U.S. v. Lyon
| Decision Date | 07 June 2011 |
| Docket Number | No. CIV S-10-2549 GEB EFB,CIV S-10-2549 GEB EFB |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. SCOTT G. LYON, Defendant. |
| Court | U.S. District Court — Eastern District of California |
This case was referred to the undersigned pursuant to Eastern District of California Local Rule 302(c)(19) and 28 U.S.C. § 636(b)(1) for hearing on plaintiffs motion for entry of default judgment against defendant Scott G. Lyon. Dckt. No. 12. On April 27, 2011, a hearing on the motion was held. Attorney Kurt Didier appeared at the hearing on behalf of plaintiff. No appearance was made on behalf of defendant. For the reasons that follow, and as stated on the record at the hearing, the court recommends that plaintiff's application for entry of default judgment be granted.
Plaintiff initiated this action on September 21, 2010, for violation of Title IV of the Higher Education Act of 1965, 20 U.S.C. §§ 1071-1087ii. Compl., Dckt. No. 1. A certificate of service, filed November 30, 2010, demonstrates that the summons and complaint werepersonally served on defendant at the U.S. Marshal's Office on November 23, 2010. Dckt. No. 5.
On January 6, 2011, pursuant to plaintiff's request, the Clerk of Court entered defendant's default. Dckt. No. 9. On March 8, 2011, plaintiff filed a motion for default judgment, and mail served a copy of the motion on defendant. Dckt. No. 12. Plaintiff's motion seeks default judgment in favor of the United States and against defendant Lyon in the principal amount of $64,289.97 as of March 3, 2011, plus litigation costs and attorneys fees in the amount of $6,428.99, representing ten percent of the principal amount. Id. at 8. Plaintiff contends that until paid, interest on the unpaid judgment shall accrue at a rate of 4.13 percent per annum, compounded annually. Id.
It is within the discretion of the district court to grant or deny an application for default judgment. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In making this determination, the court considers the following factors:
(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiffs 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 the 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.
Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). "In applying this discretionary standard, default judgments are more often granted than denied." Philip Morris USA, Inc. v. Castworld Products, Inc., 219 F.R.D. 494, 498 (C.D. Cal. 2003) (quoting PepsiCo, Inc. v. Triunfo-Mex, Inc., 189 F.R.D. 431, 432 (C.D. Cal. 1999)).
As a general rule, once default is entered, the factual allegations of the complaint are taken as true, except for those allegations relating to damages. TeleVideo Systems, Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (citations omitted). However, although well-pleaded allegations in the complaint are admitted by defendant's failure to respond, "necessaryfacts 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).
The court finds that the majority of the Eitel factors weigh in favor of granting default judgment to plaintiff.
The first Eitel factor considers whether the plaintiff would suffer prejudice if default judgment is not entered, and such potential prejudice to the plaintiff militates in favor of entering default judgment. See PepsiCo, Inc., 238 F. Supp.2d at 1177. Here, plaintiff would potentially face prejudice if the court did not enter default judgment because absent entry of default judgment, plaintiff would be without another recourse for recovery. Accordingly, the first Eitel factor favors the entry of default judgment.
(2) Merits of Plaintiff's Substantive Claim and (3) Sufficiency of the Complaint The second and third factors also weigh in favor of plaintiff. "In a suit on a promissory note, the initial burden is on plaintiff to establish, through verified pleadings and exhibits in evidence, the existence of the note, defendant's default and the amount due." United States v. Potts, 2006 WL 1009014, at *2 (N.D. Cal. Apr. 18, 2006) (citing United States v. Irby, 517 F.2d 1042, 1043 (5th Cir. 1975)). The complaint and its attached exhibits allege that on September 4, 2002, defendant executed a promissory note securing his Direct Consolidation Loan from the U.S. Department of Education ("DOE"). The loan amount totaled $55,393.52 and was disbursed on September 10, 2002, at 4.13 interest per annum. Interest on the unpaid balance is capitalized annually. Defendant defaulted on the loan on May 17, 2008, and despite DOE's demands for payment, defendant has failed to pay the loan indebtedness.
The fourth factor also weighs in favor of plaintiff. Under the fourth factor, "the court must consider the amount of money at stake in relation to the seriousness of Defendant'sconduct." PepsiCo, Inc., 238 F. Supp.2d at 1177; see also Philip Morris USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 500 (C.D. Cal.2003). Here, although the amount plaintiff seeks is significant, defendant took out a loan for nearly the entire amount and agreed to pay interest on that amount, as well as collection costs if defendant failed to pay the amount owed.1
The fifth factor also weighs in favor of plaintiff. The facts of this case are relatively straightforward, and plaintiff has provided the court with well-pleaded allegations supporting its claims. Here, the court may assume the truth of well-pleaded facts in the complaint (except as to damages) following the clerk's entry of default and, thus, there is a very low likelihood that any genuine issue of material fact exists. See, e.g., Elektra Entm't Group Inc. v. Crawford, 226 F.R.D. 388, 393 (C.D. Cal.2005) (); accord Philip Morris USA, Inc., 219 F.R.D. at 500; PepsiCo, Inc., 238 F. Supp.2d at 1177.
This factor also weighs in favor of plaintiff. Prior to filing suit, plaintiff sent defendant demands for payment. Defendant ignored those demands. Therefore, plaintiff filed and served its complaint, which defendant has failed to answer. The allegations in the complaint are straightforward and documentation substantiating the student loan and the amount of damagesare attached to the complaint. Defendant, as an active member of the California Bar, knows or should know the consequences of failing to file an answer. After defendant's default in this case, plaintiff's counsel wrote to and telephoned defendant in an effort to try to resolve the matter. Defendant ignored those contacts as well.
Although this last factor weighs in favor of defendant, district courts have concluded with regularity that this policy, standing alone, is not dispositive, especially where a defendant fails to appear or defend itself in an action. PepsiCo, Inc., 238 F. Supp. 2d at 1177; see Craigslist, Inc. v. Naturemarket, Inc., 2010 WL 807446, at *16 (N.D. Cal. Mar. 5, 2010); ACS Recovery Servs., Inc. v. Kaplan, 2010 WL 144816, at *7 (N.D. Cal. Jan.11, 2010); Hartung v. J.D. Byrider, Inc., 2009 WL 1876690, at *5 (E.D. Cal. June 26, 2009). Accordingly, although there is a strong policy favoring decisions on the merits, that policy does not by itself preclude entry of default judgment.
Therefore, the undersigned recommends that plaintiff be granted default judgment against defendant Lyon.
As stated in the declaration of Rubio Canlas, a loan analyst for the U.S. Department of Justice, defendant's indebtedness as of March 3, 2011, exclusive of litigation costs, was $64,289.97 (based on $55,964.90 in unpaid principal and $8,325.07 in unpaid interest). Canlas Decl., Ex. A, Dckt. No. 12-1 at 5. Interest on the unpaid balance accrues at $6.33 per day. Accordingly, any order adopting these findings and recommendations and subsequent judgment will contain an updated total regarding defendant's indebtedness.2
In addition to seeking the unpaid loan balance, plaintiff seeks an award of its litigation costs pursuant to the terms of the underlying promissory note and section 3011(a) of the Federal Debt Collection Procedures Act ("FDCPA"), 28 U.S.C. §§ 3001 et seq., including its reasonable attorney's fees. The promissory note defendant executed includes a costs and attorney's fees clause, which provides: "If I fail to make payments on this note when due, I will also pay collection costs including but not limited to attorney's fees and court costs." Compl., Ex. A. Additionally, the FDCPA authorizes a ten percent surcharge to the United States in actions to recover a "debt" owed to the United States. 28 U.S.C. § 3011(a). This case is an action to which the FDCPA's definition of a debt applies: "an amount that is owing to the United States on account of a direct loan, or loan insured or guaranteed by the United States. . . ." 28 U.S.C. § 3002(3)(A). Plaintiff seeks to recover the ten percent surcharge to cover all its costs and attorney's fees in this action.
However, as noted at the April 27 hearing, although plaintiff is entitled to fees and costs, plaintiff's complaint does not include any allegations regarding the FDCPA or the ten percent surcharge. Plaintiff is required to prove all damages...
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