Warren et al v. Hilton et al
ORDER granting in part and denying in part 26 Motion for Default Judgment. A default judgment shall be entered in favor of plaintiffs William Warren and Susan Miller and against defendant Turning Leaf Medical, Inc. in the total amount of $361,222.84. Signed by Judge Kristi K. DuBose on 8/1/2013. (copy to Turning Leaf) (cmj)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
WILLIAM WARREN and
JANET HILTON, an individual, and
TURNING LEAF MEDICAL, INC., an
Alabama corporation, and ALABAMA
CIVIL ACTION NO. 2:13-00084-KD-M
This action is before the Court on the second motion for default judgment filed by
plaintiffs William Warren and Susan Miller (doc. 26). Upon consideration, and for the reasons
set forth herein, the motion is GRANTED in part and DENIED in part.
I. Background and procedural history
Plaintiffs filed their complaint against Janet Hilton individually and Turning Leaf
Medical, Inc. alleging one cause of action for breach of guaranty agreement (doc. 1).1
Plaintiffs allege that non-party Dr. William Michael Stevens executed a payment agreement in
their favor in the amount of $350,000.00 and that Hilton and Turning Leaf executed a guaranty
of Stevens’ payment and performance obligations (docs. 1, 10, 33; Exhibits A & B). 2 Plaintiffs
Hilton answered the complaint, filed an amended answer, and then filed a suggestion
of bankruptcy (docs. 6, 18, 27). The action has been stayed as to Hilton individually (doc. 29).
The payment agreement and guaranty were executed as part of Dr. Stevens’ Chapter
11, Plan of Reorganization. See In re Stevens, Bankruptcy Action No. 11-04639-MAM (U.S.
Bankr. Ct. S.D. Ala. 2011) (Doc. 164, executed documents; doc. 163, Second Amended
allege that upon demand for payment, Turning Leaf did not pay the debt owed by Stevens and
therefore, breached the guaranty agreement.
Plaintiffs attempted to serve the complaint upon Turning Leaf by personal delivery to
“Jennifer Blozik, Nurse, who is designated by law to accept service of process on behalf of”
Turning Leaf and by “posting a copy of the summons at the home of the President Janet Hilton
. . .” (doc. 5). Then, they filed an application for entry of default and motion for default
judgment (doc. 9). Plaintiffs also filed their first amended complaint wherein they brought
Count One for breach of contract and added Count Five for fraud against Turning Leaf and
Hilton (doc. 10). They also added Count Two for declaratory judgment, Count Three for
detinue and Count Four for injunctive relief against the Alabama Medicaid Agency. (Id.)3
Upon review of the application for entry of default, the Court found that plaintiffs failed to
show proper service upon Turning Leaf and entered an order denying the application (doc. 12).
In the order, the Court also explained that the first amended complaint superseded the original
complaint and was now the operative document in this action.
Subsequent thereto, plaintiffs served an alias summons, the complaint, and the first
amended complaint upon Turning Leaf by personally serving a copy upon Janet Hilton, its
President and registered agent (doc. 16, return of service; doc. 12). Plaintiffs again applied for
entry of default for Turning Leaf’s failure to answer or otherwise defend the first amended
complaint (doc. 26). The Clerk entered default (doc. 28). Plaintiffs also move the court for
default judgment against Turning Leaf in the total amount of $363,344.09 (doc. 26). To date,
Chapter 11 Plan).
The AMA’s motion to dismiss is pending before the Court (doc. 35).
Turning Leaf has not appeared nor has it answered or otherwise defended this action.
II. Subject matter jurisdiction
Upon review of the first amended complaint, the Court found certain deficiencies in the
plaintiffs’ jurisdictional allegations regarding diversity of citizenship as to plaintiff Miller and
defendant Turning Leaf. The Court ordered plaintiffs to file a second amended complaint to
properly allege diversity jurisdiction (doc. 32). Plaintiffs filed their second amended complaint
wherein they allege that Miller is a citizen of the state of Nevada4 and Turning Leaf is an
Alabama corporation with its principal place of business in Alabama (doc. 33). The Court
finds that it has subject matter jurisdiction based on the allegations of diversity of citizenship
and an alleged amount in controversy in excess of the jurisdictional amount. 28 U.S.C. § 1332;
System Pipe and Supply, Inc. v. M/V Viktor Kurnatovskiy, 242 F.3d 322, 324 (5th Cir.2001)
(“When entry of default is sought against a party who has failed to plead or otherwise defend,
the district court has an affirmative duty to look into its jurisdiction both over the subject matter
and the parties.”).
III. Personal jurisdiction
The Court must address service of process and personal jurisdiction because a default
judgment would be invalid and ineffective unless the Court has personal jurisdiction over the
defendant Turning Leaf. Rash v. Rash, 173 F.3d 1376, 1381 (11th Cir.1999); Oldfield v. Pueblo
De Bahia Lora, S.A., 558 F.3d 1210, 1217 (11th Cir. 2009) (“an in personam judgment entered
The second amended complaint was signed by plaintiffs’ counsel and thus subject to
Rule 11(b)(3) of the Federal Rules of Civil Procedure which provides that “[b]y presenting to
the court a pleading ... an attorney ... certifies that to the best of the person's knowledge,
information, and belief, formed after an inquiry reasonable under the circumstances ... the
factual contentions have evidentiary support. . . ”. Fed. R. Civ. P. 11(b)(3). Therefore, the
Court will accept these jurisdictional allegations as true.
without personal jurisdiction over a defendant is void as to that defendant”) (citations omitted);
Whitney Bank v. Davis-Jeffries-Hunold, Inc., 2012 WL 2808301, *1 (S.D. Ala. July 10, 2012).
Pursuant to Rule 4(h)(1)(B) of the Federal Rules of Civil Procedure, a domestic corporation
must be served in a “judicial district of the United States” and this may be accomplished “by
delivering a copy of the summons and the complaint to an officer . . . or any other agent
authorized by appointment or by law to receive service of process[.]” Turning leaf was served
by personal service upon its President Janet Hilton in Selma, Alabama (doc. 16). Thus, the
Court finds that it has personal jurisdiction over defendant Turning Leaf.
IV. Notice to Turning Leaf
In addition to personal service of the first amended complaint, the Clerk mailed a copy
of the Clerk’s entry of default and a copy of the application for entry of default and motion for
default judgment to Turning Leaf in care of President Hilton at her address of record (doc. 28).
Hilton has received electronic notice of filing of the application for entry of default, the Clerk’s
entry of default, the motion for default judgment, the Court’s order instructing plaintiffs to
properly allege citizenship, and the second amended complaint through her counsel of record
who has appeared to represent Hilton in her individual capacity (docs. 26, 28, 32, 33). Thus,
the Court concludes that no further notice is warranted.
V. Choice of law
“[A] federal court in a diversity case is required to apply the laws, including principles
of conflict of laws, of the state in which the federal court sits.” Manuel v. Convergys Corp., 430
F.3d 1132, 1139 (11th Cir.2005) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487,
496 (1941)). Applying the principle of lex loci contractus, Alabama courts have held that the
laws of the state where the contract is made will govern, unless the parties choose a specific
state's laws. Cherry, Bekaert & Holland v. Brown, 582 So.2d 502, 506 (Ala.1991). The
guaranty agreement contains a choice of law provision which states as follows: “This guaranty
and the rights and obligations of the guarantors and the judgment creditor hereunder shall be
governed by and construed in accordance with the laws of the State of Alabama” (doc. 10-2,
Exhibit B). The parties specifically contracted for application of the laws of the State of
Alabama and executed the guaranty in this state. Thus, the laws of the State of Alabama will
Plaintiffs move the Court to enter default judgment against Turning Leaf in the
principal amount of $332,083.61, interest of $26,339.23, late fees of $2,800.00, and a
reasonable attorney fee of $2,121.25 for a total of $363,344.09 (doc. 26). Generally, if the
“claim is for a sum certain or a sum that can be made certain by computation” the clerk must
enter a default judgment. Fed.R.Civ.P. 55(b)(1). However, neither the factual allegations in the
complaint nor the counts against Turning Leaf – Count One for breach of contract and Count
Five for fraud – i.e, the “claim”, contain an allegation of a sum certain due to plaintiffs or a sum
that can be made certain. The “sum” claimed is provided by way of affidavits attached to the
motion for default judgment (doc. 25, p. 3-6). Thus, this action falls under the second part of
Rule 55(b), which provides: “In all other cases, the party must apply to the court for a default
judgment.” Fed. R. Civ. P. 55(b)(2).5
Although “[t]he court may conduct hearings . . . 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”, the
Court finds that there is sufficient evidence in the record for the Court to reach a decision. Fed.
R. Civ. P. 55(b)(2).
The Court of Appeals for the Eleventh Circuit has explained that although the entry of
default “is not treated as an absolute confession by the defendant of his liability and of the
plaintiff's right to recover,’ a defaulted defendant is deemed to ‘admit the plaintiff's wellpleaded allegations of fact.’ ” Tyco Fire & Sec., LLC v. Alcocer, 218 Fed. Appx. 860, 863 (11th
Cir. 2007) (per curiam) (quoting Nishimatsu Constr. Co. v. Houston Nat’l. Bank, 515 F. 2d
1200, 1206 (5th Cir. 1975). citations and internal quotations omitted). “The defendant,
however, ‘is not held to admit facts that are not well-pleaded or to admit conclusions of law.’”
Id. Therefore, “before entering a default judgment for damages, the district court must ensure
that the well-pleaded allegations of the complaint, which are taken as true due to the default,
actually state a substantive cause of action and that there is a substantive, sufficient basis in the
pleadings for the particular relief sought.” Id. (italics in original)
A. Count One
Under Alabama law, “[e]very suit on a guaranty agreement requires proof of the
existence of the guaranty contract, default on the underlying contract by the debtor, and
nonpayment of the amount due from the guarantor under the terms of the guaranty.” Synovus
Bank v. The Vessel ACCU V, 2012 WL 930246, *2 (S.D. Ala. March 19, 2012) (slip copy)
(quoting Delro Industries, Inc. v. Evans, 514 So.2d 976, 979 (Ala.1987)); Sharer v. Bend
Millwork Systems, Inc., 600 So.2d 223, 225–226 (Ala.1992). Plaintiffs allege that non-party
Stevens executed a payment agreement in favor of plaintiffs wherein he agreed to pay a total of
$350,000.00 with an initial payment of $10,000.00, monthly payments of $8,000.00, interest at
the rate of fifteen percent (15%), and a late fee of five percent (5%) (doc. 10, first amended
complaint, Exhibit A, payment agreement). They also allege that Stevens made the initial
payment of $10,000 “and a few monthly payments” but then defaulted. (Id.) Plaintiffs allege
that Turning Leaf executed a guaranty agreement wherein it guaranteed Stevens’ payment (Id.,
Exhibit B, guaranty). They also allege that Turning Leaf is in default of its obligations because
it failed to pay the amount due after plaintiffs made demand for payment under the terms of the
Because the guaranty is continuing, plaintiffs must establish the additional element of
notice to Turning Leaf of Stevens’ default unless Turning Leaf waived notice in the guaranty
agreement. See Sharer, 600 So.2d at 226; Delro Industries, 514 So.2d at 979; see also RBC
Bank v. CMI Electronics, Inc., 2010 WL 2719096, *2 (M.D.Ala. July 8, 2010) (slip copy).
Although plaintiffs did not specifically plead that the guaranty contained a waiver of notice,
waiver is apparent because the guaranty states that “[e]ach of the Guarantors waives all
presentments, demands for performance, notices of nonperformance, notice of acceleration,
notice of intent to accelerate, protests, notices of protest, notice of dishonor, and notice of
acceptance of this Guaranty . . .” (doc. 10-2, p. 2).
Upon consideration of the foregoing, the Court finds that Plaintiffs’ complaint sets forth
sufficient well-pleaded factual allegations of the existence of Turning Leaf’s guaranty, Stevens’
default on his payment agreement, and Turning Leaf’s non-payment under the terms of the
guaranty, which the Court must accept as true, to state a viable cause of action under Alabama
law for a breach of guaranty. Since the well-pleaded allegations are deemed admitted by
Turning Leaf’s default and the allegations are sufficient to establish a cause of action, the Court
finds that Turning Leaf is liable to plaintiffs as to Count One.
B. Count Five
Rule 9(b) of the Alabama Rules of Civil Procedure provides: “In all averments of fraud
or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.
Malice, intent, knowledge, and other condition of mind of a person may be averred generally.”
The Committee Comments to the 1973 Adoption of Rule 9 further explain that
this special requirement as to fraud and mistake does not require every element
in such actions to be stated with particularity. It simply commands the pleader to
use more than generalized or conclusory statements to set out the fraud
complained of. The pleading must show time, place and the contents or
substance of the false representations, the fact misrepresented, and an
identification of what has been obtained. ... But knowledge by the defendant of
the falsity of the representation and reliance on the representation by the plaintiff
can still be generally alleged. ... [I]t should be expected that the courts will strive
to find the details necessary for the sufficiency of such a complaint if the
pleading gives fair notice to the opposing party....”
Ala. R. Civ. P. 9(b). “The purpose of this rule is to give fair notice to the opposing party.”
Sverdrup Technology, Inc. v. Robinson. 36 So.3d 34, 44 (Ala. 2009) (citation omitted).
Plaintiffs’ allegations of fraud state that “[a]t the time of the signing of the Guaranty,
Turning Leaf and Hilton had no intention of paying the obligations of Stevens pursuant to the
Guaranty, but signed in order that Stevens could continue to work for the practice and generate
profits, while falsely representing to Plaintiffs their willingness and capability to pay the debt in
the event that Stevens could not or would not” (doc. 10, p. 6-7). Thus, Count 5 appears to be a
promissory fraud claim, i.e., a claim “based on a promise to act . . . in the future”. Ex Parte
Michelin North America, Inc., 795 So. 2d 674, 678 (Ala. 2001). If Stevens did not pay
pursuant to the payment agreement, then at some point in the future, Turning Leaf would pay
A promissory fraud claim requires proof of the elements fraud - “1) a misrepresentation
of a material [existing] fact; 2) made willfully to deceive, recklessly, without knowledge or
mistakenly; 3) that was reasonably relied on by the plaintiff… ; and 4) that caused damages….”
Bruschwitz v. Ezell, 757 So. 2d 423, 429 (Ala. 2000), plus two other elements - - 1) proof that,
at the time of the misrepresentation, the defendant had the intention not to perform the act
promised, and 2) proof that the defendant had an intent to deceive.” Allied Sales & Serv. Co. v.
Global Indus. Tech., Inc., 2000 WL 726216, *9 (S.D. Ala. May 1, 2000). Thus, to recover for
fraud “predicated on a promise to perform or abstain from some act in the future ... the
evidence [must] show that, at the time the promises of future action or abstention were made,
the promisor had no intention of carrying out the promises, but rather had a present intent to
deceive.” Purcell Co., Inc. v. Spriggs Enterprises, Inc., 431 So.2d 515, 519 (Ala.1983).
The Court accepts as true plaintiffs’ allegation that at the time of signing the guaranty
Turning Leaf misrepresented the material fact that it had the capacity and was willing to pay
should Stevens default, that plaintiffs relied upon that misrepresentation and accepted Turning
Leaf’s guaranty, and were damaged when Turning Leaf did not pay. As to the two additional
elements for promissory fraud, the Court accepts as true plaintiffs’ allegation that at the time
Turning Leaf signed the guaranty, it had no intention of paying if Stevens defaulted and had an
intent to deceive the plaintiffs as evidenced by its misrepresentation that it had the capacity and
was willing to pay should Stevens default.
Upon consideration of the foregoing, the Court finds that Plaintiffs’ complaint sets forth
sufficient well-pleaded factual allegations, which the Court must accept as true, to establish a
cause of action for fraud. Since the well-pleaded allegations are deemed admitted by Turning
Leaf’s default and the allegations are sufficient to establish a cause of action, the Court finds
that Turning Leaf is liable to plaintiffs as to Count Five.
The Court must now determine whether plaintiffs have provided sufficient proof of
damages. “While well-pleaded facts in the complaint are deemed admitted, plaintiffs'
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). Thus, the “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). Additionally, a “default judgment must not differ in kind
from, or exceed in amount, what is demanded in the pleadings.” Fed. R. Civ. P. 54(c).
In the complaint, plaintiffs brought Count One for breach of contract, specifically the
guaranty agreement, and demanded judgment against Turning Leaf and Hilton, separately and
severally, for all unpaid obligations due under Stevens’ payment agreement including interest,
late fees, and a reasonable attorneys’ fees (doc. 10, p. 3-4). In the factual allegations, plaintiffs
allege that Stevens executed a payment agreement in the principal sum of $350,000, made the
initial payment of $10,000 “and a few monthly payments” of $8,000.00 but then defaulted (doc.
10, p. 3). Plaintiffs provide the Court with a copy of the payment agreement that confirms the
allegations as to the principal, initial payment, monthly payments, interest and late fees (doc.
10, Exhibit A). According to plaintiffs’ bookkeeper, the principal balance of Stevens’ debt is
$332,083.61, interest has accrued in the amount $26,339.23, and late fees have accrued in the
amount of $2,800.00 for a total of $361,222.84 (doc. 26, p. 5-6, Affidavit of Linette Carroll).
Upon review of the complaint, the payment agreement, and the bookkeeper’s affidavit, the
Court finds that plaintiffs have provided sufficient proof of the balance due on Steven’s debt
and that plaintiffs are due to recover damages from Turning Leaf in the total amount of
D. Attorneys’ fee
Plaintiffs also seek a reasonable attorneys’ fee of $2,121.25 (doc. 26, p. 5-6). Under
Alabama law, “[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). The Court may consider the following factors when deciding
whether the attorneys’ fee sought is reasonable: “(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, 552–553 (Ala. 2004) (citation omitted). Generally, the “starting point” is the
“number of hours reasonably expended on the litigation multiplied by a reasonable hourly
rate.” Bivins v. Wrap It Up, Inc., 548 F.3d 1348, 1350 (11th Cir.2008) (internal citations and
quotation marks omitted). “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.” Id. The
court may adjust the lodestar depending upon the facts of each case. Id. at 1351.
Plaintiffs did not provide any evidence to support their assertion that the attorneys’ fee
is reasonable. Plaintiffs provide the Court with their counsel’s affidavit wherein counsel states
that plaintiffs are due reasonable attorneys fees in the amount of $2,121,25 (doc. 26, p. 4). But,
this conclusory, unsupported statement is not sufficient evidence from which the Court could
ascertain whether the hourly rate invoiced and the hours expended were reasonable. Thus, the
motion for default judgment is denied as to plaintiffs’ claim for attorneys’ fees.
For the foregoing reasons, plaintiffs’ motion for default judgment is granted in part and
denied in part. A default judgment shall be entered in favor of plaintiffs William Warren and
Susan Miller and against defendant Turning Leaf Medical, Inc., in the total amount of
The Clerk is directed to mail a copy of this order to Turning Leaf at its address of
DONE and ORDERED this the 1st day of August 2013.
/s/ Kristi K. DuBose
KRISTI K. DuBOSE
UNITED STATES DISTRICT JUDGE
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