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American Contractors Indemnity Co. v. Fernandez

United States District Court, D. Hawaii

September 21, 2017



          Derrick K. Watson, United States District Judge

         On July 11, 2017, Magistrate Judge Richard L. Puglisi entered his Findings and Recommendation (“F&R”) to deny the Motion for Entry of Default Judgment, filed by Plaintiff American Contractors Indemnity Company (“AmCon”) on June 16, 2017. AmCon filed Objections to the F&R on July 18, 2017 (ECF No. 27) arguing, among other things, that default judgment against Defendants is appropriate due to their failure to timely respond to service of the pleadings and because of Frank M. Fernandez's alleged misrepresentations to the Court.

         As explained below, the Court ADOPTS the F&R (ECF No. 23), DENIES AmCon's Motion for Default Judgment (ECF No. 16), and sets aside the Entry of Default (ECF No. 14) as to both defendants.


         Factual Background Plaintiff AmCon, “a licensed surety company in the State of Hawaii, ” seeks monetary damages and other remedies for Defendants' alleged failure to honor indemnification and guarantee provisions of three related contracts (see ECF Nos. 1-1, 1-2, 1-3). Compl. ¶ 2, ECF No. 1.

         In the first-a December 13, 2004 “Executing Agent's Contract” (the “2004 Contract”)-AmCon authorized Defendant Frank M. Fernandez (“Frank”) to serve as its “agent . . . for the soliciting and writing of Bail bonds” in the City and County of Honolulu. See 2004 Contract, ECF No. 1-1. Under the 2004 Contract, Frank was required to perform certain duties with respect to the appearance of persons bonded in court and agreed to indemnify AmCon from any and all “liability, loss, costs, damages, claims, suits, attorneys' fees, and expenses of whatever kind” arising out of bonds executed under the agreement. See Compl. ¶¶ 12-15. Defendant Janis H. Fernandez (“Janis”) guaranteed Frank's obligations under the 2004 Contract, and pursuant to that guaranty, Defendants “agreed that all of their property, whether real, personal, community or mixed, shall be subject to and bound by the 2004 Contract.” Compl. ¶¶ 10-11; see 2004 Contract at 2.

         In the second contract-an April 19, 2007 “Executing Agent's Contract” between AmCon and Janis (the “2007 Contract”)-AmCon authorized Janis to serve as its “agent” in the City and County of Honolulu “for the soliciting and writing of Bail bonds.” Compl. ¶¶ 16-18; see 2007 Contract, ECF No. 1-2. As the 2004 Contract had required of Frank, the 2007 Contract required Janis to perform certain duties, to indemnify AmCon from certain liabilities and expenses, and to pay AmCon all sums due under the bonds subject to the agreement. See Compl. ¶¶ 21-24. And as Janis had done with respect to Frank's 2004 Contract, Frank executed a guaranty of Janis's obligations to AmCon in consideration of AmCon's agreement with Janis. See 2007 Contract at 2; Compl. ¶ 19.

         AmCon, Frank, and Michael Panzo executed the third contract-a January 9, 2008 “Bail Bond Division Sub-Agents Contract” (the “2008 Contract”)-“for the purpose of: constituting [Frank] as the General Agent for the writing of bail bonds in the State of Hawaii; and appointing Mr. Panzo as the Executing Agent for [AmCon] for the soliciting and writing of Bail Bonds in the State of Hawaii.” Compl. ¶ 26; see 2008 Contract, ECF No. 1-3. On the same date, Frank executed a guaranty of Mr. Panzo's obligations to AmCon, by which he “unconditionally guaranteed and agreed to be bound to [AmCon] for the full and complete payment and performance by Mr. Panzo of all the provisions, conditions, covenants, and agreements contained in the 2008 Contract.” Compl. ¶ 27.

         Procedural Background

         On February 28, 2017, AmCon filed a Complaint against Defendants for allegedly breaching the terms of the 2004 Contract, the 2007 Contract, and the 2008 Contract. Compl., ECF No. 1.

         According to the Complaint, AmCon “has performed all of its obligation under the terms” of the three contracts in question. Compl. ¶ 33. AmCon also asserts that “Defendants and Mr. Panzo have written bail bonds with [AmCon] as surety” under the three contracts, and “[s]everal” of these bail bonds “have resulted in unpaid forfeitures and/or judgment.” Compl. ¶¶ 34-35. Moreover, AmCon claims that “Defendants and Mr. Panzo have also issued bail bonds that were not reported” to it; and AmCon represents that although it “has made several demands to Defendants and Mr. Panzo for the indemnification of the reported bail bonds and the unpaid forfeitures and/or judgments, ” no payment or indemnification has been made. Compl. ¶¶ 37-39. For its grievances, AmCon requests at least $326, 870.67 in damages, among other remedies. Compl. ¶ 41.

         AmCon represents that upon filing the Complaint on February 28, 2017, it “caused copies of the Complaint, Summons, Notice to Parties Regarding Service Pursuant to Rule 4 of the Federal Rules of Civil Procedure, Notice of a Lawsuit and Request To Waive Service of a Summons and an (unexecuted) Waiver of the Service of Summons, together with self-addressed stamped envelopes[, ] to be mailed” to Defendants' known address. See Mem. in Supp. of Mot. for Default J., ECF No. 16-1 [hereinafter DJ Mem.]; see also Civil Waiver of Serv. Packet, ECF No. 8. When an executed Waiver of Service of Summons was not returned, AmCon “retained the services of a process server, Neal F. Yoro, to effect service” on Defendants. DJ Mem. at 6; see Yoro Decl., ECF No. 22-1. AmCon's proofs of service were filed on April 24, 2017 (ECF Nos. 11, 12) and indicate that Yoro served Frank (personally) and Janis (through Frank) on April 1, 2017.[1]

         Having failed to receive any response from Defendants within 21 days of service, AmCon filed its “[Request] for Entry of Default Against [Defendants]” (ECF No. 13) on May 2, 2017. See Fed. R. Civ. P. 12(a)(1). The Clerk of Court entered default the next day. Entry of Default, ECF No. 14. According to counsel for AmCon (Scott I. Batterman), Frank called Mr. Batterman two weeks after default was entered-on May 16-and claimed to be in the process of retaining an attorney in order to defend the action. See Decl. of Counsel ¶¶ 5-6, ECF No. 22-2 [hereinafter Batterman Decl.]). According to Frank and Janis, however, Frank called and spoke to Mr. Batterman in order to inform him that neither defendant had been properly served; and although Mr. Batterman stated that he would return Frank's call, he failed to do so. See Decl. of Frank M. Fernandez ¶¶ 3-8, 11, ECF No. 18-1 [hereinafter Frank Decl. I]; Decl. of Janis H. Fernandez ¶¶ 3-8, 11, 15, ECF No. 21-1 [hereinafter Janis Decl. I].

         On June 16, 2017, AmCon filed the Motion for Entry of Default Judgment (“DJ Mot.” or “DJ Motion”; ECF No. 16) against Frank and Janis and mailed hard copies of the motion to Defendants' residence. See Batterman Decl. ¶ 8. In the DJ Motion, AmCon asserted that Defendants “breached their obligations under the terms of the 2004 Contract, the 2007 Contract, and the 2008 Contract by failing to indemnify [AmCon] for the liabilities, costs, and expenses that [AmCon] sustained and/or incurred in connection with the bonds written by Defendants and Mr. Panzo; and by failing to honor their guarantees of such obligations.” See DJ. Mem. at 5, ECF No. 16-1. Frank filed his Response to the DJ Motion, thereby making his first appearance in the case, on June 26, 2017 (ECF No. 18), and Janis filed her Response to the DJ Motion on July 3, 2017 (ECF No. 21). AmCon filed its Reply in Support of the DJ Motion (ECF No. 22) on July 7, 2017.

         On July 11, 2017, Magistrate Judge Puglisi entered the F&R, in which he found that “[despite] failing to timely respond to the Complaint, Defendants have indicated their clear intent to defend this case by filing Responses to [AmCon]'s [DJ] Motion[.]” F&R at 4, ECF No. 23. The Magistrate Judge therefore recommended that:

(1) [AmCon]'s Motion for Entry of Default Judgment . . . be DENIED;
(2) The entry of default against Defendants . . . be set aside; and
(3) Defendants . . . be directed to file responses to the Complaint no later than 10 days after the district court acts on this Findings and Recommendation.

F&R at 5.

         Before the Court are AmCon's objections to the F&R (ECF No. 27), wherein AmCon urges the Court not to exercise its discretion on behalf of Defendants and enter default judgment at this time. Obj. Mem. at 2. Defendants responded to these objections on July 27, 2017 (ECF Nos. 28 (Frank), 29 (Janis)).

         Accompanying those responses were Defendants' declarations, in which they informed the Court of their intent “to defend and pursue any and all claims involved in this matter” and set forth a non-exhaustive list of eight potential defenses they might raise. See Decl. of Frank M. Fernandez ¶¶ 3-4, ECF No. 28-1 [hereinafter Frank Decl. II]; Decl. of Janis H. Fernandez ¶¶ 3-4, ECF No. 29-1 [hereinafter Janis Decl. II].

         For the reasons stated below, the Court ADOPTS the F&R, DENIES AmCon's DJ Motion, and ...

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