LPS Default Solutions, Inc. v. Friedman & MacFadyen P.A.
Filing
24
REPORT AND RECOMMENDATIONS re 10 MOTION for Default Judgment as to Money Judgment filed by LPS Default Solutions, Inc.; Objections to R&R due by 8/19/2013. Signed by Magistrate Judge Susan K. Gauvey on 8/2/13. (dass, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
LPS DEFAULT SOLUTIONS, INC.
v.
*
*
FRIEDMAN & MACFADYEN, P.A.
CIVIL NO. WDQ-13-0794
*
REPORT AND RECOMMENDATION
This matter comes before the Court upon motion by LPS
Default Solutions, Inc.(“LPS” or “plaintiff”) for an entry of
default judgment against Friedman & MacFadyen, P.A. (“Friedman”
or “defendant”), pursuant to Rule 55(b)(2) of the Federal Rules
of Civil Procedure, for failure to appear or otherwise defend in
this matter. On March 14, 2013, plaintiff filed a complaint
alleging that defendant owed sums certain to plaintiff under
accounts stated (Counts One and Three) and breached their
contracts with plaintiff (Counts Two and Four), by failing to
pay amounts due under four separate contracts. (ECF No. 1, 4-5).
For the reasons discussed herein, I recommend that plaintiff’s
motion (ECF No. 10) be GRANTED and that damages be awarded as
set forth herein.
Background
On or about February 3, 2004, Friedman and LPS executed two
service agreements (“DC Services Agreement” and “Virginia
Services Agreement”) under which LPS (which was known at the
time as Fidelity National Foreclosure Solutions, Inc.) would
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provide “certain administrative services” to Friedman in
connection with Friedman’s legal work in the District of
Columbia and Virginia. (ECF No. 1, ¶ 7). On or about the
following day, the parties entered into a similar agreement
(“Maryland Services Agreement,” collectively the “Services
Agreements” with the prior agreements). Id. at ¶ 8. On or about
August 22, 2005, the same parties entered into a fourth
agreement for payment of license fees for Friedman’s use of
certain computer software (the “NewTrak Agreement”). Id. at ¶
13.
LPS invoiced Friedman for the amounts due under all four
contracts for the services rendered, and Friedman did not object
to the invoices nor the statements also sent by LPS. Id.
According to the complaint filed by LPS, Friedman owes a total
of $48,077.50 under the Service Agreements and $501,630.00 under
the NewTrak agreement. Id. at 2-3.
Default Judgment Standard
Federal Rule of Civil Procedure 55(b)(2) authorizes courts
to enter a default judgment against a properly served defendant
who fails to file a timely responsive pleading. In deciding
whether to grant a motion for default judgment, the Court must
first consider the following three factors: (1) whether the
plaintiff will be prejudiced if default is not granted, (2)
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whether the defendant has a meritorious defense, and (3) whether
the defendant’s delay was the result of culpable misconduct.
Emcasco Ins. Co. v. Sambrick, 834 F.2d 71, 73 (3rd Cir. 1987),
see also Smith v. Bounds, 813 F.2d 1299 (4th Cir. 1987)(relying
on these factors in determining whether a default judgment
merited reconsideration).
The Court must also determine whether plaintiff has alleged
legitimate causes of action. In reviewing plaintiff’s Motion for
Entry of Money Judgment by Default, the Court accepts as true
the well-pleaded factual allegations in the complaint as to
liability. Ryan v. Homecomings Fin. Network, 253 F.3d 778, 78081 (4th Cir. 2001). It, however, remains for the Court to
determine whether these unchallenged factual allegations
constitute a legitimate cause of action. Id., see also 10A WRIGHT,
MILLER & KANE, FEDERAL PRACTICE
AND
PROCEDURE § 2688 (3rd ed. Supp.
2010) (“[L]iability is not deemed established simply because of
the default . . . and the Court, in its discretion, may require
some proof of the facts that must be established in order to
determine liability.”).
If the Court determines that liability is established, it
must then determine the appropriate amount of damages. Ryan, 253
F.3d at 780-81. Unlike allegations of fact establishing
liability, the Court does not accept factual allegations
regarding damages as true, but rather must make an independent
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determination regarding such allegations. See Credit Lyonnais
Secs. (USA), Inc. v. Alcantara, 183 F.3d 151, 154 (2nd Cir.
1999). In so doing, the Court may conduct an evidentiary
hearing. FED. R. CIV. P. 55(b)(2).
The Court may also make a
determination of damages without a hearing as long as there is
an adequate evidentiary basis in the record for the award. See,
e.g., Stephenson v. El-Batrawi, 524 F.3d 907, 917 n.11 (8th Cir.
2008) (“Foregoing an evidentiary hearing may constitute an abuse
of discretion when the existing record is insufficient to make
the necessary findings in support of a default judgment.”);
Adkins v. Teseo, 180 F. Supp. 2d 15, 17 (D.D.C. 2001) (finding
that a court need not make determination of damages following
entry of default through hearing, but rather may rely on
detailed affidavits or documentary evidence to determine the
appropriate sum).
Preliminary Factors
The Clerk of Court having filed entry of default on April
30, 2013 (ECF No. 9), the undersigned concludes that the
procedural requirements for entry of default judgment have been
met. Moreover, because defendant has failed to file any
responsive pleadings or otherwise show cause as to why default
should not be granted, the Court is “not in a position to judge
whether any delay was the result of culpable misconduct.”
Sambrick, 834 F.2d at 73. Further, defendant’s failure to appear
4
deprived plaintiff of any other means of vindicating their claim
and plaintiff would be prejudiced if default is not granted.
Discussion
A. Services Agreements
LPS and Friedman entered into the three Services Agreements
on or about February 3-4, 2004. (ECF No. 1, 2). The agreements
provided that LPS would provide Friedman with non-legal
administrative services related to mortgage foreclosures,
bankruptcies, and other loan default services, in exchange for
payment of their invoices within thirty days. (ECF No. 14-16,
4).
The agreements do not state which state law governs the
agreements, nor do they address which venue should be used to
resolve any legal disputes arising from them. Id. When a
diversity case results in a choice of law question, “a federal
court must apply the choice of law rules of the state in which
it sits to determine which state’s substantive law applies[.]”
17A JAMES WM. MOORE
ET AL.,
MOORE’S FEDERAL PRACTICE – CIVIL § 124.30 (3d
ed.)(citing Griffin v. McCoach, 313 U.S. 498, 503 (1941)).
Accordingly, this Court must turn to the Maryland choice of law
rules. In Maryland, “a contractual claim … is governed by the
law of the place where the contract is made, which is the place
where the last act required to make a contract binding occurs.”
Schwartz v. Rent A Wreck of Am., Inc., 468 Fed. Appx. 238, 256
5
(4th Cir. 2012)(quoting Harte-Hanks Direct Mktg./Baltimore, Inc.
v. Varilease Techn. Fin. Gr., Inc., 299 F. Supp. 2d 505, 518
n.13 (D. Md. 2004)). Additionally, “Maryland has not adopted the
‘most significant relationship’ test stated in § 188 of the
Restatement (Second) but has maintained its allegiance to the
lex loci contractus principle.” Baker’s Express, LLC v.
Arrowpoint Capital Corp., 2012 U.S. Dist. LEXIS 135418, at *2830 (D. Md. 2012)(quoting Jackson v. Pasadena Receivables, Inc.,
398 Md. 611, 619 n.3 (2007)).
There is insufficient information in the complaint to
determine where the “last act” to make the contract binding
occurred. However, it is reasonable to assume the contract
between LPS and Friedman would be governed by either Maryland
law (Friedman’s principal place of business) or Minnesota (LPS’s
principal place of business). (ECF No. 1, 1-2). The law
governing simple breach of contract and account stated claims is
equivalent in both states, so the complaint can be evaluated for
adequate causes of action without finding which state’s laws are
binding.
i. Account Stated
In Count One of their complaint, LPS alleges a cause of
action against Friedman for account stated in relation to the
three Services Agreements. (ECF No. 1, 4). In Maryland,
in order to maintain a cause of action on an
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account stated, all that need be shown is an
admission that the stated sum of money
constitutes a present existing debt. Such
admission need not be express, but may be
inferred. Thus, under appropriate
circumstances, a failure within a reasonable
time to object to the correctness of a
stated sum may be regarded as an admission
of liability.
Baltimore County v. Archway Motors, Inc., 35 Md. App. 158, 166
(Ct. Spec. App. 1977)(citing Lyell v. Walbach, 111 Md. 610, 61415 (1909)).
The Minnesota Supreme Court has defined account stated
similarly, stating “an account stated is an agreement, express
or implied, between persons having business relations, that a
statement of account between them is correct.” See, e.g. Lentz
v. Pearson, 246 Minn. 145, 151 (1956)(citing 1 Dunnell Dig. (3
ed.) § 50). Minnesota similarly acknowledges that an
“acquiescence in the existing condition liability between the
parties” may be proven by “retention of a statement of account
without objection for more than a reasonable length of time[.]”
Bureau of Credit Control, Inc. v. Luzaich, 282 Minn. 530, 532533 (Minn. 1968).
Here, LPS claims Friedman owed $48,077.50 under the
Services Agreements and failed to respond to “numerous” invoices
and statements illustrating the balance due, resulting in an
implicit promise to pay. (ECF No. 1, 3-4). Accepting these wellpled factual allegations as true, a cause of action for account
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stated against Friedman exists.
ii. Breach of Contract
In Count Two of the complaint, LPS alleges Friedman
breached their contract with LPS by failing to pay invoices for
the services provided by LPS. Under Maryland law, the elements
of a breach of contract are (1) a contractual obligation and (2)
a material breach of that obligation. Taylor v. NationsBank,
N.A., 365 Md. 166, 175 (Md. 2001); Capitol Radiology, LLC v.
Bank, 439 Fed. Appx. 222 (4th Cir. 2011)(citing id.).
Under Minnesota law, the elements of a breach of contract
are similar: “the plaintiff must show (1) formation of a
contract, (2) performance by plaintiff of any conditions
precedent to his right to demand performance by the defendant,
and (3) breach of the contract by defendant.” Park Nicollet
Clinic v. Hamann, 808 N.W.2d 828, 833 (Minn. 2011).
Here, plaintiff has provided the Court with a signed copy
of each agreement indicating contractual obligations were
formed, meeting the first element of both Maryland and Minnesota
law. (ECF No. 14-16). Plaintiff asserts that defendant breached
these contracts when they failed to pay the invoices listed in
Exhibit E submitted with the plaintiff’s supplemental documents
response. (ECF No. 1, ¶ 22; ECF No. 18). The invoices indicate
LPS performed the condition precedent (performance of
administrative services) to their demand of performance (request
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for payment), meeting the second element of Minnesota law.
Finally, the agreements are unambiguous and provide that
Friedman would pay LPS within thirty days of each invoice for
LPS’s services rendered. Id. Failure to pay the invoices was a
material breach of the agreements, meeting the final element of
both Maryland and Minnesota law. These unchallenged assertions
of fact constitute a legitimate cause of action for breach of
contract against Friedman.
B. NewTrak Agreement
LPS and Friedman entered into a fourth contract, the
NewTrak Agreement, on or about August 22, 2005. (ECF No. 1, 3).
The Agreement provided that LPS would provide Friedman with
access to utilize a computer software application (NewTrak)
designed and owned by LPS in exchange for license and usage
fees. (ECF No. 17, 1). The agreement indicated that the “laws
and judicial decisions of the state of Florida shall govern its
validity, construction, interpretation, and legal effect[.]”
(ECF No. 17, 6).
i. Account Stated
In Count Three of their complaint, LPS alleges a cause of
action against Friedman for account stated in relation to the
NewTrak Agreement. (ECF No. 1, 5). Florida law on account stated
is similar to the Maryland and Minnesota law discussed in
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Section A of this discussion: “for an account stated to exist as
a matter of law, there must be an agreement between the parties
that a certain balance is correct and due and an express or
implicit promise to pay this balance.” Merrill-Stevens Dry Dock
Co. v. “cornice Express”, 400 So. 2d 1286 (Fla. Dist. Ct. App.
3d Dist. 1981)(collecting cases).
Here, LPS claims Friedman owed $501,360.00 under the
NewTrak Agreement and failed to respond to “numerous” invoices
and statements illustrating the balance due, resulting in an
implicit promise to pay. (ECF No. 1, ¶ 15). Accepting these
well-pled factual allegations as true, a cause of action for
account stated against Friedman exists.
ii. Breach of Contract
In Count Four of the complaint, LPS alleges Friedman
breached their contract with LPS by failing to pay invoices for
the services provided by LPS under the NewTrak Agreement. Under
Florida law,
the elements of an action for breach of contract are:
(1) the existence of a contract, (2) a breach of the
contract, and (3) damages resulting from the breach.
“In addition, in order to maintain an action for
breach of contract, a claimant must also prove
performance of its obligations under the contract or a
legal excuse for its nonperformance.
Rollins, Inc. v. Butland, 951 So. 2d 860, 876 (Fla. Dist. Ct.
App. 2d Dist. 2006)(citing Knowles v. C.I.T. Corp., 346 So. 2d
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1042, 1043 (Fla. 1st DCA 1977); Old Republic Ins. Co. v. Von
Onweller Constr. Co., 239 So. 2d 503, 505 (Fla. 2d DCA 1970);
Marshall Constr., Ltd. v. Coastal Sheet Metal & Roofing, Inc.,
569 So. 2d 845, 848 (Fla. 1st DCA 1990)).
Here, Plaintiff has provided the Court with a signed copy
of the agreement between LPS and Friedman indicating the
existence of a contract. (ECF No. 17). Plaintiff asserts that
defendant breached this contract when defendant failed to pay
the invoices listed in Exhibit F submitted with the plaintiff’s
supplemental documents response. (ECF No. 1, 5; ECF No. 19). The
agreement is unambiguous and provided that Friedman would pay
LPS within fifteen days of each invoice for LPS’s services
rendered. (ECF No. 17). Failure to pay the invoices was a
material breach of the agreement, and resulted in damage to LPS
in the amount of the invoices. These unchallenged assertions of
fact constitute a legitimate cause of action for breach of
contract against Friedman.
C. Damages
LPS alleges damages in the amount of the unpaid invoices
under the Services Agreements and the NewTrak Agreement.
No. 10, 1-2).
(ECF
LPS sent numerous invoices and statements to
Friedman, but received no reply.
(ECF No. 1). By the terms of
the Agreements, defendant had an obligation to pay LPS for the
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services rendered.
(ECF No. 13-16).
LPS has provided the Court
with statements indicating the invoice dates and amounts due
totaling $48,077.50 under the Services Agreements and
$501,360.00 under the NewTrak Agreement.
(ECF No. 18-19).
The
undersigned therefore recommends an award of damages in the
amount of $549,437.50.
D. Attorney’s Fees
LPS withdrew their request for attorney’s fees in its
response to the Court’s request for supplemental information.
(ECF No. 13, 2). Accordingly, the undersigned recommends no
award for attorney’s fees.
E. Prejudgment Interest
In a diversity case, prejudgment interest is a matter of
state substantive law. See Hitachi Credit Am. Corp. v. Signet
Bank, 166 F. 3d 614, 633 (4th Cir. 1999).
For the Services Agreements, we examine both Maryland and
Minnesota law as previously discussed. Under Maryland law,
prejudgment interest is:
allowable as a matter of right when the obligation to
pay and the amount due had become certain, definite,
and liquidated by a specific date prior to judgment so
that the effect of the debtor's withholding payment
was to deprive the creditor of the use of a fixed
amount as of a known date. First Virginia Bank v.
Settles, 322 Md. 555, 564,(Md. 1991), see also Buxton
v. Buxton, 363 Md. 634, 656 (Md. 2001), Knowles v.
Mutual Life Ins. Co., 788 F.2d 1038, 1041 (4th Cir.
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Md. 1986).
The prevailing rate for prejudgment interest in Maryland is six
percent.
Md. Const. Art. III, § 57 ("The Legal Rate of Interest
shall be Six per cent. per annum; unless otherwise provided by
the General Assembly."); Buxton, 363 Md. at 656. In Minnesota,
the prevailing rate is also six percent. Minn. Stat. § 334.01
(2013)(“The interest for any legal indebtedness shall be at the
rate of $6 upon $100 for a year, unless a different rate is
contracted for in writing.”). Accordingly, the rate of six
percent will be used to calculate interest on the amounts due
under the Services Agreements.
Under Florida law, “the amount of interest to be paid,
absent a controlling contractual provision, is a matter of
policy to be determined by the legislature.” Argonaut Ins. Co.
v. May Plumbing Co., 474 So. 2d 212, 215 (Fla. 1985). However,
the NewTrak Agreement includes a contractual provision
establishing an interest rate of twelve percent per annum for
unpaid invoices. (ECF No. 17, 2). Accordingly, the rate of
twelve percent will be used to calculate interest on the amounts
due under the NewTrak Agreement.
Here, LPS was deprived of a definite sum when Friedman
failed to pay $48,077.50 in invoices under the Services
Agreements and $501,360.00 in invoices under the NewTrak
Agreement. (ECF. No. 13-16).
The undersigned therefore
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recommends that LPS be awarded prejudgment interest at the rate
of six percent for the invoices under the Services Agreements
($48,077.50) from March 14, 2013 to August 2, 2013,1 for a total
of $1,114.34, and at the rate of twelve percent for the invoices
under the NewTrak Agreement ($501,360.00) from March 14, 2013 to
August 2, 2013,2 for a total of $23,241.13.
F. Post Judgment Interest
Federal law, not state law, governs the calculation of
post-judgment interest in diversity cases. Hitchai Credit Am.
Corp., 166 F.3d at 633.
Federal law mandates an award of post-
judgment interest, “calculated from the date of entry of the
judgment” at a rate based on “the weekly average 1-year constant
maturity treasury yield, as published by the Board of Governors
of the Federal Reserve System, for the calendar week preceding.”
28 U.S.C. § 1961 (1988).
Accordingly, the undersigned
recommends that plaintiff be awarded post-judgment interest at
the rate set forth in 28 U.S.C. § 1961 (1988).
Conclusion
For the reasons set forth above, the undersigned recommends
that:
1
A daily interest rate of
August 2, 2013 through the
on that date.
2
A daily interest rate of
August 2, 2013 through the
on that date.
0.016438% should be applied to the balance after
date of final judgment if judgment is not entered
0.032876% should be applied to the balance after
date of final judgment if judgment is not entered
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1. The Court GRANT Plaintiff’s Motion for Entry of Money
Judgment by Default.
(ECF No. 10).
2. The Court AWARD plaintiff $549,437.50 in damages,
prejudgment interest of $24,355.47, and post-judgment
interest on the entire amount.
Date: 8/2/2013
/s/
Susan K. Gauvey
United States Magistrate Judge
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