Nat'l Credit Adjusters, LLC v. Cred X Debt Recovery, LLC, Case # 15-CV-861-FPG

• Decision Date: 06 March 2019
• Docket Number: Case # 15-CV-861-FPG
• Parties: NATIONAL CREDIT ADJUSTERS, LLC, Plaintiff, v. CRED X DEBT RECOVERY, LLC; JAMES SAUER; JEFFREY SHULTZ; RICHARD SHULTZ; JOHN DOE 1-10; Defendants.
• Court: U.S. District Court — Western District of New York

NATIONAL CREDIT ADJUSTERS, LLC, Plaintiff, v. CRED X DEBT RECOVERY, LLC; JAMES SAUER;JEFFREY SHULTZ; RICHARD SHULTZ; JOHN DOE 1-10; Defendants.

Case # 15-CV-861-FPG

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK

March 6, 2019

DECISION AND ORDER

INTRODUCTION

Plaintiff brought this action for breach of contract and related claims against Defendants on September 24, 2015. ECF No. 1. Although the summonses and affidavits of service for the Defendants were returned as served in November 2015, ECF Nos. 12-15, none of the Defendants ever appeared.¹

Nearly a year later, after the Court ordered Plaintiff to show cause why this action should not be dismissed due to its failure to prosecute it, ECF No. 16, Plaintiff obtained a clerk's default against the Defendants on September 6, 2016. ECF Nos. 17 and 19.

After another year passed, the Court issued a second order to show cause for failure to prosecute on November 3, 2017. ECF No. 23. Eventually, on May 4, 2018, Plaintiff filed a single-sentence motion for default judgment based on Defendants' failure to answer or defend against the complaint. ECF No. 26. The Court found Plaintiff's motion to be insufficient and ordered Plaintiff to file a memorandum of law and relevant documents in support of the motion. ECF No. 27.

On September 17, 2018, Plaintiff filed a memorandum without supporting documents, contravening the Court's prior order. ECF No. 31. Consequently, on December 12, 2018, the Court denied Plaintiff's motion for default without prejudice and ordered Plaintiff to show cause why this action should not be dismissed for failure to comply with the Court's order to file a legally sufficient memorandum of law and supporting documentation. ECF No. 32.

After receiving two extensions of time, and still after the due date, Plaintiff filed a response to the Court's order to show cause, ECF No. 37, and a second motion for default judgment, ECF No. 38. In consideration of Plaintiff's response to the order to show cause, the Court declines to dismiss the action and considers Plaintiff's second motion for default judgment.

BACKGROUND

Plaintiff is a debt buyer and Defendant Cred X Debt Recovery, LLC is a debt collector. ECF No. 37-1 at 3. Defendants James Sauer, Jeffrey Shultz, and Richard Shultz are principals of Cred X. ECF No. 1 at ¶¶ 8, 12, 16. Plaintiff and Cred X entered into a Collection Service Agreement ("CSA") under which Cred X agreed to collect debts owed to Plaintiff in exchange for a commission based on a percentage of the debt it collected. Id. at ¶ 26. Cred X was to remit the remainder of the debt (i.e. the debt it collected less its commission) back to Plaintiff on a semi-monthly basis. Id.

In June 2014, about two years after executing the CSA, Cred X began remitting less money to Plaintiff than was due. Id. at ¶ 27. In May 2015, Cred X stopped making remittances altogether. Id. at 33-35. Plaintiff commenced this action in September 2015. As noted above, Defendants never appeared to defend the action. Plaintiff accordingly seeks a default judgment.

LEGAL STANDARD

Federal Rule of Civil Procedure 55 governs motions for default judgments and provides a two-step process. See Priestley v. Headminder, Inc., 647 F.3d 497, 504-05 (2d Cir. 2011). First,the plaintiff must obtain the entry of a clerk's default. Fed. R. Civ. P. 55(a). Then, the plaintiff may apply for the entry of a default judgment. Fed. R. Civ. P. 55(b).

In determining whether to enter a default judgment, a district court accepts the well-pleaded factual allegations of the complaint relating to liability as true. See Greyhound Exhibitgroup, Inc. v. E.L. U.L. Realty Corp., 973 F.2d 155, 155-58 (2d Cir. 1992). However, the court will not enter a default judgment in favor of a plaintiff just because the defendant is in default. Press Clean Sales, LLC v. Maxum Trans Inc., 233 F. Supp. 3d 360, 363-64 (E.D.N.Y. 2017). Rather, the court must determine whether the plaintiff's well-pleaded allegations establish the defendant's liability as a matter of law. Id. (citing City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011)).

If liability is established, the court then assesses whether the plaintiff has established its damages to a reasonable certainty. Credit Lyonnais Sec., Inc. v. Alcanture, 183 F.3d 151, 155 (2d Cir. 1999). Unlike allegations related to liability, allegations related to damages are not accepted as true. Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981). Thus, a plaintiff must submit evidence to prove the amount of damages. Belizaire v. Rav Investigative & Sec. Servs., 61 F. Supp. 3d 336, 345 (S.D.N.Y. 2014). "If a plaintiff fails to demonstrate its damages to a reasonable certainty, then the court should decline to award any damages, even where liability has been established through default." Id.

DISCUSSION

I. Liability

Plaintiff asserts four claims: (1) breach of contract against Defendants Cred X and James Sauer, (2) misappropriation and unjust enrichment against all Defendants, (3) breach of fiduciary duty against all Defendants, and (4) conversion of property against all Defendants. ECF No. 1. For the reasons discussed below, Plaintiff's second motion for default judgment is GRANTED asto Plaintiff's first claim, but the Court awards no damages. The motion is DENIED as to Plaintiff's remaining claims.

A. Plaintiff is entitled to a judgment of liability against Defendants Cred X and James Sauer on its first claim for breach of contract.

As an initial matter, although Plaintiff does not raise the issue, the Court must determine which law governs Plaintiff's breach of contract claim because the CSA contains a Kansas choice of law provision. ECF No. 37-2 at 20.

"A federal court sitting in diversity applies the choice-of-law rules of the forum state. New York courts generally honor choice-of-law provisions within agreements that underlie contract disputes if the contractual choice-of-law provision possesses some relationship to the parties or to the agreement itself." Eichenblatt v. Kugel, No. 17 CV 559 (DLI)(LB), 2018 WL 3202079, at *4 (E.D.N.Y. May 15, 2018).

Here, Plaintiff is a Kansas company with its principal place of business in Kansas, and the CSA states that "all performances and guarantees due," "transactions undertaken," and "the entry into and performance of" the CSA will be deemed to have occurred in Kansas. ECF No. 37-2 at 20. The Court thus finds that Kansas law governs Plaintiff's breach of contract claim. See Eichenblatt, 2018 WL 3202079, at *4.²

To establish a breach of contract claim under Kansas law, a plaintiff must prove: "(1) the existence of a contract between the parties; (2) sufficient consideration to support the contract; (3) the plaintiff's performance or willingness to perform in compliance with the contract; (4) thedefendant's breach of the contract; and (5) damages to the plaintiff caused by the breach." Navair, Inc. v. IFR Ams., Inc., 519 F.3d 1131, 1137 (10th Cir. 2008).

Here, Plaintiff's allegations are sufficient to state a breach of contract claim. First, Plaintiff alleges the existence of the CSA between the parties and attaches a copy to its second motion for default. ECF No. 1 at ¶ 26. Second, Plaintiff alleges consideration in that Cred X agreed to collect the debt in exchange for a commission on the amounts collected. ECF Nos. 1 at ¶ 26, 37-2 at 14. Third, although Plaintiff does not explicitly allege that it performed under the contract, "there is a reasonable inference" that Plaintiff performed its end of the contract because the CSA permitted Cred X to take its commissions from the amounts it collected. Chi. Tribune Co. v. Masterpiece Mktg. Grp., LLC, No. 13-2157-CM, 2013 WL 6047571, at *2 (D. Kan. Nov. 15, 2013); ECF No. 1 at ¶ 26. Fourth, Plaintiff alleges that Cred X breached the contract by remitting less collections to Plaintiff than was due, and fifth, that Cred X's breach caused Plaintiff monetary damages totaling over $800,000.00. Id. at ¶¶ 27, 28, 33-35, 43-44, 49, 50, 58.

Additionally, Plaintiff's breach of contract claim alleges that Defendant James Sauer guaranteed the CSA and is thus jointly and severally liable with Cred X. Id. at 46. The guaranty is also attached to the second motion for default judgment. ECF No. 37-2 at 21.

Accepting these allegations as true, Plaintiff has shown that it is entitled to a default judgment of liability against Defendants Cred X and James Sauer on its breach of contract claim.

B. Plaintiff is not entitled to a judgment on its second, third, or fourth claims.

1. The second, third, and fourth claims are duplicative as to Defendants Cred X and James Sauer.

Plaintiff's unjust enrichment, breach of fiduciary duty, and conversion claims are all based on the same set of facts as its breach of contract claim, and Plaintiff seeks the same relief—compensatory damages of $800,987.10 in unpaid remittances and $40,049.36 in late fees—in allfour claims.³ As the Court has already found in favor of Plaintiff on its first claim against Cred X and Sauer, Plaintiff's second, third, and fourth claims are duplicative as to Cred X and Sauer.

"Under New York law, tort 'causes of action . . . based on the same facts as the cause of action to recover damages for breach of contract' should be dismissed as duplicative of the contract claim." MacGregor v. Milost Glob., Inc., No. 17-CV-6691-LTS-KHP, 2018 WL 4007642, at *5 (S.D.N.Y. Aug. 22, 2018) (quoting Edem v. Grandbelle Int'l, Inc., 118 A.D.3d 848, 849 (N.Y. App. Div. 2d Dep't 2014)); see also Singer v. Xipto Inc., 852 F. Supp. 2d 416, 426 (S.D.N.Y. 2012) (explaining that, while a plaintiff may plead breach of contract and unjust enrichment claims in the alternative, he generally may not simultaneously recover upon such claims arising from the same facts); Telesco v. Neuman, No. 14 CV 3480 VB, 2015 WL 2330166, at *6 (S.D.N.Y. Mar. 11, 2015) (dismissing conversion claim where, if plaintiff were to recover on that claim and his breach...