Zurich American Insurance Comp v. Sealink Insurance Service Corp

• Court: Court of Appeals for the Ninth Circuit
• Decided: October 15, 2018
• Docket: 17-55776
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS OCT 15 2018 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

ZURICH AMERICAN INSURANCE No. 17-55776 COMPANY, D.C. No. 2:16-cv-04301-R-JC Plaintiff-Appellee,

v. MEMORANDUM*

SEALINK INSURANCE SERVICE CORP. and YAN SARA ZHANG,

Defendants-Appellants,

and

PHANN GELINDA KEO; et al.,

Defendants.

Appeal from the United States District Court for the Central District of California Manuel L. Real, District Judge, Presiding

Submitted October 11, 2018** Pasadena, California

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). Page 2 of 5

Before: WATFORD and OWENS, Circuit Judges, and PRESNELL,*** District Judge.

Defendants Yan Sara Zhang and Sealink Insurance Service Corporation

appeal from the district court’s denial of their motion to set aside the entry of

default and default judgment against them. In evaluating such a motion, “a court

must consider three factors: (1) whether the party seeking to set aside the default

engaged in culpable conduct that led to the default; (2) whether it had no

meritorious defense; or (3) whether reopening the default judgment would

prejudice the other party.” United States v. Signed Personal Check No. 730 of

Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (internal quotation marks

and alterations omitted). “[A] finding that any one of these factors is true is

sufficient reason for the district court to refuse to set aside the default.” Id. For the

following reasons, we hold that the district court did not abuse its discretion in

denying defendants’ motion.

1. We need not reach the issue of defendants’ culpable conduct because

defendants’ lack of a meritorious defense is sufficient to justify the district court’s

refusal to set aside the default and default judgment. See United States v. Aguilar,

782 F.3d 1101, 1105 & n.5, 1109 (9th Cir. 2015). Defendants have no meritorious

*** The Honorable Gregory A. Presnell, United States District Judge for the Middle District of Florida, sitting by designation. Page 3 of 5

defense to Zurich American Insurance Company’s breach of contract claim. They

point to the lack of a written agreement and argue that the “contract at issue does

not exist.” However, they do not dispute that Sealink sold insurance policies

issued by Zurich in exchange for Sealink’s remittance of premiums, and there is

ample evidence of an agreement governing that arrangement. Defendants offer no

facts to dispute the existence of an agreement, and “general objections to the

existence of a contract” are “insufficient to satisfy the meritorious defense

requirement.” NewGen, LLC v. Safe Cig, LLC, 840 F.3d 606, 616 (9th Cir. 2016)

(internal quotation marks omitted).

Defendants also lack a meritorious defense to Zurich’s breach of fiduciary

duty claim. Defendants do not dispute that Sealink failed to maintain the

premiums it owed Zurich in a segregated trust account as required by California

Insurance Code sections 1733 and 1734. Defendants’ argument that those

provisions do not provide Zurich with a cause of action is mistaken. See Middlesex

Insurance Co. v. Mann, 177 Cal. Rptr. 495, 503 (Ct. App. 1981) (“We conclude

that a civil action will lie for damages proximately resulting from a licensee’s

breach of the fiduciary obligations imposed by [sections 1733 and 1734].”).

Finally, defendants fail to assert a meritorious defense to the size of the

default judgment award. The district court determined that the declaration of

Zurich’s legal collection specialist and the billing statement generated by Zurich Page 4 of 5

constituted “proof sufficient to support [Zurich’s] requested damages.”

Defendants’ challenge to the sufficiency and reliability of that evidence does not

amount to a meritorious defense. See Franchise Holding II, LLC v. Huntington

Restaurants Group, Inc., 375 F.3d 922, 926 (9th Cir. 2004) (a “mere general

denial” regarding the extent of the deficiency owed “is not enough to justify

vacating a default or default judgment” (internal quotation marks omitted)).

Defendants fail to offer specific facts disputing the damages amount despite being

“in the best position to have the accurate records required to refute” Zurich’s

evidence. NewGen, 840 F.3d at 617. Defendants’ assertion that they lack records

substantiating the claimed amount does not amount to an allegation of “sufficient

facts that, if true, would constitute a defense.” Mesle, 615 F.3d at 1094.

2. The district court did not err in failing to set aside the default judgment

pursuant to Federal Rule of Civil Procedure 60(b)(4). Rule 60(b)(4) provides for

relief when a judgment is void. In contrast to the other grounds for relief under

Rule 60(b), a default judgment may be vacated on this ground even if the

defendant lacks a meritorious defense. See Thos. P. Gonzalez Corp. v. Consejo

Nacional de Produccion de Costa Rica, 614 F.2d 1247, 1256 (9th Cir. 1980).

Defendants argue that the judgment is void due to inadequate service of process.

But Zurich’s service of process satisfied the statutory requirements. Zurich’s

substituted service of the summons and complaint on Zhang was proper under Page 5 of 5

Federal Rule of Civil Procedure 4(e)(1) and California Code of Civil Procedure

section 415.20(b). Zurich’s service of the summons and complaint on Sealink

complied with Federal Rule of Civil Procedure 4(h)(1)(B). Finally, Zurich served

both Zhang and Sealink with its motion to enter default judgment in accordance

with the Central District of California’s Local Rule 55-2 and Federal Rule of Civil

Procedure 5(b)(2)(C).

AFFIRMED.