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Main Street Checks, Inc. v. Graphic Resource, Inc.

United States District Court, N.D. Alabama, Southern Division

November 18, 2014

MAIN STREET CHECKS, INC., Plaintiff
v.
GRAPHIC RESOURCE, INC., Defendant

For Main Street Checks, Inc., Plaintiff: James L Mitchell, William T Mayfield, IV, LEAD ATTORNEYS, MAYNARD COOPER & GALE PC, Birmingham, AL.

REPORT AND RECOMMENDATION

HARWELL G. DAVIS, III, UNITED STATES MAGISTRATE JUDGE.

The above-entitled civil action is before the court on the Motion for Default Judgment filed by plaintiff. (Doc. 8). The motion asks the Court to enter a default judgment in favor of plaintiff Main Street Checks, Inc., and against defendant Graphic Resource, Inc., for $128, 000.00. For the reasons set forth below, the undersigned finds that the motion is due to be granted and RECOMMENDS that a Default Judgment be entered in favor of plaintiff Main Street Checks, Inc., and against defendant Graphic Resource, Inc., in the amount of $128, 000.00.

Relevant Facts

Main Street Checks, Inc. (Main Street) filed this case on June 5, 2014. (Doc. 1, Complaint). The complaint alleges that Main Street is a company based in Birmingham, Alabama, that provides checks and check-related products to financial institutions across the United States. Defendant is a corporation organized under the laws of the State of Texas with its principal place of business in Grand Prairie, Texas.

According to the complaint, Main Street located a ten color press in Pennsylvania owned by Graphic Resource, Inc. (GRI) that Main Street was interested in purchasing for use in printing checks for its customers. Main Street required for its specific needs that 25-inch cylinders be used in the press. Because the press did not contain 25-inch cylinders, GRI located seven 25-inch cylinders in Germany. Main Street then entered into a contract with GRI to purchase from GRI the press and cylinders. The purchase price was $450, 000, $70, 000 of which was for the cylinders. GRI guaranteed performance of the cylinders in the purchase contract and in communications with Main Street. The cylinders were shipped from Germany and tested with the press; however, the cylinders were determined to be defective.

Therefore, Main Street entered into a second contract with GRI whereby GRI agreed to completely rebuild and refurbish the cylinders, at an additional cost to Main Street of $28, 000. GRI attempted to rebuild the cylinders and then returned them to Main Street. The cylinders still failed to perform properly, and GRI was unable to remedy the defects. Therefore, Main Street was forced to purchase five additional cylinders at a cost of $30, 000 to keep the press operational and meet its contracts with customers. Main Street incurred increased production time and wasted materials resulting from the delays and poor performance of the cylinders. Main Street has asserted causes of action for breach of the purchase contract and breach of the rebuild contract.

In support of its Motion for Default Judgment, Main Street has submitted the affidavit of Grady Burrow, Main Street's Chief Executive Officer, with supporting documentation. (Doc. 8, Ex. A). Mr. Burrow's affidavit contains sworn testimony that tracks the allegations of the complaint. Mr. Borrow also attests that Main Street has suffered quantified damages of $128, 000, consisting of $70, 000 initially paid to GRI for the cylinders pursuant to the purchase contract, $28, 000 paid by Main Street to GRI pursuant to the rebuild contract, and $30, 000 for the purchase of five additional cylinders to keep the press operational and satisfy Main Street's customers' needs.

Defendant GRI was served with the summons and complaint on July 1, 2014. (Doc. 5, Executed Return of Service for GRI). GRI is a corporation and therefore does not qualify as either a minor or incompetent person. GRI has not answered or otherwise responded to the complaint. On November 3, 2014, Main Street filed a Motion for Clerk's Entry of Default and on November 6, 2014, it filed a Motion for Default Judgment. (Doc. 6, Motion for Clerk's Entry of Default; Doc. 8, Motion for Default Judgment). Main Street's Motion for Default Judgment is supported by the affidavit of Grady Burrow. ( See Doc. 8, Ex. A, Affidavit of Grady Burrow). The affidavit of Grady Burrow establishes that GRI has failed to plead or otherwise defend the claims asserted against it by Main Street. ( See id .). The affidavit of Grady Burrow also establishes that Main Street's claim was for a sum certain--$128, 000. ( See id .).

On November 3, 2014, the Clerk of the Court entered default against GRI. (Doc. 7, Clerk's Entry of Default).

Analysis

The Court's analysis of Main Street's Motion for Default Judgment involves a two-step process. First, the Court must satisfy itself that it has jurisdiction over the parties and the subject matter of the lawsuit. See Taylor v. Appleton, 30 F.3d 1365, 1367 (11th Cir. 1994) (holding that district courts " always have an obligation to examine sua sponte their jurisdiction before reaching the merits of any claim"). Second, the Court must ensure that Main Street has satisfied the elements of Rule 55, Fed.R.Civ.P., and is entitled to the default judgment it seeks. See Nishimatsu Constr. Co v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975)[1] (explaining that " a defendant's default does not in itself warrant the court entering a default judgment" and that " [t]here must be a sufficient basis in the pleadings for the judgment entered").

A. Jurisdiction

1. Personal Jurisdiction

It is an elementary requirement that personal jurisdiction must be established in every case before a court has power to render any judgment. Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 2104, 72 L.Ed.2d 492 (1982). A court obtains personal jurisdiction over the parties when the complaint and summons are properly served upon the defendant. Royal Lace Paper Works v. Pest-Guard Prods., 240 F.2d 814, 816 (5th Cir. 1957). The record establishes that defendant GRI was served with a summons and copy of the complaint on July 1, 2014. ( See Doc. 5, Return of Service on GRI). Accordingly, the Court finds that it has personal jurisdiction over the parties.

2. Subject Matter Jurisdiction

For federal courts sitting in diversity, as is the case here, subject matter jurisdiction exists if the suit is between " Citizens of different States" and " the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs . . . ." 28 U.S.C. § 1332. For purposes of diversity jurisdiction, " a corporation shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business. . . ." 28 U.S.C. § 1332(c)(1). Furthermore, it is a " well-settled rule that a federal court does not lose jurisdiction over a diversity action which was well founded at the outset even though one of the parties may later change domicile or the amount recovered falls short of [the statutory minimum]." Rosado v. Wyman, 397 U.S. 397, 405 n.6, 90 S.Ct. 1207, 1214 n.6, 25 L.Ed.2d 442 (1970). For purposes of a diversity analysis in a case in which the defendants have defaulted, each " defaulted defendant is deemed to admit the plaintiff's well-pleaded allegations of fact." See Tyco Fire & Sec., LLC v. Alcocer, 218 Fed.App'x 860, 863 (11th Cir. 2007) ( per curiam ) (citations and internal quotations omitted).

Main Street alleges in the complaint that it is a corporation organized and existing under the laws of the State of Alabama, with its principal place of business located in Birmingham, Alabama. ( See Doc. 1, Complaint, at ¶ 1). Main Street alleges that GRI is a corporation organized and existing under the laws of the State of Texas, with its principal place of business located in Grand Prairie, Texas. (Id. at ¶ 2). Since defendant has defaulted, these allegations are deemed to have been admitted and the Court therefore finds that this suit is between " Citizens of different States."

Main Street's complaint alleges that GRI's actions damaged Main Street in an amount of " at least $130, 000.00." ( See Doc 1, Complaint, at ¶ 3). Since these allegations are deemed to be admitted, the Court finds that the amount in controversy exceeded $75, 000.00, exclusive of interest and costs, at the time the lawsuit was filed.

Because the Court finds that this suit is between " Citizens of different States" and " the matter in controversy exceed[ed] the sum or value of $75, 000, exclusive of interest and costs[, ]" at the time the lawsuit was filed, the Court is satisfied that it has subject matter jurisdiction to entertain Main Street's Motion for Default Judgment.

B. Main Street is Entitled to a Default Judgment Against Defendant

Federal Rule of Civil Procedure 55(b)(2) allows the Court to enter a default judgment when the Clerk has entered default and the party seeking judgment has applied to the Court for a default judgment. To determine whether the moving party is actually entitled to a default judgment, the Court must review the sufficiency of the complaint and its underlying merits. See Stegeman v. Georgia, 290 Fed.App'x 320, 323 (11th Cir. 2008) (citing Nishimatsu Constr. Co. v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975)). The law is well-settled that " a defaulted defendant is deemed to admit the plaintiff's well-pleaded allegations of fact." Tyco Fire & Sec., 218 Fed.App'x at 863. However, the Court has " an obligation to assure that there is a legitimate basis for any damage award it enters." Anheuser Busch, Inc. v. Philpot, 317 F.3d 1264, 1266 (11th Cir. 2007).

A federal court sitting in diversity must apply state law to the substantive issues before it. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Rules of Decision Act, 28 U.S.C. § 1652. This is a diversity case seeking damages arising from allegations of contracts that were breached in Alabama. As such, Alabama law controls Main Street's claims.

As explained below, the Court finds that Main Street has established that it is entitled to a default judgment against GRI on the breach of contract claims asserted in the complaint.

Under Alabama law, the elements of a breach of contract claim are: " (1) the existence of a valid contract binding the parties in the action, (2) the plaintiff's own performance under that contract, (3) the defendant's nonperformance, and (4) damages." Baldwin v. Panetta, 4 So.3d 555, 561 (Ala. 2008) (quoting Southern Med. Health Sys., Inc. v. Vaughn, 669 So.2d 98, 99 (Ala. 1995)).

Main Street's complaint states that " Main Street and GRI entered into the Purchase Contract, whereby Main Street agreed to purchase the Press and the Cylinders for a total price of four hundred and fifty thousand dollars ($450, 000), seventy thousand dollars ($70, 000) of which was for the purchase of the Cylinders. In the Purchase Contract and in communications with Main Street, GRI guaranteed the performance of the Cylinders." (Doc. 1, Complaint, at ¶ 17). The complaint further alleges that " GRI breached the Purchase Contract by delivering Cylinders that were defective and that could not perform properly in Main Street's Press." (Id. at ¶ 18). Main Street also alleges that " Main Street and GRI entered into the Rebuild Contract, whereby GRI agreed to rebuild the Cylinders to make them appropriate for use in Main Street's Press." (Id. at ¶ 21). However, " GRI breached the Rebuild Contract by failing to rebuild the Cylinders in a manner that would enable them to effectively perform in Main Street's Press." (Id. at ¶ 23). Accordingly, Main Street alleges that it was damaged in an amount of at least $130, 000.00. (Id. at ¶ 3). Main Street's Motion for Default Judgment asks for a default judgment of $128, 000, based on the initial purchase price of the cylinders ($70, 000), the price paid for the attempted rebuild of the cylinders by GRI ($28, 000), and the purchase price of replacement cylinders for its press ($30, 000). ( See Doc. 8, Motion for Default Judgment and Ex. A, Affidavit of Grady Burrow, at ¶ 8).

The Court deems all allegations set forth in the complaint to have been admitted by GRI and finds that Main Street has established (1) the existence of valid contracts binding Main Street GRI, (2) Main Street's own performance under those contracts, (3) GRI's nonperformance under the contracts, and (4) damages suffered by Main Street as a result of GRI's nonperformance under the contracts.

Accordingly, the Court finds that Main Street is entitled to a default judgment against GRI on its breach of contract claims in the amount of $128, 000.00.

Conclusion

For the reasons set forth above, the Court finds that plaintiff Main Street's Motion for Default Judgment is due to be GRANTED. Accordingly, the undersigned RECOMMENDS that a default judgment be ENTERED in favor of plaintiff Main Street Checks, Inc, . and against defendant Graphic Resource, Inc., in the amount of $128, 000.00.

Notice of Right to Object

The parties are DIRECTED to file any objections to this Report and Recommendation within a period of fourteen (14) days from the date of entry. Any objections filed must specifically identify the findings in the magistrate judge's recommendation objected to. Frivolous, conclusive, or general objections will not be considered by the district court.

Failure to file written objections to the proposed findings and recommendations of the magistrate judge's report shall bar the party from a de novo determination by the district court of issues covered in the report and shall bar the party from attacking on appeal factual findings in the report accepted or adopted by the district court except on grounds of plain error or manifest injustice. Nettles v. Wainwright, 677 F.2d 404 (5th Cir. Unit B 1982). See Stein v. Reynolds Securities, Inc., 667 F.2d 33 (11th Cir. 1982). See also Bonner v. Prichard, 661 F.2d 1206 (11th Cir. 1981) ( en banc ), adopting as binding precedent all of the decisions of the former Fifth Circuit handed down prior to the close of business on September 30, 1981.


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