United States of America v. Aguinaldo et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
UNITED STATES OF AMERICA,
Plaintiff,
vs.
EDDIE V. AGUINALDO, et al.,
Defendants.
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Civil No. 20-00434 JMS-KJM
FINDINGS AND
RECOMMENDATION TO DENY
UNITED STATES’ RENEWED
MOTION FOR DEFAULT
JUDGMENT AGAINST (1) ALLIED
BUILDING PRODUCTS,
(2) PORTFOLIO RECOVERY
ASSOCIATES LLC, (3) MIDLAND
FUNDING LLC, AND (4) THE
LAW OFFICES OF ALEX M.
SONSON
FINDINGS AND RECOMMENDATION TO DENY
UNITED STATES’ RENEWED MOTION FOR DEFAULT
JUDGMENT AGAINST (1) ALLIED BUILDING PRODUCTS,
(2) PORTFOLIO RECOVERY ASSOCIATES LLC, (3) MIDLAND
FUNDING LLC, AND (4) THE LAW OFFICES OF ALEX M. SONSON
On December 8, 2022, Plaintiff United States of America (“Plaintiff”) filed
a Renewed Motion for Default Judgment Against (1) Allied Building Products,
(2) Portfolio Recover Associates LLC, (3) Midland Funding LLC, and (4) The
Law Offices of Alex M. Sonson (“Motion”). ECF No. 183. Defendants Allied
Building Products, Portfolio Recovery Associates LLC, Midland Funding LLC,
and The Law Offices of Alex M. Sonson (collectively, the “Absent Defendants”)
did not file oppositions or otherwise respond to the Motion. Plaintiff did not
exercise its option to file a reply.
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The Court held a hearing on the Motion on January 19, 2023. Isaac M.
Hoenig, Esq., appeared on behalf of Plaintiff. The Absent Defendants were not
present. After carefully considering the Motion, applicable law, and the record in
this case, the Court FINDS AND RECOMMENDS that the district court DENY
the Motion.
BACKGROUND
On October 9, 2020, Plaintiff filed its original Complaint, in which Plaintiff
sought to reduce to judgment various federal tax assessments against Defendants
Eddie V. Aguinaldo and Imelda S. Aguinaldo (collectively, the “Aguinaldos”).
ECF No. 1. On February 2, 2022, Plaintiff filed a Third Amended Complaint,
which asserted claims against the Aguinaldos, Absent Defendants, and other
defendants.1 ECF No. 110.
Like the original Complaint, the Third Amended Complaint asserts claims
against the Aguinaldos related to federal tax assessments. Plaintiff asks the court
to reduce such assessments to judgment and find that federal tax liens attach to the
Aguinaldos’ real property located at 1633 Kalaepaa Drive, Honolulu, Hawaii
96819 (the “Kalaepaa Property”). Id. at 3 ¶ 1. Plaintiff also asks the court to
1 The Court refers to the Aguinaldos, Absent Defendants, and other defendants
collectively as, “Defendants.” The Court refers to Defendants other than the
Aguinaldos as, the “Entity Defendants.”
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determine “the validity and priority of the liens and claims of all parties as the [sic]
Kalaepaa Property.” Id. ¶ 1.g.
Plaintiff does not appear to assert claims against the Entity Defendants in the
Third Amended Complaint. Plaintiff alleges that it named the Entity Defendants as
defendants because they “may claim an interest in the Kalaepaa Property.” See,
e.g., id. at 5 ¶ 7.
Plaintiff served the Third Amended Complaint and summonses on the
Absent Defendants on November 3, 2022. ECF Nos. 176–79. Pursuant to
Plaintiff’s request, the Clerk of Court entered default as to the Absent Defendants
on December 6, 2022. ECF Nos. 180–81. Plaintiff filed the instant Motion on
December 8, 2022.
LEGAL STANDARD
When a defendant has defaulted by failing to appear, the plaintiff may apply
to the court for a default judgment. Fed. R. Civ. P. 55(b)(2). The court has
discretion to grant or deny a motion for default judgment. Lewis v. Uyehara, CV
NO 05-00478 DAE/BMK, 2006 WL 8422937, at *7 (D. Haw. Mar. 23, 2006)
(citing Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980)); Haw. Carpenters’
Tr. Funds v. Stone, 794 F.2d 508, 511–12 (9th Cir. 1986) (citations omitted).
Entered sparingly, default judgments are ordinarily disfavored, and cases should be
decided on their merits if reasonably possible. Eitel v. McCool, 782 F.2d 1470,
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1472 (9th Cir. 1986); see also Pena v. Seguros La Comercial, S.A., 770 F.2d 811,
814 (9th Cir. 1985). Courts may consider the following factors in deciding
whether to grant a motion for default judgement (collectively, “Eitel 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.
NewGen, LLC v. Safe Cig, LLC, 840 F.3d 606, 616 (9th Cir. 2016) (quoting Eitel,
782 F.2d at 1471–72).
In general, on 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.
Group, 559 F.2d 557, 560 (9th Cir. 1977)). Likewise, “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) (citing Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978)).
DISCUSSION
I. 	Jurisdiction
Before considering the merits of default judgment against a party who has
failed to plead or otherwise defend, the Court has an affirmative obligation to
determine whether it has jurisdiction over both the subject matter and the parties.
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In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999) (citing Williams v. Life Sav. & Loan,
802 F.2d 1200, 1203 (10th Cir. 1986)). The district court previously found that
subject matter jurisdiction exists over the claims in the Third Amended Complaint
pursuant to 28 U.S.C. § 1340, 1345, and 26 U.S.C. § 7403. United States v.
Aguinaldo, ECF No. 158, Civil No. 20-00434 JMS-KJM, 2022 WL 5245431, at *2
(D. Haw. Oct. 6, 2022).
The district court also previously found personal jurisdiction exists over the
Aguinaldos. Id. Plaintiff does not appear to assert any substantive claims against
the Absent Defendants. Plaintiff asserts that it named the Absent Defendants
pursuant to 26 U.S.C. § 7403(b)2 because of their potential interests in the
Kalaepaa Property. The Court finds this sufficient for personal jurisdiction as to
the Absent Defendants.
II. 	Eitel Factors
A. 	Possibility of Prejudice to Plaintiff
The first Eitel factor considers whether Plaintiff would suffer prejudice if
default judgment is not entered. See PepsiCo, Inc. v. Cal. Sec. Cans, 238 F. Supp.
2d 1172, 1177 (C.D. Cal. 2002). Here, absent entry of default judgment, Plaintiff’s
2 Section 7403(b) provides: “All persons having liens upon or claiming any
interest in the property involved in such action shall be made parties thereto.”
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efforts to apply the proceeds of the sale of the Kalaepaa Property may be
frustrated. Accordingly, the first Eitel factor favors entry of default judgment.
B. 	Merits of Plaintiff’s Substantive Claims
Under the second Eitel factor, the Court considers the merits of Plaintiff’s
substantive claims. As noted above, the allegations in the Third Amended
Complaint are taken as true for purposes of determining liability. See TeleVideo
Sys., Inc., 826 F.2d at 917-18; Fair Hous. of Martin, 285 F.3d at 906.
The Court notes that Plaintiff does not appear to assert any substantive
claims against the Absent Defendants. Again, Plaintiff only named the Absent
Defendants because they might claim an interest in the Kalaepaa Property. Other
than this brief description of each Defendant, Plaintiff does not mention the Entity
Defendants, including the Absent Defendants, in the remainder of the Third
Amended Complaint.
In the Third Amended Complaint, Plaintiff asks the court to determine “the
validity and priority of the liens and claims of all the parties as [sic] the Kalaepaa
Property.” ECF No. 110 at 3 ¶ 1.g. The Third Amended Complaint contains no
allegations regarding the Absent Defendants’ alleged lien amounts or the alleged
lien priority among Plaintiff and the Absent Defendants. Nor does Plaintiff allege
any facts the Court could use to determine the validity and priority of the parties’
liens.
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Based on the foregoing, the Court finds that the lack of factual allegations to
support the merits of Plaintiff’s substantive claims regarding lien validity and
priority—to the extent there are any asserted against the Absent Defendants—
weighs strongly against default judgment.
C. 	Sufficiency of the Third Amended Complaint
For the reasons discussed above, the Court finds that the allegations in the
Third Amended Complaint are insufficiently pled. Accordingly, the sufficiency of
the Third Amended Complaint—or, rather, lack thereof—weighs strongly against
default judgment.
D. 	Sum of Money at Stake
Plaintiff asserts that this factor weighs in favor of default judgment because
Plaintiff is not seeking monetary relief from the Absent Defendants. ECF No. 183-
1 at 10. Although it is true that Plaintiff’s request for default judgment against the
Absent Defendants does not include monetary relief, Plaintiff asks the Court to
terminate any claims the Absent Defendants might have in the Kalaepaa Property.
Id. at 11. Plaintiff also asks the Court to enter an order stating that the Absent
Defendants are not entitled to any portion of the proceeds of a sale of the Kalaepaa
Property. Id.
While Plaintiff is not directly seeking monetary relief from the Absent
Defendants, Plaintiff is asking the Court to terminate the Absent Defendants’
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monetary rights in the Kalaepaa Property, thereby potentially increasing Plaintiff’s
recovery from any sale of thereof. Stated differently, the Absent Defendants could
suffer a monetary loss, and Plaintiff benefit from an equal monetary gain, if the
Court enters default judgment. Thus, without knowing the value of the Absent
Defendants’ liens, the Court cannot determine the sum of money at stake.
Given the lack of factual allegations in the Third Amended Complaint
regarding the sum of money at stake, the Court finds that this factor weighs against
default judgment.
E. 	Possibility of Dispute Concerning Material Facts
Given the Court’s finding as to Eitel factors two (merits of Plaintiff’s
substantive claims) and three (sufficiency of the Third Amended Complaint), the
Court finds that there is a possibility of dispute concerning material facts. Even
taking the factual allegations in the Third Amended Complaint as true, there
remains a substantial possibility of dispute concerning material facts as to the
validity and priority of the parties’ liens. The Court thus finds that this fifth factor
weighs against default judgment.
F. 	Whether Default Was Due to Excusable Neglect
Regarding the sixth factor, the Court finds that the Absent Defendants’
defaults were not the result of excusable neglect. The Absent Defendants failed to
defend this action, and the Clerk of Court entered default against them. See ECF
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No. 29. The record indicates that the Absent Defendants’ defaults were not the
result of any excusable neglect, but rather due to the Absent Defendants’ conscious
and willful decisions not to defend this action. Consequently, this factor weighs in
favor of default judgment.
G. 	Policy Favoring Decisions on the Merits
Under Federal Rule of Civil Procedure 55, “termination of a case before
hearing the merits is allowed whenever a defendant fails to defend an action.”
PepsiCo, Inc., 238 F. Supp. 2d at 1177; see also Philip Morris USA, Inc. v.
Castworld Prods., Inc., 219 F.R.D. 494, 501 (C.D. Cal. 2003) (“the mere existence
of Fed. R. Civ. P. 55(b) indicates that the seventh Eitel factor is not alone
dispositive.”). Generally, though, the policy favoring decisions on the merits
generally weighs against default judgment. Given the lack of detailed factual
allegations in the Third Amended Complaint regarding the Absent Defendants’
interests in the Kalaepaa Property, the Court finds that this factor weighs against
granting default judgment.
H. 	Totality of the Eitel Factors
The Court finds that the totality of the Eitel factors weigh against entering
default judgment in favor of Plaintiff and against the Absent Defendants.
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CONCLUSION
Based on the foregoing, the Court FINDS AND RECOMMENDS that the
district court DENY United States of America’s Renewed Motion for Default
Judgment Against (1) Allied Building Products, (2) Portfolio Recover Associates
LLC, (3) Midland Funding LLC, and (4) The Law Offices of Alex M. Sonson
(ECF No. 183).
IT IS SO FOUND AND RECOMMENDED.
DATED: Honolulu, Hawaii, January 19, 2023.
United States of America v. Aguinaldo, et al., Civil No. 20-00434 JMS-KJM; Findings and
Recommendation to Deny United States of America filed a Renewed Motion for Default
Judgment Against (1) Allied Building Products, (2) Portfolio Recover Associates LLC,
(3) Midland Funding LLC, and (4) The Law Offices of Alex M. Sonson
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