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Alternate Energy Holdings, Inc v. Giorgi

United States District Court, D. Idaho

January 17, 2017

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.


          Edward J. Lodge United States District Judge


         Before 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.


         The 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 were discovered.

         Thereafter, 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.)

         The 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.


         1. Motion for Default Judgment

         Under 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).

         Additionally, 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).

         Applying 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.

         The 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.

         The 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 here, ...

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