Yuanxiang Zhang v. Bing's Restaurant, Inc.

• Court: Court of Appeals for the Ninth Circuit
• Decided: May 31, 2019
• Docket: 17-35596
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION MAY 31 2019 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

YUANXIANG ZHANG; CANWEN No. 17-35596 ZHANG; LIQIONG DENG, D.C. No. 3:13-cv-00838-MO Plaintiffs-Appellees,

v. MEMORANDUM*

BING’S RESTAURANT, INC., an Oregon domestic business corporation,

Defendant-Appellant,

and

PAUL JOE; SUE JOE,

Defendants.

YUANXIANG ZHANG; CANWEN No. 17-35600 ZHANG; LIQIONG DENG, D.C. No. 3:13-cv-00838-MO Plaintiffs-Appellants,

v.

BING’S RESTAURANT, INC., an Oregon domestic business corporation,

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Defendant-Appellee,

Appeal from the United States District Court for the District of Oregon Michael W. Mosman, District Judge, Presiding

Submitted May 15, 2019** Portland, Oregon

Before: N.R. SMITH, WATFORD, and R. NELSON, Circuit Judges.

Bing’s Restaurant Inc. (“the Restaurant”) appeals the district court’s denial

of its two motions to set aside the entry of default against it. YuanXiang Zhang,

Canwen Zhang, and Liqiong Deng (collectively, “Plaintiffs”) appeal the district

court’s sua sponte dismissal of their claims against individuals Paul Joe and Sue

Joe (“the Joes”)—against whom default had also been entered. We have

jurisdiction under 28 U.S.C. § 1291, and we vacate and remand.

1. Plaintiffs moved for entry of default against the Restaurant for its failure to

be represented by counsel. Plaintiffs separately moved for entry of default against

** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). 2 the Restaurant and the Joes (collectively, “Defendants”) as a sanction for their

failure to respond to Plaintiffs’ discovery requests. The district court granted both

motions in a docket entry without explanation or analysis, and the clerk of court

entered default against all Defendants.

The Restaurant moved to set aside the entry of default for its failure to be

represented by counsel, arguing that good cause existed under Federal Rule of

Civil Procedure 55(c). Separately, all Defendants moved to set aside the entry of

default for their discovery violations, arguing both good cause under Rule 55(c)

and that the entry of default was an inappropriate sanction. The district court found

Defendants culpable for the discovery violations and denied both motions.

Although the district court purported to deny the motion to set aside the

entry of default for the Restaurant’s failure to be represented by counsel, it did not

directly address that motion nor did it find the Restaurant culpable for its failure to

be represented. Thus, it is not clear whether the district court meaningfully

reviewed that motion to set aside or on what basis that motion was denied.

Additionally, the district court did not address whether the entry of default

was an appropriate sanction for Defendants’ discovery violations. Before imposing

3 the extreme sanction of default, the district court must consider certain factors.1

The district court did not address the factors before it granted Plaintiffs’ motion

and entered default as a sanction, nor did it address the factors when it denied the

motion to set aside the entry of default on that basis.

Because the district court denied the motions to set aside the entry of default

without addressing the Restaurant’s arguments, we vacate the denial and remand.

2. The district court erred in dismissing Plaintiffs’ claims against the Joes. A

district court may not sua sponte dismiss a plaintiff’s claims without providing the

plaintiff an opportunity to respond, “unless the plaintiff[] cannot possibly win

relief.” Sparling v. Hoffman Constr. Co., 864 F.2d 635, 637-38 (9th Cir. 1988)

(internal quotation marks and alteration omitted). Thus, the district court must take

the well-pleaded factual allegations in the light most favorable to the plaintiff to

determine whether she could possibly win relief. Cf. Daniels-Hall v. Nat’l Educ.

Ass’n, 629 F.3d 992, 998 (9th Cir. 2010).

Despite having entered default against the Joes, the district court sua sponte

dismissed Plaintiffs’ claims against them by determining that Plaintiffs failed to

1 These factors include: “(1) the public’s interest in expeditious resolution of litigation; (2) the court’s need to manage its dockets; (3) the risk of prejudice to the party seeking sanctions; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions.” Wanderer v. Johnston, 910 F.2d 652, 656 (9th Cir. 1990) (alteration and citation omitted). 4 establish individual liability. In reaching that conclusion, the district court

disregarded well-pleaded allegations in the complaint, which allege that the Joes

exercised economic and managerial control over the Restaurant and thus were

individually liable as employers. Those allegations support a claim against the Joes

on which Plaintiffs could possibly win relief. Thus, we vacate the district court’s

dismissal of Plaintiffs’ claims and remand for further proceedings.

VACATED and REMANDED.

The parties shall bear their own costs on appeal.

5 FILED MAY 31 2019 Zhang v. Bing’s Restaurant, Inc., No. 17-35596, 17-35600 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

R. Nelson, Circuit Judge, concurring in part, dissenting from the result in part:

I concur in the majority’s decision to vacate the district court’s sua sponte

dismissal of Defendants Paul Joe and Sue Joe from the action and to remand

because the district court abused its discretion in denying, without analysis, the

Restaurant’s motion to set aside the default judgment for failure to be represented

by counsel. I write separately, however, because I believe the district court abused

its discretion in entering default as a discovery sanction and the entry of default

was procedurally improper in the first instance.

First, as the majority recognizes, a district court must weigh certain factors

before imposing the “extreme sanction of dismissal or default” for discovery

violations. Wanderer v. Johnston, 910 F.2d 652, 656 (9th Cir. 1990). The district

court must consider: “(1) the public’s interest in expeditious resolution of

litigation; (2) the court’s need to manage its dockets; (3) the risk of prejudice to the

party seeking sanctions; (4) the public policy favoring disposition of cases on their

merits; and (5) the availability of less drastic sanctions.” Id. (citation and internal

brackets omitted). Notably, we have held that “[w]hile a district court need not

make explicit findings regarding each of these factors, if it does not, the appellate

court must review the record independently to determine whether the sanction was

an abuse of discretion.” Id. (emphasis added).

1 Applying these factors, I find that the district court abused its discretion in

entering default as a discovery sanction. “The first two of these factors favor the

imposition of sanctions in most cases, while the fourth cuts against a default or

dismissal sanction. Thus the key factors are prejudice and availability of lesser

sanctions.” Id. Here, however, it is not even clear that the public’s interest in

expeditious resolution of litigation was best served by entry of default given the

parties were actively engaged in settlement discussions and Defendants had

requested an extension of the discovery deadlines to further pursue settlement.

While hindsight is 20/20, allowing the parties to pursue settlement may have

avoided the roughly five years of litigation resulting from the district court’s entry

of default.

The two “key” factors also weigh in favor of Defendants. As the district

court found, Plaintiffs would not be meaningfully prejudiced by allowing this case

to proceed on its merits. Moreover, the availability of less drastic sanctions weighs

strongly in favor of Defendants. “[W]e have held that the district court abuses its

discretion if it imposes a dismissal sanction without first considering the impact of

the sanction and the adequacy of less drastic sanctions.” U.S. for Use & Ben. of

Wiltec Guam, Inc. v. Kahaluu Const. Co., 857 F.2d 600, 604 (9th Cir. 1988)

(internal quotation marks omitted). Only “in exceptional cases, where it is clear

that no other alternative would have been reasonable, [may we] affirm a dismissal

2 or default judgment despite the absence of such a discussion.” Id. Here, despite

Plaintiffs seeking lesser sanctions and given that no motions to compel or other

discovery motions were filed, the district court did not discuss the availability of

lesser sanctions before it entered default. Accordingly, I find the district court

abused its discretion in entering default as a discovery sanction and would vacate

that order as to all Defendants.

Second, although the parties did not raise the issue,1 under Federal Rule of

Civil Procedure 55(b)(2), “[i]f 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.”

Because Defendants appeared by answering the complaint, they were entitled to

seven days’ notice before entry of default. That notice was never provided as

Plaintiffs filed and served their motion for default judgment on June 17, 2014 (the

day of the discovery deadline), and the district court entered an order summarily

granting the motion on June 18, 2014, without a hearing. “The failure to provide

55(b)(2) notice, if the notice is required, is a serious procedural irregularity that

usually justifies setting aside a default judgment or reversing for the failure to do

1 “[A] court of appeals may review issues sua sponte . . . where to not do so would be unduly harsh to one or both of the parties.” United States v. Hoyt, 888 F.2d 1257, 1258 (9th Cir. 1989).

3 so.” Wilson v. Moore & Assocs., Inc., 564 F.2d 366, 369 (9th Cir. 1977). There is

good reason for this requirement. It provides a party faced with the extreme

sanction of default an opportunity to respond before default is entered. Defendants

were given no such opportunity. However, because this issue was not directly

raised before the district court or this court, I concur in the majority’s decision to

remand to the district court for further proceedings as to whether the Restaurant’s

default judgment should be set aside, on this ground or others.

Accordingly, I would vacate the default judgement as to the Joes, and

remand to the district court for further proceedings only on whether to set aside the

default judgement against the Restaurant for failure to be represented by counsel.