N. Seattle Health Ctr. Corp. v. Allstate Fire & Cas. Ins. Co., CASE NO. C14-1680JLR

Decision Date26 April 2016
Docket NumberCASE NO. C14-1680JLR
CourtU.S. District Court — Western District of Washington
PartiesNORTH SEATTLE HEALTH CENTER CORP., Plaintiff, v. ALLSTATE FIRE & CASUALTY INSURANCE COMPANY, Defendant. ALLSTATE INDEMNITY COMPANY, et al., Third-Party Plaintiffs, v. DAEHYUN CHOI, et al., Third-Party Defendants.
ORDER GRANTING DEFAULT JUDGMENT

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I. INTRODUCTION

Before the court is Defendant Allstate Fire & Casualty Insurance Company and Third-Party Plaintiffs Allstate Indemnity Company, Allstate Insurance Company, Allstate Property & Casualty Company, and Northbrook Indemnity Company's (collectively, "Allstate") amended motion for entry of default judgment. (Am. Mot. (Dkt. # 49).) The court has considered Allstate's amended motion, the balance of the record, and the applicable law. Being fully advised, the court GRANTS Allstate's motion, but with adjustments to Allstate's asserted damages and fees as described below.

II. BACKGROUND

On October 31, 2014, Allstate removed this action from Snohomish County Superior Court to this court. (Not. of Rem. (Dkt. # 1).) Plaintiff North Seattle Health Center Corporation had filed a complaint in state court against Defendant Allstate Fire & Casualty Insurance Company alleging claims for tortious interference with a contractual and business relationship and tortious interference with business expectancy. (Compl. (Dkt. # 1-1).) Allstate Fire & Casualty Insurance Company filed an answer to Plaintiff's complaint that included counterclaims against Plaintiff for violation of Washington's Consumer Protection Act ("CPA"), RCW ch. 19.86, common law civil fraud, violation of Washington's Criminal Profiteering Act, RCW ch. 9A.82, unjust enrichment, and piercing the corporate veil. (Ans. (Dkt. # 3-1) ¶¶ 7.1-10.8.) In the answer, Allstate also brought claims against Third-Party Defendants Daehyun Choi, Hyun Joo Kwan, DRDC Corporation, Inc., Bestway Chiropractic Clinic Corporation, and Good Care Spine Clinic Corporation. (Id. ¶¶ 11.1-14.4.) Allstate's third-party claims alleged violation of thecorporate practice of medicine doctrine, violation of the Professional Services Corporation Act, RCW ch. 18.100, violation of Washington's Anti-Rebate Statute, RCW ch. 19.68, violation of Washington's CPA, common law civil fraud, violation of Washington's Criminal Profiteering Act, unjust enrichment, and piercing the corporate veil. (Id. ¶¶ 15.1-22.8.)

Allstate alleged that Plaintiff and Third-Party Defendants were involved in the business of operating medical clinics. (See, e.g., id. ¶¶ 6.5, 11.3, 12.4, 13.4, 14.3.) The Third-Party Defendant medical clinics were all allegedly owned and operated by the same individual. (See, e.g., id. ¶ 11.2.) Allstate alleged that Plaintiff and the Third-Party Defendants engaged in duplicative billing practices for the services provided to their patients and unnecessary referrals to related clinics. (See id. ¶¶ 11.5, 17.5-17.6.)

On August 25 and 27, 2015, Allstate moved for the entry of default against Plaintiff and Third-Party Defendants as a sanction for discovery violations and failure to abide by the court's prior orders. (See Mot. for Default (Dkt. # 34); Supp. Mot. for Default (Dkt. # 36).) On September 17, 2015, the court held a hearing concerning Allstate's motions for sanctions and default based on Plaintiff's and Third-Party Defendants' failure to obtain counsel as ordered by the court and respond to Allstate's discovery requests. (See 9/17/15 Min. Entry (Dkt. # 38).) Neither Plaintiff, nor Third-Party Defendants responded to Allstate's motions or appeared at the September 17, 2015, hearing. (See id.; see generally Dkt.) At the hearing, the court granted Allstate's motions, dismissed Plaintiff's claims, and found Plaintiff and Third-Party Defendants in default. (9/17/15 Min. Entry.)

On December 2, 2015, Allstate moved for entry of default judgment against Plaintiff and Third-Party Defendants. (Mot. (Dkt. # 41).) The court denied Allstate's motion without prejudice to Allstate filing an amended motion in accord with the court's directives and further dismissed all of Allstate's claims except its CPA claims as either inadequately pleaded or waived. (1/27/16 Order (Dkt. # 46) at 6 n.3, 9, 12-13.) The court directed that any amended motion for default judgment be in accord with the parameters established in the court's order, which limited Allstate's amended motion to its CPA claims against Plaintiff and Third-Party Defendants.1 The court also directedAllstate to provide the court with proof of its damages and attorney's fees.2 (Id. at 12-13.) Allstate did not move for reconsideration of the court's order. (See generally Dkt.)

Allstate filed an amended motion for default judgment on February 16, 2016. (Am. Mot.) Allstate did not, however, limit its amended motion for default judgment to its CPA claims against Plaintiff and Third-Party Defendants as directed by the court in the court's January 27, 2016, order. (See 1/27/16 Order at 12.) Instead, Allstate moved for default judgment on its claims for violation of the CPA (Am. Mot. at 22-25), civil fraud (id. at 25-26), violations of the Criminal Profiteering Act (id. at 26-30), and violations of the Anti-Rebating Statute (id. at 31-32). The court now considers Allstate's amended motion for default judgment.

III. ANALYSIS

The court's entry of default is the first step to obtaining a default judgment against another party. See Local Rules W.D. Wash. LCR 55(a), (b)(1). Therefore, although thecourt entered default as a Federal Rule of Civil Procedure 37 sanction against Plaintiff and Third-Party Defendants (see 9/17/15 Min. Entry), Allstate is still required to move for default judgment, see Local Rules W.D. Wash. LCR 55(b)(1), (2). Courts have wide discretion in deciding whether to enter a default judgment.3 See Fed. R. Civ. P. 55; Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980).

"The general rule of law is that upon default, 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) (per curiam). However, "necessary facts not contained in the pleadings, and claims which are legally insufficient are not established by default." Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992). A court, therefore, may not enter default judgment on the basis of insufficient pleadings. Id.; see also Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978) ("[F]acts which are not established by the pleadings of the prevailing party, or claims which are not well-pleaded, are not binding and cannot support the [default] judgment."). Thus, before the court may exercise its discretion to enter a default judgment, it first must determine whether the moving party has stated viable claims uponwhich a default judgment may rest. See Pac. Bus. Cap. Corp. v. Globex Brands, Inc., No. SACV-09-866 DOC (ANx), 2011 WL 66337, at *2 (C.D. Cal. Jan. 7, 2011).

In its prior motion, Allstate moved for default judgment on only three claims: (1) the CPA, (2) civil fraud, and (3) the Criminal Profiteering Act. (Mot. for Default at 4-8.) In its prior order, the court held that Allstate's CPA claims against Plaintiff and Third-Party Defendants were Allstate's only viable claims to support a default judgment. (1/27/16 Order at 6 ("[T]he court finds that only one of these claims—the claim predicated on violation of the CPA—is sufficiently pleaded to support Allstate's motion for default judgment.").) The court found that Allstate's claims for civil fraud and for violations of the Criminal Profiteering Act were insufficiently pleaded pursuant to the heightened pleading standards of Rule 9(b) and therefore could not support entry of default judgment. (Id. at 6-9.) In addition, the court found that Allstate had waived the entry of default judgment on the remainder of its claims by failing to move for default judgment on those claims. (Id. at 6 n.3.) Accordingly, the court permitted Allstate to file an amended motion for default judgment but only with respect to its CPA claims. (Id. at 12 ("Allstate may re-file its motion for default judgment based on its CPA claims against Plaintiff and Third-Party Defendants.").)

In direct contravention of the court's order, Allstate filed an amended motion for default judgment not only on its CPA claims (Am. Mot. at 22-25) but also on its claims for civil fraud (id. at 25-26), violations for the Criminal Profiteering Act (id. at 26-30), and violations of the Anti-Rebating Statute (id. at 31-32). Allstate never moved for reconsideration of the court's January 27, 2016, order (see generally Dkt.), and it may notsimply ignore the court's prior order. Accordingly, the court DENIES Allstate's motion for entry of default judgment with respect to all of Allstate's claims except for Allstate's CPA claims against Plaintiff and Third-Party Defendants. Because the court has already determined that Allstate's CPA claims are sufficiently pleaded (1/27/16 Order at 6), the court now considers whether Allstate has sufficiently proved its claims for damages under the CPA. See Geddes, 559 F.2d at 560.

A. Damages under the CPA

The court directed Allstate to address two issues in its amended motion for default judgment with respect to the damages Allstate claimed. First, the court directed Allstate to explain why it is legally entitled to recover payments made to parties not named in its counterclaims or third-party claims, including Personal Injury Protection ("PIP") payments to North Seattle Pain Clinic, North Seattle Clinic, Good Care Chiropractic, Chung Song Ja Corp., and third-party payments to North Seattle Clinic, North Seattle Pain Clinic, Sungjun Chung, and Nataliya Kozak. (1/27/16 Order at 10-11.) Second, the court directed Allstate to provide back-up documentation to corroborate Allstate's alleged damages as described in its "damage model." (See id. at 11.)

In response to the court's...

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