Garfias v. Portland Spray Works, Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

MARTIN GARFIAS, Case No. 3:20-cv-00873-IM

Plaintiff, OPINION AND ORDER

v.

PORTLAND SPRAY WORKS, INC., doing

business as All Trades General Contractors

Defendant.

John H. Weiner, 1415 Commercial St SE, Salem, Oregon, 97302. Attorney for Plaintiff.

Edwin A. Harnden, Chris M. Morgan, Barran Liebman LLP, 601 SW Second Avenue Suite 2300

Portland, OR 97204. Attorneys for Defendant.

IMMERGUT, District Judge.

This matter comes before this Court on Plaintiff Martin Garfias’s Motion to Strike

Defendant’s Affirmative Defenses and Motion to Dismiss/Make More Definite Defendant’s

Counterclaims, ECF 13, as well as Defendant Portland Spray Works, Inc.’s Motion for Default

Judgment, ECF 21. For the following reasons, Plaintiff’s Motion to Strike is granted in part,

Plaintiff’s Motion to Dismiss/Make More Definite Defendant’s Counterclaims is granted in part,

and Defendant’s Motion for Default Judgment is denied.

BACKGROUND

Plaintiff Martin Garfias worked for Defendant, Portland Spray Works, Inc., as a carpenter

from roughly May 10, 2018 until his termination on July 11, 2019. ECF 1 at ¶ 6. Defendant is a

contracting business located in Multnomah County, Oregon. Id. at ¶ 3. While working for

Defendant, Plaintiff developed a hernia and suffered from bouts of vertigo. He alleges he was

discriminated against for pursuing treatment and leave for these conditions. Id. at ¶¶ 10–34.

Plaintiff brought suit against Defendant on June 1, 2020, alleging Family Medical Leave Act

interference and discrimination, Oregon Family Leave Act interference and discrimination,

Oregon Sick Leave Act retaliation, and worker’s compensation discrimination. Id. at ¶¶ 17–34.

In response to Plaintiff’s Complaint, Defendant filed an Answer with affirmative

defenses and asserted its own counterclaims. ECF 6. Defendant alleges that while Plaintiff was

employed by Defendant and thereafter he worked in concert with another former employee, Raul

Gutierrez, to steal and misappropriate Defendant’s trade secret information. Id. at ¶ 37.

Defendant alleges Plaintiff formed a competing entity, Big Pops Construction, LLC, in October

of 2019 and worked with Raul Gutierrez to steal and misappropriate its trade secret information,

including current job site client lists and bid sheet proposal forms. Id. at ¶¶ 46–47. Defendant

alleges Plaintiff used that information to bid on a project with one of Defendant’s prospective

clients, D.R. Horton. Id. at ¶ 48. Further, Defendant alleges Plaintiff used Defendant’s equipment

and resources for his own behalf, and retained property and information belonging to Defendant

without consent or authorization. Id. at ¶ 67.

Based on these facts, Defendant brings claims against Plaintiff for misappropriation of

trade secrets under Oregon’s Uniform Trade Secrets Act (“OTSA”), id. at ¶¶ 38–54, interference

with a contract or business expectancy, id. at ¶¶ 55–59, interference with present and future

economic relations, id. at ¶¶ 60–64, and breach of fiduciary duty/duty of loyalty, id. at ¶¶ 65–68.

Defendant seeks injunctive relief for the alleged misappropriation of trade secrets, economic

damages “in an amount to be proven at trial,” punitive damages, and attorneys’ fees and costs.

Id. at 14–15. Defendant also filed identical counterclaims in a “Third-Party Complaint” against

Raul Gutierrez based on the same set of facts alleged against Plaintiff. See ECF 8. Raul Gutierrez

has yet to make an appearance in this case, and the Clerk of Court entered default against him on

September 1, 2020. ECF 18.

Plaintiff1 subsequently filed a motion to strike several of Defendant’s affirmative

defenses under Fed. R. Civ. P. 12(f), and a motion to dismiss/make more definite Defendant’s

counterclaims under Fed. R. Civ. P. 12(b)(6) and 12(e). ECF 13. Separately, Defendant has filed

a motion for default judgment against Raul Gutierrez. See ECF 21. This Court will address

Plaintiff’s Motion, ECF 13, and Defendant’s Motion, ECF 21, in turn.

DISCUSSION

A. Plaintiff’s Motion to Strike

1. Legal Standards

An answer must “affirmatively state any avoidance or affirmative defense.” Fed. R. Civ.

P. 8(c)(1). Such defenses must be stated “in short and plain terms.” Fed. R. Civ. P. 8(b)(1)(A). A

court may strike an affirmative defense under Federal Rule of Procedure 12(f) if it presents an

“insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed. R.

Civ. P. 12(f). The purpose of a Rule 12(f) motion is to avoid spending time and money litigating

spurious issues. Whittlestone, Inc. v. Handi–Craft Co., 618 F.3d 970, 973 (9th Cir. 2010); see

1 Despite the unique procedural posture of the parties, for the sake of simplicity this Court

will continue to refer to Plaintiff/Counter-Defendant Martin Garfias as “Plaintiff,” and

Defendant/Counter-Claimant Portland Spray Works, Inc. as “Defendant.”

also Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev’d on other grounds, 510

U.S. 517 (1994).

The disposition of a motion to strike is within the discretion of the district court. See Fed.

Sav. & Loan Ins. Corp. v. Gemini Mgmt., 921 F.2d 241, 244 (9th Cir. 1990). “Motions to strike

are disfavored and infrequently granted.” Legal Aid Servs. of Oregon v. Legal Servs. Corp., 561

F. Supp. 2d 1187, 1189 (D. Or. 2008); see also Capella Photonics, Inc. v. Cisco Sys., Inc., 77 F.

Supp. 3d 850, 858 (N.D. Cal. 2014) (“Motions to strike are regarded with disfavor because of the

limited importance of pleadings in federal practice and because they are often used solely to

delay proceedings.” (quotation marks and alterations omitted)).

2. Analysis

Following conferral, Defendant represents to this Court that Plaintiff has voluntarily

withdrawn its motion with respect to Defendant’s first four affirmative defenses, and Defendant

has agreed to voluntarily withdraw its sixth and seventh affirmative defenses. ECF 16 at 2–3.

Therefore, Plaintiff’s only remaining objections under Fed. R. Civ. P. 12(f) pertain to

Defendant’s fifth and eighth affirmative defenses. See ECF 6 at ¶¶ 27, 30.

Defendant’s fifth affirmative defense states, “Plaintiff’s claims are barred in whole or in

part by the doctrine of unclean hands, as set forth in further detail in Defendant’s Counterclaims

below.” Id. at ¶ 27. Plaintiff asks this Court to strike the affirmative defense “because the

Counterclaims upon which it relies fail to state a claim.” ECF 13 at 5.

Plaintiff’s arguments are procedurally improper. Plaintiff is arguing issues of facts and

law that are disputed, an inappropriate basis for a Rule 12(f) motion. See, e.g., Fathers &

Daughters Nevada, LLC v. Moaliitele, No. 3:16–cv–926–SI, 2016 WL 7638187, at *4 (D. Or.

Dec. 19, 2016) (noting that a Rule 12(f) motion is not the proper vehicle for a plaintiff to argue

disputed issues of facts and law); J & J Sports Prods., Inc. v. Marini, NO. 1:16-CV-0477-AWI-

JLT, 2016 WL 6996245, at *3 (E.D. Cal. Nov. 30, 2016) (noting that “a motion to strike is not

normally the appropriate method to challenging the substantive sufficiency of a defense”);

5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1381 (3d ed.

1998) (noting that where there is “a substantial question of fact or a mixed question of law and

fact” or “even when the defense seems to present a purely legal question, federal courts are very

reluctant to determine disputed or substantial issues of law on a motion to strike” as such

questions are “best determined only after further development”). The Court declines to strike

Defendant’s unclean hands affirmative defense on this basis. Plaintiff’s substantive arguments

are more suitably addressed on a motion to dismiss, discussed further below.

Defendant’s eighth affirmative defense states, “Plaintiff’s claims are barred, in whole or

in part, because Plaintiff’s Complaint was brought in bad faith.” ECF 6 at ¶ 30. Plaintiff asks this

Court to strike the affirmative defense as insufficient because “it provides no useful information

other than the title of the defense.” ECF 13 at ¶ 12.

“The key to determining the sufficiency of pleading an affirmative defense is whether it

gives plaintiff fair notice of the defense.” Simmons v. Navajo Cty., 609 F.3d 1011, 1023 (9th Cir.

2010) (citation and quotation marks omitted). Fair notice generally requires that the defendant

state the nature and grounds for the affirmative defense. See Conley v. Gibson, 355 U.S. at 47, 78

(1957). The defendant must articulate the affirmative defense clearly enough that the plaintiff is

“not a victim of unfair surprise.” Bd. of Trustees of San Diego Elec. Pension Trust v. Bigley

Elec., Inc., No. 07-CV-634-IEG (LSP), 2007 WL 2070355, at *2 (S.D. Cal. July 23, 2007)

(citing Woodfield v. Bowman, 193 F.3d 354, 362 (5th Cir.1999)). Fair notice does not, however,

require a detailed statement of facts. Conley, 355 U.S. at 47–48. Rather, it only “requires

describing the defense in ‘general terms.’” Kohler v. Flava Enters., Inc., 779 F.3d 1016, 1019

(9th Cir. 2015) (quoting Wright & Miller, supra, § 1274).

This Court finds that the brief sentence that is Defendant’s eighth affirmative defense

does not provide fair notice to the Plaintiff as required by pleading standards. Fair notice does

not demand a detailed statement of facts, but it does require the defendant to state the nature and

grounds for the affirmative defense, even if in general terms. Defendant’s eighth affirmative

defense asserts a conclusory allegation consisting of a title without any subsequent explanation

or factual reference. It sets out the nature of the defense but provide no grounds to support it.

Accordingly, Plaintiff’s motion to strike Defendant’s eighth affirmative defense is granted.

B. Plaintiff’s Motion to Dismiss

1. Legal Standards

A motion to dismiss for failure to state a claim may be granted only when there is no

cognizable legal theory to support the claim or when the complaint lacks sufficient factual

allegations to state a facially plausible claim for relief. Shroyer v. New Cingular Wireless Servs.,

Inc., 622 F.3d 1035, 1041 (9th Cir. 2010). In evaluating the sufficiency of a complaint’s factual

allegations, the court must accept as true all well-pleaded material facts alleged in the complaint

and construe them in the light most favorable to the non-moving party. See Daniels-Hall v. Nat’l

Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010). To be entitled to a presumption of truth,

allegations in a complaint “may not simply recite the elements of a cause of action, but must

contain sufficient allegations of underlying facts to give fair notice and to enable the opposing

party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). The court

must draw all reasonable inferences from the factual allegations in favor of the plaintiff. Newcal

Indus., Inc. v. Ikon Office Sol., 513 F.3d 1038, 1043 n.2 (9th Cir. 2008). The court need not,

however, credit the plaintiff’s legal conclusions that are couched as factual allegations. Ashcroft

v. Iqbal, 556 U.S. 662, 678–79 (2009).

A complaint must contain sufficient factual allegations to “plausibly suggest an

entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the

expense of discovery and continued litigation.” Starr, 652 F.3d at 1216. “A claim has facial

plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). “The plausibility standard is not akin to a

probability requirement, but it asks for more than a sheer possibility that a defendant has acted

unlawfully.” Mashiri v. Epsten Grinnell & Howell, 845 F.3d 984, 988 (9th Cir. 2017) (quoting

Iqbal, 556 U.S. at 678) (internal quotation marks omitted).

2. Analysis

a. Oregon’s Uniform Trade Secrets Act

Plaintiff first argues Defendant’s OTSA counterclaim should be dismissed because it

does not allege sufficient facts to state a claim for relief. See ECF 13 at 7–13. In order to state a

claim for misappropriation of trade secret information under OTSA, Defendant must allege: (1)

the subject of the claim qualifies as a statutory trade secret; (2) Defendant employed reasonable

measures to maintain the secrecy of its trade secrets; and (3) Plaintiff’s conduct constitutes

statutory misappropriation. Vesta Corp. v. Amdocs Mgmt. Ltd., 80 F. Supp. 3d 1152, 1163 (D.

Or. 2015) (citing W. Med. Consultants v. Johnson, 835 F. Supp. 554, 557 (D. Or. 1993), aff’d 80

F.3d 1331 (9th Cir. 1996)); see also Pelican Bay Forest Prods., Inc. v. W. Timber Prods., Inc.,

297 Or. App. 417, 427–28 (2019). The parties do not dispute these elements. See ECF 13 at 7–8;

ECF 16 at 5–6.

Plaintiff first argues that Defendant has not pled with sufficient specificity the trade

secret information he is alleged to have misappropriated, the first element of Defendant’s OTSA

prima facie case. ECF 13 at 8–11. Plaintiff asserts Defendant’s descriptions are “so broad,

meaningless, and general that Plaintiff is not ‘able to determine whether the information in

question was in fact secret and whether it was in fact readily ascertainable through appropriate

means.’” ECF 13 at 11 (quoting Vesta Corp., 80 F. Supp. 3d at 1164).

OTSA defines “trade secret” as “information . . . that derives independent economic

value, actual or potential, from not being generally known to the public or to other persons who

can obtain economic value from its disclosure or use; and is the subject of efforts that are

reasonable under the circumstances to maintain its secrecy.” O.R.S. § 646.461(4). “[A] trade

secret is one of the most elusive and difficult concepts in the law to define. In many cases, the

existence of a trade secret is not obvious; it requires an ad hoc evaluation of all the surrounding

circumstances.” Kaib’s Roving R.PH. Agency, Inc. v. Smith, 237 Or. App. 96, 103 (2010)

(quoting Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714, 723 (7th Cir. 2003)).

For example, when someone expends considerable time, effort, and expense to compile

information, that information in its compiled form can, in some circumstances, meet the statutory

definition of a trade secret. Kaib’s Roving, 237 Or. App. at 102–03; see also Buffets, Inc. v.

Klinke, 73 F.3d 965, 968 (9th Cir. 1996) (“[t]rade secrets frequently contain elements that by

themselves may be in the public domain but together qualify as trade secrets”) (internal quotation

marks omitted); IKON Off. Sols. v. Am. Off. Prods., 178 F. Supp. 2d 1154, 1167 (D. Or. 2001),

aff’d, 61 F. App’x. 378 (9th Cir. 2003) (list of customers can constitute a trade secret when

considerable time and money was expended to compile it).

“For this reason, the question of whether certain information constitutes a trade secret

ordinarily is best resolved by a fact finder after full presentation of evidence from each side.”

Kaib’s Roving, 237 Or. App. at 103 (quoting Learning Curve Toys, Inc., 342 F.3d at 723)

(internal quotation marks omitted).

In its counterclaim, Defendant alleges the trade secrets at issue consist of:

a. Defendant’s list of customers and certain prospective customers

(“customer lists”);

b. The names and contact information of Defendant’s customers

and potential customers, the arrangements with those customers,

and other details relating to business transactions (“customer

information”);

c. Details regarding sales, sales history, pricing, and other sales

information regarding Defendant’s customers (“sales

information”);

d. Bid sheets/proposal forms of Defendant (“forms”); and

e. Compilations, programs, devices, methods, techniques, and

processes with regard to the information described above

(“compilations, programs, devices, techniques, and processes”).

ECF 6 at ¶ 41.

The Court finds Defendant has sufficiently pled the first element of its OTSA claim.

Defendant accuses Plaintiff of misappropriating trade secrets by and through the establishment of

a competing business and issuance of a competitive bid with one of Defendant’s prospective

clients. Id. at ¶¶ 47–48. In support of this effort, Defendant alleges Plaintiff stole specific

categories of information, including Defendant’s customer lists, customer contact information,

transaction history between customers, pricing and sales information, as well as bid

sheets/proposal forms from Defendant. Defendant further alleges that this misappropriated

information took the form of “compilations, programs, devices, methods, techniques, and

processes.” Id. at ¶ 41. Read in context and drawing all inferences in Defendant’s favor,

Defendant’s description of trade secret information is sufficient at this stage of litigation to

qualify as a trade secret under the meaning of the Act. It has also been pled with the requisite

specificity needed to allow Plaintiff to determine whether the information in question was in fact

secret and whether it was in fact readily ascertainable through appropriate means. Defendant has

sufficiently alleged the first element of its OTSA claim.

Plaintiff also asserts that Defendant has failed to articulate any facts to support the second

element of its prima facie case, whether “the plaintiff employed reasonable measures to maintain

the secrecy of its trade secrets.” Vesta Corp., 80 F. Supp. 3d at 1163. Plaintiff argues Defendant

merely repeats the language of this element without providing a factual basis to support it. ECF

13 at 11. Plaintiff’s assertions are correct.

In support of the second element of its OTSA claim, Defendant summarily alleges it

“made efforts that were reasonable under the circumstances to maintain the secrecy of its trade

secrets.” ECF 6 at ¶ 45. Defendant provides no specific, concrete examples of efforts to keep the

alleged trade secret information confidential. To be entitled to a presumption of truth, allegations

in a complaint “may not simply recite the elements of a cause of action, but must contain

sufficient allegations of underlying facts to give fair notice and to enable the opposing party to

defend itself effectively.” Starr, 652 F.3d at 1216. This Court will not credit Defendant’s legal

conclusions couched as factual allegations. See Iqbal, 556 U.S. at 678–79. Absent specific

factual allegations of Defendant’s efforts to maintain the secrecy of its information, the Court

finds Defendant has not pled facts to sufficiently allege the second element of its OTSA claim.

Finally, Plaintiff argues Defendant has not pled enough facts with respect to the third

element of Defendant’s OTSA claim. Defendant must allege Plaintiff’s conduct “constitutes

statutory misappropriation.” Vesta Corp, 80 F. Supp. 3d at 1163; see ECF 13 at 12–13.

O.R.S.§ 646.461(2)(d)(B), in turn, defines “misappropriation” as “[d]isclosure or use of a trade

secret of another without express or implied consent by a person, who at the time of disclosure or

use, knew or had reason to know that the knowledge of the trade secret was . . . [a]cquired under

circumstances giving rise to a duty to maintain its secrecy or limit its use[.]”

Defendant’s OTSA counterclaim specifically alleges Plaintiff gained access to

Defendant’s trade secret information while employed by Defendant. ECF 6 at ¶ 37. Defendant

alleges Plaintiff, as Defendant’s employee, knew that during the course of his employment and

thereafter “he was to keep that information confidential and not disclose it to third parties.” Id. at

¶ 40. Defendant alleges Plaintiff formed a competing entity, Big Pops Construction, LLC in

October of 2019. Id. at ¶ 47. Defendant alleges Plaintiff worked in concert with another former

employee, Raul Gutierrez, to steal its job site client lists and bid sheet proposal forms and bid on

a project with one of Defendant’s prospective clients, D.R. Horton, using Defendant’s forms. Id.

at ¶¶ 46, 48.

Defendant has specifically alleged an instance of statutory misappropriation, describing

Plaintiff’s use of bid sheet proposal forms and client lists without Defendant’s consent, as well as

Plaintiff’s apparent duty to maintain the secrecy of that information as a former employee of

Defendant’s. This Court finds that Defendant has pled sufficient facts regarding the third element

of its OTSA claim. Nevertheless, because Defendant has failed to adequately allege the second

element of its OTSA claim, the Court grants Plaintiff’s motion to dismiss Defendant’s OTSA

claim on this basis.2

2 Plaintiff summarily requests, in the alternative, that in the event the Court denies

Plaintiff’s request for dismissal, the Court should order Defendant to make this counterclaim

more definite pursuant to Fed. R. Civ. P. 12(e). ECF 13 at 13. Because the Court finds Defendant

has failed to sufficiently plead its claim under OTSA, the Court declines to address this

additional argument.

b. Preemption

Plaintiff argues Defendant’s second, third, and fourth counterclaims are preempted by

OTSA. ECF 13 at 16–18. These claims include interference with a contract or business

expectancy, interference with present and future economic relations, and breach of fiduciary

duty/duty of loyalty. ECF 6 at ¶¶ 55–68.

Oregon’s Uniform Trade Secrets Act “supersede[s] conflicting tort, restitution or other

law of Oregon providing civil remedies for misappropriation of a trade secret.” O.R.S.

§ 646.473(1). This provision, however, “shall not affect: . . . Other civil remedies that are not

based upon misappropriation of a trade secret.” Id. at § 646.473(2)(b). While Oregon state courts

have not interpreted the language of O.R.S. § 646.473(2)(b), a number of courts in other states

interpreting the same language have extended its preemptive effect to claims that are based on

the same operative facts as a claim for trade secret misappropriation. These courts reason,

“[w]here the essence of the claim relates primarily to the alleged misappropriation of a trade

secret, the claim is displaced by the preemptive language of the Act.” Acrymed, Inc. v. Convatec,

317 F. Supp. 2d 1204, 1217 (D. Or. 2004) (citing Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318

F.3d 1284, 1297–98 (11th Cir. 2003), and Hutchison v. KFC Corp., 809 F. Supp. 68, 72 (D. Nev.

1992)). Many courts in this district have similarly adopted this reasoning when assessing

preemption under OTSA, and this Court will do the same. See, e.g., Precision Automation, Inc. v.

Tech. Servs., Inc., No. 07-CV-707-AS, 2007 WL 4480736, at *2 (D. Or. Dec. 14, 2007); Select

Timber Products LLC v. Resch, No. 3:17-cv-00541-HZ, 2017 WL 3709066, at *5 (D. Or. Aug.

27, 2017).

Defendant’s second and third counterclaims, as currently pled, appear entirely premised

upon the same operative facts as those alleged to support Defendant’s OTSA claim. They boil

down to one instance in which Plaintiff submitted a competing bid for one of Defendant’s

prospective clients using Defendant’s client lists and bid sheet proposal forms. Defendant fails to

provide any additional specific factual allegations as they pertain to these claims of relief, merely

incorporating by reference the factual allegations asserted in support of its OTSA claim. See ECF

6 at ¶¶ 55, 60. This Court acknowledges “there are numerous ways in which a defendant may

interfere with contracts between a plaintiff and its customers for improper purposes or improper

means that do not rely on that defendant misappropriating trade secrets,” Precision Automation,

2007 WL 4480736, at *2, however, Defendant has not alleged those additional facts. Without

any separate factual allegations to support these claims, this Court finds the “essence” of these

claims relate primarily to the misappropriation of trade secret information, and they are therefore

preempted as currently pled by O.R.S. § 646.473(1). See Acrymed, Inc, 317 F. Supp. 2d at 1217

(“Where the essence of the claim relates primarily to the alleged misappropriation of a trade

secret, the claim is displaced by the preemptive language of the Act.”).

By contrast, Defendant’s fourth claim for breach of fiduciary duty appears to be based

upon a broader set of factual circumstances than the claim for trade secret misappropriation.

Defendant alleges that Plaintiff breached his fiduciary duty to Defendant by using Defendant’s

equipment and resources for his own benefit, and retaining property and/or information

belonging to Defendant without Defendant’s consent. ECF 6 at ¶¶ 66–67. Such allegations

plausibly describe separate and distinct actions outside of the instance of alleged trade secret

misappropriation in Plaintiff’s competing bid for D.R. Horton. The equipment, resources,

property, and/or information alleged to have been used by Plaintiff encompass a broader

category beyond “trade secret” information within the meaning of OTSA. See Diversified

Marine, Inc. v. JT Marine, Inc., No. 10-664-JE, 2010 WL 3210848, at *5 (D. Or. Aug. 10, 2010)

(finding plaintiff’s claim for breach of fiduciary duty based on an alleged improper transfer of

“confidential” information to Defendant was not preempted by OTSA because information can

be “confidential” without constituting a “trade secret”). Accordingly, this Court finds

Defendant’s claim for breach of fiduciary duty/duty of loyalty is not preempted by OTSA as

currently pled.3

C. Motion for Default Judgment

Separately, Defendant brings identical counterclaims as those alleged against Plaintiff in

a “Third-Party Complaint” against Raul Gutierrez, another former employee. ECF 8. The

allegations arise from the same set of underlying facts, asserting Raul Gutierrez worked in

concert with Plaintiff Martin Garfias to establish Big Pops Construction, LLC and

misappropriated Defendant’s trade secrets by submitting a competing project bid with one of

Defendant’s prospective clients. Id. at ¶¶ 18–23. Raul Gutierrez has yet to make an appearance in

this case, and the Clerk of Court entered default against him on September 1, 2020. ECF 18.

Now, Defendant moves for default judgment against Raul Gutierrez. ECF 21.

1. Legal Standards

The Clerk of the Court must enter default “[w]hen a party against whom a judgment for

affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by

affidavit or otherwise.” Fed. R. Civ. P. 55(a). Whether to grant a judgment by default is within

the discretion of the district court. See TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917–18

(9th Cir.1987) (per curiam) (“Rule 55 [of the Federal Rules of Civil Procedure] gives the court

considerable leeway as to what it may require as a prerequisite to the entry of a default

3 Plaintiff additionally asks this Court to dismiss Defendant’s second and third

counterclaims for failing to plead sufficient facts in support of these claims. Alternatively,

Plaintiff asks this Court to order Defendant to make its second and third counterclaims more

definite pursuant to Fed. R. Civ. P. 12(e). ECF 13 at 13–16. Because the Court finds that these

claims are preempted by OTSA, the Court declines to address these additional arguments.

judgment.”). The Ninth Circuit has identified seven factors to guide a district court’s

consideration of whether to enter a default judgment:

(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 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 of Civil Procedure favoring decisions on the merits.

Eitel v. McCool, 782 F.2d 1470, 1471–72 (9th Cir. 1986). The “starting point,” however, “is the

general rule that default judgments are ordinarily disfavored.” Id. at 1472.

A default judgment against fewer than all defendants must also comply with Rule 54(b)

of the Federal Rules of Civil Procedure. Rule 54(b) provides:

[T]he court may direct entry of a final judgment as to one or more,

but fewer than all, claims or parties only if the court expressly

determines that there is no just reason for delay. Otherwise, any

order . . . that adjudicates fewer than . . . all the parties does not

end the action as to any of the claims or parties and may be revised

at any time before the entry of a judgment adjudicating all the

claims and all the parties’ rights and liabilities.

2. Analysis

Because Plaintiff Garfias responded to Defendant’s counterclaims, this Court must decide

whether to exercise its discretion under Rule 54(b) to enter a default judgment against less than

all of the answering counterclaim parties. See Curtiss–Wright Corp. v. Gen. Elec. Co., 446 U.S.

1, 8 (1980) (explaining that a district court may exercise its discretion “in the interest of sound

judicial administration” to enter a default judgment as to less than all defendants (citation and

quotation marks omitted)). In assessing whether default judgment is appropriate here, this Court

is informed by the Supreme Court’s decision in Frow v. De la Vega, 82 U.S. 552 (1872), which

stands for the proposition that when one of several defendants who is alleged to be jointly liable

defaults, judgment should not be entered against that defendant until the matter has been

adjudicated with regard to all defendants, or all defendants have defaulted. See id. at 554 (“[A]

final decree on the merits against the defaulting defendant alone, pending the continuance of the

cause, would be incongruous and illegal.”).

The principle announced in Frow and the discretion inherent in Rule 54(b) applies not

only to claims dealing with joint liability between parties, but also to circumstances in which

counterclaim parties have closely related defenses or are otherwise “similarly situated.” See In re

First T.D. & Inv., Inc., 253 F.3d 520, 532 (9th Cir. 2001). The Ninth Circuit has noted that for

“similarly situated” parties, it would be “incongruous and unfair” to allow an opposing party to

prevail against a defaulting party on a legal theory rejected by a court with regard to an

answering party “in the same action.” Id. The risk of inconsistency is particularly salient when

the entry of default judgment “precede[s] the findings as to the non-defaulting [parties] at the

time the case[]” is “originally [being] decided by the district court[ ].” Garamendi v. Henin, 683

F.3d 1069, 1082–83 (9th Cir. 2012).

Defendant asserts identical legal claims against Raul Gutierrez as those asserted against

Martin Garfias. Those claims are based on the same set of underlying facts, and allege the two

men worked in concert to cause Defendant’s harms. Clearly both Raul Gutierrez and Martin

Garfias are “similarly situated” and may have closely related defenses, creating a real risk the

litigation will lead to inconsistent outcomes amongst the parties should the Court grant

Defendant’s request. See In re First T.D. & Inv., Inc., 253 F.3d at 532. This risk is particularly

apparent where, as here, the litigation is still in its early stages, and Defendant’s likelihood of

success against the answering party Martin Garfias remains unknown. Accordingly, this Court

declines to grant Defendant’s motion for default judgment as to Raul Gutierrez when such

judgment may be inconsistent with later rulings on the merits.

CONCLUSION

The Court GRANTS IN PART Plaintiff’s Motion to Strike, GRANTS IN PART

Plaintiff’s Motion to Dismiss without prejudice, and DENIES Defendant’s Motion for Default

Judgment without prejudice. The Court grants leave for Defendant to amend its stricken

affirmative defense and its dismissed counterclaims within 30 days of this Opinion & Order. See

Fed. R. Civ. P. 15(a)(2).

IT IS SO ORDERED.

DATED this 3rd day of January, 2021.

/s/ Karin J. Immergut

Karin J. Immergut

United States District Judge