United States District Court, D. Massachusetts
MEMORANDUM AND ORDER ON MOTION FOR DEFAULT
ALLISON D. BURROUGHS U.S. DISTRICT JUDGE
case concerns an alleged breach of the obligation to make
payments pursuant to a securities purchase agreement and an
associated convertible promissory note by Defendant First
Colombia Gold Corp. (“First Columbia”). Plaintiff
Auctus Fund, LLC (“Auctus”) holds the note and
filed this lawsuit to recover its damages. Auctus moves for a
default judgment awarding damages, attorney's fees,
costs, and injunctive relief. For the reasons discussed
below, default judgment shall enter for $322, 644.66.
March 29, 2017, Auctus filed this action against First
Columbia, alleging breach of contract (“Count
I”), breach of the implied covenant of good faith and
fair dealing (“Count II”), unjust enrichment
(“Count III”), breach of fiduciary duty
(“Count IV”), fraud and deceit (“Count
V”), negligent misrepresentation (“Count
VI”), and violation of the Massachusetts Consumer
Protection Act, Mass. Gen. Laws ch. 93A §§ 2, 11,
(“Count VII”). [ECF No. 1
(“Complaint” or “Compl.”)]. On August
18, 2017, because Auctus had not filed proof of service and
First Columbia had not appeared, the Court ordered Auctus to
show cause, by September 8, 2017, as to why this case should
not be dismissed for failure to make timely service.
Id. First Columbia was then purportedly served on
September 7, 2017, [ECF No. 5], and on September 8, 2017,
Auctus filed a response to the Court's Order to Show
Cause, [ECF No. 6].
October 12, 2017, Auctus filed its first Motion for Entry of
Default with Certificate of Service, [ECF No. 7], which the
Court denied without prejudice and with leave to renew, [ECF
No. 10]. The Court found that “Plaintiff ha[d] not
explained how leaving the summons at Defendant's former
place of business is sufficient to comply with the
requirements of Fed.R.Civ.P. 4(h) or any other applicable
state rules.” [ECF No. 8]. The Court asked Auctus to
complete service and file a renewed motion by February 12,
2018. [ECF No. 10]. Auctus took no further action in this
case for seven months.
January 23, 2019, the Court ordered Auctus to show cause, by
January 30, 2019, as to why the case should not be dismissed
for failure to prosecute, or to file a motion for entry of
default by that date. [ECF No. 12]. Auctus then filed the
instant Amended Motion for Default Judgment, which seeks
compensatory damages of $310, 974.85, punitive damages of
$932, 924.55 pursuant to its Chapter 93A claim, $8, 697.50 in
attorney's fees, $455.00 in costs, and injunctive relief.
[ECF Nos. 13, 13-11]. On March 14, 2019, the Court requested
that Auctus move for an entry of default under Rule 55(a).
[ECF No. 16]. On March 19, 2019, Auctus filed a Request for
Entry of Default. [ECF No. 17]. On March 21, 2019, the clerk
entered a default pursuant to Federal Rule of Civil Procedure
55(a). [ECF No. 19].
Federal Rule of Civil Procedure 55, an entry of default
against a Defendant constitutes an admission of liability.
Sec. & Exch. Comm'n v. Esposito, 260
F.Supp.3d 79, 84 (D. Mass. 2017) (quoting
Vazquez-Baldonado v. Domenech, 792 F.Supp.2d 218,
221 (D.P.R. 2011)). First Columbia is therefore “taken
to have conceded the truth of the factual allegations in the
complaint as establishing the grounds for liability.”
Id. (quoting In re The Home Rests., Inc.,
285 F.3d 111, 114 (1st Cir. 2002)). “On a motion for a
default judgment, however, it is appropriate to independently
‘examine a plaintiff's complaint, taking all
well-pleaded factual allegations as true, to determine
whether it alleges a cause of action.'”
Id. (quoting Ramos- Falcon v. Autoridad de
Energia Electrica, 301 F.3d 1, 2 (1st Cir. 2002)).
Accordingly, the following summary of facts are drawn
primarily from the Complaint.
about October 16, 2014, First Columbia executed a securities
purchase agreement and a convertible promissory note in favor
of Auctus. Compl. ¶ 9. The note has a principal amount
of $77, 750, an 8 percent interest rate, and is convertible
into common stock at a conversion price determined by a
formula stated in the note. [ECF No. 1-2 at 2-4]. The
purchase agreement and note also provide for certain
penalties and a heightened interest rate in the event of
default. [See ECF Nos. 1-1, 1-2]. On May 23, 2016,
Auctus executed and delivered a notice of conversion that
elected to make a partial conversion of accrued and unpaid
interest. Compl. ¶ 10. In response, First Columbia
failed to properly allocate and/or reserve such shares, which
denied the Fund its right to become a shareholder in First
Columbia, in violation of the terms of the SPA and note.
Compl. ¶ 10. These events qualified as “Events of
Default” as defined in the note and resulted in the
incursion of liability for double the “Default Sum,
” an amount calculated based on the interest and
penalties due under the note at that time. [ECF No. 1-2].
Auctus has not been paid. Until paid, the Default Sum
continues to accrue interest at a rate of twenty-two percent
(22%) per annum. Compl. ¶ 12; see also [ECF No.
1-2 at 2].
made a risky investment, and the Complaint contains no
non-conclusory allegation that it was misled into doing so.
Auctus has recognized that its “loans” provide
for a variety of “penalties” precisely because of
their “high-risk nature.” [ECF No. 13-1 ¶
14]. Although the Complaint contains several allegations
that, for example, First Columbia “made false
representations of material facts, and/or omitted material
facts with a duty of disclosure, knowing or having reason to
know of their falsity, ” and “made said
misrepresentations and omissions for the purpose of inducing
reliance from the Plaintiff, ” there is no sufficiently
detailed factual allegation as to what information First
Columbia concealed or misstated. Compl. ¶ 37.
default judgment may be entered without a hearing under
Federal Rule of Civil Procedure 55(b) if “a court has
jurisdiction over the subject matter and parties, the
allegations in the complaint state a specific, cognizable
claim for relief, and the defaulted party had fair notice of
its opportunity to object.” In re The Home Rests.,
Inc., 285 F.3d at 114. As an initial matter, the Court
“has an affirmative duty to assure itself that it has
jurisdiction over both the subject matter and the
parties” before entering a default judgment.
Plasterers' and Cement Masons' Local 40 Pension
Fund v. Capital Curbing Corp., No. 09-236 S., 2010 WL
1424722, at *2 (D.R.I. Mar. 12, 2010), aff'd and
adopted, 2010 WL 1376293 (D.R.I. Apr. 6, 2010). The
Court has diversity jurisdiction over Plaintiff's claims
pursuant to 28 U.S.C. § 1332, as “the matter in
controversy exceeds the sum or value of $75, 000 . . . and is
between . . . citizens of different States.” 28 U.S.C.
Complaint easily states a claim for breach of contract.
Auctus invested funds in First Columbia for which it has not
been repaid in accordance with the terms of the securities
purchase agreement and the note. Further, the Court takes as
fact the allegations that Auctus executed and delivered its
notice of partial conversion, and that First Columbia failed
to properly allocate and/or reserve applicable shares, in
violation of the terms of the parties' agreements.
Although the Complaint contains no details about the
circumstances that led First Columbia to fail to allocate
and/or reserve such shares, the Court infers that the action
was detrimental to Auctus' rights under the parties'
agreement, and therefore constitutes a breach of the covenant
of good faith and fair dealing. See Latson v. Plaza Home
Mortg., Inc., 708 F.3d 324, 326 (1st Cir. 2013)
(“The Massachusetts covenant of good faith and fair
dealing is taken to be implied in every contract, and
provides ‘that neither party shall do anything that
will have the effect of destroying or injuring the right of
the other party to receive the fruits of the
contract.'” (quoting Anthony's Pier Four,
Inc. v. HBC Assocs., 583 N.E.2d 806, 820 (Mass. 1991))).
Court cannot find, however, a non-conclusory factual basis in
the Complaint from which it can infer that First Columbia
engaged in fraud, was unjustly enriched, breached a fiduciary
duty, or made negligent misrepresentations. See Eureka
Broadband Corp. v. Wentworth Leasing Corp., 400 F.3d 62,
68 (1st Cir. 2005) (“[F]raudulent misrepresentation
under Massachusetts law” requires “that the
defendant ‘made a false representation of a material
fact with knowledge of its falsity for the purpose of
inducing the plaintiff to act thereon, and that the plaintiff
reasonably relied upon the representation as true and acted
upon it to his damage.'” (quoting Russell v.
Cooley Dickinson Hosp., Inc., 772 N.E.2d 1054, 1066
(Mass. 2002))); Mass. Eye & Ear Infirmary v. QLT
Phototherapeutics, Inc., 412 F.3d 215, 234 (1st Cir.
2005) (“Unjust enrichment provides an equitable stopgap
for occasional inadequacies in contractual remedies at law by
mandating that ‘[a] person who has been unjustly
enriched at the expense of another is required to make
restitution to the other.'”); Pearson v. United
States, 831 F.Supp.2d 514, 519 (D. Mass. 2011)
(“To prevail on such a claim, a plaintiff must show (1)
the existence of a fiduciary duty arising from a relationship
between the parties, (2) a breach of that duty, (3) damages
and (4) causation.”). The facts alleged in the
Complaint do not establish that First Columbia concealed
information from Auctus, received a benefit from Auctus for
which the parties' contractual agreements do not supply
an adequate remedy, or that a fiduciary relationship was
formed. Instead, even taken in the light most favorable to
Auctus, the allegations suggest that Auctus lent money to a
high-risk business, that then failed. Auctus' Chapter 93A
claim also fails, because it is based upon factually
unsupported allegations of fraud and unspecified violations
of “requirements, terms and conditions of existing
statutes, [and] rules and regulations meant for the
protection of the public's health, safety or
welfare.” Compl. ¶ 44. Even if the Complaint
contained sufficient detail to plausibly allege that First
Columbia committed torts or statutory violations, the Court
would not award a default judgment greater than that awarded
here. See Pizzo v. Gambee, 754 F.Supp.2d 234, 237-38
(D. Mass. 2010), amended by796 F.Supp.2d 270 (D.
Mass. 2011) (“When a defendant fails to answer in