Headwaters BD, LLC v. LFG Participacoes Societarias, LTDA
Filing
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RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE re 39 MOTION for Default Judgment as to Rule 55(b)(2) of the Federal Rules of Civil Procedure filed by Headwaters BD, LLC by Magistrate Judge N. Reid Neureiter on 2/14/2019. (tsher, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No.: 17-cv-02081-RM-MJW
HEADWATERS BD, LLC,
a Delaware limited liability company,
Plaintiff,
v.
LFG PARTICIPACOES SOCIETARIAS LTDA,
a/k/a LFG PARTICIPACOES SOCIETARIAS EIRELI,
a Brazilian limited liability company,
Defendant.
REPORT AND RECOMMENDATION ON
PLAINTIFF HEADWATERS BD, LLC’S
MOTION FOR DEFAULT JUDGMENT UNDER RULE 55(b)(2)
OF THE FEDERAL RULES OF CIVIL PROCEDURE
(DKT. #39)
This matter is before the Court on Plaintiff Headwaters BD, LLC’s
(“Headwaters”) Motion for Default Judgment Under Rule 55(b)(2) of the Federal Rules
of Civil Procedure against Defendant LFG Participacoes Societarias LTDA a/k/a LFG
Participacoes Societarias EIRELLI (“LFG”). [Dkt. #39]. Headwaters has moved for entry
of judgment by default against LFG, alleging that it breached the June 1, 2015 contract
between the parties, and ordering damages with statutory interest. In support of its
motion, Headwaters submitted the Declaration of Philip W. Seefried, Jr. [Dkt. #39-2]
which supports Headwaters’ damages calculations. LFG has not appeared and has not
responded to the instant motion. The Court held a hearing on this matter on February 6,
2019 at 1:30 p.m. [See Dkt. #42.] During the hearing, the Court heard the testimony of
Philip Seefried, received documentary evidence, and heard argument of counsel for the
Plaintiff.
The Court has reviewed all the adjudicative facts and considered the evidence
presented at the February 6, 2019 hearing, and in all forms in Headwaters’ motion,
including the Amended Complaint [Dkt. #14], and the declaration and exhibits submitted
with the motion. [Dkt. ##39-1—39-6.] Based on this evidence, the Court enters this
Recommended Disposition pursuant to Fed. R. Civ. P. 72(b)(1).
Having considered the record as a whole, the Court recommends the following
findings of fact and conclusions of law:
1.
On August 30, 2017, Headwaters filed its Complaint, and subsequently
filed its Amended Complaint (“Compl.”) on November 14, 2017. [Dkt. #14]. The
Summons was issued on November 15, 2017. [Dkt. #16].
2.
In late November 2017, Headwaters initiated the process to serve LFG, a
Brazilian entity, pursuant to the Inter-American Convention on Letters Rogatory (“the
Convention”), which is the applicable service convention between the United States and
Brazil. The required Court-executed forms for service of process under the Convention
were issued by the Court on November 27, 2017. [Dkt. #19].
3.
On November 1, 2018, Headwaters filed its Notice of Completed Service
of Process Under the Inter-American Service Convention on Letters Rogatory (the
“Notice”). [Dkt. #36].
4.
As set forth in the Notice, Defendant LFG was served with the Summons
and Amended Complaint under the Convention on March 13, 2018, and the Ministry of
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Justice in Brazil transmitted the completed proof of service package to the Department
of Justice’s agent in the United States on September 11, 2018. [Dkt. #36].
5.
LFG has failed to file an answer and it has not otherwise entered an
appearance in this action.
6.
On November 19, 2018, the Clerk of the Court properly entered default
against LFG. [Dkt. #38].
7.
Therefore, LFG is in default. Fed. R. Civ. P. 12(a)(1)(A)(i). Upon entry of
default, the well-pleaded allegations of the Amended Complaint related to liability are
taken as true. See e.g., Olcott v. Del. Flood Co., 327 F.3d 1115, 1125 (10th Cir. 2003)
(“defendant, by his default, admits the plaintiff’s well-pleaded allegations of fact”); see also
Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981) (holding that district court
erred by not accepting as true all factual allegations of complaint except those relating to
damages); United States v. Di Mucci, 879 F.2d 1488, 1497 (7th Cir. 1989) (noting that on
default, well-pleaded allegations of complaint relating to liability are taken as true, although
allegations relating to amount of damages are not); Geddes v. United Fin. Group, 559 F.2d
557, 560 (9th Cir. 1977) (noting that the general rule is that default by defendants
established their liability, but not extent of damages).
8.
The Court has subject matter jurisdiction over this matter under 28 U.S.C.
§ 1332 because the matter involves an action between a U.S. plaintiff and a foreign
defendant and the amount in controversy exceeds $75,000. [Compl. ¶ 3; 28 U.S.C. §
1332]. Under the terms of the contract at issue, LFG explicitly consented to personal
jurisdiction and venue in the District of Colorado for disputes arising out of the contract.
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[Compl. ¶ 5]. The contract is to be interpreted under Delaware law and the parties
waived trial by jury. [Compl. ¶ 6].
9.
Under Delaware law, to prevail on a breach of contract claim, a plaintiff must
demonstrate (i) the existence of the contract, whether express or implied, (ii) the breach of
an obligation imposed by that contract; and (iii) the resulting damages. VLIW Tech., LLC
v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003).
10.
On June 1, 2015, LFG and Headwaters entered into a valid contract.
[Compl. ¶ 9, 10; Dkt. #42-2]. Under the terms of the contract, Headwaters was to
provide investment banking services to LFG and its affiliates and subsidiaries, and to
act as LFG’s exclusive financial adviser. [Compl. ¶ 11].
11.
As part of its services under the contract, Headwaters was asked by LFG
to locate potential investors who were willing to purchase Altus Sistemas de Automacao
S.A. (“Altus”), a Brazilian affiliate of LFG. [Dkt. #42-1 ¶ 7].
12.
In attempting to locate buyers for Altus, Headwaters provided extensive
services on LFG’s behalf under the contract beginning in June 2015. Headwaters
assessed more than 490 potential buyers and contacted more than 350 potential buyers
on a global basis. Based on these contacts, Headwaters executed 21 nondisclosure
agreements with interested buyers, ultimately resulting in Altus receiving an Expression
of Interest (“EOI”) from a multi-national conglomerate to purchase 100% of Altus for $40
million. [Dkt. #42-1 ¶ 8; Dkt. #42-6].
13.
Subsequent to receiving the EOI and offer from the potential buyer, LFG
and Gerbase attempted to re-negotiate the contract with Headwaters, even requesting
that Headwaters cancel a meeting with the buyer until the contract was re-negotiated.
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LFG also delayed in hiring legal counsel for the proposed transaction and contacted the
buyer and other potential buyers in violation of the exclusivity clause of the contract.
[Dkt. #42-1 ¶ 9-10].
14.
Ultimately, LFG’s conduct led to an abandonment of the transaction
triggering the abandonment fee under the contract. [Dkt. #42-1 ¶ 11; Dkt. #42-2, pg. 4].
15.
LFG breached the terms of the contract by failing to pay the $750,000
abandonment fee relating to the $40 million offer relating to Altus. [Compl. ¶¶ 17, 2430; Dkt. #42-1 ¶¶ 7-11].
16.
In August 2016, LFG attempted to terminate the contract with Headwaters.
[Dkt. #42-1 ¶ 12; Dkt. #42-4].
17.
However, at the time, LFG had not met the termination provisions under
the contract, namely that LFG was required to pay all outstanding fees before
termination could become effective and a transaction involving a 70% percent
ownership change in an LFG-related entity needed to have been consummated. [Dkt.
#42-1 ¶ 14; Dkt. #42-2, pg. 6].
18.
On August 30, 2017, Altus publicly announced that it had entered into a
transaction with the investment arm of Banco Nacional de Desenvolvimento Economico
e Social (“BNDES”) whereby Altus bought back BNDES’ stake in the company. [Dkt.
#42-1 ¶ 15; Dkt. #42-7].
19.
Headwaters had prior discussions with BNDES with respect to the
previously-referenced EOI because BNDES was a shareholder of Altus. [Dkt. #42-1 ¶
15].
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20.
The BNDES buy-back transaction constitutes a transaction covered by the
terms of the contract. The term “Transaction” is defined broadly to include “any material
recapitalization of the Company.” [Dkt. #42-2, pg. 4]. The term “Company” is defined
broadly to include the affiliates and subsidiaries of LFG, which includes Altus. [Id. at pg.
1].
21.
Additionally, the contract contained a “tail provision” which covered any
transaction between Altus and another party (including BNDES) that occurred “at any
time prior to 36 (thirty six) months following termination of this engagement” where
Headwaters “has had discussions [with the party] on behalf of the Company.” [Id. at pg.
6].
22.
With respect to transactions covered by the contract, the terms of the
contract provide for a success fee equal to 6.5% of the transaction amount in U.S.
dollars, with a minimum cash success fee of $1,250,000. [Id. at pg. 4].
23.
LFG breached the terms of the contract by failing to pay the $1,250,000
minimum success fee relating to the recapitalization transaction between Altus and
BNDES. [Dkt. #42-1 ¶ 15].
24.
The contract provided for a monthly retainer fee of $10,000 per month.
[Dkt. #42-2, pg. 4].
25.
LFG breached the terms of the contract by failing to pay outstanding
retainer fees that were due and owing in the amount of $50,000. [Compl. ¶¶ 15, 18, 33;
Dkt. #42-1 ¶ 16].
26.
Under the terms of the contract, Headwaters is entitled to its attorneys’
fees and costs related to this matter, related to serving LFG with the Summons and
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Amended Complaint in Brazil, and related to any efforts to collect on this Final
Judgment. [Compl. ¶ 22; Dkt. #42-1 ¶ 17; Dkt. #42-2, pg. 7].
27.
The attorneys’ fees and costs currently due and owing are $61,261.70.
[Dkt. #43].
28.
Under Delaware law, a claim for anticipatory breach of contract or
anticipatory repudiation requires a plaintiff to show “an outright refusal by [the defendant]
to perform a contract or its conditions entitling ‘[the plaintiff] to treat the contract as
rescinded.’” CitiSteel USA, Inc. v. Connell Ltd. P’ship, 758 A.2d 928, 931 (Del. 2000)
(citation omitted). “Repudiation may be accomplished by words or conduct, but must be
positive and unconditional.” Henkel Corp. v. Innovative Brands Hldgs., LLC, 2013 WL
396245, at *8 (Del. Ch. Jan. 31, 2013 (internal quotations and citations omitted).
29.
LFG repudiated the contract as of August 29, 2016 through its Notice of
Engagement Termination which evidenced its positive and unconditional intent to
terminate the contract. [Compl. ¶¶ 26, 29-30; Dkt. #42-1 ¶ 12; Dkt. #42-4].
30.
Under Colorado law, a prevailing party may recover pre-judgment interest
under C.R.S. § 5-12-102, except in actions brought to recover damages for personal
injuries.
31.
Pre-judgment interest is recoverable on a “mere breach of contract,” with
the eight percent annual rate commencing “from the time of the breach.” Mesa Sand &
Gravel Co. v. Landfill, 776 P. 2d 362, 364-65 (Colo. 1989); see also, Goodyear Tire &
Rubber Co. v. Holmes, 193 P.3d 821, 826 (Colo. 2008); Smith v. Mehaffy, 30 P.3d 727,
732 (Colo. App. 2000).
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32.
Headwaters is entitled to an award of pre-judgment interest on $800,000
in damages amount accruing from August 29, 2016 (the date LFG repudiated the
contract) through the date of entry of Final Judgment with respect to the abandonment
fee and the outstanding retainer fees. The prejudgment interest from August 29, 2016
through February 13, 2019 on $800,000 totals $157,457.53.
33.
Headwaters is also entitled to an award of pre-judgment interest on
$1,250,000 in damages accruing from August 30, 2017 through the date of entry of
Final Judgment with respect to the success fee. The prejudgment interest from August
30, 2017 through February 13, 2019 on $1,250,000 totals $145,753.42.
34.
Plaintiff is not seeking prejudgment interest on the outstanding attorneys’
fees and costs.
35.
Headwaters is also entitled to an award of post-judgment interest pursuant
to 28 U.S.C. § 1961 for any delinquent amounts accruing from the date of entry of a
Final Judgment.
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WHEREFORE, based on the foregoing:
I.
IT IS HEREBY RECOMMENDED that Final Judgment be entered in favor of
Plaintiff against Defendant. Defendant is ordered to pay damages of $2,111,261.70,
together with prejudgment interest thereon in the amount of $303,210.95. Defendant
shall satisfy these obligations by paying these amounts within 14 days after entry of
Final Judgment by certified check, bank cashier’s check, or wire transfer to Capstone
Headwaters, 1225 17th Street, Suite 1725, Denver, Colorado 80202, telephone (303)
572-6000. Payments shall be net of Brazilian taxes, fees and/or remittance costs.
Defendant shall pay post-judgment interest on any delinquent amounts pursuant to 28
U.S.C. § 1961.
II.
IT IS FURTHER RECOMMENDED that this Court shall retain jurisdiction of this
matter for the purposes of enforcing the terms of any Final Judgment entered by the
Court.
NOTICE: Pursuant to 28 U.S.C. § 636(b)(1)(c) and Fed. R. Civ. P. 72(b)(2),
the parties have fourteen (14) days after service of this recommendation to serve
and file specific written objections to the above recommendation with the District
Judge assigned to the case. A party may respond to another party’s objections
within fourteen (14) days after being served with a copy. The District Judge need
not consider frivolous, conclusive, or general objections. A party’s failure to file
and serve such written, specific objections waives de novo review of the
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recommendation by the District Judge, Thomas v. Arn, 474 U.S. 140, 148-53
(1985), and also waives appellate review of both factual and legal questions.
Makin v. Colorado Dep’t of Corrections, 183 F.3d 1205, 1210 (10th Cir. 1999);
Talley v. Hesse, 91 F.3d 1411, 1412-13 (10th Cir. 1996).
SO RECOMMENDED, this 14th day of February, 2019.
BY THE COURT:
United States District Magistrate Judge
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