United States of America v. A Kingdom Connection Changing Lives

Filing 14

RULING AND ORDER: Granting in part and Denied in part 12 Motion for Amended Judgment as stated herein. Signed by Judge Brian A. Jackson on 9/25/2024. (EDC)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
UNITED STATES OF AMERICA CIVIL ACTION

VERSUS
A KINGDOM CONNECTION
CHANGING LIVES NO. 22-00862-BAJ-SDJ

KULING AND ORDER
Before the Court is the United States' IVtotion To Amend Default Judgment
(Doc. 12, the "Motion") against Defendant A Kingdom Connection Changing Lives
(Kingdom). The Motion is unopposed. For the reasons that follow, the Motion will be
granted in part.

I. BACKGROUND
The United States alleges that in October 2016, the Small Business
Administration (SBA) provided a loan in the amount of $18,100.00 to Kingdom. (Doc.
1 U 5). Under the Note's terms, nine months after receiving the loan, Defendant was
to begin monthly payments in the amount of $102.00, with interest accruing at
2.625% per annum. (Id. ^ 6). On January 10, 2017, the loan was modified to increase

the loan amount to $26,300.00 and the monthly payment to $148.00, effective July
25, 2017. (Id. Ti 7).
Defendant failed to make any payments, which resulted in a default under the
Note's terms and conditions. (Id. ^ 8). On November 2, 2022, the United States sued

Defendant for breach of the loan contract, (id. ^ 10), and Defendant did not file an

answer.

In January 2023, the United States moved for a Clerk's entry of default, which
was entered against Defendant pursuant to Federal Rule of Civil Procedure 55(a).
(Docs. 6, 7). In November 2023, the Court granted the United States' Motion for

Default Judgment pursuant to Rule 55(b)(2) and entered a Judgment. (Docs. 9, 10).
The Court did not, however, award damages. The Court found that the United
States' request for damages was insufficient because the memorandum in support of

the Motion for Default Judgment "contained] no argument in support of damages
whatsoever," (Doc. 9 at 6), and the Court was unable to "mathematically calculate
damages based on "detailed affidavits establishing the necessary facts" as required

by the Rule and the U.S. Court of Appeals for the Fifth Circuit. (Doc. 9 at 6 (citing
United Artists Corp. v. Freeman, 605 F.2d 854, 857 (5th Cir. 1979)). Despite this, the
Court allowed the United States to file a separate motion to establish damages. (Id.
at 7). In particular, the Court noted its concern with the United States' proposed
damages sum of $10,003.61 in administrative costs, which was unexplained and
represented "more than one third the value of Defendant's defaulted loan." (Id.).

The United States duly filed the present Motion, and now seeks $37,942.27 in
total, which includes the original loan and negotiated increase—$26,300.00, prejudgment interest per the Note—$2,992.58, collection costs—$2,003.50, late-payment
penalty—$7,890.00, less payments—$3,000.00. (Id.). The United States also seeks
costs in the amount of $402.00. (Id.).
The Motion also attempts to explain the Government's request for

Administrative Costs. Initially, the United States requested $10,003.61, but after
communicating with the SBA, counsel for the United States now represents that the
request for Administrative Costs "is reduced to $9,201.20." (Id. at 4). Those costs are
calculated as follows:

In February 2019, the SBA referred the debt to the Department of Treasury
Bureau of the Fiscal Service for administrative debt collection pursuant to the Debt
Collection Improvement Act of 1996, 31 U.S.C. 3701, et seq. (Id.). When no payment
was made in response to a demand letter, the debt was referred to two private
collection agencies under contract with Fiscal Services." (Id.). Those collections

agencies undertook to collect the debt between September 2018 and May 2022.
The first collections agency was Performant Recovery, Inc.
In April 2019, Performant negotiated an agreement with
Defendant wherein Defendant would make a down payment of $3,500
on M.a.y 30, 2019, and then make two monthly payments of $7,500 on

June 30th and July 30th. On June 26, 2019, Performant received a
payment of $3,000. The Defendant's account was credited $2,307.70
towards principal and interest and $692.30 for costs of collection owed
to Performant. No other payments were made by Defendant. Between

June 2019 and September 2019 Performant assessed an additional
$32.52 in collection fees.

(Id. at 5).
In October 2018, the Fiscal Services referred the debt to Pioneer Credit
Recovery, Inc., which assessed fees in the amount of $2,166.44. (Id.). "Fiscal Services
assessed a charge of $2,003.34 to Defendant's balance to recover a portion of the
collection fees. (Id.). Defendant received a credit of $692.30 as part of the June 26,
2019, payment leaving a balance of $1,381.04 in outstanding fees for collection

efforts." (Id.).

Also included in Administrative Costs is a penalty in the amount of $7,890.00,
which was calculated at the rate of 6% per year from October 2017 through October
2022." (Id. at 5 (citing 31 U.S.C. §3717(e)(2) (providing that an agency "shall assess
on a claim owed by a person ... a penalty charge of not more than 6 percent a year

for failure to pay a part of a debt more than 90 days past due")). Including this fee,
the total in administrative costs comes to $9,201.20. (Id. at 6).

II. DISCUSSION
The Court already found that default judgment is appropriate here. (Doc. 9 at
2—5). The issue that remains is the extent of the damages to be awarded.
Based on the Complaint, the Motion for Default Judgment, the present Motion,
and attached evidence, the Government is entitled to recover, as detailed above, the
principal on the debt, pre-judgraent interest per the terms of the Note, and costs of
court. See, e.g., United States v. Garza, No. 3:19-CV-0188-S, 2019 WL 4452147, at *4

(N.D. Tex. Aug. 22, 2019); United States v. Texas, 507 U.S. 529, 533 (1993) ("It is a
longstanding rule that parties owing debts to the Federal Government must pay

prejudgment interest where the underlying claim is a contractual obligation to pay
money." (quotations omitted)).
However, the Government is not entitled to recover the requested

administrative costs. First, under 31 U.S.C. §§ 3711(g)(6) and 3717(e)(l), a federal
agency may charge an administrative fee sufficient to "cover the cost of processing

and handling a delinquent claim." Although the United States attaches lists of the
collection fees assessed by Performant and Pioneer, these lists provide no information

related to the nature of the charges. (Docs. 12-5, 12-6). For example, Performant

charged a fee of $1,145.92 on June 25, 2019, and the only description is an undefined
acronym: "DBJ." (Doc. 12-5 at 3). Pioneer provides similarly scant information. (Doc.
12-6 at 3 (showing that on June 2, 2020, under the undefined "Memo Code," "ADJ,"

Pioneer charged $75.63)). Generally, the lists of collection fees are just that, lists of
fees. Absent any descriptor or justification for the charges, they appear arbitrary, and
the Court is unable to determine how the fees "cover the cost of processing and

handling a delinquent claim." 31 U.S.C. § 3717(e)(l).
Second, and more importantly, section 3717(e) does not apply here. Subsection
(g) of the statute contains an important caveat to the mandate in subsection (e).
Subsection (g) states that [t]his section does not apply . . . if a statute, regulation
required by statute, loan agreement, or contract prohibits charging interest or
assessing charges or explicitly fixes the interest or charges." 31 U.S.C. § 3717(g)

(emphasis added). In this case, the Note signed by Kingdom explicitly fixed both the
interest rate for the loan and the charges that could be assessed for expenses incurred
to collect, which are limited to reasonable attorney's fees and costs." (Doc. 1-3). "This
contractual agreement fixing debt collection costs in the event of a default negates
the operation of section 3717(e)." U.S. Small Bus. Admin. v. Branson Properties, LC,

No. 215CV00656, 2016 WL 6902123, at *2 (D. Utah Nov. 23, 2016); See United States
v. Spann, 797 F. Supp. 980, 983 (S.D. Fla. 1992) (holding that where a loan agreement
contained a clause requiring the borrower "to pay 'all attorney's fees and other costs
and charges necessary for the collection of any amount not paid when due,'" the

agreement did "not fall within the friendly confines of section 3717(e), requiring the
government to recover its costs and attorneys' fees in accordance with the loan's

collection clause."). The Court finds that Kingdom should be held to the terms of its
agreement, but not more.

The United States, however, has presented no evidence to support an award of
"reasonable attorney's fees and costs" associated with collecting the debt pursuant to
the terms of the Note. It has not presented an accounting of the reasonable attorney
time expended in obtaining a default judgment, the reasonable value of this time, or,
as explained above with respect to the arbitrary private collection agency fees, any
other reasonable costs associated with collecting the amount due on the loan. Instead,
the United States seeks administrative costs in the amount of $9,201.20 on a loan for
$26,300, representing approximately a 37% surcharge—an objectively enormous
sum.1 The Court, therefore, denies the request for entry of default on the requested
$9,201.20 in administrative fees.

III. CONCLUSION
Accordingly,

IT IS ORDERED that the United States' Motion for Amended Default

Judgment (Doc. 12) be and is hereby GRANTED IN PART and DENIED IN PART.
The United States will be awarded a default judgment in the amount of $25,748.49
for the principal owed on the promissory note less payments. The United States will

1 The United States initially sought even more, (see Doc. 12-1 at 4 (In its complaint, the
United States requested administrative costs of $10,003.61")), before inexplicably reducing
the sum after receiving a "breakdown" of the fees from the agency, (Id.).

6

also be awarded pre-judgment interest in the amount of $2,992.58, costs in the
amount of $402.00 under 28 U.S.C. § 1914(a) and 28 U.S.C. § 2412, and post-judgment
interest at the rate provided by 28 U.S.C. § 1961. The United States' request for entry

of a default for administrative fees in the amount of $9,201.20 be and is hereby

DENIED.
An amended judgment shall issue separately.

^.

Baton Rouge, Louisiana, this A"'"'day of September, 2024

JUDGE BRIAN A/JAJCKSON

UNITED STATE
TRICT COURT
MIDDLE DISTRICT OF LOUISIANA