SE Property Holdings, LLC v. Elliott
Filing
14
ORDER granting in part and denying in part 12 Motion for Default Judgment as further set out. A default judgment will be entered in favor of plaintiff, SE Property Holdings, LLC, and against defendant, Harold O. Elliott, Jr., inthe amount of $128,244.79. Signed by Chief Judge William H. Steele on 3/7/2013. (jlr)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
SE PROPERTY HOLDINGS, LLC,
Plaintiff,
v.
HAROLD O. ELLIOTT, JR.,
Defendant.
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CIVIL ACTION 13-0027-WS-N
ORDER
This matter comes before the Court on plaintiff’s Motion for Default Judgment (doc. 12)
directed at defendant, Harold O. Elliott, Jr. The Motion is ripe for disposition.
I.
Background.
This case is one of numerous loan default actions that have landed on this District Court’s
docket in recent years. In a commonplace scenario in this sort of litigation, the defendant has
been properly served with process, but has not met his obligations under the Federal Rules of
Civil Procedure. Specifically, he has failed to respond, answer or in any way defend against the
well-pleaded claims. Default having been entered, defendant having received ample notice of
the pendency of such default proceedings and having steadfastly opted to remain silent, all that
now remains to be done is for the Court to verify that entry of judgment is appropriate and, if so,
fix damages and enter default judgment.
Plaintiff, SE Property Holdings, LLC (“SEPH”), commenced this action by filing a
Complaint (doc. 1) against defendant, Harold O. Elliott, Jr., in this District Court on January 22,
2013. The Complaint alleged a single state-law cause of action for breach of contract, arising
from an unpaid loan.1 The well-pleaded factual allegations of the Complaint describe the
circumstances and terms of the loan, and defendant’s nonpayment of same, in substantial detail.
1
Notwithstanding the purely state-law nature of this claims, SEPH properly
predicated federal subject-matter jurisdiction on the diversity provisions of 28 U.S.C. § 1332. In
particular, the Complaint reflects that the amount in controversy (i.e., the sum claimed to be due
(Continued)
The loan in question, Loan No. 9000004307, led to the execution of a Balloon Note (the
“Note”) by Elliott on or about March 10, 2008 in favor of SEPH’s predecessor in interest, in the
principal amount of $125,000. (Doc. 1, ¶ 8 & Exh. A.) That loan was subsequently extended,
renewed and/or modified on three occasions, and was transferred to another entity in February
2012. (Id., ¶¶ 9-12 & Exhs. B-D.) Eventually, SEPH purchased the loan, such that it now owns
all right, title and interest in such loan. (Id., ¶ 12.) The Complaint alleges that Elliott defaulted
on the loan in or around August 2012 by failing to make contractually required payments as they
came due. (Id., ¶ 13.)
The record shows that SEPH timely and properly served process on Elliott in this case.
In particular, a private process server personally served a copy of the Summons and Complaint
on Elliott at an address in Bay Minette, Alabama, on January 23, 2013. (Doc. 10.) This filing
contains clear proof of service in compliance with Rule 4(e)(2)(A), Fed.R.Civ.P.; however,
Elliott has neither appeared nor taken any action to defend against SEPH’s claims. On that basis,
a Clerk’s Entry of Default (doc. 13) was entered against defendant pursuant to Rule 55(a),
Fed.R.Civ.P., on February 15, 2013.2 SEPH has filed a Motion for Default Judgment, supported
by affidavits and exhibits to prove up the damages sought. Despite being afforded three weeks
to respond to the Motion for Default Judgment, to request that the default be set aside under Rule
and owing on the subject loan) exceeds the $75,000 jurisdictional threshold and that complete
diversity of citizenship exists among the parties (inasmuch as SEPH is a limited liability
company whose sole member is an Ohio corporation with its principal place of business in Ohio,
whereas defendant is a citizen of Alabama for diversity purposes). On this showing, the Court is
satisfied that federal jurisdiction has properly been invoked.
2
The court file confirms that Elliott has been given adequate notice of these default
proceedings. Indeed, the Clerk’s Office mailed a copy of the Clerk’s Entry of Default to
defendant at the mailing address listed on the face of the Summons, which is the same address at
which personal service of process was perfected. Moreover, Certificates of Service confirm that
SEPH served copies of both its Application for Entry of Default and its Motion for Default
Judgment on Elliott at that address. (See docs. 11, 12.) Despite such notice of these default
proceedings and a reasonable opportunity to appear and be heard both before and after the
Clerk’s Entry of Default, Elliott has chosen to refrain from taking action to defend his interests in
this case. Accordingly, the Court concludes that no further notice or invitation to defendant is
warranted prior to entry of default judgment.
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55(c), to contest damages or otherwise to be heard or participate in these proceedings, Elliott has
not appeared.
II.
Analysis.
A.
Entry of Default Judgment is Appropriate.
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); see also Varnes v. Local 91, Glass Bottle Blowers Ass’n of U.S. and Canada,
674 F.2d 1365, 1369 (11th Cir. 1982) (“Since this case involves a default judgment there must be
strict compliance with the legal prerequisites establishing the court’s power to render the
judgment.”). Nonetheless, 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).
Where, as here, a defendant has failed to appear or otherwise acknowledge the pendency
of a lawsuit for some six weeks after being served, entry of default judgment is appropriate.
Indeed, Rule 55 itself provides for entry of default and default judgment where a defendant “has
failed to plead or otherwise defend.” Rule 55(a), Fed.R.Civ.P. In a variety of contexts, courts
have entered default judgments against defendants who have failed to appear and defend in a
timely manner following proper service of process.3 In short, “[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 Elliott has done
3
See, e.g., In re Knight, 833 F.2d 1515, 1516 (11th Cir. 1987) (“Where a party
offers no good reason for the late filing of its answer, entry of default judgment against that party
is appropriate.”); Matter of Dierschke, 975 F.2d 181, 184 (5th Cir. 1992) (“when the court finds
an intentional failure of responsive pleadings there need be no other finding” to justify default
judgment); PNCEF, LLC v. Hendricks Bldg. Supply LLC, 740 F. Supp.2d 1287, 1290 (S.D. Ala.
2010) (“Where, as here, a defendant has failed to appear or otherwise acknowledge the pendency
of a lawsuit for more than three months after being served, entry of default judgment is
appropriate.”); Kidd v. Andrews, 340 F. Supp.2d 333, 338 (W.D.N.Y. 2004) (entering default
judgment against defendant who failed to answer or move against complaint for nearly three
months); Viveros v. Nationwide Janitorial Ass'n, Inc., 200 F.R.D. 681, 684 (N.D. Ga. 2000)
(entering default judgment against counterclaim defendant who had failed to answer or otherwise
respond within time provided by Rule 12(a)(2)).
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here. Despite being served with process in January 2013, defendant has declined to appear or
defend, and has effectively prevented this litigation from leaving the starting blocks.
The law is clear, however, that Elliott’s failure to appear and the Clerk’s Entry of Default
do not automatically entitle SEPH to a default judgment in the requested (or any) 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)
(similar); Cotton States Mut. Ins. Co. v. Sellars, 2008 WL 4601015, *5 (M.D. Ala. Oct. 15,
2008) (“the failure to defend does not automatically entitle a plaintiff to recover”); Descent v.
Kolitsidas, 396 F. Supp.2d 1315, 1316 (M.D. Fla. 2005) (“the defendants’ default
notwithstanding, the plaintiff is entitled to a default judgment only if the complaint states a claim
for relief”). 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.”).
In light of these principles, the Court has reviewed the Complaint, and is satisfied that it
sets forth a viable cause of action against Elliott under Alabama law. The well-pleaded factual
allegations of the Complaint reflect that Elliott executed the Note promising payment to SEPH’s
predecessor with respect to Loan No. 9000004307 in March 2008, and that Elliott subsequently
agreed to several modifications, including a Loan Modification Agreement (doc. 1, Exh. D)
dated January 20, 2012. In that Loan Modification Agreement, Elliott agreed that the
outstanding principal on the Note was $121,959.90 (consisting of unpaid amounts loaned to
Elliott by SEPH’s predecessor), and promised to make monthly payments in a fixed amount for a
30-year period ending in January 2042. Yet Elliott breached that agreement in August 2012 by
failing to make agreed payments, and did not cure his default upon notice by SEPH in December
2012. (Doc. 1, ¶ 15 & Exh. F.) In short, then, the well-pleaded facts in the Complaint show that
Elliott promised to make certain payments in consideration for money that was loaned to him,
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that Elliott breached the terms governing that loan by failing to make required payments to
SEPH, and that SEPH has been damaged by such non-performance.
These and other factual allegations in the Complaint are adequate to state a viable cause
of action under Alabama law for breach of contract.4 Because the well-pleaded factual
allegations in the Complaint are deemed admitted by virtue of Elliott’s default, and because they
are sufficient to state a breach-of-contract claim under Alabama law, the Court finds that Elliott
is liable to SEPH on Count One. Simply put, then, entry of default judgment against Elliott is
appropriate pursuant to Rule 55, given his failure to appear after service of process and the
sufficiency of the well-pleaded factual allegations of the Complaint (all of which he has now
admitted) to establish his liability to SEPH for breach of contract as specified in the Complaint.
B.
Applicable Legal Standard for Damages.
Notwithstanding the propriety of default judgment against defendant, it remains
incumbent on SEPH to prove its damages. “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, 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.”). 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
4
See generally National Sec. Fire & Cas. Co. v. DeWitt, 85 So.3d 355, 371 (Ala.
2011) (“In order to establish a breach-of-contract claim, a plaintiff must show (1) the existence
of a valid contract binding the parties in the action, (2) his own performance under the contract,
(3) the defendant’s nonperformance, and (4) damages.”) (citations omitted); Barrett v. RadjabiMougadam, 39 So.3d 95, 98 (Ala. 2009) (similar). “A promissory note is a form of contract;
therefore, it must be construed under general contract principles.” Bockman v. WCH, LLC, 943
So.2d 789, 795 (Ala. 2006).
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“speculative and not proven by a fair preponderance of the evidence”); Natures Way Marine,
LLC v. North America Materials, Inc., 2008 WL 1776946, *1 (S.D. Ala. Apr. 16, 2008) (in
default judgment setting, district court has obligation “not to award damages that are uncertain or
speculative”).5 “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 come from.” PNCEF, LLC v. Hendricks Bldg. Supply LLC, 740 F.
Supp.2d 1287, 1294 (S.D. Ala. 2010).
C.
Unpaid Principal and Interest on Loan.
To prove its damages, plaintiff has submitted the Affidavit of Deborah D. Ard, Assistant
Secretary for SEPH. Plaintiff’s evidence reflects that the final iteration of the Loan Modification
Agreement encompassing Loan No. 9000004307 was in the principal amount of $121,959.90,
with interest accruing at the yearly rate of 6.00%. (Doc. 12, Exh. A, ¶ 7; doc. 1, Exh. D.) This
evidence further establishes that the unpaid principal amount due and owing on Elliott’s loan
today is in the amount of $121,259.90. (See doc. 12, ¶ 11.)
5
In that regard, the Eleventh Circuit has explained that “[f]ederal law similarly
requires a judicial determination of damages absent a factual basis in the record,” even where the
defendant is in default. Anheuser Busch, 317 F.3d at 1266. Ordinarily, unless a plaintiff’s claim
against a defaulting defendant is for a sum certain, the law “requires the district court to hold an
evidentiary hearing” to fix the amount of damages. S.E.C. v. Smyth, 420 F.3d 1225, 1231 (11th
Cir. 2005). However, no hearing is needed “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.” Id. at 1232 n.13; 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); Eastern Elec. Corp., 652 F. Supp.2d at 605 (“In considering the amount of
damages ..., the Court may make its determination by conducting a hearing or by receiving
detailed affidavits from the claimant.”); Virgin Records, 510 F. Supp.2d at 593-94 (“Where the
amount of damages sought is a sum certain, or where an adequate record has been made via
affidavits and documentary evidence to show ... damages, no evidentiary hearing is required.”);
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.”). In this case, SEPH has not requested a damages hearing, but has instead
submitted evidence in support of the specified damages amounts. In light of these authorities
and circumstances, the damages determination will stand or fall on the written evidentiary
submissions, without the necessity of a formal hearing.
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With regard to interest, SEPH’s Motion for Default Judgment specifies that it seeks an
award of interest “at a default rate of 18.00% per annum.” (Doc. 12, ¶ 12.) The obvious
problem with this claim is that plaintiff has identified no provision (and the Court has found
none) in the subject agreements allowing for such an 18% default rate of interest. Fortunately,
however, elsewhere in plaintiff’s filings are documents confirming that the actual rate of interest
applied in computing accrued interest is 6%, and that those calculations yield accrued interest of
$4,487.29 through February 14, 2013, plus additional interest of $415.38 through today’s date.
Plaintiff having demonstrated that the bold-type amounts set forth above are elements of
damages that it is entitled to recover against Elliott in this matter, the default judgment to be
entered against defendant will reflect principal and interest damages on the breach-of-contract
claim totaling $126,162.57.
D.
Plaintiff’s Claim for Attorney’s Fees and Costs.
In addition to unpaid principal and default interest, SEPH seeks an award of attorney’s
fees and costs incurred in enforcing defendants’ payment obligations. “Alabama follows the
American rule, whereby attorney fees may be recovered if they are provided for by statute or by
contract ….” Jones v. Regions Bank, 25 So.3d 427, 441 (Ala. 2009) (citations omitted); see also
Battle v. City of Birmingham, 656 So.2d 344, 347 (Ala. 1995) (same).6 The law is clear that
“provisions regarding reasonable attorney’s fees are terms of the contracts susceptible to
breach.” Army Aviation Center Federal Credit Union v. Poston, 460 So.2d 139, 141 (Ala.
1984); see also Ierna v. Arthur Murray Int’l, Inc., 833 F.2d 1472, 1476 (11th Cir. 1987) (“When
the parties contractually provide for attorneys’ fees, the award is an integral part of the merits of
the case.”). Here, the Note specifies that SEPH “will have the right to be paid back by [Elliott]
for all of its costs and expenses in enforcing this Note to the extent not prohibited by applicable
law. Those expenses include, for example, reasonable attorneys’ fees.” (Doc. 1, Exh. A, ¶ 6.)
Under Alabama law, such attorney’s fees are recoverable; however, recovery is subject to
6
The Eleventh Circuit has hewed to the same principle. See, e.g., Dionne v.
Floormasters Enterprises, Inc., 667 F.3d 1199, 1205 (11th Cir. 2012) (“under the ‘American
Rule’ parties in litigation are expected to bear their own attorney’s fees and costs”); In re
Martinez, 416 F.3d 1286, 1288 (11th Cir. 2005) (“Generally, in federal litigation, … a prevailing
litigant may not collect an attorney’s fee from his opponent unless authorized by either a federal
statute or an enforceable contract between the parties.”).
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Alabama’s imposition of a reasonableness constraint on all fee-shifting contracts, as a matter of
public policy. See, e.g., Willow Lake Residential Ass’n, Inc. v. Juliano, 80 So.3d 226, 241
(Ala.Civ.App. 2010) (“Alabama law reads into every agreement allowing for the recovery of
attorney’s fees a reasonableness limitation.”); PNCEF, LLC v. Hendricks Bldg. Supply LLC, 740
F. Supp.2d 1287, 1294 (S.D. Ala. 2010) (rejecting claim for attorney’s fees in amount of 15% of
fund to be collected, where plaintiff made no showing of its actual attorney’s fee incurred in
enforcing contract). Thus, plaintiff is entitled to recover only its reasonable attorney’s fees and
costs incurred in collecting on Elliott’s debt.
It is well-settled that “[t]he determination of whether an attorney fee is reasonable is
within the sound discretion of the trial court.” Kiker v. Probate Court of Mobile County, 67
So.3d 865, 867 (Ala. 2010) (citations omitted). To guide this reasonableness inquiry, Alabama
courts recognize a non-exhaustive list of criteria that may properly be considered, including: “(1)
[T]he nature and value of the subject matter of the employment; (2) the learning, skill, and labor
requisite to its proper discharge; (3) the time consumed; (4) the professional experience and
reputation of the attorney; (5) the weight of his responsibilities; (6) the measure of success
achieved; (7) the reasonable expenses incurred; (8) whether a fee is fixed or contingent; (9) the
nature and length of a professional relationship; (10) the fee customarily charged in the locality
for similar legal services; (11) the likelihood that a particular employment may preclude other
employment; and (12) the time limitations imposed by the client or by the circumstances.”
Pharmacia Corp. v. McGowan, 915 So.2d 549, 552-53 (Ala. 2004) (citation omitted).
As a general proposition, “[t]he starting point for determining the amount of a reasonable
fee is the number of hours reasonably expended on the litigation multiplied by a reasonable
hourly rate.... The product of these two figures is the lodestar and there is a strong presumption
that the lodestar is the reasonable sum the attorneys deserve.” Bivins v. Wrap It Up, Inc., 548
F.3d 1348, 1350 (11th Cir. 2008) (internal citations and quotation marks omitted). “The court
may then adjust the lodestar to reach a more appropriate attorney's fee, based on a variety of
factors, including the degree of the plaintiff's success in the suit.” Association of Disabled
Americans v. Neptune Designs, Inc., 469 F.3d 1357, 1359 (11th Cir. 2006).
Plaintiff claims an award of attorney’s fees of $2,769.00, plus expenses of $5.47.
Although those gross amounts appear facially reasonable, SEPH’s evidentiary submission does
not allow thorough review of the claimed fees because many of the relevant time entries simply
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were not furnished to the Court. (See doc. 12, Exh. B, at Exh. A.) Rather than denying the
request for fees because of that omission or delaying resolution of this matter while plaintiff
supplements its evidentiary submission on this point, and in the interests of expediting entry of
default judgment, the Court in its discretion will impose a 25% across-the-board cut of plaintiff’s
claimed hours to account for potentially unreasonable entries. See generally Bivins, 548 F.3d at
1350 (where records show unreasonable hours billed, a court “has two choices: it may conduct
an hour-by-hour analysis or it may reduce the requested hours with an across-the-board cut”).
After making this modification (and without expressly approving counsel’s claimed
hourly rates or the specific time entries, the latter of which were not provided), the Court finds
that the proper amount to be awarded to plaintiff under the attorney’s fee provision of the
relevant loan documents is $2,076.75. The requested costs and expenses of $5.47 are adequately
documented and are approved as reasonable. Adding attorney’s fees and costs to the loan
balance previously found to be due and owing, the proper amount of the default judgment to be
entered against defendants is $128,244.79.
III.
Conclusion.
For all of the foregoing reasons, it is hereby ordered that Plaintiff’s Motion for Default
Judgment (doc. 12) is granted in part, and denied in part. A default judgment will be entered
in favor of plaintiff, SE Property Holdings, LLC, and against defendant, Harold O. Elliott, Jr., in
the amount of $128,244.79.
DONE and ORDERED this 7th day of March, 2013.
s/WILLIAM H. STEELE
CHIEF UNITED STATES DISTRICT JUDGE
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