Bay Bread, LLC v. Lemonade Restaurant Group, LLC

Background

Bay Bread, LLC signed leases and subleases for retail space in the San Francisco Bay Area. Four leases assigned by Bay Bread to Lemonade Restaurant Group, LLC were at issue. Under the assignments, Lemonade agreed to defend and indemnify Bay Bread against claims, losses, costs, and expenses arising from Lemonade’s tenancy.

Bay Bread alleged that Lemonade defaulted by failing to pay rent on time and then declined to defend and indemnify Bay Bread as required. Lemonade later cured its defaults, but Bay Bread had already assumed the defense of state-court litigation against one landlord and filed this federal breach-of-contract action.

Lemonade did not appear. At Bay Bread’s request, the Clerk of Court entered default against Lemonade. Bay Bread then moved for default judgment, seeking $40,345.65 in attorneys’ fees and costs.

Jurisdiction and service

The court concluded that it had diversity jurisdiction. Bay Bread alleged that its sole member was Starbucks Corporation, a Washington corporation with its principal place of business in Washington, while Lemonade’s members were citizens of California or states other than Washington. The amount-in-controversy requirement was satisfied based on Bay Bread’s estimate, when it filed the complaint, that its damages exceeded $892,000. The later request for $40,345.65 did not defeat jurisdiction.

The court also concluded that it had personal jurisdiction over Lemonade and that Lemonade had been properly served through personal delivery of the summons and complaint to its registered agent on June 18, 2021.

Default judgment

Under Federal Rule of Civil Procedure 55(b)(2), a court may enter judgment against a defendant that failed to defend. The court evaluated the factors commonly used for this decision, including possible prejudice, the merits and sufficiency of the complaint, the amount at stake, the possibility of factual disputes, whether the default resulted from excusable neglect, and the preference for decisions on the merits.

The court found that Bay Bread adequately alleged a breach-of-contract claim. It identified the required elements as a contract, Bay Bread’s performance or an excuse for nonperformance, Lemonade’s breach, and resulting damages. The court concluded that the relevant factors favored default judgment because Bay Bread would otherwise bear attorneys’ fees caused by Lemonade’s alleged breach, the amount sought was not excessive, and Lemonade’s failure to appear provided no indication of excusable neglect or a material factual dispute.

Fees and costs

Because the case was based on diversity jurisdiction, the court applied California law to the right to fees and the method for calculating them. The agreements included provisions allowing the prevailing party to recover reasonable attorneys’ fees, costs, and expenses in an action relating to the agreements or their enforcement. The court found those provisions enforceable.

California ordinarily uses the lodestar method, which starts with the number of hours reasonably worked multiplied by a reasonable hourly rate. Bay Bread submitted records showing that its attorneys spent 77.9 hours on the federal and state-court litigation through August 2022. The court found that the records were generally adequately documented and that the attorneys’ hourly rates appeared comparable to rates charged by similar attorneys at other firms.

The court deducted $281.00 for unexplained unbilled work-in-progress fees and $562.82 for an unsuccessful initial attempt to serve Lemonade’s registered agent. After those deductions, the court awarded $39,501.83.

Disposition

The court granted in part Bay Bread’s motion for default judgment and awarded Bay Bread $39,501.83 in attorneys’ fees and costs. The order also directed Bay Bread to promptly serve Lemonade with the order and file proof of service.