1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 MAGDI GENDI and MARITHERESE No. 2:22-cv-01809 DAD AC

RAID,

12 Plaintiffs, 13 FINDINGS AND RECOMMENDATIONS v. 14

OAK ROCK FINANCIAL, LLC,

15 Defendant. 16 17 18 This case is before the court on plaintiff’s motion for default judgment. ECF No. 19. The 19 motion was referred to the undersigned pursuant to E.D. Cal. R. 302(c)(19). The motion was set 20 for hearing on the papers on November 15, 2023. ECF No. 23. Defendant has not responded to 21 the motion or participated in this case in any way. For the reasons set forth below, the court 22 recommends plaintiffs’ motion be GRANTED, and that judgment be entered in favor of plaintiffs. 23 I. Relevant Background 24 Plaintiffs brought this diversity jurisdiction action on October 13, 2022, seeking 25 declaratory relief to quiet title on their home, related to a Deed of Trust held by defendant. ECF 26 No. 1. The Deed of Trust was recorded in Placer County as Document # 2009007328000 against 27 plaintiff’s interest in the real property commonly known as 5515 Parkford Circle, Granite Bay, 28 California. ECF No. 22. According to the complaint, on August 1, 2005, plaintiff Magdi Gendi’s 1 corporate entity, M.K. Auto Inc. (“MK Auto”) borrowed three million dollars from defendant, 2 and Mr. Gendi executed a personal guarantee of this debt. ECF No. 1 at 2. Defendant financed 3 MK Auto’s business operations through the credit line. Id. As owner and principal of MK Auto, 4 Gendi agreed to give the Deed of Trust to his personal home to defendant to the extent of 5 $600,000.00 as security for the credit line. Id. at 3. The credit line was eventually increased and 6 used up to approximately 14 million dollars. Id. During this time, defendant was engaged in 7 substantial fraud with its creditors through its principal, John Murphy. Id. Defendant’s fraud 8 resulted in defendant becoming obligated to MK Auto in an amount exceeding 20 million dollars. 9 Id. 10 When defendant’s fraud was uncovered and Murphy was found to have committed serious 11 financial crimes involving a 100-million-dollar fraudulent scheme, a Chapter 7 involuntary 12 bankruptcy was initiated against defendant. Id. The bankruptcy case was filed on April 29, 2013, 13 in the United States Bankruptcy Court for the Eastern District of New York (Case No. 8-13- 14 72251). Id. The Bankruptcy Court converted the case to Chapter 11 on May 6, 2013, and entered 15 an order for relief on May 16, 2013. Id. In defendant’s bankruptcy case, defendant alleged that 16 MK Auto defaulted on its credit debt to defendant on May 31, 2013. Id. Defendant filed its 17 bankruptcy schedules and statements with the Bankruptcy Court on June 12, 2013, but did not 18 disclose or list any interest in the Deed of Trust attached to plaintiffs’ home. Id. Indeed, 19 defendant did not disclose any interest in real property whatsoever. Id. at 4. Nor did defendant 20 disclose any interest in the Deed of Trust in its Schedule B form to Bankruptcy Court. Id. 21 On September 3, 2023, MK Auto filed a proof of claim in defendant’s bankruptcy case 22 amounting to more than 20 million dollars. Id. On December 7, 2018, defendant filed a further 23 amendment of its Joint Liquidation Plan with the Bankruptcy Court, which again failed to 24 disclose any interest in the Deed of Trust to plaintiffs’ house. Id. The Bankruptcy Court entered 25 an order confirming the Plan on December 12, 2018, revesting the property of defendant’s 26 bankruptcy estate in defendant. Id. The Bankruptcy Court closed defendant’s bankruptcy case on 27 June 30, 2019, and a final decree was issued July 8, 2019. Id. 28 //// 1 A summons in this case was returned executed on October 28, 2022. ECF No. 4. 2 Defendant did not appear, and plaintiff moved for entry of default on February 14, 2023. ECF 3 No. 7. The clerk entered default on February 15, 2023. ECF No. 9. Plaintiffs moved for default 4 judgment on June 21, 2023, but did not include substantive briefing. ECF No. 15. That motion 5 was denied without prejudice as incomplete. ECF Nos. 16, 17. Plaintiff filed a renewed motion 6 for default judgment on November 3, 2023. ECF No. 19. Defendant did not respond to the 7 motion for entry of default judgment, and has not otherwise appeared at any time. 8 II. Motion 9 Plaintiffs move for default judgment on all counts, seeking the following relief:

10 A. That the court quiet title of plaintiffs’ property against defendant and in favor of plaintiffs, free and clear of the Deed of Trust; 11

12 B. That the court make a judicial declaration that plaintiffs are owners of the property free and clear of defendant’s lien; 13 C. That the court make a judicial declaration that defendant’s Deed of Trust against 14 the property is invalid and void or that the court remove the Deed of Trust lien on the property; and 15

16 D. That the court award attorney’s fees for the prosecution of this case. 17 ECF No. 19 at 3-5. 18 III. Analysis 19 A. Legal Standard 20 Pursuant to Federal Rule of Civil Procedure 55, default may be entered against a party 21 against whom a judgment for affirmative relief is sought who fails to plead or otherwise defend 22 against the action. See Fed. R. Civ. P. 55(a). However, “[a] defendant’s default does not 23 automatically entitle the plaintiff to a court-ordered judgment.” PepsiCo, Inc. v. Cal. Sec. Cans, 24 238 F.Supp.2d 1172, 1174 (C.D. Cal. 2002) (citing Draper v. Coombs, 792 F.2d 915, 924-25 (9th 25 Cir. 1986)); see Fed. R. Civ. P. 55(b) (governing the entry of default judgments). Instead, the 26 decision to grant or deny an application for default judgment lies within the district court’s sound 27 discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In making this 28 determination, the court may consider the following factors: 1 (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 2 in the action; (5) the possibility of a dispute concerning material facts; (6) whether 3 the default was due to excusable neglect; and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. 4 Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Default judgments are ordinarily 5 disfavored. Id. at 1472. 6 As a general rule, once default is entered, well-pleaded factual allegations in the operative 7 complaint are taken as true, except for those allegations relating to damages. TeleVideo Sys., Inc. 8 v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (per curiam) (citing Geddes v. United Fin. 9 Group, 559 F.2d 557, 560 (9th Cir. 1977) (per curiam)); see also Fair Housing of Marin v. 10 Combs, 285 F.3d 899, 906 (9th Cir. 2002). Although well-pleaded allegations in the complaint 11 are admitted by a defendant’s failure to respond, “necessary facts not contained in the pleadings, 12 and claims which are legally insufficient, are not established by default.” Cripps v. Life Ins. Co. 13 of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992) (citing Danning v. Lavine, 572 F.2d 1386, 1388 14 (9th Cir. 1978)); accord DIRECTV, Inc. v. Huynh, 503 F.3d 847, 854 (9th Cir. 2007) (“[A] 15 defendant is not held to admit facts that are not well-pleaded or to admit conclusions of law”) 16 (citation and quotation marks omitted); Abney v. Alameida, 334 F.Supp.2d 1221, 1235 (S.D. Cal. 17 2004) (“[A] default judgment may not be entered on a legally insufficient claim.”). A party’s 18 default conclusively establishes that party’s liability, although it does not establish the amount of 19 damages. Geddes, 559 F.2d at 560; cf. Adriana Int’l Corp. v. Thoeren, 913 F.2d 1406, 1414 (9th 20 Cir. 1990) (stating in the context of a default entered pursuant to Federal Rule of Civil Procedure 21 37 that the default conclusively established the liability of the defaulting party). 22 B. The Eitel Factors 23 1. Factor One: Possibility of Prejudice to Plaintiffs 24 The first Eitel factor considers whether the plaintiff would suffer prejudice if default 25 judgment is not entered, and such potential prejudice to the plaintiff weighs in favor of granting a 26 default judgment. See PepsiCo, Inc., 238 F.Supp.2d at 1177. Here, plaintiffs would suffer 27 prejudice if the court did not enter a default judgment because they would be without recourse for 28 1 the clouded title on their home. Accordingly, the first Eitel factor favors the entry of default 2 judgment. 3 2. Factors Two and Three: Merits of Claims and Sufficiency of Complaint 4 The merits of plaintiff’s substantive claims and the sufficiency of the complaint are 5 considered here together because of the relatedness of the two inquiries. The court must consider 6 whether the allegations in the complaint are sufficient to state a claim that supports the relief 7 sought. See Danning, 572 F.2d at 1388; PepsiCo, Inc., 238 F.Supp.2d at 1175. Plaintiff brings a 8 claim of quiet title, seeking declaratory judgment on multiple bases including (1) judicial 9 estoppel, (2) res judicata, (3) expired statute of limitations, (4) waiver, and (5) California’s “One 10 Action Rule,” Cal. Civ. Proc. Code § 726(a). ECF No. 1 at 4-7. Although plaintiff has alleged 11 multiple bases for relief, the only substantive relief sought is a declaratory judgment quieting title 12 in their home. Accordingly, finding judicial estoppel a sufficient basis for the relief sought, the 13 court addresses only judicial estoppel. 14 The Declaratory Judgments Act (28 U.S.C. § 2201(a)) states, “In a case of actual 15 controversy within its jurisdiction . . . any court of the United States . . . may declare the rights 16 and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a). 17 Plaintiffs seek a declaratory judgment that the Deed of Trust held by defendant is invalid and 18 void, and ask the court to remove the Deed of Trust Lien on their property, which is a subject ripe 19 for review under the Declaratory Judgments Act. Atain Specialty Ins. Co. v. All New Plumbing, 20 Inc., Case No. 2:18-cv-02746-MCE-KJN, 2019 WL 3543854, at *3 (E.D. Cal. Aug. 5, 2019). 21 Where a declaratory judgment action is based on diversity jurisdiction, California law controls. 22 See, St. Paul Mercury Inc. Co. v. Ralee Eng'g Co., 804 F.2d 520, 522 (9th Cir. 1986). 23 “In California, courts consider five factors in determining whether to apply judicial 24 estoppel: ‘The doctrine most appropriately applies when (1) the same party has taken two 25 positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) 26 the party was successful in asserting the first position (i.e., the tribunal adopted the position or 27 accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not 28 taken as a result of ignorance, fraud, or mistake.’” Gottlieb v. Kest, 141 Cal. App. 4th 110, 131, 1 (2006) (quoting Aguilar v. Lerner, 32 Cal.4th 974, 986-87 (2004)). California courts have held 2 that where a party to a bankruptcy proceeding declared under penalty of perjury that the schedules 3 it filed were true and correct, and it fails to list a claim, the bankrupt party may be properly 4 judicially estopped from taking an inconsistent position and asserting that claim in future 5 litigation. Hamilton v. Greenwich Invs. XXVI, LLC, 195 Cal. App. 4th 1602 (2011), as modified 6 (June 15, 2011). Here, defendant failed to disclose its property interest in the Deed of Trust to 7 plaintiffs’ home in the now-concluded bankruptcy proceeding, and is properly judicially estopped 8 from enforcing the Deed of Trust in the future. Thus, the merits of the claim favor entry of 9 default judgment. 10 3. Factor Four: The Sum of Money at Stake in the Action 11 Under the fourth Eitel factor, the court considers the amount of money at stake in relation 12 to the seriousness of defendant’s conduct. Courts have held that where a plaintiff seeks only 13 injunctive relief from the continued use of their trademarks, this factor favors entry of default 14 judgment. PepsiCo, Inc., 238 F. Supp. 2d at 1176–77. Here, plaintiff seeks attorney’s fees (or, in 15 the alternative, equivalent statutory damages) and injunctive relief. The amount at issue is 16 proportionate to the seriousness of defendant’s conduct and this factor favors entry of default 17 judgment. 18 4. Factor Five: Possibility of Dispute Concerning Material Facts 19 The facts of this case are relatively straightforward, and plaintiff has provided the court 20 with well-pleaded allegations supporting its claims and affidavits in support of its allegations. 21 Here, the court may assume the truth of well-pleaded facts in the complaint (except as to 22 damages) following the clerk’s entry of default and, thus, there is no likelihood that any genuine 23 issue of material fact exists. See, e.g., Elektra Entm’t Group Inc. v. Crawford, 226 F.R.D. 388, 24 393 (C.D. Cal. 2005) (“Because all allegations in a well-pleaded complaint are taken as true after 25 the court clerk enters default judgment, there is no likelihood that any genuine issue of material 26 fact exists.”); accord Philip Morris USA, Inc., 219 F.R.D. at 500; PepsiCo, Inc., 238 F.Supp.2d at 27 1177. 28 //// 1 5. Factor Six: Whether Default Was Due to Excusable Neglect 2 Upon review of the record before the court, there is no indication that the default was the 3 result of excusable neglect. See PepsiCo, Inc., 238 F.Supp.2d at 1177. Plaintiff served the 4 defendant with the summons and complaint. ECF Nos. 1 and 2. Moreover, plaintiff served 5 defendant by mail with notice of its application for default judgment. ECF No. 13 at 30. Despite 6 ample notice of this lawsuit and plaintiff’s intention to seek a default judgment, defendant failed 7 to defend himself in this action. Thus, the record supports a conclusion that the defendant has 8 chosen not to defend this action, and not that the default resulted from any excusable neglect. 9 Accordingly, this Eitel factor favors the entry of a default judgment. 10 6. Factor Seven: Policy Favoring Decisions on the Merits 11 “Cases should be decided upon their merits whenever reasonably possible.” Eitel, 782 12 F.2d at 1472. However, district courts have concluded with regularity that this policy, standing 13 alone, is not dispositive, especially where a defendant fails to appear or defend itself in an action. 14 PepsiCo, Inc., 238 F.Supp.2d at 1177; see also Craigslist, Inc. v. Naturemarket, Inc., 694 15 F.Supp.2d 1039, 1061 (N.D. Cal. Mar. 5, 2010). Accordingly, although the court is cognizant of 16 the policy favoring decisions on the merits – and consistent with existing policy would prefer that 17 this case be resolved on the merits – that policy does not, by itself, preclude the entry of default 18 judgment. 19 7. Conclusion: Propriety of Default Judgment 20 Upon consideration of all the Eitel factors, the court concludes that plaintiff is entitled to 21 the entry of default judgment against defendant. What remains is the determination of the 22 appropriate judgment. 23 C. Terms of Judgment 24 Plaintiff’s motion for default judgment includes a request for declaratory relief and 25 attorneys’ fees. ECF No. 19 at 3-4. While the court finds default judgment on the merits 26 appropriate, the court finds no basis for attorney’s fees. “To recover attorneys’ fees and costs on 27 default judgment, the plaintiff must ‘specify the judgment and the statute, rule, or other grounds 28 [so] entitling’ [the plaintiff].” In re Ferrell, 539 F.3d 1186, 1192 (9th Cir. 2008) (initial alteration 1 in original) (quoting Fed. R. Civ. P. 54(d)(2)(B)(ii)). Under the “American Rule” followed in 2 federal court, each party pays its own attorney fees unless a contract or statute requires otherwise. 3 Baker Botts L.L.P. v. ASARCO LLC, 576 U.S. 121, 126 (2015)). Here, plaintiffs make a non- 4 specific request for fee-shifting that is unsupported by legal argument. ECF Nol. 19 at 4. 5 Because there is no apparent basis for fee shifting, that request must be denied. 6 IV. Conclusion 7 Pursuant to the foregoing, it is hereby RECOMMENDED THAT: 8 1. Plaintiffs November 3, 2023 motion for default judgment, (ECF No. 19) be 9 GRANTED IN PART; 10 2. The court enter declaratory judgment that defendant Oak Rock Financial, LLC, is 11 judicially estopped from enforcing the Deed of Trust recorded in Placer County as Document # 12 2009007328000 against plaintiffs’ interest in the real property commonly known as 5515 13 Parkford Circle, Granite Bay, CA, and that Oak Rock Financial LLC’s interest in the deed of trust 14 is null and void; 15 3. The court enter declaratory judgment that the Deed of Trust held by Oak Rock 16 Financial, LLC, recorded in Placer County as Document # 2009007328000 against plaintiffs’ 17 interest in the real property commonly known as 5515 Parkford Circle, Granite Bay, CA is 18 avoided; 19 4. Plaintiffs’ request for attorneys’ fees be DENIED; and 20 5. This case be closed. 21 These findings and recommendations are submitted to the United States District Judge 22 assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(1). Within twenty one days 23 after being served with these findings and recommendations, any party may file written 24 objections with the court and serve a copy on all parties. Id.; see also Local Rule 304(b). Such a 25 document should be captioned “Objections to Magistrate Judge’s Findings and 26 Recommendations.” Any response to the objections shall be filed with the court and served on all 27 parties within fourteen days after service of the objections. Local Rule 304(d). Failure to file 28 objections within the specified time may waive the right to appeal the District Court’s order. 1 | Turner v. Duncan, 158 F.3d 449, 455 (9th Cir. 1998); Martinez v. YIst, 951 F.2d 1153, 1156-57 2 | (9th Cir. 1991). 3 | DATED: November 29, 2023 “ Cte. 4 ALLISONCLAIRE 5 UNITED STATES MAGISTRATE JUDGE 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28