Copperwood Capital LLC v. Jag Staffing & Consulting Servs., Inc.

COPPERWOOD CAPITAL LLC, Plaintiff, v. JAG STAFFING AND CONSULTING SERVICES, INC., Defendant.

No. 20-CV-1406 (EK) (RER)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

February 10, 2021

Report & Recommendation

To the Honorable Eric R. Komitee, United States District Judge

RAMON E. REYES, JR., U.S.M.J.:

Copperwood Capital LLC ("Copperwood" or "Plaintiff") brings this action against JAG Staffing and Consulting, Inc. ("JAG" or "Defendant") pursuant to 28 U.S.C. § 1332. (Dkt. No. 1 ("Compl.") ¶ 4). Copperwood seeks to recover from JAG $334,389 due on several invoices for services non-party EVO 360 LLC ("EVO") provided to JAG, who assigned those accounts receivable to Copperwood. (Id. ¶¶ 9-15). Copperwood raises claims for breach of contract, unjust enrichment, and under several provisions of the Uniform Commercial Code ("UCC"). (Id. ¶¶ 16-43). The Clerk of the Court entered JAG's default after it failed to answer or otherwise defend against this action, and Your Honor referred to me for a report and recommendation Plaintiff's subsequent motion for default judgment. (Dkt. No. 8; Dkt. Entry dated 7/20/2020).

For the reasons set forth herein, I respectfully recommend that Copperwood's motion for default judgment be granted in part and that it be awarded $314,989 in damages, $77.67 per diem in prejudgment interest from October 24, 2019 to the date of judgment, $400 in costs, and post-judgment interest pursuant to 28 U.S.C. § 1961.

BACKGROUND

As required by Rule 55 of the Federal Rules of Civil Procedure, the following facts are accepted as true:

Copperwood is a Texas limited liability company with its principal place of business in Corpus Christi, Texas. (Compl. ¶ 2). JAG is a New York corporation with its principal place of business in Staten Island, New York. (Id. ¶ 3). Copperwood "is in the factoring business." (Id. ¶ 7). Factoring is a type of accounts receivable financing. (Id.). Typically, a factor (here, Copperwood) purchases accounts receivable at a discount from the invoice amount, and advances funds or credit to the seller (here, EVO) against the accounts receivable, which are assigned to the factor. 32 AM. JUR. 2d Factors and Commission Merchants § 2. In return for the right to collect on the accounts receivable and for the discounted purchase price, the factor typically assumes the risk of loss in the event that the account debtors (here, JAG) are unable to pay. Id. "As owner of the account, the factor is typically entitled to receive payment directly from the account debtor, and to undertake collection activities." Dessert Beauty, Inc. v. Platinum Funding Corp., 519 F. Supp. 2d 410, 414 (S.D.N.Y. 2007) (citing CHARLES J. WOELFEL, ENCYCLOPEDIA OF BANKING & FINANCE 370 (10th ed. 1994)).

On October 23, 2018, Copperwood entered into a Master Factoring and Security Agreement ("Receivables Sale Agreement") with EVO, through which EVO "sold and assigned to Copperwood all invoices and amounts due and owing to EVO from [among others] JAG Staffing." (Compl. ¶¶ 10-11; Dkt. No. 9-3 ("Ex. A.")). On that same date, EVO notified JAG that it had assigned to Copperwood all future payments for invoices due, and directed that JAG make such payments directly to Copperwood. (Id. ¶ 13; Dkt. No. 9-4 ("Ex. B") at 1). Subsequently, EVO provided services to JAG and "JAG Staffing, in turn, agreed to pay EVO $334,389 for those services." (Compl. ¶ 9). Copperwood subsequently demanded that JAG make payment, but JAG has refused. (Id. ¶¶ 14-15). This action followed.

DISCUSSION

I. Legal Standard

Rule 55 of the Federal Rules of Civil Procedure establishes a two-step process for obtaining a default judgment. Trs. of the Leather Goods, Handbags, & Novelty Workers' Union Local 1 Joint Ret. Fund v. Cent. Fur Storage Co., No. 18-CV-7224 (AMD) (RER), 2019 WL 3937132, at *4 (E.D.N.Y. Aug. 2, 2019) (citing Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir. 1993)), R & R adopted by 2019 WL 3936676 (Aug. 20, 2019). First, the plaintiff must request an entry of default from the clerk of the court. FED. R. CIV. P. 55(a). If the clerk enters default against the non-responsive parties, the plaintiff must then move for a default judgment. FED. R. CIV. P. 55(b)(2).

Where, as here, the procedural requirements have been satisfied, the defaulting party is deemed to have admitted all well-pleaded factual allegations in the complaint. Greyhound Exhibitgroup v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992). The court must then decide whether the well-pleaded facts establish the defaulting party's liability as a matter of law. Gesualdi v. Ava Shypula Testing & Inspection, Inc., No. 13-CV-1873 (DRH) (GRB), 2014 WL 1399417, at *4 (E.D.N.Y. Apr. 10, 2014).

Damages are assessed separately, and a plaintiff need only prove that the compensation sought "naturally flow[s] from the injuries pleaded." Greyhound, 973 F.2d at 159. Further, a plaintiff's recovery of damages must reflect what was requested in the pleadings. See FED. R. CIV. P. 54(c) ("A default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings."); see also Silge v. Merz, 510 F.3d 157, 160 (2d Cir. 2007). If the court so chooses, an evidentiary hearing may be held to determine damages. FED. R. CIV. P.55(b)(2). However, "it [is] not necessary for the District Court to hold a hearing, as long as it ensure[s] that there [is] a basis for the damages specified in a default judgment." Fustok v. ContiCommodity Servs., Inc., 873 F.2d 38, 40 (2d Cir. 1989). In determining damages, the court may rely on "detailed affidavits and documentary evidence." Id.

II. Choice of Law

As an initial matter, the Court must determine what law should be applied in this diversity case. Relying on a choice of law provision in the Receivables Sale Agreement, (Ex. A ¶ 12), Copperwood contends that Texas law applies, (Dkt. No. 9-1 ("Pl.'s Mem.") at 8 n.2). JAG, however, is not a party to the Receivables Sale Agreement and had no prior business relationship with Copperwood. While a non-signatory may be bound by the terms of a contract in certain circumstances,¹ Copperwood does not explain why JAG should be bound in this instance.

A federal district court sitting in diversity applies the substantive law of the forum state, including that state's choice of law rules. In re Coudert Bros. LLP, 673 F.3d 180, 186 (2d Cir. 2012) (citing Klaxon Co. v. Stenton Elec. Mfg. Co., Inc., 313 U.S. 487, 496-97 (1941)). "Under the law of New York, the forum state, the first step in a choice of law analysis is to determine whether an actual conflict exists between the laws of the jurisdictions involved." Forest Park Pictures v. Universal Television Network, Inc., 683 F.3d 424, 433 (2d Cir. 2012) (citations omitted). An actual conflict exists when there are "relevant substantive differences that could have a significant impact on the outcome of the case." Fin. One Pub. Co. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325, 332 (2d Cir. 2005). If there is no conflict, then a federal court in New York should apply New York law. See Alitalia Linee Aeree Italiane, S.p.A. v. Arline Tariff Publ'g Co., 580 F. Supp. 2d 285, 290 (S.D.N.Y. 2008), quoted in Silverman & Silverman, LLP v. Pacifica Found., No. 11-CV-1894 (FB) (RML), 2015 WL 7118246, at *3 n. 2 (E.D.N.Y. Apr. 22, 2011), R & R adopted by 2015 WL 7158533 (Nov. 12, 2015). Here, there does not appear to be any conflict between the laws of New York and Texas with respect to breach of contract, unjust enrichment or the Uniform Commercial Code. Accordingly, the undersigned has applied New York law.

III. Liability

A. Breach of Contract and Unjust Enrichment

Plaintiff seeks damages based on the defendant's breach of its contracts with EVO—the failure to pay the amounts due under EVO's invoices. Under New York law, a party alleging a breach of contact must prove the following: "(1) a contract; (2) performance of the contract by one party; (3) breach by the other party; and (4) damages." First Invests. Corp. v. Liberty Mut. Ins. Co., 152 F.3d 162, 168 (2d Cir. 1998) (quoting Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525 (2d Cir. 1994)). Plaintiff has established that EVO and JAG entered into aseries of contracts, the invoices, in which it was agreed that EVO would supply specified services to JAG and JAG would pay an agreed upon price. Plaintiff has provided copies of invoices entered into between EVO and JAG between July 26, 2019 and September 25, 2019. (Dkt. No. 9-5 ("Ex. C")). Based on a review of the allegations in the Complaint, the invoices, which include a description of the services provided and price, and JAG's acknowledgments thereof, Plaintiff has established that a series of contracts existed between EVO and JAG. (Compl. ¶¶ 9, 15, 17, 19-21; Exs. B, C).

In addition, Copperwood alleged EVO duly performed its contractual obligations by timely delivering the services specified in the invoices; that the defendant materially breached the contracts by failing to pay the invoiced amounts; that EVO assigned to Copperwood its accounts receivable from JAG; and that Plaintiff has suffered actual damages. Accordingly, the Court finds that plaintiff has established its state law claim for breach of contract. See, e.g., Jiangsu Gtig Esen Co. v. Am. Fashion Network, LLC, No. 5:20-CV-222, 2020 WL 3453643, at *4 (N.D.N.Y. June 24, 2020) (finding a plaintiff is entitled to default judgment on a breach of contract claim where its allegations established that it shipped and delivered a requested product pursuant to purchase orders and then issued invoices for the products requiring the defendants to pay, which they did not do); Perfect Health LLC v. Danbury Pharma, LLC, No. 17-CV-3640 (DRH) (ARL), 2018 WL 1403323, at *2 (E.D.N.Y. Feb. 27, 2018), R & R adopted by 2018 WL 1401802 (Mar. 20, 2018).

Cooperwood has also alleged a claim for unjust enrichment. However, New York law does not permit recovery under unjust enrichment where such claims are...