People's United Equipment Finance Corp. v. Hall et al
MEMORANDUM OPINION AND ORDER GRANTING 7 MOTION for Default Judgment against All Defendants. (Signed by Judge Gray H Miller) Parties notified.(rkonieczny, 4)
United States District Court
Southern District of Texas
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
PEOPLE’S UNITED EQUIPMENT FINANCE CORP., §
HALL, et al.,
June 22, 2017
David J. Bradley, Clerk
CIVIL ACTION H-17-56
MEMORANDUM OPINION & ORDER
Pending before the court is plaintiff People’s United Equipment Finance Corp.’s (“People’s
United”) motion for default judgment. Dkt. 7. Based on a review of the complaint, motion, record
evidence, and applicable law, the court is of the opinion that the motion should be GRANTED.
People’s United brought this action against third-party guarantors to collect unpaid amounts
due under a financing agreement between People’s United and Iddings Trucking, Inc. (“Iddings”).
Dkt. 1. Between March and April 2015, Iddings executed and delivered three promissory notes to
People’s United, collectively totaling $785,680.00. Dkt. 1, Exs. 1–3. The notes required Iddings
to repay People’s United in monthly installments. Id. Additionally, the notes and corresponding
loan documents provided for acceleration of all indebtedness if Iddings defaulted on any of its
obligations to People’s United. Id.
On March 11, 2015, Thomas E. Hall and George C. Loeber each signed and delivered
identical guaranties of Iddings’s obligations to People’s United. Dkt. 1, Ex. 4. Under the terms of
the guaranty agreements, the defendants jointly accepted direct and unconditional liability of
Iddings’s obligations to People’s United. Id. The guaranties included terms that limited the
defendants’ release until the obligations of Iddings to People’s United had been fully paid and
performed with interest. Id. The guaranties further stipulated that the defendants would pay
People’s United’s reasonable attorneys’ fees, together with any and all court costs and expenses if
the guaranties were referred to an attorney for collection. Id.
Despite the terms of the notes, People’s United contends that Iddings repeatedly failed to pay
the monthly installments in a timely manner. Dkt. 7-1 (Pace Aff.). On April 28, 2016, Iddings
entered into an agreement with People’s United that extended the payment plans for the outstanding
notes. Dkt. 1, Exs. 1–3. Following the extension agreement, People’s United contends that Iddings
again failed to make its payments. Dkt. 7-1 (Pace Aff.). On December 30, 2016, Iddings filed a
petition under Chapter 11 of the United States Bankruptcy Code. Id. Shortly after Iddings entered
its bankruptcy proceedings, People’s United contends that it exercised its option against the
defendants to accelerate the remaining unpaid balance. Id. As of March 2, 2017, People’s United
alleges that the aggregate balance due is $510,293.25. Id. This balance is further subject to
continuing interest according to the loan contract. Dkt. 1, Exs. 1–3.
On January 10, 2017, People’s United brought this action against the defendants, alleging
that the defendants are jointly liable for the outstanding balance of the notes, along with interest,
attorneys’ fees, and costs of court. Dkt. 1. On January 17, 2017, defendant Loeber was properly
served with process. Dkt. 5. Loeber’s deadline to answer or otherwise respond was February 7,
2017. See Fed. R. Civ. P. 12(a). On January 19, 2017, defendant Hall was properly served with
process. Dkt. 6. Hall’s deadline to answer or otherwise respond was February 9, 2017. See Fed.
R. Civ. P. 12(a). The defendants were informed of their deadline for responding and the
consequences of failing to do so. Dkts. 3, 5, 6. To date, neither defendant has answered or
responded to this lawsuit. Dkt. 7.
On March 9, 2017, People’s United filed a motion for an entry of default judgment against
the defendants. Id. Pursuant to the Local Rules of the Southern District of Texas, People’s United
served this motion for default judgment upon the defendants via certified mail, with return receipt
requested. Id.; see also S.D. Tex. L.R. 5.5. People’s United has filed a military affidavit for each
defendant that complies with the Servicemembers’ Civil Relief Act, 50 U.S.C App. § 521. Dkt. 7-3.
II. LEGAL STANDARD AND ANALYSIS
Under Federal Rule of Civil Procedure 55(a), “[w]hen a party against whom judgment for
affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by
affidavit or otherwise, the clerk must enter the party’s default.” Fed. R. Civ. P. 55(a). Under Rule
55(b)(2), a party may apply for the court to enter a default judgment, and the “court may conduct
hearings or make referrals—preserving any federal statutory right to a jury trial—when, to enter or
effectuate judgment, it needs to: (A) conduct an accounting; (B) determine the amount of damages;
(C) establish the truth of any allegation by evidence; or (D) investigate any other matter.” Fed. R.
Civ. P. 55(b)(2). Rule 4 of the Federal Rules of Civil Procedure requires the plaintiff to serve a copy
of the summons and complaint on the defendant. Fed. R. Civ. P. 4(c)(1). Under Local Rule 5.5, a
motion for default judgment must be served upon the defendant via certified mail, return receipt
requested. S.D. Tex. L.R. 5.5.
A default judgment is a “drastic remedy, not favored by the Federal Rules[,] and resorted to
by courts only in extreme situations.” Sun Bank of Ocala v. Pelican Homestead & Sav. Ass’n,
874 F.2d 274, 276 (5th Cir. 1989). “The Federal Rules of Civil Procedure[s] are designed for the
just, speedy, and inexpensive disposition of cases on their merits, not for the termination of litigation
by procedural maneuver.” Id.
The defendants have failed to plead or otherwise defend against this lawsuit. Further,
People’s United has properly served the defendants with this lawsuit under the Federal Rules of Civil
Procedure and with this motion for default judgment under the Local Rules. Given the defendants’
failure to answer the complaint in a timely manner, the court has the authority to enter default against
the defendants, accept all well-pleaded facts in People’s United’s complaint as true, and award the
relief sought by People’s United in this action. See Nishimatsu Constr. Co. v. Hous. Nat’l Bank, 515
F.2d 1200, 1206 (5th Cir. 1975).
People’s United alleges that the defendants entered into a guaranty agreement and assumed
direct and unconditional liability for all of Iddings’s obligations to People’s United. Dkt. 1. Further,
People’s United alleges that the defendants’ refusal to pay Iddings’s obligations on schedule
constitutes a breach of the respective guaranties. Id. Iddings’s bankruptcy proceedings do not
discharge the defendants from liability as guarantors. See 11 U.S.C. § 524(e). People’s United
claims it is owed $510,293.25 under the guaranty and corresponding loan agreement, plus interest,
attorneys’ fees, and costs. Id. People’s United provides signed copies of the guaranty agreements
as evidence of the defendants’ obligations to People’s United. Dkt. 1, Exs. 1–3. People’s United
provides an affidavit as evidence of damages amounting to $510,293.25, with additional interest at
a rate of 18%. Id.; Dkt. 7-1 (Pace Aff.). Additionally, People’s United provides an affidavit as
evidence of relevant attorneys’ fees accrued in pursuing this action. Dkt. 7-2 (Sandretto Aff.).
The court finds that plaintiff’s facts regarding the claim are well pled, and the court accepts
these facts as true. The court finds that an entry of default against the defendants for their failure to
appear and answer People’s United’s complaint is warranted.
Accordingly, People’s United’s motion for entry of default judgment (Dkt. 7) is GRANTED.
The court will enter a separate final judgment consistent with this memorandum opinion and order.
People’s United seeks (1) judgment in the amount of $510,293.25; (2) post-judgment interest
thereon at the contractual default rate of 18%; (3) pre-judgment interest thereon at the contractual
default rate of 18%; (4) attorneys’ fees and costs in the amount of $14,003.44, as of February 27,
2017, and accruing thereafter; and (5) all costs of court. Dkt. 7.
1. Judgment of Amount Due under Guaranty Agreements
People’s United seeks recompense under the guaranty and loan agreements in the amount of
$510,293.25. Id. The discharge of a borrower’s debt in bankruptcy does not affect a guarantor’s
liability. See 11 U.S.C. § 524(e). This section of the Bankruptcy Code preserves the creditor’s
claims against guarantors, and provides an avenue for creditors to freely prosecute those claims. See
In re Sandy Ridge Dev. Corp., 881 F.2d 1346, 1351 (5th Cir. 1989).
Because Iddings defaulted on its payments, the loan agreement allows for People’s United
to accelerate the maturity of the accrued and unpaid indebtedness, making the outstanding balance
immediately due and payable. Dkt. 1, Ex. 1. Each defendant signed a guaranty, making the
defendants jointly liable for all of Iddings’s obligations to People’s United. Dkt. 1, Exs. 2, 3.
Iddings’s bankruptcy proceedings do not affect the liability of the defendants to People’s United in
relation to the outstanding balance due under the notes. Accordingly, the court GRANTS People’s
United damages in the amount of $510,293.25.
2. Interest on the Judgment
Interest is allowed on any money judgment in a civil case recovered in a district court. 28
U.S.C. § 1961 (2000). Parties are free to stipulate a rate of interest different from the one prescribed
in 28 U.S.C. § 1961, as long as the stipulated rate is consistent with state usury and other applicable
laws. Hymel v UNC, Inc., 994 F.2d 260, 266 (5th Cir. 1993). The maximum rate of interest that
Texas allows on a money judgment is 18% per year. Tex. Fin. Code Ann. § 304.002 (Vernon 2017).
The recovery of interest prior to the date of judgment as an element of damages is a substantive
question controlled by state law. Wood v. Armco, Inc., 814 F.2d 211, 213 n.2 (5th Cir. 1987). Under
Texas law, pre-judgment interest accrues at the rate for post-judgment interest. Arete Partners, L.P.
v. Gunnerman, 643 F.3d 410, 415 (5th Cir. 2011).
Iddings’s failure to pay in a timely manner and commencement of bankruptcy proceedings
constituted a default under the loan agreement. Dkt. 1, Exs. 1–3. The loan documents demonstrate
that the parties expressly agreed that in the occurrence of an event of Iddings’s default, interest shall
accrue on the balance due at the maximum lawful rate that state law permits. Id. Therefore, the 18%
maximum interest rate that Texas law permits began to apply to the unpaid balance when Iddings
filed for bankruptcy and default occurred. Id. Accordingly, the court GRANTS the plaintiff prejudgment and post-judgment interest at the 18% limit that the parties agreed to in the financing
3. Attorneys’ Fees and Costs
The loan documents and guaranties expressly provide that the plaintiff is entitled to
reasonable attorneys’ fees in the event the notes are referred to an attorney for enforcement. Dkt.
1, Exs. 1–3. Courts use a two-step process to calculate reasonable attorneys’ fees. Migis v. Pearle
Vision, Inc., 135 F.3d 1041, 1047 (5th Cir. 1998). First, the court calculates a “lodestar” fee by
multiplying the reasonable number of hours spent on the case by the reasonable hourly rates for the
participating lawyers. Id. Second, the court considers whether the lodestar should be adjusted
upward or downward depending on the circumstances of the case, under the twelve Johnson factors.
Id. (citing Johnson v. Ga. Highway Express, Inc., 488 F.2d 714, 717–19 (5th Cir. 1974)).
The movant seeking attorneys’ fees bears the initial burden of submitting adequate
documentation of the hours expended and the hourly rates. Hensley v. Eckerhart, 461 U.S. 424, 437,
103 S. Ct. 1933 (1983). Plaintiffs seeking attorneys’ fees are charged with the burden of showing
the reasonableness of the hours billed, and therefore, are also charged with proving that the attorneys
exercised billing judgment. Saizan v. Delta Concrete Prods. Co., Inc., 448 F.3d 795, 799 (5th Cir.
2006). Billing judgment requires documentation of the hours charged and the hours written off as
unproductive, excessive, or redundant. Id. The district court has broad discretion to award
attorney’s fees. Energy Mgt. Corp. v. City of Shreveport, 467 F.3d 471,482 (5th Cir. 2006). A
district court may reduce the number of hours awarded if the billing documentation is vague or
incomplete. Louisiana Power & Light Co. v. Kellstrom, 50 F.3d 319, 324 (5th Cir. 1995).
People’s United seeks $14,003.44 in attorneys’ fees as of February 27, 2017, with fees
continuing to accrue thereafter. Dkt. 7. People’s United asserts that its counsel, Mark W. Sandretto
and Brian T. Johnson, have collectively expended 56.8 hours of office and court time through
February 27, 2017. Dkt. 7-2. Mr. Sandretto asserts that he has expended 38.9 hours at a rate of $225
an hour. Id. Mr. Johnson asserts that he has expended 17.9 hours at a rate of $275 an hour. Id.
Multiplying the hours and rates for the two attorneys results in a lodestar amount of $13,675. Id.
People’s United’s counsel further asserts their firm has advanced $328.44 in travel charges. Id.
People’s United has not met its burden of showing the amount of attorneys’ fees and costs
totaling $14,003.44 is reasonable. The billing records that People’s United’s attorneys have
submitted contain redacted entries, listing time the attorneys spent, without supporting information
about how the attorneys used that time. Dkt. 7-2, Exs. A, B. The redacted information that the
plaintiff’s attorneys have provided makes it impossible for the court to judge if the hours expended
were reasonable. Without information regarding how the plaintiff’s attorneys used their time, the
court is left to guess whether the attorneys’ billing was relevant to this specific litigation or if some
of the hours were unproductive, excessive, or redundant. Additionally, People’s United’s attorneys
have failed to substantiate the continued fees that they seek for the period after February 27, 2017.
Therefore, the court REDUCES the plaintiff’s requested amount for attorneys’ fees by 75% and
GRANTS People’s United’s attorneys’ fees in the amount of $3,500.86. See, e.g., Compass Bank
v. Manuel Hernandez Solis, No. 5:14-CV-152, 2015 WL 13119387, at *2 (S.D. Tex. Apr. 7, 2015)
(awarding $4,291.50 in attorney’s fees for an entry of default judgment); Ryan Marine Services, Inc.
v. Prime 8 Offshore, L.L.C., No. CV-G-14-298, 2015 WL 12838866, at *2 (S.D. Tex. Jan. 13, 2015)
(awarding $1,721.09 in attorney’s fees for an entry of default judgment); see also Hensley, 461 U.S.
at 437 (emphasizing the discretion the district court has to determine the amount of a fee award).
4. Costs of Court
Costs should be allowed to the prevailing party in the event of a judgment in its favor. See
Fed. R. Civ. P. 54(d)(1). Parties must maintain their own record of taxable costs and an application
for costs shall be made by filing a bill of costs within 14 days of the entry of a final judgment. S.D.
Tex. L.R. 54.2. The loan documents and guaranties expressly provide that People’s United is
entitled to costs of court in the event the notes are referred to an attorney for enforcement. Dkt. 1,
Exs. 1–3. In accordance with the terms of the contract and the Federal Rules of Civil Procedure, the
court GRANTS People’s United all costs of court as provided by law.
People’s United’s motion for default judgment (Dkt. 7) is GRANTED. The court hereby
awards People’s United the following:
(1) judgment in the amount of $510,293.25;
(2) pre-judgment interest thereon at the contractual default rate of 18% per annum from
and after March 2, 2017, until entry of judgment;
(3) post-judgment interest thereon at the contractual default rate of 18% as provided by
law from entry of judgment until paid;
(4) reasonable attorneys’ fees and costs in the amount of $3,500.86; and
(5) all costs of court as provided by law.
Signed at Houston, Texas on June 22, 2017.
Gray H. Miller
United States District Judge
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