground that the findings 23 and recommendations suggested judgment be entered as a result of Charles’s conduct. (ECF No. 24 50.) Having reviewed the objections, the undersigned will vacate the November 18, 2021 findings 25 and recommendations and issue the following modified order and findings and recommendations 26 which contain the same recommendations without any suggestion for judgment to be entered as a 27 result of Charles’s conduct. 28 //// 1 I. BACKGROUND 2 Plaintiff Donna Rae King, and now deceased Gordon King, initiated this action on 3 September 20, 2019, alleging violations of intentional fraud; negligent misrepresentation; 4 professional negligence; breach of fiduciary duty; concealment; conspiracy to commit fraud; 5 financial elder abuse; California’s Unfair Competition Law, Business and Professions Code §§ 6 17200 et seq; the Consumer Legal Remedies Act, Cal. Civ. Code §§ 1750 et seq; and Penal Code 7 § 496. (ECF No. 1.) On October 5, 2020, plaintiff filed a statement of death of her husband and 8 subsequently amended the complaint to substitute herself as his successor in interest. (ECF Nos. 9 19, 20, 22.) 10 Plaintiff alleges defendant Portfolio Preservation, LLC dba Aegis Shield is an expired 11 LLC in Colorado. (ECF No. 1 ¶ 5.) Defendant Aegis American Risk Management Group, LLC is 12 a voluntarily dissolved Colorado Corporation. (Id.) 13 Plaintiff generally alleges that in 2010, the Aegis defendants sold her and her husband a 14 fraudulent tax scheme under the guise of an “investment strategy” based upon taking large 15 deductions as an operating loss on tax returns. (ECF No. 1 ¶ 1.) Thereafter, plaintiff and her 16 husband lost their initial investment and suffered tax penalties and underpayment penalties and 17 interest. (Id.) 18 The Aegis defendants allegedly sold the scheme to plaintiff while defendants’ agent or 19 employee, Kingsley Charles (“Charles”), who is a co-defendant in this action, allegedly followed 20 up with plaintiff on a regular basis to convince plaintiff and her husband to continue with their 21 investment. (ECF No. 1 ¶¶ 11-12.) Plaintiff alleges Charles assisted with setting up Tiogo Pass 22 LLC so plaintiff could place the forward contract into the pass-through company. (Id. ¶ 13.) 23 Based on Charles’ and the Aegis defendants’ alleged representations, plaintiff converted more 24 than $825,0000 from a traditional IRA to a Roth IRA, creating substantial taxable income, and 25 then invested $145,000 in the leveraged forward contract in September or October 2010. (Id. ¶ 26 14.) Plaintiff alleges Charles and the Aegis defendants promised the additional taxable income 27 would not negatively affect plaintiff and her husband because of losses that would be claimed 28 based upon investment into the leveraged forward contract. (Id.) 1 After the investment, plaintiff’s accountant did not know how to take the proposed 2 deductions without triggering an audit examination and, ultimately, tax deficiency and penalties 3 and interest. Plaintiff’s accountant was thus unable to prepare plaintiff’s taxes. (ECF No. 1 ¶ 5.) 4 Plaintiff alleges Charles and the Aegis defendants referred plaintiff to defendant NMS, who 5 would be familiar with this type of investment and tax situation because the Aegis defendants and 6 NMS frequently worked together. (Id. ¶ 16.) Plaintiffs thereby retained NMS to prepare their 7 Federal and California tax returns from 2010 to 2015. (Id. ¶ 18.) 8 In April 2014, plaintiff’s 2011 through 2013 returns were selected for examination and 9 NMS assured plaintiff this was routine and that they would handle the examination. (ECF No. 1 ¶ 10 19.) On November 12, 2015, the IRS provided a proposed assessment of owed taxes and penalties 11 for years 2011 through 2013. (Id. ¶ 20.) NMS advised plaintiff she shouldn’t be concerned and 12 that they would resolve the situation. (Id. ¶ 21.) NMS appealed the decision and allegedly handled 13 the appeal until the IRS sent plaintiff a notice of deficiency on January 12, 2017. (Id.) 14 The IRS determined plaintiff and her husband underpaid taxes due to deductions that 15 should not have been taken based upon the leveraged forward contracts in the amount of 16 $126,708.00 in 2011, $130,413.00 in 2012, and $5,149.00 in 2013. (ECF No. 1 ¶ 22.) The IRS 17 assessed penalties in the amounts of $25,341.60, $26,082.60, and $1,029.80, respectively. (Id.) 18 Plaintiff retained tax counsel for a fee of $50,500, who were able to appeal the Notice of 19 Deficiency to the tax court and mitigate penalties and interest in the final tax court judgment to 20 $117,420, $125,605, and $1,453 for years 2011 through 2013, respectively, with penalties of 21 $23,484, $25,121, and $290.60, respectively. (Id. ¶¶ 24, 25.) 22 As a result of defendants’ conduct, plaintiff alleges she and her husband were damaged in 23 the following amounts: 24 a. $145,000 for their initial investment into the leveraged forward contract scheme; 25 b. $244,508 in Federal taxes paid as a result of the IRA conversion; 26 c. $48,895.60 in Federal tax penalties which plaintiffs paid on the tax deficiencies; 27 d. $74,514.54 in Federal tax interest which plaintiffs paid as a result of the tax 28 deficiencies and penalties; 1 e. State of California tax deficiencies, penalties, and interest; 2 f. $17,000 paid to NMS, including for representation during the audit proceedings; 3 g. $50,500 to plaintiffs’ retained tax counsel. 4 (Id. ¶ 27.) 5 A default judgment was entered in favor of plaintiff and against defendant Charles on 6 April 27, 2021. (ECF No. 30.) Subsequently, plaintiff and defendant Charles filed a stipulation to 7 lift the default judgment and on April 27, 2021, the court ordered the default judgment against 8 defendant Charles be lifted. (ECF No. 37.) 9 The Aegis defendants were both served on May 22, 2021 via hand service to the 10 California Secretary of State pursuant to California Corporations Code section 17701.16(c) and 11 this court’s April 26, 2021 order. (ECF Nos. 32, 33.) Both Aegis defendants have failed to appear 12 or respond to the complaint. As such, plaintiff moved for entry of default and the Clerk of the 13 Court entered default as to both Aegis defendants on June 30, 2021. (ECF Nos. 35, 36, 38, 39.) 14 Plaintiff then brought the pending motions for default judgment, through which she seeks 15 judgment for the claims pleaded in the sum of $2,001,273.58, plus attorneys’ fees and punitive 16 damages. (ECF Nos. 45 & 46 ¶¶ 4, 5.) 17 II. LEGAL STANDARDS 18 Pursuant to Federal Rule of Civil Procedure 55, default may be entered against a party 19 against whom a judgment for affirmative relief is sought if that party fails to plead or otherwise 20 defend against the action. See Fed. R. Civ. P. 55(a). The decision to grant or deny an application 21 for default judgment lies within the sound discretion of the district court. Aldabe v. Aldabe, 616 22 F.2d 1089, 1092 (9th Cir. 1980). 23 Once default is entered, as a general rule, well-pleaded factual allegations in the operative 24 complaint are taken as true except for the allegations relating to damages. TeleVideo Sys., Inc. v. 25 Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (per curiam) (citing Geddes v. United Fin. 26 Group, 559 F.2d 557, 560 (9th Cir. 1977) (per curiam)); accord Fair Housing of Marin v. Combs, 27 285 F.3d 899, 906 (9th Cir. 2002). “[N]ecessary facts not contained in the pleadings, and claims 28 which are legally insufficient, are not established by default.” Cripps v. Life Ins. Co. of N. Am., 1 980 F.2d 1261, 1267 (9th Cir. 1992). Where the pleadings are insufficient, the court may require 2 the moving party to produce evidence in support of the emotion for default judgment. See 3 TeleVideo Sys., Inc., 826 F.2d at 917-18. 4 Default judgments are ordinarily disfavored. Eitel v. McCool, 782 F.2d 1470, 1472 (9th 5 Cir. 1986). In making the determination whether to grant a motion for default judgment, the court 6 considers the following factors: 7 (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) 8 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 9 excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. 10 11 Eitel,782 F.2d at 1471-72. 12 III. DISCUSSION 13 A. Eitel Factors 14 1. Possibility of Prejudice to Plaintiff 15 The first factor considers whether the plaintiff would suffer prejudice if default judgment 16 is not entered. Such potential prejudice to the plaintiff weighs in favor of granting default 17 judgments. See PepsiCo, Inc., v. California Security Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 18 2002). Plaintiff filed suit on September 20, 2019, served the Aegis defendants on May 22, 2021, 19 and the Aegis defendants have failed to respond to the complaint or otherwise put forth a defense. 20 The present litigation therefore cannot move forward, prejudicing plaintiff and leaving no 21 recourse other than to seek default judgments. Accordingly, the first factor weighs in favor of 22 entering default judgments. 23 2. Merits of the Substantive Claims and the Sufficiency of the Complaint 24 The court considers the merits of the substantive claims and the sufficiency of the 25 complaint together due to the relatedness of the inquiries. The court considers whether the 26 allegations in the complaint are sufficient to state a claim on which plaintiff may recover. See 27 Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978); PepsiCo, Inc., 238 F. Supp. 2d at 1175. 28 //// 1 a. Intentional Fraud and Negligent Misrepresentation 2 Under California law, the elements of intentional misrepresentation are: “(1) 3 misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity 4 (scienter); (3) intent to defraud; (4) justifiable reliance; and (5) resulting damages.” Dougherty v. 5 Bank of Am., N.A., 177 F. Supp. 3d 1230, 1245 (E.D. Cal. 2016); Charnay v. Cobert, 145 Cal. 6 App. 4th 170, 184 (2006). Negligent misrepresentation requires: (1) a misrepresentation of a past 7 or existing material fact; (2) without reasonable grounds for believing it to be true; (3) with intent 8 to induce another’s reliance on the fact misrepresented; (4) justifiable reliance thereon by the 9 party to whom the misrepresentation was directed; and (5) damages. Takano v. Procter & Gamble 10 Co., No. 2:17-CV-00385-TLN-AC, 2018 WL 5304817, at *12 (E.D. Cal. Oct. 24, 2018) (citing 11 Fox v. Pollack, 181 Cal. App. 3d 954, 962 (1986)). 12 Plaintiff alleges the Aegis defendants “made several representations to [plaintiff] that the 13 leveraged forward contract was a sound investment.” (ECF No. 1 ¶ 29.) Plaintiff states the Aegis 14 defendants “knew their representations were false when he made them or made them recklessly or 15 without regard for their truth.” (Id. ¶ 32.) Plaintiff alleges the false statements of the Aegis 16 defendants were “made with malice” and plaintiff “reasonably relied on their representations.” 17 (Id. ¶¶ 33-35.) 18 These allegations are taken as true following an entry of default. Accordingly, plaintiff has 19 met the burden to allege a claim for intentional fraud as well as negligent misrepresentations. 20 b. Conspiracy to Commit Fraud 21 In order to state a claim for civil conspiracy, a plaintiff must allege: (1) the formation and 22 operation of the conspiracy and (2) damage to the plaintiff from an act or acts in furtherance of 23 the common design. Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 511 (1994) 24 (citing Doctors’ Co. v. Sup. Ct., 49 Cal. 3d 39, 44 (1989)). To state a claim for conspiracy to 25 commit fraud, plaintiff must adequately plead the underlying fraud claim. Tatung Co., Ltd. v. 26 Hsu, No. SA CV 13-1743-DOC ANX, 2015 WL 11072178, at *26 (C.D. Cal. Apr. 23, 2015) 27 (citing Oregon Laborers-Employers Health & Welfare Trust Fund v. Philip Morris Inc., 185 F.3d 28 957, 969 (9th Cir. 1999)). 1 Plaintiff alleges all defendants acted together in conspiracy to induce plaintiff to invest in 2 the forward leveraged contracts, and that once plaintiff required accounting services due to the 3 impropriety of deductions, the Aegis defendants and Charles then recommended NMS. (ECF No. 4 1 ¶ 66.) Plaintiff alleges all defendants were aware of the others’ roles in the conspiracy as well as 5 the plan to defraud investors. (Id. ¶ 67.) Plaintiff additionally alleges harm due to the alleged 6 conspiracy. 7 As previously addressed, plaintiff has met the burden of pleading the underlying fraud 8 claim. Plaintiff has also sufficiently pled a factual basis for a cause of action for conspiracy to 9 commit fraud. 10 c. Financial Elder Abuse 11 To allege financial elder abuse, plaintiff must plead that defendants “took, obtained, or 12 retained (or assisted in taking, obtaining, or retaining) [p]laintiff’s property for wrongful use, or 13 with the intent to defraud, or by undue influence. Wrongful use can be shown where an elder has 14 a contractual right to property, defendant breaches that contract, and defendant ‘actually knows 15 that it is engaging in a harmful breach, or reasonably should be aware of the harmful breach.’” 16 Yokell v. Draper, No. 18-CV-02124-JSC, 2018 WL 3417514, at *9 (N.D. Cal. July 13, 2018) 17 (quoting Paslay v. State Farm General Ins. Co., 248 Cal. App. 4th 639, 658 (Ct. App. 2016)). 18 Plaintiff alleges Gordon King was over 65 years of age at the time the incidents occurred. 19 (ECF No. 1 ¶ 73.) Plaintiff alleges the Aegis defendants wrongfully took or assisted in taking 20 Gordon King’s property with the intent to defraud him, causing the harm pleaded. Taken as true, 21 these allegations state a claim for financial elder abuse. 22 d. Violations of California Unfair Competition Laws, Bus. & Prof. 23 Code §§ 17200 et seq 24 A claim under the California Unfair Competition Laws, Bus. & Prof. Code §§ 17200 et 25 seq (“UCL”) must rest on a violation of some independent substantive statute, regulation, or case 26 law. See Farmers Ins. Exch. v. Superior Court, 2 Cal. 4th 377, 383 (1992) (action under section 27 17200 borrows violations of other laws); see also Daro v. Superior Court, 151 Cal. App. 4th 28 1079, 1092-93 (2007); Saunders v. Superior Court, 27 Cal. App. 4th 832, 838 (1994) (violation 1 under “unlawful” prong of UCL requires underlying violation of law); Drum v. San Fernando 2 Valley Bar Ass’n, 182 Cal. App. 4th 247, 256 (2010) (claim under “unfair” prong requires 3 showing that defendant engaged in practice that violated specific constitutional, statutory, or 4 regulatory provision or that utility of alleged business practice outweighed by harm to 5 consumers); Hall v. Time Inc., 158 Cal. App. 4th 847, 855 (2008) (claim under “fraudulent” 6 prong of UCL requires showing of reliance on alleged misrepresentation). 7 Plaintiff alleges the Aegis defendants violated the UCL by fraudulently misrepresenting 8 the soundness of the leveraged forward contract investment and failing to advise plaintiffs about 9 the scheme. (ECF No. 1 ¶¶ 79-80.) Plaintiff states “[t]he acts described... are unlawful within the 10 meaning of the unfair competition law because they constitute a violation of California Civil 11 Code sections 1709 and 1710, a violation of the AICPA and Circular 230 standards, a violation of 12 the Consumer Legal Remedies Act, Civil Code section 1750 et seq., a violation of the Elder 13 Abuse and Dependent Adult Civil Protections Act, Welfare and Institutions Code section 14 15610.30, and other California state laws as set forth in this Complaint.” (Id.) 15 At minimum, plaintiff has alleged that she relied on defendants’ misrepresentations to 16 “invest” in the leveraged forward contract scheme. These allegations, taken as true, are sufficient 17 to state a claim for a violation of the UCL. 18 e. Violations of California Consumer Legal Remedies Act, Civ. 19 Code §§ 1750 et seq 20 A plaintiff may bring a claim under the CLRA so long as she “suffer[ed] any damage as a 21 result of” a proscribed practice under the CLRA. Cal. Civ. Code § 1780(a). This means that to 22 adequately plead a CLRA claim, a plaintiff must allege she relied on the defendant’s alleged 23 misrepresentation and that she suffered economic injury as a result. Doe v. SuccessfulMatch.com, 24 70 F. Supp. 3d 1066, 1075 (N.D. Cal. 2014) (citing Durell v. Sharp Healthcare, 183 Cal.App.4th 25 1350 (2010)). 26 Plaintiff has alleged she relied on defendants’ misrepresentations to “invest” in the 27 leveraged forward contract scheme. Plaintiff’s allegations, taken as true, are sufficient to state a 28 claim for a violation of the CLRA. 1 f. Violations of California Penal Code § 496 2 Cal. Penal Code § 496(c) permits victims of crimes defined in § 496(a) to initiate a civil 3 lawsuit to recover treble the amount of actual damages, costs, and reasonable attorneys’ fees. 4 Allure Labs, Inc. v. Markushevska, 606 B.R. 51, 57 (N.D. Cal. 2019). “[A] criminal conviction is 5 not a prerequisite” to bring a claim under Section 496. Worldwide Travel, Inc. v. Travelmate US, 6 Inc., No. 14-CV-00155-BAS (DHB), 2016 WL 1241026, at *7 (S.D. Cal. Mar. 30, 2016). “[T]he 7 few California courts that have addressed the statute in the civil context, have... permitted civil 8 suits under Section 496 against a defendant who allegedly stole the property at issue.” Id. 9 Plaintiff alleges defendants obtained plaintiffs’ property by “theft” within the meaning of 10 California Penal Code § 496. (ECF No. 1 ¶ 95.) “California Penal Code section 496(a) uses the 11 term ‘theft’ without including a definition, thereby incorporating California’s general theft 12 definition set forth in California Penal Code section 484(a).” United States v. Flores, 901 F.3d 13 1150, 1157 (9th Cir. 2018) (citing Carrillo-Jaime v. Holder, 572 F.3d 747, 751 (9th Cir. 2009)). 14 Section 484(a) sets forth that any individual who “fraudulently appropriate(s) property which has 15 been entrusted to him or her, or who shall knowingly and designedly, by any false or fraudulent 16 representation or pretense, defraud any other person of money... [or] property... is guilty of theft.” 17 Because plaintiff alleges defendants knowingly received, concealed, and withheld their 18 property, which had been obtained by means of false or fraudulent representations or pretense, the 19 court finds plaintiff has sufficiently alleged a claim under California Penal Code § 496. 20 3. The Sum of Money at Stake 21 Under the fourth factor cited in Eitel, “the court must consider the amount of money 22 at stake in relation to the seriousness of defendant’s conduct.” PepsiCo, Inc., 238 F. Supp. 2d at 23 1176-77; see also Philip Morris USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 500 (C.D. 24 Cal. 2003). This requires the court to assess whether recovery sought is proportional to the harm 25 caused by defendants’ conduct. See Vogel v. Rite Aid Corp., 992 F. Supp. 2d 998, 1012 (C.D. 26 Cal. 2014) (“Default judgment is disfavored where the sum of money at stake is too large or 27 unreasonable in relation to defendant’s conduct”). 28 //// 1 Here, plaintiff seeks a total of $2,001,273.58 in damages. (ECF Nos. 45-1 & 46-1, ¶ 4.) 2 Plaintiff requests $661,389.41 in actual damages, trebled pursuant to Cal. Civ. Code § 3345; 3 $5,000 in statutory damages pursuant to Cal. Civ. Code § 1780(b); and $12,105.35 in attorneys’ 4 fees pursuant to Cal. Welfare and Institutions Code § 15657.5 and Cal. Penal Code § 496. (Id.) 5 The overall sum of money at stake is not so large or excessive in relation to the harm as to 6 militate against the entry of default judgment. While the amount at stake is substantial, plaintiff 7 has provided detailed and unrebutted documentation in support of her motion (see ECF Nos. 45-1 8 & 46-1 at 20-46), and it is well settled that defendants “should not be allowed to evade judgment 9 as a result of failing to appear,” Emerging Acquisitions, LLC v. Oracle Installations & 10 Fabricators, LLC, No. 6:20-CV-00453-MK, 2021 WL 325711, at *2 (D. Or. Feb. 1, 2021) 11 (quoting United States v. Kelton, No. 1:15-cv-197-AA, 2015 WL 9809799, at *2 (D. Or. Dec. 19, 12 2015) (“The amount of damages at issue is substantial, so this Eitel factor slightly favors the 13 [defendants]. But the [plaintiff] has submitted a declaration and supporting exhibits verifying the 14 assessments due from the [defendants].”). Thus, this factor slightly favors the entry of a default 15 judgment. 16 4. The Possibility of a Dispute Concerning Material Facts 17 The court may assume the truth of well-pleaded facts in the complaint following the 18 clerk’s entry of default. Thus, there is no likelihood that any genuine issue of material fact exists. 19 See, e.g., Elektra Entm’t Group Inc. v. Crawford, 226 F.R.D. 388, 393 (C.D. Cal. 2005) 20 (“Because all allegations in a well-pleaded complaint are taken as true after the court clerk enters 21 default judgment, there is no likelihood that any genuine issue of material fact exists”); accord 22 Philip Morris USA, Inc., 219 F.R.D. at 500; PepsiCo, Inc., 238 F. Supp. 2d at 1177. In this case, 23 there is no indication that there are material facts in dispute. 24 5. Whether the Default Was Due to Excusable Neglect 25 The record contains no indication defendants’ defaults were due to excusable neglect. 26 Due process requires that interested parties be given notice of the pendency of the action and be 27 afforded an opportunity to present their objections before a final judgment is rendered. Mullane v. 28 Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950). While there is always a possibility 1 that a defendant might appear and claim excusable neglect, where the defendants “were properly 2 served with the Complaint, the notice of entry of default, as well as the papers in support of the 3 instant motion,” this factor favors entry of default judgment. Shanghai Automation Instrument 4 Co. Ltd. v. Kuei, 194 F. Supp. 2d 995, 1005 (N.D. Cal. 2001). Despite having been served by 5 hand to the California Secretary of State pursuant to California Corporations Code section 6 17701.16(c) and this court’s April 26, 2021 order, defendants have failed to respond. 7 Accordingly, this factor favors the entry of a default judgment. 8 6. The Strong Policy Underlying the Federal Rules of Civil Procedure Favoring Decisions on the Merits 9 10 “Cases should be decided upon their merits whenever reasonably possible.” Eitel, 11 782 F.2d at 1472. But the mere existence of Rule 55(b) “indicates that this preference, standing 12 alone, is not dispositive.” PepsiCo, Inc., 238 F. Supp. 2d at 1177 (citation omitted); see also 13 Craigslist, Inc. v. Naturemarket, Inc., 694 F. Supp. 2d 1039, 1061 (N.D. Cal. 2010). Rule 55 14 allows a court to decide a case before the merits are heard if defendant fails to appear and defend. 15 See PepsiCo, Inc., 238 F. Supp. 2d at 1177. Accordingly, although the court is cognizant of the 16 policy in favor of decisions on the merits, that policy does not, by itself, preclude the entry of 17 default judgment. 18 7. Recommendation 19 Taken together, the Eitel factors support granting the request for default judgment. The 20 undersigned recommends default judgment be entered as to both Aegis defendants. 21 B. Terms of the Judgment to be Entered 22 Plaintiff prays for relief totaling $2,001,273.58 in the pending motions for default 23 judgment. This total includes: 24 a. $661,389.41 in actual damages, trebled pursuant to Cal. Civ. Code § 3345, 25 consisting of the following. 26 i. $145,000 plaintiff paid to invest in the Aegis leveraged forward 27 contract; 28 ii. $244,508 plaintiff paid in Federal taxes; 1 iii. $48,895.60, plaintiff paid in Federal tax penalties; 2 iv. $74,514.54 plaintiff paid in Federal tax interest; 3 v. $16,971.54 plaintiff paid to dismissed defendant NMS, Inc for CPA 4 representation during IRS audit proceedings; 5 vi. $50,500 plaintiff paid to Moskowitz LLP as tax counsel paid in attempt 6 to mitigate harm caused by defendants’ conduct; 7 vii. $70,914 in California taxes paid; 8 viii. $10,085.73 in California tax interest. 9 b. Statutory damages of $5,000 pursuant to Cal. Civ. Code § 1780(b); 10 c. Attorneys’ fees in the amount of $12,105.35, pursuant to Cal. Welf. & Inst. 11 Code § 15657.7 and Cal. Penal Code § 496. 12 (ECF Nos. 45-1 & 46-1 at 2-3.) 13 Plaintiff’s request for actual damages is supported by the evidence plaintiff provided with 14 the declarations accompanying the motions for default. (See ECF Nos 45-1 and 46-1.) Treble 15 damages are appropriate pursuant to Cal. Civ. Code § 3345, which establishes that when a 16 defendant knew or should have known his conduct was directed to a senior citizen, and that 17 conduct caused the senior to suffer loss of income or property, the court may impose a remedy up 18 to three times greater than the amount the trier of fact would impose absent such a finding. 19 Plaintiff is additionally entitled to reasonable attorneys’ fees pursuant to Cal. Penal Code 20 § 496. Plaintiffs’ counsel has submitted a declaration in support of the award of attorneys’ fees 21 that provides his billing rates, the hours spent on this matter, and that he is “certified by the 22 California State Bar Board of Legal Specialization in Legal Malpractice Law.” (ECF No. 45-2 & 23 46-2 ¶¶ 3-5.) The amount claimed, $12,105.35, is reasonable with respect to the hourly rate and 24 the number of hours expended on this litigation. 25 Plaintiff requests punitive damages. (See Id. 45-1 & 46-1, ¶ 5.) In order to determine 26 whether punitive damages should be awarded, the court considers: (1) the nature of a defendant’s 27 acts; (2) the amount of compensatory damages awarded; and (3) the wealth of the defendant. 28 Prof’l Seminar Consultants, Inc. v. Sino Am. Tech. Exch. Council, Inc., 727 F.2d 1470, 1473 (9th 1 || Cir. 1984). However, the court “cannot make a fully informed determination of whether an award 2 || of punitive damages is excessive unless the record contains evidence of a defendant’s financial 3 || condition.” Shanghai Automation Instrument Co. v. Kuei, 194 F. Supp. 2d 995, 1011 (N.D. Cal. 4 | 2001). Here, plaintiff has not alleged or presented any measurable evidence regarding defendants’ 5 || wealth. As such, the court cannot at this time assess the appropriateness of punitive damages. 6 IV. CONCLUSION 7 In accordance with the above, IT IS HEREBY ORDERED that the November 18, 2021 8 | order and findings and recommendations (ECF No. 48) are VACATED. 9 In addition, IT IS RECOMMENDED: 10 1. Plaintiff's motions for default judgment (ECF Nos. 45, 46) be GRANTED; 11 2. Judgment be entered in plaintiff's favor and against defendant Portfolio 12 Preservation, LLC dba Aegis Shield, and against Aegis American Risk 13 Management Group. 14 3. Plaintiff be awarded damages in the amount of $2,001,273.58. 15 4. Plaintiff be awarded attorneys’ fees and costs in the amount of $12,105.35. 16 These findings and recommendations are submitted to the United States District Judge 17 || assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(1). Within fourteen (14) 18 || days after being served with these findings and recommendations, any party may file written 19 || objections with the court and serve a copy on all parties. Such a document should be captioned 20 || “Objections to Magistrate Judge’s Findings and Recommendations.” Any reply to the objections 21 || shall be served on all parties and filed with the court within fourteen (14) days after service of the 22 || objections. The parties are advised that failure to file objections within the specified time may 23 || waive the right to appeal the District Court’s order. Turner v. Duncan, 158 F.3d 449, 455 (9th Cir. 24 | 1998); Martinez v. YIst, 951 F.2d 1153, 1156-57 (9th Cir. 1991). 25 || Dated: December 8, 2021 / a8 } i | Ld , a ce 26 CAROLYNK. DELANEY 27 UNITED STATES MAGISTRATE JUDGE 28 8.king]1916.mdj3 13