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People's United Equipment Finance Corp. v. Morris

United States District Court, S.D. Texas, Houston Division

January 4, 2018

People's United Equipment Finance Corp., Plaintiff,
Lenn Waters Morris, et al., Defendants.


          Gray H. Miller, United States District Judge.

         Pending before the court is plaintiff People's United Equipment Finance Corp.'s (“People's United”) motion for default judgment against defendant Ricky Dean Freeman. Dkt. 10. Based on a review of the complaint, motion, record evidence, and applicable law, the court is of the opinion that the motion should be GRANTED.

         I. Background

         People's United sued third-party guarantors to collect unpaid amounts due under a financing agreement between People's United and Forest Energies, LLC. (“Forest”). Dkt. 1. On January 8, 2016, Forest executed and delivered a promissory note to People's United for $590, 940.00. Dkt. 1, Ex. 1. The note required Forest to repay People's United in monthly installments. Id. Additionally, the note and corresponding loan documents provided for acceleration of all indebtedness if Forest defaulted. Id.

         On January 8, 2016, Freeman and defendant Lenn Waters Morris each signed and delivered guaranties of Forest's obligations to People's United. Dkt. 1, Ex. 2. Both provide that each defendant “agrees to be directly and unconditionally liable to [People's United], without reduction by reason of any claim, defense, setoff, [or] counterclaim . . . for the due payment and performance of [the obligations of Forest to People's United.]”. Id. The guaranties included terms that limited the defendants' release until the obligations of Forest to People's United had been fully paid and performed with interest. Id. The guaranties further stipulated that the defendants would pay People's United's reasonable attorneys' fees, together with any and all court costs and expenses, in enforcing the guaranties. Id.

         Forest defaulted by not making required payments. Dkt. 1 ¶ 17. Then, on November 18, 2016, Forest filed Chapter 11 bankruptcy, an act which constitutes a default under the loan. Id. ¶ 19. After the defaults, People's United exercised its option to accelerate Forest's unpaid balance, $487, 015.64. Id. ¶ 20. This balance is further subject to continuing interest according to the loan contract. Id., Ex. 1.

         Under the security agreement with Forest, People's United had a security interest in Forest's equipment. Dkt. 10, Ex. 1. On April 4, 2017, People's United sold the equipment at a public sale for a gross price of $257, 000, which People's United contends was the reasonable market value of the equipment. Id. People's United asserts that it credited Forest the net proceeds derived from the sale. Id. Now, People's United argues the aggregate balance due is $249, 063.09. Id.

         On December 14, 2016, People's United sued Freeman and Morris for the outstanding balance of the notes, along with interest, attorneys' fees, and costs of court. Dkt. 1. On December 20, 2016, Freeman was properly served with process. Dkt. 5. Freeman's deadline to answer or otherwise respond was January 10, 2017. See Fed. R. Civ. P. 12(a). Morris has not yet been served with process. Freeman was informed of his deadline for responding and the consequences of failing to do so. Dkts. 3, 5. To date, Freeman has not answered or responded to this lawsuit. Dkt. 10.

         On August 2, 2017, People's United filed a motion for default judgment against Freeman. Id. Pursuant to the Local Rules of the Southern District of Texas, People's United served this motion for default judgment upon the defendants via certified mail, with return receipt requested. Id.; see also S.D. Tex. L.R. 5.5. People's United has filed a military affidavit for Freeman that complies with the Service members' Civil Relief Act, 50 U.S.C App. § 521. Dkt. 10, Ex. 3.

         II. Legal Standard and Analysis

         A. Default Judgment

         Under Federal Rule of Civil Procedure 55(a), “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.” Fed.R.Civ.P. 55(a). Under Rule 55(b)(2), a party may apply for the court to enter a default judgment, and the “court may conduct hearings or make referrals-preserving any federal statutory right to a jury trial-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.” Fed.R.Civ.P. 55(b)(2). Rule 4 of the Federal Rules of Civil Procedure requires the plaintiff to serve a copy of the summons and complaint on the defendant. Fed.R.Civ.P. 4(c)(1). Under Local Rule 5.5, a motion for default judgment must be served upon the defendant via certified mail, return receipt requested. S.D. Tex. L.R. 5.5.

         A default judgment is a “drastic remedy, not favored by the Federal Rules[, ] and resorted to by courts only in extreme situations.” Sun Bank of Ocala v. Pelican Homestead & Sav. Ass'n, 874 F.2d 274, 276 (5th Cir. 1989). “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.” Id.

         Freeman has failed to plead or otherwise defend against this lawsuit. Further, People's United has properly served Freeman with this lawsuit under the Federal Rules of Civil Procedure and with this motion for default judgment under the Local Rules. Dkt. 5; Dkt. 10. Given Freeman's failure to answer the complaint in a timely manner, the court may enter default against Freeman, accept all well-pleaded facts in People's United's complaint as true, and award the relief ...

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