Dick v. Corman

Background

Wesley Dick sued D. Scott Corman on claims for breach of contract and fraud in the inducement or intentional misrepresentation under California law. Dick alleged that he loaned Corman $300,000 on March 16, 2018, to support Corman’s investment in a technology start-up. Corman allegedly said he would repay the loan within a few weeks. After Dick agreed to several extensions based on Corman’s assurances that repayment was forthcoming, the parties signed a promissory note requiring repayment of $300,000 in principal by March 15, 2019, with interest. The note selected California law and included a clause consenting to jurisdiction in state or federal court in San Francisco County, California.

Corman failed to pay when the note came due. He also failed to appear or defend the lawsuit. The clerk entered default on April 26, 2022. The court had previously authorized service by email and concluded that service was proper.

Jurisdiction and Default Judgment

The court concluded that it had subject-matter jurisdiction based on diversity of citizenship and the amount in controversy. It also concluded that Corman consented to personal jurisdiction through the forum-selection clause in the promissory note.

Under Federal Rule of Civil Procedure 55, a court may enter default judgment after the clerk has entered default. The court applied the seven factors described in Eitel v. McCool, including prejudice to the plaintiff, the merits and sufficiency of the claims, the amount at stake, possible factual disputes, excusable neglect, and the policy favoring decisions on the merits.

The court determined that six factors favored default judgment. Dick would otherwise lack a legal remedy because Corman had not responded. The complaint sufficiently alleged the elements of breach of contract: a contract, Dick’s performance, Corman’s breach, and resulting damages. The complaint also sufficiently alleged fraud, including false representations, knowledge of their falsity, an intent to induce reliance, justifiable reliance, and resulting damages. The fraud allegations met Rule 9(b)’s heightened requirement to describe the alleged misconduct with particularity. The court also found that the requested amount was tied to the parties’ contract, that no material factual dispute was apparent, and that Corman’s proper service and partial payment after the lawsuit supported a finding that his failure to respond was not excusable neglect.

The seventh factor favored the general policy of deciding cases on their merits. The court nevertheless concluded that Corman’s failure to answer made a decision on the merits impractical or impossible, so default judgment was appropriate.

Remedies

The court accepted the well-pleaded allegations concerning liability as true because of the default, but it separately evaluated the damages. Under the note, the amount due as of March 15, 2019, including principal and accrued interest, was $321,686.97. The note provided for interest on unpaid amounts, and Corman’s $25,000 payment was credited first against accrued unpaid interest. The court determined that Dick was owed $402,711.47 as of June 30, 2022, plus an additional $2,555.87 in damages through the date of the order.

The court also concluded that the note authorized recovery of attorneys’ fees and collection costs. Although counsel’s time at standard rates would have totaled $44,000, Dick and his counsel had agreed to cap the fees at $25,000. The court found the requested $25,000 in fees reasonable and awarded $402 in filing costs.

Because the breach-of-contract and fraud claims arose from the same conduct and harm, the court awarded one damages amount rather than duplicative damages for both claims. The court stated that Dick was entitled to $405,267.43 in damages, $25,000 in attorneys’ fees, and $402 in costs.

Disposition

The court granted Dick’s motion for default judgment and stated that the order disposed of Docket No. 28.