Skytec, Inc. v. Logistic Sys., Inc.
| Decision Date | 15 March 2019 |
| Docket Number | Civil No. 15-2104 (BJM) |
| Parties | SKYTEC, INC., Plaintiff v. LOGISTIC SYSTEMS, INC., Defendant. |
| Court | U.S. District Court — District of Puerto Rico |
Skytec, Inc. ("Skytec") brought this diversity action against Logistic Systems, Inc. ("Logistic") alleging impairment of a dealership relationship under Puerto Rico Law 75 of June 24, 1964, as amended, 10 L.P.R.A. § 278 et seq., ("Law 75"), as well as breach of contract. Dkt. 12. Logistic counterclaimed, alleging breach of contract and the breach of the implied covenant of good faith and fair dealing. Dkt. 14. Each sought damages. Dkt. 12, 14. The court granted Logistic's motion for entry of default judgment in light of Skytec's deliberate misconduct in the discovery process, dismissing Skytec's claims with prejudice and entering default as to Logistic' counterclaims. Dkt. 160. Later the same day, Skytec filed for bankruptcy, and the court stayed proceedings. Dkt. 164; see In re Skytec Inc., Case No. 18-5288 (Bankr. D.P.R. Sept. 12, 2018).
The parties are back before the court to resolve this litigation with permission of the bankruptcy court. Logistic moves for default judgment and for attorney's fees. Dkt. 169, 181. Skytec filed a motion in opposition to some of Logistic's claimed attorney's fees. Dkt. 178. A post-default hearing was held on February 13, 2019. Dkt. 176. Both parties appeared at the hearing through counsel.
After an entry of default has been made, "the court . . . may examine a plaintiff's complaint, taking all well-pleaded factual allegations as true, to determine whether it alleges a cause of action." Ramos-Falcón v. Autoridad de Energía Eléctrica, 301 F.3d 1, 2 (1st Cir. 2002) (citing Quirindongo Pacheco v. Rolon Morales, 953 F.2d 15, 16 (1st Cir. 1992)). The party in default "is taken to have conceded the truth of th[ose] factual allegations." Franco v. Selective Ins. Co., 184 F.3d 4, 9 n.3 (1st Cir. 1999). The plaintiff's claims have "facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009) (citation omitted). Default can only establish a defendant's liability, so plaintiffs must establish the extent of the damages resulting from the defendant's violations. See Eisler v. Stritzler, 535 F.2d 148, 153-54 (1st Cir. 1976). A post-default hearing to determine the plaintiff's award is necessary if the amount of damages is in dispute or not ascertainable from the pleadings. Graham v. Malone Freight Lines, Inc., 314 F.3d 7, 16 (1st Cir. 1999).
Logistic, a Montana company, contracted to develop and implement various dispatch, geographic information, and records systems for public safety agencies in Puerto Rico, which were Skytec's local clients. The business relationship deteriorated, and Skytec sued Logistic in August 2015. Dkt. 1. Subcontractor agreements for four projects were at issue: Puerto Rico Emergency Management Services Administration ("AEMEAD" by its Spanish name); Puerto Rico Law Enforcement Dispatch System ("PRLEDS"); METRO I; and METRO II. See Ex. 2, 3, 4, 5. Because the court entered default on Logistic's counterclaims and Skytec's claims were dismissed with prejudice, it has been adjudicated that Logistic complied with its obligations under the contracts. On the same lines, it has been adjudicated that Skytec failed to comply with its obligation to pay Logistic for its services rendered. Dkt. 160.
At the default hearing Logistic presented testimony from its expert witness, Carlos Baralt-Benítez ("Baralt"). Baralt is a Certified Public Accountant who also holds a certification in financial forensics and as a fraud examiner. See Ex. 1. Baralt reviewed the four subcontractor agreements for how much money is owed and compared them to invoices and amounts paid to calculate how much money remains to be paid. Ex. 6, 7. Skytec stipulated to the authenticity of the invoices during the course of litigation. Dkt. 149. The annual license and maintenance fees show an increase between Baralt's initial expert report, Exhibit 6, and his supplemental expert report, Exhibit 7, because the supplement reflects the invoice sent in January 2017, which covers the time between Skytec terminating their relationship and the end of the required sixty-day notice for terminating the contractual agreements.
Money owed can be broken into three categories: payments due on completion of contractual milestones, license and maintenance fees, and service charge accrual on sums not paid within sixty days of the invoice. See Ex. 6 at 4. By subtracting the money Skytec paid from the sum owed to Logistic on the invoices, Baralt found that Skytec owes $357,186 for program installations. Ex. 7, Updated Table 1. Through the same method, Baralt found that Skytec owes Logistic $2,414,898 for annual license and maintenance fees. Id.
Skytec filed for bankruptcy on September 12, 2018, so Baralt calculated the interest owed on unpaid invoices through that date only. Ex. 8 (updated Table 10). The subcontract agreements did not provide for a specific interest rate to be applied to tardy payments. The invoices Logistic sent to Skytec stated that "'[s]ervice charges at 12 percent annually will accrue on past due accounts," and the rate it typically applies for these "service charges" is 12 percent. Ex. 6 at 4. Baralt testified that he was not aware if Logistic had accepted late payments without service charges or with service charges of less than 12 percent in the course of other contracts with Skytec. Ultimately, Baralt calculated the service charges owed at rates of 12 percent, six percent, and the relevant rate set by the Office of the Commissioner of Financial Institutions of Puerto Rico ("OFCIPR"). Baralt selected the latter rates because they are common gap-fillers in contracts where parties do not set a rate. At twelve percent, Skytec would owe $993,928; at six percent, Skytec would owe $496,964; and at the OFCIPR rates, Skytec would owe $386,336. Ex. 8, Updated Table 10.
Pursuant to Article 1054 of the Puerto Rico Civil Code, a party seeking to prove breach of contract must show the existence of a valid contract and a breach by one of the parties to that contract. Torres v. Bella Vista Hosp., Inc., 523 F. Supp. 2d 123, 152 (D.P.R. 2007). A valid contract requires consent of the parties, a definite object which is the subject of the contract, and the cause for the obligation which may be established. 31 L.P.R.A. § 3391. There is no question that their subcontracts were valid and that Skytec breached them. Skytec owes Logistic the sums they are contractually obligated to pay as well as interest, or service charges, on those amounts.
Interest generally stops accruing when a party files for bankruptcy. United States v. Robinson, 929 F.2d 1, 2 (1st Cir. 1991) (citing United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 246 (1989)). Skytec filed for bankruptcy on September 12, 2018, so Baralt calculated the interest owed on unpaid invoices through that date only. Ex. 8 (updated Table 10). Prejudgment interest is appropriate as long as that interest deals with a tangible loss. Velez v. P.R. Marine Mgmt., Inc., 957 F.2d 933, 941 (1st Cir. 1992). Skytec and Logistic omitted a rate of interest, so the court must select a gap-filling term. In Puerto Rico, the law prohibits a fixed rate of interest greater than 8 percent annually when the sum at issue exceeds three thousand dollars. 31 L.P.R.A. § 4591. The same law prescribes six percent as a gap filler when parties do not agree upon an interest rate in a contract. See id. The court therefore adopts the six percent interest rate, so the service charges owed on the license and maintenance fees through September 12, 2018 total $496,964. Exhibit 8, Updated Table 10.
Skytec owes Logistic under the contract $357,186 for program installations, $2,414,898 for annual license and maintenance fees, and $496,964 for service charges on those tardy fee payments, which is a total of $3,269,048.
Logistic moved for expert's fees and attorney's fees at the default hearing; the parties agreed that costs must wait until after judgment. Logistic requests an award of $1,267,694.54 for its reasonable attorney fees, $32,847.40 for its expert fees, and $101,047.92 for expenses. Dkt. 169 at 2.
Logistic seeks $32,847.40 in fees, including taxes, for its expert, Baralt. Baralt spent 115.25 expert hours on the case and charged the standard hourly rate of $220 for his services. Dkt. 169 at 12. At the hearing, Skytec did not object to the requested expert fees or their calculation. The subcontract agreements expressly provide for attorney's fees but do not address expert's fees. See, e.g., Ex. 2 at 9 (). Law 75, however, includes expert's fees. "In every action filed pursuant to the provisions of this chapter, the court may allow the granting of attorney's fees to the prevailing party, as well as a reasonable reimbursement of the expert's fees." 10 L.P.R.A. § 278e. In the absence of any objection from Skytec, the court finds Logistic's request for $32,847.40 in expert's fees reasonable. Notably, Baralt is the only person requesting fees who has provided itemized descriptions of his hours billed. Dkt. 169-8.
Logistic claims attorney's fees on three separate grounds: the subcontract agreements, Law 75, and Puerto Rico Rule of Civil Procedure 44. Skytec objected to the out-of-state rates claimed but made no argument regarding the amount of time Foster Pepper, an out-of-state firm, spent on the case and the rates charged. Dkt. 178 ¶¶ 3, 7-9.
The subcontract agreements provide for attorney's fees to be awarded to the prevailing party in any litigation. Ex. 2 at 9; Ex. 3 at 9; Ex. 4 at 9; ...
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