Recycling Solutions, Inc. v. Orr's Environmental, LLC, et al.

Filing 9

REPORT AND RECOMMENDATIONS re 7 MOTION for Default Judgment as to Defendants Orrs' Environmental, LLC and Debra Sanders filed by Recycling Solutions, Inc. Signed by Magistrate Judge William Connelly on 6/26/2015. (Attachments: # 1 Exhibit Letter, # 2 Exhibit FRCP 72). Objections due July 13, 2015. (nk, Chambers)(Copy mailed to each Defendant at two separate addresses)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
____________________________________
RECYCLING SOLUTIONS, INC.
)
)
Plaintiff,
)
)
v.
)
)
ORRS’ ENVIRONMENTAL, LLC, et al. )
)
Defendants.
)
____________________________________)

Civil Action No. PWG-14-1062

REPORT AND RECOMMENDATIONS
This Report and Recommendations addresses Plaintiff Recycling Solutions, Inc.’s
(hereinafter “RSI”) Motion for Entry of Default Judgment. ECF No. 7.1 Defendants Orrs’
Environmental, LLC and Debra Sanders have not filed a response and the deadline for a response
elapsed on March 16, 2015. See Loc. R. 105.2.a. Having reviewed the filings, no hearing is
deemed necessary.

See Loc. R. 105.6.

For the reasons stated herein, the undersigned

recommends that, following the time to object to this Report and Recommendations, RSI’s
Motion for Entry of Default Judgment be GRANTED.
I.

FACTUAL AND PROCEDURAL HISTORY
Plaintiff RSI is a Delaware corporation with its principal place of business in Capitol

Heights, Maryland. RSI “is a waste and recycling equipment rental corporation.” Compl. ¶ 1.
Defendant Orrs’ Environmental, LLC (hereinafter “Orrs’ Environmental”) is a limited liability
company existing under the laws of Alabama with its principal office located at 2317 Meridian
Street, Huntsville, Alabama 35811. Id. ¶ 2; ECF No. 7-3 at 2 (State of Alabama-Domestic
Limited Liability Company Articles of Organization Guidelines for Orrs’ Environmental, LLC).
1

On May 5, 2015, pursuant to 28 U.S.C. § 636 and Local Rules 301 and 302, Judge Grimm referred this case to the
undersigned to review a default judgment and/or make recommendations concerning damages. ECF No. 8.

1

According to the Articles of Organization Orrs’ Environmental is an environmental waste
management consulting company. The Articles of Organization lists Defendant Debra Sanders
as the registered agent for Orrs’ Environmental, as the initial member and organizer of Orrs’
Environmental, and as the manager of Orrs’ Environmental. ECF No. 7-3 at 2. Defendant Debra
Sanders resides at 2317 Meridian Street, Huntsville, Alabama 35811.
For the purpose of determining diversity jurisdiction, a limited liability company is
considered to be an “unincorporated association,” whose citizenship is that of its members. Gen.
Tech. Applications, Inc. v. Exro, Ltda., 388 F.3d 114, 121 (4th Cir. 2004). Defendant Orrs’
Environmental is therefore deemed a citizen of Alabama. Pursuant to 28 U.S.C. § 1332(c)
Plaintiff RSI is deemed a citizen of Maryland. The amount in controversy exceeds $75,000.00,
excluding interest and costs. 28 U.S.C. § 1332(a).
On or about March 28, 2013 Orrs’ Environmental executed a Lease Agreement with
Option to Purchase (hereinafter “lease agreement”) for a five (5) year period, commencing
March 1, 2013 and ending February 28, 2018.2 RSI leased to Orrs’ Environmental two (2)
Marathon Digesters.3 Each Marathon Digester included a one (1) year supply of organisms and
wood chips. Defendant Debra Sanders, Operations Manager, signed the contract on behalf of
Orrs’ Environmental and Paul Bortnick, Chief Managing Officer, signed the contract on behalf
of RSI. See ECF No. 1-1 at 3; ECF No. 7-1 at 4. As listed on the lease agreement Orrs’
Environmental’s address is a post office box in Vicksburg, Mississippi.

2

Venue is proper in this district pursuant to 28 U.S.C. § 1391 since a substantial part of the events or omissions
giving rise to RSI’s claims occurred in Maryland.
3

“A Marathon Digester[] is an advanced type of waste disposal equipment. This type of equipment contains an
environmentally-friendly digestive system that is able to break down food waste into a liquid that can be safely
flushed down the drain without negatively impacting sewer treatment facilities.” Compl. ¶ 6.

2

In accordance with the lease agreement, before RSI delivered the two Marathon
Digesters, Orrs’ Environmental paid for certain costs in advance (travel/training costs, freight
and first and last months’ lease payments). After Orrs’ Environmental made this payment, the
two Marathon Digesters were delivered to the Federal Bureau of Prisons in Mendota, California.
Pursuant to the lease agreement Orrs’ Environmental must pay RSI a monthly fee of
$1,553.00 for the lease of the equipment. RSI received a payment from Orrs’ Environmental for
the month of April 2013. No additional payments were made by Orrs’ Environmental thereafter.
RSI attempted to resolve the matter of non-payment without success. Even after RSI retained
counsel, no payment from Orrs’ Environmental was forthcoming.
While pursuing non-payment RSI discovered information which revealed Orrs’
Environmental sold the leased Marathon Digesters to the Federal Bureau of Prisons despite
Paragraph 3 of Addendum A unequivocally stating “[e]quipment shall at all times during the
term remain personal property, and title thereto shall remain in Lessor.” ECF No. 1-1 at 4; ECF
No. 7-1 at 5. During a phone call between RSI and a Federal Bureau of Prisons’ representative,
“the Federal Bureau of Prisons confirmed that it had purchased the subject [Marathon] Digesters
through FedBid. FedBid is an online marketplace which federal agencies use to procure various
goods.” Compl. ¶ 9.
Paragraph 7 of Addendum A to the lease agreement contains an acceleration clause in the
event of a default. See ECF No. 1-1 at 5; ECF No. 7-1 at 6.4 RSI seeks full and final payment
on the outstanding balance of the entire contract in the amount of $88,521.00 (Eighty-Eight
4

“7. Events of Default-Acceleration. Any or all of the obligations of Lessee to Lessor, at the option of Lessor[,]
shall be immediately due an[d] payable without notice or demand upon the occurrence of any of the following
events of default.
a. Non-payment, non-performance or breach of any of the . . . obligations or warranties contained in this
Lease Agreement.”

3

Thousand Five Hundred Twenty-One Dollars).5 This amount excludes interest on past due
invoices. RSI also seeks attorney’s fees and legal expenses upon an event of a default in
accordance with paragraph 8 of Addendum A.
On April 4, 2014 RSI initiated this action by filing a Complaint naming Orrs’
Environmental and Debra Sanders as Defendants. See ECF No. 1. The Complaint lists five
causes of action against the Defendants: (a) breach of contract, (b) fraudulent misrepresentation,
(c) negligent misrepresentation, (d) unjust enrichment, and (e) conversion. On August 1, 2014 a
copy of the summons, civil cover sheet, complaint and lease agreement were served on Debra
Sanders as a Defendant. That same day a copy of the summons, civil cover sheet, complaint and
lease agreement were served on Debra Sanders as the registered agent for Orrs’ Environmental.
See ECF Nos. 3-4. Their answers were due August 22, 2014. Neither Debra Sanders nor Orrs’
Environmental filed an answer.
On September 22, 2014 RSI moved for a Clerk’s entry of default for want of answer or
other defense against the Defendants. See ECF No. 5. The following day, September 23, 2014,
the Clerk’s Entry of Default was docketed against the Defendants. See ECF No. 6.
On February 27, 2015 RSI moved for default judgment. See ECF No. 7. No response in
opposition was filed by the March 16, 2015 deadline.
II.

DISCUSSION
Federal Rule of Civil Procedure 55(b) governs the entry of default judgments. Pursuant

to Rule 55(b), the clerk may enter a default judgment “[i]f the plaintiff’s claim is for a sum
certain or a sum that can be made certain by computation,” and the defendant is in default for
failing to appear and is “neither a minor nor an incompetent person.” Fed. R. Civ. P. 55(b)(1).
5

Orrs’ Environmental agreed to make sixty (60) monthly payments of $1,553.00. Prior to the delivery of the
equipment, Orrs’ Environmental paid the first and last months’ lease payments. Another payment was made in
April 2013. In electing the acceleration clause, RSI seeks payment for the remaining fifty-seven (57) months.

4

Additionally, when a defendant is an individual, the plaintiff must certify or declare to be true
under penalty of perjury whether the defendant is in military service. 50 U.S.C. app. § 521(b)(1)
(“In any action or proceeding covered by this section, the court, before entering judgment for the
plaintiff, shall require the plaintiff to file with the court an affidavit—(A) stating whether or not
the defendant is in military service and showing necessary facts to support the affidavit; or (B) if
the plaintiff is unable to determine whether or not the defendant is in military service, stating that
the plaintiff is unable to determine whether or not the defendant is in military service.”).6
Furthermore, to the best of RSI’s knowledge, information, and belief, neither Orrs’
Environmental nor Debra Sanders is a minor or an incompetent person. See ECF No. 7-2 at 3 ¶ 6
(Affidavit in Support of Motion for Entry of Default Judgment); Fed. R. Civ. P. 55(b) (“enter
judgment . . . against a defendant . . . who is neither a minor nor an incompetent person.”).
The entry of default judgment is a matter within the discretion of the Court. SEC v.
Lawbaugh, 359 F. Supp. 2d 418, 421 (D. Md. 2005) (citing Dow v. Jones, 232 F. Supp. 2d 491,
494 (D. Md. 2002)). As the Court noted in Disney Enterprises, Inc. v. Delane, 446 F. Supp. 2d
402 (D. Md. 2006), “[t]he United States Court of Appeals for the Fourth Circuit has a ‘strong
policy that cases be decided on the merits.’” Id. at 405 (quoting United States v. Shaffer Equip.
Co., 11 F.3d 450, 453 (4th Cir. 1993)). Nonetheless, “default judgment is available when the
‘adversary process has been halted because of an essentially unresponsive party.’” Id. (quoting
Lawbaugh, 359 F. Supp. 2d at 421).

6

“I hereby state that Defendant Debra Sanders is not in active service in the military service of the United States,
nor within the military service of any nation allied with the United States, has not been ordered to report for
induction under the Selective Service Act of 1940 as amended, and is not a member of the Enlisted Reserve Corps
who has been ordered to report for military service. Defendant Sander[s’] military status was confirmed with the
Department of Defense Manpower Data Center and the certificate of non-military status is attached hereto.” ECF
No. 5 at 8 ¶ 3 (Affidavit in Compliance with the Servicemembers Civil Relief Act (50 U.S.C. APP. § 501, ET
SEQ)).

5

In determining whether to award a default judgment, the Court takes as true the wellpleaded factual allegations in the complaint, other than those pertaining to damages. Ryan v.
Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir. 2001) (“The defendant, by his default,
admits the plaintiff’s well-pleaded allegations of fact, is concluded on those facts by the
judgment, and is barred from contesting on appeal the facts thus established.” (citation and
internal quotation marks omitted)); see Fed. R. Civ. P. 8(b)(6) (“An allegation—other than one
relating to the amount of damages—is admitted if a responsive pleading is required and the
allegation is not denied.”). It remains, however, “for the court to determine whether these
unchallenged factual allegations constitute a legitimate cause of action.” Agora Fin., LLC v.
Samler, 725 F. Supp. 2d 491, 494 (D. Md. 2010); 10A Charles Alan Wright et al., Fed. Prac. and
Proc. Civ. § 2688 (3d ed. 1998) (“[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.”); id. (explaining that the court must “consider
whether the unchallenged facts constitute a legitimate cause of action, since a party in default
does not admit mere conclusions of law”).
If the Court finds that “liability is established, [it] must then determine the appropriate
amount of damages.” Samler, 725 F. Supp. 2d at 494 (citing Ryan, 253 F.3d at 780-81). This is
so because “an allegation ‘relating to the amount of damages’ is not deemed admitted based on a
defendant’s failure to deny in a required responsive pleading.” Hartford Fin. Servs. Grp. Inc. v.
Carl J. Meil, Jr., Inc., No. WDQ-10-2720, 2011 WL 1743177, at *7 (D. Md. May 5, 2011)
(quoting Fed. R. Civ. P. 8(b)(6)); Trs. of the Elec. Welfare Trust Fund v. MH Passa Elec.
Contracting, LLC, No. DKC-08-2805, 2009 WL 2982951, at *1 (D. Md. Sept. 14, 2009) (“Upon
default, the well-pled allegations in a complaint as to liability are taken as true, although the

6

allegations as to damages are not.”); Int’l Painters & Allied Trades Indus. Pension Fund v. Metro
Glass & Mirror, Inc., No. ELH-11-2389, 2012 WL 893262, at *2 (D. Md. Mar. 14, 2012) (“The
court does not accept factual allegations regarding damages as true, but rather must make an
independent determination regarding such allegations.”).
In sum, the Court must make two determinations. First, the Court must decide “whether
the unchallenged facts in plaintiff[’s] complaint constitute a legitimate cause of action[.]”
Samler, 725 F. Supp. 2d at 494. Second, if the Court finds that liability is established, it must
“make an independent determination regarding the appropriate amount of damages.” Id.
A.

Liability

Over ten months have elapsed since the Defendants were served with RSI’s Complaint.
The Defendants did not plead or otherwise assert a defense by filing an answer. As a result, all
of the factual allegations made in RSI’s Complaint not pertaining to damages are deemed
admitted. Fed. R. Civ. P. 8(b)(6); Ryan, 253 F.3d at 780.
RSI moved for a default judgment on February 27, 2015; Defendants Orrs’
Environmental and Debra Sanders have not responded. It is within the Court’s discretion to
grant default judgment when a defendant is unresponsive. See Park Corp. v. Lexington Ins. Co.,
812 F.2d 894, 897 (4th Cir. 1987) (upholding a default judgment awarded where the defendant
lost its summons and did not respond within the proper period); Disney Enterprises, 446 F. Supp.
2d at 405-06 (finding appropriate the entry of default judgment where the defendant had been
properly served with the complaint and did not respond, despite repeated attempts to contact
him).

Accordingly, the Court should grant default judgment on RSI’s Complaint if RSI

establishes the liability of Defendants Orrs’ Environmental and Debra Sanders.

7

That accepting as true RSI’s well-pleaded factual allegations (with supporting
documentation), the undersigned finds RSI has proven the following:
a.

Debra Sanders, on behalf of Orrs’ Environmental, executed a Lease Agreement

with Option to Purchase for a five year period commencing March 1, 2013 and ending February
28, 2018;
b.

Per the lease agreement RSI leased two Marathon Digesters to Orrs’

Environmental;
c.

Prior to the delivery of the Marathon Digesters, Orrs’ Environmental paid RSI the

travel/training costs, freight costs, and the first and last months’ lease payments;
d.

RSI delivered the two leased Marathon Digesters to the Federal Bureau of Prisons

in Mendota, California as requested by Orrs’ Environmental;
e.

In accordance with the lease agreement, Orrs’ Environmental made a monthly

payment of $1,553.00 in April 2013;
f.

Orrs’ Environmental failed to make any additional monthly payments for the

leased equipment as of May 2013;
g.

That Orrs’ Environmental is in default for non-payment;

h.

The lease agreement includes an option to purchase.

“Lessee has option to

purchase equipment at end of said lease term for $1.00.” ECF No. 1-1 at 2; ECF No. 7-1 at 3;
i.

Addendum A (Standard Conditions of Lease Agreement) delineates who has title

to the leased Marathon Digesters. “Equipment shall at all times during the term remain personal
property, and the title thereto shall remain in Lessor. Lessee, until an event of default, shall be
entitled to possession.” ECF No. 1-1 at 4 (¶ 3); ECF No. 7-1 at 5 (¶ 3);

8

j.

That RSI has a solid basis for believing Orrs’ Environmental sold the leased

equipment to the Federal Bureau of Prisons.

This sale occurred even though Orrs’

Environmental did not own the equipment;
k.

Addendum A (Standard Conditions of Lease Agreement) provides, at RSI’s

option, to accelerate the balance of payment upon Orrs’ Environmental’s default;
l.

In the five count Complaint RSI specifically alleges misconduct by Orrs’

Environmental. Counts II and III assert misconduct by Orr’s Environmental “by and through
Defendant Sanders.” The remaining three counts do not specifically reference Debra Sanders but
RSI asks the court to hold her personally responsible by disregarding the corporate entity (Orrs’
Environmental).

RSI notes Ms. Sanders is the sole member of Orrs’ Environmental, she

negotiated the terms of the lease agreement, and she signed the agreement on behalf of Orrs’
Environmental;
m.

Piercing the corporate veil is an equitable action. Hildreth v. Tidewater Equip.

Co., 378 Md. 724, 735, 838 A.2d 1204, 1210 (2003). Maryland law “has recognized the
availability of an action to disregard a limited liability entity congruent with the equitable
remedy of piercing the corporate veil.” Serio v. Baystate Properties, LLC, 209 Md. App. 545,
558-59, 60 A.3d 475, 483 (2013);
n.

When a plaintiff seeks to pierce the corporate veil of a defendant, the Maryland

courts abide by the following:
[T]he most frequently enunciated rule in Maryland is that although
the courts will, in a proper case, disregard the corporate entity and
deal with substance rather than form, as though a corporation did
not exist . . . shareholders generally are not held individually liable
for debts or obligations of a corporation except where it is
necessary to prevent fraud or enforce a paramount equity.
Bart Arconti & Sons v. Ames-Ennis, 275 Md. 295, 310, 340 A.2d 225, 234 (1975);
9

o.

Maryland courts will disregard a corporate entity under one of the following three

circumstances:
First. Where the corporation is used as a mere shield for the
perpetration of a fraud, the courts will disregard the fiction of
separate corporate entity.
Second. The courts may consider a corporation as unencumbered
by the fiction of corporate entity and deal with substance rather
than form as though the corporation did not exist, in order to
prevent evasion of legal obligations.
Third. Where the stockholders themselves, or a parent corporation
owning the stock of a subsidiary corporation, fail to observe the
corporate entity, operating the business or dealing with the
corporation’s property as if it were their own, the courts will also
disregard the corporate entity for the protection of third persons.
Hildreth, 378 Md. at 734, 838 A.2d at 1210 (quoting Herbert Brune, Maryland Corporation Law
and Practice, § 371 (1953)) (emphasis removed);
p.

Based on the well-pleaded Complaint, there is insufficient information to pierce

the corporate veil based on the third ground but there is sufficient information to pierce the veil
of Orrs’ Environmental to hold Debra Sanders personally responsible based on the first and
second grounds;
q.

Debra Sanders is the sole member of Orrs’ Environmental. She negotiated and

signed the lease agreement with RSI with full knowledge that Orrs’ Environmental was leasing
from RSI two pieces of equipment for a period of five years. Ms. Sanders agreed to the terms of
the lease agreement, namely, Orrs’ Environmental would pay RSI $1,553.00 monthly for leasing
equipment to be used by the Federal Bureau of Prisons and that the leased equipment was owned
by RSI. The fact that Orrs’ Environmental made one monthly payment after the delivery of the
equipment, the fact Ms. Sanders never provided an explanation for the breach of the lease
agreement despite RSI’s efforts to resolve the issue of non-payment, and the fact that the

10

Defendants sold the leased equipment to the Federal Bureau of Prisons are indicative that the
Defendants never intended to abide by the terms of the lease agreement. These facts support a
finding that Ms. Sanders used her limited liability company as a mere shield for the perpetration
of a fraud;
r.

Alternatively,

RSI’s

well-pleaded

Complaint

supports

piercing

Orrs’

Environmental’s veil in order to prevent evasion of legal obligations. Orrs’ Environmental has,
to date, evaded its legal obligations as outlined in the Complaint.

Not only has Orrs’

Environmental failed to make the monthly payment of $1,553.00 (except on one occasion) for
the leased equipment, Orrs’ Environmental disposed of the leased equipment by selling the
equipment to the Federal Bureau of Prisons. The fraudulent nature of the evasion of legal
obligations support piercing the veil and holding Ms. Sanders, the sole member of Orrs’
Environmental, personally responsible;
s.

RSI alleges breach of contract in Count I of its complaint. “[O]ne who sues for

the breach of contract which requires him to perform certain acts before he becomes entitled to
demand that for which he sues, must allege and prove performance on his part.” Johnson &
Higgins v. Simpson, 163 Md. 574, 581, 163 A. 832, 834 (1933). The lease agreement required
Orrs’ Environmental to make an initial payment; thereafter, RSI had to deliver the leased
equipment and once the leased equipment was delivered, Orrs’ Environmental had to pay RSI
$1,553.00 monthly. RSI has performed all of the conditions, covenants and promises required by
the lease agreement. Orrs’ Environmental has breached the lease agreement by not paying RSI
$1,553.00 monthly as required. RSI has been damaged due to Orrs’ Environmental’s breach;
t.

RSI alleges fraudulent misrepresentation in Count II of its complaint.

“To

establish fraud, a plaintiff must prove by clear and convincing evidence that ‘(1) the defendant

11

made a false representation to the plaintiff, (2) the falsity of the representation was either known
to the defendant or the representation was made with reckless indifference to its truth, (3) the
misrepresentation was made for the purpose of defrauding the plaintiff, (4) the plaintiff relied on
the misrepresentation and had the right to rely on it, and (5) the plaintiff suffered compensable
injury as a result of the misrepresentation.’” Exxon Mobil Corp. v. Albright, 433 Md. 303, 334,
71 A.3d 30, 49 (2013) (quoting Hoffman v. Stamper, 385 Md. 1, 28, 867 A.2d 276, 292 (2005));
u.

From the well-pleaded Complaint it is apparent the Defendants made a false

statement to RSI, namely, the request to lease equipment for a five year period to provide to a
client, the Federal Bureau of Prisons. The representation by the Defendants was false because
the Defendants had no intention of paying RSI monthly for a five year period. The Defendants
misrepresented their intention of seeking leased equipment for a federal government agency so
they could defraud RSI by taking possession of the leased equipment and subsequently selling
that leased equipment as if the Defendants owned the equipment. RSI relied on the Defendants’
misrepresentation and had a right to do so. “In August of 2012, Joshua Bortnick, the vice
president of Plaintiff [RSI] . . . was introduced to Defendant Sanders, and the two began
discussing Defendant Orr Environmental’s desire to rent two (2) Marathon Digesters. . . Mr.
Bortnick began what became extensive contact and correspondence with Defendant Debra
Sanders.” Compl. ¶ 6. The lease agreement was not signed until March 28, 2013. Finally RSI
suffered compensable injury due to the Defendants’ misrepresentation. RSI did not receive the
monthly payment of $1,553.00 (except a one-time payment in April 2013) and further the
Defendants illegally sold the leased equipment to a third party despite RSI’s ownership;

12

v.

RSI alleges negligent misrepresentation7 in Count III of its Complaint. This

cause of action “arises when the defendant owes a duty of care in communicating information to
the plaintiff and that duty is breached, causing pecuniary or personal injury to the plaintiff.”
Griesi v. Atlantic Gen. Hosp. Corp., 360 Md. 1, 11, 756 A.2d 548, 553 (2000). “’[T]he most
common example of the duty to speak with reasonable care is based on a business or professional
relationship, or one in which there is a pecuniary interest.’” Id. at 11, 756 A.2d at 553 (quoting
Giant Food, Inc. v. Ice King, Inc., 74 Md. App. 183, 190, 536 A.2d 1182, 1185 (1988));
w.

RSI must demonstrate the following five elements to support its claim of

negligent misrepresentation:
(1) the defendant, owing a duty of care to the plaintiff, negligently
asserts a false statement;
(2) the defendant intends that his statement will be acted upon by
the plaintiff;
(3) the defendant has knowledge that the plaintiff will probably
rely on the statement, which, if erroneous, will cause loss or injury;
(4) the plaintiff, justifiably, takes action in reliance on the
statement; and
(5) the plaintiff suffers damage proximately caused by the
defendant’s negligence.
Griesi, 360 Md. at 11, 756 A.2d at 553 (quoting Weisman v. Connors, 312 Md. 428, 444, 540
A.2d 783, 791 (1988) (internal citation omitted));
x.

In this case the Defendants, a limited liability company and its sole member,

owing a duty to RSI, a corporation, negligently asserted a false statement to RSI, namely, that the
Defendants sought to lease equipment from RSI to provide to the Federal Bureau of Prisons.
The Defendants intended for RSI to rely on the Defendants’ statement. The Defendants knew
that RSI would probably rely on the Defendants’ statement (leasing equipment for a five year
7

The undersigned finds this Count is pled in the alternative to Count II, fraudulent misrepresentation.

13

period), which, if erroneous, will cause loss to RSI. Based on the Defendants’ purported purpose
for leasing equipment, RSI justifiably took action in reliance on the Defendants’ statement. RSI
suffered damage (monthly lease payment and conversion of equipment) proximately caused by
the Defendants’ negligence;
y.

RSI alleges unjust enrichment in Count IV of its Complaint. To prove its claim of

unjust enrichment, RSI must show (a) a benefit conferred upon the Defendants by RSI, (b) an
appreciation or knowledge by the Defendants of the benefit; and (c) the acceptance or retention
by the Defendants of the benefit under such circumstances as to make it inequitable for the
Defendants to retain the benefit without the payment of its value.

Hill v. Cross Country

Settlements, LLC, 402 Md. 281, 295, 936 A.2d 343, 353 (2007) (citations omitted);
z.

As outlined in RSI’s well-pleaded Complaint, after an initial payment and in

exchange for a fixed monthly amount, RSI leased to the Defendants equipment for a five year
period and provided that equipment to the Federal Bureau of Prisons. The Defendants knew
from Addendum A to the Lease Agreement with Option to Purchase that “[e]quipment shall at
all times during the term remain personal property, and title thereto shall remain in Lessor.”
ECF No. 1-1 at 4; ECF No. 7-1 at 5. As specified in the lease agreement the Defendants had the
“option to purchase equipment at the end of said lease term for $1.00.” ECF No. 1-1 at 2; ECF
No. 7-1 at 3. That despite this knowledge the Defendants illegally sold the leased equipment to
the Federal Bureau of Prisons for an unknown amount.

It would be inequitable for the

Defendants to retain the benefit of the illegal sale without payment of its value to RSI;
aa.

RSI alleges conversion in Count V of its Complaint.
Conversion is an intentional tort, consisting of two elements, a
physical act combined with a certain state of mind. It is . . . any
distinct act of ownership or dominion exerted by one person [i.e.
the defendant] over the personal property of another [i.e. the
14

plaintiff] in denial of his [or her] right or inconsistent with it. The
act of ownership for conversion can occur either by initially
acquiring the property or by retaining it longer than the rightful
possessor [i.e. the plaintiff] permits.
Dynacorp Ltd. v. Aramtel Ltd., 208 Md. App. 403, 494, 56 A.3d 631, 685 (2012) (citations
omitted);
bb.

As outlined in RSI’s well-pleaded Complaint, the Defendants leased equipment

from RSI for the use of the Federal Bureau of Prisons, knowing that RSI owned the equipment
and that Defendants had the option to purchase the equipment at the end of the five year lease for
$1.00. Despite the lease agreement and Addendum A clearly and unequivocally establishing
ownership of the equipment, the Defendants sold illegally RSI’s equipment to the Federal
Bureau of Prisons.
Accordingly, RSI has established the joint and several liability of Defendants Orrs’
Environmental and Debra Sanders. Therefore, a default judgment as to four counts (breach of
contract, fraudulent misrepresentation,8 unjust enrichment and conversion) outlined in RSI’s
Complaint is proper.
B.

Damages
In support of its claims for damages RSI has submitted a verified9 Motion for Entry of

Default Judgment, the signed lease agreement between RSI and Orrs’ Environmental, an
affidavit in support of the motion for entry of default judgment (from RSI’s counsel), Orrs’
Environmental’s Articles of Organization Guidelines, and an affidavit in support of attorney’s
fees (from RSI’s counsel) with supporting billing records. RSI seeks a monetary judgment of

8

The undersigned finds Count III, negligent misrepresentation, is pled in the alternative to Count II, fraudulent
misrepresentation. The undersigned finds RSI’s well-pleaded Complaint establishes a claim of fraudulent
misrepresentation. If the Court disagrees, then alternatively, RSI’s well-pleaded Complaint establishes a claim of
negligent misrepresentation.

9

Affirmed under the penalties of perjury by RSI’s vice president, Josh Bortnick. See ECF No. 7 at 17.

15

Two Hundred Nine Thousand Seven Hundred and One Dollar ($209,701.00) consisting of
Eighty-Eight Thousand Five Hundred Twenty-One Dollars ($88,521.00) in compensatory
damages, One Hundred Thousand Dollars ($100,000.00) in punitive damages, Sixteen Thousand
Three Hundred Forty-Five Dollars ($16,345.00) in attorney’s fees, Eight Hundred Seventy-Five
Dollars ($875.00) in costs, and Three Thousand Nine Hundred Sixty Dollars ($3,960.00) which
are the remaining funds in an escrow for future fees and costs associated with securing judgment
and collection.
1.

Compensatory Damages

The undersigned recommends the Court award RSI $88,521.00 as compensatory
damages. This amount equals 57 monthly payments of $1,553.00. The Defendants paid the first,
second and last monthly payments. Due to the Defendants’ default, and in accordance with the
lease agreement, RSI has the option to recover the unpaid total lease with acceleration.
2.

Punitive Damages

A “default judgment must not differ in kind from, or exceed in amount, what is
demanded in the pleadings.” Fed. R. Civ. P. 54(c). There is no prohibition in the Federal Rules
of an award of punitive damages in a default judgment, provided that they are sought in a
plaintiff’s complaint. See, e.g., Murphy v. Islamic Rep. of Iran, 740 F. Supp. 2d 51, 83 (D.D.C.
2010) (awarding punitive damages in a default judgment). In this case RSI seeks $100,000.00 in
punitive damages against the Defendants, jointly and severally, for each of the five counts.
Punitive damages are available under Maryland law only in tort actions. See Bowden v.
Caldor, Inc., 350 Md. 4, 22, 710 A.2d 267, 276 (1998). Punitive damages serve to punish a
defendant “for egregiously bad conduct toward the plaintiff, [and] also to deter the defendant and
others contemplating similar behavior.” Id. (internal quotation omitted). An award of punitive

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damages is discretionary, Philip Morris, Inc. v. Angeletti, 358 Md. 689, 773-74, 752 A.2d 200,
246-47 (2000), and a number of factors must be considered in determining whether an award of
punitive damages is appropriate, including the minimum amount of damages that will deter the
defendant and others from similar misconduct, the proportion of punitive damages to
compensatory damages, and the financial circumstances of the defendant. See HBCU Pro
Football, LLC v. New Vision Sports Properties, LLC, No. WDQ-10-0467, 2011 WL 2038512 (D.
Md. May 24, 2011).
In the case of fraud, punitive damages may be awarded where a defendant acts with
“actual malice.” Frazier v. Castle Ford, Ltd., 430 Md. 144, 162, 59 A.3d 1016, 1026 (2013)
(defining “actual malice” as “a misrepresentation [made] with intent to deceive and ‘actual
knowledge’ of the falsity of the representation”) (internal quotation omitted) (citing Hoffman,
385 Md. at 41-43, 867 A.2d at 300-01)). Actual malice may be evidenced by “an element of
aggravation, evidenced by malicious, deliberate, gross or wanton conduct [accompanying] the
fraud.” Crawford v. Mindel, 57 Md. App. 111, 126, 469 A.2d 454, 461 (1984) (citation omitted).
Punitive damages are not permitted in a pure breach of contract case. Schaefer v. Miller,
322 Md. 297, 299, 587 A.2d 491, 492 (1991). However, “’where the tort is one arising out of a
contractual relationship, actual malice is a prerequisite to the recovery of punitive damages.’”
Id. at 301, 587 A.2d at 493 (citation omitted). Therefore RSI is not entitled to punitive damages
for Count I, breach of contract.
As for the remaining four counts, beginning with Count V, “[t]here can be no doubt in
Maryland that under proper circumstances there can be punitive damages in a suit for
conversion.” Siegman v. Equitable Trust Co., 267 Md. 309, 314, 297 A.2d 758, 761 (1972).
Count IV, unjust enrichment, is a claim in equity. “’A person who receives a benefit by reasons

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of an infringement of another person’s interest, or of loss suffered by the other, owes restitution
to him in the manner and amount necessary to prevent unjust enrichment.’” Cross Country
Settlements, 402 Md. at 296, 936 A.2d at 352 (quoting Berry & Gould, P.A. v. Berry, 360 Md.
142, 151, 757 A.2d 108, 113 (2000) (internal quotation omitted)). “’The restitution claim . . . is
not aimed at compensating the plaintiff, but at forcing the defendant to disgorge benefits that it
would be unjust for him to keep.’” Id. at 296, 936 A.2d at 352 (quoting Mass Transit Admin. v.
Granite Const. Co., 57 Md. App. 766, 775, 471 A.2d 1121, 1126 (1984)). Because an equitable
claim such as unjust enrichment seeks a remedy other than damages, the civil penalty of punitive
damages is not an available remedy. RSI thus is not entitled to punitive damages for Count IV,
unjust enrichment.
Count III, negligent misrepresentation,10 is a claim sounding in tort which lacks the mens
rea to support an award of punitive damages. In other words, the Defendants negligently
asserting a false statement to RSI is not the same as the Defendants intentionally, with malice or
with evil motive making a false statement. “Maryland cases concerning fraud or deceit have
typically involved the form of the tort which is characterized by the defendant’s deliberate
deception of the plaintiff by means of a representation which he knows to be false. We believe
that the defendant’s actual knowledge of falsity, coupled with his intent to deceive the plaintiff
by means of a false statement, constitutes the actual malice required to support an award of
punitive damages.” Ellerin v. Fairfax Savings, F.S.B., 337 Md. 216, 234, 652 A.2d 1117, 1126
(1995).

Hence punitive damages are not available to RSI for Count III, negligent

misrepresentation.
RSI is entitled to an award of punitive damages for Count II, fraudulent
misrepresentation. The Defendants made false representations to RSI as pled in the Complaint.
10

The undersigned finds this Count is pled in the alternative to Count II, fraudulent misrepresentation.

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The falsity of the representations was known to Defendant Orr
Environmental at the time the representations were made. When
the Defendant Orr Environmental entered into the Lease
Agreement with Plaintiff [RSI], it represented that it could meet
and uphold the obligations contained therein and that it would
abide by the terms contained therein. These misrepresentations
include, but are not limited to, the Defendant’s ability to make
monthly lease payments and the representation that Defendant Orr
Environmental acknowledged and agreed that title of the
equipment was to remain the Plaintiff’s during the term of the
lease. The misrepresentations were made for the purpose of
defrauding [RSI].
Compl. ¶ 16.
Having determined that RSI may receive punitive damages for its claims of fraudulent
misrepresentation and conversion, the amount of punitive damages sought is now considered.
The requested amount, $100,000.00, is very proportional to the compensatory damages,
$88,521.00.

An award of $100,000.00, less than 1.2 times the compensatory award, is

appropriate and is sufficient to deter the Defendants and others from engaging in such fraudulent
conduct in the future. The undersigned lacks information about the financial circumstances of
the Defendants and thus has no basis to opine regarding the impact of such a punitive award on
the Defendants.
3.

Attorney’s Fees & Costs

The undersigned has reviewed the hourly rate charged by Spencer M. Hecht, Esquire of
Hecht & Associates, LLC. Mr. Hecht has practiced law for approximately twelve years. His
hourly rate of $300.00 is reasonable and within the guidelines of Appendix B to this court’s
Local Rules for an attorney admitted to the bar for nine (9) to fourteen (14) years. The billing
records reflect some work performed by a paralegal. The hourly rate of $150.00 is reasonable
and within the guidelines of Appendix B to this court’s Local Rules for paralegals and law
clerks. The undersigned finds the expenses incurred in attempts to collect and enforce the lease
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agreement, such as the filing fee and the service of the summons, are necessary and reasonable.
The billing records reflect that the requested attorney’s fees and expenses have been paid to Mr.
Hecht by RSI. Finally, in his Affidavit in Support of Attorney’s Fees, Mr. Hecht discloses that
$3,960.00 “remains in escrow for future fees and costs associated with securing judgment and
collection.” ECF No. 7-4 at 2 ¶ 4.
The undersigned recommends the Court award, as necessary and reasonable expenses
associated with the enforcement and collection of the lease agreement, to RSI: (a) Sixteen
Thousand Three Hundred Forty-Five Dollars ($16,345.00) in attorney’s fees, (b) Eight Hundred
Seventy-Five Dollars ($875.00) in costs and (c) Three Thousand Nine Hundred Sixty Dollars
($3,960.00) in escrow for future fees and costs associated with securing judgment and collection,
or a total amount of Twenty-One Thousand One Hundred Eighty Dollars ($21,180.00) for
attorney’s fees and expenses.
4.

Interest

RSI seeks pre-judgment interest as well as post-judgment interest. “[A]ny prejudgment
interest which is awarded should be at the rate of 6% per annum.

Art. III, § 57 of the

Constitution of Maryland provides:
The Legal Rate of Interest shall be Six per cent, per annum; unless
otherwise provided by the General Assembly.”
First Virginia Bank v. Settles, 322 Md. 555, 566, 588 A.2d 803, 808 (1991).
As for post-judgment interest, it shall be allowed on money judgments in civil cases
recovered in a district court. The method of calculation is described in 28 U.S.C. § 1961(a)
which states in pertinent part:
[I]nterest shall be calculated from the date of the entry of the
judgment, at a rate equal to the weekly average 1-year constant
maturity Treasury yield, as published by the Board of Governors of
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the Federal Reserve System, for the calendar week preceding the
date of the judgment.
RSI asserts the post-judgment interest rate shall be the applicable state statutory rate which is 10
percent per annum in Maryland. See ECF No. 7 at 17. RSI suggests that section 1961 of Title
28 directs such a conclusion. Id. This assertion is contrary to the plain reading of section 1961
as quoted supra. The last sentence of section 1961(a) states “[t]he Director of the Administrative
Office of the United States Courts shall distribute notice of that rate and any changes in it to all
Federal judges.”
The undersigned recommends the Court award RSI pre-judgment interest at a rate of six
percent (6%) per annum. The undersigned further recommends the Court award RSI postjudgment interest, calculated in accordance with 28 U.S.C. § 1961, which shall continue to
accrue on the judgment until satisfied by Defendants Orrs’ Environmental and Debra Sanders.
RECOMMENDATIONS
The undersigned summarizes the recommendations as follows:
(a) The Court grant Plaintiff’s Motion for Entry of Default Judgment (ECF No. 7);
(b) The Court award Plaintiff, and against Defendants Orrs’ Environmental and Debra
Sanders, jointly and severally, $88,521.00 in compensatory damages;
(c) The Court award Plaintiff, and against Defendants Orrs’ Environmental and Debra
Sanders, jointly and severally, $100,000.00 in punitive damages;
(d) The Court award Plaintiff, and against Defendants Orrs’ Environmental and Debra
Sanders, jointly and severally, $21,180.00 as reasonable attorneys’ fees and costs;
(e) The Court award Plaintiff, and against Defendants Orrs’ Environmental and Debra
Sanders, jointly and severally, pre-judgment interest at a rate of six percent (6%) per annum;

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(f) The Court direct post-judgment interest, calculated in accordance with 28 U.S.C. §
1961, continue to accrue on the judgment until satisfied by Defendants Orrs’ Environmental and
Debra Sanders, jointly and severally; and
(g) The Court grant any other and further relief as it deems appropriate.

June 26, 2015

________________/s/________________
WILLIAM CONNELLY
UNITED STATES MAGISTRATE JUDGE

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