Fonz, Inc. v. City Bakery Brands, LLC

Background

Fonz, Inc. brought a breach-of-contract case concerning unpaid secured loans. The opinion states that Fonz is a joint-stock company organized under Japanese law and operates and manages City Bakery-branded restaurants in Japan. City Bakery Brands, LLC, The City Bakery, LLC, and Maurybakes, LLC operated a retail café and bakery and provided catering and wholesale services until operations ceased in 2019.

The defendants did not repay the note. Fonz sent default notices and demanded payment and turnover of collateral. Fonz offered to accept the collateral in full satisfaction of the debt, but the defendants rejected that offer. The opinion states that $1,167,175 in principal and $130,334.54 in accrued interest remained unpaid. Maury Rubin later filed for bankruptcy, the action was stayed as to him, and he was voluntarily dismissed.

Procedural history

Fonz filed the action on November 22, 2019. After the defendants failed to respond to the complaint and failed to appear at scheduled conferences, Judge Lewis J. Liman directed Fonz to seek default judgment. Fonz filed that motion, and Judge Liman granted it on January 21, 2021. On July 7, 2021, Judge Liman referred the case to Magistrate Judge Robert W. Lehrburger for an inquest—the court’s review of the amount of damages owed after default judgment.

Fonz submitted proposed findings, declarations, agreements, billing records, and receipts. The defendants did not respond. Magistrate Judge Lehrburger determined that the damages could be calculated from the written submissions and that no hearing was needed.

Liability

Because the defendants defaulted, the court treated the complaint’s well-pleaded factual allegations about liability as true, while requiring Fonz to prove the amount of damages. The court found a legal basis for liability on three types of claims.

First, the court found liability for breach of contract. The loan documents established contracts, Fonz had performed by providing the loans, the defendants failed to repay the note, and Fonz suffered the resulting financial loss. Second, the court found liability for breach of guaranty because the underlying debt existed, the guaranty was unconditional, and The City Bakery and Maurybakes failed to perform their guaranty obligations. Third, the court found that Fonz had the right to foreclose on the collateral under the security agreements and New York’s secured-transactions law because City Bakery Brands failed to pay.

Damages and other relief

The court recommended $1,167,175 in unpaid principal. It also recommended $130,334.54 in interest calculated at the note’s 15% annual rate from February 27, 2019, through November 22, 2019. Together, those amounts totaled $1,297,509.54.

The court further recommended prejudgment interest at New York’s statutory rate of 9%, to be calculated by the Clerk of Court. The court used that rate because Fonz requested it, although the opinion noted that some authority could support using the higher contractual rate of 15% until payment or entry of judgment.

The court recommended $27,640.50 in attorneys’ fees because the note allowed recovery of reasonable enforcement expenses and fees. It found the attorneys’ hourly rates and the approximately 65 attorney hours and 8 paralegal hours reasonable. It also recommended $1,075 in costs for filing, service of process, and other court-related expenses.

Recommendation and objections

Magistrate Judge Robert W. Lehrburger recommended that the district court award Fonz the principal and accrued interest, 9% prejudgment interest, attorneys’ fees, and costs. The opinion states that the parties had fourteen days to file written objections with the Clerk of Court. The provided opinion is a report and recommendation and does not state whether Judge Liman later adopted it.