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BMO Harris Bank N.A. v. A & M Trucking, Inc.

United States District Court, D. Hawaii

July 25, 2018

BMO HARRIS BANK N.A., a national banking association, Plaintiff,
v.
A & M TRUCKING, INC., a Hawaii corporation, and MARK D. KUHN, an individual resident and citizen of Hawaii, Defendants.

          FINDINGS AND RECOMMENDATION TO GRANT IN PART AND DENY IN PART MOTION FOR DEFAULT JUDGMENT

          KENNETH J. MANSFIELD UNITED STATES MAGISTRATE JUDGE

         Plaintiff BMO Harris Bank N.A., a national banking association (“BMO”) filed a Motion for Default Judgment against Defendants A & M Trucking, Inc. (“Borrower”) and Mark D. Kuhn (“Guarantor”) (together with Borrower, the “Defendants”) on May 11, 2018 (“Motion”). See ECF No. 21. The Court held a hearing on this Motion on June 21, 2018, at 10:00 A.M. Christopher J. Muzzi, Esq., appeared on behalf of BMO. Defendants did not appear.

         The Court ordered supplemental briefing from BMO regarding awarding attorneys' fees to mainland counsel, notwithstanding the absence of a pro hac vice application to appear in this Court. BMO submitted its Supplemental Memorandum in Support of Plaintiff's Motion for Default Judgment on June 27, 2018 (“Supplemental Memorandum”). See ECF No. 26.

         BACKGROUND

         This Motion arises from the December 18, 2017 Verified Complaint (“Complaint”) filed by BMO against Defendants. See ECF No. 1. The Complaint alleges that BMO and Borrower entered into a Loan and Security Agreement on April 22, 2016 (“April 22, 2016 Agreement”), in which BMO agreed to finance Borrower's purchase of the equipment described in the April 22, 2016 Agreement for use in Borrower's business. Id. at 2-3, ¶ 9. Borrower agreed to pay BMO $847, 890.96, including interest, pursuant to the terms and conditions of the April 22, 2016 Agreement. Id.; see also ECF No. 1-2 at 2-7 (April 22, 2016 Agreement).

         On May 9, 2016, BMO and Borrower entered into a second agreement (“May 9, 2016 Agreement”), in which BMO agreed to finance Borrower's purchase of additional equipment for Borrower's business. Borrower agreed to pay BMO $282, 221.52, including interest, pursuant to the terms of the May 9, 2016 Agreement. Id. at 3, ¶ 10; see also ECF No. 1-3 at 2-6 (May 9, 2016 Agreement).

         BMO and Borrower agreed that BMO had a first-priority security interest in the equipment described in the April 22, 2016 Agreement and May 9, 2016 Agreement (collectively, “Loan Agreements”) and that such equipment would serve as the collateral. BMO perfected its security interest in the collateral, which consists of four (4) 2017 Volvo Super Dump Trucks (“Collateral”), by recording its lien on the Certificates of Title for the Collateral. Id. at 4, ¶ 11; see also ECF No. 1-4 (Certificates of Title for the Collateral).

         The Complaint alleges that the Guarantor guaranteed the Borrower's performance under the Loan Agreements pursuant to an April 22, 2016 guaranty agreement and an May 9, 2016 guaranty agreement (collectively, the “Guaranty Agreements”). ECF No. 1 at 4, ¶ 13; see also ECF No. 1-5. The Complaint alleges that Borrower failed to make the October 1, 2017 payment due under the April 22, 2016 Agreement and the November 9, 2017 payment under the May 9, 2016 Agreement. “Under the terms and conditions of the Agreement, failure to make a payment when due is considered an event of default.” ECF No. 1 at 4, ¶ 14.

         The Complaint thus alleges that Borrower is in default under the Loan Agreements for failure to pay the amount due under the Loan Agreements, and that such defaults are continuing. Id. at 5, ¶ 15. The Complaint also alleges that the Guarantor is in default under the Guaranty Agreements based on the Borrower's failure to pay the amounts due under the Loan Agreements. Id., ¶ 16.

         The Complaint contends that pursuant to the Loan Agreements' terms, the entire amounts due under the Loan Agreements have been accelerated. Id., ¶ 17. The Complaint asserts that as of the respective dates of default, the principal due and owing after acceleration totals not less than $751, 134.56. Id. The Complaint also alleges that Borrower is obligated to pay: (1) interest on all unpaid amounts at the default interest rate of eighteen percent (18%) per annum or the maximum rate not prohibited by applicable law; (2) late charges; (3) other fees under the Loan Agreements; (4) all expenses of retaking, holding, preparing for sale, and selling the Collateral; and (5) attorneys' fees and costs incurred by BMO in the enforcement of the foregoing penalties. Id. at 5-6, ¶¶ 18-21. The Complaint contends that the Guarantor is also obligated to pay all amounts due and owing under the Loan Agreements. Id. at 6, ¶ 22.

         The Complaint alleges that the amount due and owing under the Loan Agreements, not including attorneys' fees and expenses or costs of collection, is not less than $773, 077.59 as of November 24, 2017. Id., ¶ 23. BMO notified Defendants of their defaults, demanded payment under the Loan and Guaranty Agreements, and demanded possession of the Collateral by letters dated November 29, 2017. Id., ¶ 24; ECF No. 1-6. The Complaint alleges that Defendants have failed and refused to surrender possession of the Collateral to BMO. Id., ¶ 27.

         The Complaint asserts that “[BMO] has the right to, with or without demand or notice, enter any premises where the Collateral may be and take possession of and remove the Collateral from the premises.” Id. at 7, ¶ 28. The Complaint alleges “[t]he [Loan] Agreement[s] expressly provide[] that [BMO] and Borrower unconditionally waive their respective rights to a jury trial of any claim or cause of action relating” to the Loan Agreements. Id., ¶ 29. The Complaint contends that “[BMO] and its predecessors-in interest have performed any and all conditions and obligations required of them under the [Loan] Agreement[s].” Id., ¶ 30.

         The Complaint alleges five claims. First, the Complaint asserts a claim for injunctive relief. BMO requests that the Court: (1) enjoin Defendants from continuing to use the Collateral; (2) order Defendants to advise BMO of the Collateral's location; (3) order that Defendants be temporarily, preliminarily, and permanently enjoined from restricting access of BMO to the Collateral; (4) order Defendants to surrender the Collateral to BMO; (5) award a judgment against Borrower for any damages sustained by BMO; (6) award BMO its costs, attorneys' fees, and interest on all unpaid amounts due and owing; and (7) order such other and further relief as shall be just and equitable. Id. at 8-9, ¶ 37.

         Second, the Complaint asserts a claim for specific performance against Defendants. BMO requests that the Court: (1) enter judgment “in [BMO's] favor and against Borrower directing Borrower to specifically perform their respective obligations under the [Loan and Guaranty] Agreements, and to return and allow the removal of the Collateral;” (2) award BMO “judgment against Borrower for any damages sustained by [BMO]”; (3) award BMO “its costs, attorneys' fees, and interest on all unpaid amounts due and owing”; and (4) grant BMO “such other and further relief as shall be just and equitable.” Id. at 9-10, ¶ 43.

         Third, the Complaint alleges a replevin/writ of possession claim against Defendants pursuant to Rule 64 of the Federal Rules of Civil Procedure and Haw. Rev. Stat. § 654-1. Id. at 10, ¶ 45. BMO requests that the Court: (1) issue an “order granting the issuance of writs of possession . . . in favor of [BMO] granting [BMO] possession of the Collateral”; (2) award BMO “a judgment against Borrower for the value of the Collateral if not delivered”; (3) award BMO “a judgment against Borrower for damages for detention”; (4) award BMO “its costs, attorneys' fees, and interest on all unpaid amounts due and owing”; and (5) grant BMO “such other and further relief as shall be just and equitable.” Id. at 12, ¶ 53.

         Fourth, the Complaint alleges a breach of contract claim against Borrower, requesting that the Court enter judgment in BMO's “favor and against Borrower in the amount due under the Agreements, the exact amount to be proven at or before trial, plus [BMO's] attorneys' fees, costs, and interest, together with such other and further relief as shall be just and equitable.” Id. at 13, ¶ 58.

         Finally, the Complaint alleges a breach of contract claim against Guarantor, requesting judgment in BMO's “favor and against Guarantor in the amount due under the [Loan] Agreement[s] and the Guaranty [Agreements], the exact amount to be proven at or before trial, plus [BMO's] attorneys' fees, costs, and interest, together with such other and further relief as shall be just and equitable.” Id. at 14, ¶ 63.

         The Clerk of Court entered default against Defendants on April 12, 2018. See ECF No. 19. BMO filed the instant Motion on May 11, 2018, seeking judgment in favor of Plaintiff and against Defendants. The Motion contends that as of May 1, 2018, the judgment amount is $832, 417.22 with $375.57 in interest accruing per day after May 1, 2018. ECF No. 21-1 at 3.

         At the June 21, 2018 hearing, BMO orally withdrew its Motion for Default Judgment as to the first three counts in the Complaint-Injunctive Relief, Specific Performance, and Replevin. Accordingly, BMO seeks default judgment only as to the breach of contract claim against the Borrower and the breach of contract claim against Guarantor.

         DISCUSSION

         “Default judgment may be entered for the plaintiff if the defendant has defaulted by failing to appear and the plaintiff's claim is for a ‘sum certain or for a sum which can by computation be made certain[.]'” Haw. Electricians Pension Fund v. S.E. Elec. Serv., Inc., CIVIL NO. 16-00587 DKW-RLP, 2017 WL 2703774, at *1 (D. Haw. June 2, 2017), adopted sub nom. Haw. Electricians Pension Fund by Yee v. S.E. Elec. Serv., Inc., 2017 WL 2695285 (D. Haw. June 22, 2017) (brackets in 2017 WL 2703774) (quoting Fed.R.Civ.P. 55(b)(1), (2)). “The granting or denial of a motion for default judgment is within the discretion of the court.” Id. (citing Haw. Carpenters' Trust Funds v. Stone, 794 F.2d 508, 511-12 (9th Cir. 1986). “Entry of default does not entitle the non-defaulting party to a default judgment as a matter of right.” Id. (citing Valley Oak Credit Union v. Villegas, 132 B.R. 742, 746 (9th Cir. 1991)). “Default judgments are ordinarily disfavored, and cases should be decided on their merits if reasonably possible.” Id. (citing Eitel v. McCool, 782 F.2d 1470, 1472 (9th Cir. 1986)).

         The court considers the following seven factors in deciding whether to grant a motion for default judgment:

(1) the possibility of prejudice to the plaintiff;
(2) the merits of plaintiff's ...

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