Educational Credit Management Corporation v. Optimum Welding
Filing
15
MEMORANDUM OPINION (c/m to Defendant 7/31/12 sat). Signed by Chief Judge Deborah K. Chasanow on 7/31/12. (sat, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
EDUCATIONAL CREDIT MANAGEMENT
CORPORATION
:
v.
:
Civil Action No. DKC 11-1076
:
OPTIMUM WELDING
:
MEMORANDUM OPINION
Presently pending and ready for resolution in this case is
a motion for default judgment filed by Plaintiff Educational
Credit
Management
relevant
issues
Corporation
have
been
(“ECMC”).
briefed
(ECF
and
the
No.
7).
The
court
now
rules
pursuant to Local Rule 105.6, no hearing being deemed necessary.
For the reasons that follow, the motion will be denied.
I.
Background
The
Federal
Family
Education
Loan
Program
(“FFELP”)
was
established by the Higher Education Act, 20 U.S.C. §§ 1071 et
seq.,
and
(“DOE”).
is
administered
by
the
Department
of
Education
See U.S. ex rel. Jones v. Collegiate Funding Services,
Inc., No. 11-1103, 2012 WL 835747, at *1 (4th Cir. Mar. 14,
2012).
Under
the
FFELP,
the
DOE
“pays
claims
submitted
by
eligible private lenders for interest-rate subsidies and special
allowances granted on behalf of student borrowers.”
Id. (citing
20 U.S.C. §§ 1078(a)(1), 1087-1; 34 C.F.R. §§ 682.300, .302).
The DOE “also reduces private lenders’ risk of loan defaults by
entering
into
[which],
in
guaranty
turn,
agreements
insure
with
[l]enders
default losses on student loans.”
[g]uaranty
against
their
[a]gencies
potential
Id. (quoting U.S. ex rel.
Vigil v. Nelnet, Inc., 639 F.3d 791, 795 (8th Cir. 2011) (citing
20 U.S.C. §§ 1078(b)-(c), 1080; 34 C.F.R. § 682.100(b)(1)).
If
a borrower defaults, the guaranty agency reimburses the holder
of the loan; is itself reimbursed by the Secretary of Education
under
a
reimbursement
agreement;
and
is
then
collect on the defaulted loan from the borrower.
authorized
to
See Mohammed
v. New York State Higher Educ. Services Corp., No. 08-CV-4943
(JG)(LB), 2009 WL 1514635, at *1 (E.D.N.Y. June 1, 2009).
“As a mechanism for pursuing collection activity, guaranty
agencies
have
authority
to
administratively
issue
orders
to
employers of defaulted borrowers requiring them to withhold up
to
fifteen
borrowers.”
percent
(15%)
of
the
disposable
income
of
these
Texas Guaranteed Student Loan Corp. v. Dhindsa, No.
1:10-cv-00335-LJO-SKO, 2011 WL 320423, at *1 (E.D.Cal. Jan. 28,
2011).1
After providing notice to the borrower of the agency’s
intent to withhold and an opportunity to be heard, the guaranty
agency may serve upon the borrower’s employer a wage withholding
1
Pursuant to 20 U.S.C. § 1095a(e), “disposable pay” is
defined as “that part of the compensation of any individual from
an employer remaining after the deduction of any amounts
required by law to be withheld.
2
order in attempt to garnish wages.
Pursuant
to
the
regulations
20 U.S.C. § 1095a(a)(6).
implementing
§
1095a,
“[t]he
guaranty agency shall sue any employer for any amount that the
employer, after receipt of the garnishment notice[,] . . . fails
to withhold from wages owed and payable to an employee under the
employer’s normal pay and disbursement cycle.”
34 C.F.R. §
682.410(b)(9)(i)(F).
Plaintiff ECMC is a guaranty agency under the FFELP.
No. 1 ¶ 8).
defaulting
request
a
On March 29, 2010, it served Howard Powell, a
borrower,
garnishment.
(ECF
with
a
notice
(Id. at ¶ 11; Ex. A).
hearing
within
the
time
prior
to
administrative
When Mr. Powell did not
provided
by
20
U.S.C.
§
1095a(b), ECMC served a withholding order on Defendant Optimum
Welding, his purported employer, on May 7, 2010, requiring that
fifteen percent of the borrower’s disposable pay be withheld and
remitted to ECMC.
(Id. at ¶ 12; Ex. B).
Upon receiving no
response, ECMC sent a second notice to Defendant on July 16,
2010, requesting compliance with the withholding order.
¶ 13; Ex. C).
That was followed, on January 19, 2011, by a
final demand letter.
When
(Id. at
Defendant
(Id. at ¶ 14; Ex. D).
failed
to
respond
to
each
of
these
inquiries, ECMC commenced the instant action on April 26, 2011,
seeking enforcement of the withholding order.
(ECF No. 1).
Following several months with no activity in the case, ECMC
3
filed, on August 1, 2011, a return of service demonstrating that
service
of
process
was
effected
through
the
Maryland
State
Department of Assessments and Taxation (“SDAT”) on July 5, 2011.
(ECF
No.
5).
Upon
direction
of
the
court,
ECMC
filed
the
pending motions for entry of default and default judgment on
September 28, 2011.
(ECF Nos. 7, 8).
After ECMC demonstrated
through supplemental briefing that service upon the SDAT was
proper, the clerk entered default on October 26, 2011.
13).
II.
(ECF No.
Defendant has taken no action in this case.
Standard of Review
Under
Federal
Rule
of
Civil
Procedure
55(a),
“[w]hen
a
party against whom a judgment for affirmative relief is sought
has failed to plead or otherwise defend, and that failure is
shown
by
affidavit
party’s default.”
or
otherwise,
the
clerk
must
enter
the
Where a default has been previously entered
by the clerk and the complaint does not specify a certain amount
of damages, the court may enter a default judgment upon the
plaintiff’s
application
and
notice
pursuant to Fed.R.Civ.P. 55(b)(2).
to
the
defaulting
party,
A defendant’s default does
not automatically entitle the plaintiff to entry of a default
judgment; rather, that decision is left to the discretion of the
court.
See Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir. 2001).
The Fourth Circuit has a “strong policy” that “cases be decided
on their merits,” Dow v. Jones, 232 F.Supp.2d 491, 494 (D.Md.
4
2002) (citing United States v. Shaffer Equip. Co., 11 F.3d 450,
453 (4th Cir. 1993)), but default judgment may be appropriate
where
a
party
is
unresponsive,
see
S.E.C.
v.
Lawbaugh,
359
F.Supp.2d 418, 421 (D.Md. 2005) (citing Jackson v. Beech, 636
F.2d 831, 836 (D.C. Cir. 1980)).
“Upon [entry of] default, the well-pled allegations in a
complaint as to liability are taken as true, but the allegations
as
to
damages
Federal
Rule
are
of
not.”
Civil
Lawbaugh,
Procedure
359
54(c)
F.Supp.2d
limits
the
at
422.
type
of
judgment that may be entered based on a party’s default: “A
default judgment must not differ in kind from, or exceed in
amount,
what
is
demanded
in
the
pleadings.”
Thus,
where
a
complaint specifies the amount of damages sought, the plaintiff
is
limited
to
entry
of
a
default
judgment
in
that
amount.
“[C]ourts have generally held that a default judgment cannot
award additional damages . . . because the defendant could not
reasonably
amount.”
have
expected
his
damages
exceed
that
“the
court
Where a complaint does not specify an
is
required
to
determination of the sum to be awarded.”
F.Supp.2d
would
In re Genesys Data Technologies, Inc., 204 F.3d 124,
132 (4th Cir. 2000).
amount,
that
15,
17
(D.D.C.
2001)
(citing
make
an
independent
Adkins v. Teseo, 180
S.E.C.
v.
Management
Dynamics, Inc., 515 F.2d 801, 814 (2nd Cir. 1975); Au Bon Pain
Corp. v. Artect, Inc., 653 F.2d 61, 65 (2nd Cir. 1981)).
5
While
the court may hold a hearing to consider evidence as to damages,
it is not required to do so; it may rely instead on “detailed
affidavits or documentary evidence to determine the appropriate
sum.”
v.
Adkins, 180 F.Supp.2d at 17 (citing United Artists Corp.
Freeman,
605
F.2d
854,
857
(5th
Cir.
1979));
see
also
Laborers’ District Council Pension, et al. v. E.G.S., Inc., Civ.
No. WDQ-09-3174, 2010 WL 1568595, at *3 (D.Md. Apr. 16, 2010)
(“[O]n
default
without
a
judgment,
hearing
if
the
Court
the
may
record
only
supports
award
damages
the
damages
requested.”).
III. Analysis
Taking as true the allegations of the complaint, ECMC has
established
compliance
U.S.C. § 1095a(a).
with
regard
to
the
with
the
procedures
set
forth
in
20
There is a deficiency of proof, however,
borrower’s
employment
status.
In
the
complaint, ECMC alleges, “upon information and belief,” that the
borrower is an employee and “receives wages from the Defendant.”
(ECF No. 1 ¶ 10).
Similarly, in the affidavit supporting the
motion for default judgment, Becca Riedell, a legal assistant
for ECMC, asserts, “[u]pon information and belief, Defendant is
the employer of Howard Powell[,] . . . who owes a student loan
debt to ECMC that is in default.”
Hollander
recently
explained,
(ECF No. 7-2 ¶ 4).
“[a]n
allegation
As Judge
made
‘on
information and belief’ does ‘not serve as a reliable foundation
6
upon which to predicate a final judgment.’”
Baltimore Line
Handling Co. v. Brophy, 771 F.Supp.2d 531, 543 (D.Md. 2011)
(quoting Oceanic Trading Corp. v. Vessel Diana, 423 F.2d 1, 4-5
(2d Cir. 1970)); see also Malina v. Baltimore Gas & Elec. Co.,
18 F.Supp.2d 596, 604 n. 4 (D.Md. 1998) (affidavits based upon
information and belief are insufficient to support or oppose
summary judgment).
While the record suggests that Defendant is
the borrower’s employer, and thus was required to comply with
the wage withholding order, it does not contain a definitive
statement in this regard.
Absent such, a default judgment may
not be entered.
Even
liability,
assuming
however,
requested damages.
the
sufficiency
ECMC
has
not
of
the
shown
allegations
entitlement
as
to
to
the
At most, it would be entitled to an award of
fifteen percent of Mr. Powell’s disposable pay from May 7, 2010,
the date the withholding order was served, going forward.
Due
largely to Defendant’s failure to participate in the case, the
record does not permit calculation of the amount due.
Under
these circumstances, ECMC suggests that the court should either
(1) award damages in the full amount due on the defaulted loan –
$27,003.33, according to the affidavit attached to the motion
for default judgment (ECF No. 7-2 ¶ 5) – or (2) award fifteen
percent of the federally-mandated minimum wage for a forty-hour
workweek, which it calculates, from May 7, 2010, to September
7
23, 2011, as totaling $4,175.50 (id. at ¶¶ 14-16).
It further
seeks an award of attorneys’ fees in the amount of $5,750.00 and
$767.50 as costs.
Only
a
handful
of
courts
have
engaged
in
analyses of cases in a similar procedural posture.
substantive
Two of those
courts have ultimately awarded the full amount of the loan,
albeit
based
on
presented here.
more-developed
records
than
that
which
is
In Texas Guaranteed Loan Corp. v. Gentle Touch
Chiropractic Clinic, LLC, Civ. No. 07-cv-01182, 2007 WL 4442378
(D.Colo. Dec. 14, 2007), the plaintiff guaranty agency moved for
partial default judgment against the employer as to its request
for an injunction, requiring the defendant to comply with a wage
withholding order, and additionally sought an order requiring
the defendant to respond to post-judgment discovery to determine
the amount due in actual damages.
As in the instant case, the
plaintiff there was “not able to quantify precisely the amount
owed . . . because only the defendant and [the borrower] kn[e]w
the amount of [the borrower’s] disposable pay, and there [was]
no other reliable source from which the plaintiff [could] obtain
that information.”
Id. at *2.
The court granted the partial
motion for default judgment, ordering the employer to “deduct
from the wages of [the borrower] fifteen percent (15%) of [the
borrower’s] “disposable pay” . . . for each pay period beginning
with the first pay period that occurs after the entry of this
8
order,” and further concluded that “additional discovery should
be
conducted
Federal
under
Rules
of
pre-judgment
Civil
discovery
Procedure,
since
procedures
that
of
discovery
the
is
necessary to resolve aspects of the claims pending in this case
that will not be resolved in this order.”
plaintiff
served
the
defendant
failed
to
defendant
respond.
with
Id.
Thereafter, the
interrogatories
Texas
Guaranteed
and
Student
the
Loan
Corp. v. Gentle Touch Chiropractic Clinic, LLC, Civ. No. 07-cv01182, 2009 WL 2588757, at *1 (D.Colo. Aug. 19, 2009).
The
court then entered a final default judgment in the full amount
of
the
loan,
Fed.R.Civ.P.
plus
attorneys’
37(b)(2)(A)(vi),
fees
which
and
costs,
authorizes
pursuant
the
entry
to
of
default judgment as a sanction for a discovery violation, as
well
as
Fed.R.Civ.P.
provision.
55(b)(2),
the
standard
default
judgment
Id.
Similarly, in Dhindsa, after default was entered against
the employer, the guaranty agency moved for early discovery in
order “to ascertain how much money should have been withheld
from
[the
Order.”
borrower’s]
pay
pursuant
to
Dhindsa, 2011 WL 320423, at *2.
the
Wage
Withholding
The court granted that
motion and the plaintiff served a request for production of
documents.
When the employer did not respond, the court granted
a motion to compel discovery, further ordering the employer to
show cause why it should not be required to pay associated fees
9
and costs.
was
held
When the employer again failed to respond, a hearing
and
the
plaintiff’s
counsel
was
permitted
to
file
supplemental declarations attesting to the amount of the loan
balance
and
records.
attorney’s
fees
and
costs,
supported
by
billing
Thereafter, the court issued an order requiring the
employer “to show cause why a judgment should not be issued,
pursuant to Federal Rules of Civil Procedure 55 and 37, in favor
of Plaintiff” in the total loan amount, plus properly supported
fees and costs, “due to [the employer’s] refusal to comply with
the
Court’s
regarding
order
[the
to
furnish
borrower’s]
Plaintiff
terms
pursuant to discovery requests.”
of
with
employment
information
and
wages
Id. at *3.
When there was no response to the show cause order, the
court entered judgment, reasoning as follows:
[I]f a guaranty agency’s difficulty in
establishing the amount of its damages under
a Wage Withholding Order is caused by an
employer’s
(1)
intentionally
withholding
information regarding an employee’s wages,
(2) refusing to garnish wages pursuant to a
Wage Withholding Order, (3) failing to
participate in litigation regarding the Wage
Withholding Order, and (4) ignoring multiple
court orders compelling the production of
documents and orders to show cause for
failing to produce documents, the private
right of action of a guaranty agency against
a borrower’s employer provided by Congress
is potentially subverted.
At least one district court, faced with
a strikingly similar motion for default
judgment where information regarding damages
10
under a Wage Withholding order was unknown,
entered a default judgment in the full
amount of the student loan pursuant to
Federal Rules 55(b)(2) and 37(b)(2)(A)(vi).
See Tex. Guaranteed Student Loan Corp. v.
Gentle Touch Chiropractic Clinic, LLC, No.
07-cv-1187, 2009 WL 2588757, at *2 (D.Colo.
Aug. 19, 2009).
The Court finds this
approach is warranted here.
Dhindsa, 2011 WL 320423, at *6.
Here, the employer has not been put on notice that it might
be responsible for the full amount of the defaulted loan.
noted
previously,
the
complaint
seeks
actual
damages
in
As
the
amount of fifteen percent of the borrower’s disposable pay, and
the
amount
that
may
be
awarded
by
a
default
judgment
circumscribed by the amount requested in the complaint.
re Genesys Data Technologies, Inc., 204 F.3d at 132.2
is
See In
Moreover,
ECMC has not requested discovery to determine the amount of
actual
damages,
as
did
the
plaintiffs
in
Gentle
Touch
and
Dhindsa; thus, Rule 37(b) provides no basis for an award of the
entire loan amount.
While ECMC’s alternative request for an
award of fifteen percent of the federally-mandated minimum wage
2
ECMC also suggests that the entire loan amount may be
awarded
as
punitive
damages,
pursuant
to
20
U.S.C.
§
1095a(a)(6). Punitive damages, however, “should only be awarded
if the defendant’s culpability, after having paid compensatory
damages, is so reprehensible as to warrant the imposition of
further
sanctions
to
achieve
punishment
or
deterrence.”
Educational Credit Mgmt. Corp. v. Central Equipment Co., 477
F.Supp.2d 788, 796 (E.D.Ky. 2007) (quoting State Farm Mutual
Auto. Ins. Co. v. Campbell, 538 U.S. 408, 419 (2003)).
Plaintiff has made no such showing here.
11
is creative, the record does not support that the borrower works
for
Defendant
assume.
Thus,
on
in
a
full-time
addition
basis,
to
a
as
this
deficiency
approach
of
proof
would
as
to
liability, the current record provides no basis for determining
the amount of damages.
See United Student Aid Funds, Inc. v.
Ramon’s Precision Service, Inc., No. Civ.A. SA05CA0717XR, 2005
WL 3447738, at *3 (W.D.Tex. Dec. 12, 2005) (“Because Plaintiff
has
produced
no
evidence
establishing
[the
borrower’s]
disposable pay during the relevant time period or the amount of
pay Defendant failed to withhold, default judgment is not proper
at this time.”).3
Accordingly, the motion for default judgment
will be denied without prejudice to renewal.
III. Conclusion
For the foregoing reasons, the motion for default judgment
filed by Plaintiff ECMC will be denied without prejudice to
renewal.
A separate order will follow.
________/s/_________________
DEBORAH K. CHASANOW
United States District Judge
3
ECMC has additionally provided no basis for an award of
attorneys’ fees or costs.
Indeed, counsel asserts in her
affidavit that Plaintiff “will submit a supplemental affidavit
detailing these fees and costs at the default judgment hearing
or at the request of the Court.” (ECF No. 7-3 ¶ 4). The court
will consider ECMC’s request in this regard upon submission of a
properly supported fee petition and bill of costs.
12
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