Opinion
CV-23-00592-PHX-JZB
02-28-2024
Pritikin ICR LLC, Plaintiff, v. Apricus Health MSO LLC, et al., Defendants.
REPORT AND RECOMMENDATION
Honorable John Z. Boyle United States Magistrate Judge
TO THE HONORABLE STEPHEN M. MCNAMEE, SENIOR UNITED STATES DISTRICT JUDGE:
Pending before the Court is Plaintiff's Motion for Default Judgment and accompanying Memorandum in Support (the “Motion”). (Doc. 14, 15.) This Report and Recommendation is filed pursuant to General Order 21-25. The Court will recommend that the Motion be granted.
General Order 21-25 states in relevant part: “When a United States Magistrate Judge to whom a civil action has been assigned pursuant to Local Rule 3.7(a)(1) considers dismissal to be appropriate but lacks the jurisdiction to do so under 28 U.S.C. § 636(c)(1) due to incomplete status of election by the parties to consent or not consent to the full authority of the Magistrate Judge, IT IS ORDERED that the Magistrate Judge will prepare a Report and Recommendation for the Chief United States District Judge or designee. IT IS FURTHER ORDERED designating the following District Court Judges to review and, if deemed suitable, to sign the order of dismissal on my behalf: Phoenix/Prescott: Senior United States District Judge Stephen M. McNamee. . . .”
I. Background.
Plaintiff, a lender, filed this civil action for breach of contract on April 7, 2023, against Defendants Apricus Health MSO, LLC (“Apricus”) and Kishlay Anand. (Doc. 1.) Plaintiff Pritikin ICR, LLC is a Delaware Limited Liability Company (“LLC”). (Doc. 1, ¶ 1.) Plaintiff alleges Defendant Apricus is a Delaware LLC with its principal place of business in Phoenix, Arizona, and that Defendant Anand resides in Phoenix, AZ. (Id., ¶¶ 2-3.) Plaintiff alleges it entered a commercial loan transaction with Defendant Apricus, the borrower, on January 20, 2022, whereby Plaintiff loaned Defendant Apricus $500,000 for the purposes of “building a cardiac rehabilitation program[,]” and that the loan was personally, unconditionally, and irrevocably guaranteed by Defendant Anand through an executed Guaranty (“Guaranty”). (Id., ¶¶ 6-10.) Plaintiff alleges the loan was executed pursuant to a promissory note (“the Note”) attached to the Complaint as Exhibit A, and that Plaintiff had exclusive possession of and rights to the Note at all times. (Id., ¶¶ 6, 11.) Pursuant to the Note, default on the loan occurs if:
“(i) Borrower divests, sells or otherwise disposes of more than 50% of its assets; (ii) more than 50% of Borrower's membership interests are sold, divested or otherwise disposed of by any member holding interest in Apricus; or (iii) Lender believes, in its sole and reasonable discretion, that Borrower is unable to meet any obligation under the loan, including its payment obligations/'(Id., ¶ 16.) If one of the conditions for default exists, the Note provides that Plaintiff is “entitled to accelerate the amounts due and owing under the Note[,]” (“Acceleration Clause”) and interest begins to accrue at 6.9%. (Id., ¶ 17-18.) Plaintiff alleges that Defendant Apricus defaulted on the Note “by disposing or selling substantially all of” its assets, and that Plaintiff invoked the Acceleration Clause in a letter to Defendants dated February 6, 2023 (“Acceleration Letter”). (Id., ¶ 19-20.) Plaintiff brings two counts for breach of contract: Count I against Defendant Apricus for default and breach under the Note and Count II against Defendant Anand for breach of the Guaranty. (Id., ¶¶ 22-36.) Plaintiff alleges it is owed $500,000 in principal and $20,247.95 in interest as of February 1, 2023. (Id., ¶ 21.)
II. Procedural History.
Plaintiff served Defendant Apricus by registered agent on April 13, 2023. (Doc. 6.) Plaintiff served Defendant Anand by leaving a copy with him at his home on April 23, 2023. (Doc. 9.) Neither Defendant answered nor otherwise responded to the Complaint. On July 13, 2023, Plaintiff applied for Entry of Default against all Defendants, and the Clerk entered default. (Doc. 12-13.) On August 8, 2023, Plaintiff filed this Motion for Default Judgment and accompanying memorandum. (Doc. 14, 15.) On January 29, 2024, this Court ordered Plaintiff to file supplemental briefing further establishing that diversity jurisdiction exists by naming the citizenship of the members of each LLC. (Doc. 16.) Plaintiff filed a “Notice of Citizenship of the Parties” on February 12, 2024, stating that (1) Plaintiff Pritikin ICR, LLC is a wholly-owned subsidiary of Pritikin Enterprises LLC; (2) “Pritikin Enterprises LLC is owned by the Sam Fox Revocable Living Trust and Fox Pritikin Holdings, Inc.”; (3) that “Fox Pritikin Holdings, LLC is wholly owned by the Sam Fox Revocable Living Trust[]”; (4) that “Donald Nickelson and Ira Polon are the trustees of the Sam Fox Revocable Living Trust[]” and (5) that these individuals are citizens of the States of Florida and Maryland, respectively. (Doc. 17.) Plaintiff further asserted that, upon information and belief, Defendant Kishlay Anand is the sole member of the Apricus LLC and is a citizen of Arizona. (Id.)
Plaintiff's certificate of service states that Defendant Anand was personally served. (Doc. 9.) Plaintiff's process server described the encounter as follows: “Middle Eastern male came to door. He informed me that I should have to take all documents to ‘his' office and that he would not be accepting anything at the house. I asked his name he refused. I informed Him if he did not want to ID himself or accept documents I would leave them at the door he said fine. As I walked away he picked documents up.” (Id.)
III. Motion for Default Judgment.
A. Legal Standard.
Under Rule 55(a) of the Federal Rules of Civil Procedure, “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.” Fed.R.Civ.P. 55(a). Once a party's default has been entered, the district court has discretion to grant default judgment against that party. See Fed.R.Civ.P. 55(b)(2); Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980).
In assessing a motion for default judgment, the district court first “has an affirmative duty to look into its jurisdiction over both the subject matter and the parties.” In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999) (“To avoid entering a default judgment that can later be successfully attacked as void, a court should determine whether it has the power, i.e., the jurisdiction, to enter the judgment in the first place.”). Once jurisdiction is satisfied, the court must determine whether default judgment is proper under the Eitel factors. See Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). A court should consider:
(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 at stake in the action[;]
(5) the possibility of a dispute concerning material facts[;]
(6) whether the default was due to excusable neglect[;] and
(7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.Id., at 1471-72. In applying the Eitel factors, “the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true.” Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977).
B. Discussion.
1. Jurisdiction.
“When entry of judgment is sought against a party who has failed to plead or otherwise defend, a district court has an affirmative duty to look into its jurisdiction over both the subject matter and the parties.” In re Tuli, 172 F.3d at 712. Here, the Court exercises diversity jurisdiction pursuant to 28 U.S.C. § 1332(a)(1): The amount in controversy exceeds $75,000, and complete diversity exists between Defendants and the Plaintiff. Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996) (diversity statute “applies only to cases in which the citizenship of each plaintiff is diverse from the citizenship of each defendant.”) “[A]n LLC is a citizen of every state of which its owners/members are citizens.” Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). Plaintiff Pritikin, in the supplemental briefing noted above, disclosed it is a citizen of the States of Florida and Maryland and Defendants are citizens of Arizona. (Doc. 17 at 2.) This establishes diversity of citizenship and personal jurisdiction over Defendants by this Court.
2. Eitel Factors.
Having determined that this Court has both subject matter and personal jurisdiction in this action over the named Defendants, the Court will examine whether entry of default judgment is proper under the Eitel factors.
a. The First, Fifth, Sixth, and Seventh Eitel Factors.
When Defendants have not responded or participated in any litigation, the “first, fifth, sixth, and seventh [Eitel] factors are easily addressed.” Zekelman Industries Inc. v. Marker, No. CV-19-02109-PHX-DWL, 2020 WL 1495210, at *3 (D. Ariz. March 27, 2020). The first factor weighs in favor of default judgment because denying Plaintiff's Motion will leave Plaintiff “without other recourse for recovery,” PepsiCo, Inc. v. California Security Cans., 238 F.Supp.2d 1172, 1177 (C.D. Cal. 2002), and prejudice would exist if Plaintiff's Motion was denied because Plaintiff would lose the right to a “judicial resolution” of its claims. Elektra Entertainment Group, Inc. v. Crawford, 226 F.R.D. 388, 392 (C.D. Cal. 2005). The fifth factor weighs in favor of default judgment because the well-pleaded factual allegations in the Complaint are taken as true, and there is no “genuine dispute of material facts” that would preclude granting the Motion. PepsiCo, 238 F.Supp.2d at 1177. The sixth factor considers whether the default was due to excusable neglect. Here, Defendants' failure to participate after being served does not indicate that default was due to excusable neglect. See Twentieth Century Fox Film Corp. v. Streeter, 438 F.Supp.2d 1065, 1071-1072 (D. Ariz. 2006). The seventh factor- favoring decisions on the merits-generally weighs against default judgment; however, “the mere existence of [Rule 55(b)] indicates that ‘this preference, standing alone, is not dispositive,'” PepsiCo, 238 F.Supp.2d at 1177, and is insufficient to preclude the entry of default judgment in this case. Warner Bros. Entertainment Inc. v. Caridi, 346 F.Supp.2d 1068, 1073 (C.D. Cal. 2004) (explaining that the seventh Eitel factor “standing alone, cannot suffice to prevent entry of default judgment for otherwise default judgment could never be entered” and courts have concluded that “this factor does not weigh very heavily”). Here, a decision on the merits is impossible, given that Defendants failed to respond. The first, fifth, sixth, and seventh factors weigh in favor of default judgment.
b. The Second and Third Eitel Factors.
The second and third Eitel factors-the merits of the claim and the sufficiency of the complaint-are “often analyzed together and require courts to consider whether a plaintiff has state[d] a claim on which [it] may recover.” Vietnam Reform Party v. Viet Tan-Vietnam Reform Party, 416 F.Supp.3d 948, 962 (N.D. Cal. 2019) (quotations omitted). “Under Arizona law, a claim for breach of contract has three elements: (1) the existence of a contract between the plaintiff and defendant; (2) breach of the contract by defendant; and (3) resulting damage to the plaintiff.” Gordon Grado M.D., Inc. v. Phoenix Cancer & Blood Disorder Treatment Inst. PLLC, 603 F.Supp.3d 799, 818 (D. Ariz. 2022) (citations omitted).
“A federal court sitting in diversity applies the substantive law of the state[.]” Albano v. Shea Homes Ltd. P 'ship, 634 F.3d 524, 530 (9th Cir. 2022).
Plaintiff has alleged a contract for a commercial loan transaction existed in the form of a promissory note executed on January 20, 2022, and that it was personally guaranteed by Defendant Anand through the executed Guaranty. (Doc. 1, ¶¶ 6, 9.) Plaintiff alleges that, pursuant to the Note, default occurs if Defendant Apricus “divests, sells or otherwise disposes of more than 50% of its assets[,]” and that this event occurred. (Doc. 1, ¶¶ 16, 19.) Plaintiff further alleges that, pursuant to the Note, Plaintiff was entitled to accelerate the payment date on the loan amount in the event of default, and that interest accrues at 6.9% in default. (Id. at ¶¶ 17-18.) Plaintiff alleges this event occurred and that Plaintiff notified Apricus and Anand of the default in the Acceleration Letter. (Id., ¶ 25.) Plaintiff also alleges Defendant Anand, as guarantor, unconditionally promised to pay Apricus's debts under the Note and failed to do so. (Id. at ¶¶ 31, 35.) The allegations in the complaint are sufficient to state breach of contract claims against each Defendant.
c. The Fourth Eitel Factor.
The fourth Eitel factor considers “the amount of money at stake in relation to the seriousness of Defendant's conduct.” PepsiCo, Inc., 238 F.Supp.2d at 1176. “If the sum of money at stake is completely disproportionate or inappropriate, default judgment is disfavored.” Twentieth Century Fox Film Corp., 438 F.Supp.2d at 1071.
Here, the parties executed the Note for $500,000 and Defendant Anand personally guaranteed that amount. (Doc. 1-2 at 2-10, 12-19.) The Court finds Plaintiff's proposed recovery is proportional to the harm, i.e., the amount Plaintiff loaned Defendants that was never repaid, and that the fourth Eitel factor weighs in favor of granting the Motion. See, e.g., Fisher Printing Inc. v. CRG LTD II LLC, No. CV-16-03692-PHX-DJH, 2018 WL 603299, at *3 (D. Ariz. Jan. 22, 2018) (“Plaintiff's Motion for Default seeks a judgment against Defendant in the amount of $123,773.65. Although this is a substantial sum, it is not necessarily excessive or disproportionate because it is based, at least in part, on the agreements between the parties.”).
3. Damages.
Having found that entry of default judgment is proper under the Eitel factors, the Court will turn to damages. Unlike the allegations in the Complaint, the Court does not take allegations relating to damages as true. Geddes, 559 F.2d at 560; see also TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987). Plaintiffs have the burden of “proving up” damages, and “if the facts necessary to determine damages are not contained in the complaint, or are legally insufficient, they will not be established by default.” Philip Morris USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 498 (C.D. Cal. 2003). Courts may rely on declarations submitted by the plaintiff in determining appropriate damages. Tolano v. El Rio Bakery, No. CV-18-00125-TUC-RM, 2019 WL 6464748, at *6 (D. Ariz. Dec. 2, 2019) (citing Philip Morris USA, Inc., 219 F.R.D. at 498).
The Court finds Plaintiff has sufficiently proven damages by attaching the executed Note, Guaranty, and Acceleration Letter. (Doc. 15-4.)
IV. Conclusion and Recommendation.
Having reviewed Plaintiff's Motion and the underlying documents in the record, the Court finds that the Eitel factors weigh in favor of granting default judgment in favor of Plaintiff for the requested amount.
Accordingly, IT IS RECOMMENDED the Court GRANT Plaintiff's Motion for Default Judgment. (Doc. 14, 15.)
IT IS FURTHER RECOMMENDED the Court enter judgment against Defendants, jointly and severally, in the amount of $529,900.00 with pre-judgment interest calculated at 6.9% from August 8, 2023, forward.
IT IS FURTHER RECOMMENDED that Plaintiff have no later than 14 days after entry of Judgment to file an application for attorneys' fees and costs.
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of the district court's judgment. The parties shall have 14 days from the date of service of a copy of this Report and Recommendation within which to file specific written objections with the Court. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(b) and 72. Thereafter, the parties have 14 days within which to file a response to the objections. Failure to timely file objections to the Magistrate Judge's Report and Recommendation may result in the acceptance of the Report and Recommendation by the district court without further review. See United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003). Failure to timely file objections to any factual determinations of the Magistrate Judge will be considered a waiver of a party's right to appellate review of the findings of fact in an order of judgment entered pursuant to the Magistrate Judge's Report and Recommendation. See Fed. R. Civ. P. 72.