Southwest Reinsure Inc v. Gottdiener

• Court: District Court, N.D. Texas
• Decided: June 14, 2021
• Docket: 3:20-cv-02315
• Status: Unknown

Opinion

IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

SOUTHWEST REINSURE, INC. § § Plaintiff, § § V. § No. 3:20-cv-2315-E § COMFORT AUTO GROUP USA, § LLC, HESHY GOTTDIENER, AND § TOBE GOTTDIENER, § § Defendants.M EMORANDUM OP§I NION AND ORDER

Before the court is plaintiff Southwest Reinsure, Inc.’s Motion for Default Judgment (Doc. 22). Having considered the motion, the record, and applicable law, the Court finds the motion should be granted. BACKGROUND

Southwest Reinsure, Inc. (Southwest) brings this diversity action against defendants Comfort Auto Group USA, LLC, Heshy Gottdiener, and Tobe Gottdiener to enforce Southwest’s rights under a promissory note and guaranty (Doc. 9). On December 3, 2020, after numerous unsuccessful attempts to serve defendants with process, the Court granted Southwest’s motion to serve defendants by publication (Doc. 12). Southwest served defendants by publication in the Rockland County Times and Dallas Morning News on December 17, 2020, December 24, 2020, December 31, 2020, and January 7, 2021 (Doc. 18). Accordingly, defendants were effectively served with process by publication on or before January 7, 2021, and the time for them to file an answer or otherwise appear in this actio1n See was January 28, 2021. FED. R. CIV. P. 12. To date, defendants have not filed an answer or otherwise appeared in this action. On February 19, 2021, Southwest filed a Request for Clerk’s Entry of Default, and the District Clerk entered a default against defendants the

following day (Docs. 18 & 19). Southwest now moves the Court to enter a default judgment. LEGAL STANDARDS

“When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, ... the clerk must enter the party’s default.” FED. R. CIV. P. 55(a). Once default has been entered, the plaintiff may apply to either the clerk or the district court for a default judgment. FED. R. CIV. P. 55(b). Here, defendants were effectively served with process by publication on or before

January 7, 2021, with notice being given to the Court on February 10, 2020 (Docs. 16 & 17). Because defendants failed to file any answer, motion, or otherwise defend against this action, the Clerk entered default pursuant to Rule 55(a) on February 19, 2021 (Doc. 19). On March 3, 2021, Southwest moved for default judgment against defendants pursuant to Rule 55(b) (Doc. 22). Accordingly, SAoPuPthRwOPeRsItA hTaEsN fEoSlSl oOwF DedE FthAUe LpTr oJUpDeGr MpEroNcTe dures under Rule 55.

“Default judgments are a drastic reSmuend Bya, nnokt o ffa vOocraelad vb.y P tehleic Faned Heoraml eRsuteleasd a &n dS arev.s oArstsed to by courts only in extreme situations.” ’n,

874 F.2d 274, 276 (5th Cir. 1989). A court must first determine whether a default judgment is appropriate under the circumstances, considering “whether material issues of fact are at issue, whether there has been substantial prejudice, whether the grounds for default are clearl2y established, whether the default was caused by a good faith mistake or excusable neglect, the harshness of a default judgment, and whetSheeer L tihned csoeyu vrt. Pwroivuel dCo trhpin. k itself obliged to set aside the default on the defendant’s motion.” , 161 F.3d 886, 893 (5th Cir.

1998). InS liegeh Nt oisfh dimefaetnsdua Cnotns’s ftari. lCuore. vt.o H roeusps.o Nnadt t’lo B tahne kcomplaint, there are no material issues of fact. , 515 F.2d 1200, 1206 (5th Cir. 1975) (“defendant, by his default, admits … plaintiff’s well-pleaded allegations of fact”). Defendants’ failure to appear in this action has resulted in substantial prejudice because Southwest has been unable to receive expeditious relief. There is no evidence that defendants’ failure to respond or otherwise defend against this action is the product of a good faith mistake or excusable neglect. Defendants’ failure to respond, despite having

proper service and notice, also weighs against a finding that default judgment is overly harsh. And the Court finds no good cause obligating it to set aside the default if challenged by defendants. Having considered the Sreeel eLvinadnste yfactors, the Court finds entry of default judgment is appropriate at thiSsU tFimFICeI.E N T BASIS IN TH, E1 6P1LE FA.D3IdN aGtS 893.

Next, a court must assess the meritSse oe f Na ipshlaiminatitfsfu’s cCloanimstsr .and find sufficient basis in the pleadings for a default judgment. , 515 F.2d at 1206. In considering a motion for default judgmSeene ti, dthe court accepts as true the well-pleaded

allegations of facts in the complaint. . Although a defendant may be in default, “[t]he defendant is not held to admit facts that are not well-pleaded or to admit conclusions of law.” 3 Southwest’s Second Amended Complaint sets forth the following factual allegations, which are deemed admitted due to defendants’ failure to answer: 1. On June 14, 2019, defendant Comfort Auto Group USA, LLC (Borrower) executed

and delivered a Promissory Note (Note) in the amount of $1,800,000 to 1 Southwest; 2. On June 14, 2019, defendants Heshy Gottdiener and Tobe Gottdiener (Guarantors) executed and delivered to Southwest a Guaranty, wherein they guaranteed 2 payment of all amounts required under the Note; 3. Borrower defaulted on the Note by failing to comply with repayment obligations; 4. On July 10, 2020, Southwest provided written notice of the default to Borrower and Guarantors and demanded payment; 5. Borrower and Guarantors did not make any payment after the notice of default;

1 Under the Note, a copy of which is included in the Appendix to Southwest’s Motion for Default (Doc. 23, p. 6), Borrower was to pay minimum monthly payments of $53,947,61 each month until the loan was paid in full. The Note defines an “event of default” as:

“[f]ailure to pay this Note or any installment of principal when due in accordance with the terms of this Note … shall give Lender the rights to accelerate this Note, at which time the principal then remaining unpaid shall at once become due and payable. Any amount of outstanding principal or interest hereunder which is not paid when due, whether at stated maturity, by acceleration, or otherwise, shall bear interest payable on demand at the default rate of interest equal to the lesser of (i) fifteen percent (15%) per annum, or (ii) the highest rate permitted to be charged or Id collected by applicable law.

( .). 2 Under the Guaranty, Guarantors “absolutely and unconditionally guarantee[d], as primary obligor and not as surety, the full and punctual payment (whether at stated maturity, upon acceleration or early termination or otherwise, and at all times thereafter) and performance of the payment of the Borrower.” (Doc. 23, p. 124). 6. Southwest has suffered damages of $1,761,817.23 as of July 10, 2020, exclusive of any interest, attorney’s fees, costs or expenses; 7. All conditions precedent to Southwest’s right to maintain suit have either been

performed, satisfied, or waived; and 8. Southwest retained a law firm to protect and enforce its rights under the Note and Guaranty and agreed to pay the firm reasonable and necessary attorneys’ fees, costs, and expenses. (Doc. 9). Southwest’s suit on the Note and Guaranty are essentially breach of contract claims. To prevail on its claims under Texas law, Southwest must prove the following elements: “(1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff;

(3) breach of the contraCcet rbtya itnh Ue nddeefrewndriatnert;s aant dL l(o4y)d d'sa omf Lagoensd osnu svt.a Linowede nb yV athllee yp Vlaieinwt,i fLf .Las.C a., result of the breach.” USAA Texas 8Ll9o2y dFs. 3Cdo 1v.6 M7,e 1n7ch0a (c5ath Cir. 2018) (internal quotations and citations omitted); , 545 S.W.3d 479, 502 n.21 (Tex. 2018). Southwest has sufficiently pleaded each of the elements of its claims. The undisputed facts in the Second Amended Complaint demonstrate that Borrower is in default under the Note and Guarantors are in default under the Guaranty. As Borrower and Guarantors have failed to file an answer in this action or otherwise appear, they have

accepted these well-pleaded allegatioGnRs AaNs TtrSue. Accordingly, liability is established as a matter of law. The Court, therefore, Southwest’s motion as it relates to its request for default judgment against Borrower and Guarantors. 5 DAMAGES

“A default judgment is a judgment on the merits that conclusively Uenstiatebdli sShtaetse tsh ve. SDheifpecnod Ganent’.s liability. But it does not establish the amount of damages.”

, 814 F.2d 1011, 1014 (5th Cir. 1987). Damages may not be awarded “without aU nhiteeadr iAnrgt isotsr Cao rdpe. vm. Fornesetmration by detailed affidavits establishing the necessary facts.” an, 605 F.2d 854, 857 (5th Cir. 1979). If the amount of damages can be “determined with certainty by reference to the pleadings and supporting documents,” and where a hearing would reveal no pertineJnamt iensf vo.r Fmraatmioen, “the court need not jump through the hoop of an evidentiary hearing.” , 6 F.3d 307, 310–11 (5th Cir. 1993). Southwest has not requested a hearing and included in its Appendix the Declaration

of William J. Bigley, Southwest’s Senior Vice President, Accounting, from which the Court may calculate damages. Bigley’s Declaration and attachments in support show Southwest is owed $1,749,987.29, which represents the outstanding principal amount of $1,671,740.51 on the Note and unpaid accrued interest of $78,246.75 as of February 1, 2021 (Doc. 23. p. 4). Accordingly, the Court awards Southwest $1,749,987.26 in actual damages; $1,671,740.51 for principal owed on the Note as of February 1, 2021, and $78,246.75 for accrued and unpaid interest owed as of February 1, 2021. The Note provides that it “shall be repaid with interest at Five Percent (5%) per

annum” (Doc. 23, p. 6). According to Bigley’s Declaration, interest on the Note will continue to accrue at $232.19 per day beginning February 1, 2021 (Doc. 23). The Court, applying the contractual rate, awards prejudgment interest on the principal and accrue6d interest as of February 1, 2021, at a rate of $232.19 per diem from February 2, 2021, to June 14, 2021 ($30,881.27). Postjudgment interest on money judgments rec overed in federal district court,

iTnrcalvuedlienrgs Iinns .a nC oa. cvt.i oLnil jbebaesergd Eonnt edrisv.e, rInsict.y of citizenship, is governed by 28 U.S.C. § 1961. Fuchs v, .7 L iFfe.3tidm 1e2 D0o3o, r1s,2 I0n9c. (5th Cir. 1993) (citation and internal quotation marks omitted); , 939 F.2d 1275, 1280 (5th Cir. 1991). Accordingly, pursuant to section 1961(a), the Court awards postjudgment interest at the current federal rate of 0.05A%TT pOeRrN aEnYn’Su FmEE. S AND COSTS

Pursuant to the Note and Guaranty, Southwest also requests an award for attorney’s fees and costs that it incurred with respect to its claims. The Note provides that “[i]f [it] is

not paid when due, whether at maturity or through acceleration, or if it is collected through … court, whether at maturity or through acceleration, the Borrower agrees to pay all costs of collection incurred by the holder thereof, including but not limited to reasonable attorney’s fees” (Doc. 23, p. 6). The Guaranty provides that “the Guarantor agrees to pay all costs and expenses including, without limitation, any court costs and attorneys’ fees and expenses paid or incurred by the Lender … in endeavoring to collect all or any part of the Guaranteed Obligations from, or in prosecuting any action against, the Borrower, the Guarantor or any other guarantor on all or any part of the Guaranteed Obligations” (Doc. 23, p. 12).

“Under Texas law, when a prevailing party in a breach of contract suit seeks feMeast, hains av.w Eaxrxdo onf Creoarspo.nable fees is mandatory, as long as there is proof of reasonable fees.” , 302 F.3d 448, 461–62 (5th Cir. 2002). “There is, however, discretion t7o Id. determine the amount of the fee.” A court may award reasonable attorney’s fees and costs without a hearing if the fees can be “coJmampuetse,d with certainty by reference to the pleadings and supporting documents alone.” 6 F.3d at 311 (citation omitted).

ConsisteAnrtt hwuirt hA nTdeexrases nl aw, the Court uses the “lodestar method,” a “short hand 3 version”R oohf trhmeo os Venture v. UTfSaWct oDrsV,A Htoe adletthecramrein, eL LrPeasonable and necessary attorney’s fees. , 578 S.W.3d 469, 496, 498 (Tex. 2019). The Court first determines the reEal sAopnpalbel eI, Lhtodu. rvs. Oslpiveanst by counsel and the reasonable hourly rate for counsel’s work. , 370 S.W.3d 757, 760 (Tex. 2012). Then, the Court multiplies the number of reasonable hours counsel worked by the applicable rate to determineR othher mloodoess tVaern, wtuhriech is presumed to reflect the reasonable and necessary attorney's fees. , 578 S.W.3d at 499. The Court mIady. adjust the lodestar up or down if relevant factors indicate an adjustment is necessary. at 500–01. The party seeking attorney’s fees has the burden to provideI ds.ufficient evidence of both the reasonable hours worked and the reasonable hourly rate. at 498. “Sufficient

3 These factors for determining whether an award of attorney’s fees is reasonable are: (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly; (2) the likelihood … that the acceptance of the particular employment will preclude other employment for the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent on results obtained or uncertainty of collection before the legal Arthur Asnedrevrisceens &h aCvoe. vb.e Peenr rrye nEdqeuriepd. C. orp. 8 , 945 S.W.2d 812, 818 (Tex. 1997) (citation omitted). evidence includes, at a minimum, evidence of (1) particular services performed, (2) who performed the services, (3) approximately when the services were performed, (4) the reasonable amount of time required to perform thIed s.ervices, and (5) the reasonable hourly

rate for each attorney performing the services.” Southwest has established, by the Declaration of Jason R. Marlin, Southwest’s attorney and a partner with the law firm of Locke Lord LLP, the hours worked and rates 4 charged by its attorneys. These fees total $31,475. Southwest also has incurred costs of $4,774.42. Marlin, who has been licensed to practice law since 2005, attests that he is familiar with the usual and customary fees charged in Texas for legal services rendered in cases such as this oAnret haunrd A ins dfearmsoilniar with the work done to prosecute Southwest’s claims. He considered the factors in connection with his testimony, and based on those factors, his experience, and the circumstances of this case, it is his opinion that the attorney’s fees and costs incurred were reasonable and necessary and the amounts charged were reasonable. The Court finds that these rates are customary in the community and the fees and costs requested are reasonable and were reasonably necessary to prosecute this

4 According to the Declaration, Marlin spent 28 hours (at an hourly rate of $450), attorney Anna K. Finger spent 35 hours (at an hourly billing rate of $350), and paralegal Sandra Adams spend 15 hours (at an hourly billing rate of $200) to complete the following tasks: a) conferring with Southwest regarding factual background and strategy; b) reviewing Southwest loan documents and communications; c) drafting the Original Complaint, First Amended Complaint, and Second Amended Complaint; d) monitoring the bankruptcy filings of defendant’s related entities; e) attempting to obtain service of process on defendants; f) researching service of process issues; g) researching and drafting a motion for alternative service of process; h) researching and drafting a motion for service via publication; i) obtaining service of process via publication; j) researching default judgment issues; k) drafting a request for clerk’s entry of default; and l) drafting a motion for default judgment. Southwest also incurred $3,625 appearing in and monitoring a Chapter 11 bankruptcy proceeding filed by Borrower in the Easte rn District of New York, Brooklyn Division, Case 1-20-42730-nhl. The bankruptcy matter was dismissed after defendant Heshy Gottdiener failed to appear before the court in violation of the court’s order. 9 action. Accordingly, Southwest is entitled to an award of attorney’s fees and costs in the amount of $36,249.42. CONCLUSION

GRANTFEoDr the reOasRoDnsE RaEbDove, Southwest’s Motion for Default Judgment (Doc. 22) is . It is that default judgment be entered for Southwest in the amount of (1) $1,749,987.29 in actual damages; (2) $30,881.27 in prejudgment interest on the principal and accrued interest as of February 1, 2021; and (3) $36,249.42 in reasonable attorney's fees and costs. The Court also awards postjudgment interest at the applicable federal rate of 0.05%. In accordance with Rule 58 of the Federal Rules of Civil Procedure, a defauSltO ju OdRgDmEeRntE wDill issue by separate document. this 14th day of June, 2021.

_______________________________________ ADA BROWN UNITED STATES DISTRICT JUDGE