Van Roy et al v. Sakhr Software Co. (KSCC) et al

Filing 60

MEMORANDUM ORDER re 56 MOTION for Default Judgment. Signed by Judge Leonard P. Stark on 7/31/2015. (rpg)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
BENJAMIN VAN ROY, et al.,
Plaintiffs,
C.A. NO. 11-863-LPS

v.
SAKHR SOFTWARE CO. (K.S.C.C.), et
al.,
Defendants.

MEMORANDUM ORDER
Pending before the Court is a Motion For Default Judgment (the "Motion") filed by
Plaintiffs Benjamin Van Roy, et al. ("Plaintiffs"). (D.1. 56) For the reasons discussed below, the
Court will GRANT Plaintiffs' Motion.

BACKGROUND
This action stems from a merger between Sakhr Software Co., (K.S.C.C.) ("Sakhr"), a
Kuawaiti shareholding closed company, and Excuse Me Services, Inc. ("EMS"), a U.S. software
company. (D.I. 46

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1) Plaintiffs are several shareholders of EMS, including Benjamin Van

Roy; Van Roy is suing as both a shareholder of EMS and in his capacity as Representative of all
EMS shareholders. (See D.I. 57 at 1)
On October 2, 2009, Sakhr purchased 100% of EMS in an all-stock merger valued by the
parties at $14,000,000 (U.S.). (Id.) Under the terms of the merger agreement, EMS agreed to
merge with EXMS Holdings Corp., a U.S. company set up by Sakhr for the merger ("EXMS").
(D.1. 46 ~ 35) EMS would be the surviving company and EXMS' common stock would be
converted into EMS common stock. (Id.) EMS' pre-merger common stock would be cancelled
in exchange for a right to receive Sakhr shares valued at $14,000,000 as consideration for the

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merger. (Id.) Sakhr set up Sakhr Stock, LLC, a U.S. company ("Sakhr Stock"), to deliver the
merger consideration, but later Sakhr later refused to deliver the shares. (Id. at ,-i,-i 1-2)
Defendants initially asserted that Sakhr needed the approval of Kuwaiti governmental
authorities before transferring the merger consideration. (Id. at ,-i 30) More than a year later,
however, Defendants claimed Sakhr could not transfer the merger consideration because it could
not provide sufficient proof for the Kuwaiti government of the pre-merger value of EMS. (Id. at
,-r 33)

On July 8, 2014, the Court dismissed Plaintiffs' claims for violations of§ lO(b) of the
Securities Act of 1934, of§§ 7303(2) and 7323(a) of the Delaware Securities Act, and common
law fraud (based on alleged misrepresentations in the merger agreement). (D.I. 44) The Court
also dismissed Plaintiffs' claims against Steven L. Skancke and Fahad Al Sharekh, two
individual Defendants associated with Sakhr. (Id) The Court gave Plaintiffs leave to amend
their complaint with respect to the two surviving claims of breach of contract against Sakhr for
failure to indemnify and against Sakhr Stock for failure to convey the merger consideration.
Plaintiffs filed their First Amended Complaint on July 23, 2014. (DJ. 46) Sakhr and
Sakhr Stock failed to answer. On August 12, 2014, Defendants' counsel moved for leave to
withdraw. (D.I. 47) The Court granted Defendants' motion on October 8, 2014, allowing Sakhr
and Sakhr Stock 30 days to obtain new counsel. (D.I. 50) Defendants failed to meet this
deadline and, on November 10, 2014, Plaintiffs requested entry of default. (D.I. 51) The Clerk
entered their default on December 19, 2014. (D.I. 52)
On February 27, 2015, Plaintiffs filed a Motion for Default Judgment pursuant to Rule
55(b)(2), requesting that the Court enter an Order of Judgment for damages in the amount of
$14,000,000.00 in favor of Plaintiff Benjamin Van Roy, as stockholder representative, against
Sakhr Software Co. (K.S.C.C.), and damages in the amount of$10,108,086.26 in favor of

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Plaintiffs against Sakhr Stock LLC, with prejudgment interest at the legal rate from November
23, 2010, with costs. (D.I. 56)

LEGAL STANDARDS
Entry of default judgment is a two-step process. See Fed. R. Civ. P. 55(a), (b). A party
seeking to obtain a default judgment must first request that the Clerk of the Court "enter ... the
default" of the party that has not answered the pleading or "otherwise defend[ed]," within the
time required by the rules or as extended by court order. See Fed. R. Civ. P. 55(a). A party who
defaults by failing to plead or defend does not admit the allegations in the claims as to the
amount of damages. See Hoxworth v. Blinder, Robinson & Co., Inc., 980 F.2d 912 (3d Cir.
1992).

DISCUSSION
The Court will grant Plaintiffs' Motion for Default Judgment against Defendants Sakhr
Software Co. and Sakhr Stock. Plaintiffs seek to recover on a breach of contract claim arising
from a 2009 merger agreement between EMS and Sakhr Software Co. Despite being properly
served and informed about the proceeding, Defendants Sakhr Software Co. and Sakhr Stock have
failed to answer the first amended complaint or "otherwise defend" themselves in this action.
The Court provided an opportunity for these Defendants to retain counsel and warned that failure
to comply would be considered failure to defend. The Clerk of Court entered default many
months ago, and Defendants have not taken any action in response. As Plaintiffs explain in their
papers (see D.I. 57 at 5-6), Plaintiffs will be prejudiced if a default judgment is denied, as they
are denied any effective avenue for obtaining relief; there is no litigable defense, as Defendants
are deemed to have admitted the well-pleaded factual allegations made by Plaintiffs and (by
failing to file an answer) they have not asserted any affirmative defenses; and it appears
Defendants have acted culpably, as they have failed to participate in this litigation after the Court

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ruled on the motion to dismiss, notwithstanding the Court's warning that this could result in a
default judgment. See Turner v. Correctional Med. Servs., Inc., 262 F.R.D. 405, 407 (D. Del.
2009).
However, the Court is not persuaded that it should award the full amount of damages
Plaintiffs seek. Plaintiffs request judgment be entered for Van Roy against Sakhr in the amount
of $14 million, plus pre-judgment interest at the legal rate from November 23, 2010. Plaintiffs
further request that judgment be entered for "plaintiffs" against Sakhr Stock LLC in the amount
of $10,108,086.26, plus pre-judgment interest at the legal rate from November 23, 2010.
Plaintiffs have not adequately explained why this would not inappropriately result in a double
recovery. While there is an adequate basis in the record to support a judgment in the amount of
$14,000,000, plus pre-judgment interest at the legal rate from November 23, 2010, the Court is
not persuaded that it should also enter judgment in excess of an additional $10, 000, 000 as well. 1

CONCLUSION
Accordingly, for the reasons stated above, IT IS HEREBY ORDERED that:
1.

Plaintiffs' Motion for Default Judgment (D.I. 56) is GRANTED.

2.

Plaintiffs shall, no later than August 14, 2015, submit a proposed form of

judgment order consistent with today's Memorandum Order.

Dated: July 31, 2015
Wilmington, Delaware

UNITED STATES DISTRICT JUDGE

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Without the benefits of the adversarial process, the possibility that the Court has
misapprehended a position is likely increased. If Plaintiffs believe they have a proper basis for
seeking reconsideration of the Court's determination with respect to damages, they are free to do
so.
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