Fid. Bank v. Key Hotels of Brewton, LLC

• Decision Date: 05 January 2016
• Docket Number: CIVIL ACTION 15-0031-WS-M
• Parties: FIDELITY BANK, Plaintiff, v. KEY HOTELS OF BREWTON, LLC, et al., Defendants.
• Court: U.S. District Court — Southern District of Alabama

FIDELITY BANK, Plaintiff, v. KEY HOTELS OF BREWTON, LLC, et al., Defendants.

CIVIL ACTION 15-0031-WS-M

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION

January 5, 2016

ORDER

On November 16, 2015, the undersigned entered an Order (doc. 56) imposing the sanction of default against defendants, Key Hotels of Brewton, LLC, and Anand Patel, pursuant to the inherent powers of this Court. The November 16 Order detailed the facts and circumstances supporting the Court's determination that defendants had conducted themselves in bad faith via a pattern of unreasonable delay, contumacious conduct, and defiance of reasonable judicial directives. That Order also fixed deadlines for plaintiff to make an evidentiary submission on damages, and for defendants to respond to same. Plaintiff, Fidelity Bank, submitted an application and supporting exhibits in support of its requested damages award on November 25, 2015, serving copies on defendants at their address of record via U.S. Mail. (See docs. 58 & 59.) Despite being served with both the November 16 Order and Fidelity Bank's evidentiary submission, defendants elected to remain silent on the issue of damages. Their deadline for responding passed more than two weeks ago; therefore, questions of damages and entry of default judgment against Key Hotels and Patel are now squarely before the undersigned.

I. Relevant Background.

By virtue of their default, defendants have admitted all well-pleaded factual allegations in the First Amended Complaint (doc. 5).¹ Those facts deemed admitted include, inter alia, thefollowing: (i) Key Hotels and Patel executed a Loan Agreement in favor of Fidelity Bank on or about December 9, 2011, along with a Note in the amount of $2,010,000.00 (doc. 5, ¶¶ 7-8); (ii) to secure the indebtedness created under the Loan Agreement and Note, Key Hotels and Patel also executed a Security Agreement and a "Mortgage and Security Agreement" in favor of Fidelity Bank for the hotel property and personal property located at 1115 Douglas Avenue, Brewton, Alabama (id., ¶¶ 9-10); (iii) although the Note provided for monthly installment payments of $14,400.27, defendants ceased making payments to Fidelity Bank, thereby placing them in default (id., ¶¶ 8, 12); (iv) the Loan Agreement provides that a condition of default shall exist if the property is placed in danger of loss or the borrower discontinues business operations (id., ¶ 11); (v) defendants were in non-monetary default because significant unrepaired damage to the hotel roof resulted in 71 of the 90 rooms being untenable (id., ¶ 12); and (vi) Fidelity Bank gave written notice to defendants of both the monetary and non-monetary defaults on October 18, 2014, but defendants failed to cure same in a timely manner, or at all (id.).

On the strength of these and other factual allegations, Fidelity Bank asserted a claim against Key Hotels and Patel for breach of the Note, and demanded monetary damages in the form of unpaid principal, interest, attorney's fees and costs. (Doc. 5, ¶¶ 15-17.) Based on the well-pleaded facts alleged in the First Amended Complaint, the Court readily finds that Fidelity Bank has pleaded a cognizable claim for breach of the Note, so as to support entry of default judgment against defendants. In particular, those factual allegations identify specific provisions of the Note and Loan Agreement, and outline specific facts showing how Key Hotels and Patel breached those contractual obligations. As such, Fidelity Bank's pleading makes the necessary threshold factual showing to justify entry of default judgment on plaintiff's claim for breach of the Note. See generally Graveling v. Castle Mortgage Co., 2015 WL 6847947, *6 (11^th Cir. Nov. 9, 2015) ("A default is warranted only when there is a sufficient basis in the pleadings for the judgment entered - that is, when the factual allegations of the complaint state a claim for relief. ... The requisite factual showing for a default judgment is similar to the factual showing necessary to survive a motion to dismiss for failure to state a claim.") (citations omitted); North American Specialty Ins. Co. v. Southern Reinforcing, LLC, 2014 WL 4322391, *1 (S.D. Ala. Aug. 29, 2014) ("before entering a default judgment for damages, the district court must ensure that the well-pleaded allegations of the complaint actually state a cause of action and that there isa substantive, sufficient basis in the pleadings for the particular relief sought") (citations, internal marks and emphasis omitted).

II. Plaintiff's Proof of Damages.

Notwithstanding the propriety of default judgment, it remains incumbent on Fidelity Bank to prove its damages. "While well-pleaded facts in the complaint are deemed admitted, plaintiffs' allegations relating to the amount of damages are not admitted by virtue of default; rather, the court must determine both the amount and character of damages." Fun Charters, Inc. v. Vessel SHADY LADY, Official No. 681969, 2015 WL 789751, *3 (S.D. Ala. Feb. 25, 2015) (citations omitted). "Even in the default judgment context, a court has an obligation to assure that there is a legitimate basis for any damage award it enters." Id. (citations and internal marks omitted).² Thus, the entry of default against Key Hotels of Brewton, LLC and Anand Patel, and the sufficiency of the factual allegations of the First Amended Complaint to state claims against them do not, in and of themselves, establish plaintiff's entitlement to any quantum of damages, much less the particular amounts recited in the pleadings. Fidelity Bank must prove its damages. Of course, such proof need not be to a level of absolute certainty; however, there must be a sufficient showing that the damages award is not speculative. See, e.g., Atchafalaya Marine, LLC v. National Union Fire Ins. Co. of Pittsburgh, PA, 959 F. Supp.2d 1313, 1327 (S.D. Ala. 2013) ("while the damages may not be determined by mere speculation or guess, it will be enough if the evidence show[s] the extent of the damages as a matter of just and reasonable inference, although the result be only approximate") (citations omitted); Parsons v. Aaron, 849 So.2d 932, 949 (Ala. 2002) (explaining that "[i]n computing damages for breach of contract, a jury need not achieve mathematical precision," as long as the record reveals "some reasonable basis for the amount of its award").

Cognizant of its burden to establish a sound record basis for its claimed damages, Fidelity Bank has submitted the Declaration of Morten Oftedal, a Banking Officer for plaintiff, as well as accompanying exhibits to document each category of contractual damages it seeks. As an initial matter, plaintiff presents evidence that it remains the holder of the loan documents at issue in the pleadings, such that Fidelity Bank (and not some other entity) would be entitled to recover damages resulting from the breach of such loan documents. (Oftedal Decl. (doc. 59), ¶ 9.) With respect to particular categories of damages, plaintiff's evidence reflects that the unpaid principal balance due and owing on the Note is $1,880,858.34. (Id., ¶ 7.) On its face, the Note provides for an initial interest rate of 6.00% per year, which remains in place throughout the relevant time period. (Doc. 59, Exh. B, ¶ 2.)³ From the date of default through January 5, 2016, the total accrued interest on the Note is $128,788.00. (Oftedal Decl., ¶ 7.)⁴

Plaintiff also claims attorney's fees, which are recoverable as a matter of contract. In particular, the Loan Agreement specifies that Key Hotels and Patel must reimburse Fidelity Bank for "any cost or expense, including, without limitation, reasonable attorney's fees, in connection with this Agreement, the Note or the Loan ... with regard to the collection of amounts due [or] protection of Collateral." (Doc. 59, Exh. A, § 8.5).⁵ Plaintiff's evidence is that Fidelity Bankhas accrued legal fees in this matter in the amount of $34,665.60. While it would have been preferable for plaintiff to provide an itemized breakdown of...