Chartis Aerospace Insurance Services, Inc v. AUA, Inc. et al

Filing 72

MEMORANDUM OPINION. Signed by Judge James H Hancock on 5/21/2013. (JLC)

FILED
2013 May-21 AM 09:11
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
CHARTIS AEROSPACE
INSURANCE SERVICES, INC.

)
)

PLAINTIFF
)
VS.

2:12-cv-1087-JHH
)

AUA, INC., a/k/a Aviation Unlimited
Agency, a/k/a Aviation Unlimited
)
Agency, Inc.; and RICHARD
RUSHING, JR.
)
DEFENDANTS.

)

MEMORANDUM OPINION
The court has before it the May 1, 2013 Motion (Doc. #69) for Default
Judgment against Defendants AUA, Inc. and Richard Rushing, Jr. filed by Plaintiff
Chartis Aerospace Insurance Services, Inc. (Chartis) pursuant to Federal Rule of Civil
Procedure 55(b)(2).

Chartis also filed a Memorandum (Doc. #70) in support of

Default Judgment. For the reasons stated below, the Motion (Doc. #69) is due to be
granted.
I. Procedural History
On April 10, 2012, Chartis filed the instant Complaint (Doc. #1) against
Defendants in an attempt to collect money on a Note and Personal Guarantee, as well

as additional money as a result of an alleged breach of an agreement between Chartis
and AUA, Inc. Chartis also asserted claims arising out of an alleged breach of
fiduciary duty for failure to properly maintain funds that AUA, Inc. received from
non-parties. (See Doc. #1.)
In response to the Complaint, on May 2, 2012, Defendants filed an Answer,
Counterclaim and Third-Party Complaint (Doc. # 6) against Chartis and third party
Greg Sterling. On May 23, 2012 Sterling filed a motion (Doc. # 20) to dismiss the
third party complaint for lack of jurisdiction. Additionally, Chartis and Sterling filed
a motion (Doc. #22) to dismiss the counterclaim for failure to state a claim and a
motion (Doc. # 24) to strike the affirmative defenses asserted by Defendants in their
Counterclaim and Third-Party Complaint. After extensive briefing on all three
pending motions, on July 24, 2012, the court denied Sterling’s motion to dismiss,
denied without prejudice the motion to dismiss for failure to state a claim, and
granted in part and denied in part the motion to strike. (Docs. # 41, 42 & 43.)
Three days later, after the parties and the court expended considerable time and
resources, on July 27, 2012, Defendants voluntarily dismissed with prejudice the
Counterclaim and Third Party Complaint. (Doc. # 44 & 45.) However, on August
21, 2012, Defendants filed an Amended Answer (Doc. # 46) incorporating many of
the same allegations contained in the dismissed counterclaim and third party
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complaint, in their “Statement of Facts for Affirmative Defenses.” (Id. at 6-12.)
On October 11, 2012, Chartis filed a Motion (Doc. #47) to Compel Discovery
Responses based upon its July 18, 2012 First Set of Interrogatories and First Request
for Production of Documents to Defendants. (Exh. A. to Doc. # 47.) A day later,
counsel for Defendants AUA, Inc. and Rushing filed a Motion (Doc. #49) and
Amended Motion (Doc. #50) to withdraw as counsel. Although Chartis opposed
(Doc. #51) the withdrawal of counsel, the court granted (Doc. # 57) the motion to
withdraw. The order directed the clerk to enter Defendant Rushing as appearing pro
se, but informed Defendant AUA, Inc. that it could not appear pro se and must be
represented by counsel. (Id.) The court gave Defendant AUA, Inc. until November
28, 2012 to obtain new counsel. (Id.)
In the meantime, the court turned its attention to the pending motion (Doc. #47)
to compel. On November 19, 2012, the court granted (Doc. #60) the motion in full
and gave Defendants until December 5, 2012 to fully respond to all outstanding
discovery requests.
The deadline for AUA, Inc. to obtain new counsel passed without a word from
AUA, Inc. Therefore, the court ordered the clerk of court to enter default against the
corporate defendant AUA, Inc. since it could not appear pro se. (Doc. # 61.) Default
was entered against Defendant AUA, Inc. on December 5, 2012. (Doc. # 62.)
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Then, on December 28, 2012, Chartis filed a motion (Doc. # 63) to show cause,
in which Chartis sought an entry of default against the remaining Defendant, Richard
Rushing, Jr., for failure to follow the court’s order (Doc. #60) requiring Defendants
to fully respond to all of Chartis’s outstanding discovery requests. As of the date of
the filing of the motion, Rushing had failed to supplement his discovery responses as
ordered by the court, the discovery deadline was a mere weeks away, and no
depositions had been taken in the case. The court, therefore, ordered Rushing to
respond to the motion (Doc. #63) by January 14, 2013 and warned Rushing that
failure to do so would “only add more fuel to the fire that has been started by Chartis
in support of a default judgment against him.” (Doc. # 65.)
Not surprisingly, that date past without any filing by Rushing. Chartis then
filed a motion (Doc. # 66) for entry of default against Rushing for his failure to
prosecute and failure to follow multiple orders of the court. The court agreed with
Chartis and entered default against Rushing on January 25, 2013. (Doc. # 67.)
And that brings the court to the current Motion (Doc. # 69) for Default
Judgment against Defendants AUA, Inc. and Richard Rushing, Jr., jointly and
severally. The Motion seeks money damages from Defendants. Specifically, Chartis
seeks the following: (a) $500,000 for the failure to remit payment on the promissory
note and personal guarantee, which comprises $400,000 in unpaid amounts due and
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owing on the promissory note and personal guarantee and $100,000 in attorneys fees;
(b) six percent (6%) interest running from March 20, 2012 through the date of final
judgment , as well as court costs; (c) $719,835.71, equal to the additional premium
remitted by Chartis insureds to AUA; and (d) prejudgment interest of six percent
(6%) pursuant to Alabama Code § 8-8-1, running from April 10, 2012 through the
date of final judgment. (Doc. # 69.)
II. Discussion
Federal Rule of Civil Procedure 55(b)(2) states as follows:
(b) Entering a Default Judgment.
...
(2) By the Court. In all other cases, the party must apply
to the court for a default judgment. A default judgment
may be entered against a minor or incompetent person only
if represented by a general guardian, conservator, or other
like fiduciary who has appeared. If the party against whom
a default judgment is sought has appeared personally or by
a representative, that party or its representative must be
served with written notice of the application at least 7 days
before the hearing. The court may conduct hearings or
make referrals -- preserving any federal statutory right to a
jury trial -- when, to enter or effectuate judgment, it needs
to:
(A) conduct an accounting;
(B) determine the amount of damages;
(C) establish the truth of any allegation by evidence;
or
(D) investigate any other matter.
Fed.R.Civ.P. 55(b)(2).

Here, both Defendants have appeared before the court.
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Under the rule, therefore, the court must give Defendants notice of the application for
default judgment at least seven days before any hearing.1 Fed.R.Civ.P. 55(b)(2).
However, the court is convinced that Defendants have actual notice of the default
proceedings initiated against them in this matter. First, both the order instructing
Defendant AUA, Inc. to obtain counsel (Doc. #57) and the Application for Entry of
Default (Doc. #66) as well as all briefing related to the entries of default were sent via
United States Postal Service from the Clerk to Defendants. (See Docs. # 59, 62, 65.)
Second, the court has entered orders giving both Defendants opportunities to show
cause why the respective defaults should not be entered, and those orders have been
sent to Defendants (as well as prior counsel for Defendants before they withdrew
from this case). (Docs. # 57. 61, 65.) Third, the entries of default (Docs. # 62 & 67)
were sent to Defendants and the certificates of service as to all motions regarding the
default proceedings reflect service on Defendants. Finally, the certificate of service
on the instant Motion (Doc. #69) was sent to Defendant Richard Rushing, who is the
President of AUA, Inc. Accordingly, the court concludes that no further notice to
Defendants is warranted prior to entry of default judgment against them.
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The court has determined that a hearing is not necessary to decide the pending motion
for entry of default judgement. The issues before the court are not complicated and the
allegations before it relate to sums certain. Any evidence that the court needs to consider in
assessing the claims and damages at issue have been adequately presented to the court through
documentation and oral testimony is not needed. Additionally, the court notes that Plaintiff has
not requested a hearing. For further discussion, see infra at 11-12.

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A. Entry of Default Judgment is Appropriate.
It is well established that a “district court has the authority to enter default
judgment for failure . . . to comply with its orders or rules of procedure.” Wahl v.
McIver, 773 F.2d 1169, 1174 (11th Cir. 1985). That being said, however, in this
Circuit, “there is a strong policy of determining cases on their merits and we therefore
view defaults with disfavor.” In re Worldwide Web Systems, Inc., 328 F.3d 1291,
1295 (11th Cir. 2003).
Simply put, Defendants AUA, Inc. and Richard Rushing, Jr. have stopped
defending the lawsuit against them. The court has been met with nothing but silence
from these Defendants for over six months, and, in the case of Rushing, in direct
disregard to the court’s orders for a response. In such a case as this, entry of default
judgment is appropriate. Rule 55 itself provides for entry of default and default
judgment where a defendant “has failed to plead or otherwise defend.” Fed.R.Civ.P.
55(a). Indeed “[w]hile modern courts do not favor default judgments, they are
certainly appropriate when the adversary process has been halted because of an
essentially unresponsive party.” Flynn v. Angelucci Bros. & Sons, Inc., 448
F.Supp.2d 193, 195 (D.D.C.2006) (citation omitted). That is precisely what the
Defendants have done here. Despite being notified by the court of the default
proceedings initiated against them (see Docs. #57, 61, 65), AUA, Inc. and Rushing
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have declined to defend this case, and has thereby stalled the progress of this
litigation. Therefore, entry of default judgment is proper under Rule 55 given their
failure to defend.
That being said, the law is clear that Defendants’ failure to plead or otherwise
defend the Complaint and the Entry of Default does not automatically entitle Chartis
to a default judgment in the requested amount. Indeed, a default is not “an absolute
confession by the defendant of his liability and of the plaintiff’s right to recover,” but
is instead merely “an admission of the facts cited in the Complaint, which by
themselves may or may not be sufficient to establish a defendant's liability.” Pitts ex
rel. Pitts v. Seneca Sports, Inc., 321 F.Supp.2d 1353, 1357 (S.D. Ga. 2004); see also
Nishimatsu Const. Co. v. Houston Nat’l Bank, 515 F.2d 1200, 1204 (5th Cir. 1975);
Descent v. Kolitsidas, 396 F.Supp.2d 1315, 1316 (M.D. Fla. 2005).

Stated

differently, “a default judgment cannot stand on a complaint that fails to state a
claim.” Chudasama v. Mazda Motor Corp., 123 F.3d 1353, 1370 n.41 (11th Cir.
1997); see also Eagle Hosp. Physicians, LLC v. SRG Consulting, Inc., 561 F.3d 1298,
1307 (11th Cir. 2009) (“A default defendant may, on appeal, challenge the sufficiency
of the complaint, even if he may not challenge the sufficiency of the proof.”).
With these principles in mind, the court has reviewed the Complaint and is
satisfied that it sets forth viable causes of action against the Defendants under
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Alabama law. In particular, the Complaint includes specific allegations that Chartis
and AUA, Inc. entered into an agreement wherein AUA, Inc. agreed to remit
$682,000 to Chartis in four installments. (Exh. A to Compl. at 1-7.) AUA failed to
make $400,000 in payments under the agreement. (Compl. ¶ 74.) The agreement
provided that in the event AUA, Inc. defaulted in its payment obligations, AUA, Inc.
would pay attorneys’ fees equal to 25% of the outstanding balance as well as all court
costs incurred. (Id.) Rushing signed a personal guarantee on the indebtedness
incurred as a result of the agreement. (Compl. ¶ 78.) Additionally, any payments
from Chartis’s insureds that AUA, Inc. received in 2012 constitute damages separate
and apart from the agreement. (Compl. ¶ 32.) Those payments total $719,835.71 for
2012. (Exh. A to Doc. #70.)
The factual allegations in the Complaint adequately state viable causes of
action under Alabama law for recovery under the contract, guaranties, and
conversion, as well as for unjust enrichment.

See generally Barrett v.

Radjabi-Mougadam, 39 So.3d 95, 98 (Ala. 2009) (elements of breach of contract
claim under Alabama law are valid contract, plaintiff's performance, defendant’s
nonperformance, and damages); Dickinson v. Cosmos Broad. Co., 782 So.2d 260,
266 (Ala. 2000) (“To prevail on a claim of unjust enrichment, the plaintiff must show
that the defendant holds money which, in equity and good conscience, belongs to the
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plaintiff or holds money which was improperly paid to defendant because of mistake
or fraud.” ). Because all of these well-pleaded factual allegations in the Complaint
are deemed admitted by virtue of Defendants’ default, and because they are sufficient
to state a claim under Alabama law, the court finds that AUA, Inc. and Rushing are
jointly and severally liable to Chartis.
In summary, entry of default judgment against both Defendants is appropriate
under Rule 55 given their failure to plead or otherwise defend and the sufficiency of
the well-pleaded factual allegations of the Complaint (all of which Defendants have
admitted) to establish their liability to Chartis on the breach of contracts, breach of
fiduciary duty, conversion and unjust enrichment theories as set forth in the
Complaint.
B. Plaintiff’s Proof of Damages
Notwithstanding the propriety of default judgment against Defendants, it
remains incumbent on Plaintiff to prove the amount of damages to which it is entitled.
“While well-pleaded facts in the complaint are deemed admitted, plaintiffs’
allegations relating to the amount of damages are not admitted by virtue of default;
rather, the court must determine both the amount and character of damages.” Virgin
Records America, Inc. v. Lacey, 510 F.Supp.2d 588, 593 n.5 (S.D.Ala. 2007); see
also Eastern Elec. Corp. of New Jersey v. Shoemaker Const. Co., 652 F.Supp.2d 599,
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605 (E.D.Pa. 2009) (“A party’s default does not suggest that the party has admitted
the amount of damages that the moving party seeks.”). The court notes that a hearing
is not needed to assess damages “when the district court already has a wealth of
evidence from the party requesting the hearing, such that any additional evidence
would be truly unnecessary to a fully informed determination of damages.” SEC v.
Smyth, 420 F.3d 1225, 1232 n.13 (11th Cir. 2005); United States Artist Corp. v.
Freeman, 605 F.2d 854, 857 (5th Cir. 1979) (“The case law is clear that a judgment
by default may not be entered without a hearing unless the amount claimed is a
liquidated sum or one capable of mathematical calculation.”) (citations omitted); see
also Flynn v. Extreme Granite, Inc., 671 F.Supp.2d 157, 160 (D.D.C. 2009) (district
court is not required to hold hearing to fix damages in default judgment context as
long as it ensures there is a basis for damages specified); Natures Way Marine, LLC
v. North American Materials, Inc., 2008 WL 801702, *3 (S.D.Ala. Mar. 24, 2008)
(“Although the trial court must make determinations as to the amount and character
of damages, it is not necessary to conduct an evidentiary hearing to fix damages if the
amounts sought by plaintiff are adequately supported by supporting affidavits and
other documentation.”).
The affidavit testimony indicates that the monetary damages sought by Chartis
are for a sum certain or for a sum which can by computation be made certain, to wit:
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(1) $ 400,000 owing on the Note, plus interest of 6% running from March 20, 2012
through the date of final judgment; (2) $719,835.71 owing from unpaid premiums not
remitted to Chartis, plus pre-judgment interest pursuant to Alabama Code § 8-8-1
running from April 10, 2012 through the date of final judgment; and (3) $100,350
in attorneys fees ($100,000 which represents 25% of the Note2) and court costs
($350). (Exh. A & B to Doc. #70.)
Even in the default judgment context, “[a] court has an obligation to assure
that there is a legitimate basis for any damage award it enters.” Anheuser Busch, Inc.
v. Philpot, 317 F.3d 1264, 1266 (11th Cir. 2003); see also Adolph Coors Co. v.
Movement Against Racism and the Klan, 777 F.2d 1538, 1544 (11th Cir. 1985)
(explaining that damages may be awarded on default judgment only if the record
adequately reflects the basis for award); Everyday Learning Corp. v. Larson, 242 F.3d
815, 818 (8th Cir.2001) (affirming lower court’s decision not to award damages on
default judgment, where requested damages were “speculative and not proven by a
fair preponderance of the evidence”). “Rather than merely telling the Court in
summary fashion what its damages are, a plaintiff seeking default judgment must
show the Court what those damages are, how they are calculated, and where they

2

The court notes that the agreement, signed by all parties, specifically called for attorneys
fees equal to 25% of the outstanding balance on the Note. (See Compl. Exh. A.)

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come from.” PNCEF, LLC v. Hendricks Bldg. Supply LLC, 740 F. Supp.2d 1287,
1292 (S.D.Ala. 2010). The court must abide by its obligations and award the amount
adequately supported by the record. Chartis has provided the court with ample
evidence to make an award in the amount requested. (See Doc. #70; Exhs. A & B to
Doc. # 70.)
Based upon the court’s review of the affidavit testimony and its study of the
relevant case law, the Motion (Doc. #70) for Default Judgment against Defendants
AUA, Inc. and Richard Rushing is due to be granted, and Chartis is due to recover
from Defendants, jointly and severally: (1) $400,000, plus interest of 6% running
from March 20, 2012 through the date of final judgment; (2) $719,835.71, plus prejudgment interest pursuant to Alabama Code § 8-8-1 running from April 10, 2012
through the date of final judgment; and (3) $100,350 in attorneys fees and court costs.
The court will enter a final default judgment in favor of Chartis consistent with this
memorandum opinion.
DONE this the

21st

day of May, 2013.

SENIOR UNITED STATES DISTRICT JUDGE
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