Rubicon Global Ventures, Inc. v. Chongqing Zongshen Grp. Import/Export Corp.

• Decision Date: 30 December 2016
• Docket Number: No. 3:09–cv–00818–MO (Lead Case),3:09–cv–00818–MO (Lead Case)
• Citation: 226 F.Supp.3d 1141
• Parties: RUBICON GLOBAL VENTURES, INC., an Oregon corporation; and Z Motors, Inc., an Oregon corporation, Plaintiffs, v. CHONGQING ZONGSHEN GROUP IMPORT/EXPORT CORP., a foreign corporation; Chongqing Zongshen Group, a foreign corporation; Zongshen Industrial Group, a foreign corporation; Zongshen Industrial Group, Co. Ltd, a foreign corporation also known as Zongshen Industrial Group ; and Dexiu Yuan, Defendants.
• Court: U.S. District Court — District of Oregon

226 F.Supp.3d 1141

RUBICON GLOBAL VENTURES, INC., an Oregon corporation; and Z Motors, Inc., an Oregon corporation, Plaintiffs,

v.CHONGQING ZONGSHEN GROUP IMPORT/EXPORT CORP., a foreign corporation; Chongqing Zongshen Group, a foreign corporation; Zongshen Industrial Group, a foreign corporation; Zongshen Industrial Group, Co. Ltd, a foreign corporation also known as Zongshen Industrial Group ; and Dexiu Yuan, Defendants.

No. 3:09–cv–00818–MO (Lead Case)

United States District Court, D. Oregon, Portland Division.

Signed December 30, 2016

Peggy Sue Foraker, Peggy S. Foraker, PC, James L. Hiller, Hitt Hiller & Monfils, LLP, Kathryn H. Clarke, Portland, OR, for Plaintiffs.

Christian E. Mammen, Hogan Lovells US, San Francisco, CA, Claire M. Specht, Mark C. Fleming, Robert D. Cultice, Tasha J. Bahal, Wilmer Cutler Pickering Hale and Dorr LLP, Boston, MA, Daniel H. Skerritt, Ryan M. Bledsoe, Tonkon Torp, LLP, Baolin Chen, Chen & Mu, Portland, OR, Song Zhu, Pro Hac Vice, Palo Alto, CA, for Defendants.

OPINION AND ORDER

MOSMAN, Chief United States District Judge

This matter comes before the Court on remand from the Ninth Circuit to make a factual determination of Plaintiffs' damages in Docket Nos. 3:05–cv–01809 ("Rubicon I" ), 3:09–cv–00818 ("Rubicon II "), and 3:09–cv–01397 ("Rubicon III"). Also before the Court is Defendants' Motion to Preclude Entry of Default Judgment on Plaintiffs' Claims [303]. After considering the information and evidence presented at the hearing, I find Plaintiffs' sufficiently proved damages in the amount of $916,650. For the reasons stated below, however, I GRANT Defendants' Motion and preclude the entry of default judgment in this consolidated action. Plaintiffs are, therefore, awarded no damages.

BACKGROUND

The history of this consolidated action is long and tortuous. In 2004, Defendants allegedly approached Plaintiffs about establishing a joint venture in which Plaintiffs would market and sell Defendants' motorbikes in the United States. Plaintiffs eventually incorporated and ordered three containers of the motorbikes from Defendants. Plaintiffs received the first two containers, but the third was seized by United States Customs and Border Protection because the motorbikes failed to meet relevant emission standards. Plaintiffs claim that Defendants falsified the emissions testing records and misrepresented that the motorbikes were legal to sell in the United States. Additionally, Plaintiffs claim the motorbikes they did receive had numerous mechanical issues. Plaintiffs stored the motorbikes and eventually sold them to a wholesaler for a discounted price.

Based on these factual allegations, Plaintiffs eventually filed five civil actions, of which only three remain (Rubicon I, Rubicon II , and Rubicon III). This Court originally entered default judgments in all three cases but then vacated those judgments based on improper service and issues with personal jurisdiction. Plaintiffs appealed the orders vacating the default judgments, and the Ninth Circuit held that, at least in regard to some defendants, service and the exercise of personal jurisdiction had been proper. On remand, this Court reinstated the default judgments against Defendants in the total amount of approximately $325 million. This time, Defendants appealed, arguing that the Court should not have reentered the default judgments without first holding a hearing on the issue of damages. The Ninth Circuit agreed, vacated the default judgments, and remanded the cases to this Court for a factual determination of damages. Prior to the evidentiary hearing, Defendants filed a Motion to Preclude Entry of Default Judgment [303], raising arguments as to the sufficiency of Plaintiffs' claims. The hearing to determine Plaintiffs' damages was held on October 18, 2016.

DISCUSSION

I. Defendants' Participation in the Hearing

Prior to the evidentiary hearing on October 18, I had to decide whether Defendants should be allowed to participate in the hearing at all. Even though there is disagreement regarding a defaulting party's right to notice of a damages hearing, courts generally agree that a defaulting party has "the right to participate in such a hearing." B. Finberg, Annotation, Defaulting Defendant's Right to Notice and Hearing as to Determination of Amount of Damages , 15 A.L.R.3d 586 (1967). This does not mean the defaulting party may present evidence going solely to liability, but she "may cross-examine the opposing witnesses and introduce evidence on [her] own behalf in mitigation of the damages." Id. (emphasis added); see also Henry v. Sneiders , 490 F.2d 315, 318 (9th Cir. 1974) (concluding that exclusion of the defendant's evidence was proper because it went to liability rather than damages); Oire Or. C, LLC v. Yaldo , No. CV 08-724-ST, 2008 WL 5071709, at *1 (D. Or. Nov. 25, 2008) (holding that a defendant in default was entitled to be heard on the issue of damages).

Plaintiffs argued that Defendants should not participate in the hearing because allowing them to do so would encourage parties "to sit on their hands, knowing that far down the road they can appear and be afforded full participation." Additionally, Plaintiffs claimed that Henry was distinguishable because there, the court entered default as a discovery sanction, whereas here, Defendants' default was due to their complete lack of response.

These arguments are unconvincing. First, Defendants were not awarded "full participation" as Plaintiffs suggested. Rather, in accordance with the rule above, Defendants were limited to cross-examining Plaintiffs' witnesses and presenting their own evidence on the issue of damages only. They were not allowed to present evidence on the issue of liability because all factual allegations from the Complaints were established as true upon entry of default. See Geddes v. United Fin. Grp. , 559 F.2d 557, 560 (9th Cir. 1977) (citation omitted) ("The general rule of law is that upon default the factual allegations of the complaint, except those in relation to the amount of damages, will be taken as true). Furthermore, the distinction from Henry is irrelevant because regardless of the reason Defendants defaulted, they were present and active in this case at the time the evidentiary hearing was held. In fact, their involvement prior to the hearing was extensive, and forbidding them from participating at this point would be incongruent with modern treatment of defaulting parties. Cf Mendoza v. Wight Vineyard Mgmt. , 783 F.2d 941, 945–46 (9th Cir. 1986) ("Where timely relief is sought from a default ... and the movant has a meritorious defense, doubt, if any, should be resolved in favor of the motion to set aside ...." (citation omitted) (internal quotation marks omitted)); Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2681 (4th ed. 2016). For these reasons, I found it proper to allow Defendants to participate in the evidentiary hearing on damages.

In any event, I am confident I would have reached the same conclusion on damages even without Defendants' participation in the hearing. At the hearing and in their Daubert Motion, Defendants' questioned the experts' qualifications to testify as to Plaintiffs' economic damages and the overall reliability of the experts' opinions. These issues were not novel; they were precisely the questions I would have raised at the hearing even if Defendants were not present. Thus, in the end, my decision to allow Defendants to participate did not impact my damages calculation.

II. Plaintiffs' Damages

After default is entered against an unresponsive party, the court may enter a default judgment and award damages in favor of the plaintiff. Fed. R. Civ. P. 55(b) (West 2015). The judgment may not be entered without a hearing, however, "unless the amount claimed is a liquidated sum or capable of mathematical calculation." Davis v. Fendler , 650 F.2d 1154, 1161 (9th Cir. 1981) (citation omitted). Following an entry of default, the facts in the complaint are taken as true, but "neither the default nor the allegations in the complaint can establish the amount of damages." Lasheen v. Embassy of the Arab Republic of Egypt , 625 Fed.Appx. 338, 341 (9th Cir. 2015) (cert. denied sub nom. Embassy of Arab Republic of Egypt v. Lasheen , ––– U.S. ––––, 136 S.Ct. 2388, 195 L.Ed.2d 762 (2016) ); see also TeleVideo Sys., Inc. v. Heidenthal , 826 F.2d 915, 917–18 (9th Cir. 1987). Thus, before the court can enter a default judgment on a sum uncertain, the plaintiff must prove its damages. Joe Hand Prods. v. Holmes , No. 2:12-CV-00535-SU, 2015 WL 5144297, at *3 (D. Or. Aug. 31, 2015) (citing Heidenthal , 826 F.2d at 917–18 )).

In this case, Plaintiffs seek compensatory damages for lost profits ($45,485,576) and lost investment (approximately $505,550) and argue those damages should be trebled under federal and state RICO statutes. Plaintiffs also seek an award of punitive damages. I will address each type of damages in turn.¹

A. Future Lost Profits

i. The Governing Standard

In order to recover damages for future lost profits, a party must establish the amount of such profits with reasonable certainty. Peterson v. McCavic , 249 Or.App. 343, 277 P.3d 572, 579 (2012). Loss of future profits may be established by "past profits of an established business" or "expert projections based upon tests performed under substantially similar conditions." Willamette Quarries, Inc. v. Wodtli , 308 Or. 406, 781 P.2d 1196, 1200 (1989). Mere "testimony of unverifiable expectations of profits," however, is insufficient. Id. Ultimately, whether the party seeking damages has sufficiently proved lost profits is a question of fact for the jury. Peterson , 277 P.3d at 579.

Even though the reasonable certainty standard for proving lost profits is well-established under Oregon law, applying it in this case raises additional issues. First, the standard uses admittedly ambiguous phrasing that leaves open what is actually required. A party must prove lost...