Opinion
21-CV-3108 (GBD) (RWL)
05-24-2022
BARTON LLP, Plaintiff, v. MAHO PARTNERS, LLC, Defendant.
REPORT AND RECOMMENDATION TO HON. GEORGE B. DANIELS: DEFAULT JUDGMENT
ROBERT W. LEHRBURGER, United States Magistrate Judge.
This is a breach of contract case in which Plaintiff Barton LLP (“Barton” or “Plaintiff”) seeks recovery of a sum certain from Defendant Maho Partners (“Maho” or “Defendant”) for failing to make payments due pursuant to a settlement agreement. Plaintiff has moved for default judgment pursuant to Fed.R.Civ.P. 55. For the reasons set forth below, I recommend that the Court (1) enter default judgment in favor of Plaintiff; (2) award Plaintiff $256,815.50 in damages, plus prejudgment interest at the statutory rate of 9%, and $402.00 in costs; and (3) dismiss Defendant's counterclaims.
The case was referred to me on January 4, 2022 for general pretrial management and report and recommendation on dispositive motions. (Dkt. 39.)
The facts are drawn from the Complaint (Dkt. 3) (“Compl.”); the Declaration of Roger E. Barton, managing partner of Plaintiff Barton LLP, dated Dec. 9, 2021 (Dkt. 28) (“Barton Decl.”); the Declaration of Amith Arcot, counsel for Barton, dated March 28, 2022 (Dkt. 47) (“Arcot Decl.”); the Affidavit of Michael Dolan, managing member of Defendant Maho, dated Dec. 27, 2021 (Dkt. 36) (“Dolan Aff.”); and Plaintiff's Rule 56.1 Statement Of Material Facts (Dkt. 30) (“56.1”). The 56.1 Statement in turn cites to the Complaint and Barton Declaration, among other materials.
Barton is a law firm, organized as a New York limited liability partnership, with its principal place of business in New York, New York. (56.1 ¶ 1.) Maho is a Delaware limited liability company with its principal place of business located in Pittsburgh, Pennsylvania. (Id. ¶ 3.) The managing member of Maho is Michael Dolan. (Id. ¶ 4.)
On June 12, 2020, Maho and Barton entered into an engagement agreement for Barton to provide corporate and transactional legal services to Maho. (Id. ¶ 5.) The engagement agreement required Maho to pay monthly invoices within 30 days of issuance and to review or raise any objection to an invoice within that period of time. (Id. ¶ 7.) From around mid-June to early September 2020, Barton provided substantial legal services to Maho and timely furnished monthly invoices, which totaled $256,816.50. (Id. ¶ 8.) Maho failed to pay any of the invoiced amounts, despite Barton's written demands. (Id. ¶ 9.)
Rather than pay the full amount owed, Maho proposed settling with Barton for a lower amount. (Id. ¶ 11.) After negotiating the terms, Maho and Barton entered into a settlement agreement on January 22, 2021 (the “Settlement Agreement”). (Id. ¶¶ 12-15.) The Settlement Agreement required Maho to pay Barton $125,000 on or before February 17, 2021 as full payment and compromise. (Compl. Ex. 1 § 2.) The Settlement Agreement also provided that if Maho failed to make timely payment, it would have five business days to cure the default upon written notice from Barton. (Id. § 3.) And, if Maho did not timely cure the default, then Barton would be entitled to enforce full payment of the entire invoiced amount of $256,816.50, with statutory interest. (Id.)
After multiple reminders from Barton, Maho did not pay the amount due under the Settlement Agreement by February 17, 2021. (56.1 ¶¶ 21-23.) On February 22, 2021, Barton sent Maho a written notice of default. (56.1 ¶ 24; Compl. Ex. 2-3-.) Even after a further reminder from Barton and extension to pay until March 1, 2021, Maho did not cure the default and still has not paid any amount due to Barton. (56.1 ¶¶ 25-27.) As a result, Maho owes Barton $256,816.50, plus statutory interest from September 30, 2020.
PROCEDURAL HISTORY
The Court has both subject matter jurisdiction over this case and personal jurisdiction over Maho. Federal subject matter jurisdiction exists pursuant to 28 U.S.C. § 1332(a) because the parties are diverse, and the matter in controversy exceeds $75,000. The Court has personal jurisdiction over Maho pursuant to N.Y. CPLR § 302(a) because Maho engaged Barton, a New York entity, to provide legal services in New York, and because the Settlement Agreement provides that the parties consent to jurisdiction of federal and state courts in New York, NY. (Compl. Ex. 1 § 7.)
Barton filed its Complaint on April 9, 2021. (Dkt. 3.) On May 5, 2021, Dolan, filed an Answer and Counterclaims on behalf of Barton and a notice that Maho would appear pro se through Dolan. (Dkt. 10.) Barton filed a reply on June 3, 2021. (Dkt. 12.)
On both June 11, 2021 and June 25, 2021, Plaintiff's counsel informed Dolan that Maho was required to appear by an attorney and that Barton would seek a default judgment if Maho failed to do so. (Arcot Decl. ¶ 6.) The Court twice deferred the initial pretrial conference so that Maho could retain counsel. (Dkts. 17, 19-22.) On November 3, 2021, attorney David Fertig of Morrison & Foerster LLP appeared on behalf of Maho. (Dkt. 25.)
At the initial pretrial conference held on November 3, 2021, Barton informed the Court and Mr. Fertig that Barton intended to move for summary judgment. (Arcot Decl. ¶ 10.) On December 9, 2021, Barton moved for summary judgment. (Dkts. 27-31.) On December 27, 2021, however, Mr. Fertig filed a motion to withdraw as counsel for Maho. (Dkts. 34-37.) Dolan filed an affidavit in connection with that motion describing attempts to settle with Barton but also acknowledging that he intentionally terminated Morrison & Foerster's representation of Maho, that he “understood th[e] implications” of doing so, and that Maho wished to conserve its limited resources to pay any settlement or “any adverse judgment.” (Dolan Aff. ¶¶ 19-20.) The Court granted the motion to withdraw, provided Maho with 30 days to retain new counsel, and extended Maho's time to respond to the summary judgment motion until February 10, 2022. (Dkt. 38.)
Despite the Court's order, and despite understanding the implications of failing to appear by counsel, Maho failed to do so by February 10, 2022. (See Dkt. 40)
Accordingly, on February 28, 2022, this Court entered an order stating that a corporate entity cannot appear pro se and must instead appear by counsel, and providing Maho a final opportunity to appear by counsel. (Id..) The order warned Maho that if it failed to appear by counsel by March 14, 2022, it will be subject to default judgment. (Id.) The order further provided that if Maho failed to appear by counsel, Barton should move for default judgment by March 28, 2022. (Id.)
Maho did not appear by counsel by March 14, 2022 or any time since. On March 23, 2022, Barton applied for and obtained a certificate of default against Maho. (Dkts. 43-45.) Barton then filed the instant motion for default judgment on March 28, 2022. (Dkts. 46-48, 50.) Barton served Maho with the default motion papers that same day. (Dkt. 51.)
On March 29, 2022, this Court issued an order requiring any response to Barton's motion for default judgment to be filed, by counsel appearing on behalf of Maho, by April 14, 2022. (Dkt. 52.) The order further warned that failure to respond may alone be grounds for granting default. (Id.) The order also required Barton to serve Maho with the order, which Maho did on April 1, 2022. (Dkt. 53.)
LEGAL STANDARDS
When a party seeking judgment or affirmative relief shows by affidavit that the opposing party has failed to plead or otherwise defend, the Clerk of Court must enter a default. Fed.R.Civ.P. 55(a). The non-defaulting party may then apply to the court to obtain default judgment. Fed.R.Civ.P. 55(b).
“In determining whether to grant a motion for default judgment, a court within this district considers three factors: (1) whether the defendant's default was willful; (2) whether defendant has a meritorious defense to plaintiff's claims; and (3) the level of prejudice the nondefaulting party would suffer as a result of the denial of the motion for default judgment.” Nespresso USA, Inc. v. Africa America Coffee Trading Co. LLC, No. 15-CV-5553, 2016 WL 3162118, at *2 (S.D.N.Y. June 2, 2016) (quoting Indymac Bank, F.S.B. v. National Settlement Agency, Inc., No. 07-CV-6865, 2007 WL 4468652, at *1 (S.D.N.Y. Dec. 20, 2007)); Mason Tenders District Council v. Duce Construction Corp., No. 02-CV-9044, 2003 WL 1960584, at *2 (S.D.N.Y. Apr. 25, 2003). Ultimately, the entry of a default judgment is entrusted to the sound discretion of the district court. Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir. 1993).
The court also “must determine whether the plaintiff has pleaded facts supported by evidence sufficient to establish the defendant's liability with respect to each cause of action.” Nespresso, 2016 WL 3162118 at *2; accord Finkel v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009) (“[A district court] is also required to determine whether [plaintiff's] allegations establish [defendant's] liability as a matter of law”). “It is an ancient common law axiom that a defendant who defaults thereby admits all well-pleaded factual allegations contained in the complaint.” City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011) (internal quotation marks omitted). A factual allegation will be deemed not well-pled “only in very narrow, exceptional circumstances.” Ideavillage Products Corp. v. Bling Boutique Store, No. 16-CV-9039, 2018 WL 3559085, at *2 (S.D.N.Y. July 24, 2018) (internal quotation marks and citation omitted). That said, a court “must still satisfy itself that the plaintiff has established a sound legal basis upon which liability may be imposed.” Jemine v. Dennis, 901 F.Supp.2d 365, 373 (E.D.N.Y. 2012) (citing Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981)).
Once liability is determined, the plaintiff bears the burden of establishing an amount of damages with reasonable certainty. RGI Brands LLC v. Cognac Brisset-Aurige, S.A.R.L., No. 12-CV-1369, 2013 WL 1668206, at *6 (S.D.N.Y. April 18, 2013) (collecting cases), R. & R. adopted, 2013 WL 4505255 (S.D.N.Y. Aug. 23, 2013); see also Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997). In conducting an inquest on damages, the court is charged with “‘determining the proper rule for calculating damages on such a claim, and assessing plaintiff's evidence supporting the damages to be determined under this rule.'” Tiffany (NJ) Inc. v. Luban, 282 F.Supp.2d 123, 124 (S.D.N.Y. 2003) (quoting Credit Lyonnais Securities (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999)). Further, the damages award on 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).
The Court has determined that no hearing is necessary to determine damages (no party has requested one), and that determination of damages can be resolved on the submissions and prior proceedings. See Tamarin v. Adam Caterers, Inc., 13 F.3d 51, 5354 (2d Cir. 1993); Fustok v. ContiCommodity Services, Inc., 873 F.2d 38, 40 (2d Cir. 1989).
DEFAULT JUDGMENT
Default judgment is warranted here. It is well established that “[a] corporation or other unincorporated entity may not represent itself pro se.” Mendelka v. Penson Financial Services, Inc., No. 16-CV-7393, 2017 WL 1208665, at *5 (S.D.N.Y. March 31, 2017); Jones v. Niagara Frontier Transportation Authority, 722 F.2d 20, 22 (2d Cir. 1983) (“The rule that a corporation may litigate only through a duly licensed attorney is venerable and widespread.”) A non-attorney may not represent a corporation even if they are the sole shareholder. United States ex rel. Mergent Services. v. Flaherty, 540 F.3d 89, 92 (2d Cir. 2008). If a pro se corporate entity fails to secure counsel, despite ample notice of its need to do so, it will be deemed to have defaulted. See Coventry Enterprises LLC v. Sanomedics International Holdings, Inc., No. 14-CV-8727, 2017 WL 3610585, at *1 (S.D.N.Y. July 25, 2017); Intelligen Power Systems., LLC v. dVentus Technologies LLC, No. 14-CV-7392, 2015 WL 7168527, at *1 (S.D.N.Y. Nov. 12, 2015).
Maho did not file any response to Barton's summary judgment motion and failed to retain counsel to replace counsel that withdrew, despite being warned multiple times that Maho would be subject to default if it did not appear through counsel. Maho chose to do so willfully, purposefully determining how it wanted to expend its resources and understanding the risk of failing to appear by counsel and being subject to an adverse judgment. (Dolan Aff. ¶¶ 19-20.) See City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 130 (2d Cir. 2011) (“a Rule 55(a) default was also proper ... insofar as this defendant withdrew its counsel without retaining a substitute”). By virtue of its default, Maho has abandoned any defenses asserted in its answer, which, in any event, lack merit as discussed below in addressing Maho's liability. See Mickalis Pawn Shop, LLC, 645 F.3d at 119 (“[w]e also conclude that the defendants forfeited the defense of lack of personal jurisdiction and any other defenses they may have had by willfully abandoning their defense of the litigation”). Denying Barton's motion for default judgment would be highly prejudicial to Barton since it would be left without any recourse to Maho's failure to honor its agreement and pay Barton monies owed for services rendered. Finally, as discussed next, the facts alleged establish Maho's liability.
LIABILITY
The Complaint asserts a single cause of action for breach of contract. The Settlement Agreement is governed by New York state law. (Compl. Ex. 1 § 7.) To prevail on a breach of contract claim under New York law, a plaintiff must establish four elements: (1) the existence of a contract; (2) the plaintiff's performance of that contract; (3) the defendant's breach of that contract; and (4) that the plaintiff suffered damages as a result of the breach. Terwilliger v. Terwilliger, 206 F.3d 240, 246 (2d Cir. 2000) (applying New York law). All four elements are readily met here. Barton and Maho entered into the Settlement Agreement. Maho performed under the Settlement Agreement by sending a default notice when Maho failed to pay the $125,000 it was obligated to pay as compromise of Maho's original obligation to pay $256,815.50. Maho failed to cure its breach. As a result, the full amount originally due for Barton's legal services -$256,815.50 - became immediately due and owing pursuant to the express terms of the Settlement Agreement. (Compl. Ex. 1 § 3.) Barton's well-pled allegations thus establish Defendant's liability for breach of contract.
In its answer, Maho asserted certain defenses and counterclaims. Although deemed abandoned, none of those defenses or counterclaims have merit and therefore do not forestall imposition of liability on Maho even if they had not been abandoned.
The answer asserted three defenses (Dkt. 10 at 3), which the Court addresses summarily. Maho's defense that Barton's billings were in excess of the work performed has no merit because the Settlement Agreement had already resolved any such dispute. Maho's cause of action is for breach of the Settlement Agreement, not breach of the legal engagement agreement. Maho's defense that the Settlement Agreement was invalid because Barton “did not counter execute and remit to defendant the Settlement Agreement until collections attempts began” is a non-sequiter. The timing of execution has nothing to do with validity or enforceability of the Agreement. Lastly, Maho's “belie[f] that the Court lacks venue” is belied by the Agreement's choice of forum clause designating federal or state courts in New York, New York. Venue also is proper pursuant to 28 U.S.C. § 1391(b)(2) as a substantial part of the events giving rise to Barton's claim arose in New York, New York.
To the extent Maho's defense was meant to suggest that Dolan entered into the Agreement under duress, the answer alleges no facts to indicate that Dolan was subject to “compulsion that was sufficiently great to overcome the exercise of [his] free will” when he negotiated and signed the Agreement. Mathias v. Jacobs, 167 F.Supp.2d 606, 614 (S.D.N.Y. 2001) (internal quotation marks and citation omitted).
Maho's counterclaims fare no better. The first counterclaim is based on the same allegations of excess billing as Maho's first defense and fails for the same reasons. The second counterclaim is essentially a restatement of the first, alleging that Barton acted in bad faith by billing for services not provided. Both counterclaims inaptly focus on claims already compromised, not the parties' obligations under the Settlement Agreement. Accordingly, Maho has neither meritorious defenses or counterclaims.
DAMAGES
As Maho's liability has been established, the Court turns to evaluating damages. Barton seeks: (1) breach of contract damages totaling $256,816.50; (2) prejudgment interest at the statutory rate of 9%; and (3) $402.00 in costs. Barton has provided sufficient evidence to support each of those items.
The Settlement Agreement provides that Barton may recover costs of collection, including reasonable attorney's fees, in the event of Maho's default. (Compl. Ex. 1 § 3.) Barton, however, has not included an application for attorney's fees in its default motion papers.
A. Breach of Contract Damages
The Court begins its analysis with the “fundamental principle that damages for breach of contract should put the plaintiff in the same economic position he would have been in had the defendant fulfilled the contract.” Lucente v. International Business Machines Corp., 310 F.3d 243, 262 (2d Cir. 2002) (citing Indu Craft, Inc. v. Bank Of Baroda, 47 F.3d 490, 495 (2d Cir.1995)). In New York, damages for a breach of contract claim based on a failure to pay is generally limited to recovery of the unpaid contract amount and accrued interest. See Arch Insurance Co. v. Precision Stone, Inc., 584 F.3d 33, 40-41 (2d Cir. 2009) (“In a typical breach of contract case, a non-breaching party is entitled to the payment it is due under the terms of the contract, less the payment it has already received”) (applying New York law); Scavenger, Inc. v. GT Interactive Software Corp., 289 A.D.2d 58, 58-59, 734 N.Y.S.2d 141, 142 (1st Dep't 2001) (“where the breach of contract was a failure to pay money, plaintiff should be limited to a recovery of the contract amounts plus appropriate interest”).
The amount of damages here is easily determined. Based on Barton's submissions, the amount due pursuant to the Settlement Agreement is $256,815.50. In support of its claim, Barton submits copies of the executed Settlement Agreement, default notice, and related correspondence. That documentation demonstrates expressly and unambiguously the amount due upon Maho's default under the Settlement Agreement: $256,815.50.
B. Prejudgment Interest
The Agreement expressly entitles Barton to prejudgment interest at the New York statutory rate. (Compl. Ex. 1 § 3.) Moreover, in a diversity case such as here, state law governs the award of prejudgment interest. Schipani v. McLeod, 541 F.3d 158, 164-65 (2d Cir. 2008). New York provides that prejudgment interest “shall be recovered upon a sum awarded because of a breach of performance of a contract.” N.Y. C.P.L.R. § 5001(a); see also U.S. Naval Institute v. Charter Communications, Inc., 936 F.2d 692, 698 (2d Cir. 1991) (“a plaintiff who prevails on a claim for breach of contract is entitled to prejudgment interest as a matter of right”). The statutory rate of prejudgment interest prescribed by New York law is 9%. N.Y. C.P.L.R. § 5004.
As for the time frame for calculating prejudgment interest, the New York rule directs that “[i]nterest shall be computed from the earliest ascertainable date the cause of action existed[.]” N.Y. C.P.L.R. § 5001(b). Based on the date of breach, the accrual date for Barton's claim is March 2, 2021, the day after the final date to which Barton extended Maho's time to pay the $125,000 due under the Agreement. (See 56.1 ¶ 25.) Accordingly, Barton is entitled to prejudgment interest of 9% from March 2, 2021 to the date of judgment.
Barton's “Statement Of Damages” calculates interest starting as of April 9, 2021. (Dkt. 48.) As noted above, however, the date of breach, after Barton's grant of a brief extension, was March 1, 2021. On March 1, 2021, Maho asked for another extension until April 8, 2021, a request that Barton rejected on March 2, 2021. (56.1 ¶ 26.) April 9, 2021 apparently is the day after the date of Maho's last-requested extension. But because Barton denied the additional extension request, the date of breach remains March 1, 2021. The Settlement Agreement expressly states that prejudgment interest is to be calculated starting from September 30, 2020. (Compl. Ex. 1 § 3.) Barton has not sought to impose that start date.
C. Costs
Barton seeks $402.00 as the amount paid to the Court for filing this action. Filing fees are routinely awarded as costs. See e.g., Malletier v. Artex Creative International Corp., 687 F.Supp.2d 347, 365 (S.D.N.Y. 2010) (costs such as filing fees, shipping costs, and research fees are “typically awarded when a defendant defaults”); Shannon v. Fireman's Fund Insurance Co., 156 F.Supp.2d 279, 305 (S.D.N.Y. 2001) (reimbursing plaintiff for filing fees and shipping costs). Docket fees also may be recovered pursuant to Local Civil Rule 54.1. Accordingly, Plaintiff is entitled to recover the requested $402.00 in costs.
CONCLUSION
For the foregoing reasons, I recommend (1) entering default judgment in favor of Plaintiff; (2) awarding Plaintiff $256,815.50 in damages, plus prejudgment interest at the statutory rate of 9% accruing as of March 2, 2021, and $402.00 in costs; and (3) dismissing Defendant's counterclaims with prejudice.
OBJECTIONS AND RIGHT TO APPEAL
Pursuant to 28 U.S.C. § 636(b)(1) and Rules 72, 6(a), and 6(d) of the Federal Rules Of Civil Procedure, the parties shall have fourteen (14) days to file written objections to this Report And Recommendation. Such objections shall be filed with the Clerk of the Court, with extra copies delivered to the Chambers of the Honorable George B. Daniels, United States Courthouse, 500 Pearl Street, New York, New York 10007, and to the Chambers of the undersigned, United States Courthouse, 500 Pearl Street, New York, New York 10007. Failure to file timely objections will result in a waiver of objections and will preclude appellate review.