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Recycling Solutions, Inc. v. Orrs'environmental, LLC

United States District Court, D. Maryland

June 26, 2015

RECYCLING SOLUTIONS, INC. Plaintiff,
v.
ORRS' ENVIRONMENTAL, LLC, et al. Defendants.

REPORT AND RECOMMENDATIONS

WILLIAM CONNELLY, Magistrate Judge.

This Report and Recommendations addresses Plaintiff Recycling Solutions, Inc.'s (hereinafter "RSI") Motion for Entry of Default Judgment. ECF No. 7.[1] Defendants Orrs' Environmental, LLC and Debra Sanders have not filed a response and the deadline for a response elapsed on March 16, 2015. See Loc. R. 105.2.a. Having reviewed the filings, no hearing is deemed necessary. See Loc. R. 105.6. For the reasons stated herein, the undersigned recommends that, following the time to object to this Report and Recommendations, RSI's Motion for Entry of Default Judgment be GRANTED.

I. FACTUAL AND PROCEDURAL HISTORY

Plaintiff RSI is a Delaware corporation with its principal place of business in Capitol Heights, Maryland. RSI "is a waste and recycling equipment rental corporation." Compl. ¶ 1. Defendant Orrs' Environmental, LLC (hereinafter "Orrs' Environmental") is a limited liability company existing under the laws of Alabama with its principal office located at 2317 Meridian Street, Huntsville, Alabama 35811. Id. ¶ 2; ECF No. 7-3 at 2 (State of Alabama-Domestic Limited Liability Company Articles of Organization Guidelines for Orrs' Environmental, LLC). According to the Articles of Organization Orrs' Environmental is an environmental waste management consulting company. The Articles of Organization lists Defendant Debra Sanders as the registered agent for Orrs' Environmental, as the initial member and organizer of Orrs' Environmental, and as the manager of Orrs' Environmental. ECF No. 7-3 at 2. Defendant Debra Sanders resides at 2317 Meridian Street, Huntsville, Alabama 35811.

For the purpose of determining diversity jurisdiction, a limited liability company is considered to be an "unincorporated association, " whose citizenship is that of its members. Gen. Tech. Applications, Inc. v. Exro, Ltda., 388 F.3d 114, 121 (4th Cir. 2004). Defendant Orrs' Environmental is therefore deemed a citizen of Alabama. Pursuant to 28 U.S.C. § 1332(c) Plaintiff RSI is deemed a citizen of Maryland. The amount in controversy exceeds $75, 000.00, excluding interest and costs. 28 U.S.C. § 1332(a).

On or about March 28, 2013 Orrs' Environmental executed a Lease Agreement with Option to Purchase (hereinafter "lease agreement") for a five (5) year period, commencing March 1, 2013 and ending February 28, 2018.[2] RSI leased to Orrs' Environmental two (2) Marathon Digesters.[3] Each Marathon Digester included a one (1) year supply of organisms and wood chips. Defendant Debra Sanders, Operations Manager, signed the contract on behalf of Orrs' Environmental and Paul Bortnick, Chief Managing Officer, signed the contract on behalf of RSI. See ECF No. 1-1 at 3; ECF No. 7-1 at 4. As listed on the lease agreement Orrs' Environmental's address is a post office box in Vicksburg, Mississippi.

In accordance with the lease agreement, before RSI delivered the two Marathon Digesters, Orrs' Environmental paid for certain costs in advance (travel/training costs, freight and first and last months' lease payments). After Orrs' Environmental made this payment, the two Marathon Digesters were delivered to the Federal Bureau of Prisons in Mendota, California.

Pursuant to the lease agreement Orrs' Environmental must pay RSI a monthly fee of $1, 553.00 for the lease of the equipment. RSI received a payment from Orrs' Environmental for the month of April 2013. No additional payments were made by Orrs' Environmental thereafter. RSI attempted to resolve the matter of non-payment without success. Even after RSI retained counsel, no payment from Orrs' Environmental was forthcoming.

While pursuing non-payment RSI discovered information which revealed Orrs' Environmental sold the leased Marathon Digesters to the Federal Bureau of Prisons despite Paragraph 3 of Addendum A unequivocally stating "[e]quipment shall at all times during the term remain personal property, and title thereto shall remain in Lessor." ECF No. 1-1 at 4; ECF No. 7-1 at 5. During a phone call between RSI and a Federal Bureau of Prisons' representative, "the Federal Bureau of Prisons confirmed that it had purchased the subject [Marathon] Digesters through FedBid. FedBid is an online marketplace which federal agencies use to procure various goods." Compl. ¶ 9.

Paragraph 7 of Addendum A to the lease agreement contains an acceleration clause in the event of a default. See ECF No. 1-1 at 5; ECF No. 7-1 at 6.[4] RSI seeks full and final payment on the outstanding balance of the entire contract in the amount of $88, 521.00 (Eighty-Eight Thousand Five Hundred Twenty-One Dollars).[5] This amount excludes interest on past due invoices. RSI also seeks attorney's fees and legal expenses upon an event of a default in accordance with paragraph 8 of Addendum A.

On April 4, 2014 RSI initiated this action by filing a Complaint naming Orrs' Environmental and Debra Sanders as Defendants. See ECF No. 1. The Complaint lists five causes of action against the Defendants: (a) breach of contract, (b) fraudulent misrepresentation, (c) negligent misrepresentation, (d) unjust enrichment, and (e) conversion. On August 1, 2014 a copy of the summons, civil cover sheet, complaint and lease agreement were served on Debra Sanders as a Defendant. That same day a copy of the summons, civil cover sheet, complaint and lease agreement were served on Debra Sanders as the registered agent for Orrs' Environmental. See ECF Nos. 3-4. Their answers were due August 22, 2014. Neither Debra Sanders nor Orrs' Environmental filed an answer.

On September 22, 2014 RSI moved for a Clerk's entry of default for want of answer or other defense against the Defendants. See ECF No. 5. The following day, September 23, 2014, the Clerk's Entry of Default was docketed against the Defendants. See ECF No. 6.

On February 27, 2015 RSI moved for default judgment. See ECF No. 7. No response in opposition was filed by the March 16, 2015 deadline.

II. DISCUSSION

Federal Rule of Civil Procedure 55(b) governs the entry of default judgments. Pursuant to Rule 55(b), the clerk may enter a default judgment "[i]f the plaintiff's claim is for a sum certain or a sum that can be made certain by computation, " and the defendant is in default for failing to appear and is "neither a minor nor an incompetent person." Fed.R.Civ.P. 55(b)(1). Additionally, when a defendant is an individual, the plaintiff must certify or declare to be true under penalty of perjury whether the defendant is in military service. 50 U.S.C. app. § 521(b)(1) ("In any action or proceeding covered by this section, the court, before entering judgment for the plaintiff, shall require the plaintiff to file with the court an affidavit-(A) stating whether or not the defendant is in military service and showing necessary facts to support the affidavit; or (B) if the plaintiff is unable to determine whether or not the defendant is in military service, stating that the plaintiff is unable to determine whether or not the defendant is in military service.").[6]

Furthermore, to the best of RSI's knowledge, information, and belief, neither Orrs' Environmental nor Debra Sanders is a minor or an incompetent person. See ECF No. 7-2 at 3 ¶ 6 (Affidavit in Support of Motion for Entry of Default Judgment); Fed.R.Civ.P. 55(b) ("enter judgment... against a defendant... who is neither a minor nor an incompetent person.").

The entry of default judgment is a matter within the discretion of the Court. SEC v. Lawbaugh, 359 F.Supp.2d 418, 421 (D. Md. 2005) (citing Dow v. Jones, 232 F.Supp.2d 491, 494 (D. Md. 2002)). As the Court noted in Disney Enterprises, Inc. v. Delane, 446 F.Supp.2d 402 (D. Md. 2006), "[t]he United States Court of Appeals for the Fourth Circuit has a strong policy that cases be decided on the merits.'" Id. at 405 (quoting United States v. Shaffer Equip. Co., 11 F.3d 450, 453 (4th Cir. 1993)). Nonetheless, "default judgment is available when the adversary process has been halted because of an essentially unresponsive party.'" Id. (quoting Lawbaugh, 359 F.Supp.2d at 421).

In determining whether to award a default judgment, the Court takes as true the wellpleaded factual allegations in the complaint, other than those pertaining to damages. Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir. 2001) ("The defendant, by his default, admits the plaintiff's well-pleaded allegations of fact, is concluded on those facts by the judgment, and is barred from contesting on appeal the facts thus established." (citation and internal quotation marks omitted)); see Fed.R.Civ.P. 8(b)(6) ("An allegation-other than one relating to the amount of damages-is admitted if a responsive pleading is required and the allegation is not denied."). It remains, however, "for the court to determine whether these unchallenged factual allegations constitute a legitimate cause of action." Agora Fin., LLC v. Samler, 725 F.Supp.2d 491, 494 (D. Md. 2010); 10A Charles Alan Wright et al., Fed. Prac. and Proc. Civ. § 2688 (3d ed. 1998) ("[L]iability is not deemed established simply because of the default... and the court, in its discretion, may require some proof of the facts that must be established in order to determine liability."); id. (explaining that the court must "consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law").

If the Court finds that "liability is established, [it] must then determine the appropriate amount of damages." Samler, 725 F.Supp.2d at 494 (citing Ryan, 253 F.3d at 780-81). This is so because "an allegation relating to the amount of damages' is not deemed admitted based on a defendant's failure to deny in a required responsive pleading." Hartford Fin. Servs. Grp. Inc. v. Carl J. Meil, Jr., Inc., No. WDQ-10-2720, 2011 WL 1743177, at *7 (D. Md. May 5, 2011) (quoting Fed.R.Civ.P. 8(b)(6)); Trs. of the Elec. Welfare Trust Fund v. MH Passa Elec. Contracting, LLC, No. DKC-08-2805, 2009 WL 2982951, at *1 (D. Md. Sept. 14, 2009) ("Upon default, the well-pled allegations in a complaint as to liability are taken as true, although the allegations as to damages are not."); Int'l Painters & Allied Trades Indus. Pension Fund v. Metro Glass & Mirror, Inc., No. ELH-11-2389, 2012 WL 893262, at *2 (D. Md. Mar. 14, 2012) ("The court does not accept factual allegations regarding damages as true, but rather must make an independent determination regarding such allegations.").

In sum, the Court must make two determinations. First, the Court must decide "whether the unchallenged facts in plaintiff['s] complaint constitute a legitimate cause of action[.]" Samler, 725 F.Supp.2d at 494. Second, if the Court finds that liability is established, it must "make an independent determination regarding the appropriate amount of damages." Id.

A. Liability

Over ten months have elapsed since the Defendants were served with RSI's Complaint. The Defendants did not plead or otherwise assert a defense by filing an answer. As a result, all of the factual allegations made in RSI's Complaint not pertaining to damages are deemed admitted. Fed.R.Civ.P. 8(b)(6); Ryan, 253 F.3d at 780.

RSI moved for a default judgment on February 27, 2015; Defendants Orrs' Environmental and Debra Sanders have not responded. It is within the Court's discretion to grant default judgment when a defendant is unresponsive. See Park Corp. v. Lexington Ins. Co., 812 F.2d 894, 897 (4th Cir. 1987) (upholding a default judgment awarded where the defendant lost its summons and did not respond within the proper period); Disney Enterprises, 446 F.Supp.2d at 405-06 (finding appropriate the entry of default judgment where the defendant had been properly served with the complaint and did not respond, despite repeated attempts to contact him). Accordingly, the Court should grant default judgment on RSI's Complaint if RSI establishes the liability of Defendants Orrs' Environmental and Debra Sanders.

That accepting as true RSI's well-pleaded factual allegations (with supporting documentation), the undersigned finds RSI has proven the following:

a. Debra Sanders, on behalf of Orrs' Environmental, executed a Lease Agreement with Option to Purchase for a five year period commencing March 1, 2013 and ending February 28, 2018;

b. Per the lease agreement RSI leased two Marathon Digesters to Orrs' Environmental;

c. Prior to the delivery of the Marathon Digesters, Orrs' Environmental paid RSI the travel/training costs, freight costs, and the first and last months' lease payments;

d. RSI delivered the two leased Marathon Digesters to the Federal Bureau of Prisons in Mendota, California as requested by Orrs' Environmental;

e. In accordance with the lease agreement, Orrs' Environmental made a monthly payment of $1, 553.00 in April 2013;

f. Orrs' Environmental failed to make any additional monthly payments for the leased equipment as of May 2013;

g. That Orrs' Environmental is in default for non-payment;

h. The lease agreement includes an option to purchase. "Lessee has option to purchase equipment at end of said lease term for $1.00." ECF No. 1-1 at 2; ECF No. 7-1 at 3;

i. Addendum A (Standard Conditions of Lease Agreement) delineates who has title to the leased Marathon Digesters. "Equipment shall at all times during the term remain personal property, and the title thereto shall remain in Lessor. Lessee, until an event of default, shall be entitled to possession." ECF No. 1-1 at 4 (¶ 3); ECF No. 7-1 at 5 (¶ 3);

j. That RSI has a solid basis for believing Orrs' Environmental sold the leased equipment to the Federal Bureau of Prisons. This sale occurred even though Orrs' Environmental did not own the equipment;

k. Addendum A (Standard Conditions of Lease Agreement) provides, at RSI's option, to accelerate the balance of payment ...


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