The opinion
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
RODNEY SCHOEMANN CIVIL ACTION
VERSUS
PRECIOUS MINERALS MINING NO. 20-00281-BAJ-EWD
AND REFINING CORPORATION,
KT AL.
RULING AND ORDER
Before the Court is Plaintiffs Motion for Entry of Entry of Default
Judgment (Doc. 14). Plaintiff sued Defendants Precious Mineral Mining and
Refining Corporation (““PMMR”) and its president and director, Bill L. Minor
(“Minor”), following their default on a promissory note. The Clerk of Court entered
preliminary defaults as to both Defendants and notified both Defendants. Plaintiff
now moves for issuance of default judgment against both Defendants. For the reasons
assigned, Plaintiff's Motion is granted.
I. BACKGROUND
A. Facts
Plaintiff, a citizen of Louisiana, agreed to lend Defendants PMMR, a corporate
citizen of Nevada, and Minor, a citizen of Pennsylvania, $150,000 for business
expenses. (Doc. 1). This agreement was memorialized on September 28, 2017, when
Minor, for himself personally and on behalf of PMMR, executed a Senior Promissory
Note with Plaintiff. (Doc. 1 at §{ 8). The promissory note also contained an option
agreement, which gives Plaintiff the right to purchase 650,000 shares of common
stock of PMMR. (Doc. 14-1, p. 7). The entire $150,000, plus interest at a rate of 5%
per annum, was due and payable on March 23, 2018. (Doc. 1, at | 9). Defendants
failed to make any payments on the loan, and defaulted.
Under the terms of the agreement in the event of default, Defendants were to
pay a default fee of 10% of the amount due, including principal and interest. Id. at
‘| 10. In addition, interest would increase to the highest amount legally allowed in
Louisiana. Id. If the promissory note was placed in the hands of an attorney for
collection, the Defendants agreed that they would pay any and all costs of collection,
including any and all attorney’s fees, court costs, expert fees, and expenses. Id. at
q 11.
Because of the default, Plaintiff alleges that Defendants are jointly and
severally liable to Plaintiff for:
1. The $150,000 principal;
2. 5% interest on the principal balance during the time of the loan;
3. A 10% default fee;
4. 18% interest, per annum, from March 24, 2018 through the date of
judgment;
5. Reasonable attorney's fees for the collection of the obligations;
6. All costs incurred by Plaintiff in the collection of the Note.
Id. at {| 165.
However, Plaintiff does not request that the promissory note be dissolved. In
particular, Plaintiff requests that the judgment preserve his rights under the option
agreement. (14-1, at p. 9)
B. Procedural History
Plaintiff filed his Complaint on May 6, 2020. (Doc. 1) Each Defendant was sent
a Notice of Lawsuit and Request to Waive Service of a Summons by Federal Express,
along with a request to sign and return a Waiver of the Service of Summons form,
While Minor appeared to receive the forms, (Doc. 9-4), he never responded to them.
Defendant PMMR’s forms were returned as undeliverable. Jd. On May 29, 2020 and
June 8, 2020, Plaintiff requested the Clerk to issue summonses to both Defendants
(Doc. 4, Doc. 7). On June 2, 2020 and June 11, 2020 the summonses and the copy of
the Complaint were served by Federal Express on both Defendants. (Doc. 9-6, 9-8).
Defendants once again failed to respond.
On July 6, 2020, Plaintiff moved for entry of default by the Clerk. (Doc. 9,
Doc. 10). On July 7, 2020, the Clerk entered defaults against each Defendant.
(Doc. 12, Doc. 13). Despite notice of the entry of default sent by the Clerk to each
Defendant, neither has responded or filed responsive pleadings.
On August 7, 2020, Plaintiff moved for entry of default judgment. (Doc. 14).
HW. STANDARD OF REVIEW
Rule 55 of the Federal Rules of Civil Procedure sets forth certain conditions
under which default may be entered against a party, as well as the procedure by
which a party may seek the entry of default judgment. The United States Court of
Appeals for the Fifth Circuit has adopted a three-step process for the entry of default
judgment. See New York Life Ins. Co. v. Brown, 84 F.3d 137, 141 (6th Cir. 1996). First,
a default occurs when a party “has failed to plead or otherwise defend” against an
action. Fed. R. Civ. P. 55(a). Next, an entry of default must be entered by the clerk
when the default is shown “by affidavit or otherwise.” See id.; New York Life, 84 F.3d
at 141. Third, a party may apply to the Court for a default judgment after an entry of
default. Fed. R. Civ. P. 55(b); New York Life, 84 F.3d at 141.
After a party files for a default judgment, Courts must apply a two-part process
to determine whether a default judgment should be entered. First, the Court must
ascertain if default judgment is procedurally justified. Lindsey v. Prive Corp.,
161 F.dd 886, 893 (5th Cir. 1998). Several factors are relevant to this inquiry,
including: (1) whether there are material issues of fact; (2) whether there has been
substantial prejudice; (8) whether the grounds for default have been clearly
established; (4) whether the default was caused by excusable neglect or good-faith
mistake; (5) the harshness of the default judgment; and (6) whether the Court would
think itself obliged to set aside the default on a motion by Defendant. Jd. Default
judgments are disfavored due to a strong policy in favor of decisions on the merits
and against resolution of cases through default judgments. Jd. Default judgments 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) (citation omitted).
Second, the Court must determine whether the plaintiffs complaint
sufficiently sets forth facts establishing that it is entitled to relief. Nishimatsu Constr.
Co. v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975); Hamdan v. Tiger
Bros. Food Mart, Inc., No. CV 15-00412, 2016 WL 1192679, at *2 (M.D. La.
Mar. 22, 2016). A default judgment may be supported by “well-pleaded allegations,
assumed to be true.” Id. (citing Thomson v. Wooster, 114 U.S. 104, 5 (1885)). The
Defendant, however, is “not held to admit facts that are not well-pleaded or admit to
conclusions of law.” Id.
Once the Court establishes that default judgment is justified, the Court must
determine what form of relief Plaintiff should receive. United States v. 1998
Freightliner Vin #: TFUYCZYB3SWPSS86986, 548 F.Supp.2d 381, 384 (W.D. Tex.
2008). A defaulting defendant “concedes the truth of the allegations of the Complaint
concerning defendant's lability, but not damages.” Ins. Co. of the W. vu. H & G
Contractors, Inc., 2011 WL 4738197, *4 (8.D. Tex., Oct. 5, 2011). Generally, “damages
are not to be awarded without a hearing or a demonstration by detailed affidavits
establishing the necessary facts.” J & J Sports Prods. v. Morelia Mexican Rest., Inc.,
126 F. Supp. 3d 809, 814; See also United Artists Corp. v. Freeman, 605 F.2d 854, 857
(5th Cir. 1979). However, no hearing is required when “the amount claimed is a
liquidated sum or one capable of mathematical calculation.” James v. Frame,
6 F.3d 307, 310 (5th Cir. 1998).
i. ANALYSIS
A, Whether Default Judgment is Procedurally Justified
The Court must first decide whether the entry of default judgment is
procedurally justified by considering the Lindsey factors. First, there are no issues of
material fact. Plaintiff loaned Defendants a specific sum of money, to be paid back
under conditions laid out in a contract. Defendants failed to adhere to the contract
and failed to pay off the loan. Second, there has been substantial prejudice, as
Defendants have deprived Plaintiff of the money he is owed for over two years, despite
repeated attempts to collect the debt. Third, the grounds for default are clearly
established as, despite receipt of multiple summonses and notice of suits, Defendants
have failed to respond. Fourth, there is no indication that the default was caused by
excusable neglect or a good-faith mistake. Fifth, default judgment is not overly harsh
in this case, as the terms of the contract Defendants signed were clear and
unambiguous, Defendants’ failure to appear or otherwise defend their nonpayment
mitigates the harshness of the default judgment. Sixth, and finally, there has been
no information presented that demonstrates to the Court that it would be obliged to
set aside default on a motion by Defendant.
Therefore, the Court finds that the six Lindsey factors weigh in favor of default.
B. Whether Plaintiff's Complaint Establishes a Viable Claim for
Relief
A default judgment “must be supported by well-pleaded allegations and must
have a sufficient basis in the pleadings.” Wooten v. McDonald Transit Assocs., Inc.,
788 F.3d 490, 498 (6th Cir. 2015) (citing Nishimatsu Construction Co. v. Houston
National Bank, 515 F.2d 1200, 1206 (5th Cir. 1975)). Pleading requirements for a
default judgment are similar to those governed by Rule 8. Wooten, 788 F.3d at 498.
Rule 8 requires “a short and plain statement of the claim showing that the pleader is
entitled to relief.” Fed. R. Civ. P. 8(a)(2). The primary purpose of Rule 8(a}{2) is to
“give the defendant fair notice of what the plaintiffs claim is and the grounds upon
which it rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957).
Plaintiff alleges breach of contract due to Defendants’ failure to make
payments on the promissory note. Jurisdiction is based on diversity, so the Court
applies the substantive law of the forum, Louisiana. See Boyett v. Redland Ins, Co.,
741 F.8d 604, 607 (5th Cir, 2014) (citing Erie ALR. Co. v. Tompkins, 304 U.S. 64.
(1938)). Because Louisiana choice-of-law rules are substantive, they apply here. See
Weber v. PACT XPP Tech., AG, 811 F.3d 758, 770 (6th Cir. 2016) (citing Klaxon Co.
v. Stentor Elec. Mfg. Co., 318 U.S. 487, 496-97 (1941)). Louisiana’s choice-of-law rules
require the Court to honor a contractual choice-of-law provision, except to the extent
the law chosen “contravenes the public policy of the state” whose law would otherwise
apply. La. Civ. Code art. 3540.
The promissory note expressly provides that it is governed by Louisiana law.
(Doc. 1-1, the “Promissory Note”, at 4k). To recover for breach of contract under
Louisiana law, the Plaintiff must demonstrate: “(1) the obligor’s undertaking of an
obligation to perform; (2) the obligor failed to perform the obligation (i.e. breach); and
(3) the breach resulted in damages to the obligee.” Regions Bank v. C.H.W.
Restaurant, LLC, No. CV 17-8708, 2018 WL 3136008, at *4 (E.D.La. June 27, 2018)
(citations omitted),
PMMR and Bill Minor agreed to borrow $150,000 from Plaintiff to pay for
various business expenses related to the development of their Orykta property in
Nevada. Id. at p. 1. At the time of the agreement's signing, Minor was the President
and Director of PMMR. Jd. at 3. PMMR and Bill Minor in his personal capacity
“unconditionally agree[d] and promise[d] to pay to the order of Rodney
Shoemann. .. the principal sum of One Hundred Fifty Thousand Dollars & 00/1000
Cents ($150,000) (the ‘Principal Indebtedness’), together with interest on the
outstanding Principle Indebtedness...at the Interest Rate defined [by the
Promissory Note].” Jd. at p. 1. The interest rate was set at five percent per annum.
Id.
The maturity date of the debt was March 23, 2018. Id. at {1 a. Defendants
agreed to pay the Principal Indebtedness, along with any interest on the loan, on the
maturity date. [d. at 4b. Defendants also agreed that if the loan was “placed in the
hands of an attorney for collection, by suit or otherwise to enforce its collection,” they
would pay any and all costs of collection. Jd at 41. In addition to any relevant
collection fees, in the event of default the Defendants agreed to “pay a one-time only
default fee of ten percent of the total amount due [] on the maturity date,” including
principal and interest. Id. at {| e. Following default, Defendants agreed that the per
annum interest rate would be increased to “the highest amount legally allowed”
under Louisiana law. Id. La. R.S. 9:3509, which governs interest on commercial and
business loans, permits a lender to prospectively increase the simple interest rate of
commercial loans with a principal balance of less than $250,000 to the greater of
eighteen percent or three percentage points over the original contract rate in effect
prior to default. La. B.S. 9:3509BC(1)) (A).
Defendants failed to make any payments and defaulted on the loan obligation.
This caused damage to the Plaintiff. Plaintiffs Complaint adequately pleaded the
facts above in order to establish a breach of contract claim. Despite Plaintiffs best
efforts, Defendants failed to respond. Defendants were put on notice of the
consequences in the event of a default in their promissory note when the Plaintiff
imitialiy filed a Complaint against them, when the Court issued summons against
them, and again when an entry of default was entered against them by the Clerk. To
date, Defendants have failed to make payments. Considering these facts, Plaintiff has
established a viable claim for relief.
C. Calculation of Damages
Plaintiff requested judgment against Defendants, jointly and severally, for: (1)
the $150,000 principal and any accompanying interest; (2) the default fee of 10% of
the loan amount, including interest; (8) reasonable attorney’s fees, and; (A) all costs
incurred by Plaintiff in collection of the promissory note. Plaintiff has provided an
affidavit demonstrating the amount owed, as well as an affidavit from his attorney
detailing the fees he charged for working on this action. (Doc. 14-8; Doc. 14-4).
The calculation of the amount owed is a simple one. Defendants borrowed
$150,000 from Plaintiff, at a five percent annual simple interest rate. Five percent of
$150,000 is $7,500. There are 365 days in a typical year, and 175 days! elapsed
between when the loan began to collect interest on September 29, 2017 and the
1 Schoemann’s affidavit erroneously states that there are 176 days in between September 29, 2017
and March 23, 2018.
maturity date, resulting in a total interest accumulated of $3,595.89. Thus, the total
amount due on the maturity date was $158,595.89.
Because this sum was not paid on the maturity date, Defendants are subject
to a default fee? of ten percent of the total amount owed on March 23, 2019, including
interest. This fee, which was due on March 24, 2018, amounted to $15,359.59.
Therefore, the total amount due on March 24, 2018 was $168,955.48.
FolNowing further nonpayment, the loan’s interest rate increased to eighteen
percent, the maximum amount permitted by Louisiana law.? For the first year of
nonpayment, March 24, 2018 to March 28, 2019, the loan accrued $30,328.67 in
interest, leading to a total loan sum of $199,284.15. For the second year of
nonpayment, March 24, 2019 to March 238, 2020, the loan accrued $36,881.60 of
interest, leading to a total sum owed of $236,165.75.4 The loan continues to accrue
interest at a rate of 18% per annum, or $116.02 per day of nonpayment since March
24, 2020.
Attorney's fees are warranted in this case, because the parties agreed in the
contract that Defendants would be lable for attorney's fees if the matter went to
collection.’ The attorneys in this matter have charged $11,114.38 for their services.
2 Stipulated damages are permissible under Louisiana law. See La. Civ. Code art. 2005. Stipulated
damages may not be modified by the Court unless “they are so manifestly unreasonable as to be
contrary to public policy.” La. Civ. Code art. 2012. An obligee may demand both stipulated damages
and performance when the damages have been stipulated for delay. La. Civ. Code art. 2007,
3 See LA Rev. Stat. § 9:3509B(1)(a).
4 Schoemann’s affidavit erroneously states that there were 866 days from March 24, 2019 to March
23, 2020. In fact, there are 366 days in between March 24, 2019 and March 24, 2020 as 2020 is a leap
year.
5 “If the parties, by written contract, have expressly agreed that the obligor shall also be liable for the
obligee's attorney fees in a fixed or determinable amount, the obligee is entitled to that amount as
well.” La. Civ. Code. art. 2000.
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(Doc. 14-4). Thus, Defendants are liable to Plaintiff, jointly and severally, for
$277,677.57.
D. The Option Agreement
Plaintiff seeks damages for breach of contract but asks that the Court uphold
the Option Agreement attached as Attachment A to the promissory note. There is no
express dissolution or termination provision in the promissory note. Under Louisiana
law, when an obligor fails to perform under a contract, the obligee has the right—but
not the obligation—to “the judicial dissolution of the contract or, according to the
circumstances, to regard the contract as dissolved.” La. Civ. Code art. 2018. As
Plaintiff has chosen not to avail himself of judicial dissolution, and indeed specifically
calls for the contract not to be dissolved, the rights under the Option Agreement
signed by all parties shall remain.
IV. Conclusion
Accordingly,
IT IS ORDERED that Plaintiffs Motion for Entry of Entry of Default
Judgment (Doc. 14) is GRANTED.
IT IS FURTHER ORDERED that Defendants, jointly and severally, are
hable to Plaintiff for $277,677.57, which constitutes the loan principal, the
accompanying interest, and attorney’s fees.
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FURTHER ORDERED that postjudgment interest at the rate provided
by 28 U.S.C. § 1961, which shall be computed daily and compounded annually until
this Judgment has been paid in full.
A separate judgment will be issued.
Baton Rouge, Louisiana, this / O= day of December, 2020
)
ins
JUDGE BRIAN KSON
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
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