Newell Recycling, LLC, v. DC Brands International, Inc., et al

Filing 23

ORDER denying without prejudice 17 Plaintiffs Motion for Entry of Default Judgment, by Judge William J. Martinez on 3/24/2014.(evana, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 13-cv-1238-WJM-KMT
NEWELL RECYCLING, LLC, a Georgia limited liability company,
Plaintiff,
v.
DC BRANDS INTERNATIONAL, INC., a Colorado corporation; and
RICHARD J. PEARCE, an individual,
Defendants.

ORDER DENYING PLAINTIFF’S MOTION FOR ENTRY OF
DEFAULT JUDGMENT AGAINST DEFENDANTS

Plaintiff Newell Recycling, LLC (“Plaintiff”) brings this action against DC Brands
International, Inc. (“DC Brands”) and Richard J. Pearce (“Pearce”) (together, with DC
Brands, the “Defendants”) alleging breach of certain promissory notes and guarantees.
(ECF No. 1.) Before the Court is Plaintiff’s Motion for Entry of Default Judgment Against
Defendants (the “Motion”). (ECF No. 17.) For the following reasons, the Motion is
denied.
I. BACKGROUND
Plaintiff initiated this action by filing a Complaint on May 9, 2013. (Compl. (ECF
No. 1).) The Complaint alleges that on or about June 1, 2011, DC Brands entered into
two Promissory Notes, each in the original principal amount of $375,000, one payable to
Louis “Chip” Shirley (“Shirley”) (the “Shirley Note”), and the other payable to Robert
Ward (“Ward”) (the “Ward Note”) (together, the “Notes”). (Compl. ¶¶ 9, 11; ECF Nos. 1-

1, 1-2.) The Shirley Note was partially guaranteed by Pearce pursuant to a Guaranty
dated June 1, 2011, executed by Pearce in his individual capacity (the “Shirley
Guaranty”). (Compl. ¶ 13; ECF No. 1-3.) Similarly, the Ward Note was partially
guaranteed by Pearce pursuant to a Guaranty dated June 1, 2011, executed by Pearce
in his individual capacity (the “Ward Guaranty”) (together, with the “Shirley Guaranty,”
the “Guarantees”). (Compl. ¶ 15; ECF No. 1-4.) On or about December 31, 2011,
Shirley and Ward conveyed, transferred and assigned all of their rights, title and
interests in and to the Notes and Guarantees, to Plaintiff, who is the current holder of
the Notes and Guarantees. (Compl. ¶ 19.) Plaintiff alleges that Defendants have failed
and refused to pay any amount past due and owing under the Shirley Note and the
Ward Note. (Compl. ¶ 23.)
Plaintiff brings claims for breach of the Notes against DC Brands and breach of
the Guarantees against Pearce. (Compl. ¶¶ 24-49.) Plaintiff seeks the following
damages: (1) $750,000 for the principal amount of both Notes; (2) $625,000 for the
principal amount of both Guarantees; (3) accrued interest on the Notes and
Guarantees; and (4) all costs of collection, including attorneys’ fees. (ECF No. 17 at 4,
5.)
Between May 21, 2013 and May 25, 2013, both Defendants were served with a
Summons and a copy of the Complaint. (ECF Nos. 7, 8.) After Defendants failed to
answer or otherwise defend against this action, upon Plaintiff’s Motion, the clerk entered
default against both Defendants. (ECF No. 13.) Plaintiff filed its Motion for Entry of
Default Judgment Against Defendants on August 22, 2013. (ECF No. 17.) On March 3,
2014, the Court ordered Plaintiff to submit supplemental briefing explaining how Plaintiff
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is entitled to the ful amount due under the Notes when the maturity date on the Notes
has not Passed and the Notes do not contain acceleration clauses. (ECF No. 20.)
Plaintiff submitted the supplemental briefing on March 10, 2014 (the “Supplemental
Brief”). (ECF No. 22.)
The Court has reviewed the Motion, the exhibits and affidavits, and the
applicable law, and is sufficiently advised on the issues involved.
II. LEGAL STANDARD
Default must enter against a party who fails to appear or otherwise defend a
lawsuit. Fed. R. Civ. P. 55(a). Pursuant to Rule 55(b)(1), default judgment must be
entered by the clerk of court if the claim is for “a sum certain”; in all other cases, “the
party must apply to the court for a default judgment.” Fed. R. Civ. P. 55(b)(2).
“[D]efault judgment must normally be viewed as available only when the adversary
process has been halted because of an essentially unresponsive party. In that
instance, the diligent party must be protected lest he be faced with interminable delay
and continued uncertainty as to his rights. The default judgment remedy serves as such
a protection.” In re Rains, 946 F.2d 731, 732-33 (10th Cir. 1991) (internal quotation
marks and citation omitted).
Further, “a party is not entitled to a default judgment as of right; rather the entry
of a default judgment is entrusted to the ‘sound judicial discretion’ of the court.”
Greenwich Ins. Co. v. Daniel Law Firm, No. 07-cv-2445, 2008 WL 793606, at *2 (D.
Colo. Mar. 22, 2008) (internal citation omitted). Before granting a motion for default
judgment, the Court must take several steps. First, the Court must ensure that it has
personal jurisdiction over the defaulting Defendants and subject matter over the action.
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See Williams v. Life Sav. & Loan, 802 F .2d 1200, 1202-03 (10th Cir. 1986). Next, the
Court should consider whether the well-pleaded allegations of fact which are deemed
admitted by a defendant in default support a judgment on the claims against the
defaulting defendants. See Fed. Fruit & Produce Co. v. Red Tomato, Inc., 2009 WL
765872, *3 (D. Colo. March 20, 2009) (“Even after entry of default, however, it remains
for the court to consider whether the unchallenged facts constitute a legitimate basis for
the entry of a judgment.”) (citations omitted). “In determining whether a claim for relief
has been established, the well-pleaded facts of the complaint are deemed true.” Id.
(citing Dundee Cement Co. v. Howard Pipe & Concrete Prods., Inc., 722 F.2d 1319,
1323 (7th Cir. 1983)). Once the Court is satisfied that default judgment should be
entered, it has the discretion to hold a hearing to determine the amount of damages.
See Fed. R. Civ. Pro. 55(b)(2). Generally, a damages hearing is not needed when the
damages requested are for a sum certain. See United States v. Craighead, 176 F.
App’x 922, 925 (10th Cir. 2006).
III. ANALYSIS
A.

Jurisdiction
The Court finds that jurisdiction exists in this case pursuant to 28 U.S.C. § 1332

because the parties are of diverse citizenship and the matter in controversy exceeds
$75,000, exclusive of interest and costs. Pearce resides in Texas, and DC Brands is
registered to do business in Colorado. (Compl. ¶¶ 3-4.) Accordingly, the Court finds
that it has personal jurisdiction over all Defendants.

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B.

Default Judgment for Sum Certain Damages
The Court finds that a default judgment should not be entered at this time for the

damages that Plaintiff seeks. Actual proof must support any default judgment for
money damages. See Klapprott v. United States, 335 U.S. 601, 611-12 (1949).
Moreover, the amount of damages must be ascertained before a final default judgment
can be entered against a party. See Herzfeld v. Parker, 100 F.R.D. 770, 773 (D. Colo.
1984) (citing 10 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure: Civil §
2692 at 465–66 (1983)).
Here, Plaintiff is seeking damages in the full principal amount of the Notes, which
will not mature until June 1, 2014. (ECF Nos. 17 at 4-5, 1-1, 1-2.) The Notes do not
contain acceleration clauses. (ECF Nos. 1-1, 1-2.) Plaintiff has not shown its entitlement
to the principal amounts on the Notes that are not yet due1 and has, therefore, failed to
prove its damages. See Klapprott v. United States, 335 U.S. at 611-12.
IV. CONCLUSION
Accordingly, Plaintiff’s Motion for Entry of Default Judgment (ECF No. 17) is
DENIED WITHOUT PREJUDICE to refiling same subsequent to the date of maturity of
the Notes on June 1, 2014.2

1

The Court ordered Plaintiff to submit supplemental briefing to explain how Plaintiff is
entitled to the full amount due under the Notes. (ECF No. 20.) The Supplemental Brief stated
that Plaintiff is entitled to full damages because Defendants anticipatorily breached the Notes
and Guarantees. (ECF No. 22.) The Supplemental Brief does not answer the Court’s question,
however, of how Plaintiff is entitled to full damages on the Notes when the Notes do not contain
acceleration clauses and the maturity date on the Notes has not yet passed.
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Since the Court has determined that Plaintiff has not proved its damages, it will
postpone its determination of whether Plaintiff’s “unchallenged facts constitute a legitimate basis
for the entry of a judgment.” See Fed. Fruit, 2009 WL 765872, at *3.

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Dated this 24th day of March, 2014.
BY THE COURT:

_______________________
William J. Martínez
United States District Judge

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