Arcot et al v. Sarva et al

Filing 16

ORDER granting 15 Motion for Default Judgment. Signed by Judge John Thomas Fowlkes, Jr. on May 19, 2023. (Fowlkes, J.)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION
KISHORE ARCOT, Individually and as
Trustee of the MEMPHIS
CARDIOLOGY, PLC PROFIT
SHARING PENSION PLAN and THE
MEMPHIS CARDIOLOGY, PLC
DEFINED BENEFIT PLAN; MEMPHIS
CARDIOLOGY, PLC; MEMPHIS
CARDIOLOGY, PLC PROFIT
SHARING PENSION PLAN; and
MEMPHIS CARDIOLOGY, PLC
DEFINED BENEFIT PLAN,
Plaintiffs,
v.
RAMESH SARVA, and RAMESH
SARVA, CPA, P.C.,
Defendants.

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Case No. 2:22-cv-02135-JTF-cgc

ORDER GRANTING DEFAULT JUDGMENT
Before the Court is Plaintiff Kishore Arcot’s Motion for Default Judgment, filed on April
27, 2023. (ECF No. 15.) Arcot previously moved for Entry of Default by the Clerk on June 7,
2022, (ECF No. 11), which was granted on June 8, 2022, (ECF No. 12.) However, the case pended
for over a year without action until the Court entered an Order to Show Cause on April 18, 2023,
asking the parties to show cause why the case should not be dismissed for lack of prosecution.
(ECF No. 13.) Arcot responded with this motion. For the below reasons, the Motion is
GRANTED.
I. FACTUAL AND PROCEDURAL BACKGROUND

The facts of the complaint are taken as given due to the Clerk’s entry of default. In brief
summary, Arcot, who acted as the managing member of Plaintiff Memphis Cardiology, hired
Defendant Ramesh Sarva and Ramesh Sarva CPA to create and manage benefit plans for Memphis
Cardiology. Sarva secured the position by representing that Arcot and Memphis Cardiology
“would reap significant financial benefits if they followed his advice and formed retirement plans.”
(ECF No. 1, 3.) Sarva also represented that he was an expert on plan formation and management.
(Id. at 4.) Ultimately, Arcot served as trustee of two plans Sarva created and managed, “the Profit
Sharing Plan” and “the Defined Benefit Plan.” (Id.) Sarva advised Arcot and Memhpis Cardiology
on plan creation, maintenance, and decision making for a fee until 2017. (Id.) However, on
February 24, 2022, the IRS informed Arcot that the Plans were not “properly qualified, updated or
funded,” creating a tax liability of $4.9 million. (Id.) The plaintiffs paid this tax liability
themselves. (ECF No. 15, 2.) Arcot and Memphis Cardiology then brought the present case
alleging negligence, negligent misrepresentation, fraud, breach of contract and/or fraudulent
inducement, and violations of the Tennessee Consumer Protection Act (“TCPA”). (ECF No. 1, 5
– 9.) They requested damages in the amount of the tax liability caused, or $4.9 million, and treble
damages of $14.7 million for the TCPA violations. Within the motion, Plaintiffs represent that the
ultimate amount paid to the IRS amounted to $4,835,131.68. (ECF No. 15, 5.)
Plaintiffs filed the case on March 4, 2022. (ECF No. 1.) Summons was returned executed
on March 29, 2022. (ECF Nos. 9 & 10.) However, neither of the defendants ever filed an answer
or took any action in the case. Accordingly, the Plaintiffs moved for entry of default on June 7,
2022, which was granted the next day. (ECF Nos. 11 & 12.) Defendants never responded to the
entry of default or subsequent Motion for Default Judgment.
II. LEGAL STANDARD

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“The Federal Rules of Civil Procedure require a defendant to serve an answer within twenty
days of being served with a summons and complaint. Rule 55 permits the clerk to enter a default
when a party fails to defend an action as required. The court may then enter a default judgment.”
Delta Air Lines, Inc. v. Influence Direct, LLC, No. 3:14-cv-00926, 2017 WL 11684599, at *2
(M.D. Tenn. Jan. 20, 2017) (quoting O.J. Distrib., Inc. v. Hornell Brewing Co., Inc., 340 F.3d 345,
352-53 (6th Cir. 2003)). “Upon entry of default, well-pleaded allegations relating to liability are
taken as true.” Porter Family Limited Partnership v. ST Brands, Inc., No. 3:21-cv-00871, 2023
WL 309395, at *1 (M.D. Tenn. Jan. 17, 2023). “Where damages are unliquidated a default admits
only defendant’s liability and the amount of damages must be proved.” Flynn v. People’s Choice
Home Loans, Inc., 440 F. App’x 452, 455 (6th Cir. 2011). Whether to enter a default judgment or
not is within the sound discretion of the District Court. The Sixth Circuit has listed certain factors
that should guide that discretion:
(1) possible prejudice to the plaintiff; 2) the merits of the claims; 3) the sufficiency
of the complaint; 4) the amount of money at stake; 5) possible disputed material
facts; 6) whether the default was due to excusable neglect; and 7) the preference for
decisions on the merits.
Russell v. City of Farmington Hills, 34 F. App’x 196, 198 (6th Cir. 2002) (citing Eitel v. McCool,
782 F.2d 1470, 1472 (9th Cir. 1986)).
III. LEGAL ANALYSIS
The Plaintiffs state that all procedural requirements for default judgment have been met.
They are correct. Defendants were served with the Complaint on March 21, 2022, and have taken
no action since. Further filings in the case have been sent to the same address where service was
affected without any response. Defendants have had over a year to engage with this case and have
declined to do so. With liability thus established, the only issue remaining is damages and whether
a judgment should be entered.
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The factors to consider weigh in favor of entering a default judgment. Plaintiffs would be
possibly prejudiced by not having a judgment entered, given that they have already paid $4.9
million in taxes now legally established to be due to Sarva’s fraud and negligence. The complaint
sufficiently alleges all its counts and relates a plausible theory of liability. As the defendants have
not appeared, there are no disputed material facts, and the over year-long delay since service makes
excusable neglect unlikely. While the Court prefers for cases to be decided on the merits, the
defendants have patently refused to engage in this lawsuit at all.
The only factor remaining, and relevant issue, is the amount of money at stake. Plaintiffs
have requested compensatory damages of $4,835,131.68, as the amount already paid to the Internal
Revenue Service due to the defendants’ tortious conduct. (ECF No. 15, 5.) This amount is attested
to in an attached declaration from Kishore Arcot, as well as through corroborating exhibits. (ECF
No. 15-1, 5.) The Plaintiffs request further damages though, specifically $43,379.86 in attorneys’
fees, expenses and costs, as well as either punitive damages under Tenn. Code Ann. § 29-39104(a)(5)(A) (in the amount of $9,670,263.36), or treble damages under Tenn. Code Ann. § 4718-109 (in the amount of $14,505,395.00). (ECF No. 15, 5 – 6.) In total, this amounts to a damages
request of either $14,548,774.90 or $19,383,906.54, depending on whether punitive or treble
damages are granted.
However, on this record, the Court believes that only the $4,835,131.68 is adequately
proved by the Plaintiffs. Plaintiffs are free and encouraged to submit documentation to support
their calculation of attorneys’ fees, costs, and expenses upon the filing of this motion. The punitive
and treble damages do not appear warranted based on the few facts admitted even under entry of
default. While punitive damages are allowed for fraudulent behavior under Tennessee law, “these
damages should be ‘awarded only in the most egregious of cases.’” Pruett v. Skouteris, 743 F.

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Supp. 2d 718, 727 (W.D. Tenn. 2010) (quoting Hodges v. S.C. Toof & Co., 833 S.W.2d 896, 900
(Tenn. 1992)). Further, “in all cases involving an award of punitive damages, the trier of fact” is
to consider many factors that the Court is unable to consider on this record, including the financial
condition of the defendant, previous damages awards, the defendant’s motivation, and defendant’s
profit. Tenn. Code Ann. § 29-39-104(4). The purpose of punitive damages is to punish the
defendant above the deterrence provided by compensatory damages, and the Court cannot say
whether such punishment is warranted in this case. All that is alleged is that Sarva materially
misrepresented his competency regarding benefit plans, causing unforeseen and unnecessary tax
liability. This same logic applies to treble damages, which requires the determination that the
defendant’s actions were a “willful or knowing violation” the TCPA. Tenn. Code Ann. § 47-18109. Such knowledge is not shown on this record.
Accordingly, the Plaintiffs’ Motion is GRANTED. A default judgment in the amount of
at least $4,835,131.68 will be entered in the Plaintiffs’ favor. The Court will delay entering the
judgment for two weeks from the entry of this order, during which time the Plaintiff is encouraged
to submit documentation of the attorneys’ fees and costs sustained in litigating this case. The
judgment amount will be adjusted according to the documentation received.
IT IS SO ORDERED this 19th day of May, 2023.
s/John T. Fowlkes, Jr.
JOHN T. FOWLKES, JR.
UNITED STATES DISTRICT JUDGE

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