United States Court of Appeals,

Seventh Circuit.

Selective Insurance Company of South Carolina, Plaintiff-Appellant,

v.

Target Corporation, Defendant-Appellee.

 

 

 

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 13-cv-5910—Elaine E. Bucklo, District Judge.

Attorneys and Law Firms

Kristina M. Beck, Brian O’Gallagher, Attorneys, Cremer, Spina, Shaughnessy, Jansen & Siegert, LLC, Chicago, IL, for Plaintiff-Appellant.

Garrett L. Boehm, Jr., Robert M. Burke, Peter R. Ryndak, Attorneys, Johnson & Bell, Ltd., Chicago, IL, for Defendant-Appellee.

Before Flaum and Kanne, Circuit Judges, and Magnus-Stinson, District Judge.*

Opinion

Magnus-Stinson, District Judge.

 

*1 Plaintiff-Appellant Selective Insurance Company of South Carolina (“Selective”) filed a declaratory judgment action, asking the district court to declare that it owed no duty to defend or indemnify Defendant-Appellee Target Corporation (“Target”) in a lawsuit initiated by customer Angela Brown, who sued Target after a fitting room door fell on her. The district court granted summary judgment in favor of Target, finding that Target was an additional insured on a commercial general liability insurance policy (the “Policy”) that the door supplier, Harbor Industries, Inc. (“Harbor”), had with Selective. The district court further held that Selective had both a duty to defend and indemnify Target for the entire cost Target incurred settling the Brown litigation. Selective appealed the district court’s decision and, for the reasons that follow, we affirm.

 

 

1. Background

On December 17, 2011, Angela Brown was injured at a Target store in Gurnee, Illinois, when a fitting room door came off its hinges and fell on her. She sued Target in Illinois state court on February 14, 2012, and Target removed the case to federal court. In her complaint, Ms. Brown alleged that Target was negligent for failing to maintain and repair the fitting room door and failing to warn her that the fitting room door was in an unreasonably dangerous and hazardous condition. Target filed a third-party complaint against Harbor—the company that Target had contracted to supply the fitting rooms at the Gurnee store—seeking contribution and indemnification. Discovery during the Brown litigation revealed that the same fitting room door fell on another Target customer approximately one week before it fell on Ms. Brown. Ultimately, both Target and Harbor settled with Ms. Brown.

 

Target tendered its defense of Ms. Brown’s lawsuit to Selective on May 7, 2012, claiming that it was an additional insured on Harbor’s Policy with Selective because of a contract with Harbor. On July 30, 2013, Selective filed the underlying declaratory judgment action against Target in Illinois state court, and Target removed it to federal court on the basis of diversity jurisdiction.

 

The parties filed cross-motions for summary judgment, and the district court granted summary judgment to Target after finding in its favor on three issues. First, the district court found that Target was an additional insured on Harbor’s Policy with Selective because of the interaction between a Supplier Qualification Agreement (“Supplier Agreement”) that required Harbor to designate Target as an additional insured and their Program Agreement for the fitting rooms. Second, the district court found that Selective had a duty to defend Target because Ms. Brown’s allegations fell within the scope of the Policy, since they could reasonably be read to assert a bodily injury caused in whole or in part by Harbor’s product. Third, the district court found that Target had settled the lawsuit with Ms. Brown in reasonable anticipation of liability and, thus, Selective had a duty to indemnify Target for costs incurred defending and settling the Brown litigation. Final judgment was entered in favor of Target in the total amount of $714,450.24. Selective now appeals.

 

 

1. Analysis

*2 Summary judgment is appropriate where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). We review de novo a district court’s decision on cross-motions for summary judgment. Calumet River Fleeting, Inc. v. Int’l Union of Operating Eng’rs, Local 150, AFL–CIO, 824 F.3d 645, 647 (7th Cir. 2016) (citations omitted). “The general standards for summary judgment do not change: with cross summary judgment motions, we construe all facts and inferences therefrom in favor of the party against whom the motion under consideration is made.” Id. at 647–48 (citations and quotations omitted). Because we are only considering whether it was proper for the district court to grant summary judgment in favor of Target, we resolve any factual disputes in Selective’s favor.

 

[1] [2]Our subject matter jurisdiction over this dispute is based on the parties’ diversity of citizenship. 28 U.S.C. § 1332. Federal courts deciding state law claims under diversity jurisdiction apply the forum state’s choice of law rules to select the applicable state substantive law. McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674, 684 (7th Cir. 2014) (citations omitted). If no party raises a choice of law issue to the district court, “the federal court may simply apply the forum state’s substantive law.” Id. Although Selective correctly points out that there is a Minnesota choice-of-law provision in one of the contracts at issue, it admits that Target and Selective have both argued the insurance coverage issues under Illinois law. Thus, we will continue to apply Illinois law to this case.

 

 

1. The Contracts at Issue

Three contracts are relevant to addressing the parties’ arguments—Target and Harbor’s Supplier Agreement, which was executed in April 2001; Target and Harbor’s Program Agreement for the fitting rooms, which was executed in April 2009; and Harbor and Selective’s Policy, which was in effect when Ms. Brown was injured on December 17, 2011.

 

Target and Harbor executed the Supplier Agreement in April 2001. It provides, in relevant part, that it

shall apply to and control and shall be deemed incorporated into all agreements relating to the purchase of non-retail (not for resale) goods and/or services from [Harbor] by Target, including, but not limited to, any program agreement (or other agreement specific to the goods or services to be provided) entered into by the parties (Program Agreement)…. In the event of any conflict between this Agreement and the specific Order or Program Agreement, the terms of the Order or Program Agreement shall govern.

The Supplier Agreement requires Harbor to maintain commercial general liability (“CGL”) insurance “in full force and effect during the term of this Agreement” and to “designate Target as an additional insured by endorsement acceptable to Target.” The Supplier Agreement provides that it “shall remain in effect until terminated as provided herein.” It is undisputed that neither Target nor Harbor has terminated the Supplier Agreement pursuant to that provision.

 

In April 2009, Target and Harbor entered into the Program Agreement for Harbor to supply fitting rooms to Target. The Program Agreement incorporates the terms and conditions of the Supplier Agreement and provides that as long as Harbor complies with certain criteria, “Target agrees to purchase from [Harbor] all of Target’s needed supply of the Goods [Fitting Rooms] during the Term of this Program Agreement.” It identifies specific parts to be provided, including fitting room doors. It further provides that “[t]his Program Agreement shall begin on the Effective Date and end on July 1, 2010 (through the July 2010 cycle) unless otherwise terminated.”

 

*3 Harbor’s Policy with Selective that was in effect on the date of Ms. Brown’s injury provides, in relevant part, that Selective “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” The Policy specifically provides “[p]roducts-completed operations hazard” coverage that “[i]ncludes all ‘bodily injury’ and ‘property damage’ occurring away from premises you own or rent and arising out of ‘your product.’ ” An endorsement to the Policy provides as follows:

WHO IS AN INSURED is amended to include as an additional insured any person or organization whom you have agreed in a written contract, written agreement or written permit to add as an additional insured on your policy. Such person or organization is an additional insured only with respect to liability for “bodily injury” or “property damage” or “personal and advertising injury” caused, in whole or in part, by … “your product”….

 

 

1. The Additional Insured Provision of the Selective Policy

The parties dispute whether Target was an additional insured on Harbor’s Policy with Selective. Specifically, the parties dispute the interaction between Target and Harbor’s Supplier Agreement and Program Agreement and whether the term provisions in those contracts conflict.

 

[3] [4]Under Illinois law, the goal of contract interpretation is to ascertain the parties’ intent and, in doing so, we first look to “the plain and ordinary meaning” of the contract language. Aeroground, Inc. v. CenterPoint Properties Trust, 738 F.3d 810, 813 (7th Cir. 2013) (quoting Gallagher v. Lenart, 226 Ill.2d 208, 314 Ill.Dec. 133, 874 N.E.2d 43, 58 (2007)). We must construe the contract “as a whole, viewing each part in light of the others.” Aeroground, 738 F.3d at 813 (citing Gallagher, 314 Ill.Dec. 133, 874 N.E.2d at 58). We also must seek to give effect to each clause and word used, without rendering any terms meaningless. Aeroground, 738 F.3d at 813 (citing Hufford v. Balk, 113 Ill.2d 168, 100 Ill.Dec. 564, 497 N.E.2d 742, 744 (1986)).

 

There is no dispute that the Program Agreement for Harbor to supply Target with the fitting rooms terminated in July 2010 before Ms. Brown’s injury. The parties dispute, however, whether the Supplier Agreement remained in effect when Ms. Brown was injured, such that it could be a “written contract” rendering Target an additional insured on Harbor’s Policy with Selective. Selective argues that although the term of the Supplier Agreement was open ended, that provision directly conflicts with the Program Agreement’s July 2010 termination date, and the Supplier Agreement expressly states that the Program Agreement controls if there is a conflict. Target disagrees with this interpretation, emphasizing that the Supplier Agreement was a broad agreement that even now has not been terminated.

 

[5]We agree with the district court that applying the plain and ordinary meaning of the contract language, the Supplier Agreement is a broad agreement governing the overarching relationship between Target and Harbor. It contemplates discrete purchases by Target from Harbor to be governed by the provisions set forth in future program agreements. One of those future agreements was the Program Agreement executed by Target and Harbor eight years after the Supplier Agreement. That Program Agreement required Target to purchase fitting rooms from Harbor until July 2010 if Harbor met the conditions specified therein. Although that obligation ended in July 2010, the language in the more general Supplier Agreement makes it clear that the parties did not intend for the Supplier Agreement to terminate when specific program agreements terminated. For example, the Supplier Agreement states that Harbor must maintain “[p]roducts and completed operations liability coverage,” and it also requires Harbor to provide Target with a certificate of insurance evidencing the required coverage “upon each renewal of such policies.” These provisions confirm the parties’ intent for the insurance requirement set forth in the Supplier Agreement to survive the expiration of specific program agreements entered into between Target and Harbor. Additionally, this understanding of the relationship between the Supplier Agreement and the Program Agreement construes both contracts as a whole, renders no terms or clauses in either meaningless, and applies the plain and ordinary meaning of the language in each contract to ascertain the parties’ intent as to the relationship between the two.1 For these reasons, we agree with the district court that the Supplier Agreement is a “written contract” requiring Harbor to designate Target as an additional insured on the Policy.

 

*4 But the inquiry does not end there. The Policy specifically limits additional insured coverage such that, in relevant part, Target is “an additional insured only with respect to liability for ‘bodily injury’ … caused, in whole or in part, by … ‘[Harbor’s] product’….” Accordingly, we must also determine whether liability for Ms. Brown’s claim was caused by Harbor’s product before we can conclude that Target was an additional insured.

 

It is beyond dispute that the fitting room door that fell on Ms. Brown was Harbor’s product. The Program Agreement between Harbor and Target explicitly states that the “product” at issue in the agreement is “fitting rooms,” and it specifically identifies “fitting room door” as a component to be purchased.2 Ms. Brown’s complaint alleged that she sustained bodily injury after being struck by a fitting room door that was in “an unreasonably hazardous and dangerous condition.” We readily conclude that Ms. Brown’s claim for “bodily injury” was “caused, in whole or in part,” by Harbor’s “product.” (Emphasis added.) Thus, we agree with the district court that Target was an additional insured under the Selective Policy.

 

 

1. Selective’s Duty to Defend Target

The parties dispute whether Selective owed Target a duty to defend it in the Brown litigation. Specifically, the parties dispute whether the allegations in Ms. Brown’s complaint against Target were sufficient to trigger Selective’s duty to defend. The parties also dispute whether the allegations in Target’s third-party complaint against Harbor can be considered in determining whether Selective had a duty to defend Target.

 

[6] [7] [8] [9]The duty to defend is broader than the duty to indemnify. Health Care Indus. Liab. Ins. Program v. Momence Meadows Nursing Ctr., Inc., 566 F.3d 689, 693 (7th Cir. 2009). As a general rule under Illinois law, the duty of an insurance company to defend against a suit “is determined by the allegations of the complaint in that suit rather than by what is actually proved.” Nat’l Am. Ins. Co. v. Artisan & Truckers Cas. Co., 796 F.3d 717, 724 (7th Cir. 2015). To determine whether an insurer has a duty to defend, we compare the factual allegations of the underlying complaint to the language of the insurance policy. Amerisure Mut. Ins. Co. v. Microplastics, Inc., 622 F.3d 806, 810 (7th Cir. 2010). If the facts alleged fall within or potentially within the policy’s coverage, the insurer’s duty to defend arises. Id. “Both the policy terms and the allegations in the underlying complaint are liberally construed in favor of the insured, and any doubts and ambiguities are resolved against the insurer.” Id. at 811 (citations omitted). The general rules that favor the insured, however, must “yield to the paramount rule of reasonable construction which guides all contract interpretations.” Id.

 

[10]When an insurer tries to deny coverage without seeking a declaratory judgment or defending under a reservation of rights, our inquiry is necessarily limited to the allegations in the underlying complaint. See Landmark Am. Ins. Co. v. Hilger, 838 F.3d 821, 824 (7th Cir. 2016) (citing MFA Mut. Ins. Co. v. Crowther, Inc., 120 Ill.App.3d 387, 75 Ill.Dec. 903, 458 N.E.2d 71, 73 (1983) (“An insurer may not justifiably refuse to defend an action against its insured unless it is clear from the face of the complaint that the allegations fail to state facts which bring the claim within, or potentially within, the policy’s coverage.”)). When an insurer seeks a declaratory judgment, however, that limitation does not apply. Landmark Am., 838 F.3d at 824. In fact, the Illinois Supreme Court has emphasized that “ ‘[t]he trial court should be able to consider all the relevant facts contained in the pleadings, including a third-party complaint, to determine whether there is a duty to defend. After all, the trial court need not wear judicial blinders and may look beyond the complaint at other evidence appropriate to a motion for summary judgment.’ ” Pekin Ins. Co. v. Wilson, 237 Ill.2d 446, 341 Ill.Dec. 497, 930 N.E.2d 1011, 1020 (2010) (emphasis omitted) (quoting Am. Econ. Ins. Co. v. Holabird & Root, 382 Ill.App.3d 1017, 320 Ill.Dec. 97, 886 N.E.2d 1166, 1179 (2008)). “The only time such evidence should not be permitted is when it tends to determine an issue crucial to the determination of the underlying lawsuit.” Pekin Ins., 341 Ill.Dec. 497, 930 N.E.2d at 1020 (citation omitted); see also Landmark Am., 838 F.3d at 824–25 (“[W]hen an insurer has elected to either defend under a reservation of rights or file a declaratory judgment action, … the insurer may present evidence beyond the underlying complaint, so long as it does not tend to determine an ultimate issue in the underlying proceeding.”) (citation omitted). A crucial issue is “one that would collaterally estop the plaintiff in the underlying lawsuit from raising a theory of recovery or be crucial to the insured’s liability.” Landmark Am., 838 F.3d at 825.

 

*5 [11]Bearing in mind that we must construe the Policy liberally in favor of coverage when determining the duty to defend, we agree with the district court that the allegations in Ms. Brown’s complaint against Target were sufficient to trigger Selective’s duty to defend. Ms. Brown alleged that she was a business invitee at Target’s store in Gurnee when the fitting room door fell off its hinges and injured her. While Selective emphasizes that Ms. Brown’s legal claims focused on Target’s negligence, Illinois law gives little weight to the legal label a party uses to characterize the underlying allegations. Santa’s Best Craft, LLC v. St. Paul Fire & Marine Ins., 611 F.3d 339, 346 (7th Cir. 2010) (citing Lexmark Int’l, Inc. v. Transp. Ins. Co., 327 Ill.App.3d 128, 260 Ill.Dec. 658, 761 N.E.2d 1214, 1221 (2001)). Instead, if “the alleged conduct arguably falls within at least one of the categories of wrongdoing listed in the policy,” a duty to defend arises. Santa’s Best, 611 F.3d at 346 (citing Lexmark, 260 Ill.Dec. 658, 761 N.E.2d at 1221).

 

As we have concluded, Target is an additional insured on the Policy because the allegations in Ms. Brown’s complaint can reasonably be read to fall within the Policy’s coverage for bodily injury caused in whole or in part by Harbor’s product. The parties do not dispute that the Policy provides liability coverage for bodily injury arising out of Harbor’s product within the “products-completed operations hazard” provision. This triggered Selective’s duty to defend. See Amerisure, 622 F.3d at 810 (“If the facts alleged in the underlying complaint fall within, or potentially within, the policy’s coverage, the insurer’s duty to defend arises.”). Illinois law rejects Selective’s argument that it can avoid this duty simply because of legal labels Ms. Brown used in her complaint. See Santa’s Best, 611 F.3d at 346 (citing Lexmark, 260 Ill.Dec. 658, 761 N.E.2d at 1221).

 

Alternatively, even if the facts alleged in Ms. Brown’s complaint were insufficient to trigger Selective’s duty to defend, the allegations in Target’s third-party complaint against Harbor certainly were enough. We can consider the allegations of Target’s third-party complaint because Selective sought a declaratory judgment and does not argue that considering them will determine an issue crucial to the determination of the underlying lawsuit. Landmark Am., 838 F.3d at 824. In its third-party complaint, Target alleged that it contracted with Harbor for Harbor to design and provide materials for the construction of the Gurnee fitting rooms. Target also alleged that Harbor’s negligence in doing so caused Ms. Brown’s injuries. Again, these allegations squarely fall within the Policy’s coverage. Thus, we agree with the district court that Selective had a duty to defend Target in the Brown litigation.

 

 

1. Selective’s Duty to Indemnify Target

The parties disagree whether Selective had a duty to indemnify Target for costs it incurred while defending and settling the lawsuit with Ms. Brown. On appeal, Selective emphasizes that it is impossible to reasonably conclude that Target’s entire settlement payment represented damages for a covered loss.3

 

[12]The duty to indemnify “is determined once liability has been affixed.” Nat’l Am. Ins. Co. v. Artisan & Truckers Cas. Co., 796 F.3d 717, 724 (7th Cir. 2015). If an insured settles an underlying claim before trial, “it must show that it settled an otherwise covered loss in reasonable anticipation of liability” for the duty to indemnify to apply. Caterpillar, Inc. v. Great Am. Ins. Co., 62 F.3d 955, 966–67 (7th Cir. 1995) (citing United States Gypsum Co. v. Admiral Ins. Co., 268 Ill.App.3d 598, 205 Ill.Dec. 619, 643 N.E.2d 1226, 1244 (1994)); see also Rosalind Franklin Univ. of Med. & Sci. v. Lexington Ins. Co., 380 Ill.Dec. 89, 8 N.E.3d 20, 39 (2004) (“When an insured settles an underlying claim, it must show that the settlement was made in reasonable anticipation of liability for an otherwise covered loss.”).

 

*6 There is no evidence in the record that Target allocated its settlement with Ms. Brown into covered and uncovered claims. We have previously predicted how Illinois courts would handle this situation in the context of the duty to indemnify:

Consistent with the Illinois policy that a coverage action should not require the insureds to conclusively establish their own liability in the interest of promoting settlement, we think the proper inquiry is whether the claims were not even potentially covered by the insurance policy. A competing policy interest is equity—it is inequitable to require an insurer to pay for a settlement that is clearly not within the terms of its policy. Consequently, our prediction is that Illinois courts, in cases in which it is possible that none of the settlement was attributable to the dismissal of claims for damage covered by the insurer’s policy, would evaluate whether a “primary focus” of the claims that were settled was a potentially covered loss (burden on the insured). Conversely, if it can be established that the claims were not even potentially covered (burden on the insurer), then the insurer is not required to reimburse the settlement.

Santa’s Best, 611 F.3d at 351–52. After Santa’s Best, the Illinois Appellate Court followed our predicted approach. See Rosalind, 380 Ill.Dec. 89, 8 N.E.3d at 40 (“In cases where an insured enters into a settlement that disposes of both covered and non-covered claims, the insurer’s duty to indemnify encompasses the entire settlement if the covered claims were ‘a primary focus of the litigation.’ ”) (citing Santa’s Best, 611 F.3d at 352).

 

Based on this precedent, the first question is whether Target settled an otherwise covered loss in reasonable anticipation of liability. If so, the second question is whether the covered claims were a primary focus of the litigation.

 

We conclude that Target settled an otherwise covered loss in reasonable anticipation of liability in the Brown litigation. Ms. Brown testified that she carried an article of clothing into Target’s fitting room, she closed the fitting room door behind her and latched it, she tried on the clothing, and then she unlatched the fitting room door and it fell on her. Discovery in that case revealed that the same fitting room door fell on another Target patron on December 9, 2011—approximately one week before it fell on Ms. Brown. This establishes a covered loss because it shows that Ms. Brown sought damages from Target for a bodily injury “arising out of” Harbor’s “product”—the fitting room door. Thus, we conclude that Target settled an otherwise covered loss in reasonable anticipation of liability to Ms. Brown.4

 

[13]Turning to the second question, Selective argues that it does not have a duty to indemnify Target for the entire amount of its settlement because at least some of Ms. Brown’s claims against Target were based on premises liability, which would not be covered by the Policy. This argument requires us to determine whether the covered claims were “a primary focus of the litigation.” See Rosalind, 380 Ill.Dec. 89, 8 N.E.3d at 40 (“In cases where an insured enters into a settlement that disposes of both covered and non-covered claims, the insurer’s duty to indemnify encompasses the entire settlement if the covered claims were ‘a primary focus of the litigation.’ ”) (citing Santa’s Best, 611 F.3d at 352). While neither the district court nor the parties addressed the primary focus standard in analyzing Selective’s duty to indemnify Target, it is clear from the evidence that the district court cited in analyzing the duty to indemnify that covered claims were a primary focus of the litigation. Specifically, the Brown litigation focused on the injuries Ms. Brown sustained when Harbor’s fitting room door fell on her, and Selective’s counsel admitted at oral argument that Selective defended Harbor in the Brown litigation and also settled with her for the injuries she sustained. For these reasons, we conclude that Selective had a duty to indemnify Target for the entire cost it incurred settling the Brown litigation.

 

 

III. Conclusion

*7 For the foregoing reasons, we AFFIRM the judgment of the district court.

 

All Citations

— F.3d —-, 2016 WL 7473786

 

 

Footnotes

*

Of the Southern District of Indiana, sitting by designation.

1

Selective argues that Target concedes that the Supplier Agreement and the Program Agreement were a single contract. Selective cites Target’s third-party complaint in the Brown litigation to support this position because Target attached the contracts as a single exhibit to its pleading and referred to them as one. Selective’s position ignores the reality that the two contracts were executed eight years apart and were not one contract. Cf. Gallagher v. Lenart, 226 Ill.2d 208, 314 Ill.Dec. 133, 874 N.E.2d 43, 58 (2007) (“We further note the longstanding principle that instruments executed at the same time, by the same parties, for the same purpose, and in the course of the same transaction are regarded as one contract … ”).

2

 

We reject Selective’s specious argument that a fitting room may have goods or products in it but that it is not a “product” entitled to coverage under the Policy. The Program Agreement unequivocally provides otherwise.

3

Selective does not challenge the reasonableness of the amount of Target’s settlement.

4

Target submitted an affidavit from counsel to the district court to support its position, but Selective objected to its admissibility and the district court did not consider it. We agree with the district court that even without considering counsel’s affidavit, the cited evidence is sufficient to confirm that Target settled an otherwise covered loss in reasonable anticipation of liability.

United States District Court,

C.D. California.

Craneveyor Corporation, Plaintiff,

v.

AMK Express Inc. and Does 1-10, Defendants.

CV 16-6049-RSWL-Ex

|

Signed 01/10/2017

 

 

ORDER re: APPLICATION FOR DEFAULT JUDGMENT AGAINST DEFENDANT AMK EXPRESS, INC. [15]

HONORABLE RONALD S.W. LEW, Senior U.S. District Judge

*1 Plaintiff Craneveyor Corporation (“Plaintiff”) hired Defendant AMK Express, Inc. (“Defendant”) to transport two hoists and ten end trucks from Michigan to California. The goods arrived in California damaged by rust and salt, and the present Action ensued. Currently before the Court is Plaintiff’s Application for Default Judgment by Court Against Defendant (“Motion” or “Motion for Default Judgment”) [15]. Having reviewed all papers submitted pertaining to this Motion, the Court NOW FINDS AND RULES AS FOLLOWS: the Court GRANTS Plaintiff’s Motion and enters default judgment against Defendant as to all claims. The Court awards $38,785.50 in damages to Plaintiff, along with costs.

 

 

1. BACKGROUND
2. Factual Background

Plaintiff is a California corporation with offices in Los Angeles. Compl. ¶ 2, ECF No. 1. Plaintiff sells and distributes hoists and end trucks for use in free-standing crane systems. Id. at ¶ 9. It also purchases new hoists and end trucks for its own use. Id. at ¶ 10. Defendant is an Illinois corporation that regularly conducts business in California. Id. at ¶¶ 3-4. Defendant is a common carrier pursuant to the Interstate Commerce Commission (“ICC”). Id. at ¶ 14.

 

In January 2015, Plaintiff purchased brand new, perfect condition hoists and end trucks from Detroit Hoist and Crane. Id. at ¶¶ 11, 16. Plaintiff hired Defendant to ship the hoists and end trucks via Defendant’s truck from Sterling Heights, Michigan to South El Monte, California, where Plaintiff’s business is located. Id. at ¶¶ 12, 13. The load was a “dedicated load,” exclusively containing Plaintiff’s hoists and end trucks. Id. at ¶ 17. Plaintiff also entered into a separate agreement to resell the hoists and end trucks after their arrival. Id. at ¶ 21.

 

Plaintiff avers that Defendant got into a crash somewhere in transit, damaging the goods. Id. at ¶ 20. As a result, the goods were damaged upon arrival at Plaintiff’s facility. Id. Defendant allegedly failed to protect the hoists and end trucks with tarp and other protective materials. Id. at ¶ 18. Indeed, Plaintiff discovered unused tarps in Defendant’s truck, suggesting it did not protect the goods. Id. Moreover, Defendant tried to conceal the damage by spraying the goods with WD-40 before arriving in South El Monte. Id. at ¶ 19. Consequently, Plaintiff incurred costs for evaluating the goods’ damages and was deprived of their resale value. Id. at ¶¶ 22, 23.

 

 

1. Procedural Background

Plaintiff filed a Complaint on August 12, 2016, alleging violation of the Carmack Amendment, 49 U.S.C. § 14706, for damage to Plaintiff’s new hoists and end trucks on the journey from Michigan to California. Id. at ¶¶ 26-32. On August 19, 2016, Plaintiff served the summons and complaint on Defendant in Aurora, Illinois. Proof of Service, ECF No. 8. Defendant did not appear or otherwise respond to the Complaint.1 On October 5, 2016, Plaintiff requested the Clerk to enter default against Defendant. ECF No. 12. On October 6, 2016, the Clerk entered default against Defendant pursuant to Federal Rule of Civil Procedure 55(a). ECF No. 13. Plaintiff filed the instant Motion on November 30, 2016. The Opposition was due on December 13, 2016, but none was filed.

 

 

1. DISCUSSION
2. Legal Standard

*2 The granting of Default Judgment is within the discretion of the district court. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980); see Fed. R. Civ. P. 55. There are both procedural and substantive requirements that must be met.

 

Procedurally, the requirements set forth in Federal Rules of Civil Procedure 54(c) and 55(b), and Local Rule 55-1 must be met. See Vogel v. Rite Aid Corp., 992 F. Supp. 2d 998, 1006 (C.D. Cal 2014). Local Rule 55-1 provides: “When an application is made to the Court for a default judgment, the application shall be accompanied by a declaration in compliance with F.R.Civ.P. 55(b)(1) and/or (2) and include the following: (a) When and against what party the default was entered; (b) The identification of the pleading to which default was entered; (c) Whether the defaulting party is an infant or incompetent person, and if so, whether that person is represented by a general guardian, committee, conservator or other representative; (d) That the Service Members Civil Relief Act, 50 U.S.C. App. § 521, does not apply; and (e) That notice has been served on the defaulting party, if required by F.R.Civ.P. 55(b)(2).” L.R. 55-1.

 

Courts should also consider the following factors in determining whether to grant a motion for default judgment: “(1) the possibility of prejudice to plaintiff, (2) the merits of plaintiff’s substantive claims, (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 defendant’s default was the product of excusable neglect, and (7) the strong public policy favoring decisions on the merits.” Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).

 

If the court determines that the defendant is in default, “ ‘the factual allegations of the complaint, other than those relating to damages, are 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)). Additionally, “[w]hen entry of judgment is sought against a party who has failed to plead or otherwise defend, a district court has an affirmative duty to look into its jurisdiction over both the subject matter and the parties.” In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999).

 

If the Court determines that the allegations in the complaint are sufficient to establish liability, the plaintiff must provide proof of all damages sought in the complaint, and the Court must determine the “amount and character” of the relief that should be awarded. Id. at 1005-06 (citations omitted); PepsiCo, 238 F. Supp. 2d at 1175. Federal Rule of Civil Procedure 54(c) requires 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).

 

 

1. Analysis
2. Jurisdiction and Service of Process

In considering whether to enter default judgment against Defendant, the Court must first determine whether it has jurisdiction over the subject matter and the parties to the case. In re Tuli, 172 F.3d at 712.

 

 

1. Subject Matter Jurisdiction and Personal Jurisdiction are Proper

The Court has subject matter jurisdiction over the sole Carmack Amendment claim pursuant to 49 U.S.C. § 14706(d), which enforces liability under receipts and bills of lading for goods damaged during transit. Section 14706(d) permits a civil action against the delivering carrier or carrier responsible for the loss in a United States district court. 49 U.S.C. § 14706(d)(1),(2). Because a federal claim is stated, the Court has federal question jurisdiction per 28 U.S.C. § 1331.

 

*3 California state law applies if there is no applicable federal statute controlling personal jurisdiction. Panavision Int’l v. Toeppen, 141 F.3d 1316, 1320 (9th Cir. 1998) (citation omitted). Pursuant to California Code of Civil Procedure section 410.10, California courts “may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or of the United States.” Thus, exercise of personal jurisdiction is proper so long as the Due Process Clause is satisfied. See Panavision, 141 F.3d at 1320. “Due process requires that a defendant have minimum contacts with the forum ‘such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.’ ” Brainerd v. Gov. of the Univ. of Alberta, 873 F.2d 1257, 1259 (9th Cir. 1989) (quotation omitted). Personal jurisdiction is based on either specific or general jurisdiction. Panavision, 141 F.3d at 1320.

 

The Court has personal jurisdiction over Defendant. Although Defendant is an Illinois corporation with business offices in DuPage County, Illinois, Compl. ¶ 3, it regularly conducts business in California. Id. at ¶ 4; see Lee Smalley Edmon et al., California Practice Guide: Federal Civil Procedure Before Trial § 3:210.2 (2016) (“[A] corporation incorporated outside California is subject to personal jurisdiction here if ‘minimum contacts’ exist between it and California.”)

 

 

1. Service of Process is Proper

Service of process is met because Plaintiff served Defendant with the Summons and Complaint on August 19, 2016, as evidenced by the Proof of Service [8]. Plaintiff served the Summons and Complaint on Alim Kuchiev, Defendant’s alleged president/owner, by “delivering a copy of the summons and of the complaint on the individual personally,” Fed. R. Civ. P. 4(e)(2)(A), in compliance with Federal Rule of Civil Procedure 4(h)(1)(A).2

 

 

2. Procedural Requirements

Plaintiffs have satisfied the procedural requirements for default judgment pursuant to Federal Rules of Civil Procedure 55 and Local Rule 55-1. Under Federal Rule of Civil Procedure 55(a), the Court Clerk properly entered default against Defendant on October 6, 2016 [13]. ECF No. 13. Plaintiff properly moved pursuant to Rule 55(b) for entry of default judgment [15].

 

Local Rule 55-1 also asks Plaintiff to provide the following in an application for default judgment: (1) when and against what party the default was entered; (2) the identification of the pleading to which default was entered; (3) whether the defaulting party is an infant or incompetent person; (4) that the Servicemembers Civil Relief Act does not apply; and (5) notice has been served on the defaulting party.

 

Plaintiff has satisfied each of these requirements. The Court Clerk entered default judgment against Defendant as to the Complaint on October 6, 2016 [13]. Decl. of Randall Guritzky (“Guritzky Decl.”) ¶ 4. Defendant is neither a minor, nor an incompetent person nor in the military service or otherwise exempted under the Soldier’s and Sailor’s Civil Relief Act of 1940, the predecessor to the Servicemembers Civil Relief Act. App. for Default Judgment (“App.”) 2:4-6. Finally, Defendant was served with notice of this Motion on November 30, 2016 [16].

 

 

3. Eitel Factors

In support of its Motion, Plaintiff has sufficiently set forth “(1) the possibility of prejudice to plaintiffs; (2) the merits of plaintiffs’ substantive claims; (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 defendants’ default was the product of excusable neglect; and (7) the strong public policy favoring decisions on the merits.” Eitel, 782 F.2d at 1471-72.

 

 

1. Risk of Prejudice to Plaintiff

*4 The first Eitel factor considers whether a plaintiff will suffer prejudice if a default judgment is not entered. Vogel, 992 F. Supp. 2d at 1007. Plaintiff argues that it would suffer prejudice without Default Judgment because Defendant has stated that it cannot and will not pay for Plaintiff’s damages. App. 6:26-27. Absent entry of default judgment, Plaintiff will remain uncompensated for the damages sustained from its destroyed property. Mitsui O.S.K. Lines, Ltd. v. Allied Transp. Sys. (USA), Inc., No. 10–cv–5586–SC, 2013 WL 2467701, at *2 (N.D. Cal. June 7, 2013) (“[W]here default has been entered against a defendant, a plaintiff has no other alternative by which to recover damages.”)

 

Plaintiff also risks prejudice because Defendant has failed to answer the Complaint. Entering Default, rather than allowing Defendant to prolong litigation, is necessary to mitigate Plaintiff’s losses. Fulton v. Bank of America N.A., No. 2:16-cv-04870-CAS(JCx), 2016 WL 7156440, at *3 (C.D. Cal. Dec. 6, 2016) (plaintiff is without other recourse for recovery if defendant has not appeared or defended the suit).

 

 

1. Sufficiency of the Complaint and Likelihood of Success on the Merits

The second and third Eitel factors consider the merits of the plaintiff’s substantive claims and the sufficiency of the complaint. “Under an [Eitel] analysis, [these factors] are often analyzed together.” Dr. JKL Ltd. v. HPC IT Educ. Ctr., 749 F. Supp.2d 1038, 1048 (N.D. Cal. 2010). Plaintiff has asserted a meritorious claim for violation of the Carmack Amendment, 49 U.S.C. § 14706.

 

The Carmack Amendment, part of the Interstate Commerce Act, governs “a motor carrier’s liability to a shipper for the loss of, or damage to, an interstate shipment of goods.”3 Waller v. Gary & Koby Transp. Inc. DBA Best Quality Movers, No. 1:08-cv-00725 AWI GSA, 2008 WL 4224722, at *4 (E.D. Cal. Sept. 15, 2008). Under the Carmack Amendment, shippers can recover for actual losses or property injury caused by common carriers during shipment. Id. To plead a viable Carmack Amendment claim, the Plaintiff must establish: “(1) delivery of the goods to the initial carrier in good condition,(2) damage of the goods before delivery to their final destination, and (3) the amount of damages.” Id. (citations omitted).

 

From the four corners of the Complaint, Plaintiff has alleged these elements. The hoists and end trucks were new and in perfect condition prior to shipment. Compl. ¶ 16; Guritzky Decl. ¶ 6, ECF No. 15-1. Upon delivery, they were substantially damaged, id. at ¶ 20, and Plaintiff sustained damages totaling $38,785.50. Guritzky Decl. ¶ 15. Plaintiff’s submitted exhibits and documentation also reveal likely success on its Carmack Amendment claim. Plaintiff has extensive evidence supporting the “damaged goods” element. According to Robert Norland, Operations Manager and Plaintiff’s Sales Manager, the hoists and end trucks that arrived to the El Monte facility were covered with rust moisture and road salt. Decl. of Robert Norland (“Norland Decl.”) ¶ 3, ECF No. 15-2. Plaintiff has attached twenty seven photographs evidencing said damage. Norland Decl. Ex. A. Moreover, Norland’s Claim Report, filed on February 11, 2015, indicates extensive salt-water damage under welds and inside load-bearing tube steel frames, leading to severe corrosion. Guritzky Decl. Ex. A at 2.

 

*5 In the February 3, 2015 Bill of Lading, Plaintiff noted road salt damage from Defendant’s failure to tarp the load as well as hoist damage at the rope drums and cables. Id. at 3. Additionally, Joseph Bartels, the VeriClaim, Inc. Marine Surveyor who inspected the goods on February 18, 2015, noted that “rust had spread along the raw untreated steel services, electrical and cable.” Decl. Of Joseph Bartels (“Bartels Decl.”) ¶ 4, ECF No. 15-3. Disassembly of the end trucks and wheel bearings removal also revealed water marks and rust. Bartels Decl. Ex. A. And test results were positive for chlorides, showing that salt had touched the load. Id. at 3, 6-21.

 

Plaintiff also plausibly alleges a damages amount associated with the damaged equipment, totaling $38,785.50.4 App. 2:11. This amount represents money spent repairing and reconditioning the hoists and end trucks and materials purchased for repairs. Id. at 6:8-24. Effectively, Plaintiff makes out a prima facie case for a Carmack Amendment violation: the goods began in new condition, arrived damaged, and a damages amount ensued. Intercargo Ins. Co v. Burlington N. Santa Fe R.R., 185 F. Supp. 2d 1103, 1111 (C.D. Cal. 2001).

 

 

1. The Sum of Money at Stake in the Action

“Under the [fourth] Eitel factor, the court must consider the amount of money at stake in relation to the seriousness of Defendant’s conduct.” PepsiCo, 238 F. Supp. 2d at 1176. “While the allegations in a complaint are taken to be true for the purposes of default judgment, courts must make specific findings of fact in assessing damages.” Moroccanoil, Inc. v. Allstate Beauty Prod., Inc., 847 F. Supp. 2d 1197, 1202 (C.D. Cal. 2012). The Court will review declarations, calculations, and other damages documentation to determine whether the sum of money at stake is appropriate. HICA Educ. Loan Corp. v. Warne, No. 11-CV-04287-LHK, 2012 WL 1156402, at *3 (N.D. Cal. Apr. 6, 2012).

 

Plaintiff requests $38,785.50 for damages and repairs arising from Defendant’s failure to properly secure and protect its goods. App. 6:8-9. This total stems from $36,128.50 for 380.3 hours spent on repairs and $2,657 for chemical-removing materials, for load cables, and to timely complete the repairs. App. 6:17-24. Plaintiff also avers that it spent $1,156.34 for VeriClaim, Inc.’s investigation of Plaintiff’s damages, but apparently does not include this amount in its requested damages. Bartels Decl. ¶ 7, Ex. C.

 

The Carmack Amendment “makes a carrier covered by the [Interstate Commerce Act] liable for damages it causes to property it transports in the amount of the ‘actual loss or injury to the property.’ ” Contempo Metal Furniture Co. of Cal. v. E. Tex. Motor Freight Lines, Inc., 661 F.2d 761, 764 (9th Cir. 1981) (quoting 49 U.S.C. 14706(a)(1)). While actual loss damages are typically calculated by the “difference between the market value of the property in the condition in which it should have arrived at its destination and its market value in the condition in which it did arrive,” id., the cost of repair—if less than market value—is another apt measure of damages. Dutch Enters., Inc. v. Consol. Freightways, Inc., Civ. No. 93–1686 CW (FSL), 1994 WL 835069, at *3-4 (N.D. Cal. July 13, 1994). The shipper may recover repair costs, so long as they are less than the goods’ market value.

 

*6 Here, the repair costs of $38,785.50 are not only authorized as actual losses under the Carmack Amendment and less than the goods’ fair market value of $118,000, but they are appropriately tailored to the egregiousness of Defendant’s conduct. App. 6:8. Defendant drove the goods—which had a fair market value of $118,000—across country in winter weather without a tarp to protect them, attempted to mask the damage by applying WD40 spray and by sanding the goods, refused to sign a delivery receipt acknowledging damages, and failed to apprise Plaintiff that Defendant’s insurance carrier had denied Plaintiff’s claim. App. 4:24-27, 6:8; Norland Decl. ¶ 4; Guritzky Decl. Ex. A at 2. Thus, this factor counsels towards granting default judgment.

 

 

1. The Possibility of a Dispute Concerning the Material Facts

The fifth Eitel factor examines the likelihood of dispute between the parties regarding the material facts in the case. A defendant is “deemed to have admitted all well-pleaded factual allegations” in the Complaint upon entry of default. DirecTV, Inc. v. Hoa Huynh, 503 F.3d 847, 851 (9th Cir. 2007). Although factual allegations relating to the damages amount are not taken as true, Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977), the Carmack Amendment leaves little room for dispute that a motor carrier is liable for actual property loss or damage. 49 U.S.C. § 14706(a)(1) ( “[L]iability … is for the actual loss or injury to the property….”) And Plaintiff has adequately alleged that Defendant caused actual damage to its brand-new hoists and end trucks.

 

Above all else, a dispute concerning the material facts is unlikely. Defendant has failed to appear in this case since the Complaint was filed in August 2016, let alone contradict the allegations that it substantially damaged Plaintiff’s goods on the drive from Michigan to California, as set forth in Bartels’s Marine Cargo Survey investigation Report and attached photographs. IO Grp., Inc. v. Jordon, 708 F. Supp. 2d 989, 999-1000 (N.D. Cal. 2010)(factor weighed towards granting default judgment where Defendant appeared in the action and filed three documents, but did not contradict the evidence that his website reproduced Plaintiff’s copyrighted works). This factor weighs in favor of granting default judgment.

 

 

1. Whether Defendant’s Default was the Product of Excusable Neglect

Excusable neglect takes into account factors like “prejudice …, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.” J.L. v. Moreno Valley Unified Sch. Dist., No. CV 09-1978 ODW (PJWx), 2010 WL 1708839, at *1 (C.D. Cal. Apr. 20, 2010) (internal quotation marks omitted) (quoting Pioneer Inv. Servs. Co. v. Brunswick Assoc. Ltd., 507 U.S. 380, 395 (1993)). The possibility of excusable neglect is remote here, as Defendant was properly served with the summons, Complaint, and instant Motion, indicating that it had proper notice of the action. See Shanghai Auto. Instrument Co. v. Kuei, 194 F. Supp. 2d 995, 1005 (N.D. Cal. 2001) (finding no excusable neglect because defendants were properly served with the complaint, notice of entry of default, and papers in support of motion for default judgment). Moreover, Defendant has made no attempt to appear, respond, or otherwise defend itself in this action, let alone furnish an excuse for this evident neglect. Landstar Ranger, Inc. v. Parth Enters. Inc., 725 F. Supp. 2d 916, 922 (C.D. Cal. 2010).

 

 

1. The Strong Public Policy Favoring Decisions on the Merits

Although there is a strong policy underlying the Federal Rules of Civil Procedure, which favors decisions on the merits “whenever reasonably possible,” Eitel, 782 F.2d at 1427, “this preference, standing alone, is not dispositive.” Vogel, 992 F. Supp. 2d at 1013 (citations and quotations omitted). In deciding to grant default judgment, the court in PepsiCo noted: “Defendant’s failure to answer the Complaint makes a decision on the merits impractical, if not impossible.” 238 F. Supp. 2d at 1177. Here, the substantive claims cannot be adjudicated, as Defendant has not answered the Complaint. Am. Auto. Assoc., Inc. v. H&H Towing Serv., 2016 WL 1449535, at *8 (C.D. Cal. April 11, 2016). Thus, the seventh factor does not preclude entry of default judgment.

 

 

1. Conclusion Regarding Eitel Factors

*7 Accordingly, because all Eitel factors weigh in favor of entering default judgment, the Court GRANTS Plaintiff’s Motion for Default Judgment [15] against Defendant as to the sole Carmack Amendment claim.

 

 

4. Character and Amount of Plaintiff’s Recovery

Turning to specific amount of damages requested, the Court finds the $38,785.50 appropriate. Plaintiff seeks two separate amounts for repair jobs completed on the damaged goods. Plaintiff argues that it took “immediate action” to mitigate its damages, working on original job number 414176 for 138.2 hours at a shop rate of $95.00/hour, totaling $13,129. App. 6:13-18; Norland Decl. ¶ 11. Plaintiff opened this job while in the interim it set up a full job to record the time to complete the repairs. Id. Job 415222 recorded the remainder of time spent on the repairs: 242.1 hours at a shop rate of $95.00/hour, totaling $22,999.50. Id. at ¶ 12.

 

To substantiate this amount, Plaintiff submits the Declaration of Robert Norland, Plaintiff’s Operations Manager and Crane Sales Manager who personally engaged in and supervised efforts to treat and remove rust from the damaged goods. Id. at ¶ 9. The declaration, attached photographs, and invoices set forth the extensive cleaning process, including disassembling, inspecting, cleaning, and polishing 20 wheels, 20 axle shafts, 40 bearing caps, and 90 sealed double roller bearings for 10 different end trucks. The declaration also describes the complex process for reconditioning the hoists, using load cables, rust removing chemicals, and abrasives. In total, 380.3 hours, at the rate of $95/hour, were spent on this repair process, totaling $36,128.50. The costs of the materials used, as stated in Norland’s Declaration, totaled $2,657. Norland Decl. ¶ 15. Although the initial damages quote was $117,466.57, Bartels Decl. Ex. B at 1, Plaintiff mitigated its damages to the requested amount. Plaintiff has thus demonstrated it is entitled to the requested $38,785.50 in damages for repairing the hoists and end trucks.

 

 

III. CONCLUSION

The Court GRANTS Plaintiffs’ Motion for Default Judgment [15].

 

The Court enters default judgment as to Defendant for the sole Carmack Amendment claim. The Court also awards $38,785.50 in damages plus costs.

IT IS SO ORDERED.

All Citations

Slip Copy, 2017 WL 89553

 

 

Footnotes

1

The Answer was due on September 9, 2016, but Defendant allowed this deadline to lapse. See Fed. R. Civ. P. 12.

2

“[A] domestic or foreign corporation, or a partnership or other unincorporated association that is subject to suit under a common name, must be served … in the manner prescribed by Rule 4(e)(1) for serving an individual.”

3

49 U.S.C. § 14706(a)(1) provides: “A carrier providing transportation or service … shall issue a receipt or bill of lading for property it receives for transportation under this part … The liability imposed under this paragraph is for the actual loss or injury to the property caused by (A) the receiving carrier, (B) the delivering carrier, or (C) another carrier over whose line or route the property is transported in the United States … Failure to issue a receipt or bill of lading does not affect the liability of a carrier. A delivering carrier is deemed to be the carrier performing the line-haul transportation nearest the destination but does not include a carrier providing only a switching service at the destination.”

4

The Court notes that the damages pled in the Complaint, $120,000, differ from the $38,785.50 currently sought. Compl. ¶ 31. Although “[a] judgment by default shall not be different in kind from or exceed in amount that prayed for in the demand for judgment,” Fed. R. Civ. P. 54(c), the Court permits Plaintiff to recover this amount that is approximately one-third less than the amount originally sought. Moreover, Plaintiff alleged entitlement to actual loss and property damages in the Complaint, putting defendant on notice of these damages. Xerox Corp. v. A&M Printing, No. CV 12–00043 MMM (Ex), 2013 WL 2180927, at *6 (C.D. Cal. May 20, 2013).