United States District Court, D. Idaho
ALTERNATE ENERGY HOLDINGS, INC., a Nevada Corporation, Plaintiff,
JOHN N. GIORGI, an individual; JOHN N. GIORGI, P.C., a professional corporation of unknown origin, inclusive, Defendants.
MEMORANDUM DECISION AND ORDER
J. Lodge United States District Judge
the Court in the above-entitled matter are Plaintiff's
Motion for Default Judgment and Motion to Strike as well as
Defendant's Motion to Vacate Default. The matters are
fully briefed and/or the time for filing any briefing has
passed. The facts and legal arguments are adequately
presented in the briefs and record. Accordingly, in the
interest of avoiding further delay, and because the Court
conclusively finds that the decisional process would not be
significantly aided by oral argument, this matter is decided
on the record without oral argument.
AND PROCEDURAL BACKGROUND
underlying facts giving rise to this action involve
Plaintiff's, Alternate Energy Holdings, Inc.
(“AEHI”), and its former President, Donald
Gillespie, attempt to obtain funding to build a nuclear
reactor in Idaho. Defendants John N. Giorgi and his law firm,
John N. Giorgi, P.C., were hired to assist in that endeavor.
To secure the needed funding, AEHI entered into various
agreements and financial transactions with Hamilton Guaranty
Capital, LLC (“HGC”) including providing an
advance fee of $2, 000, 500.00 and entering into a financial
services agreement. The law firm of Black & LoBello, LLP
(“Black & LoBello”) and attorney Andras
Babero were used as the escrow agents for the advance fee and
an entity named General Equity Building Society
(“GEBS”) in Auckland, New Zealand purportedly set
up an account to hold the money raised. Ultimately the deal
unraveled when certain truths about HGC, GEBS, and Mr. Babero
AEHI and HGC both claimed the right to the advance payment
that was being held in escrow. AEHI's attempts to recover
the advance payment were complicated by the filing of an
action in this Court by the Securities and Exchange
Commission (“SEC”) against AEHI and Mr.
Gillespie. Another action was filed by Black & LoBello
against HGC in the Nevada United States District Court. On
June 5, 2014, AEHI filed this case against Mr. Giorgi
alleging claims of professional malpractice, breach of
fiduciary duty, and breach of the covenant of good faith and
fair dealing. (Dkt. 1.) Mr. Giorgi filed an Answer on
November 14, 2014. (Dkt. 10.) Thereafter this case was stayed
until July 6, 2015 to allow the two related cases to be
resolved. (Dkt. 15, 16.) On April 10, 2015, counsel for Mr.
Giorgi requested leave to withdraw. (Dkt. 17.) In the
Court's May 14, 2015 Order granting leave to withdraw,
the Defendants were advised to file written notice stating
how they would be represented in this matter and that failure
to do so would be sufficient grounds for entry of default
against them. (Dkt. 18.)
Defendants failed to timely file their written notice and, on
July 14, 2016, default was entered against them. (Dkt. 22,
23.) AEHI then filed a Motion for Default Judgment. (Dkt.
25.) Mr. Giorgi then file a Notice of Appearance, Notice of
Motion Vacating any Default, an opposition to the Motion for
Default Judgment, and a sur-reply brief. (Dkt. 28, 29, 30,
34.) AEHI has responded to these filings and filed its own
Motion to Strike the Defendants sur-reply. (Dkt. 31, 33, 35.)
The Court takes up these motions below.
Motion for Default Judgment
Federal Rule of Civil Procedure 55(b)(2), a party can apply
to the district court for entry of judgment by default after
the clerk has entered the party's default based on its
failure to plead or otherwise defend itself. Whether to enter
default judgment is in the sole discretion of the court.
See Lau Ah Yew v. Dulles, 236 F.2d 415 (9th Cir.
1956). The Ninth Circuit has identified seven factors for the
Court to consider in exercising its discretion to enter
default judgment: (1) potential prejudice to the plaintiff;
(2) the merits of plaintiff's substantive claim; (3) the
sufficiency of the Complaint; (4) the amount 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
favoring a decision on the merits. Eitel v. McCool,
782 F.2d 1470, 1471-72 (9th Cir. 1986).
where a party is in default, all well-pleaded factual
allegations in the complaint are taken as true, except as to
the amount of damages. TeleVideo Sys., Inc. v.
Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987). Rule
55(b)(2) states that the Court “may” conduct a
hearing prior to entering a default judgment. The Court is
not required to do so if the record reveals no issue of
material fact. Kashin v. Kent, 457 F.3d 1033, 1043
(9th Cir. 2006).
the Eitel factors to this case, the Court finds most
of the factors weigh against entering default judgment. The
delay resulting from Defendants failure to timely appear has
caused AEHI some prejudice but that prejudice is outweighed
by the other factors. As to the second and third factors
regarding the sufficiency and merits of the claims, the Court
finds there are significant questions as to whether the
claims in the Complaint are viable. In particular, whether
the Defendants' alleged involvement in the failed attempt
to raise funds is sufficient to sustain the malpractice and
breach claims made in the Complaint. The fourth factor -
amount at stake - also weighs against default judgment as
AEHI seeks a large judgment in the amount of $630, 425.80.
(Dkt. 25.) As to the fifth factor, the parties dispute the
material facts in this case; in particular with regard to Mr.
Giorgi's actions, involvement, and knowledge concerning
the transactions in question.
sixth factor - excusable neglect - is also disputed by the
parties. Mr. Giorgi contends he never received the
Court's Order directing him to file a notice of
appearance.AEHI disputes this claim. The Court finds this
factor to weigh in favor of default judgment. Despite
Defendants' representations, the Order was served upon
Defendants at their address of record and Defendants made
their appearance and filed the instant motions when faced
with the possibility of default judgment being entered.
final Eitel factor weighs heavily against entering
default judgment in this case. The strong policy favoring
deciding cases on their merits applies particularly where, as