Pure Barnyard v. Organic Laboratories, et al. CV-08-501-JL 9/26/12
UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE
Pure Barnyard, Inc.
v. Civil N o . 08-cv-501-JL Opinion N o . 2012 DNH 171 Organic Laboratories, Inc. and Results Capital, Inc.
MEMORANDUM ORDER
This case arises out of a failed deal to merge two companies
in the fertilizer market, plaintiff Pure Barnyard, Inc. and
defendant Organic Laboratories, Inc. (“Organic Labs”), into a
third entity, Organic Labs Holdings, Inc. (“Organic Holdings”).
Pure Barnyard alleges that, during discussions over the proposed
deal, Organic Labs--acting through its alleged agents, including
defendant Results Capital, Inc.--misrepresented the quantity of
fertilizer material to be provided under an agreement between
Organic Labs and a supplier. Pure Barnyard further alleges that,
in reliance on these misrepresentations, it committed to selling
that material (instead of its own products) to its customers,
causing it to lose sales and, ultimately, to go out of business,
when the material turned out to be unavailable.
This court has subject-matter jurisdiction under 28 U.S.C.
§ 1332(a)(1) (diversity), because Pure Barnyard is a New
Hampshire corporation with its principal place of business here and the defendants, Results Capital and Organic Labs, are Florida
corporations with their principal places of business there.
After the court denied Organic Labs’ motion for summary judgment,
Pure Barnyard, Inc. v . Organic Labs., Inc., 2011 DNH 035, it
reached a settlement of Pure Barnyard’s claims against i t .
On February 2 5 , 2011, this court defaulted defendant Results
Capital for failing to comply with orders directing that counsel
appear on its behalf. More than seven months later--and more
than one month after the plaintiff, Pure Barnyard, Inc., had
moved for a default judgment against Results, see Fed. R. Civ. P.
55(b)(2)--Results Capital moved, through counsel, to strike the
entry of default, see Fed. R. Civ. P. 55(b)(2).
After an evidentiary hearing, the court denies Results
Capital’s motion to strike the default and grants Pure Barnyard’s
motion for a default judgment. As explained fully below, Results
Capital has failed to show good cause to set aside the default
under Rule 55(c). In fact, Results Capital was defaulted after
it failed to make any serious effort to comply with a series of
court orders that it obtain counsel--a failure that persisted for
nearly eight months after the court expressed a willingness to
lift the default if Results Capital could obtain counsel (which
it had said it soon expected to be able to d o ) .
2 But the court will enter judgment by default against Results
Capital only in the sum of $79,009.01, rather than the more than
$3 million that Pure Barnyard seeks. That sum represents the
entire value of Pure Barnyard as a going concern, but it has not
shown that its business failed due to Results Capital’s
misrepresentations about the available quantity of feather
material or any other subject. Instead, as Pure Barnyard more or
less acknowledges, its business failed because Organic Labs
backed out of the proposed merger--and Pure Barnyard has never
claimed that Results Capital’s misrepresentations caused that to
happen. Pure Barnyard can, however, recover the profits it would
have realized had it sold its own product to one of its
customers, instead of committing to sell that customer the
chicken feather product in reliance on Results Capital’s
misrepresentations as to its availability.
I. Results Capital’s motion to strike the default
A. Background
Results Capital accepted service of process in this action
on December 1 0 , 2008, then filed a motion to dismiss for lack of
personal jurisdiction. See Fed. R. Civ. P. 12(b)(1). After the
court denied that motion from the bench following oral argument,
Order of Sept. 1 1 , 2009, Results Capital filed an answer to the
3 complaint. These filings were made by Results Capital’s counsel
of record at the time, who were also then counsel of record for
its co-defendant, Organic Labs (and who represented the
defendants at oral argument on the motion to dismiss).
On October 2 0 , 2009, however, these attorneys withdrew from
their representation of both defendants in this matter, citing a
“breakdown of the attorney-client relationship.” While neither
Results Capital nor Organic Labs took issue with this statement
at the time, Results Capital now explains that the withdrawal
arose simply because the defendants “chose to engage separate New
Hampshire counsel.” Following the withdrawal, the court ordered
that new counsel appear on behalf of both defendants--which, as
corporations, could not appear in this action pro s e , see L.R.
83.6(d)--by November 1 0 , 2009. Order of Oct. 2 1 , 2009.
After Results Capital asked for (and received) an extension
of this deadline, new counsel filed a notice of appearance on its
behalf on November 2 3 , 2009, and this attorney participated in
the preliminary pretrial conference the next day. As a result of
discussions at the conference, the court ordered Pure Barnyard to
file an amended complaint by December 1 1 , 2009, with answers due
by January 1 0 , 2010. Order of Nov. 2 4 , 2009. The amended
complaint was timely filed. On January 7 , however, counsel of
record for Results Capital filed a motion to withdraw, stating
4 only that he had “determined it was necessary,” together with a
motion for a one-month extension of Result’s Capital’s time to
answer. The court granted both of these motions (granting the
extension over Pure Barnyard’s objection), ordering that new
counsel appear for Results Capital by February 1 5 , 2010, on pain
of default. Orders of Jan. 2 6 , 2010. In the meantime, new
counsel had appeared for the other defendant, Organic Labs, and
filed a motion to dismiss certain counts of the amended complaint
for failure to state a claim, see Fed. R. Civ. P. 12(b)(6),
together with an answer to the other counts.
New counsel filed a notice of appearance for Results
Capital, together with an answer to the amended complaint and a
joinder in Organic Labs’ motion to dismiss i t , on February 1 6 ,
2010--a week after the extended deadline for responding to the
amended complaint. At the close of a hearing on the defendants’
motions to dismiss the amended complaint, the court granted them
as to one count, but denied them as to the others, and ordered
the parties to file a new proposed scheduling order. Order of
Aug. 1 0 , 2010. The plan was filed, but with the explanation
that, while counsel for all parties had participated in
formulating i t , counsel for Results Capital had yet to obtain his
client’s assent to i t . Just over one month later, counsel for
Results Capital filed a motion to withdraw, stating that
5 “representation has been rendered unreasonably difficult by the
client” and “the client has not been able to substantially
fulfill its obligations to counsel.” Results Capital did not
take issue with these statements at the time, but now says
“counsel withdrew due solely to the fact that Results Capital did
not have sufficient funds to pay for this litigation.”
The court granted the motion to withdraw, and, for the third
time, ordered that new counsel appear on behalf of Results
Capital on pain of default--this time, by November 1 5 , 2010.
Order of Oct. 1 8 , 2010. When that date arrived, Results Capital
(acting without counsel) filed a letter with the court, stating
only that it “would like to request more time in securing a law
firm to represent [it].” The court treated this as a motion for
an extension of time and, receiving no objection, ordered the
deadline continued until December 1 0 , 2010, while cautioning that
“[a]nother extension is not anticipated.” Order of Nov. 2 4 ,
2011. Nevertheless, on December 9, Results Capital, through
another letter, requested another extension, claiming to lack
“the funds to secure a firm” because the “lawsuit has been very
damaging.” In the meantime, as contemplated by the revised
scheduling order, Pure Barnyard and Organic Labs had completed
discovery, and Organic Labs had filed a motion for summary
judgment on all claims against i t .
6 On January 6, 2011, the court denied Results Capital’s most
recent request for an extension of time to secure counsel. The
court explained that, while it was “sensitive to [Results
Capital’s] plight, the motion/letter fails to provide any basis
to infer or conclude that counsel will make an appearance on
[its] behalf within a reasonable period of time that would
justify additional extensions.” Order of Jan. 6, 2011.
Subsequently, Pure Barnyard and Organic Labs completed their
briefing on the summary judgment motion (and related motions to
strike), the court scheduled oral argument on those motions and
denied Organic Labs’ motion to continue the trial, scheduled (at
that point) for April 5 , 2011.
In response to this ruling, Organic Labs requested a
telephone conference with the court, proposing a series of
available times for all counsel of record--as well as David Webb,
the principal of Results Capital, who had given his assent to the
request for the conference. During the conference, on February
2 2 , 2011, Webb stated that, as a result of some new business, he
expected Results Capital’s financial condition to improve so that
it could afford to retain counsel in this matter. The court
explained that, while Results Capital would nevertheless be
defaulted, it could seek to have the default removed if it were
7 in fact able to secure counsel. A written order to that effect
followed, defaulting Results Capital. Order of Feb. 2 5 , 2011.
On that same day, the court heard oral argument on Organic
Labs’ motion for summary judgment, and advised the parties from
the bench that the motion would very likely be denied and that
trial would commence as scheduled. Following the written order
denying the summary judgment motion, Pure Barnyard and Organic
Labs jointly moved for a continuance of trial so that they could
attempt to settle the case. The court granted the motion, and,
on May 1 3 , 2011, was advised that Pure Barnyard and Organic Labs
had reached a settlement. They filed a stipulation of dismissal
on August 1 2 , 2011.
In the meantime, the court had heard nothing from Results
Capital, despite its statement in the telephone conference in
February that it anticipated being able to retain counsel. So
the court ordered Pure Barnyard to file a motion for a default
judgment against Results Capital (which Pure Barnyard did, on
August 3 1 , 2011) and scheduled a damages hearing for September
1 9 , 2011. Order of Aug. 1 3 , 2011. On that day, new counsel
filed (together with a motion to postpone the hearing) a notice
of appearance on behalf of Results Capital. This was nearly
eight months after the entry of default against Results Capital,
and nearly more than nine months after this court had denied
8 Results Capital’s last request for more time to find counsel.
Results Capital later filed its motion to strike the entry of
default, on October 7 , 2011.
B. Analysis
Results Capital does not question that the court properly
entered default against it for failing to comply with the orders
directing counsel to appear on its behalf. Instead, it argues
that “good cause” exists to set aside the entry of default under
Rule 55(c). As the court of appeals has explained:
There is no mechanical formula for determining whether good cause exists and courts may consider a host of relevant factors. The three typically considered are (1) whether the default was willful; (2) whether setting it aside would prejudice the adversary; and (3) whether a meritorious defense is presented. But that is not an exclusive list and courts may consider other relevant factors, including (4) the nature of the defendant’s explanation for the default; (5) the good faith of the parties; (6) the amount of money involved; [and] (7) the timing of the motion to set aside the default. Ultimately, the burden of demonstrating good cause lies with the party seeking to set aside the default.
Indigo Am., Inc. v . Big Impressions, LLC, 597 F.3d 1 , 3 (1st Cir.
2010) (internal citations and quotation marks omitted). Taking
all of these factors into consideration, this court rules that
Results Capital has failed to carry its burden to show good cause
to set the default aside.
9 The court acknowledges that, as Results Capital emphasizes,
some of the relevant considerations favor a finding of good
cause. Pure Barnyard complains that, if the default is lifted,
it will have to “endure the cost and expense of a trial” of its
claims against Results Capital. That is the normal consequence
of lifting any default, however, and not the sort of “prejudice”
that counsels against such relief, as the court of appeals has
held. See id.
Results Capital has also suggested a “meritorious defense,”
which, according to the court of appeals, “is not a particularly
arduous task.” Id. at 4 . As Pure Barnyard points out, Results
Capital relies on many of the same defenses that Organic Labs
advanced in its unsuccessful motion for summary judgment. The
court did not reject those defenses as a matter of law, but
simply identified material factual disputes necessitating a trial
on those issues. Pure Barnyard, 2011 DNH 035, 2-3. The very
existence of these disputes suffices to make out a “meritorious
defense” for purposes of Rule 55(c). See Indigo Am., 597 F.3d at
4 (holding that the defense need only be factually “cognizable”
or “arguable”). Furthermore, Pure Barnyard seeks a default
judgment for the sum of more than $3 million, so the amount of
money involved is significant.
10 In the court’s view, however, whatever weight these factors
carry is substantially overcome by the other relevant
considerations. First, and most importantly, the court finds
that the default was willful. Following the withdrawal of the
third different attorney to appear for Results Capital in this
case, the court specifically warned it that, if new counsel did
not appear by the appointed deadline, default could follow.
After granting Result Capital’s first request to extend that
deadline, the court advised Results Capital not to expect another
continuance. Results Capital responded by requesting another
continuance anyway and, after the court denied that request for
failing to explain how more time could help secure counsel,
failed to offer such an explanation (or, so far as the record
indicates, do anything) even though default did not enter until
several weeks later.
Moreover, in the conference call that immediately preceded
the entry of default, Webb told the court that Results Capital
expected new business that would enable it to afford counsel in
this case. Even though the court specifically invited a motion
for relief from the default if this expectation was realized,
Results Capital did not seek it until nine months later. Indeed,
it was not until the very day the damages hearing was scheduled
that new counsel even appeared on behalf of Results Capital.
11 As the court of appeals has warned, “[u]pon proper
notification of pending action parties must respond diligently,
or face the concededly harsh consequences of a judgment resulting
not from consideration of the merits, but from the parties’ own
inaction.” FDIC v . Francisco Inv. Corp., 873 F.2d 474, 478 (1st
Cir. 1989) (citing Shepard Claims Serv. v . William Darah &
Assocs., 796 F.2d 190, 193 (6th Cir. 1986)). Thus, a party’s
“reckless disregard for the effect of its conduct on [the]
proceedings” is tantamount to willfulness where Rule 55(c) is
concerned. Shepard Claims Serv., 796 F.2d at 194. The record
before the court fairly supports (if not compels) a finding of
“reckless disregard” on the part of Results Capital: until it
stood on the precipice of having a monetary judgment entered
against i t , Results Capital appears to have made no serious
effort to comply with the court’s orders directing--on pain of
default--that counsel appear, or to avail itself of the court’s
invitation to secure counsel so the default could be removed.1
1 This conclusion follows without even taking into account the fact that Results Capital found itself without counsel because three different attorneys had withdrawn from representing it--one of them citing a “breakdown of the attorney-client relationship” and another that “representation has been rendered unreasonably difficult by the client.” While Results Capital now says that each withdrawal was due either to its own choice to retain new counsel or “for the sole reason that [it] did not then have funds to pay,” this begs to the question as to why a number of different lawyers would have submitted sworn statements to
12 The willfulness of the default weighs against a finding of good
cause to set it aside.
Second, and relatedly, the nature of Results Capital’s
explanation for the default, the good faith of the parties, and
the timing of the motion also weigh against a finding of good
cause. Results Capital has offered no explanation for its
prolonged period of inaction, aside from the bald assertion that
“[r]ecently, [its] business has improved,” enabling it to hire
new counsel. Again, though, Results Capital told the court that
business was about to pick up back in February, yet did not seek
to remove the default or do anything else until the very day of
the scheduled damages hearing, some eight months later, when its
new counsel appeared. It is difficult to believe that this
timing was just a coincidence, i.e., that it was not until the
eve of the damages hearing that Results Capital finally acquired
the funds to hire new counsel--particularly in light of Results
Capital’s earlier statement that it expected its financial
situation to improve several months earlier than that. Results
Capital has offered no explanation for the discrepancy o r , for
that matter, any account of its efforts to secure counsel (or the
this court saying otherwise. But the court need not resolve this dispute because, again, Result Capital’s willfulness relative to the default is evident solely from its inaction after its third attorney had withdrawn.
13 funds to hire counsel) since its third attorney was allowed to
withdraw in October 2010. At best, then, Results Capital was
indifferent to the status of these proceedings and, as just
discussed, indifference is incompatible with a finding of good
cause under Rule 55(c).
Indeed, as the court of appeals has held, when a defendant
is “aware of the pending legal problem, but hope[s] that it
‘[will] all go away’” instead of “mov[ing] to rectify the
situation in a timely manner,” that defendant has not shown “the
good faith necessary to justify the court’s lifting of the
default.” McKinnon v . Kwong Wah Rest., 83 F.3d 498, 504 (1st
Cir. 1996). 2 This conclusion holds, moreover, even when the
defendant attempts to blame its inaction on its inability to
afford counsel. See id. at 503-04; Perry v . Warner (In re
Warner), 247 B.R. 2 4 , 26 (1st Cir. B.A.P. 2000).
2 McKinnon arose from strikingly similar facts. The defendants there had been represented by a number of different attorneys, the last of whom moved to withdraw after the defendants said they did not have the money for a retainer. 83 F.3d at 504. The court denied the defendants’ request for additional time to answer the complaint and proceeded to enter default against them, but the defendants did not promptly respond to any of these developments. Id. While the defendants blamed their inaction largely on their inability to afford counsel, the district court found that they “did not act reasonably even under these circumstances,” id. at 503, and the court of appeals upheld this finding, id. at 504.
14 As stated in the order denying Results Capital’s final
request to extend the deadline for counsel to appear, the court
is sympathetic to a defendant that finds itself in this
predicament. But sympathy alone cannot justify prolonged delays
in the progress of a case. Courts have held that, for a party to
vacate a default based on its claimed inability to afford a
lawyer, it “must demonstrate that it exercised reasonable
diligence in attempting to secure counsel” despite its financial
straits. Penn. Land Holdings Corp. v . Mason, N o . 06-1150, 2008
WL 3246868, at *4 (W.D. Pa. Aug. 6, 2008); see also First
Commercial Bank, Ltd. v . McCord, N o . 94-74, 1996 WL 254334, at *4
(D. Guam May 8 , 1996); Barry Howard & Assocs., Inc. v . Ind.
Transp. Museum, Inc., 125 F.R.D. 487, 490 (S.D. Ind. 1989).
Results Capital has not attempted to make that showing.
Results Capital also emphasizes that, as a corporation, it
could not participate in this litigation until it had counsel.
See L.R. 83.6(c). But “the right to conduct business in a form
that confers privileges, such as the limited personal liability
of the owners for tort or contract claims against the business,
carries with it obligations one of which is to hire a lawyer if
you want to sue or defend on behalf of the entity.” United
States v . Hagerman, 545 F.3d 579, 581-82 (7th Cir. 2008) (Posner,
J.). There is no indication that Results Capital took that
15 obligation seriously here, at least until just before this court
stood poised to enter a multi-million dollar default judgment.
Because Results Capital has failed to carry its burden to show
good cause, its motion to lift the default is denied.
II. Pure Barnyard’s motion for default judgment
Once default is entered, the defendant is “taken to have
conceded the truth of the factual allegations in the complaint as
establishing the grounds for liability as to which damages will
be calculated.” Ortiz-Gonzalez v . Fonovisa, 277 F.3d 5 9 , 62-63
(1st Cir. 2002) (quotation marks omitted). Upon entry of
default, “[d]iscretion as to the judgment or the need for a
hearing on damages is vested with the district court.” Id. at 64
(citing Pope v . United States, 323 U.S. 1 , 12 (1944)). Here, as
noted at the outset, the court held an evidentiary hearing on
Pure Barnyard’s claimed damages at which its president and
founder, John Packard, testified and was subjected to cross-
examination by counsel for Results Capital.
By virtue of the default, the facts alleged in Pure
Barnyard’s amended complaint are “taken as true.” Brockton Sav.
Bank v . Peat, Marwick, Mitchell & Co., 771 F.2d 5 , 13 (1st Cir.
1985). The court has drawn the following relevant facts from the
16 amended complaint, as well as affidavits by Packard and other
evidentiary materials filed at earlier stages of the litigation
and Packard’s testimony at the damages hearing.
Prior to the events at issue in this litigation, Pure
Barnyard, based in Portsmouth, New Hampshire, was a self-
described leader in the organic lawn and garden fertilizer
market, selling to a number of national home improvement chains
and similar retailers. In June or July 2008, Webb (joined by
others) called Packard and proposed a transaction in which
Organic Holdings would purchase the assets of both Pure Barnyard
and Organic Labs, with capital to be raised from the sale of
stock in Organic Holdings.
In July and August 2008, Webb made a series of
representations to encourage Packard to commit Pure Barnyard to
the proposed transaction. Chief among them was that Organic Labs
“had a firm contract” to buy from Cargill--which Packard knew as
“one of the biggest, if not the biggest chicken processor in the
United States”--60,000 tons of “feather meal based material at a
price no greater than $200” per ton, as well as “North American
distribution rights” for this material. Packard explains that
chicken feather meal is high in nitrogen, “which makes it an
ideal, but historically expensive base for organic fertilizer.”
Thus, Packard says, Organic Labs’ right to purchase 60,000 tons
17 of the feather meal at only $200 each “was critically important
because it made organic fertilizer products cost-competitive”
with their non-organic alternatives.
The amended complaint states that, in reliance on these and
other misrepresentations, Pure Barnyard “worked to place the
[new] products . . . in various chains and outlets where [Pure
Barnyard] had previously sold [its] products, and did not obtain
any orders for any of its own products for the 2009 season.”3
Packard testified that Pure Barnyard reached an agreement to
provide Home Depot with the new feather meal product instead of
Pure Barnyard’s own product, known as “Cockadoodle Doo.” At the
hearing, Packard could not identify any other retailers to which
Pure Barnyard had agreed to sell the new feather meal product.
3 As a result of Results Capital’s default, this allegation is taken as true. Brockton Sav. Bank, 771 F.2d at 1 3 . Thus, while other evidence in the record suggests that Pure Barnyard committed to selling the new feather meal product to Home Depot in June 2008--which was before Webb allegedly made the misrepresentations as to Organic Labs’ access to that product from Cargill--Results Capital cannot now rely on that evidence to escape liability for its misrepresentation. Again, Results Capital is “taken to have conceded the truth of the factual allegations in the complaint as establishing the grounds for liability as to which damages will be calculated.” Ortiz- Gonzalez, 277 F.3d at 62-63. In any event, it does not make sense, as a logical matter, that Packard would have committed selling a new product to Home Depot before he had any reason to believe the product was available, so the evidence suggesting the opposite chronology very likely reflects nothing more than confusion as to when various events unfolded.
18 As it turns out, the statement about Organic Labs’ access to
such quantities of chicken feather meal from Cargill was false.
Packard learned this at some point between September 1 8 , 2008 and
October 1 , 2008. He immediately informed Home Depot and, as a
result, Pure Barnyard “lost the Home Depot account.” Home Depot
had sold the “Cockadoodle Doo” product for the prior two seasons,
and Home Depot accounted for around 40 percent of Pure Barnyard’s
sales in 2007. Though Packard offered, Home Depot refused to buy
Pure Barnyard’s “Cockadoodle Doo” product instead, as they had
been doing for the prior two seasons. Packard acknowledged that
he did not know the basis for that decision, but he testified
that he now “can’t go back to Home Depot again and sell them
anything” because “[t]hey have long memories.” Packard also
testified that, compared to the Cargill chicken feather product,
“Cockadoodle Doo” was “[t]oo expensive” and, in fact, “was always
too expensive.”
Packard further testified that, had Home Depot agreed to
resume buying the “Cockadoodle Doo” product, Pure Barnyard could
have provided i t , but “[i]t would have been tight.” He explained
that, although Pure Barnyard did not have enough working capital
at that point to buy the packaging or materials that would have
been required to fill such an order, he “would have tried to
raise some funding” or tried to persuade the company’s commercial
19 lender, Sovereign Bank, to allow Pure Barnyard to draw against
its line of credit. Packard stated that, although Pure Barnyard
had borrowed only $535,000 of the $1 million available under the
line of credit at that point, Sovereign refused to allow Pure
Barnyard to borrow any more because it “could not continue its
business” and its “finances couldn’t support the line of credit.”
He explained that Pure Barnyard could not continue its business
because it “had no packaging.”
Packard testified that, in reliance on Webb’s statement,
Pure Barnyard ordered samples of packaging for the new chicken
feather product, though at a “minimal” cost of less than $10,000.
Packard explained that the company needed to order its packaging
between 16 and 18 months in advance so that, by the time he found
out the chicken feather product was in fact unavailable, it was
too late to order new packaging for the 2008 selling season.
Packard places the value of Pure Barnyard at between $3
million and $4 million as of mid-2008. The company’s unaudited
profit and loss statement for the first six months of that year
(the only period for which such a statement has been provided)
show sales of $760,025.69, at a cost of $575,754.04. Those sales
figures includes fertilizer sales of $386,254.27 ($14,400 of that
figure represented sales to commercial customers, rather than
consumers) at a cost of $183,981.74. Nevertheless, Pure
20 Barnyard’s net income for this period was just $15,213.09, due in
part to $51,836.48 in interest charges. Pure Barnyard had
greatly reduced sales after 2008: approximately $60,000 in each
of 2009 and 2010, and $20,000 in 2011. S o , Packard says, Pure
Barnyard is “effectively . . . out of its retail business.”
Packard testified that Pure Barnyard failed because it had
run out of money--and that this occurred because the company
“believed that the Results Capital/Organic Labs thing was real
and it provided funding.” Pure Barnyard alleges that, in
reliance on these and other misstatements, its board of directors
authorized it to enter into the proposed asset purchase agreement
with Organic Holdings. But the asset purchase was never
consummated, and Pure Barnyard has not brought any claim in this
action against Results Capital or anyone else arising out of the
non-performance of the asset purchase agreement. Instead, Pure
Barnyard’s amended complaint asserts several claims against
Results Capital arising out of Webb’s misrepresentations,
including civil conspiracy, fraud, negligent misrepresentation,
and violation of N.H. Rev. Stat. Ann. § 358-A.
Pure Barnyard seeks a default judgment against Results
Capital in the amount of “at least $3,500,000.” As just noted,
21 Pure Barnyard’s theory is not that Results Capital’s
misrepresentations caused the failure of the proposed Pure
Barnyard-Organic Labs deal, or that Results Capital is otherwise
responsible for that failure. (The evidence of record, in fact,
is that the deal failed because Organic Labs backed out.)
Instead, Pure Barnyard’s theory is that, in reliance on Webb’s
representation as to Organic Labs’ contract with Cargill for the
chicken feather meal product, Pure Barnyard committed to selling
that product--rather than its own “Cockadoodle Doo” product--to
Home Depot, and that, by the time Pure Barnyard realized the
representation was false, it was too late for it to sell
“Cockadoodle Doo” to Home Depot or anyone else for that season.
Thus, Pure Barnyard argues, the result of the misrepresentations
was that Sovereign froze the company’s line of credit, leaving it
unable to buy the product or the packaging necessary to make any
further sales and, as a result, effectively putting the company
out of business.
“The party seeking to recover damages has the burden of
proving by a preponderance of the evidence the extent and the
amount of such damages.” Bailey v . Sommovigo, 137 N.H. 526, 531
(1993). Under New Hampshire law, a plaintiff can recover only
for those injuries proximately caused by the defendant’s tortious
conduct, and such “conduct is a proximate cause if it is a
22 substantial factor in bringing about the harm, and if the harm
would not have occurred without that conduct.” Trull v .
Volkswagen of Am., Inc., 145 N.H. 259, 265 (2000). This general
rule applies where, as here, the plaintiff claims to have
suffered damages as a consequence of the defendant’s
misrepresentation. See Restatement (Second) of Torts § 549(1)(b)
cmt. d (1977) (stating that “indirect or consequential damages
resulting from the misrepresentation are recoverable if the
misrepresentation is a legal cause of them”). “Causation focuses
on the mechanical sequence of events” and “is generally for the
trier of fact to resolve.” Carignan v . N.H. Int’l Speedway,
Inc., 151 N.H. 409, 415 (2004).
Based on Packard’s testimony at the damages hearing and the
other evidence of record, the court finds that the
misrepresentations at issue caused Pure Barnyard to lose the
sales that it otherwise would have made to Home Depot (of Pure
Barnyard’s “Cockadoodle Doo” product) in 2008. It was in
reliance on Webb’s statements as to Organic Labs’s contract with
Cargill for large quantities of the chicken feather meal product
that Webb offered to sell i t , rather than “Cockadoodle Doo,” to
Home Depot for the 2009 season. In the court’s view, Pure
Barnyard has also shown by a preponderance of the evidence that,
by the time it found out that Webb’s representations were false
23 and that those quantities of chicken feather meal would not in
fact be available, it could not have simply sold the “Cockadoodle
Doo” product to Home Depot instead, at least not for the 2009
season: among other reasons, Packard testified, Home Depot
rejected that solution when he offered i t .
The court cannot find, however, that Webb’s
misrepresentations, or even the sales lost to Home Depot as a
result, set in motion a chain of events that culminated in Pure
Barnyard’s destruction. While Home Depot accounted for a
substantial percentage of Pure Barnyard’s sales in 2007, the
majority of those sales were to other customers. Furthermore, at
least in the first half of 2008--the only period of time for
which Pure Barnyard supplied any detailed financial data--just
slightly more than half of its sales came from “Cockadoodle Doo”
or any other fertilizer product. So Pure Barnyard’s inability to
sell “Cockadoodle Doo” to Home Depot should not have left it
unable to sell any product to anyone.
Indeed, rather than trying to link the failure of the entire
company directly to the lost Home Depot sales, Pure Barnyard
blames its collapse on the cancellation of its line of credit.
But Pure Barnyard did not attempt to introduce the testimony of
any witness from Sovereign, or even any documents, explaining its
decision to cancel the line, and even Packard--who is not
24 competent to testify as to that matter in any event--testified
only that Sovereign had done so because Pure Barnyard “could not
continue its business” and its “finances couldn’t support the
line of credit.” But Packard did not convincingly link these
problems to Webb’s misrepresentations about the availability of
the feather meal product or even the sales to Home Depot that
Pure Barnyard lost as a result.
The closest he came was his testimony at the hearing that
Pure Barnyard “could not continue its business in 2008 and into
2009” because it “had no packaging.” But Packard acknowledged
that, had Home Depot agreed in October 2008 to accept
“Cockadoodle Doo” in lieu of the promised chicken feather meal
product, Pure Barnyard could have filled that order, though “[i]t
would have been tight.” Furthermore, Pure Barnyard does not
explain why, in reliance on Webb’s statements, it would have held
off on ordering packaging for its other products--which, again,
comprised nearly half of its sales--or, for that matter, for the
sales of “Cockadoodle Doo” to customers besides Home Depot.
Moreover, even if Packard’s testimony at the hearing could
support some plausible theory linking Webb’s misrepresentations
to Sovereign’s cancellation of the line, he articulated a
different theory entirely in the affidavit he submitted prior to
the hearing in support of the motion for default judgment.
25 There, Packard stated that “Sovereign called the loan because
Pure Barnyard has [ s i c ] gone out of business when [Organic Labs]
refused to close the consolidation transaction” (emphasis added).
The court has little trouble accepting this explanation, which
makes much more sense than Packard’s subsequent testimony that
Sovereign cancelled the line because Pure Barnyard could not
order the packaging necessary to sell one of its products, to one
of its customers, for 2009.
As already discussed, however, Pure Barnyard has never made
a claim in this action against Results Capital arising out of
Organic Labs’s failure to consummate the deal, and that includes
any theory attributing that failure to Webb’s misrepresentations
about the availability of the feather meal or anything else (a
point that Pure Barnyard acknowledged more than once at the
damages hearing). In light of Packard’s acknowledgment that Pure
Barnyard failed because Organic Labs refused to close on the
proposed merger, rather than due to Webb’s misrepresentations, it
would seem impossible to find that those misrepresentations
caused Pure Barnyard to fail.
Accordingly, the court will not award Pure Barnyard any
damages against Results Capital beyond the sales of “Cockadoodle
Doo” lost to Home Depot in 2008. While Packard suggested that
Webb’s misrepresentations had caused Pure Barnyard to lose future
26 sales to Home Depot as well, there was (as was the case with
Sovereign) no testimony by a witness from Home Depot or any other
competent evidence suggesting that Home Depot would have refused
to buy “Cockadoodle Doo,” or any other product, from Pure
Barnyard in the future simply because it failed to deliver the
promised chicken feather meal product in 2008. Indeed, while
Pure Barnyard continued selling to at least some customers in
2009, 2010, and even 2011, there is no evidence that it even
attempted to sell any product to Home Depot in any of those
years. Furthermore, Packard acknowledged an independent reason
why Home Depot might have refused to buy “Cockadoodle Doo” from
Pure Barnyard: it was too expensive. Pure Barnyard has not
carried its burden to show that Webb’s misrepresentations caused
it to lose any business, to Home Depot or any other customer,
aside from the expected sales of “Cockadoodle Doo” to Home Depot
for the 2009 season (i.e., for product to be ordered in 2008 and
delivered early in 2009).
Calculating that number--and the profit that Pure Barnyard
lost as a result--is not itself an exercise in certainty, since
Pure Barnyard did not introduce any invoices or other evidence of
its sales aside from its bare-bones financial statement for the
first half of 2008. “New Hampshire law, however, does not
require that damages be calculated with mathematical certainty,
27 and the method used to compute them need not be more than an
approximation.” George v . Al Hoyt & Sons, Inc., 162 N.H. 123,
134 (2011). This approach extends to lost profits, which can be
awarded so long as “sufficient data existed indicating that
profits were reasonably certain to result.” Id.
In the first half of 2008, Pure Barnyard reported consumer
fertilizer sales of $371,854.27. Packard testified that Home
Depot accounted for 40 percent of Pure Barnyard’s sales, but did
not break that number down specifically by product, so the court
will assume that Home Depot accounted for 40 percent of Pure
Barnyard’s consumer fertilizer sales in the first half of 2008.
Packard further testified that Home Depot typically orders
fertilizer product in the second half of one year to be delivered
in the first half of the next, so the court will assume that Pure
Barnyard’s reported fertilizer sales for the first half of 2008
reflect the entirety of its sales to Home Depot for product it
ordered in 2007.
Based on these assumptions, which the court considers
reasonable, Pure Barnyard would have sold $148,741.71 in
“Cockadoodle Doo” fertilizer to Home Depot for the 2009 season,
i.e., in the second half of 2008, but for Webb’s
misrepresentations. Buying that fertilizer would have cost Pure
Barnyard $69,732.70, at least at the 2008 levels, and there is no
28 reason to believe the cost would have risen. Sufficient data
exist to say with the requisite degree of certainty that losing
sales of “Cockadoodle Doo” to Home Depot for the 2009 selling
season cost Pure Barnyard $79,009.01 in profits. The court will
therefore award damages to Pure Barnyard in that amount.4
III. Conclusion
For the foregoing reasons, Results Capital’s motion to
strike its default5 is DENIED and Pure Barnyard’s motion for
default judgment6 is GRANTED in part. The Clerk shall enter
judgment for Pure Barnyard and against Results Capital in the sum
of $79,009.01 and close the case.
SO ORDERED.
Joseph N. Laplante ?nited States District Judge
Dated: September 26, 2012
4 While Pure Barnyard’s amended complaint sought treble damages under § 358-A, Pure Barnyard did not so much as make reference to that relief in either its motion for default judgment or Packard’s supporting affidavit nor, for that matter, at any time during the hearing. So the court considers that claim waived. 5 Document n o . 109. 6 Document n o . 104.
29 cc: Mark F. Weaver, Esq. Edmond J. Ford, Esq. William S . Gannon, Esq. Robert H. Miller, Esq. Christopher Cole, Esq. Courtney H.G. Herz, Esq. Christopher H.M. Carter, Esq.