Rialto Capital Advisors, LLC v. Lewis, CIVIL ACTION NO. 1:11-CV-698

• Decision Date: 18 April 2013
• Docket Number: CIVIL ACTION NO. 1:11-CV-698
• Parties: RIALTO CAPITAL ADVISORS, LLC, attorney-in-fact for RREF CB SBL ACQUISITIONS, LLC, successor-in-interest to COMPASS BANK, Plaintiff, v. ERITON JOSEPH LEWIS SR. a/k/a E.J. LEWIS, SR. and TEMA RHODES LEWIS, Defendants.
• Court: U.S. District Court — Eastern District of Texas

RIALTO CAPITAL ADVISORS, LLC, attorney-in-fact for RREF CB SBL ACQUISITIONS, LLC,successor-in-interest to COMPASS BANK, Plaintiff,

v.ERITON JOSEPH LEWIS SR. a/k/a E.J. LEWIS, SR. and TEMA RHODES LEWIS, Defendants.

CIVIL ACTION NO. 1:11-CV-698

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TEXAS

SIGNED: April 18, 2013

MEMORANDUM AND ORDER

Pending before the court is Plaintiff Rialto Capital Advisors, LLC's ("Rialto") Motion for Default Judgment (#13). Rialto asks this court to enter a default judgment against Defendants Eriton Joseph Lewis Sr. and Tema Rhodes Lewis (collectively "Defendants") in the amount due under three promissory notes, totaling $260,142.92, plus attorneys' fees and post-judgment interest. Having reviewed the pending motion, the evidence submitted, and the applicable law, the court is of the opinion that Rialto's motion should be granted.

I. Background

This lawsuit concerns the enforcement of RREF CB SBL Acquisitions, LLC's ("RREF") contractual rights to payment of three promissory notes.¹ The first note, dated February 28, 2009, ("Note 1") was in the original amount of $30,000.00. The second note ("Note 2"), dated April 30, 2009, was executed by Defendants in the original sum of $64,450.00. Finally, Defendantsexecuted a third note dated December 3, 2003, ("Note 3") in the amount of $240,000.00. Defendants allegedly failed to make timely payments on these Notes when due.

On December 7, 2011, Compass filed the instant lawsuit against Defendants to collect the remaining indebtedness under the three Notes. RREF later became the successor to Compass's interest in the loans. On July 9, 2012, Rialto, in its capacity as attorney-in-fact for RREF, was substituted into this lawsuit as the plaintiff on July 9, 2012. On October 31, 2012, Rialto requested that the Clerk of Court enter default against Defendants, and on November 2, 2012, the Clerk placed an Entry of Default (#15) on the docket. On October 31, 2012, Rialto filed the instant motion for Default Judgment. A hearing was held on December 18, 2012, at which time Defendants were ordered to show cause why a default judgment should not be rendered in favor of Rialto. Notice of the hearing was sent to both Defendants, but the notices were returned as unclaimed. Defendants failed to attend the hearing. In its subsequent filings with the court, Rialto confirms that it is requesting a judgment in the amount of $260,142.92, plus attorneys' fees in the amount of $10,247.64 and post-judgment interest.

II. Analysis

A. Default Judgment

To warrant the entry of a default judgment, the United States Court of Appeals for the Fifth Circuit requires a three-step procedure involving the defendant's default, entry of default, and default judgment. N.Y. Life Ins. Co. v. Brown, 84 F.3d 137, 141 (5th Cir. 1996); see GuideOne Ins. Co. v. House of Yahweh, 828 F. Supp. 2d 859, 861 (N.D. Tex. 2011). A default occurs when a defendant fails to plead or otherwise respond to the complaint. FED. R. CIV. P. 55(a); N.Y. Life Ins. Co., 84 F.3d at 141. The clerk may issue an entry of default when the default isestablished by affidavit or otherwise. FED. R. CIV. P. 55(a); N.Y. Life Ins. Co., 84 F.3d at 141. When requesting the entry of default, the moving party must provide a sworn statement indicating whether the defendant is currently serving in the armed forces. See Twist & Shout Music v. Longneck Xpress, N.P., 441 F. Supp. 2d 782, 783 (E.D. Tex. 2006) (citing 50 U.S.C. app. § 521(b)(1)). Furthermore, a default judgment should not be entered against an infant or an incompetent person unless they are represented in the case by a guardian or other representative. See FED. R. CIV. P. 55(b)(2). Once a defendant is in default, the court accepts as true all the facts set forth in the complaint aside from those relating to damages. Jackson v. FIE Corp. , 302 F.3d 515, 525 (5th Cir. 2002) (citing United States for Use of M-CO Constr., Inc. v. Shipco Gen., Inc., 814 F.2d 1011, 1014 (5th Cir. 1987); Frame v. S-H, Inc., 967 F.2d 194, 205 (5th Cir. 1992); 10A CHARLES ALAN WRIGHT ET AL, FEDERAL PRACTICE & PROCEDURE § 2688 (3d ed. 1998). Thus, the entry of default effectively eliminates the defendant's right to appear in the case with respect to liability issues. See Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 160 (2d Cir. 1992), cert. denied, 506 U.S. 1080 (1993).

Subsequent to the entry of default, a party may seek a default judgment from the court. See FED. R. CIV. P. 55(b)(2); N.Y. Life Ins. Co., 84 F.3d at 141. A default judgment is a judgment on the merits that conclusively establishes the defendant's liability. See Norex Petroleum Ltd. v. Access Indus., Inc., 416 F.3d 146, 160 (2d Cir. 2005) (citing Ackermann v. Levine, 788 F.2d 830, 842 (2d Cir. 1986)), cert. denied, 547 U.S. 1175 (2006); Jackson, 302 F.3d at 525; Leedo Cabinetry v. James Sales & Distrib., Inc., 157 F.3d 410, 414 (5th Cir. 1998) (citing Shipco Gen., Inc., 814 F.2d 1011, 1014 (5th Cir. 1987)).

It is well established, however, that "[a] party is not entitled to a default judgment as a matter of right, even where the defendant is technically in default." Ganther v. Ingle, 75 F.3d 207, 212 (5th Cir. 1996) (citing Mason v. Lister, 562 F.2d 343, 345 (5th Cir. 1977)); see Settlement Funding, LLC v. TransAmerica Occidental Life Ins. Co., 555 F.3d 422, 424 (5th Cir. 2009) (citing Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir. 2001)). Default judgments are "generally disfavored in the law and thus 'should not be granted on the claim, without more, that the defendant failed to meet a procedural time requirement.'" Lacy v. Sitel Corp. , 227 F.3d 290, 292 (5th Cir. 2000) (quoting Mason & Hanger-Silas Mason Co., Inc. v. Metal Trades Council, 726 F.2d 166, 168 (5th Cir. 1984)); see Beitel v. OCA, Inc. (In Re OCA, Inc.), 551 F.3d 359, 370-71 (5th Cir. 2008). As the Fifth Circuit has noted:

The Federal Rules of Civil Procedure are designed for the just, speedy, and inexpensive disposition of cases on their merits, not for the termination of litigation by procedural maneuver. Default judgments are a drastic remedy, not favored by the Federal Rules and resorted to by courts only in extreme situations. As the District of Columbia Circuit has stated, they are "available only when the adversary process has been halted because of an essentially unresponsive party."

Sun Bank of Ocala v. Pelican Homestead & Sav. Ass'n, 874 F.2d 274, 276 (5th Cir. 1989) (citations omitted) (quoting H.F. Livermore Corp. v. Aktiengesellschaft Gebruder Loepfe, 432 F.2d 689, 691 (D.C. Cir. 1970)); accord Lewis, 236 F.3d at 767. In fact, the Fifth Circuit has "adopted a policy in favor of resolving cases on their merits and against the use of default judgments." Rogers v. Hartford Life & Acc. Ins. Co., 167 F.3d 933, 936 (5th Cir. 1999) (citing Lindsey, 161 F.2d at 892-93; Sun Bank of Ocala, 874 F.2d at 276) (noting that "[a] defendant in federal court is entitled to an adequate opportunity to present a defense without suffering a possible default judgment"); accord United States v. Tellez, 678 F. Supp. 2d 437, 443 (W.D. Tex. 2009).

In this instance, Compass effected service of process on Defendants on January 14, 2012, and filed proof of service on January 26, 2012. Defendants failed to file an answer or make an appearance by the February 6, 2012, deadline. See FED. R. CIV. P. 12(a)(1)(A) (requiring a defendant to serve an answer "within 21 days after being served with the summons and complaint"). The Clerk of Court entered default against Defendants on November 2, 2012, and Rialto moved for default judgment on October 31, 2012. With its motion, Rialto submitted a declaration under penalty of perjury stating that neither Defendant is currently serving in the military and neither is an infant or an incompetent person. Therefore, the court is satisfied that the procedural prerequisites for obtaining a default judgment have been met.

Moreover, as of the date of this Order, Defendants have to file any responsive pleading in this case or "otherwise defend." Defendants' failure to respond results in the resolution of material issues of fact and establishes their liability for Rialto's well-pleaded claims. See Jackson, 302 F.3d at 524 (citing Nishimatsu Constr. Co. v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975) (noting that "[t]he defendant, by his default, admits the plaintiff's well-pleaded allegations of fact"); see also Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977) (stating "[t]he general rule of law is that upon default the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true").

In addition, Rialto has proved its claim for breach of contract against Defendants. Under Texas law, the essential elements of a breach of contract claim are: (1) the existence of a valid contract; (2) the plaintiff performed or tendered performance; (3) the defendant breached the contract; and (4) the plaintiff was damaged as a result of the breach. Bank of Tex. v. VR Elec., Inc., 276 S.W.3d 671, 677 (Tex. App.—Houston [1st Dist.] 2008, no pet.); accord Domingo v.Mitchell, 257 S.W.3d 34, 39 (Tex. App.—Amarillo 2009, pet. denied); Hovorka v. Cmty. Health Sys., Inc., 262 S.W.3d 503, 508-09 (Tex. App.—El Paso, 2008, no pet.); Academy of Skills & Knowledge, Inc. v. Charter Schs., USA, Inc., 260 S.W.3d 529, 536 (Tex. App.—Tyler 2008, pet. denied). A breach occurs when a party fails or refuses to perform an act that it has expressly promised to perform. See Franconia Assocs. v. United States, 536 U.S. 129, 142-43 (2002); AMS Constr. Co. v. K.H.K. Scaffolding Houston, Inc., 357 S.W.3d 30, 41 (Tex. App.—Houston [1st Dist.] 2011, pet. dism'd); Hoss v. Alardin, 338 S.W.3d 635, 650 (Tex. App.—Dallas 2011, no pet. h.). Here, accepting the well-pleaded facts in its complaint as true, Rialto has established all four elements of a breach of contract claim against Defendants: (1) the Notes existed; (2)...