SRS Distribution Inc. v. Southers Constr.

1

SRS Distribution Inc. v. Southers Construction Incorporated, et al.

No. 1:24-cv-50-PB-AJ

United States District Court, D. New Hampshire

November 20, 2024

REPORT AND RECOMMENDATION

ANDREA K. JOHNSTONE, UNITED STATES MAGISTRATE JUDGE

Plaintiff SRS Distribution Inc. (“SRS”) filed suit against Southers Construction Incorporated (“Southers Construction”) and Ricky Southers (“Southers”), individually, to recover money owed under the terms of a promissory note and personal guaranty.^[1]Neither Southers Construction nor Southers responded to SRS's complaint, and on May 16, 2024, the Clerk of Court entered default against them. (Doc. No. 10). Before the court for recommendation as to disposition is SRS's motion for default judgment (Doc. No. 16) pursuant to Federal Rule of Civil Procedure 55(b)(2).^[2]For reasons explained below, the court recommends that SRS's motion be granted and that damages be awarded in the amount of $266,773.07.

STANDARD OF REVIEW

A defaulted party “is deemed ‘to have conceded the truth of the factual allegations in the complaint as establishing the grounds for liability as to which damages will be calculated.'” Universitas Educ., LLC v Granderson, 98 F.4th 357, 377 (1st Cir. 2024) (quoting Franco v. Selective Ins. Co., 184 F.3d 4, 9 n.3 (1st Cir. 1999)). “Notwithstanding that concession, the district court ‘may examine a plaintiff's complaint, taking all well-pleaded factual allegations as true, to determine whether it alleges a cause of action.'” Id. (quoting Ramos-Falcon v. Autoridad de Energia Electrica, 301 F.3d 1 2 (1st Cir. 2002)). Further, the court may hold a hearing “to establish the truth of any averment in the complaint,” or a hearing may be required “to set damages when the amount is in dispute or is not ascertainable from the pleadings.” In re The Home Restaurants, Inc., 285 F.3d 111, 114 (1st Cir. 2002) (citing Fed.R.Civ.P. 55(b)(2)).

BACKGROUND

By virtue of their default, Southers Construction and Southers concede the following facts alleged in SRS's verified complaint (Doc. No. 1). On March 9, 2023, SRS, Southers Construction, and Southers executed a promissory note (the “Note”). Under the terms of the Note, Southers Construction and Southers, in his individual capacity, agreed to pay SRS the principal amount of $407,905.14 in weekly installments of $5,000.00 until October 31, 2023, when the balance was due in full.^[3]See Note, Ex. A to Verified Compl., (Doc. No. 1-1) at 14. In addition to the Note, Southers executed a personal guaranty (the “Guaranty”). Under the terms of the Guaranty, Southers agreed to “personally and individually . . . unconditionally guarantee to [SRS] the full and prompt payment of all obligations which [Southers Construction] presently or hereafter may have to [SRS].” See Guaranty, Ex. B to Verified Compl., (Doc. No. 1-1) at 5-6.

Defendants' last payment under the Note occurred on October 24, 2023, and as of that date, the balance totaled $258,848.65. On November 20, 2023, SRS sent a demand to Southers, requesting that the outstanding balance be paid immediately. Neither Southers Construction nor Southers made any further payments to SRS.

On February 22, 2024, SRS initiated this action against Southers Construction and Southers. See Verified Compl. (Doc. No. 1).^[4]SRS attached a copy of the Note, the Guaranty, and a ledger to its verified complaint. Id. The ledger identified payments received by SRS and the outstanding balance in the amount of $258,848.65. See Ledger, Ex. E to Verified Compl., (Doc. No. 1-1) at 12. Southers Construction and Southers were served with a copy of the summons and complaint on March 21, 2024, and SRS filed a return of service (Doc. No. 7) on March 29, 2024. When neither Southers Construction nor Southers filed a response within the time allowed, the Clerk of Court entered default against them. Entry of Default (Doc. No. 10). SRS now moves for default judgment as to Southers Construction and Southers (Doc. No. 16).

On September 9, 2024, the court held a hearing on damages. Counsel for SRS appeared, and Tonya Morgan, a credit manager for SRS, appeared by telephone. Defendants did not appear. During the hearing, Morgan testified that she oversaw the Southers Construction and Southers account and that she created the ledger for the Note as a business record for SRS. Morgan further testified that, as part of her job, she manually updated the ledger using Microsoft Excel and processed defendants' payments on the date of receipt. She logged 28 payments by defendants, and when they stopped making payments, she calculated the outstanding balance of $258,848.65.

DISCUSSION

SRS brings claims of breach of contract against Southers Construction (Count I) and Southers, individually (Count II). In its motion for default judgment, SRS seeks the entry of judgment on both claims and damages in the amount of $266,773.48, reflecting the outstanding balance of $258,848.65 under the Note and attorneys' fees in the amount of $7,924.82.

I. Liability

A. Choice of Law

The Note contains the following choice of law provision: “This Note will be construed in all respects and enforced according to the laws of Texas.” Note, Ex. A to Verified Compl., (Doc. No. 1-1) at 2. In a diversity action, as here, “the forum state's substantive law governs, so the court must apply New Hampshire's choice-of-law principles to determine the applicable law.” Ortiz v. Sig Sauer, Inc., 596 F.Supp.3d 339, 350 (D.N.H. 2022). “According to New Hampshire's choice-of-law rules, the party claiming that another state's law applies must demonstrate ‘that the relevant substantive New Hampshire law is in actual conflict with that of the other interested state.'” Id. (quoting Fujifilm N. Am. Corp. v. M&R Printing Equip., Inc., 565 F.Supp.3d 222, 232 (D.N.H. 2021)). If the moving party demonstrates an actual conflict, the court must proceed with the choice-of-law analysis, but “[i]f the moving party does not so demonstrate, the court applies New Hampshire law.” Id.

During the September 9, 2024 damages hearing, SRS represented that it was not aware of an actual conflict between Texas and New Hampshire law. Accordingly, the court will apply New Hampshire law.^[5]

B. Breach of Contract (Counts I and II)

“To state a claim for breach of contract under New Hampshire law, a plaintiff must allege (1) that a valid, binding contract existed between the parties, and (2) that the defendant breached the terms of that contract.” Doe v. Trustees of Dartmouth College, 615 F.Supp.3d 47, 60 (D.N.H. 2022) . “A breach of contract occurs when there is a failure without legal excuse to perform any promise which forms the whole or part of a contract.” Lassonde v. Stanton, 157 N.H. 582, 588, 956 A.2d 332 (2008); see also Abraxas Petroleum Corp. v. Hornburg, 20 S.W.3d 741, 758 (Ct. App. Tex. 2000) (noting that under Texas law, “[t]he elements of a breach of contract claim are the existence of a valid contract; performance or tendered performance by the plaintiff; breach of the contract by the defendant; and damages to the plaintiff resulting from that breach.”).

“A guaranty is a conditional promise to pay the debt of another in the event of default by the principal debtor.” Middleton Bldg. Supply, Inc. v. Gidge, No. 98-C-185, 2000 WL 33915975, at *2 (N.H. June 5, 2000). “It constitutes ‘a separate, independent contract between the guarantor and the creditor, and is collateral to the contractual obligation between the creditor and the principal debtor.'” Id. (quoting 38 Am Jur 2d, Guaranty § 2). The rules “governing construction of contracts apply to the construction of a guaranty.” Id. (quoting 38 Am Jur 2d, Guaranty § 5); see also Interstate 35/Chisam Road, L.P. v. Moayedi, 377 S.W.3d 791, 796 (Ct. App. Tex. 2012) (“Courts construe guaranty agreements as any other contract.”). Where the terms of a guaranty agreement are “clear and explicit,” and show “with reasonable clarity, an intent to be liable on an obligation in case of default by the primary obligor, it is enforceable as a guaranty.” Gidge, 2000 WL 33915975, at *3 (quotation omitted).

Based on the admitted allegations, SRS sufficiently demonstrated that Southers Construction and Southers breached the terms of the Note and the Guaranty. Specifically, the Note is a valid and binding contract between SRS, Southers Construction, and Southers, individually. The terms of the Note required Southers Construction and Southers to pay SRS the principal amount of $407,905.14 in weekly installments of $5,000.00 until October 31, 2023, when the balance was due in full. See Note, Ex. A to Verified Compl., (Doc. No. 1-1) at 14. Where defendants made no further payments under the Note after October 24, 2023, despite SRS's demand for payment of the $258,848.65 outstanding balance, defendants are in breach of the Note.

In addition, under the terms of the Guaranty, Southers agreed to “personally and individually . . . unconditionally guarantee to [SRS] the full and prompt payment of all obligations which [Southers Construction] presently or hereafter may have to [SRS].” Guaranty, Ex. B to Verified Compl., (Doc. No. 1-1) at 5. The Guaranty expressly states that SRS is providing “valuable consideration . . . including but not limited to the extension of credit . . . to Southers [C]onstruction.” Id. Thus, the terms of the Guaranty clearly demonstrate Southers's intent to be personally liable in exchange for credit being extended to Southers Construction, and therefore, the Guaranty constitutes a valid, binding agreement. By failing to make payment under the Note, Southers also breached the terms of the Guaranty. Accordingly, Southers Construction and Southers are liable to SRS for breach of contract.

II. Damages

In the case of defaulting defendants, “the...