LG Capital Funding, LLC v. E-Waste Systems, Inc.

Background

LG Capital Funding, LLC asserted claims for breach of contract and unjust enrichment against E-Waste Systems, Inc. The claims concerned two 8% convertible redeemable notes issued under a Securities Purchase Agreement. The notes had an aggregate principal amount of $168,000, with each note having a principal amount of $84,000.

LG Capital alleged that E-Waste failed to deliver shares after LG Capital submitted a notice converting part of the first note into common stock. LG Capital also alleged that E-Waste’s securities were revoked and its common stock was delisted, creating additional events of default under the notes. LG Capital claimed that these events triggered a 24% default-interest obligation and that E-Waste had not paid the outstanding principal and interest.

Procedural History

The complaint was filed on June 11, 2020. The Clerk issued a certificate of default against E-Waste on September 9, 2020. After E-Waste failed to respond to an order directing it to show why a default judgment should not be entered and failed to appear at the scheduled hearing, the court entered an order of default on November 19, 2020.

The court referred the case to Magistrate Judge Barbara C. Moses to determine damages. Judge Moses issued a report and recommendation on December 10, 2021. The report recommended damages for the two notes, default interest, and attorneys’ fees and costs. The parties received notice that failing to object would waive review, but neither party filed objections.

Court’s Review and Ruling

Because no objections were filed, the court reviewed the report and recommendation for clear error on the face of the record. Judge Gardephe stated that he had reviewed the twenty-page report and found it thorough and well-reasoned. He therefore adopted it in its entirety.

The court awarded LG Capital: (1) $158,720.38 in damages for the breaches of Note 1 and Note 2; (2) $127,127.78 in default interest on Note 1; (3) $196,729.26 in default interest on Note 2; and (4) $10,744.80 in attorneys’ fees and costs. The total award was $493,322.22. The Clerk of Court was directed to enter judgment and close the case.

Classification

This was a default judgment based on E-Waste’s nonappearance and failure to respond. Under the applicable classification convention, it is a procedural order because the underlying claims were not tested through an adversarial merits proceeding.