Mobilization Funding, LLC v. Halvorson Construction Group, LLC

• Court: District Court, W.D. Washington
• Decided: September 14, 2021
• Docket: 2:18-cv-01412
• Status: Unknown

Opinion

1 HONORABLE RICHARD A. JONES

8 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 9 AT SEATTLE

10 MOBILIZATION FUNDING, LLC, a NO. 2:18-CV-01412-RAJ South Carolina limited liability company, 11

12 Plaintiff,

13 v. 14 HALVORSON CONSTRUCTION 15 GROUP, LLC, a Washington limited 16 liability company; and CEC DEFAULT JUDGMENT AGAINST ELECTRICAL CONTRACTING, LLC, a DEFENDANT HALVORSON 17 CONSTRUCTION GROUP, LLC Washington limited liability company, 18 Defendants. 19 HALVORSON CONSTRUCTION

GROUP, LLC, a Washington limited 20 liability company, 21 Third Party Plaintiff, 22

23 v.

24 JOHN and JANE DOE CHASE, individually 25 and the marital community comprised 26 thereof,

27 Third Party Defendants. 1 I. INTRODUCTION 2 This matter comes before the Court on Plaintiff’s Motion for Default Judgment. 3 Dkt. # 37. Defendant Halvorson Construction Group, LLC (“Halvorson”) has not filed a 4 response. For the reasons below, the Court DENIES Plaintiff’s motion without 5 prejudice. 6 II. BACKGROUND 7 Plaintiff Mobilization Funding (“Plaintiff”) is a South Carolina-based company 8 that provides startup financing to construction subcontractors. Dkt. # 10 at 2. Defendant 9 CEC Electrical Contracting, LLC (“CEC”) is an electrical subcontractor that was retained 10 by Defendant Halvorson Construction Group, LLC (“Halvorson”) to perform electrical 11 work for three of Halvorson’s construction projects (the “Halvorson projects” or “the 12 projects”). Dkt. # 1 at ¶¶ 8-10. 13 On or about November 16, 2016, Halvorson entered into a lump sum electrical 14 contract with CEC in connection with the construction of an apartment building in 15 Redmond, Washington in the amount of $3,150,511. Id. ¶ 8. On or about February 7, 16 2017, Halvorson entered into a lump sum electrical construction contract with CEC in 17 connection with the construction of a hotel in Redmond, Washington in the amount of 18 $3,814,962. Id. ¶ 9. On or about April 3, 2017, Halvorson entered into a lump sum 19 electrical construction contract with CEC for the renovation of a senior living facility in 20 Seattle, Washington in the amount of $1,262,862. Id. ¶ 10. 21 On May 10, 2017, CEC executed a promissory note in favor of Plaintiff in the 22 amount of $1,904,761.91 (“Note”). Id. ¶ 21. CEC also executed a security agreement on 23 the same day (“Security Agreement”), as security for the Note. Id. ¶ 22. CEC granted 24 Plaintiff a security interest in all of CECs inventory, equipment, personal property, and 25 accounts, which included accounts-receivable under CEC’s contracts with Halvorson 26 (“Collateral”). Id. On October 17, 2017, Plaintiff filed a UCC Financing Statement with 27 the Washington Department of Licensing identifying CEC as the debtor and describing 1 its Collateral. Id. ¶ 23. After CEC executed the Note and Security Agreement, Plaintiff 2 made several advances of funds to CEC in the total amount of $1,904,761.91. Id. ¶ 24. 3 In May 2017, Plaintiff and CEC notified Halvorson that Plaintiff held a security 4 interest in the accounts receivable under Halvorson’s agreements with CEC. Id. ¶ 25. On 5 May 15, 2017, Plaintiff, CEC, and Halvorson executive a document entitled “Directive of 6 Funds for CEC Electrical Contracting, Inc.,” (“Directive of Funds”), in which Halvorson 7 agreed to pay the accounts receivable directly to Plaintiff on account of its security 8 interest. Id. ¶ 26. In compliance with the Directive of Funds, Halvorson made 18 9 payments to Plaintiff between June 2017 and April 2018 in the total amount of 10 $1,061,003.74. Id. ¶ 27. 11 Between March 2018 and June 2018, Halvorson loaned funds to CEC to fund 12 CEC’s operating expenses despite being on notice that Halvorson’s receivables were 13 assigned to Plaintiff. Id. ¶ 33. In May through July 2018, CEC submitted applications 14 for payment to Halvorson (“Disputed Pay Applications”). Id. ¶ 34. Instead of paying 15 Plaintiff the amounts due pursuant to the Disputed Pay Applications, Halvorson retained 16 the funds and applied proceeds in satisfaction of its own loans to CEC. Id. ¶ 35. 17 Plaintiff alleges that Halvorson then attempted to induce Plaintiff to provide 18 additional funding to CEC and to refrain from taking steps to protect its interests. Id. ¶ 19 36. Specifically, Plaintiff claims that Halvorson represented to Plaintiff that the amounts 20 CEC would be paid on account of its pay applications materially exceeded the amounts 21 payable to CEC on account of the same pay applications. Id. Plaintiff states that 22 Halvorson represented to Plaintiff that CEC’s April 2018 pay applications related to its 23 projects with Halvorson would total at least $920,000. Id. After accounting for 24 payments to third parties, this amount would result in a sizable payment to CEC, and in 25 turn, to Plaintiff, according to Halvorson. Id. Halvorson’s representations proved false, 26 however, as the amount actually deemed payable to CEC on account of its April 2018 27 pay applications was significantly less than $920,000, and Halvorson did not pay any 1 portion of the amount payable on account of CEC’s April 2018 pay applications to 2 Plaintiff. Id. ¶ 37. 3 On or about June 25, 2018, Halvorson terminated CEC on all of the projects for 4 which CEC had been contracted. Id. ¶ 39. As of the of termination date, the unpaid 5 balance under the contracts was “more than sufficient to cover the costs of the remaining 6 electrical work to be performed on the projects.” Id. ¶ 42. Following the termination 7 date, Halvorson retained control of CEC’s personal property used at the locations of the 8 projects. Id. ¶ 44. 9 On September 25, 2018, Plaintiff brought suit against CEC and Halvorson 10 alleging, among other things, conversion, replevin, and fraud and requesting a declaratory 11 judgment regarding Plaintiff’s priority over CEC’s contract receivables. Dkt. #1. 12 Halvorson was properly served with the complaint on October 1, 2018. Dkt. # 8. Three 13 weeks later, Halvorson filed an answer, cross claim, and third party complaint against 14 CEC for breach of contract and fraud. Dkt. # 9. CEC did not file any response despite 15 being properly served. Dkt. # 22. On August 8, 2019, Plaintiff filed a motion for default 16 against CEC. Id. The Court granted the motion. Dkt. # 25. 17 On August 19, 2019, Halvorson petitioned King County Superior Court for the 18 appointment of a general receiver. Dkt. # 28 at 2. The petition was granted and a general 19 receiver (“Receiver”) was appointed. Id. All of Halvorson’s real and personal property 20 was assigned to the Receiver. Id. Based on the appointment of a Receiver and, 21 effectively, a change in who controls and directs Halvorson’s decisions, Halvorson’s 22 counsel moved to withdraw as counsel from this matter. Id. at 3. 23 On March 6, 2020, the Court granted Halvorson’s counsel’s motion to withdraw as 24 counsel in this matter. Dkt. # 34. However, no substitute counsel had appeared for 25 Halvorson. Id. at 2. Noting that “a corporation may appear in the federal courts only 26 through licensed counsel,” the Court ordered Halvorson to have new counsel enter an 27 appearance on its behalf by March 20, 2020. Id. (citing Rowland v. California Men’s 1 Colony, 506 U.S. 194, 201–02 (1993)). The Court advised Halvorson that if it failed to 2 obtain substitute counsel by that date, “the Court may strike the answer and claims of 3 Halvorson and enter default.” Id. 4 Halvorson failed to have substitute counsel appear on its behalf in this matter by 5 the March 20, 2020 deadline or anytime thereafter. Consequently, on August 10, 2020, 6 the Court struck Halvorson’s answer and claims and entered default against Halvorson. 7 Dkt. # 36. On September 10, 2020, Plaintiff filed the pending motion for default 8 judgment against Halvorson. Dkt. # 37. 9 III. LEGAL STANDARD 10 At the default judgment stage, a court presumes all well-pleaded factual 11 allegations are true, except those related to damages. TeleVideo Sys., Inc. v. Heidenthal, 12 826 F.2d 915, 917-18 (9th Cir. 1987); see also Fair House. of Marin v. Combs, 285 F.3d 13 899, 906 (9th Cir. 2002). The entry of default judgment under Rule 55(b) is “an extreme 14 measure,” and disfavored cases should be decided on their merits whenever reasonably 15 possible. Cmty. Dental Servs. v. Tani, 282 F.3d 1164, 1170 (9th Cir. 2002); also see 16 Westchester Fire Ins. Co. v. Mendez, 585 F.3d 1183, 1189 (9th Cir. 2009). Where there 17 is evidence establishing a defendant’s liability, a court has discretion, not an obligation, 18 to enter a default judgment. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980); see 19 also Alan Neuman Productions, Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988). 20 Since deciding for or against default judgment is within a court’s discretion, a 21 defendant’s default does not de facto entitle a plaintiff to a court-ordered judgment. 22 Curtis v. Illumination Arts, Inc., 33 F. Supp. 3d 1200, 1210-11 (W.D. Wash. 2014). 23 In addition, Federal Rule of Civil Procedure 55(b)(1) permits a court to enter 24 default judgment when a plaintiff’s claim “is for a sum certain or a sum that can be made 25 certain by computation.” Fed. R. Civ. P. 55(b)(1). In moving a court for default 26 judgment, a plaintiff must submit evidence supporting the claims for a particular sum of 27 damages. Fed. R. Civ. P. 55(b)(2)(B). 1 IV. DISCUSSION 2 In deciding a motion for default judgment, a court considers the following factors: 3 (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) the sum of 4 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 5 (7) the strong policy underlying the Federal Rules of Civil Procedure 6 favoring decisions on the merits. 7 Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Weighing all the Eitel factors, 8 the Court finds good cause to grant Plaintiff’s motion for default judgment. 9 A. Possibility of Prejudice to Plaintiff 10 Without a judgment, Plaintiff will likely be prejudiced. This factor favors default 11 judgment because if Plaintiff’s motion is not granted, it “will likely be without other 12 recourse for recovery.” PepsiCo, Inc. v. California Sec. Cans, 238 F. Supp. 2d 1172, 13 1177 (C.D. Cal. 2002).

14 B. Merits of Plaintiff’s Substantive Claims and Sufficiency of the 15 Complaint 16 These two factors are often analyzed together. Curtis, 33 F. Supp. 3d at 1211. A 17 court must determine if the allegations in the complaint are sufficient to state a claim that 18 supports the relief sought. Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978). 19 The Court finds that these factors weigh in favor of default judgment. Plaintiff’s 20 claim is well-pleaded and supported by evidence. Plaintiff submits evidence in the form 21 of executed contracts between the parties, the promissory notes, and pay applications 22 submitted to Halvorson by CEC. Dkt. # 38, Ex. A-B; Dkt. # 39, Ex. A-W. 23 For a conversion claim, Plaintiff must show that a “person intentionally 24 interfere[d] with chattel belonging to another, either by taking or unlawfully retaining it, 25 thereby depriving the rightful owner of possession.” Alhadeff v. Meridian on Bainbridge 26 Island, LLC, 220 P.3d 1214, 1223 (Wash. 2009). Plaintiff alleges that it had a prior 27 perfected lien on the Halvorson receivables and that Halvorson knew of this prior 1 interest. Id. at 8. Pursuant to the Directive of Funds, Halvorson was required to deliver 2 the Halvorson receivables to Plaintiff. Id. Based on well-pleaded facts, Plaintiff 3 demonstrates that Halvorson committed conversion by intentionally and unlawfully 4 retaining the receivables. 5 The Court also finds that Plaintiff’s allegations regarding fraud and 6 misrepresentation against Halvorson are well-pleaded. Plaintiff’s factual allegations 7 support each element of a fraud claim: (1) Halvorson represented to Plaintiff that it 8 would make a payment; (2) the representation was material; (3) it was also false; (4) 9 Halvorson knew it was false; (5) Halvorson intended that Plaintiff act on its 10 representation by not seeking further security on payment; (6) Plaintiff did not know of 11 the falsity; (7) Plaintiff relief on the truth of the representation and did not take further 12 steps to secure payment; (8) Plaintiff had a right to rely on it; and (9) Plaintiff suffered 13 monetary damages as a result. See Adams v. King Cty., 192 P.3d 891, 902 (Wash. 2008). 14 C. Sum of Money at Stake 15 The amount of money at stake here is $911,348.36, plus prejudgment interest. 16 Because this amount is significant, it would normally weigh against default judgment. 17 However, given the size and scope of the construction projects and amounts contractually 18 agreed upon by the parties, this amount is not unreasonable. The Court finds that this 19 factor is neutral. 20 D. Possibility of a Dispute Concerning Material Facts 21 In a prior ruling, the Court denied Plaintiff’s motion for partial summary judgment 22 after finding a dispute concerning material facts. See Dkt. # 31. Because Halvorson’s 23 pleadings have been stricken, the Court does not consider the content of Halvorson’s 24 response in consideration of the pending motion. The Court recognizes, however, that its 25 prior order, at minimum, confirms that there exists a possibility of a dispute of material 26 facts. This factor therefore weighs against default judgment. 27 1 E. Excusable Neglect 2 On the sixth factor, Halvorson’s neglect is inexcusable. Halvorson had been 3 properly served. It failed to obtain substitute counsel as ordered by this Court’s order by 4 the March 20, 2020 deadline, or anytime thereafter. Dkt. # 34. This factor weighs in 5 favor of default judgment. 6 F. Decision on the Merits 7 Finally, with respect to the seventh factor, “[a]lthough this factor almost always 8 disfavors the entry of default judgment, it is not dispositive.” Curtis, 33 F. Supp. 3d 1200 9 at 1213 (internal quotation marks omitted). Given Halvorson’s inexcusable failure to 10 obtain new counsel and appear, a decision on the merits is impossible. This factor, 11 therefore, weighs in favor of default judgment. 12 On balance, the Court finds that the Eitel factors in favor of default judgment. 13 G. Requested Judgment 14 “A plaintiff must . . . prove all damages sought in the complaint.” Dr. JKL Ltd. v. 15 HPC IT Educ. Ctr., 749 F. Supp. 2d 1038, 1046 (N.D. Cal. 2010). In determining 16 damages, a court can rely on declarations submitted by a plaintiff. Dr. JKL Ltd. v. HPC 17 IT Educ. Ctr., 749 F. Supp. 2d 1046 (N.D. Cal. 2010). 18 Plaintiff requests damages in the amount of $911,348.36. Dkt. # 37 at 10. 19 Plaintiff alleges that this amount is the principal amount left owing under the promissory 20 notes between CEC and Plaintiff. Dkt. # 38 ¶ 4. Plaintiff submitted the two promissory 21 notes executed between CEC and Plaintiff for the amounts of $1,904,761.91 to be paid by 22 October 30, 2017, and $908,705.47 to be paid by May 29, 2018. Dkt. # 38, Ex. A-B. 23 Plaintiff indicated that, between June 2017 and April 2018, Halvorson made 18 payments 24 to Plaintiff in the total amount of $1,061,003.74. Dkt. # 37 ¶ 10. Because the full 25 payment was not submitted by the notes’ respective maturity dates, Plaintiff states that 26 the loans were in default. Dkt. # 38 ¶ 3. 27 Plaintiff also submits as evidence multiple payment applications to Halvorson 1 regarding amounts owed by Halvorson, as well as documentation of payments received 2 by Halvorson from third parties in the construction projects. See Dkt. # 39, Ex. A-W. In 3 its March 2018 pay applications, CEC sought $733,301.41 from Halvorson. Dkt. 37 at 6. 4 In its April 2018 pay applications, CEC sought $738,469.37 from Halvorson. Id. In 5 CEC’s May and June 2018 pay applications, CEC requested $339,743.60 from 6 Halvorson. Id. Plaintiff asserts that Halvorson paid Plaintiff only $187,591.75 of the 7 receivables from March through June 2018. Id.; Dkt. # 38 ¶ 5. 8 Plaintiff fails, however, to provide evidence supporting the calculation of 9 $911,348.36 in damages. Presumably the amount owed to Plaintiff under the notes 10 subtracted by the amounts paid by Halvorson would yield the remaining principal balance 11 due, but the numbers proffered by Plaintiff do not result in the amount requested. The 12 Court thus concludes that Plaintiff’s evidence is insufficient to calculate a sum certain. 13 Without more, the Court cannot grant the requested damages. See Geddes v. United Fin. 14 Grp., 559 F.2d 557, 560 (9th Cir. 1977) (holding that “[t]he general rule of law is that 15 upon default the factual allegations of the complaint, except those relating to the amount 16 of damages, will be taken as true.”) 17 V. CONCLUSION 18 For the reasons stated above, the Plaintiff’s Motion for Default Judgment is 19 DENIED without prejudice to refiling. Plaintiff may file an amended motion within 20 thirty (30) days of this Order.

21 22 Dated this 14th day of September, 2021.

23 24 A 25

26 The Honorable Richard A. Jones 27 United States District Judge