Reliance Hospitality LLC v. 5251 S Julian Drive LLC

Opinion

1 WO 2 3 4 5

9 Reliance Hospitality LLC, No. CV-22-00149-TUC-JAS (MSA)

10 Plaintiff, REPORT AND RECOMMENDATION 11 v.

12 5251 S Julian Drive LLC,

13 Defendant. 14 15 Pending before the Court is Plaintiff Reliance Hospitality LLC’s motion for default 16 judgment. The motion was served on Defendant 5251 S. Julian Drive LLC, but Defendant 17 has not responded and the time for doing so has expired. For the following reasons, the 18 Court will recommend that the motion be granted. 19 Background 20 Plaintiff filed this suit in Arizona superior court, and Defendant removed it to this 21 Court in March 2022. (Doc. 1.) The parties actively litigated this matter until September 22 2024, when the Court decided Plaintiff’s summary judgment motions and found issues for 23 trial. (Docs. 115, 116, 119, 120.) Thereafter, the Court granted defense counsel’s motion 24 to withdraw and ordered Defendant, a limited liability company that cannot appear in 25 federal court pro se, to find new counsel. (Doc. 131.) Defendant failed to obtain counsel, 26 so the Court entered Defendant’s default and gave Plaintiff a deadline to file a motion for 27 default judgment. (Doc. 135.) That motion is now before the Court. (Doc. 137.) 28 The general rule is that “[w]ell-pleaded allegations are taken as admitted on a default 1 judgment.” Benny v. Pipes, 799 F.2d 489, 495 (9th Cir. 1986) (citing Thomson v. Wooster, 2 114 U.S. 104, 114 (1885)). Plaintiff alleges as follows: Plaintiff is a hotel management 3 company, and Defendant owns a hotel in Tucson, Arizona. (Doc. 1-4, ¶¶ 3–4.) The parties 4 entered into a contract under which Plaintiff agreed to manage Defendant’s hotel. (Id. ¶ 5.) 5 The contract required, among other things, that Defendant fund an operating account to 6 cover salary, payroll taxes, and fringe benefits. (Id. ¶ 15.) It also required that Defendant 7 reimburse Plaintiff for any funds advanced on Defendant’s behalf. (Id.) Finally, it required 8 that Defendant keep the hotel in compliance with all building safety codes. (Id. ¶¶ 19–20.) 9 Defendant failed on several occasions to cover the hotel’s expenses. (Id. ¶ 16.) After 10 Plaintiff covered the expenses with its own funds, Defendant failed to reimburse Plaintiff. 11 (Id. ¶¶ 16–18.) Defendant also failed to replace the hotel’s fire alarm system despite notice 12 from Plaintiff that the system did not meet building safety codes. (Id. ¶¶ 19–20.) Defendant 13 failed to cure these breaches, so Plaintiff terminated the contract. (Id. ¶ 23.) 14 Discussion 15 There are three steps in the default judgment analysis. The Court must confirm that 16 it has subject matter and personal jurisdiction. In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). 17 The Court must then decide whether default judgment is proper under the factors set forth 18 in Eitel v. McCool, 782 F.2d 1470 (9th Cir. 1986). If default judgment is proper, the Court 19 must then determine the plaintiff’s damages. Each issue is addressed in turn. 20 I. Jurisdiction 21 The Court has subject matter jurisdiction under 28 U.S.C. § 1332(a). The statute’s 22 first requirement is diversity of citizenship. The citizenship of a limited liability company 23 is the same as the citizenship of the company’s members. Voltage Pictures, LLC v. Gussi, 24 S.A. de C.V., 92 F.4th 815, 822 (9th Cir. 2024) (quoting NewGen, LLC v. Safe Cig, LLC, 25 840 F.3d 606, 612 (9th Cir. 2016)). So, Plaintiff is a citizen of Arizona and Illinois, and 26 Defendant is a citizen of New York, New Jersey, and Israel. (Doc. 1, ¶ 9.) There being no 27 shared citizenship, diversity has been established. The second requirement, an amount in 28 controversy exceeding $75,000, is met because Plaintiff’s state filings show an amount in 1 controversy of at least $100,000. (Doc. 1-6.) 2 The Court has personal jurisdiction over the parties. A party waives the issue of 3 personal jurisdiction by making a general appearance. Benny v. Pipes, 799 F.2d 489, 492 4 (9th Cir. 1986) (citing Jackson v. Hayakawa, 682 F.2d 1344, 1347 (9th Cir. 1982)). Both 5 parties made a general appearance in this case, evidenced by them actively litigating the 6 matter for over two years. 7 II. Eitel Factors 8 “The district court’s decision whether to enter a default judgment is a discretionary 9 one.” Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980) (per curiam). In exercising its 10 discretion, the district court should consider the following factors: 11 (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 money 12 at stake in the action[,] (5) the possibility of a dispute concerning material 13 facts[,] (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring 14 decisions on the merits. 15 Eitel, 782 F.2d at 1471–72 (citation omitted). 16 The first factor favors entry of default judgment. Plaintiff would be prejudiced if its 17 motion were denied because it would “likely be without other recourse for recovery.” 18 PepsiCo, Inc. v. Cal. Sec. Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002). 19 The second and third factors favor entry of default judgment. To prevail on its claim 20 of breach of contract, Plaintiff must show that “(1) a contract existed, (2) it was breached, 21 and (3) the breach resulted in damages.” Steinberger v. McVey ex rel. County of Maricopa, 22 318 P.3d 419, 434 (Ariz. Ct. App. 2014) (citing Thunderbird Metallurgical, Inc. v. Ariz. 23 Testing Lab’y, 423 P.2d 124, 126 (Ariz. 1967)). Taking Plaintiff’s allegations as true: (1) 24 there was a hotel management contract between Plaintiff and Defendant, (2) Defendant 25 breached the contract by failing to reimburse Plaintiff for the hotel’s expenses, and (3) the 26 funds advanced by Plaintiff that were not reimbursed are damages that were directly caused 27 by Defendant’s breach. Thus, the complaint sufficiently sets forth Plaintiff’s claim, and 28 that claim has merit. See PepsiCo, 238 F. Supp. 2d at 1175 (explaining that the second and 1 third factors support entry of default judgment when the complaint states a claim to relief 2 (citing Kloepping v. Fireman’s Fund, No. C 94-2684, 1996 WL 75314, at *2 (N.D. Cal. 3 Feb. 13, 1996))). 4 The fourth factor favors entry of default judgment. This factor “requires that the 5 court assess whether the recovery sought is proportional to the harm caused by defendant’s 6 conduct.” Landstar Ranger, Inc. v. Parth Enters., 725 F. Supp. 2d 916, 921 (C.D. Cal. 7 2010). Plaintiff’s damages are contractual in nature. They are directly proportional to 8 Defendant’s wrongful conduct and are not excessive. 9 The fifth factor favors entry of default judgment. Although the Court found triable 10 issues on summary judgment, the Court has since stricken Defendant’s answer and deemed 11 Plaintiff’s allegations admitted. See Benny, 799 F.2d at 495 (stating that the plaintiff’s well- 12 pleaded allegations are taken as true on default judgment). As such, there is no dispute over 13 material facts. 14 The sixth factor favors entry of default judgment. Given that Defendant actively 15 litigated this case for years, there is no chance that its default was the product of excusable 16 neglect. Indeed, defense counsel’s motion to withdraw makes clear that Defendant (through 17 its officer) simply abandoned this case. 18 The seventh factor weighs against entry of default judgment, but only marginally. 19 This is because while “[c]ases should be decided upon their merits whenever reasonably 20 possible,” Eitel, 782 F.2d at 1472, Defendant’s abandonment of this case “makes a decision 21 on the merits impractical, if not impossible,” PepsiCo, 238 F. Supp. 2d at 1177. 22 * * * 23 On balance, the Eitel factors favor entry of default judgment. 24 III. Damages 25 A default does not result in the admission of the plaintiff’s damages allegations. 26 TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917–18 (9th Cir. 1987) (per curiam) 27 (quoting Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977) (per curiam)). 28 Thus, a plaintiff seeking a default judgment for money damages must prove its damages 1 with admissible evidence. NewGen, LLC, 840 F.3d at 617. Such evidence may take the 2 form of a declaration. See id. 3 Plaintiff’s executive, Bryan Fish, submitted a declaration asserting that Defendant 4 failed to adequately fund the hotel’s operating account. (Doc. 137-2, ¶ 6.) As a result, 5 Plaintiff covered the expenses out of its own pocket. (Id. ¶ 6.) These included $39,756.84 6 for the employee payroll; $3,115.00 for workers’ compensation premiums; $68,091.07 for 7 health insurance premiums; and $11,365.31 in miscellaneous business expenses. Fish’s 8 declaration is sufficient to determine Plaintiff’s direct contractual damages. As such, the 9 Court will recommend that a default judgment for damages be entered in Plaintiff’s favor. 10 IV. Attorney’s Fees and Costs 11 Plaintiff requests fees under A.R.S. § 12-341.01(A), which provides that, “[i]n any 12 contested action arising out of a contract, express or implied, the court may award the 13 successful party reasonable attorney fees.” This “[l]anguage is permissible, and there is no 14 requirement that the trial court grant attorney’s fees to the prevailing party in all contested 15 contract actions.” Associated Indem. Corp. v. Warner, 694 P.2d 1181, 1184 (Ariz. 1985) 16 (alteration in original) (quoting Autenreith v. Norville, 622 P.2d 1, 3 (Ariz. 1980)). 17 Here, the relevant factors support an award of fees. First, although it was by default, 18 Plaintiff prevailed in this matter completely. See id. (listing the extent to which the plaintiff 19 prevailed as a relevant factor). Second, Plaintiff attempted in good faith to settle this case, 20 including at a settlement conference, but Defendant refused to even make a settlement offer 21 although it had pledged to do so. See id. (listing the parties’ attempts to settle as a relevant 22 factor). Third, the fact that Defendant abandoned this case suggests that its defense to 23 Plaintiff’s claim, and its counterclaim, were of questionable merit. See id. (listing the merits 24 of the losing party’s claim or defense as a relevant factor). Fourth, this case involved a 25 straightforward breach-of-contract claim, rather than some novel question of law. Cf. 26 Scottsdale Mem’l Health Sys., Inc. v. Clark, 791 P.2d 1094, 1099 (Ariz. Ct. App. 1990) 27 (denying fees in part because the case involved novel questions of Arizona law). Fifth, 28 there is no indication in the record that awarding fees would pose an extreme hardship on 1 Defendant. See Warner, 694 P.2d at 1184 (listing extreme hardship as a relevant factor). 2 Finally, as this case was between sophisticated parties, an award of fees would not 3 discourage others with similar claims or defenses from litigating. See Knightbrook Ins. v. 4 Payless Car Rental Sys., Inc., No. CV12-01671-PHX, 2019 WL 5390477, at *2 (D. Ariz. 5 Oct. 22, 2019) (reaching the same conclusion where the case was “between two large and 6 sophisticated corporations”). 7 Therefore, Plaintiff is entitled to a reasonable attorney’s fee. “To determine whether 8 the requested attorneys’ fees are reasonable, ‘the Court looks to whether the hourly rate is 9 reasonable and whether the hours expended on the case are reasonable.’” Universal Servs. 10 of Am. LP v. Mazzon, No. CV-23-00463-PHX, 2024 WL 4418331, at *4 (D. Ariz. Oct. 4, 11 2024) (quoting Maguire v. Coltrell, No. CV–14–01255–PHX, 2015 WL 3999188, at *3 12 (D. Ariz. July 1, 2015)). As for a reasonable rate, “[t]he best indicator of a reasonable 13 hourly rate for a fee-paying client is the rate charged by the lawyer to the client.” Id. 14 (quoting Jackson v. Wells Fargo Bank, N.A., No. CV-13-00617-PHX, 2015 WL 13567069, 15 at *2 (D. Ariz. Oct. 23, 2015)). Counsel’s declaration and billing statements show that lead 16 counsel and another associate billed up to $400 per hour, that a partner billed up to $475 17 per hour, that junior associates billed up to $275 per hour, and that support staff billed up 18 to $175 per hour. (Doc. 137-3.) Lead counsel asserts that these rates are reasonable given 19 the nature of this case, the fees charged in similar cases, and the skill and experience of the 20 professionals involved. (Id. at 5, ¶ 19.) The Court agrees that these rates are reasonable. 21 As for the hours reasonably expended, the prevailing party generally may recover 22 “for every item of service which, at the time rendered, would have been undertaken by a 23 reasonable and prudent lawyer to advance or protect his client’s interest.” Mazzon, 2024 24 WL 4418331, at *5 (quoting Schweiger v. China Doll Rest., Inc., 673 P.2d 927, 931–32 25 (Ariz. Ct. App. 1983)). The unsuccessful party bears the burden to “provide specific 26 references to the record and specify which amount of items are excessive.” Id. (quoting In 27 re Indenture of Tr. Dated Jan. 13, 1964, 326 P.3d 307, 319–20 (Ariz. Ct. App. 2014)). 28 Here, counsel seeks $95,059.70 in fees. Defendant has not met its burden to object to the 1 || reasonableness of these fees. Furthermore, the Court has reviewed counsel’s task-based 2|| billing statement and finds that the time spent by counsel was reasonable. (Doc. 137-3.) □□ Therefore, the Court will recommend granting the requested fees. 4 Plaintiff also requests $197.61 in costs. Under Arizona law, “[t]he successful party 5 || to a civil action shall recover from his adversary all costs expended or incurred therein || unless otherwise provided by law.” A.R.S. § 12-341. The statute is mandatory, so the Court 7\| will recommend that Plaintiff be awarded its costs. See Dickson v. Travelers Cas. Ins., 8 || No. CV-23-01906-PHX, 2025 WL 460819, at *6 (D. Ariz. Feb. 11, 2025) (awarding costs 9|| under § 12-341). 10 Conclusion 11 The Court recommends (1) that Plaintiff's motion for default judgment (Doc. 137) || be granted; (2) that a default judgment be entered against Defendant in the amount of $217,585.53 ($122,328.22 in damages plus $95,257.31 in attorney’s fees and costs); and (3) that Plaintiff be awarded post-judgment interest at the current rate. 15 This recommendation is not immediately appealable to the United States Court of 16 || Appeals for the Ninth Circuit. The parties have 14 days to file specific written objections 17 || with the district court. Fed. R. Civ. P. 72(b)(2). The parties have 14 days to file responses 18 || to objections. Jd. The parties may not file replies on objections absent the district court’s 19 || permission. A failure to file timely objections may result in the waiver of de novo review. || United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003) (en banc). 21 Plaintiff must serve this report and recommendation on Defendant □□□ || accordance with Federal Rule of Civil Procedure 5(b) and must file a notice informing || the Court that it has done so. 24 Dated this 30th day of May, 2025. 25 . 26 A ae 7 United States Magistrate Judge 28

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