United States District Court, S.D. Alabama, Southern Division
WILLIAM H. STEELE, Chief District Judge.
This matter comes before the Court on plaintiff's Motion for Entry of Default Judgment (doc. 17). The Motion is ripe for disposition.
Plaintiff, Iberiabank, brought this action for breach of loan and guaranty obligations against Case Construction, LLC, Stephen G. Case, and Tracey S. Case. The Complaint alleges that Case Construction, LLC executed and delivered to Iberiabank a second renewal promissory note dated December 11, 2013 in the principal amount of $750, 000, then subsequently defaulted by failing to make a required payment of all outstanding principal plus all accrued unpaid interest due on January 11, 2015. (Doc. 1, ¶¶ 21-29.) After Iberiabank exercised its contractual right of set-off using funds from defendants' demand deposit accounts held at Iberiabank, the Complaint alleges, Case Construction owes principal of $361, 482.90 plus interest and other applicable charges on the defaulted promissory note. ( Id., ¶¶ 32-34.) The Complaint further alleges that defendant Stephen G. Case executed a continuing, unlimited personal guaranty in favor of Iberiabank, in which he absolutely and unconditionally guaranteed the full and punctual payment and satisfaction of Case Construction's indebtedness to Iberiabank. ( Id., ¶¶ 11-13.) Stephen Case is alleged to have defaulted on those guaranty obligations after Case Construction defaulted on the promissory note.
Also at issue in the Complaint is a separate $1, 000, 000 line of credit that Iberiabank extended to Stephen G. Case and Tracey S. Case on December 27, 2011. ( Id., ¶ 35.) The Complaint reflects that the Cases defaulted on their obligations under the line of credit by failing to pay the monthly installment payment due on January 19, 2015, and all subsequent payments, and that the Cases failed to make any cure payments after Iberiabank demanded same. ( Id., ¶¶ 42, 44.) The Complaint alleges that the Cases are presently indebted to Iberiabank under the line of credit in the principal amount of $1, 000, 000, plus interest and other applicable charges. ( Id., ¶ 43.)
On the strength of these and other related factual allegations, Iberiabank's Complaint asserted the following three causes of action: (i) a claim for breach of commercial loan against Case Construction; (ii) a claim for breach of guaranty of commercial loan against Stephen G. Case; and (iii) a claim for breach of line of credit against Stephen G. Case and Tracey S. Case. ( Id., ¶¶ 46-56.) Iberiabank seeks recovery of all unpaid principal, accrued interest, other applicable charges, and reasonable attorney's fees.
The court file reflects that all three defendants were served with process via personal service in early May 2015. In particular, returns of service demonstrate that a private process server served the Summons and Complaint on Stephen Case and Case Construction at an address in Mobile, Alabama on May 11, 2015 (docs. 8, 9), and that he served the Summons and Complaint on Tracey Case at a different address in Mobile, Alabama on May 12, 2015 (doc. 10). When defendants failed to appear or file a responsive pleading within the time prescribed by Rule 12(a), Fed.R.Civ.P., Iberiabank applied to the Clerk of Court for entry of default on June 8, 2015. (Docs. 11-13.) On June 12, 2015, a Clerk's Entry of Default was entered against each defendant pursuant to Rule 55(a), Fed.R.Civ.P., for failure to plead or otherwise defend. (Docs. 14-16.) Three days later, Iberiabank moved for entry of default judgment, and served notice of such request on each defendant via U.S. mail addressed to his, her or its last known address. (Doc. 17.) Despite entry of default against them and repeated notification of these default proceedings, defendants have never appeared or defended in this action, much less undertaken to set aside the entry of default or forestall entry of default judgment.
A. Entry of Default Judgment is Appropriate.
In this Circuit, "there is a strong policy of determining cases on their merits and we therefore view defaults with disfavor." In re Worldwide Web Systems, Inc., 328 F.3d 1291, 1295 (11th Cir. 2003); see also Varnes v. Local 91, Glass Bottle Blowers Ass'n of U.S. and Canada, 674 F.2d 1365, 1369 (11th Cir. 1982) ("Since this case involves a default judgment there must be strict compliance with the legal prerequisites establishing the court's power to render the judgment."). Nonetheless, it is well established that a "district court has the authority to enter default judgment for failure... to comply with its orders or rules of procedure." Wahl v. McIver, 773 F.2d 1169, 1174 (11th Cir. 1985).
Where, as here, defendants have failed to appear or otherwise acknowledge the pendency of a lawsuit for more than two and a half months after being served, entry of default judgment is appropriate. Indeed, Rule 55 itself provides for entry of default and default judgment where a defendant "has failed to plead or otherwise defend." Rule 55(a), Fed.R.Civ.P. In a variety of contexts, courts have entered default judgments against defendants who have failed to appear and defend in a timely manner following proper service of process. In short, "[w]hile modern courts do not favor default judgments, they are certainly appropriate when the adversary process has been halted because of an essentially unresponsive party." Flynn v. Angelucci Bros. & Sons, Inc., 448 F.Supp.2d 193, 195 (D.D.C. 2006) (citation omitted). That is precisely what defendants have done here. Despite being served with process back on May 11 and 12, 2015, Case Construction, Stephen Case and Tracey Case have declined to appear or defend, and have thereby stopped the progress of this litigation dead in its tracks.
The law is clear, however, that defendants' failure to appear and the Clerk's Entry of Default do not automatically entitle Iberiabank to a default judgment in the requested (or any) amount. Indeed, a default is not "an absolute confession by the defendant of his liability and of the plaintiff's right to recover, " but is instead merely "an admission of the facts cited in the Complaint, which by themselves may or may not be sufficient to establish a defendant's liability." Pitts ex rel. Pitts v. Seneca Sports, Inc., 321 F.Supp.2d 1353, 1357 (S.D. Ga. 2004); see also Nishimatsu Const. Co. v. Houston Nat'l Bank, 515 F.2d 1200, 1204 (5th Cir. 1975) (similar); Descent v. Kolitsidas, 396 F.Supp.2d 1315, 1316 (M.D. Fla. 2005) ("the defendants' default notwithstanding, the plaintiff is entitled to a default judgment only if the complaint states a claim for relief"). Stated differently, "a default judgment cannot stand on a complaint that fails to state a claim." Chudasama v. Mazda Motor Corp., 123 F.3d 1353, 1370 n.41 (11th Cir. 1997); see also Eagle Hosp. Physicians, LLC v. SRG Consulting, Inc., 561 F.3d 1298, 1307 (11th Cir. 2009) ("A default defendant may, on appeal, challenge the sufficiency of the complaint, even if he may not challenge the sufficiency of the proof.").
In light of these principles, the Court has reviewed the Complaint and is satisfied that Counts One, Two and Three set forth viable causes of action against defendants under Alabama law. In particular, Count One alleges that Case Construction defaulted on its payment obligations to Iberiabank under a promissory note by failing to make payment when due. Similarly, Count Two alleges that Stephen Case defaulted on his payment obligations to Iberiabank under a guaranty by failing to pay the defaulted indebtedness of Case Construction, as he had promised to do. And Count Three alleges that Stephen Case and Tracey Case breached the terms of a line of credit by failing to make payment to Iberiabank when due. These and other factual allegations set forth in Counts One, Two and Three of the Complaint are adequate to state viable causes of action under Alabama law for recovery under the note, the guaranty and the line of credit. Because the well-pleaded factual allegations in the Complaint are deemed admitted by virtue of defendants' default, and because they are sufficient to state actionable breach-of-contract claims under Alabama law, the Court finds that Case Construction is liable to Iberiabank on Count One, that Stephen Case is liable to Iberiabank on Count Two, and that Stephen Case and Tracey Case are liable to Iberiabank on Count Three.
In short, entry of default judgment against all defendants is appropriate pursuant to Rule 55, given their failure to appear after service of process and the sufficiency of the well-pleaded factual allegations of the Complaint (all of which defendants have now ...