Opinion
Case No.: 20-cv-2507-WQH-AHG
2022-02-17
Randy BERHOLTZ, an Individual, Plaintiff, v. P4 MEDITECH ANALYTICS, LLC, a Delaware Limited Liability Company; and Parind Parekh, an individual, Defendants.
John Leis Staley, San Diego, CA, for Plaintiff.
John Leis Staley, San Diego, CA, for Plaintiff.
ORDER
HAYES, Judge:
The matter before the Court is the Motion for Default Judgment filed by Plaintiff Randy Berholtz. (ECF No. 19).
I. BACKGROUND
On December 26, 2020, Plaintiff Randy Berholtz filed a Complaint against Defendants P4 Meditech Analytics, LLC ("P4") and Parind Parekh. (ECF No. 1). The Complaint brings claims against Defendants for breach of two contractual agreements (a consulting agreement and a settlement agreement), for the value of consulting services provided by Plaintiff to Defendant P4, and for fraud.
On March 24, 2021, and on May 1, 2021, Plaintiff filed proof of service as to Defendants P4 and Parekh, respectively. (ECF Nos. 4, 7). On July 17, 2021, Plaintiff filed a Request for Entry of Clerk Default as to both Defendants. (ECF No. 8). On July 22, 2021, the Clerk of the Court entered default. (ECF No. 12).
On August 17, 2021, Plaintiff filed a Motion to Conduct Discovery to inform his forthcoming motion for default judgment (ECF No. 13). On September 3, 2021, Plaintiff filed a Supplemental Motion to Conduct Discovery. (ECF No. 17). On September 30, 2021, the Magistrate Judge granted in part Plaintiff's Motion to Conduct Discovery, permitted Plaintiff to conduct discovery on the issue of damages, and required Plaintiff to file a motion for default judgment no later than January 31, 2022. (ECF No. 18). On December 20, 2021, Plaintiff filed a Motion for Default Judgment (ECF No. 19) and a Bill of Costs (ECF No. 20).
II. ALLEGATIONS IN THE COMPLAINT
Plaintiff Randy Berholtz and Defendant P4, a Delaware limited liability company, entered into a consulting agreement on or about May 15, 2020, in San Diego County. "The [a]greement provided for P4 to pay [ ] Plaintiff $12,500 per month for his services and bonus of $.01 (one cent) for each test P4 sold during the time Plaintiff was retained as a consultant pursuant to the [a]greement." (ECF No. 1 ¶ 5). "Defendant Parekh signed the [a]greement as a general partner [of P4]." (Id. ).
"Plaintiff has performed all services and functions required of him under the [a]greement." (Id. ¶ 6). "Plaintiff has demanded payment and has been refused." (Id. ¶ 7). Defendants did not intend to perform under the agreement and made the agreement "in order to induce [ ] Plaintiff to provide services on their behalf." (Id. ¶ 13). Plaintiff "reasonably relied on these false promises of payment in performing services for [ ] [D]efendants." (Id. ).
"On or about October 22, 2020, [ ] [P]laintiff and [D]efendants entered into a settlement agreement which called for payments pursuant to the [consulting agreement]." (Id. ¶ 17). Defendants "have failed to make the payments required by the settlement agreement." (Id. ). Plaintiff has been injured as a result of Defendants’ conduct.
Plaintiff brings four claims against Defendants: (1) breach of the consulting agreement; (2) value of services; (3) fraud; and (4) breach of the settlement agreement. Plaintiff seeks monetary damages, punitive damages, costs and attorneys’ fees, and "[s]uch other relief as may be appropriate." (Id. at 4).
III. DEFAULT JUDGMENT
Plaintiff moves for default judgment against Defendants, jointly and severally. Rule 55(a) of the Federal Rules of Civil Procedure requires that the Clerk of the Court enter default "[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." Fed. R. Civ. P. 55(a). Rule 55(b)(2) provides that the court may grant default judgment after default has been entered. See Fed. R. Civ. P. 55(b)(2). "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." TeleVideo Sys., Inc. v. Heidenthal , 826 F.2d 915, 917-18 (9th Cir. 1987) (quoting Geddes v. United Fin. Grp. , 559 F.2d 557, 560 (9th Cir. 1977) ). "Factors which may be considered by courts" in determining whether default judgment should be granted include:
(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.
Eitel v. McCool , 782 F.2d 1470, 1471-72 (9th Cir. 1986) (citing 6 MOORE'S FEDERAL PRACTICE ¶ 55-05[2], at 55-24 to 55-26).
The second and third Eitel factors favor default judgment where the plaintiff "state[s] a claim on which the [plaintiff] may recover." Danning v. Lavine , 572 F.2d 1386, 1388 (9th Cir. 1978). Under California law, "the elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff." Oasis West Realty, LLC v. Goldman , 51 Cal. 4th 811, 821, 124 Cal.Rptr.3d 256, 250 P.3d 1115 (2011). The Complaint alleges that Plaintiff and Defendant P4 entered into a written consulting agreement, which provided that P4 would "pay [ ] Plaintiff $12,500 per month for his services and bonus of $.01 (one cent) for each test P4 sold during the time Plaintiff was retained as a consultant pursuant to the [a]greement." (ECF No. 1 ¶ 5). The Complaint alleges that "Plaintiff has performed all services and functions required of him under the [a]greement." (Id. ¶ 6). The Complaint alleges that "Plaintiff has demanded payment and has been refused." (Id. ¶ 7). The Complaint alleges that Plaintiff has been injured as a result. The Court concludes that that the Complaint states a claim for breach of the consulting agreement against Defendant P4.
The Complaint alleges that Defendant Parekh "signed the [consulting] [a]greement as a general partner [of P4]." (Id. ¶ 5). This allegation is insufficient to establish personal liability for Parekh under either Delaware or California law. See 6 Del. Code § 18-303 ("Except as otherwise provided by this chapter, the debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the limited liability company, and no member or manager of a limited liability company shall be obligated personally for any such debt, obligation or liability of the limited liability company solely by reason of being a member or acting as a manager of the limited liability company."); Cal. Corp. Code § 17703.04 (stating that debts, obligations, or liabilities of an LLC "do not become the debts, obligations, or other liabilities of a member or manager solely by reason of the member acting as a member or manager acting as a manager for the limited liability company.).
In support of his breach of consulting agreement claim against Defendant Parekh, Plaintiff offers a Request for Admissions that requested that Parekh admit that he "acted as the alter ego of [D]efendant P4" and had "personal liability for the legal obligations incurred by [D]efendant P4 ...." (ECF No. 19-5 at 34). Plaintiff contends that these matters should be deemed admitted because Parekh failed to respond to the Request for Admissions. However, Plaintiff was not authorized to conduct discovery on the issue of Parekh's personal liability. After Plaintiff filed a Motion to Conduct Discovery, the Magistrate Judge issued an Order requiring Plaintiff to file a supplemental brief including "[i]dentification of the specific discovery Plaintiff contends he needs to serve in order to file a motion for default judgment." (ECF No. 16 at 2). Plaintiff's Supplemental Motion to Conduct Discovery requested the following discovery: (1) interrogatories requesting sales and revenue information, contact information for financial instructions, and other interrogatory reasonably related to ascertaining the relevant sale/revenue numbers; (2) subpoenas to financial institutions requesting account statements; (3) document production requests for financial and accounting records and bank statements; and (4) a deposition of Defendant Parekh if deemed necessary after exhaustion of the above methods. The Order of the Magistrate Judge granting discovery acknowledged that discovery regarding "Defendants’ sales and revenue data, as well as Defendants’ financial account information, accounting records, and bank statements" was appropriate for the limited purpose of adequately calculating the amount of damages. (ECF No. 18 at 3). The matters of alter ego and personal liability contained in Plaintiff's Request for Admissions is not relevant to the amount of damages and falls outside any of the specific categories of discovery requested by Plaintiff and granted by the Magistrate Judge. The matters contained in the Request for Admissions are not deemed admitted. Plaintiff does not allege and present facts sufficient to support an inference that Defendant Parekh is personally liable for breach of the consulting agreement.
The Complaint alleges, in the alternative, that Defendants breached the settlement agreement. In support of the Motion for Default Judgment, Plaintiff presents a copy of the settlement agreement. See ECF No. 19-5. The settlement agreement provides that Plaintiff would "dismiss without prejudice" an action he had filed against Defendants in this Court—Berholtz v. P4 Meditech Analytics, LLC et al. , No. 3:20-cv-02064-WQH-AHG—in exchange for a monetary payment. (ECF No. 19-5 at 10). The settlement agreement provides that Defendant Parekh is "personally responsible for the obligations created under this Settlement Agreement." (ECF No. 19-5 at 10). The docket in No. 3:20-cv-02064-WQH-AHG demonstrates that Plaintiff voluntarily dismissed that action on October 22, 2020. The Complaint alleges that Defendants "have failed to make the payments required by the settlement agreement" and that Plaintiff has been injured as a result. (ECF No. 1 ¶ 17). The Court concludes that that the Complaint states a claim for breach of the settlement agreement against Defendant Parekh.
The Complaint brings a claim for the value of services rendered by Plaintiff. "To recover on a claim for the reasonable value of services under a quantum meruit theory, a plaintiff must establish both that he or she was acting pursuant to either an express or implied request for services from the defendant and that the services rendered were intended to and did benefit the defendant." Ochs v. PacifiCare of California , 115 Cal. App. 4th 782, 794, 9 Cal.Rptr.3d 734 (2004). The existence of a contract precludes recovery on a value of services claim regarding the same subject. See Hedging Concepts, Inc. v. First Alliance Mortg. Co. , 41 Cal. App. 4th 1410, 1420, 49 Cal.Rptr.2d 191 (1996) ("When parties have an actual contract covering a subject, a court cannot—not even under the guise of equity jurisprudence—substitute the court's own concepts of fairness regarding that subject in place of the parties’ own contract."). Plaintiff seeks compensation from Defendants for the services he rendered to Defendant P4 "during the time period he worked as a consultant pursuant to the [consulting] [a]greement." (ECF No. 1 ¶ 10). Plaintiff is not entitled to default judgment on his claim for value of services.
The Complaint brings a fourth claim for fraud. However, Plaintiff's Motion for Default Judgment does not discuss any allegations relating to the fraud claim or request the relief contained in the Complaint that is associated with the fraud claim.
In this case, the possibility of prejudice to Plaintiff is high if the Court does not enter default judgment, as Plaintiff may be left without any recourse for recovery. The amount of money at stake is reasonably tailored to Defendants’ alleged misconduct. Defendants have been served but have not appeared in the litigation. The possibility of a dispute concerning material facts or that Defendants’ default was due to excusable neglect is low. Although there is a "strong policy ... favoring decision on the merits," Eitel , 782 F.2d at 1472, Defendants’ failure to participate in the litigation makes a decision on the merits impractical, if not impossible. The Court has considered the factors articulated in Eitel and concludes that Plaintiff is entitled to default judgment on the breach of consulting agreement claim against Defendant P4 and on the breach of settlement agreement claim against Defendant Parekh.
IV. REMEDIES
The Motion for Default Judgment requests the following relief: (1) $21,750, representing unpaid monthly fees for the three-month term of the consulting agreement less the amount already paid by Defendants; (2) $2,927.40 in pre-judgment interest; (3) $200,000 in unpaid bonuses for sales of P4's products; (4) $3,636.32 in costs; and (5) post-judgment interest. Pursuant to Rule 54 of the Federal Rules of Civil Procedure, "[a] default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings." Fed. R. Civ. P. 54(c). Plaintiff is required to prove all damages sought in the complaint. Allegations in the complaint as to the amount of damages are not entitled to an assumption of truth. See TeleVideo Sys. , 826 F.2d at 917-18.
The consulting agreement provides that Plaintiff would be paid $12,500 per month in fees for a period of three months, as well as a bonus of $0.01 for each product sold by Defendant P4. See ECF No. 19-5 at 7. Plaintiff presents evidence that at least 2,000,000 sales of P4's products occurred during the timeframe of the contract. See, e.g. , ECF No. 19-5 at 26. Plaintiff states that he has already been paid a total of $15,750. Berholtz Decl., ECF No. 19-1 at 2. The Court concludes that Defendant P4 is liable for damages on the breach of consulting agreement claim in the amount of $221,750.
The settlement agreement provides that Defendants would pay Plaintiff a total of $33,250. See ECF No. 19-5 at 9. Plaintiff has been paid $9,500 since entering into the settlement agreement. Berholtz Decl., ECF No. 19-1 at 2. The Court concludes that Defendant Parekh is liable for damages on the breach of settlement agreement claim in the amount of $23,750.
While the settlement agreement also required Defendants to consent to further investigation regarding whether an "additional amount is due under the terms of the consulting agreement," ECF No. 19-5 at 10, the settlement agreement does not state that Defendants are liable for this additional amount under the terms of the settlement agreement.
The breach of consulting agreement and breach of settlement agreement claims were pleaded in the alternative and both claims are associated with the same request for monetary relief. To prevent a double recovery, Defendants are jointly and severally liable in the amount of $23,750—the total liability of Defendant Parekh. Defendant P4 is additionally individually liable in the amount of $198,000—the amount of damages awarded on the breach of consulting agreement claim in excess of $23,750.
The Motion for Default Judgment requests pre-and post-judgment interest under California state law. "As a general rule, ‘[i]n diversity actions, state law determines the rate of prejudgment interest, and postjudgment interest is governed by federal law.’ " Citicorp Real Estate, Inc. v. Smith , 155 F.3d 1097, 1107 (9th Cir. 1998) (quoting AT&T Co. v. United Comput. Sys., Inc. , 98 F.3d 1206, 1209 (9th Cir. 1996) ) (alteration in original). There is no evidence that the parties have waived the application of the federal law statute governing post-judgment interest, 28 U.S.C. § 1961, in favor of California state law. See Fid. Fed. Bank, FSB v. Durga Ma Corp. , 387 F.3d 1021, 1023 (9th Cir. 2004) (holding that waiver requires "an express agreement to apply California's rate to post-judgment interest" and is not accomplished by a general choice of law clause in a contract). The Court concludes that Plaintiff is entitled to post-judgment interest at the applicable rate under 28 U.S.C. § 1961.
Rule 54(c) of the Federal Rules of Civil Procedure provides that "[a] default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings." Fed. R. Civ. P. 54(c). However, Plaintiff did not request pre-judgment interest in the Complaint. Unlike federal post-judgment interest, which is automatically applicable, pre-judgment interest under California state law must be requested. See N. Oakland Med. Clinic v. Rogers , 65 Cal. App. 4th 824, 829, 76 Cal.Rptr.2d 743 (1998) (distinguishing between pre- and post-judgment interest under California state law and acknowledging that a request for pre-judgment interest must be made in the complaint); Landstar Ranger, Inc. v. Parth Enters., Inc. , 725 F. Supp. 2d 916, 923-24 (C.D. Cal. 2010) (granting post-judgment interest under federal law, and denying a request for prejudgment interest under California law because the plaintiff "did not allege entitlement to prejudgment interest in its first amended complaint"); Sipe v. Country Wide Bank , No. 1:09-cv-00798 JLT, 2012 WL 4026127, at *9 (E.D. Cal. Sept. 12, 2012) ("The Prayer for Damages alleged in Plaintiff's SAC does not request pre-judgment interest. Therefore Plaintiff cannot recover any amount for pre-judgment interest."). Plaintiff's generic request for "[s]uch other relief as may be appropriate," (ECF No. 1 at 4), is insufficient to satisfy Rule 54(c). See Silge v. Merz , 510 F.3d 157, 160 (2d Cir. 2007) (holding that a request for pre-judgment interest must be contained in the pleadings and that "boilerplate" language requesting "further relief which this Court deems just and proper" cannot "substitute for the meaningful notice called for by Rule 54(c), which anticipates that defendants will look to the demand clause to understand their exposure in the event of default"). But cf. N. Oakland Med. Clinic , 65 Cal. App. 4th at 829, 76 Cal.Rptr.2d 743 (holding that "[a] general prayer in the complaint is adequate to support an award of prejudgment interest" under state procedural law). Plaintiff's request for pre-judgment interest is denied.
Plaintiff filed a Bill of Costs contemporaneously with his Motion for Default Judgment. Plaintiff may refile his Bill of Costs after entry of judgment in accordance with Civil Local Rule 54.1.
V. CONCLUSION
IT IS HEREBY ORDERED that the Motion for Default Judgment filed by Plaintiff Randy Berholtz against Defendants P4 Meditech Analytics, LLC and Parind Parekh (ECF No. 19) is granted in part and denied in part. The motion is granted as to Plaintiff's breach of consulting agreement claim against Defendant P4, and as to Plaintiff's breach of settlement agreement claim against Defendant Parekh. Defendants are jointly and severally liable in the amount of $23,750. Defendant P4 is individually liable in the additional amount of $198,000. Plaintiff is entitled to post-judgment interest under 28 U.S.C. § 1961.
IT IS FURTHER ORDERED that no later than fourteen (14) days of the date of this Order, Plaintiff shall e-mail a proposed judgment in accordance with the ruling in this Order to efile_hayes@casd.uscourts.gov. After entry of judgment, Plaintiff may refile a bill of costs in accordance with Civil Local Rule 54.1.