Merchants Bank Equipment Finance v. Snowtracks Commercial Winter Management

Background

Merchants Bank Equipment Finance entered into a commercial promissory note and security agreement with Snowtracks Commercial Winter Management, LLC, on November 4, 2014. The note had a principal amount of $384,555 and was secured by three 2014 Case 521F wheel loaders. The agreement allowed Merchants Bank, after a default, to collect the outstanding obligations, sell the collateral, and seek any remaining deficiency. It also provided for interest on past-due amounts and recovery of reasonable enforcement costs and attorneys’ fees.

On November 14, 2014, Michael P. Bronsteatter personally guaranteed the note. The guaranty required him to make payments when due if Snowtracks defaulted. The defendants later defaulted. When Merchants Bank placed the note on non-accrual status on August 8, 2016, the principal balance was $284,877.96.

Snowtracks filed for Chapter 11 bankruptcy in March 2017, and the case was later converted to Chapter 7. Snowtracks made 18 adequate-protection payments of $4,500, reducing the principal balance to $203,877.96. After the bankruptcy court terminated the automatic stay, Bronsteatter surrendered the collateral under this Court’s February 25, 2019 replevin order. Merchants Bank sold the collateral for $108,976.50 and applied the proceeds to the note, leaving a principal balance of $94,901.46. Merchants Bank voluntarily dismissed Snowtracks from the action on September 13, 2019, and then sought default judgment against Bronsteatter.

Default Judgment Standard

A default judgment involves two steps. First, the Clerk of Court enters default when a properly served defendant fails to plead or otherwise defend. Second, the plaintiff applies to the court for judgment. Here, Merchants Bank obtained an entry of default against Bronsteatter.

When a defendant is in default, the court generally accepts the complaint’s factual allegations as true, except allegations about the amount of damages. The court must still determine whether those facts establish a valid legal claim. A plaintiff seeking default judgment must prove damages by a preponderance of the evidence, meaning that the evidence must show that the claimed amount is more likely than not correct.

Breach of Contract and Damages

The court applied Minnesota law. A breach-of-contract claim requires a contract, the plaintiff’s performance of conditions required before demanding performance, a breach by the defendant, and damages caused by the breach. The court concluded that the accepted allegations established a valid breach-of-contract claim based on Bronsteatter’s default under the guaranty.

The court found that the record supported the requested $94,901.46 amount. The amount represented the remaining principal after subtracting Snowtracks’ adequate-protection payments and the proceeds from the collateral sale. The court also found that Bronsteatter was obligated to pay that amount under the guaranty.

Merchants Bank originally alleged that it could recover interest, late fees, and other damages, but it no longer sought those amounts. The judgment therefore concerned the remaining principal balance only.

Order

The court granted Merchants Bank’s motion for default judgment. It directed the Clerk to enter judgment in favor of Merchants Bank and against Michael P. Bronsteatter in the amount of $94,901.46.