Newgen, LLC v. Safe Cig, LLC ( 2016 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
NEWGEN, LLC, a Wisconsin limited Nos. 13-56157
liability company, 14-57015
Plaintiff-Appellee,
D.C. No.
v. 2:12-cv-09112-
RGK-JCG
SAFE CIG, LLC, a California limited
liability company,
Defendant-Appellant.
NEWGEN, LLC, a Wisconsin limited No. 13-56225
liability company,
Plaintiff-Appellant,
D.C. No.
v. 2:12-cv-09112-
RGK-JCG
SAFE CIG, LLC, a California limited
liability company,
Defendant-Appellee. ORDER AND
AMENDED
OPINION
Appeal from the United States District Court
for the Central District of California
R. Gary Klausner, District Judge, Presiding
2 NEWGEN V. SAFE CIG
Argued and Submitted February 11, 2016
Pasadena, California
Filed September 7, 2016
Amended October 21, 2016
Before: M. Margaret McKeown and Sandra S. Ikuta,
Circuit Judges, and Robert W. Pratt,* District Judge.
Opinion by Judge McKeown
SUMMARY**
Diversity Jurisdiction
The panel affirmed the district court’s grant of an almost
$1.5 million default judgment against Safe Cig, LLC and in
favor of NewGen, LLC after accepting NewGen’s amended
allegations of diversity citizenship as true, and rejected
NewGen’s cross-appeal for additional damages.
The panel held that the district court properly permitted
NewGen to amend its complaint under 28 U.S.C. § 1653 to
cure the defective allegations of diversity jurisdiction. The
panel further held that nothing in the text of § 1653 suggested
that it applied only to judgments on the merits, and not to
*
The Honorable Robert W. Pratt, United States District Judge for the
Southern District of Iowa, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
NEWGEN V. SAFE CIG 3
default judgments. The panel concluded that the district court
acted within its statutory authority to give NewGen the
opportunity to correct its allegations, and the amended
complaint remedied the deficiencies of the original
complaint, by alleging the parties were of diverse citizenship.
The panel held that the district court had subject matter
jurisdiction. The panel reasoned that both Safe Cig’s initial
appeal and its Fed. R. Civ. P. 60(b) motion were facial and
not factual attacks on the district court’s subject matter
jurisdiction, and that Safe Cig never called into question the
factual predicates to establish diversity jurisdiction.
Addressing the district court’s denial of relief from
default judgment, the panel held that the district court did not
err in weighing the factors of Eitel v. McCool, 782 F.2d 1470,
1472 (9th Cir. 1986), and did not abuse its discretion in
entering default judgment.
Finally, the panel upheld the district court’s award of
$1,483.075.84, and rejected NewGen’s cross-appeal for
additional damages.
COUNSEL
Ricardo P. Cestero (argued) and Daniel G. Stone, Greenberg
Glusker Fields Claman & Machtinger LLP, Los Angeles,
California, for Appellant/Cross-Appellee.
Harry E. Van Camp (argued) and Deborah C. Meiners,
DeWitt Ross & Stevens S.C., Madison, Wisconsin, for
Appellee/Cross-Appellant.
4 NEWGEN V. SAFE CIG
ORDER
The opinion filed on September 7, 2016, and appearing at
2016 WL 4651406, is hereby amended. An amended opinion
is filed concurrently with this order.
With these amendments, the panel has voted to deny the
petition for panel rehearing. Judges McKeown and Ikuta
have voted to deny the petition for rehearing en banc. Judge
Pratt recommends denial of the petition for rehearing en banc.
The full court has been advised of the petition for
rehearing en banc, and no judge has requested a vote on
whether to rehear the matter en banc. Fed. R. App. P. 35.
The petition for panel rehearing and the petition for
rehearing en banc are DENIED. No further petitions for en
banc or panel rehearing shall be permitted.
OPINION
McKEOWN, Circuit Judge:
This case is a procedural tangle complicated by the parties
and their counsel and serves as a reminder that subject matter
jurisdiction must exist at the outset of a suit, although it may
be achieved through amended pleadings. Safe Cig, LLC
challenges an almost $1.5 million default judgment awarded
in NewGen, LLC’s favor as void for lack of subject matter
jurisdiction.
NEWGEN V. SAFE CIG 5
Although we are sympathetic to a party that finds itself
facing a large default judgment, here the district court
invoked the appropriate rules and statutes. The case presents
no procedural irregularities, only procedural complexities. At
the time the district court entered default judgment, neither
the parties nor the court noticed that NewGen’s original
complaint failed to adequately allege complete diversity.
Safe Cig only raised the diversity challenge in a related
appeal to this court and a concurrently filed Federal Rule of
Civil Procedure 60(b) motion for relief from the judgment.
The district court permitted NewGen to file an amended
complaint remedying the defective jurisdictional allegations,
but refused to reopen the judgment when Safe Cig protested
that it lacked sufficient knowledge to confirm or deny the
new allegations regarding the citizenship of the parties.
Because Safe Cig never factually attacked NewGen’s
amended jurisdictional allegations, we accept NewGen’s
amended allegations of diversity of citizenship as true and
conclude the district court had subject matter jurisdiction.
We therefore affirm the grant of default judgment and the
damages award.
BACKGROUND
Safe Cig was in the business of making and selling
electronic cigarettes when it contracted with NewGen to help
with online marketing. As NewGen alleges, the parties set
out the terms of the deal in two contracts—an Affiliate
Agreement and a Consulting Agreement—under which
NewGen agreed to attract online customers to Safe Cig’s
sales site. According to NewGen, Safe Cig did not live up to
its end of the bargain, failing to pay NewGen its lifetime 20%
commission on all sales resulting from NewGen’s referrals,
to grant NewGen access to its sales records to verify those
6 NEWGEN V. SAFE CIG
commissions, to pay NewGen in exchange for not launching
a competitor, and to pay NewGen for general marketing and
business consultant services. This suit followed.
Three days after NewGen filed its complaint, NewGen
properly served Safe Cig’s registered agent, despite resistance
on the agent’s part. The deadline to respond to the complaint
came and went without a response; Safe Cig claims that, at
the time, it did not think service was effective. On
application from NewGen, the district court entered default.
The same day, Safe Cig contacted NewGen and offered a
deal: it would not contest service in exchange for a 60-day
extension to respond to the complaint. NewGen rejected the
proposal, and filed for default judgment. Safe Cig objected
to default judgment on a number of grounds, but did not
challenge the district court’s subject matter jurisdiction over
the dispute.
The district court entered default judgment, finding that
service was effective and holding that it had diversity
jurisdiction under 28 U.S.C. § 1332. The court concluded
that NewGen was entitled to a default judgment as to its
claims of breach of contract and breach of the covenant of
good faith and fair dealing, but rejected NewGen’s claims of
fraud as insufficiently pleaded. The district court awarded
NewGen $1,483,075.84 in damages.
Safe Cig launched a two-pronged attack on the default
judgment. It appealed to this court, claiming relief from
judgment because the entry of default was an abuse of
discretion under Eitel v. McCool, 782 F.2d 1470 (9th Cir.
1986). In the appeal, for the first time in the litigation, Safe
Cig argued that NewGen failed to plead diversity jurisdiction
in its original complaint and failed to prove jurisdiction prior
NEWGEN V. SAFE CIG 7
to entry of the default judgment. On the same day, Safe Cig
filed in the district court a Rule 60(b) motion for relief from
the judgment, asking the court to declare the default judgment
void for lack of subject matter jurisdiction.
At that stage, NewGen, Safe Cig, and the district court all
agreed that NewGen failed to properly plead diversity
jurisdiction in the original complaint—with respect to a
limited liability company, the citizenship of all of the
members must be pled. See Johnson v. Columbia Props.
Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). The
question was how to proceed next. In response to the Rule
60(b) motion, the district court ordered additional briefing on
diversity jurisdiction. NewGen submitted a declaration with
respect to the citizenship of the parties and reasserted that the
parties were diverse, while Safe Cig protested that the
citizenship of the parties was “uncertain.” Armed with the
additional briefing, the district court concluded that while
NewGen had not adequately pled subject matter jurisdiction
in its original complaint, NewGen could amend the complaint
to cure the defective allegations. The court found the record
supported the allegations: it established that “none of the
members of Safe Cig were domiciliaries of Wisconsin when
the case was filed,” and thus, “[b]ecause NewGen and Safe
Cig were not citizens of the same state when the case was
filed, the Court had jurisdiction over this matter.” The
district court also held that because Safe Cig had not denied
NewGen’s factual allegations of diversity, NewGen had no
affirmative obligation to prove diversity with affidavits,
although it did submit a declaration; and that NewGen “could
have met [Safe Cig’s] facial challenge simply by amending
the jurisdictional allegations in the Complaint.” The district
court thus denied the Rule 60(b) motion on condition that
8 NEWGEN V. SAFE CIG
NewGen amend its complaint to cure the original, “defective”
allegations of jurisdiction pursuant to 28 U.S.C. § 1653.
When NewGen filed its amended complaint alleging that
the parties were of diverse citizenship and cited to supporting
evidence of the citizenship or residence of each member of
NewGen and Safe Cig, Safe Cig filed an answer challenging
the allegations based on Safe Cig’s purported lack of
knowledge and information about the citizenship of its
members. The district court struck much of Safe Cig’s
answer as “immaterial [or] impertinent” pursuant to Rule
12(f), noting that it had “made it clear” in the Rule 60(b)
order that it “was not reopening the final judgment” and that
“the merits of Plaintiff’s claims are not open to dispute.”
Because the district court determined Safe Cig had not
actually challenged the veracity of NewGen’s factual
allegations of citizenship, it likewise determined that the
answer did not upset “the Court’s previous finding that the
judgment in this case was not void for want of subject matter
jurisdiction.”
There was another jurisdictional wrinkle, however: in
May 2014, when the district court denied the motion for relief
from judgment, the case was still pending on appeal in this
court. It was not until September 2014, after the district court
had conducted hearings and issued its orders,1 that we
1
We reject Safe Cig’s argument that the district court erred in taking
new evidence and considering the Rule 60(b) motion before the case was
remanded from this court. Rule 62.1 provides that “[i]f a timely motion
is made for relief that the court lacks authority to grant because of an
appeal that has been docketed and is pending, the court may . . . (1) defer
considering the motion; (2) deny the motion; or (3) state either that it
would grant the motion if the court of appeals remands for that purpose or
that the motion raises a substantial issue.” Fed. R. Civ. P. 62.1(a). In
NEWGEN V. SAFE CIG 9
remanded to the district court “to consider Safe Cig’s Federal
Rule of Civil Procedure 60(b) motion.” Following remand,
the district court reissued its May 2014 order denying the
Rule 60(b) motion with leave to amend the jurisdictional
allegations. The parties then refiled the amended complaint
and answer, and Safe Cig filed its notice of appeal in the
current appeal.
ANALYSIS
I. Amending the Complaint Under 28 U.S.C. § 1653
When the default judgment was entered, neither the
parties nor the court recognized that NewGen’s jurisdictional
allegations were defective. Only later did Safe Cig challenge
the district court’s subject matter jurisdiction in the original
appeal and in a Rule 60(b) motion for relief from judgment.
Rather than tear up the default judgment, however, the district
court denied the motion on the condition that NewGen amend
its complaint to cure the defective allegations of diversity
jurisdiction—a condition that NewGen met. Safe Cig urges
that the proper course of action was to reopen the judgment
and permit Safe Cig to respond to the complaint and litigate
the case on the merits. We disagree: the district court
properly permitted NewGen to amend its complaint under
28 U.S.C. § 1653 without reopening the judgment.2
considering these options, the district court is free to consider new
evidence at its discretion.
2
We review de novo questions of law and the district court’s
interpretations of the Federal Rules of Civil Procedure. United States v.
$133,420.00 in U.S. Currency, 672 F.3d 629, 637 (9th Cir. 2012).
10 NEWGEN V. SAFE CIG
NewGen concedes that its original complaint failed to
adequately allege diversity jurisdiction. A limited liability
company “is a citizen of every state of which its
owners/members are citizens,” not the state in which it was
formed or does business. Johnson, 437 F.3d at 899. The
original complaint asserts diversity jurisdiction under
28 U.S.C. § 1332, but does not allege the citizenship of
NewGen or Safe Cig’s members. It only states that NewGen
was a Wisconsin limited liability company with its principal
place of business in Wisconsin, and that Safe Cig was a
California limited liability company with its principal place
of business in California.
Defective jurisdictional allegations are not fatal, however.
A judgment is only void where there is a “total want of
jurisdiction” as opposed to an “error in the exercise of
jurisdiction.” Watts v. Pinckney, 752 F.2d 406, 409 (9th Cir.
1985) (internal quotation marks omitted). Courts may permit
parties to amend defective allegations of jurisdiction at any
stage in the proceedings. The operative statute, 28 U.S.C.
§ 1653, provides that “[d]efective allegations of jurisdiction
may be amended, upon terms, in the trial or appellate courts.”
We agree that “[s]ection 1653’s liberal amendment rule
permits a party who has not proved, or even alleged, that
diversity exists to amend his pleadings even as late as on
appeal.” D.C. ex rel. Am. Combustion, Inc. v. Transamerica
Ins. Co., 797 F.2d 1041, 1044 (D.C. Cir. 1986). The intent of
the provision is to avoid the needless expenditure of judicial
resources where a court can instead “permit the action to be
maintained if it is at all possible to determine from the record
that jurisdiction does in fact exist.” Aurecchione v.
Schoolman Transp. Sys., Inc., 426 F.3d 635, 639 (2d Cir.
2005) (internal quotation marks omitted).
NEWGEN V. SAFE CIG 11
Nothing in the text of § 1653 suggests that it applies only
to judgments on the merits, not default judgments, as Safe
Cig contends.3 While judgments issued after trial admittedly
require a steeper investment of judicial and party resources,
the same “statutory purpose of avoiding needless sacrifice to
defective pleading,” Mathews v. Diaz, 426 U.S. 67, 75 n.9
(1976), applies to default judgments. Our general policy that
“doubt, if any, should be resolved in favor of the motion to
set aside the [default] judgment,” Schwab v. Bullock’s Inc.,
508 F.2d 353, 355 (9th Cir. 1974) (internal quotation marks
omitted), does not justify exempting default judgments from
§ 1653 without any textual basis.
The Second Circuit adopted a similar view in Jacobs v.
Patent Enforcement Fund, Inc., 230 F.3d 565, 567 (2d Cir.
2000), where defects in jurisdictional allegations were
similarly discovered only after entry of default judgment.
The Second Circuit ordered supplemental briefing on
diversity, and, relying on the affidavits submitted, satisfied
itself that there was diversity jurisdiction. Id. The court held
that “while a complaint must present certain quite particular
allegations of diversity jurisdiction in order to be adequate,
the actual existence of diversity jurisdiction, ab initio, does
not depend on the complaint’s compliance with these
procedural requirements.” Id. at 567–68. This principle is
consistent with a court’s authority—upon a motion to dismiss
3
Safe Cig appears to have conceded in the district court that § 1653 is
applicable here. We nonetheless address Safe Cig’s argument on appeal
that § 1653 does not apply to default judgments. See Pickup v. Brown,
740 F.3d 1208, 1232 n.10 (9th Cir. 2014) (“We have discretion to address
an argument that otherwise would be waived when the issue presented is
purely one of law and either does not depend on the factual record
developed below, or the pertinent record has been fully developed.”
(internal quotation marks omitted)).
12 NEWGEN V. SAFE CIG
for lack of jurisdiction—to direct the plaintiff to amend. Id.
at 568.
The district court thus acted within its statutory authority
to give NewGen the opportunity to correct its allegations.
The amended complaint remedied the deficiencies of the
original complaint, alleging the parties were of diverse
citizenship. It alleged that NewGen was an LLC organized in
Wisconsin and that its sole member was a citizen of
Wisconsin when the complaint was filed. It alleged that Safe
Cig was an LLC organized in California with five members,
each of which was a citizen of California at the time the
complaint was filed.
II. Pleading Subject Matter Jurisdiction
We next examine de novo whether subject matter
jurisdiction existed. A-Z Int’l v. Phillips, 323 F.3d 1141,
1145 (9th Cir. 2003). The party seeking to invoke the district
court’s diversity jurisdiction always bears the burden of both
pleading and proving diversity jurisdiction. See FW/PBS,
Inc. v. City of Dallas, 493 U.S. 215, 231 (1990). However, at
the pleading stage, allegations of jurisdictional fact need not
be proven unless challenged. See, e.g., DaimlerChrysler
Corp. v. Cuno, 547 U.S. 332, 342 n.3 (2006) (“[B]ecause we
presume that federal courts lack jurisdiction unless the
contrary appears affirmatively from the record, the party
asserting federal jurisdiction when it is challenged has the
burden of establishing it.” (emphasis added) (internal citation
and quotation marks omitted)); Kanter v. Warner-Lambert
Co., 265 F.3d 853, 857 (9th Cir. 2001) (“[A]t [the pleading]
stage of the case, the defendants were merely required to
allege (not to prove) diversity . . . .”). The determinative
question here is whether, and in what sense, Safe Cig
NEWGEN V. SAFE CIG 13
challenged the basis for diversity jurisdiction, and whether it
triggered an obligation on the part of NewGen to offer
supplemental evidence proving jurisdiction.
Ordinarily, a challenge to the district court’s subject
matter jurisdiction would be raised in a Rule 12(b)(1) motion.
In that context—and we see no reason to depart in the context
of a Rule 60(b)(4) motion for relief from a default
judgment—the sufficiency of the pleadings to establish
subject matter jurisdiction is determined by whether the
movant brings a facial or factual challenge. Cf. Gould v. Mut.
Life Ins. Co. of N.Y., 790 F.2d 769, 771–72 (9th Cir. 1986)
(noting that a “Rule 60(b) motion may encompass a claim
that the district court acted in excess of its jurisdiction”
(internal quotation marks omitted)). “A facial attack accepts
the truth of the plaintiff’s allegations but asserts that they are
insufficient on their face to invoke federal jurisdiction.” Leite
v. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014) (internal
quotation marks omitted). By contrast, a factual attack
“contests the truth of the plaintiff’s factual allegations,
usually by introducing evidence outside the pleadings.” Id.
(emphasis added); accord Safe Air for Everyone v. Meyer,
373 F.3d 1035, 1039 (9th Cir. 2004). Only upon a factual
attack does a plaintiff have an affirmative obligation to
support jurisdictional allegations with proof. Leite, 749 F.3d
at 1121. In contrast, a facial attack is easily remedied by
leave to amend jurisdictional allegations pursuant to
28 U.S.C. § 1653.
Both Safe Cig’s initial appeal and its Rule 60(b) motion
can only be characterized as facial attacks. Safe Cig does not
argue that NewGen’s sole member is not a citizen of
Wisconsin, as set out in NewGen’s declaration and the
amended complaint, claiming only that the evidence in
14 NEWGEN V. SAFE CIG
support of his citizenship is “weak.” Nor does Safe Cig assert
that any of its members are citizens of Wisconsin or rebut
NewGen’s evidence that Safe Cig’s members reside in
California. It is a longstanding principle that “[t]he place
where a person lives is taken to be his domicile until facts
adduced establish the contrary.” Anderson v. Watts, 138 U.S.
694, 706 (1891); see also Hollinger v. Home State Mut. Ins.
Co., 654 F.3d 564, 571 (5th Cir. 2011). But rather than
presenting evidence about citizenship, Safe Cig simply
reasserted at multiple junctures that it had doubts about the
citizenship of its own officers (although it did not even hint
they were from Wisconsin), and, as the district court put it, it
“carefully avoided taking any position on [its] own
citizenship.” Safe Cig never called into question any of the
factual predicates to diversity jurisdiction, and, notably, never
asked for discovery or a delay in proceedings to clarify the
issue. See, e.g., Crawford v. United States, 796 F.2d 924, 928
(7th Cir. 1986) (“If the defendant thinks the court lacks
jurisdiction, his proper course is to request an evidentiary
hearing on the issue.”).
Safe Cig insists that upholding the default judgment
where Safe Cig has denied “knowledge or information
sufficient to form a belief” as to the citizenship of its
members improperly relieves NewGen of the duty to prove
subject matter jurisdiction. Safe Cig characterizes its lack of
knowledge as raising a jurisdictional challenge that shifts the
burden to Safe Cig to prove jurisdiction was wanting.4 In the
4
The district court never placed the burden on Safe Cig to disprove
diversity; rather, because Safe Cig never contested the truth of NewGen’s
assertions, Safe Cig never triggered any obligation on NewGen’s part to
support its allegations of diversity with affidavits or other evidence,
NEWGEN V. SAFE CIG 15
context of a Rule 12(b)(1) motion—which is analogous to the
Rule 60(b) motion here—the effect of a denial depends on the
nature of the denial:
Once the moving party has converted the
[Rule 12(b)(1)] motion to dismiss into a
factual motion by presenting affidavits or
other evidence properly brought before the
court, the party opposing the motion must
furnish affidavits or other evidence necessary
to satisfy its burden of establishing subject
matter jurisdiction.
Savage v. Glendale Union High Sch., Dist. No. 205, 343 F.3d
1036, 1039 n.2 (9th Cir. 2003) (emphasis added). The district
court correctly held that a facial attack in this posture merits
only leave to amend the allegations, not wholesale revival of
a defaulted defense and an obligation to supplement the
record.5 Hence, Safe Cig’s agnosticism is insufficient to
avoid jurisdiction.
although NewGen did provide a declaration as part of supplemental
briefing.
5
We are at a loss to understand Safe Cig’s claim that it was denied a due
process right because it could not respond to the amended allegations.
The essence of due process is the requirement of notice and an opportunity
to respond. Mathews v. Eldridge, 424 U.S. 319, 348 (1976). Notice was
apparent from the face of the complaint and Safe Cig certainly did not
suffer for opportunities to contest diversity jurisdiction. Although Safe
Cig took a pass on its first opportunity to raise the issue in the district
court, it did so in the first appeal and then raised the issue in its Rule 60(b)
motion, and was ordered by the district court to provide additional briefing
on the issue.
16 NEWGEN V. SAFE CIG
We observe that this approach is in line with our sister
circuits. In American Combustion, for instance, the plaintiff
filed a motion on appeal to correct defects in the
jurisdictional allegations. 797 F.2d at 1044. The D.C. Circuit
ordered the parties to brief any dispute concerning the
existence of diversity. Id. at 1044–45. When the defendant
did not respond and conceded diversity at oral argument, the
court concluded that because the defendant did not deny
plaintiff’s “allegations of diversity, triggering the requirement
that [plaintiff] affirmatively prove the facts necessary to
support a finding of diversity, the amended allegations here
support a finding of diversity jurisdiction.” Id. at 1045. The
same principle applies here: Safe Cig never asserted that the
parties are not in fact diverse.
Simply put, because the only real challenge to jurisdiction
concerned the sufficiency of the pleadings, the amended
allegations—which were undoubtedly legally sufficient—
resolved the only question ever raised regarding the district
court’s subject matter jurisdiction.
III. Denial of Relief from Default Judgment
Satisfied that the district court had subject matter
jurisdiction and that the amended complaint corrected any
defect in the pleadings, we turn to review of the district
court’s decision to deny relief from the default judgment. We
review the district court’s factual findings for clear error, and
review the grant of a default judgment for abuse of discretion.
Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388, 1391
(9th Cir. 1988).
“Our starting point is the general rule that default
judgments are ordinarily disfavored. Cases should be decided
NEWGEN V. SAFE CIG 17
upon their merits whenever reasonably possible.” Eitel,
782 F.2d at 1472. We then look to the following factors:
(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 this case, numerous factors weigh in favor
of entry of default judgment. The district court’s ruling was
not “illogical,” “implausible,” or without “support in
inferences that may be drawn from facts in the record,” and
the district court therefore did not abuse its discretion. United
States v. Hinkson, 585 F.3d 1247, 1261 (9th Cir. 2009) (en
banc) (citing Anderson v. City of Bessemer City, 470 U.S. 564
(1985)).
The district court considered in detail the procedural
background of the default and weighed the Eitel factors. First
and foremost, the default was certainly not due to excusable
neglect. Notwithstanding its agent’s blatant attempts to resist
service, Safe Cig was properly served, yet ignored the
deadline to respond to the complaint. Its counsel instead
waited until default was entered to contact NewGen’s
attorneys.6 Safe Cig gives no “credible, good faith
explanation” for its apparent bad faith “intention to take
6
Safe Cig asserts that it was not represented by counsel at the time, but
Safe Cig’s counsel leaves ambiguous when he started acting for Safe Cig.
18 NEWGEN V. SAFE CIG
advantage of the opposing party, interfere with judicial
decisionmaking, or otherwise manipulate the legal process.”
TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691, 697 (9th
Cir. 2001), overruled on other grounds by Egelhoff v.
Egelhoff ex rel. Breiner, 532 U.S. 141 (2001).
Safe Cig also does little to undercut the merits of
NewGen’s claim. To establish its breach of contract claims,
NewGen’s complaint sets out the contents of the Affiliate and
Consulting agreements in sufficient detail, and Safe Cig’s
failure to make payments. Safe Cig does not “present
specific facts that would constitute a defense” or that would
substantially alter the liability at stake. United States v.
Signed Pers. Check No. 730 of Yubran S. Mesle, 615 F.3d
1085, 1094 (9th Cir. 2010).7 Stating only general objections
to the existence of a contract, the extent of the relationship
between the parties, and the alleged services performed by
NewGen is insufficient to satisfy the “meritorious defense”
requirement. Id.
The district court found that NewGen “sufficiently
demonstrated the possibility of prejudice if default is denied.”
In addition, the court carefully examined the damages issues,
stating that “[NewGen] only seeks contractual damages
directly proportional to [Safe Cig]’s breach of the contracts”
and thus “the amount of money at stake does not bar an entry
of default judgment.” Ultimately the court reduced the
requested damages. None of the factual findings were in
7
The declaration of Safe Cig’s Chief Information Officer, albeit
conclusory, does provide some additional detail. However, as the district
court noted, the declaration and related arguments were untimely because
they were not filed in opposition to the first motion for default judgment,
and Safe Cig provides no evidence to support its claims.
NEWGEN V. SAFE CIG 19
clear error. While there is room to disagree whether default
was warranted, our role is not to second guess the district
court’s weighing of the Eitel factors. We thus conclude that
the district court’s decision to enter default judgment was not
an abuse of discretion.
IV. Calculation of the Damages Award
We also uphold the district court’s damage award of
$1,483,075.84, and deny NewGen’s cross-appeal for
additional damages. We review the district court’s
computation of damages for clear error. Felder v. United
States, 543 F.2d 657, 663 (9th Cir. 1976).
In reaching its damages calculation, the district court
relied on a declaration from Dustin Erickson, NewGen’s
owner. See Geddes v. United Fin. Grp., 559 F.2d 557, 560
(9th Cir. 1977) (“[U]pon default the factual allegations of the
complaint, except those relating to the amount of damages,
will be taken as true.”). The district court awarded
$783,558.43 in damages for breach of the consulting
agreement, a figure reasonably consistent with the
$25,000/month in damages claimed in the Complaint and
supported by Erickson’s estimate of Safe Cig’s net total
profits each month. The district court also awarded
$699,517.41 for unpaid commissions owed under the
Affiliate Agreement for February 2010 to December 2012,
based on historical data provided by Safe Cig and future
projections where Safe Cig refused to grant NewGen access
to its sales records.
Erickson’s detailed account of how he calculated each
figure supports the district court’s consideration of the
declaration. Nor are we troubled by Safe Cig’s claim that the
20 NEWGEN V. SAFE CIG
evidence is unreliable. As the district court noted, Safe Cig’s
“conduct is highly questionable, because it is in the best
position to have the accurate records required to refute
[NewGen]’s estimates. Further, any necessity for [NewGen]
to rely on estimates is due to [Safe Cig]’s failure to comply
with the Affiliate Agreement, which requires [Safe Cig] to
provide [NewGen] with its sales records.”
We reject NewGen’s cross-appeal of the damages award.
While NewGen was entitled to lifetime commissions on sales
made pursuant to referrals from NewGen, as alleged in its
Amended Complaint, the district court did not clearly err in
finding that NewGen was only entitled to Safe Cig’s sales,
not sales by any third-party, and in finding that once Safe
Cig’s website ceased operating in December 2012, there were
no Safe Cig sales. We agree that damages claimed from 2013
to 2018 were “unsubstantiated.”
CONCLUSION
We are satisfied that diversity jurisdiction exists and that
the district court did not abuse its discretion in denying the
Rule 60(b) motion to vacate the judgment. The amended
complaint resolved the defective pleadings, and the district
court did not abuse its discretion in upholding the default
judgment. We also affirm the award of damages and reject
NewGen’s cross-appeal.
AFFIRMED.