Budco Fin. Servs. v. VSC Now LLC

• Decision Date: 03 October 2022
• Docket Number: 4:20-cv-01873-SRC
• Parties: BUDCO FINANCIAL SERVICES, LLC, et al., Plaintiffs, v. VSC NOW LLC, et al., Defendants.
• Court: U.S. District Court — Eastern District of Missouri

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BUDCO FINANCIAL SERVICES, LLC, et al., Plaintiffs, v. VSC NOW LLC, et al., Defendants.

No. 4:20-cv-01873-SRC

United States District Court, E.D. Missouri, Eastern Division

October 3, 2022

MEMORANDUM AND ORDER

STEPHEN R. CLARK UNITED STATES DISTRICT JUDGE.

Car manufacturers, car dealers, and independent companies all market and sell vehicle service contracts, which are contracts to perform (or pay for) certain repairs or services. In this case Budco paid over a half a million dollars to finance the sale of vehicle service contracts- only to discover that the customers who supposedly bought those service contracts never existed. This lawsuit followed and now Budco moves for default judgment as to two defendants and moves to enforce settlement with another.

I. Background

This case stems from a “Seller Participation Agreement” between Budco and VSC Now. Doc. 1 at ¶ 7. Budco claims that, per the Agreement, VSC Now would sell vehicle service contracts to customers, and Budco would pay the service contract provider the cost of the service contracts and then receive monthly installment payments from the customers. Doc. 1 at ¶¶ 7, 9. Budco would also pay the Defendants a certain amount when the customer made the first installment payment. Id. at ¶ 10.

Budco alleges that the Defendants fraudulently induced Budco to pay VSC Now $523,000 for vehicle service contracts that never existed. Id. at ¶¶ 12-16. Budco sued VSC Now and VSC Now's three individual members (who signed the Budco-VSC Now Seller Participation Agreement as guarantors, and signed additional personal guarantees) for fraud and breach of contract. Doc. 1. Only one of the Defendants, David Simpson, filed an answer or otherwise responded to the summons. Doc. 12. The Clerk of Court entered clerk's defaults as to the other two individual Defendants, Sean Miller and William Finley, but denied entry of a clerk's default as to VSC Now, finding that the record did not reflect proper service on VSC Now. Doc. 53. Budco then filed a Motion for Default Judgment as to Miller and Finley, which remains pending. Doc. 63.

Budco provided an affidavit by its counsel stating that counsel for Budco and counsel for Simpson exchanged a series of emails regarding settlement between March 28 and 31, 2022. Doc. 65-1 at ¶ 3. Budco attached emails to the affidavit, attesting to their authenticity and redacting certain information. Doc. 65-1 at ¶ 3. Having reviewed the unredacted version of the emails in camera, see Doc. 70, the Court determines that the redacted portions do not affect the Court's analysis regarding the existence or terms of a settlement agreement. The Court includes the relevant portions of the emails below.

On March 28, 2022, counsel for Simpson sent an email to counsel for Budco, stating in relevant part:

In the spirit of making a good faith effort to resolve all claims with your client, Mr. Simpson proposes the following:

• $10,000 upon execution of settlement documentation.

• $90,000 paid over 5 years beginning 6 months following the execution of the settlement documentation.

• An additional $75,000, to be paid over 5 years, in the event Mr. Simpson earns over $150,000 in any of the five years following the execution of settlement documentation, as evidenced by filed tax returns.

• Cooperation in support of efforts to collect against any other defendant in this or any other claim involving Mr. Simpson.

Doc. 65-1 at pp. 7-8. The subject line of the email stated: “Confidential Settlement Offer.” Id. That same day, counsel for Budco replied:

Budco counters the offer with:

• $75,000 paid upon execution of settlement;

• $150,000 paid over 10 years beginning 6 mos. Post-settlement;

• Additional 50% of income in excess of $150,000 for each of 5 years postsettlement;

• Cooperation as to Defendants Miller & Finley as well as potential defendant, Bobo.

• Consent Judgment entered in amount of $400,000 (not filed unless a payment is missed and not cured within 30 days of written notice).

Doc. 65-1 at p. 6. The following day, counsel for Simpson replied:

I spoke with client. Counter:

• $15,000 paid within 30 days of execution of settlement agreement;

• $150,000 paid over 10 years beginning 6 mos. Post-settlement;

• Additional 50% of income in excess of $150,000 for each of 5 years postsettlement;

• Cooperation as to Defendants Miller & Finley as well as potential defendant, Bobo.

• Consent Judgment entered in amount of $300,000 (not filed unless a payment is missed and not cured within 30 days of written notice).

Doc. 65-1 at p. 5. Counsel for Budco and counsel for Simpson spoke to each other on the phone two days later, on March 31, 2022. Doc. 65-1 at ¶ 3. Following that call, counsel for Budco replied:

[S]o per our conversation of a few minutes ago, I understand that David Simpson is offering the following:

• $15,000 within 30 days; $5,000 within 60 days of settlement;

• $150,000 paid over 7 years beginning in 6 mos. In equal monthly payments;

• Additional 50 % of income in excess of $150,000 annually for each of 5 years post-settlement, up to unpaid balance of consent judgment

o Tax returns and extensions to be provided within 5 business days of filing;

o Payment to be made within 10 days of earlier of extension or return filing date

• Cooperation as to other defendants, to include:

o Meeting on or before April 10 to share knowledge re other defendants;

o Affidavit to be filed with MSJ at Budco's election

• Financial statement provided as part of closing of settlement

• Consent judgment for $350,000 (but amount of claim reverts to $800,000 in event of Bankruptcy and Budco retains right to assert that debt is non-dischargeable and David Simpson retains right to assert it is dischargeable) fileable with court only upon default.

1 [sic] point not discussed, but what Budco would want to see added is that $ paid within 60 days per first bullet point would need to be “held in escrow” say by Chuck or otherwise insulated from reach of Bankruptcy Trustee should David file bankruptcy. Please let me know if this is an official offer (hopefully incorporating the last point not discussed on call).

Doc. 65-1 at p. 4. Counsel for Simpson responded:

I spoke with Chuck and confirmed he's OK with additional provision below. Also, confirming our conversation from a moment ago, all payments made pursuant to settlement agreement will reduce the amount due under consent judgment.

Subject to this, confirming these terms are acceptable to our client.

Doc. 65-1 at p. 3. A short time later, counsel for Budco replied:

The terms set forth in your email below and my prior email also below (as modified by your email) are also acceptable to Budco.

I will begin drafting proposed settlement agreement, consent judgment and any other documents required.

Doc. 65-1 at p. 3.

On April 6, 2022, Budco filed a request for a status conference, explaining that Budco and Simpson had “reached a settlement” and “may need guidance from the Court as to certain mechanics of their settlement.” Doc. 47 at ¶¶ 6-7. Per the Court's notes, at the status conference on April 14, 2022, counsel for Budco reiterated that Budco and Simpson had reached a settlement agreement but wanted to make sure that they were not doing something that was going to cause problems down the road. Counsel for Budco also stated that the parties had not yet signed the settlement agreement because they wanted to make sure the Court was okay with it, and if the mechanics of the settlement did not run afoul of any considerations from the Court, then the parties would go in that direction and would be “done with Mr. Simpson.” Counsel for Simpson agreed with counsel for Budco's summary of where the parties stood regarding their settlement.

Budco also provided an affidavit from its Vice President for Sales and Marketing, Mark Pierret. Doc. 73. Pierret's responsibilities at Budco include working with attorneys to “handle all matters related to the litigation against David Simpson et al and resolution thereof, including through settlement and receipt of settlement payments.” Id. at ¶ 3. In the affidavit, Pierret states that “Budco has received no payment from David Simpson or anyone acting on his behalf at any time after commencement of the litigation against him. Specifically, Budco has not received a payment of $15,000 within thirty days of March 31, 2022 (or at any other time), nor a payment of $5,000 within sixty days of March 31, 2022 (or at any other time).” Id. at ¶ 4. Pierret further states that “David Simpson has neither met with me or anyone else at Budco nor its agents or attorneys at any time after March 31, 2022 to discuss his knowledge relevant to this litigation against him and other[s], nor has he provided an Affidavit.” Id. at ¶ 5.

After reporting that Simpson refused to sign the settlement agreement, see Doc. 57, Budco filed a [65] Motion to Enforce Settlement Agreement, claiming that Budco and Simpson reached a settlement agreement, and that Simpson breached the agreement. Around the same time, counsel for Simpson filed motions to withdraw, citing a conflict of interest. Docs. 56, 58. After conducting in camera review of counsel's supporting information, the Court granted the motions to withdraw and gave Simpson 30 days (through July 15, 2022) to obtain new counsel and respond to Budco's Motion to Enforce Settlement Agreement. Doc. 67. To date, Simpson has not responded and no new counsel for Simpson has appeared.

The Court ordered Budco to supplement the record regarding the citizenship of Defendants Simpson, Miller, and Finley. Doc 74. Having reviewed Budco's supplemental memorandum, Doc. 75, affidavit, Doc. 76, and attached exhibits, Docs. 76-1 to -7, the Court confirms that it has subject-matter jurisdiction. The...