Ajna Living, LLC v. Digital Accessories TCM Ltd.

Background

Plaintiffs moved for default judgment against Digital Accessories TCM Ltd. and TCM International Trade Ltd. The defendants initially appeared through attorneys and filed answers, but those attorneys later withdrew after stating that the defendants had not cooperated with discovery and other matters. The court ordered the corporate defendants to retain attorneys admitted to practice in the court and warned that failing to do so, or failing to appear through counsel, could result in striking their answers and entering default judgment.

Neither defendant appeared at two scheduled conferences. They also did not respond to discovery after the court ordered them to do so, did not communicate with the court about its orders, and did not respond to the motion for default judgment. The court therefore concluded that the defendants had failed to defend the action under Rule 55(a) of the Federal Rules of Civil Procedure.

Claims and liability

The court held that the allegations established Digital Accessories TCM’s liability as a matter of law. According to the amended complaint, Digital Accessories TCM agreed to purchase the assets of Ajna’s e-commerce business and related domain names for an initial price of $350,000, plus an additional performance-based amount. It failed to deposit the additional amount into escrow. The parties later entered a settlement agreement under which Digital Accessories TCM agreed to pay $330,431.58 by April 1, 2022, in exchange for releases concerning the earlier dispute. That payment was not made.

The court also held that the allegations supported liability by TCM International under an alter-ego theory. Under that theory, a court may disregard the separate legal identity of a company when an owner or related entity completely controls it in the relevant transaction and uses that control to commit a wrong that causes injury. The court concluded that the allegations plausibly showed TCM International’s domination of Digital Accessories TCM and its use of that control to cause the plaintiffs’ injury. The allegations included severe undercapitalization, a lack of individual employees or officers, shared office space, alleged misuse of the corporate form, TCM International’s agreement to fund the settlement payment, and its CEO’s involvement in the agreements.

The court denied default judgment on the tortious-interference claim against TCM International. It found that claim duplicative because it involved the same facts, the same alleged nonpayment, and the same $330,431.58 in damages as the contract claims.

Damages and disposition

The court stated that damages allegations are not automatically accepted as true on a default-judgment motion. It found a sufficient basis for the requested damages through the amended complaint and supporting declaration. The court awarded $330,431.58 for the unpaid settlement amount, prejudgment interest at 9% per year, and $69,037.23 in reasonable attorneys’ fees under the settlement agreement’s fee provision. The judgment listed prejudgment interest of $32,427.56 for the period from April 1, 2022, through the date of judgment.

Judge P. Kevin Castel struck the defendants’ answers and granted default judgment on the breach-of-contract claims against Digital Accessories TCM and against TCM International on an alter-ego theory. Default judgment was denied as to the tortious-interference claim. The defendants were held jointly and severally liable for the damages, prejudgment interest, and attorneys’ fees stated in the order.