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Nautilus Insurance Co. v. A Best American Roofing, LLC

United States District Court, W.D. Texas, El Paso Division

April 3, 2019

NAUTILUS INSURANCE COMPANY a/s/o LARIAT BUILDERS GROUP CORPORATION, Plaintiff,
v.
A BEST AMERICAN ROOFING, LLC, Defendant.

          MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR ENTRY OF DEFAULT JUDGMENT

          PHILIP R. MARTINEZ, UNITED STATES DISTRICT JUDGE

         On this day, the Court considered Plaintiff Nautilus Insurance Company a/s/o Lariat Builders Group Corporation's [hereinafter "Plaintiff] "Motion for Entry of Default Judgment" (ECF No. 16) [hereinafter "Motion"], filed on February 25, 2019; Plaintiffs "Supplemental Brief in Support of Causes of Action" (ECF No. 19) [hereinafter "Supplemental Brief], filed on March 18, 2019; and Plaintiffs "Affidavit in Support of Claim for Damages" (ECF No. 22) [hereinafter "Affidavit"], filed on March 28, 2019, in the above-captioned cause. After due consideration, the Court is of the opinion that the Motion should be granted in part, with respect to Plaintiffs negligence claim, and denied in part, with respect to Plaintiffs breach of warranty claim, for the reasons that follow.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         On October 26, 2018, Plaintiff filed its Complaint, bringing negligence, gross negligence, and breach of warranty claims against Defendant in connection with the roofing services that Defendant provided. Compl., ECF No. 1. Plaintiff is an insurance company that issued a policy of insurance to Lariat Builders Group Corporation. Id. at 1. Plaintiffs insured, Lariat Builders Group Corporation, entered into a contract with Immanuel Baptist Church ("the Church") to provide certain services, including roof replacement of the commercial property located at 1201 Hawkins, El Paso, TX. Compl. Ex. A. As a General Contractor, Plaintiffs insured entered into a Sub-Contractor Agreement with Defendant, wherein Defendant, as a Sub-Contractor, agreed to perform roofing services for the Church's property. Compl. 2; Compl. Ex. A.

         Plaintiff alleges that the roofing work commenced on a date prior to July 7, 2017. Id. On July 7, 2017, heavy rainfall caused water to enter the Church, "resulting in subsequent damage to several areas of the church, including the gym, cafeteria, two classrooms, a chapel and office areas." Id. According to Plaintiff, the water damage "was due to [Defendant's failure to properly secure the roof prior to the rain storm." Id. at 3. Accordingly, Plaintiff alleges that its insured "sustained damages and other related expenses in the amount of $77, 183.13." Id. Plaintiff further alleges that "[p]ursuant to its policy of insurance with its insured, [Plaintiff] has paid to its insured, and on their behalf, in the amount of $77, 183.13 and has become legally, contractually and equitably subrogated to the rights of its insureds to the extent of such payments." Id. at 3. Based on these allegations, Plaintiff brings claims of negligence, gross negligence, and breach of warranty against Defendant, seeking damages, interest, costs of suit, and exemplary damages. Compl. 3-6.

         On November 19, 2018, Plaintiff served summons on Elena Hart, an individual designated by law to accept service of process on behalf of Defendant. Summons Returned Executed, Dec. 20, 2018, ECF No. 5. On January 29, 2019, the Court issued its "Order to Show Cause," ordering Plaintiff to show cause as to why Plaintiff had not moved for an entry of default against Defendant. Order to Show Cause, ECF No. 13. On January 30, 2019, Plaintiff filed its "Request for Entry of Default." ECF No. 14. As Defendant failed to appear or answer the Complaint within the time allowed by law, the Clerk entered default on February 7, 2019. Entry of Default by District Clerk, ECF No. 15. On February 25, 2019, Plaintiff filed its Motion and moved for entry of default judgment. The Court requested that Plaintiff provide documents in support of Plaintiffs damages claims and supplemental briefing citing applicable case law and demonstrating how Plaintiffs factual allegations support Plaintiffs causes of action. Order Req. Doc. in Supp. of Pl.'s Mot. for Entry of Default J., Mar. 14, 2019, ECF No. 18. Accordingly, on March 18, 2019, Plaintiff filed its Supplemental Brief. Therein, Plaintiff "respectfully withdraws its claims of gross negligence and its request for exemplary damages" due to Plaintiffs inability to engage in discovery to obtain evidence necessary to support Plaintiffs gross negligence claim. Suppl. . Br. 4. In addition, on March 28, 2019, Plaintiff filed its Affidavit, which details the basis for Plaintiffs damages claim and provides documents in support of those damages.

         II. LEGAL STANDARD

         Plaintiff must establish three elements to obtain a default judgment: (1) default; (2) entry of default; and (3) default judgment. N.Y.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." Id. The clerk of the court will enter an entry of default when default is established by affidavit or otherwise. Id. (citing Fed.R.Civ.P. 55(a)). After the clerk's entry of default, "a plaintiff may apply for a judgment based on such default. This is a default judgment” Id.

         Defendant has not appeared. Consequently, the Clerk of the Court entered default. See Entry of Default by District Clerk, Feb. 7, 2019, ECF No. 15. Therefore, the Court must determine whether default judgment is appropriate.

         Courts have developed a two-part analysis in determining whether a default judgment should be entered against a defendant. See, e.g., Ins. Co. of the W. v. H&G Contractors, Inc., No. C-10-390, 2011 WL 4738197, at *2-3 (S.D. Tex. Oct. 5, 2011). First, the Court must consider whether the entry of default judgment is appropriate under the circumstances. See Lindsey v. Prive Corp., 161 F.3d 886, 893 (5th Cir. 1998). The Court looks to the following factors to determine whether a default judgment is appropriate:

[1] whether material issues of fact are at issue, [2] whether there has been substantial prejudice, [3] whether the grounds for default are clearly established, [4] whether the default was caused by a good faith mistake or excusable neglect, [5] the harshness of a default judgment, and [6] whether the court would think itself obliged to set aside the default on the defendant's motion.

Id.

         Second, the Court must assess the merits of the plaintiffs claims and find sufficient basis in the pleadings for the judgment. See Nishimatsu Const Co. v. Hous. Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975). "The defendant, by his default, admits the plaintiffs well-pleaded allegations of fact. . . ." Id. Although the defendant may be in default, "[t]he defendant is not held to admit facts that are not well-pleaded or to admit conclusions of law." Id. A complaint is "well-pleaded" and suffices to support a default judgment if the allegations satisfy the requirements of Federal Rule of Civil Procedure 8. Woolen u. McDonald Transit Assocs., Inc., 788 F.3d 490, 498 (5th Cir. 2015). Specifically, the factual allegations "need only 'be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).'" Id. (quoting Bell Ail. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). "'[D]etailed factual allegations' are not required, but the pleading must present 'more than an unadorned, the-defendant-unlawfully-harmed-me accusation."' Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).

         The Fifth Circuit has often cautioned that "[d]efault judgments are a drastic remedy, not favored by the Federal Rules and resorted to by courts only in extreme situations." Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir. 2001) (quoting Sun Bank of Ocala v. Pelican Homestead & Savings Ass'n, 874 F.2d 274, 276 (5th Cir. 1989)). Indeed, such orders are "available only when the adversary process has been halted because of an essentially unresponsive party." Sun Bank of Ocala, 874 F.2d at 276 (quoting H.F. Liver more Corp. v. Aktiengesellschaft Gebruder Loepfe, 432 F.2d 689, 691 (D.C. Cir. 1970)). Thus, as the decision to enter a default judgment lies within the discretion of the district judge, a "party is not entitled to a default judgment as a matter of right, even where the defendant is technically in default." Lewis, 236 F.3d at 767 (quoting Ganther v. Ingle, 75 F.3d 207, 212 (5th Cir. 1996)).

         III. ANALYSIS

         A. Default Judgment Factors

         In deciding whether default judgment is appropriate in this case, the Court first considers the six factors outlined in Lindsey. The Court finds that these factors all weigh in favor of a default judgment.

         First, no material issues of fact exist because Defendant failed to respond or plead. Second, Defendant does not incur substantial prejudice because it failed to contest any of the allegations. The Court accepts Defendant's silence as an admission that Plaintiffs allegations are true. See Nishimatsu Const, 515 F.2d at 1206 (noting that a "defendant, by his default, admits the plaintiffs well-pleaded allegations of fact"). Since Defendant admits the allegations against it, it does not face any prejudice. Conversely, substantial prejudice exists against Plaintiff given that Defendant's silence has halted the adversarial process. For example, Plaintiff was unable to obtain discovery from Defendant. See Suppl. Br. 4 (withdrawing gross negligence claim and request for exemplary damages in light of Plaintiffs inability to engage in discovery). Third, Plaintiffs service and Defendant's failure to appear establish grounds for default judgment. Fourth, Defendant has failed to claim the presence of a good faith mistake or excusable neglect. Fifth, the lack of any apparent defenses or excuses for Defendant's default makes this a reasonable default judgment. Nothing about the circumstances of this request or the amount claimed makes this judgment particularly "harsh." Sixth, and finally, while the entry of the default judgment is extreme and not favored by the Federal Rules, the Court is unaware of good cause to set aside the default given Defendant's failure to answer or otherwise respond. Consequently, the Lindsey factors weigh in favor of default. See Lindsey, 161 F.3d at 893.

         B. Plaintiffs Pleadings

         The Court recognizes that "a defendant's default does not in itself warrant the court in entering a default judgment." Nishimatsu Const., 515 F.2d at 1206. Rather, "[t]here must be a sufficient basis in the pleadings for the judgment entered." Id. The Court finds that this requirement is satisfied for Plaintiffs negligence claim but is not satisfied for Plaintiffs breach of warranty claim for the following reasons.

         1. Plaintiffs Status as Subrogee

         Plaintiff is an insurance company and brings this action as subrogee of its insured, Lariat Builders Group Corporation. See Compl. 1. "Insurers may have either 'contractual' subrogation rights, which arise from contract language, or 'equitable' subrogation rights, which exist in equity to prevent the insured from receiving a double recovery to the insurer's detriment." Concierge Nursing Centers, Inc. v. Antex Roofing, Inc., 433 S.W.3d 37, 44 (Tex. App. 2013) (citing Fortis Benefits v. Cantu, 234 S.W.3d 642, 647 (Tex. 2007)). "Either way, 'the principle of subrogation provides that once an insured is made whole from his damages, the insurer that has paid for the insured's covered losses is entitled to the insured's rights and remedies against a third party for the covered losses.'" Id. (quoting Osborne v. Jauregui, Inc., 252 S.W.3d 70, 78 (Tex. App. 2008)). "Generally, rights conferred by subrogation are entirely derivative of the subrogor's interests, to which the subrogee merely succeeds." Id. at 45 (quoting Guillot v. Hix, 838 S.W.2d 230, 232 (Tex. 1992)). "When an insurer pays out on its insured's loss, it becomes a 'pro tanto owner' of the cause of action. This means that the insurer receives 'the rights of its insured to the extent of payments made under the insurance contract."' Id. (internal citations omitted) (first citing Thoreson v. Thompson, 431 S.W.2d 341, 347 (Tex. 1968); and then citing Warwick Towers Council of Co-Owners ex rel. St. Paul Fire & Marine Ins. Co. v. Park Warwick, L.P., 298 S.W.3d 436, 440 (Tex. App. 2009); and then quoting Rushing v. Int'l Aviation Underwriters, Inc., 604 S.W.2d 239, 243 (Tex. Civ. App. 1980), writ refused NRE (Dec. 17, 1980)). Accordingly, "the insurer as subrogee does not own the entire claim as if the claim were wholly transferred by an assignment; it has only the right to recover an amount equal to its payment under the insurance policy." Id. (citing Rushing, 604 S.W.2d at 244).

         Here, Plaintiff alleges that "[p]ursuant to its policy of insurance with its insured, [Plaintiff] has paid to its insured, and on their behalf, in the amount of $77, 183.13 and has become legally, contractually and equitably subrogated to the rights of its insureds to the extent of such payments." Id. at 3. Accordingly, accepting Plaintiffs well-pleaded allegations as true, Plaintiff has sufficiently pleaded its status as subrogee of its insured, Lariat Builders Group Corporation. Plaintiffs status as subrogee is further supported by the copy of its insurance policy with the insured. See Aff. Ex. D. Therefore, Plaintiff is the "pro tanto" owner of its ...


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