Bermuda Road Properties, LLC v. Ecological Steel Systems, Inc., 2:12-cv-01579

Background

Bermuda Road Properties paid ESSI $2.1 million as a down payment for construction of a steel building and later sued after alleging misappropriation of those funds.
District court previously declared the Bermuda–ESSI contract void ab initio and dismissed claims against D3DS CSD, LLC.
The Clerk entered default against seven defendants: Hudson Family Trust (dated Oct. 29, 2012), EcoSteel Building Systems, Inc., Steel Buildings, Inc., Eco Investments, LLC, EcoSteel, LLC, HitplayYoga, LLC, and Northern Steel Investments, LLC.
ESSI and the Hudsons filed Chapter 7 bankruptcies; ESSI’s case remains pending, the Hudsons received a discharge and their case closed, and an adversary proceeding about dischargeability remains pending.
Bermuda seeks default judgment against the seven defaulted defendants on multiple claims (alter ego, unjust enrichment, aiding and abetting breaches, constructive trust, and fraud); the court evaluated the motion under the Frow doctrine and the Eitel factors.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether default judgment may enter on claims that allege joint liability with non-defaulting defendants (Frow doctrine)	Bermuda contends defaulted defendants are jointly liable with ESSI/Hudsons on unjust enrichment, aiding and abetting, and fraud claims, so default judgment is proper.	ESSI/Hudsons’ liability remains unresolved (and partially stayed by bankruptcy); Frow bars entry against defaulting co-defendants until all defendants’ liabilities adjudicated.	Court: Frow doctrine prevents default judgment on Claims 3–5 and 19; denied without prejudice.
Whether constructive trust (Claim 16) is an independent claim allowing default judgment	Bermuda seeks imposition of a constructive trust over funds/assets held by defaulted defendants as standalone relief.	Constructive trust is an equitable remedy, not a freestanding claim; underlying liability must be established first.	Court: Claim 16 denied without prejudice; Bermuda must first prove underlying claims before seeking this remedy.
Whether Bermuda established alter-ego / veil-piercing liability (Claims 2 and 15) against defaulted defendants	Bermuda alleges the defaulted entities were alter egos of ESSI/Hudsons, citing corporate filings, a cancelled check, trust documents, and other exhibits.	Defendants argue the allegations/evidence are conclusory and insufficient to satisfy alter-ego elements.	Court: Denied without prejudice; plaintiff’s pleadings are conclusory and submitted exhibits lack explanation—Eitel factors favor denial.
Whether default judgment is warranted under Eitel factors (sufficiency of pleadings and proof)	Bermuda argues its complaint and submitted exhibits establish liability and warrant default judgment.	Court must evaluate merits, sufficiency, possibility of factual dispute, and preference for decisions on merits.	Court: Key Eitel factors (merits/sufficiency) not satisfied; denied without prejudice and plaintiff may refile with amended pleadings or stronger evidence.

Key Cases Cited

In re First T.D. & Inv., Inc., 253 F.3d 520 (9th Cir.) (applies Frow doctrine to bar judgment against defaulting co-defendants when joint liability alleged)
TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915 (9th Cir.) (defaulted factual allegations are taken as true except for damages)
Eitel v. McCool, 782 F.2d 1470 (9th Cir.) (sets seven-factor test for default-judgment discretion)
Cripps v. Life Ins. Co., 980 F.2d 1261 (9th Cir.) (necessity of proving essential facts beyond conclusory allegations in default context)
Waldman v. Maini, 195 P.3d 850 (Nev. 2008) (constructive trust is an equitable remedy, not independent cause of action)
LFC Mktg. Grp., Inc. v. Loomis, 8 P.3d 841 (Nev. 2000) (standards for piercing the corporate veil / alter-ego liability)
Danning v. Lavine, 572 F.2d 1386 (9th Cir.) (plaintiff must show sufficient merits to support default judgment)