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WM Capital Partners XXXIV LLC v. Bartholomew

United States District Court, E.D. Pennsylvania

January 12, 2017

WM CAPITAL PARTNERS XXXIV, LLC, Plaintiff,
v.
LESLIE C. BARTHOLOMEW, et al., Defendants.

          MEMORANDUM

          GERALD J. PAPPERT, J.

         WM Capital Partners XXXIV, LLC[1] sued Leslie C. Bartholomew Jr., John T. Ruble and Richard C. Benner for breach of a Guaranty, in which each of the three Defendants personally guaranteed the payment and performance of three equipment lease agreements entered into by First Lane Entertainment, Inc, a corporation of which Defendants were officers. Because First Lane failed to perform under all three of the leases, WM brings three counts. Defendants failed to appear or otherwise respond to WM's complaint and WM now moves for entry of a default judgment against Defendants Ruble and Benner pursuant to Federal Rule of Civil Procedure 55.[2]

         WM filed its complaint on November 18, 2015. (ECF No. 1.) On February 16, 2016 WM filed a motion seeking court approval to effectuate service by publication. (ECF No. 3.) The Court granted the motion on March 9, 2016, ordering WM to serve Defendants in conformance with Pennsylvania Rule of Civil Procedure 430. (ECF No. 4.) WM served Defendants by publication on March 17 and 18, 2016. (ECF No. 5.) WM moved for default judgment on June 9, 2016. (ECF No. 6.) The Court denied the motion without prejudice, directing WM to first file a request for an entry of default pursuant to Federal Rule of Civil Procedure 55(a). (ECF No. 7.) WM requested entry of default on August 3, 2016 and default was entered the same day. (ECF No. 8.)

         WM again moved for default judgment on August 5, 2016. (ECF No. 9.) The Court scheduled a hearing for September 27, 2016 for the purpose of ascertaining the appropriate damages and directed WM to publish notice of the hearing to Defendants. (ECF No. 11). At the hearing, however, Plaintiff did not provide enough evidence to enable the Court to determine the amount of damages. (Tr. of Hr'g 1, at 15:17-18:1, ECF No. 23.) The Court scheduled a second hearing to allow Plaintiff's Counsel to present testimony from his client which would confirm the accuracy of Plaintiff's damage calculations. (Id. at 18:14-19:9.) The hearing was held on December 5, 2016, (ECF No. 18), after which the Court requested that Plaintiff submit additional information to further aid its understanding of the underlying transactions. WM did so in a December 9, 2016 letter to the Court. (ECF No. 19.)

         For the reasons that follow, the Court grants the motion and enters default judgment in favor of WM against Defendants Ruble and Benner for a total of $820, 479.58, which includes $791, 480.86 in damages, $24, 863.50 in attorneys' fees and $4, 135.22 in costs and expenses.

         I.

         In 2008, First Lane Entertainment-a Pennsylvania Corporation of which Bartholomew was the President, Ruble was the Vice President and Benner was the Secretary-entered into three equipment leases with Elex Group, Inc. on November 3, November 25, and December 21, respectively (“Equipment Leases”). (Pl.'s Compl., ¶¶ 18, 21, 24, Exs. 4, 7, 10, ECF No. 1.) The first Lease (N280962) contemplated that First Lane would pay Elex $9, 075 per month for eighty-four consecutive months. (Id. Ex 4.) The second Lease (N280974) was for $3, 550 per month for eighty-four months. (Id. Ex. 7.) The third Lease (N280975) was initially for $1, 045 per month for eighty-three months, (id. Ex. 10), but in October 2011, Elex and First lane modified it to be for a term of sixty-three months with varying amounts due monthly, (id. Ex. 10). On November 3, 2008 all three Defendants signed a Guaranty, jointly and severally guaranteeing payment and performance under the three Equipment Leases. (Id. Ex. 2.) An “Agreement for Leasing, ” incorporated into all of the Leases by reference, set forth the terms and conditions of the Leases as well as the covenants governing them, including, inter alia, a provision regarding late charges in the event of non-payment and a provision regarding reimbursement for attorneys' fees and other expenses incurred in enforcing the lessor's rights. (Id. ¶ 15, Ex. 3.) Pursuant to the Agreement for Leasing, a failure to pay rent when due or a failure to perform any other term or condition of the Lease for thirty days constituted default. (Id. Ex. 3, § (2)(j)(1).) Upon default, First Lane would be liable to Elex for the balance of the rent due under the Lease, as well as any amounts due as additional rent or late charges. (Id. Ex. 3, § (2)(j)(2).) The Agreement for Leasing also states:

If ELEX is subjected to any liability because of any non-compliance with the Lease or any regulatory law applicable to any of the Equipment on the part of the Lessee, then upon notice to the Lessee of the nature and/or amount thereof, the Lessee shall forthwith discharge the same, and if ELEX shall incur any expense by reason thereof, the amount of such expense shall be added to the installment of rent next falling due as additional rent.

(Id. Ex. 3, § (2)(b).)

         Elex financed its purchases of the equipment subject to these Leases by obtaining three installment note loans (“Installment Notes”) from Nova Bank. Nova Bank extended three Installment Notes to Elex in the amounts of $495, 000, $194, 000 and $56, 000, respectively, each corresponding to the purchase of the equipment in one of the three Leases. (Id. Exs. 5, 8 and 11.) Each Installment Note was secured by a Security Agreement, pursuant to which Elex granted Nova Bank a security interest in the equipment. (Id. ¶ 26.) The Security Agreements also contained a provision for the collection of all costs, including reasonable attorneys' fees, incurred by the lender in the direct exercise of any of its rights or remedies under the agreement. (Id. ¶¶ 20, 23, 26, Exs. 6, 9, 12.)

         As additional security for the Installment Notes, Elex executed three Collateral Assignments, assigning all of its rights and interests under the three Equipment Leases with First Lane to Nova Bank. (Id. ¶ 27, Ex. 13.) The payments due from First Lane under the Equipment Leases were thus pledged to pay the debt service on the Installment Notes and were the sole source of payment on the Notes. (Id. Exs. 12, 13); see also (ECF No. 19). Each Collateral Assignment specified that Elex assigned to Nova Bank its “rights to receive all sums due or to become due under the Lease, all claims for damages arising out of the breach thereof and all rights of Elex to accelerate the Lease, to perform thereunder and to compel performance of the terms thereof, ” “up to the amount due under the Note for which this Collateral Assignment is given as security.” (Id. Ex. 13.)

         The Installment Notes, the Security Agreements and the Collateral Assignments all contained provisions specifying what would happen in the event that Elex defaulted on the Installment Notes. Nova Bank (or its successor lender) would have no recourse against Elex other than to levy execution against the collateral (i.e. the equipment and the sums payable under the Equipment Leases). (Id. Exs. 5, 8, 11.) In other words, Elex would not be obligated to pay the principal balance, interest or other sums due under the Notes “out of any assets other than the rentals or other sums payable under the Lease.” (Id.) The Installment Notes did, however, give the lender the authority, upon Elex's default, to “declare the balance of the installments under this Note to be immediately due and payable forthwith and any other amounts then accrued and unpaid shall be then due and payable forthwith, ” as well as “retain all payments then or thereafter made pursuant to the Collateral Assignment and apply the same in reduction of this Note.” (Id.) The Collateral Assignments, in turn, gave Nova Bank (and its successors and assigns) the “full power (in the name of Elex or otherwise) to ask, require, demand and receive all moneys and claims for money due, and to become due under, or arising out of the Lease[s]” and stated that the Assignments would remain in force until the “balance[s] due in connection with Elex's acquisition of the equipment subject to the Lease[s] . . . including interest thereon and any renewals thereof is paid in full.” (Id. Ex. 13.)

         Sometime before October 2012, First Lane defaulted under the Equipment Leases, causing Elex to default under the Installment Notes. NOVA Bank went under and closed on October 26, 2012, causing the Federal Deposit Insurance Corporation (“FDIC”) to become its receiver.[3] The FDIC packages distressed assets into bundles, or pools, and then auctions the pools off to the highest bidders. (Tr. of Hr'g 2, 9:10-24.) Plaintiff WM, a small investment firm, is in the business of bidding on and, if successful, purchasing these pools of distressed assets. (Tr. of Hr'g 2, at 6:6-7.) Through these purchases, WM essentially takes the place of the previous lenders and works with the borrowers to collect payments, modify the loans or, if real estate is involved, foreclose upon and sell the property. (Id. at 6:6-22.)

         On March 28, 2013 the FDIC, as receiver for Nova Bank, entered into a Loan Sale Agreement with WM, pursuant to which WM purchased two loan pools, which included the Installment Notes from Nova Bank to Elex associated with the three Equipment Leases between Elex and First Lane. (Id. ¶ 28.) On the same day, the FDIC executed a Bill of Sale confirming WM's purchase of all of the rights, titles and interests of Nova Bank in the loan transaction. (Id. ¶ 32, Ex. 1.) FDIC and WM also executed an Assignment and Assumption of Interest and Obligations Agreement (“Assumption of Interest Agreement”) with respect to the Installment Notes whereby WM “stepped into the shoes” of Nova Bank under the loan documents, including with respect to its rights to collect payments under the Equipment Leases with First Lane (and demand performance thereunder in the event of Elex's default) pursuant to the Collateral Assignments. (Id. ¶¶ 28-29, Ex. 14.)

         First Lane defaulted under the Equipment Leases; Elex defaulted under the Installment Notes. No payments have been made on the Installment Notes since at least 2012 (and possibly earlier). (Tr. of Hr'g 2, at 7:25-8:4.) The unpaid balances under the Installment Notes are $404, 441.11, $156, 533.66 and $43, 990.87, respectively, plus the interest that has accrued on each. (Pl.'s Compl., ¶¶ 43, 54, 65.) Because WM stepped into Nova Bank's shoes, it has no recourse against Elex; its only recourse is against the collateral. The Assumption of Interest Agreement entitles WM to exercise the lender's rights pursuant to the Collateral Assignments and collect from First Lane the payments due under the Equipment Leases up to the amounts due on the Installment Notes for which they were used as security. Finally, on October 28, 2015 Elex executed an Assignment of Guaranty, assigning to WM its rights under the November 3, 2008 Guaranty to pursue the guarantors in the event of non-payment under the Equipment Leases. (Id. ¶ 31, Ex. 15.) WM thus holds Elex's rights under the Equipment Leases as successor to Nova Bank, (id. Ex. 14), and its rights under the Guaranty as the direct assignee of Elex, (id. Ex. 15).

         WM seeks to pursue its rights under the Leases and, since First Lane has defaulted, the Guaranty, to recover from Defendants Ruble and Benner payments due under the Equipment Leases up to the current amount due on the Installment Notes. Because the Defendants have neither appeared nor filed an answer in this lawsuit, WM seeks an entry of default judgment.

         II.

         Federal Rule of Civil Procedure 55 governs the entry of default judgment. Three factors control whether a default judgment should be granted: (1) prejudice to the plaintiff if default is denied, (2) whether the defendant appears to have a litigable defense, and (3) whether defendant's delay is due to culpable conduct. See United States v. $55, 518.05 in U.S. Currency, 728 F.2d 192, 195 (3d Cir. 1984). The Court must consider and make explicit factual findings as to these three factors. Emcasco Ins. Co. v. Sambrick, 834 F.2d 71, 74 (3d Cir. 1987). Moreover, before a court can enter a default judgment, a plaintiff must present evidence of: (1) the court's basis of personal jurisdiction over defaulting defendants; (2) proper service of process upon defaulting defendants; (3) facts necessary to state a cause of action; and (4) the amount claimed in damages. D'Onofrio v. II Mattino, 430 F.Supp.2d 431, 436 (E.D. Pa. 2006).

         A.

         The Court has personal jurisdiction over the Defendants. When a court considers personal jurisdiction in the posture of a default judgment, “although the plaintiffs retain the burden of proving personal jurisdiction, they can satisfy that burden with a prima facie showing, ” and “may rest their argument on their pleadings, bolstered by such affidavits and other written materials as they can otherwise obtain.” D'Onofrio, 430 F.Supp.2d at 437 (quoting Mwani v. bin Laden, 417 F.3d 1, 6 (D.C. Cir. 2005)). WM alleges that Defendants are citizens of Pennsylvania and has provided a Pennsylvania address for each. (Pl.'s Compl. ¶ 6.) WM also alleges that the Defendants did business in Pennsylvania and had substantial contacts with the state in their capacities as officers of First Lane, a Pennsylvania corporation with an address of 1541 Stanford Road, Bethlehem, Pennsylvania 18018 and offices at 702-716 Union Boulevard, Allentown, Pennsylvania 18019. (Id. ΒΆΒΆ 9, 13.) Ruble was the Vice President of First Lane; Benner was the Secretary. WM also alleges that some of the events or omissions giving rise to its claims occurred ...


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