BMO Harris Bank, N.A. v. Mid-Ark Utils. & Rig Servs.

• Decision Date: 30 October 2019
• Docket Number: Case No. 1:18-cv-00042-KGB
• Parties: BMO HARRIS BANK, N.A. PLAINTIFF v. MID-ARK UTILITIES & RIG SERVICES, INC., et al. DEFENDANTS
• Court: U.S. District Court — Eastern District of Arkansas

BMO HARRIS BANK, N.A. PLAINTIFF v. MID-ARK UTILITIES & RIGSERVICES, INC., et al. DEFENDANTS

Case No. 1:18-cv-00042-KGB

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF ARKANSAS NORTHERN DIVISION

October 30, 2019

ORDER

Before the Court is an amended motion for default judgment against defendant Mid-Ark Utilities & Rig Services, Inc. ("Mid-Ark"), filed by plaintiff BHB Harris Bank, N.A. ("BHB") (Dkt. No. 30). Mid-Ark has not appeared in this action or responded to BHB's motion, and the time to respond has passed. For the reasons set forth below, the Court grants BHB's motion for default.

I. Factual And Procedural Background

The Court draws on the factual background already established in this case. On December 29, 2015, Mid-Ark entered into a Loan and Security Agreement (the "Agreement") with BHB in the total amount of $312,207.00 for the purchase of certain Equipment (the "Equipment") (Dkt. No. 27-4, ¶ 1). Pursuant to the Agreement, Mid-Ark agreed to make monthly payments for the purchase of the Equipment beginning on or about March 1, 2016, for a term of 60 months (Id., ¶ 2). Pursuant to the Agreement, Mid-Ark was obligated to pay a minimum monthly payment of $5,203.45 (Id., ¶ 4). Pursuant to Paragraph 5.1 of the Agreement, Mid-Ark would be in default if the "Debtor" fails to pay when due any amount owed by the "Debtor" to BHB under the Agreement (Id., ¶ 5). Further, pursuant to Paragraph 5.2 of the Agreement, upon default, BHB may "declare the indebtedness hereunder to be immediately due and payable." (Id., ¶ 6). The Agreement was signed by Mike Penney in his capacity as President of Mid-Ark (Dkt. No. 27-2, at 10).

On or about December 29, 2015, Lonnie Graham executed a Continuing Guaranty (the "Graham Guaranty") (Dkt. No. 27-4, ¶ 7). Pursuant to the Graham Guaranty, Mr. Graham agreed to the prompt payment and performance of all obligations, liabilities, and undertakings of Mid-Ark to BHB (Id., ¶ 8). Mr. Graham entered into a valid written contract with BHB to induce BHB to extend credit to Mid-Ark, whereby he personally guaranteed Mid-Ark's prompt payment of all amounts owed to BHB, including all of Mid-Ark's then-existing and future obligations, debts, and liabilities to BHB (Dkt. No. 27-4, ¶ 9). By executing the Graham Guaranty, Mr. Graham guaranteed the repayment of all amounts due under the Agreement and expressly agreed, and is obligated, to pay BHB's reasonable attorney fees and cost of any action instituted upon Mid-Ark's default (Id., ¶ 10). The Guaranty states that it "is an absolute and unconditional guarantee of payment and not of collectability" (Dkt. No. 27-2, at 13). On or about December 1, 2017, Mid-Ark defaulted under the terms of the Agreement by failing to make the minimum monthly payment (Dkt. No. 27-4, ¶ 11). Mr. Graham defaulted on his contractual obligations by failing to pay said amount upon Mid-Ark's default (Id., ¶ 12). All of the Equipment was surrendered to BHB and then sold in a commercially reasonable manner (Id., ¶ 13).

BHB commenced this action on June 4, 2018, by filing a Complaint against defendants Mid-Ark, Mr. Penney, and Mr. Graham (Dkt. No. 30-1, ¶ 4). The Summons and Complaint were served upon Mid-Ark c/o Newland and Associates, PLLC, their registered agent, on December 7, 2018 (Id., ¶ 5). Mid-Ark has failed to plead or otherwise defend, and the time within which Mid-Ark may do so has expired and has not been extended (Id., ¶ 6). In accordance with Federal Rule of Civil Procedure 55(a), BHB moved for entry of default as to Mid-Ark on January 9, 2019 (Dkt. No. 24). That same day, Clerk's Entry of Default was granted (Dkt. No. 25).

II. Legal Standard

BHB now requests the entry of default judgment under Federal Rule of Civil Procedure 55(b)(2). Rule 55(b)(2) provides:

In all other cases, the party must apply to the court for a default judgment. A default judgment may be entered against a minor or incompetent person only if represented by a general guardian, conservator, or other like fiduciary who has appeared. If the party against whom a default judgment is sought has appeared personally or by a representative, that party or its representative must be served with written notice of the application at least 7 days before the hearing. 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). Federal Rule of Civil Procedure 55 contemplates a two-step process for the entry of default judgments. Fraserside IP L.L.C. v. Youngtek Sols. Ltd., 796 F. Supp. 2d 946, 951 (N.D. Iowa 2011) (citation and internal quotation marks omitted). First, pursuant to Rule 55(a), the party seeking a default judgment must have the Clerk of Court enter the default by submitting the required proof that the opposing party has failed to plead or otherwise defend. Id. Second, pursuant to Rule 55(b), the moving party may seek entry of judgment on the default under either subdivision (b)(1) or (b)(2) of the rule. Id. Entry of default under Rule 55(a) must precede a grant of default judgment under Rule 55(b). Id.

"Entry of a default judgment . . . [is] committed to the sound discretion of the district court. Default judgments, however, are not favored by the law." United States v. Harre, 983 F.2d 128, 130 (8th Cir. 1993) (internal citation omitted). Once a defendant is in default, the factual allegations of the complaint, "except those relating to the amount of damages, will be taken as true." 10A Charles A. Wright, et al., Federal Practice and Procedure § 2688.1 (4th ed. 2018) (West) (citations omitted). However, the court must ensure that the "unchallenged facts constitute a legitimate cause of action" prior to entering final judgment. See Murray v. Lene, 595 F.3d 868, 871 (8th Cir. 2010) (quoting 10A Charles A. Wright, et al., Federal Practice and Procedure § 2688 (3d ed.)).

In determining whether to enter default judgment, the Court may consider:

the amount of money potentially involved; whether material issues of fact or issues of substantial public importance are at issue; whether the default is largely technical; whether plaintiff has been substantially prejudiced by the delay involved; and whether the grounds for default are clearly established or are in doubt. Furthermore, the court may consider how harsh an effect a default judgment might have; or whether the default was caused by a good-faith mistake or by excusable or inexcusable neglect on the part of the defendant.

10A Charles A. Wright, et al., Federal Practice & Procedure, § 2685 (4th ed. 2018) (West) (citations omitted) (collecting cases). "Default judgment for failure to defend is appropriate when the party's conduct includes willful violations of court rules, contumacious conduct, or intentional delays. On the other hand, default judgment is not an appropriate sanction for a marginal failure to comply with time requirements." Ackra Direct Mktg. Corp. v. Fingerhut Corp., 86 F.3d 852, 856 (8th Cir. 1996) (internal citations and quotation marks omitted).

III. Analysis

The Clerk entered default pursuant to Federal Rule of Civil Procedure 55(a) as to Mid-Ark (Dkt. No. 25). Then, BHB initially moved for default judgment against Mid-Ark on February 6, 2019, pursuant to Rule 55(b)(2) (Dkt. No. 26). This Court denied that motion without prejudice on September 3, 2019 (Dkt. No. 29). In its order, the Court explained that it denied BHB's motion for default judgment against Mid-Ark because the representations made in the motion did not square with the representations made in BHB's motion for summary judgment against Mr. Graham (Id., at 7). The Court noted that, as an initial matter, BHB in its complaint sued Mid-Ark, Mr. Penney, and Mr. Graham each for the amount of $199,398.26 plus BHB's attorneys' fees, legal expenses, and other costs (Dkt. Nos. 1; 29, at 7). In support of its motion for summary judgment against Mr. Graham, BHB produced the Agreement executed by Mid-Ark for the purchase and financing of the Equipment and the affidavit of Kimberly Mundt, a litigation specialist for BHB (Dkt. No. 26-2). Ms. Mundt stated that BHB requested a default judgment against Mid-Ark in the amount of $199,398.26 (Id., at 3). One of the submitted documents, titled "LOAN DAMAGE CALCULATOR," established that Mid-Ark owed a principal balance of $181,756.76, repossession fees of $7,357.71, interest in the amount of $8,982.94, and late charges in the amount of $1,300.85 (Id., at 12). In sum, this document established Mid-Ark's indebtedness in the total amount of $199,398.26 (Id.).

The Court noted that the documents submitted in support of the request for default judgment against Mid-Ark did not appear to take into account the sale of the Equipment and the subsequent application of the proceeds from that sale against the outstanding balance, as described in the documents supporting the motion for summary judgment as to Mr. Graham (Dkt. No. 29, at 8). Based upon the documents submitted in support of the motion for summary judgment, the Court was concerned that a default judgment against Mid-Ark in the amount of $199,398.26 would overstate the outstanding balance and contradict the other record evidence before the Court (Id.). For those reasons, the Court denied without prejudice BHB's motion for default judgment against Mid-Ark (Id.).

Though BHB's present motion appears identical in many respects to its previous motion for default judgment against Mid-Ark, it differs in a significant way (Dkt. Nos. 26, 30). In the present motion, BHB has submitted another affidavit from Ms. Mundt (Dkt. No. 30-2, at 1-3). In this affidavit, Ms. Mundt states that BHB requests a default judgment against Mid-Ark in the amount of $128,623.33 (Id., at 3). BHB also submits another document titled "LOAN DAMAGE CALCULAT...