The opinion
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8 United States District Court
9 Central District of California
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11 SMITH MICRO SOFTWARE, INC., Case No. 2:19-cv-03676-ODW (MRWx)
12 Plaintiff,
13 v. ORDER GRANTING PLAINTIFF’S
MOTION FOR ENTRY OF DEFAULT
14 RELIANCE COMMUNICATIONS, LLC, JUDGMENT [19]
15 Defendant.
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I. INTRODUCTION
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Plaintiff Smith Micro Software, Inc. (“Smith Micro”) moves for default judgment
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against Defendant Reliance Communications, LLC (“Reliance”) in this breach of
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contract action (“Motion”). (ECF No. 19.) For the reasons discussed below, the Court
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GRANTS Plaintiff’s Motion.1
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II. BACKGROUND
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On or about January 22, 2018, Smith Micro and Reliance entered into an express
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contract for the purchase, sale, and delivery of Smith Micro software and services.
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(Compl. ¶¶ 2, 9–11, Ex. 1 (“Agreement”), ECF No. 1.) Specifically, the Agreement
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provided that Smith Micro would provide integration services relating to device
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28 1 After carefully considering the papers filed in support of the Motion, the Court deemed the matter
appropriate for decision without oral argument. Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15.
1 management software for mobile devices that Smith Micro would deliver to Reliance,
2 which software Reliance would then resell to its mobile carrier customers. (Compl.
3 ¶ 9.) Reliance agreed to purchase a minimum of 500,000 licenses to the Software.
4 (Compl. ¶ 11.) Smith Micro delivered to Reliance a Device Management Client (the
5 software) and performed integration services pursuant to the Agreement. (Compl.
6 ¶ 10.) Smith Micro met all schedule milestones and estimated delivery dates set forth
7 in the Agreement and fully performed its obligations under the Agreement. (Compl.
8 ¶¶ 12, 13.)
9 The Agreement provides that all invoice amounts are due and payable within
10 thirty days of the invoice. (Compl. ¶ 14.) On February 5, 2018, Smith Micro invoiced
11 Reliance for $24,000 in relation to Milestone One as defined in the Agreement.
12 (Compl. 15, Ex. 2 (“February Invoice”).) On June 30, 2018, Smith Micro invoiced
13 Reliance for $110,000 in relation to Reliance’s minimum purchase commitment of
14 500,000 licenses and a 20% license fee for the first year of software support, as provided
15 in the Agreement. (Compl. ¶ 17, Ex. 3 (“First June Invoice”).) Also on June 30, 2018,
16 Smith Micro invoiced Reliance for $24,000 in relation to Milestone Three as defined in
17 the Agreement. (Compl. ¶ 19, Ex. 4 (“Second June Invoice”).) Reliance did not object
18 to these invoices but also did not submit any related payments, despite Smith Micro’s
19 numerous requests. (Compl. ¶¶ 16, 18, 20.) The Agreement provides for a one and a
20 half percent (1.5%) late payment charge per month for all past due amounts. (Compl.
21 ¶ 21 (discussing Agreement § 4.1).)
22 The Agreement includes a choice of law provision applying California law.
23 (Compl. ¶ 7 n.1 (quoting Agreement § 17.7).) The parties also consented to “the
24 personal and exclusive jurisdiction of the federal and state courts of Orange County,
25 California.” (Compl. ¶ 7 (quoting Agreement § 17.7).) The “Choice of Law and
26 Jurisdiction” provision “governs all claims arising out of or related to this Agreement.”
27 (Agreement § 17.7.)
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1 On April 30, 2019, Smith Micro initiated this action against Reliance, bringing
2 claims for (1) breach of contract, (2) account stated, (3) unjust enrichment, and (4)
3 common count for goods and merchandise sold and delivered. (Compl. ¶¶ 8–44.)
4 Through the Complaint, Smith Micro seeks $158,000 plus 1.5% late fee interest,
5 pursuant to the unpaid invoices under the Agreement. (Compl. at 8.) Reliance has not
6 appeared in this action despite being served with the Complaint on May 8, 2019.
7 (Mot. 6; Proof of Service, ECF No. 9.) Upon Smith Micro’s request, the Clerk entered
8 default against Reliance on July 2, 2019. (Default, ECF No. 17.)
9 Smith Micro now moves for entry of default judgment against Reliance pursuant
10 to Federal Rule of Civil Procedure 55(b)(2) and seeks $158,000 plus late fees and costs.
11 (Mot. 4.)
12 III. LEGAL STANDARD
13 Federal Rule of Civil Procedure (“FRCP”) 55(b) authorizes a district court to
14 grant a default judgment after the Clerk enters default under Rule 55(a). Fed. R. Civ.
15 P. 55(b). Before a court can enter a default judgment against a defendant, the plaintiff
16 must satisfy the procedural requirements set forth in FRCP 54(c) and 55, as well as
17 Local Rules 55-1 and 55-2. Fed. R. Civ. P. 54(c), 55; C.D. Cal. L.R. 55-1, 55-2. Local
18 Rule 55-1 requires that the movant submit a declaration establishing: (1) when and
19 against which party default was entered; (2) identification of the pleading to which
20 default was entered; (3) whether the defaulting party is a minor, incompetent person, or
21 active service member; (4) that the Servicemembers Civil Relief Act, 50 U.S.C. § 3931,
22 does not apply; and that (5) the defaulting party was properly served with notice, if
23 required under Rule 55(b)(2). C.D. Cal. L.R. 55-1.
24 If these procedural requirements are satisfied, a district court has discretion to
25 enter default judgment. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). “[A]
26 defendant’s default does not automatically entitle the plaintiff to a court-ordered
27 judgment.” PepsiCo, Inc., v. Cal. Sec. Cans, 238 F. Supp. 2d 1172, 1174 (C.D. Cal
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1 2002). In exercising discretion, a court must consider several factors (the “Eitel
2 Factors”):
3 (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff’s
4 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
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material facts; (6) whether the default was due to excusable neglect, and
6 (7) the strong policy underlying the [FRCP] favoring decisions on the
merits.
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8 Eitel v. McCool, 782 F.2d 1470, 1471–72 (9th Cir. 1986). Generally, after the Clerk
9 enters default, the defendant’s liability is conclusively established, and the well-pleaded
10 factual allegations in the complaint are accepted as true, except those pertaining to
11 damages. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917–18 (9th Cir. 1987) (per
12 curiam) (quoting Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977)).
13 IV. DISCUSSION
14 Smith Micro has complied with the relevant procedural requirements for entry of
15 default judgment against Reliance and has established that the Eitel factors favor entry
16 of default judgment on certain of its claims.
17 A. Procedural Requirements
18 Smith Micro has complied with the relevant procedural requirements for entry of
19 default judgment against Reliance by submitting a declaration which states: (1) the
20 Clerk entered default against Reliance on July 2, 2019; (2) the default was entered on
21 the Complaint appearing at ECF No. 1; (3)&(4) Reliance is not an infant or incompetent
22 person, but a limited liability corporation, so the Servicemembers Civil Relief Act does
23 not apply; (5) Reliance has failed to appear or otherwise respond to the Complaint.
24 (Decl. of Kimberly Arouh (“Arouh Decl.”) ¶¶ 2–6, ECF No. 19-2.) Smith Micro
25 submits a Certificate of Service noting that it served paper copies of the Motion on all
26 parties not receiving notice via the electronic case filing system, which includes
27 Reliance. (Mot. 15.) Therefore, Smith Micro has satisfied the requirements of FRCP
28 54(c) and 55, as well as Local Rule 55-1.
1 B. Eitel Factors
2 Smith Micro seeks default judgment as to all four of its causes of action.
3 (Mot. 8–11.) The Court finds the Eitel factors weigh in favor of entering default
4 judgment as to Smith Micro’s causes of action for breach of contract, account stated,
5 and common count for goods and merchandise sold and delivered, but not as to Smith
6 Micro’s claim for unjust enrichment.
7 1. Possibility of Prejudice to Plaintiff
8 The first Eitel factor asks whether the plaintiff will suffer prejudice if a default
9 judgment is not entered. Eitel, 782 F.2d at 1471. Denial of default leads to prejudice
10 when it leaves a plaintiff without a remedy or recourse to recover compensation.
11 Landstar Ranger, Inc. v. Parth Enter., Inc., 725 F. Supp. 2d 916, 920 (C.D. Cal. 2010);
12 PepsiCo, 238 F. Supp. 2d at 1177. Reliance has failed to appear or participate in this
13 action. Absent entry of default judgment, Smith Micro is without recourse to recover.
14 Accordingly, this factor weighs in favor of default judgment.
15 2. Substantive Merits & 3. Sufficiency of the Complaint
16 The second and third Eitel factors “require that a plaintiff state a claim on which
17 the [plaintiff] may recover.” Philip Morris USA, Inc. v. Castworld Prods., Inc., 219
18 F.R.D. 494, 499 (C.D. Cal. 2003) (alteration in original) (quoting PepsiCo, 238 F. Supp.
19 2d at 1175). To weigh these two factors, the Court must evaluate the merits of each
20 cause of action.
21 Breach of Contract
22 A breach of contract action in California requires a plaintiff to establish: “(1) the
23 existence of the contract, (2) plaintiff’s performance or excuse for nonperformance,
24 (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” Oasis W. Realty,
25 LLC v. Goldman, 51 Cal. 4th 811, 821 (2011).
26 Smith Micro has alleged sufficient facts to establish each of the requisite elements
27 for a breach of contract claim. First, Smith Micro alleges the existence of a valid
28 contract, the Agreement, executed by both parties on January 22, 2018. (Compl. ¶ 9;
1 Agreement.) Second, Smith Micro fully performed all obligations under the Agreement
2 and met all schedule milestones and estimated delivery dates. (Compl. ¶¶ 10–13, 23.)
3 Third, Smith Micro invoiced Reliance for payments owed and that Reliance breached
4 the Agreement by failing to pay the invoices. (Compl. ¶¶ 15–20, 22.) Finally, Smith
5 Micro has been harmed by Reliance’s breach in an amount no less than the unpaid
6 invoices plus accruing interest due under the Agreement. (Compl. ¶ 24.) Accepting as
7 true the well-pleaded factual allegations in the Complaint, Smith Micro has stated a
8 claim for breach of contract.
9 Account Stated
10 “An account stated is an agreement, based on prior transactions between the
11 parties, that all items of the account are true and that the balance struck is due and owing
12 from one party to the other.” S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1091 (9th Cir.
13 1989) (quoting Trafton v. Youngblood, 69 Cal. 2d 17, 25 (1968)). Under California law,
14 “the existence of an account stated need not be express and frequently is implied from
15 the circumstances.” Nilsson, Robbins, Dalgarn, Berliner, Carson & Wurst v. Louisiana
16 Hydrolec, 854 F.2d 1538, 1543 (9th Cir. 1988). “[W]here a creditor renders a statement
17 and the debtor fails to object within a reasonable time, the open account may be
18 superseded by an account stated.” Id.
19 Smith Micro has alleged sufficient facts to establish its claim for account stated.
20 Smith Micro sent “Reliance multiple statements of the amounts Reliance owed to
21 [Smith Micro].” (Compl. ¶ 26; id. ¶¶ 15, 17, 19.) “Reliance never objected to the
22 validity of the statements delivered to it by [Smith Micro]” or disputed that the account
23 stated was correct. (Compl. ¶¶ 27–28; id. ¶¶ 16, 18, 20.) Reliance nevertheless failed
24 to pay the amount owed. (Compl. ¶ 29.) Accepting as true the well-pleaded factual
25 allegations in the Complaint, Smith Micro has stated a claim for account stated.
26 Unjust Enrichment
27 Generally, California law does not permit a standalone cause of action for unjust
28 enrichment. Durell v. Sharp Healthcare, 183 Cal. App. 4th 1350, 1370 (2010).
1 “However, unjust enrichment and restitution are not irrelevant in California law.
2 Rather, they describe the theory underlying a claim that a defendant has been unjustly
3 conferred a benefit . . . The return of that benefit is the remedy typically sought in a
4 quasi-contract cause of action.” Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 762
5 (9th Cir. 2015) (citation and internal quotation marks omitted). Regardless, an unjust
6 enrichment claim must fail if the parties are bound by a valid express contract that
7 defines the parties’ rights. Durell, 183 Cal. App. 4th at 1370; Paracor Fin., Inc. v. Gen.
8 Elec. Capital Corp., 96 F.3d 1151, 1167 (9th Cir. 1996). “When the parties have an
9 actual contract covering a subject, a court cannot—not even under the guise of equity
10 jurisprudence—substitute the court’s own concepts of fairness regarding that subject in
11 place of the parties’ own contract.” Hedging Concepts, Inc. v. First All. Mortg. Co., 41
12 Cal. App. 4th 1410, 1420 (1996).
13 Smith Micro cannot prevail on a separate cause of action for unjust enrichment
14 because the parties entered into a valid express contract which covers the subject matter
15 of this action. (See Agreement.) Smith Micro argues Reliance received the benefit of
16 Smith Micro’s work product and failed to pay for it despite the Agreement. (Mot. 10.)
17 Smith Micro contends Reliance continues to unjustly retain the benefit of Smith Micro’s
18 work product at Smith Micro’s expense. (Mot. 10.) As the Agreement provides the
19 terms that govern Smith Micro’s and Reliance’s rights and obligations with respect to
20 Smith Micro’s work product, Smith Micro’s unjust enrichment claim fails as a matter
21 of law.
22 Common Count for Goods and Merchandise Sold and Delivered
23 “A common count is proper whenever the plaintiff claims a sum of money due,
24 either as an indebtedness in a sum certain, or for the reasonable value of services, goods,
25 etc., furnished.” Util. Audit Co. v. City of Los Angeles, 112 Cal. App. 4th 950, 958
26 (2003). “It makes no difference in such a case that the proof shows the original
27 transaction to be an express contract, a contract implied in fact, or a quasi-contract.” Id.
28 A plaintiff may state a claim for a common count for goods and merchandise sold and
1 delivered by alleging that the defendant became indebted to the plaintiff for goods and
2 merchandise, sold by the plaintiff to the defendant at defendant’s request, and that some
3 part of the sum promised has not been paid. See Brown v. Nat’l Royalties, Inc., 169
4 Cal. App. 2d 836, 838–39 (1959) (finding allegation sufficient to state a claim).
5 Smith Micro has alleged sufficient facts to establish its common count of goods
6 and merchandise sold and delivered. Smith Micro “sold and delivered goods to
7 Reliance, at Reliance’s request.” (Compl. ¶ 39; id. at ¶¶ 2, 10–11.) Reliance promised
8 to pay for, and accepted delivery of, “the goods created and delivered by [Smith
9 Micro].” (Compl. ¶¶ 40–41; id. at ¶¶ 2, 11.) Finally, Smith Micro alleges that the value
10 of the goods is at least $158,000 and that Reliance should be required to pay for the
11 goods it accepted. (Compl. ¶¶ 42–43.) Accepting as true the well-pleaded factual
12 allegations in the Complaint, Smith Micro has stated a common count for goods and
13 merchandise sold and delivered.
14 Smith Micro has stated a claim on which it may recover as to its breach of
15 contract, account stated, and goods and merchandise sold and delivered causes of action.
16 As such, the second and third Eitel factors favor default judgment on those claims.
17 4. Amount at Stake
18 The fourth Eitel factor balances the amount of money at stake with the
19 “seriousness of Defendant’s conduct.” PepsiCo, 238 F. Supp. 2d at 1176; Eitel, 782
20 F.2d at 1471. The amount at stake must be proportionate to the harm alleged. Landstar,
21 725 F. Supp. 2d at 921. “Default judgment is disfavored where the sum of money at
22 stake is too large or unreasonable in light of defendant’s action.” Truong Giang Corp.
23 v. Twinstar Tea Corp., No. C 06-03594 JSW, 2007 WL 1545173, at *12 (N.D. Cal.
24 May 29, 2007).
25 Here, Smith Micro seeks $158,000 plus late fees resulting from three unpaid
26 invoices for software and services it delivered to Reliance pursuant to the Agreement.
27 The Agreement was negotiated between two sophisticated business entities that are
28 knowledgeable about the field, the value of Smith Micro’s software and services, and
1 industry standards regarding late fees. (Decl. Timothy Huffmyer (“Huffmyer Decl.”)
2 ¶ 2–6, 14, ECF No. 19-3.) Reliance breached the Agreement by failing to pay these
3 invoices, which breach harmed Smith Micro in the amount Reliance has failed to pay.
4 Accordingly, the amount at stake is proportionate to the harm alleged and this factor
5 favors of entry of default judgment.
6 5. Possibility of Dispute
7 The fifth Eitel factor considers the possibility that material facts are in dispute.
8 PepsiCo, 238 F. Supp. 2d at 1177. As the allegations in Smith Micro’s Complaint are
9 presumed true, Reliance’s failure to appear in this action results in a finding that “no
10 factual disputes exist that would preclude entry of default judgment.” Vogel v. Rite Aid
11 Corp., 992 F. Supp. 2d 998, 1013 (C.D. Cal. 2014). Accordingly, this factor favors
12 entry of default judgment.
13 6. Possibility of Excusable Neglect
14 The sixth Eitel factor considers the possibility that a defendant’s default is the
15 result of excusable neglect. PepsiCo, 238 F. Supp. 2d at 1177. Smith Micro served its
16 complaint on Reliance on May 8, 2019. Reliance was thus on notice and failed to
17 respond. No facts before the Court indicate that Reliance’s default is due to excusable
18 neglect. As such, this factor favors entry of default judgment.
19 7. Policy Favoring Decisions on the Merits
20 “[D]efault judgments are ordinarily disfavored. Cases should be decided upon
21 their merits whenever reasonably possible.” Eitel, 782 F.2d at 1472 (citing Pena v.
22 Seguros La Comercial, S.A., 770 F.2d 811, 814 (9th Cir. 1985)). However, where the
23 defendant fails to answer the plaintiff’s complaint, “a decision on the merits [is]
24 impractical, if not impossible.” PepsiCo, 238 F. Supp. 2d at 1177. Because Reliance
25 failed to appear or otherwise respond, a determination on the merits is impossible.
26 Accordingly, this factor does not preclude entry of default judgment.
27 On balance, the Eitel factors support entry of default judgment on Smith Micro’s
28 causes of action for breach of contract, account stated, and common count for goods
1 and merchandise sold and delivered. As such, the Court GRANTS Plaintiff’s Motion
2 for Default Judgment as to those causes of action.
3 C. Damages
4 Through its Motion, Smith Micro seeks to recover the unpaid invoices, late fees,
5 and litigation expenses. (Mot. 4.) Smith Micro establishes that the February Invoice
6 amount is $24,000; the First June Invoice amount is $110,000; and the Second June
7 Invoice amount is $24,000. (Huffmyer Decl. ¶¶ 11–13, Exs. 2–4.) The three invoices
8 total $158,000. Smith Micro also establishes that the Agreement provides for a one-
9 and-a half percent (1.5%) late payment charge per month for all past due amounts.
10 (Huffmyer Decl. ¶ 14; Agreement § 4.1.) Smith Micro gave Reliance notice in its
11 complaint that it would seek these late fees plus accruing interest. (See Compl. at 8
12 (seeking “no less than $158,000.00 plus a monthly 1.5% late fee charge per month . . .
13 which continues to accrue”).) Through its Motion, Smith Micro seeks a late fee related
14 to the February Invoice of $5760 (1.5% x $24,000 x 16 months overdue); a late fee
15 related to the First June Invoice of $18,150 (1.5% x $110,000 x 11 months overdue);
16 and a late fee related to the Second June Invoice of $3960 (1.5% x $24,000 x 11 months
17 overdue). (Huffmyer Decl. ¶ 16; see also Compl. ¶ 2.) These late fees total $27,870.
18 When added to the outstanding invoiced amount, Smith Micro has established that it is
19 entitled to damages in the amount of $185,870.
20 Smith Micro also requests $1206 in litigation costs incurred in connection with
21 this action. (Mot. 14.) Smith Micro supports this request with a breakdown of expenses
22 provided by its attorney, Kimberly Arouh. (Arouh Decl. ¶ 7.) The Court finds Smith
23 Micro has adequately supported the costs requested and GRANTS Smith Micro’s
24 request for litigation costs in the amount of $1206.
25 Smith Micro does not request attorneys’ fees and the Court does not award them.
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1 V. CONCLUSION
2 For the reasons discussed above, the Court GRANTS Plaintiffs Motion for Entry
3 || of Default Judgment as to Smith Micro’s causes of action for breach of contract, account
stated, and common count for goods and merchandise sold and delivered. (ECF
5 || No. 19.) The Court DENIES Smith Micro’s Motion as to its cause of action for unjust
6 || enrichment. The Court awards $185,870 (inclusive of the late fees agreed upon in the
7 || parties’ Agreement) and litigation costs in the amount of $1206. The Court will issue
8 || Judgment.
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10 IT IS SO ORDERED.
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12 January 14, 2020 ss
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14 GA Yui
15 OTIS D. WRIGHT, II
16 UNITED STATES/DISTRICT JUDGE
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