Nat'l Oilwell Varco, L.P. v. Sadagopan, CIVIL ACTION NO. H-16-2261

• Decision Date: 13 August 2018
• Docket Number: CIVIL ACTION NO. H-16-2261
• Parties: NATIONAL OILWELL VARCO, L.P., Plaintiff, v. SADEESH SADAGOPAN, MAJED HAMDAN, and KHALED ZANTOUT Defendants.
• Court: U.S. District Court — Southern District of Texas

NATIONAL OILWELL VARCO, L.P., Plaintiff,
v.
SADEESH SADAGOPAN, MAJED HAMDAN,
and KHALED ZANTOUT Defendants.

CIVIL ACTION NO. H-16-2261

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

August 13, 2018

MEMORANDUM AND OPINION ON NOV'S MOTION FOR FINAL DEFAULT JUDGMENT

I. Background

In May 2016, NOV filed its original and first amended petitions against the defendants, Sadeesh Sadagopan, Majed Hamdan, and Khaled Zantout, in the 334th Judicial District Court of Harris County. (Docket Entry Nos. 1-2, 1-3). The case was removed to federal court on the basis of diversity jurisdiction. (Docket Entry No. 1). The defendants filed motions to dismiss based on personal jurisdiction and forum non conveniens. (Docket Entry No. 2). In July 2017, after a year of jurisdictional discovery, hearings, and briefing, the court found that it had personal jurisdiction over the defendants and denied their motion to dismiss. (Docket Entry No. 77). In August 2017, NOV filed its fourth amended complaint, the operative complaint. (Docket Entry No. 97). Two of the defendants, Hamdan and Zantout, answered; the third defendant, Sadagopan, did not. (Docket Entry Nos. 104, 105). In January 2018, all three defendants requested entry of default against

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themselves. (Docket Entry Nos. 115, 116). The court granted the parties' agreed motion for entry of default on liability. (Docket Entry Nos. 118, 119).

NOV moved for final default judgment. The defendants responded, NOV replied, and the defendants surreplied. (Docket Entry Nos. 121, 122, 123, 124). After a hearing held on March 9, 2018, the parties filed supplemental briefing regarding the application of a settlement credit to the default judgment. (Docket Entry Nos. 125, 128, 130, 131).

Based on the pleadings, the default judgment briefing, the record, and the applicable law, NOV's motion for a default judgment, (Docket Entry No. 121), is granted, in part. The reasons are explained below.

II. The Legal Standard

Under Fifth Circuit law, there must be a default and entry of default before a plaintiff can obtain a default judgment. New York Life Ins. Co. v. Brown, 84 F.3d 137, 141 (5th Cir. 1996). "A default occurs when a defendant has failed to plead or otherwise respond to the complaint within the time required by the Federal Rules. An entry of default is what the clerk enters when the default is established by affidavit or otherwise. After defendant's default has been entered, plaintiff may apply for a judgment based on such default. This is a default judgment." Id. (emphasis in original) (citations and footnote removed). District courts in the Fifth Circuit have characterized that language as establishing a "three-step process," in which default precedes entry of default and entry of default precedes default judgment. See American States Ins. Co. v. Arete Real Estate & Devel., 2009 WL 854836, at *2 (N.D. Tex. Mar. 30, 2009); Allstate Texas Lloyds v. Shah, 2009 WL 1025399, at *2 (E.D. Tex. Apr. 16, 2009); Lester v. Lester, 2008 WL 5110842, at *2 (N.D. Tex. Dec. 4, 2008);

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CHARLES A. WRIGHT ET AL., 10A FEDERAL PRACTICE & PROCEDURE § 2682 (4th ed.) ("Prior to obtaining a default judgment . . . there must be an entry of default . . . .").

"[A] defendant's default does not in itself warrant the court in entering a default judgment. There must be a sufficient basis in the pleadings for the judgment entered." Nishimatsu Const. Co. v. Houston Nat. Bank, 515 F.2d 1200, 1206 (5th Cir. 1975). "A default judgment is unassailable on the merits but only so far as it is supported by well-pleaded allegations, assumed to be true." Wooten v. McDonald Transit Assocs., Inc., 788 F.3d 490, 496 (5th Cir. 2015) (quotation omitted). Put differently, "[t]he defendant is not held to admit facts that are not well-pleaded or to admit conclusions of law." Id. A complaint must "advance[] a colorable claim for relief and provide[] [the other party] the requisite notice to satisfy Rules 8 and 55." Id. at 497 98.

Federal Rule of Civil Procedure 55(b)(1) permits the clerk to enter a default on certain conditions. Rule 55(b)(2) prohibits the court from entering default judgment "[i]f the party against whom judgment by default is sought has appeared in the action." FED. R. CIV. P. 55(b)(2). The court "may conduct hearings . . . 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." Id.

"As a general proposition, in the context of a default judgment, unliquidated damages normally are not awarded without an evidentiary hearing. That rule, however, is subject to an exception where the amount claimed is a liquidated sum or one capable of mathematical calculation." James v. Frame, 6 F.3d 307, 310 (5th Cir. 1993) (footnote omitted). "A district court may rely on detailed affidavits establishing the necessary facts . . . ." PlainsCapital Bank v. Anaya-Gomez, 2017 WL 971655, at *2 (S.D. Tex. Mar. 14, 2017). A court "may conduct hearings" to

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"determine the amount of damages," "establish the truth of any allegation by evidence," or "investigate any other matter." FED. R. CIV. P. 55(b)(2); see also 10A CHARLES A. WRIGHT ET AL., FEDERAL PRACTICE & PROCEDURE § 2688 (4th ed.) ("[W]hen it seems advantageous, a court may conduct a hearing to determine whether to enter a judgment by default."). "Unlike questions of actual damage, which must be proved in a default situation, conduct on which liability is based may be taken as true as a consequence of the default." Frame v. S-H, Inc., 967 F.2d 194, 205 (5th Cir. 1992).

III. The Parties' Contentions

A. NOV's Motion for Default Judgment

NOV pleaded causes of action against each of the defendants: (1) fraud; (2) fraud by nondisclosure; (3) conspiracy to defraud; (4) breach of contract; (5) breach of fiduciary duties; and (6) aiding and abetting breach of fiduciary duties. (Docket Entry No. 97 at 14 19). NOV argues that its claims are well-pleaded and that, by defaulting and agreeing to the entry of default, the defendants admitted the allegations establishing their liability. (Docket Entry No. 120 at 8); Frame, 967 F.2d at 205. NOV claims that it is entitled to a final default judgment of $21,796,757 in compensatory damages against the defendants, jointly and severally. (Docket Entry No. 120 at 9). The amount consists of two categories of damages: (1) $18,791,503 worth of proceeds the conspirators¹ received from their several schemes against NOV; and (2) $3,005,254 worth of nonsalary stock awards and bonuses NOV gave to the defendants during the course of the schemes. Id. at 9 10.

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As to the first category, NOV seeks the disgorgement of the profits the conspirators collected as the result of four schemes: (1) the Orient scheme; (2) the Global Business Supply scheme; (3) the Vivatek scheme; and (4) the "spreadsheet" schemes. Id. at 10. NOV argues that the collective profit from these four schemes was $18,791,503. Id. at 12. NOV asserts the following breakdown of disgorgeable proceeds from each scheme:

• NOV paid $11,433,356 to the sham entity "Orient Consultants" a company created and established by the defendants representing the conspirators' collective proceeds for the Orient scheme. (Docket Entry Nos. 120 at 12, 120-1 at ¶ 8).

• NOV paid $1,854,610 to the sham entity "Global Business Supply" a company created and established by the defendants to lease equipment. (Docket Entry Nos. 120 at 12 13, 120-1 at ¶ 11). The total purchase cost for the equipment was $269,401. (Docket Entry Nos. 120 at 12, 120-1 at ¶ 12). The conspirators' proceeds (total received minus total spent) was $1,585,209. (Docket Entry Nos. 120 at 13, 120-1 at ¶ 13).

• NOV paid $2,300,000 to "Viyatek." (Docket Entry Nos. 120 at 13, 120-1 at ¶ 14). Viyatek was a legitimate agent of NOV operating in Turkey. The conspirators directed Viyatek to reroute $1,924,485 of those funds to themselves via Global Business Supply, giving themselves the proceeds from the Viyatek scheme. (Docket Entry Nos. 120 at 13, 120-1 at ¶ 15).

• The "spreadsheet" reflects that FM's quarter-share of the profits received for additional self-dealing schemes carried out by the Conspirators in Dubai, multiplied by four to reflect each of the four conspirators, is $3,848,453. (Docket Entry Nos. 120 at 13, 120-1 at ¶¶ 18 19).

NOV also seeks disgorgement of nonsalary bonuses and stock awards. (Docket Entry No. 120 at 13). It does not to seek recovery of the defendants' base compensation, but does seek the $3,005,254 the defendants received in bonuses and awards NOV paid:

Type	Sadagopan	Hamdan	Zantout	TOTAL
Incentive Bonus	$303,614	$801,808	$421,000	$1,526,422
Restricted Stock	$101,073	$127,630	$109,225	$337,928
Exercised Options	$269,878	$475,661	$395,365	$1,140,904
TOTAL	$674,565	$1,405,099	$925,590	$3,005,254

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(Docket Entry Nos. 120 at 15, 120-1 at ¶ 21. NOV claims that it would not have paid the defendants the bonuses and awards if it had known about the defendants' fraudulent schemes. (Docket Entry No. 120 at 15).

NOV asks that the court also award exemplary damages, postjudgment interest at the rate of 5% per year compounded annually, and court costs and attorney's fees supported by a bill of costs and court motion for attorney's fees and expenses filed within 14 days after judgment is entered. Id at 15, 18.

B. The Defendants' Response

The defendants respond that the final judgment should be a take-nothing judgment, asserting four reasons. (Docket Entry No. 121). First, the defendants argue that under UAE law, which applies to NOV's tort claims, it is not entitled to recover tort damages. Id. at 5. The defendants raise the same arguments they briefed before default was entered. (Docket Entry No. 113).

Second, the defendants argue that NOV's pleadings are insufficient to support a default...