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Banc of America Leasing & Capital LLC v. Breakwater Advanced Manufacturing LLC

United States District Court, W.D. Louisiana, Lafayette Division

March 27, 2018

BANC OF AMERICA LEASING & CAPITAL, LLC
v.
BREAKWATER ADVANCED MANUFACTURING, LLC, ET AL.

          REPORT AND RECOMMENDATION

          PATRICK J. HANNA UNITED STATES MAGISTRATE JUDGE

         Currently pending is the plaintiff's motion for default judgment [Rec. Doc. 22] seeking the entry of a default judgment against the defendants, Breakwater Advanced Manufacturing, LLC, Bryan Benoit, Greg David, and Mark Leach. The deadline for filing an opposition has expired, and no opposition brief was filed. An evidentiary hearing was held on March 22, 2018. The motion was referred to the undersigned for review, report, and recommendation in accordance with the provisions of 28 U.S.C. § 636 and the standing orders of this Court. For the following reasons, it is recommended that the motion be granted.

         BACKGROUND

         This case arises from two Master Security Agreements and an Additional Collateral Agreement that were executed by defendant Breakwater Advanced Manufacturing, LLC (“Breakwater”) and personally guaranteed by defendants Bryan Benoit, Greg David, and Mark Leach.

         On July 16, 2014, Breakwater executed the first Master Security Agreement (“July MSA”) with Mazak Corporation (“Mazak”). Pursuant to the July MSA, Breakwater purchased the Mazak QTN-350 MY2KY and was obligated to pay a down payment of $28, 448.95 and 60 monthly installment payments of $4, 458.51.[1] As collateral, Breakwater also granted Mazak a lien and security interest in the Mazak QTN-350 MY2KY.[2] As further consideration of the extension of credit, Breakwater also granted Banc of America Leasing & Capital, LLC (“Banc of America”) a security interest in a 2012 Mazak M5[3] pursuant to an Additional Collateral Agreement dated July 23, 2014.[4]

         On November 25, 2014, Breakwater executed their second Master Security Agreement (“November MSA”) with Mazak. Pursuant to the November MSA, Breakwater purchased the Mazak Slant Turn Nexus 550 and was obligated to pay a down payment of $75, 115.39 and 60 monthly installment payments of $7, 974.31.[5] As collateral, Breakwater also granted Mazak a security interest in the Mazak Slant Turn Nexus 550.[6] Mazak is the assignee of all of their original rights under the July MSA and November MSA and Banc of America's rights under the Additional Collateral Agreement.[7]

         The two Master Security Agreements that were executed between Breakwater and Mazak are nearly identical and contain the same provisions except for the last page. The last page contains the heading “Schedule” and specifically describes the equipment and the payment terms of each loan. Both Master Security Agreements provide for an acceleration of payment when an “Event of Default” occurs. According to the Master Security Agreements, an “Event of Default” can occur when Breakwater fails to pay any of the required monthly installment payments under the agreement. If an event of default occurs, the Master Security Agreements provide that the:

“Lender may, by notice to Buyer, declare all Secured Obligations immediately due and payable in full, and, in addition to all rights and remedies of a secured party available under the applicable Uniform Commercial Code, other applicable statutes or rules, or at law or in equity, in any jurisdiction in which enforcement is sought, all such rights and remedies being cumulative and not exhaustive and subject to successive or concurrent enforcement.”[8]

         In addition, the Master Security Agreements provide that “Buyer shall pay Lender for all expenses (including reasonable attorneys' fees), incurred in the enforcement of any term of this Agreement, or in the execution on, or sale of, the Collateral.”[9]

         Defendants Bryan Benoit, Greg David, and Mark Leach executed an individual guarantee for the July MSA and an individual guarantee for the November MSA.[10] The two individual guaranties are nearly identical, except for the description of the equipment and the equipment's cost, and both are signed and dated by each guarantor. Pursuant to both individual guarantees, Benoit, David and Leach promised,

“For valuable consideration, the receipt of which is hereby acknowledged, the undersigned jointly, severally and unconditionally guarantee to MAZAK CORPORATION (“Lender”) the full and prompt performance by the Buyer/ Debtor identified above [Breakwater Advanced Manufacturing, LLC] (hereinafter called “Buyer”), of all obligations which Buyer now has or may hereafter have to Lender including, but not limited to, obligations under conditional sales or security contracts and contract schedules executed in connection with anticipated conditional sales contracts such as all present and future Contract schedules under the Master Security Agreement and the Equipment Cost identified above; and unconditionally guarantee the prompt payment when due (whether at scheduled maturity, upon acceleration or otherwise) of any and all sums, indebtedness and liabilities of whatsoever nature, due or to become due, direct or indirect, absolute or contingent, now or hereafter at any time owed or contracted by Buyer to Lender, and all losses, costs and expenses of or incidental to Buyer's default or collection of any of the foregoing, including reasonable attorneys' fees (all of the foregoing hereinafter called “Obligations”).”[11]

         Then, Benoit, David, and Leach reaffirmed their guaranties through the execution of two separate Revision Agreements that are both dated June 6, 2016.[12]The Revision Agreements also modified the payment terms of the two Master Security Agreements by providing a three-month deferral period, during which Breakwater agreed to pay interest payments, and extending the contract terms from 60 to 63 months.[13]

         The plaintiff alleges that an Event of Default occurred under both of the Master Security Agreements when Breakwater did not pay its monthly installments that were due in September 2016.[14] As a result, the plaintiff alleges that the defendants were notified that it was exercising its rights under the acceleration clause of the Master Security Agreements and declaring the defendants' obligations immediately due and payable in full.[15]

         On January 25, 2017, the plaintiff[16] filed the present lawsuit in which it alleges that defendants, Breakwater, Benoit, David, and Leach are jointly and solidarily liable for all amounts owed under the loan documents, including all costs and expenses of enforcement and reasonable attorney's fees. The plaintiff also requested a writ of sequestration[17] and a judgment recognizing its security interests in the Mazak QTN-350 MY2KY, the 2012 Mazak M5 and the Mazak Slant Turn Nexus 550.

         All four defendants were served. On February 2, 2017, David and Leach were served by leaving a copy of the summons and complaint at their individual places of residence with a person of suitable age and discretion who resides there.[18] On February 5, 2017, Benoit was personally served[19] and Breakwater was served with a copy of the summons and complaint by personal service on its registered agent.[20]

         On February 23, 2017, the defendants filed an answer that was signed by an attorney that is not admitted to practice law in the Western District of Louisiana. As a result, the Clerk of Court issued a notice of deficiency and the defendants were advised that they had 10 days to submit a corrective document or their answer would be stricken by the Court.[21] The defendants did not submit a corrective document and their answer was stricken from the record on March 23, 2017.[22]

         On April 6, 2017, the plaintiff filed an unopposed motion to stay the case because the parties executed a Settlement and Forbearance Agreement that forbears the plaintiff from taking further action to enforce its remedies under the Master Security Agreements until certain events occur.[23] The motion to stay was granted and the case was stayed until May 27, 2017.[24]

         On May 30, 2017, the plaintiff filed a motion for entry of default against the defendants and subsequently an entry of default was issued by the Clerk of Court .[25]On July 14, 2017, the plaintiff filed the present motion for default judgment.[26]

         LAW AND ANALYSIS

         Rule 55 of the Federal Rules of Civil Procedure governs applications for default judgment. It states that a default judgment is proper “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend.”[27] However, “[d]efault judgments are a drastic remedy, not favored by the Federal Rules and resorted to by courts only in extreme situations.”[28] Therefore, even when a defendant is technically in default, a “party is not entitled to a default judgment as a matter of right.”[29] This principle, however, is “counterbalanced by considerations of social goals, justice, and expediency, a weighing process [that] lies largely within the domain of the trial judge's discretion.”[30] Therefore, the entry of a default judgment is committed to the discretion of the district court.[31]

         A. The Procedural Requirements For A Default Judgment Have Been Satisfied

         Three procedural steps are required to obtain a default judgment: (1) default by the defendant; (2) entry of default by the Clerk of Court's office; and (3) issuance of a default judgment by the district court.[32]

         A default occurs when a defendant fails to respond to the complaint within the time required by the Federal Rules of Civil Procedure.[33] The Clerk of Court must enter default when the defendant's failure to plead is shown by affidavit or otherwise.[34] Such a showing must establish that the defendant was properly served but failed to file an answer.[35] Therefore, “the propriety of the entry of default is dependent on the propriety of service.”[36] In this case, there has been no objection to the method of service or the fact that service was made on the defendants. Therefore, the clerk properly entered default.

         After the clerk's entry of default, a default judgment may be issued by the clerk of court if the claim is for a sum certain or a sum that can be made certain by calculation, but in all other cases may be entered by the court on the motion of the plaintiff.[37] Thus, a plaintiff may apply to the district court for a judgment based on the default, which the plaintiff has done in this case.

         Before issuing a judgment of default, the court must ascertain that the defendant is neither a minor, an incompetent person, or in military service or otherwise subject to the Soldiers and Sailors Relief Act of 1940.[38] Because it is a limited liability company, Breakwater cannot fit into these categories, and there is no evidence that Benoit, David, or Leach personally belong in any of these categories either.[39] Therefore, these factors do not preclude a default judgment in this case.

         When the defendant has appeared in the action prior to the issuance of a judgment of default, the defendant must be provided with notice of the application for default judgment at least three days prior to the hearing on the default judgment.[40]In this case, however, this requirement need not be met since neither Breakwater, Benoit, David, or Leach have appeared in the suit before default was entered.

         Accordingly, this Court concludes that all of the procedural prerequisites for the issuance of a default judgment have been satisfied in this case.

         B. Issuance of a Default Judgment is Appropriate

         A district court in the Fifth Circuit looks to the following six factors when considering whether to grant a default judgment: 1) whether material issues of fact are at issue; (2) whether there has been substantial prejudice; 3)whether the grounds for default are clearly established; (4) whether the default was caused by a good faith mistake or excusable neglect; (5) the harshness of a default judgment; and (6) whether the court would think it was obligated to set aside the default on the defendant's motion.[41] Any doubt as to whether to enter or set aside a default judgment must be resolved in favor of the defaulting party.[42] Having considered the relevant factors, this Court concludes that default judgment is warranted.

         First, there are no material facts in dispute. Upon entry of default by the Clerk of Court, the defendants are deemed to have admitted to the allegations of the complaint. When, as in this case, a default has been entered by the Clerk of Court under Fed.R.Civ.P. 55(a), the factual allegations of the complaint are taken as true, [43]but “a defendant's default does not in itself warrant the court in entering a default judgment;” rather, “[t]here must be a sufficient basis in the pleadings for the judgment entered.”[44] Only well-pleaded facts, not conclusions of law, are presumed to be true.[45]In determining whether there is a sufficient basis in the pleadings for judgment, the Fifth Circuit “draw[s] meaning from the case law on Rule 8.”[46] Factual allegations in the complaint need only “be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).”[47] Detailed factual allegations are not required.[48] This standard creates a low threshold.[49] Taking the factual allegations set forth in the complaint and exhibits as true, as explained above, this Court finds that the plaintiff has asserted a plausible claim against the defendants.

         Second, it is undisputed that the defendants have not properly responded to the complaint. The defendants' answer was deficient because it was signed by an attorney that is not admitted to practice in the Western District of Louisiana.[50] The clerk issued a deficiency notice and allowed the defendants ten days to cure the deficiency.[51] The deficiency was not cured and their answer was stricken from the record.[52]Nevertheless, the Court held a telephone conference to determine whether the defendants were represented by counsel. During the conference, Leslie Adams, the same attorney that filed the defendants' deficient answer, advised the Court that he would represent the defendants by obtaining local counsel and appearing pro hac vice.[53] As a result, the Court issued an order that Leslie Adams had ten days to file a motion to enroll pro hac vice or have an attorney that is admitted to practice in the Western District of Louisiana enroll on behalf of the defendants.[54] The defendants did not comply with the Court's order and have made no further effort to respond to this lawsuit. Therefore, the defendants "failure to respond threatens to bring the adversary process to a halt, effectively prejudicing [Mazak's] interests."[55]

         Third, the grounds for default judgment against the defendants are clearly established, as outlined above.

         Fourth, there is no evidence indicating that the defendants' failure to answer or file a responsive pleading was the result of a good faith mistake or excusable neglect. To the contrary, the defendants have been provided multiple opportunities to correct their deficient answer, but have failed to comply with the orders of the Court. Furthermore, the defendants have failed to present any evidence to establish that such failure was due to a good faith mistake or excusable neglect.

         Fifth, the defendants failure to file a sufficient answer or otherwise defend the present lawsuit for over a year ...


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