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Travelers Casualty & Surety Company of America v. Nelms

United States District Court, N.D. Mississippi, Oxford Division

March 22, 2017




         Before the Court are Travelers Casualty and Surety Company of America's motion for default judgment, Doc. #31, and its motion for hearing on the default judgment motion, Doc. #34. For the reasons below, the motion for default judgment will be granted in part and denied in part and the motion for hearing will be denied as moot.

         I Factual Allegations and Procedural History

         A. Filing of Complaint

         On February 19, 2016, Travelers Casualty & Surety Company of America (“Travelers”) filed in the United States District Court for the Southern District of Mississippi[1] a multi-count complaint against Jimmy Dallan Nelms, Jimmy Mitchell, Joseph McNair, Danny Peters, and John Does 1-10.[2] Doc. #1. In its complaint and document attached, Travelers alleges that on December 8, 2011, it issued to Alcorn County, Mississippi, a one hundred thousand dollar public official bond[3] on behalf of newly elected supervisor Jimmy Dallan Nelms, [4] and that “Nelms executed a Public Official Application and Indemnity Agreement in order to obtain the Bond from Travelers.” Doc. #1 at ¶¶ 10, 15; Doc. #1-1.

         Travelers further alleges that “[o]n or about December 2, 2014, the State of Mississippi, through the Office of the State Auditor, made demand on Nelms and Travelers for the sum of $308, 244.71, relating to claims of embezzlement or misappropriation by Nelms from Alcorn County.” Doc. #1 at ¶ 11. According to Travelers, Nelms entered into joint and/or separate conspiracies with Jimmy Mitchell, Joseph McNair, and Danny Peters “to embezzle, misappropriate, convert and defraud money from Alcorn County.” Id. at ¶ 12. After Travelers investigated the Alcorn County claim, “Alcorn County executed a Release and Assignment transferring, assigning and setting over to Travelers all the rights, demands and causes of action it may have against … the Defendants, in consideration for the payment by Travelers of $100, 000.00, in full settlement of Travelers' liability under the Bond as a result of the acts of the Defendants.” Id. at ¶ 13; Doc. #1-2.

         B. Service and Default

         On March 3, 2016, Travelers filed a proof of service indicating that Peters was served the summons on February 25, 2016. Doc. #5. On March 9, 2016, Travelers filed a proof of service reflecting that Nelms was served the summons on March 2, 2016. Doc. #7. On March 24, 2016, Travelers filed an application with the Clerk of the Court for the entry of a default, along with a supporting affidavit averring that Nelms and Peters have “fail[ed] to answer or otherwise defend Travelers' Complaint.” Doc. #9; Doc. #9-1. That same day, the Clerk of the Court entered default against Nelms and Peters. Doc. #10.

         On April 26, 2016, after the grant of a motion to change venue by Mitchell to which Travelers did not object, the case was transferred to the Northern District of Mississippi's Oxford Division. Doc. #13; Doc. #17; Doc. #18. Following transfer, on May 4, 2016, Travelers filed a motion for default judgment against Nelms and Peters.[5] Doc. #20. Because McNair, who had not defaulted, remained a defendant in this case and faced joint and several liability with the defaulting defendants, the Court denied Travelers' motion for default judgment without prejudice. Doc. #30.

         On July 1, 2016, Travelers filed the instant motion for default judgment against Nelms and Peters. Doc. #31. On July 5, 2016, Travelers filed a stipulation of dismissal, Dated: its behalf and on behalf of Mitchell and McNair, dismissing all claims against Mitchell and McNair with prejudice pursuant to Federal Rule of Civil Procedure 41(a). Doc. #32.

         In its motion for default judgment, Travelers “requests that it be granted a default judgment against … Peters and Nelms, in the amount of $100, 000, ” and that a final judgment be entered. Doc. #31 at 2. In support of its motion, Travelers submitted an affidavit from Barbara A. Check, a claim executive employed by Travelers, which repeats verbatim some of the allegations in the complaint. Doc. #31-1. On February 2, 2017, Travelers filed a motion for a hearing on its motion. Doc. #34.



         Pursuant to “Rule 55 of the Federal Rules of Civil Procedure, federal courts have the authority to enter a default judgment against a defendant who has failed to plead or otherwise defend upon motion of the plaintiff.” J & J Sports Prods., Inc. v. Morelia Mexican Rest., Inc., 126 F.Supp.3d 809, 813 (N.D. Tex. 2015). “Under Fifth Circuit law, there are three steps to obtaining a default judgment: first, default by the defendant; second, clerk's entry of default; and third, entry of a default judgment.” Gray v. MYRM Holdings, L.L.C., No. A-11-cv-180, 2012 WL 2562369, at *3 (W.D. Tex. June 28, 2012) (citing N.Y. Life. Ins. Co. v. Brown, 84 F.3d 137, 141 (5th Cir. 1996)) (emphases omitted). The first two steps have been satisfied here. Thus, the only issue left to consider is whether default judgment should be entered. In making this determination, the Court considers a three-question analysis: (1) “whether the entry of default judgment is procedurally warranted;” (2) “whether there is a sufficient basis in the pleadings for the judgment;” and (3) “what form of relief, if any, the plaintiff should receive.” J & J Sports, 126 F.Supp.3d at 813‒14.

         A. Procedural Justification

         In determining whether a default judgment is procedurally warranted, a court should consider: (1) “whether material issues of fact are at issue;” (2) “whether there has been substantial prejudice;” (3) “whether the grounds for default are clearly established;” (4) “whether the default was caused by a good faith mistake or excusable neglect;” (5) “the harshness of a default judgment;” and (6) “whether the court would think itself obliged to set aside the default on the defendant's motion.” Lindsey v. Prive Corp., 161 F.3d 886, 893 (5th Cir. 1998).

         First, where as here, a party fails to respond to or answer the complaint, there are no material issues of fact at issue. See John Perez Graphics & Design, LLC v. Green Tree Inv. Grp., Inc., No. 3:12-cv-4194, 2013 WL 1828671, at *3 (N.D. Tex. May 1, 2013) (“Green Tree has not filed a responsive pleading or otherwise appeared in this case, and thus has not contested any facts presented in Plaintiff's Complaint.”). Second, Defendants' failure to respond has caused prejudice to Plaintiff because “failure to respond … threatens to bring the adversary process to a halt, effectively prejudicing Plaintiff's interests in pursuing its rights afforded by law.” Id. Third, as mentioned above, the grounds for default have been clearly established. Fourth, there is no evidence before the Court that “the default was caused by a good faith mistake or excusable neglect.” Fifth, Nelms and Peters have had at least a year to respond to the complaint; thus, “while default judgment is a harsh remedy, any harshness is mitigated [when they have] had substantial time to correct the default.” Helena Chem. Co. v. Aylward, No. 4:15-cv-96, 2016 WL 1611121, at *2 (N.D. Miss. Apr. 21, 2016). Finally, in the event Nelms and Peters later seek to challenge the default, the Court is aware of no facts that would make it “obliged to set aside the default.” Considering these factors, the Court finds that they all weigh in favor of default judgment being procedurally warranted in this case.

         B. Sufficient Basis in Pleadings

         “In light of the entry of default, Defendants are deemed to have admitted the allegations set forth in Plaintiff's Complaint.” J & J Sports., 126 F.Supp.3d at 815. Because documents attached to a complaint are deemed part of the pleadings, [6] a court may consider such attachments when determining whether default judgment is appropriate. See RSDC Holdings, LLC v. Steinberg, No. 16-9381, 2017 WL 117314, at *4 (E.D. La. Jan. 12, 2017) (“If these factual allegations and the materials attached to the pleadings establish that RSDC is the rightful owner ... then the Court will enter a default judgment against the defendants ....”). “However, [a] defendant is not held to admit facts that are not … well pleaded or to admit conclusions of law.” J & J Sports., 126 F.Supp.3d at. at 814 (internal quotation marks omitted); Nishimatsu Const. Co. v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975) (“[A] defendant's default does not in itself warrant the court in entering a default judgment. There must be a sufficient basis in the pleadings for the judgment entered.”). The Court will consider each of Travelers' claims in order to determine if a sufficient basis in the pleadings exists for a default judgment to be entered. In this regard, Travelers asserts two type of claims: (1) contractual claims against Nelms brought on behalf of itself; and (2) various civil claims brought against Nelms and Peters which were assigned to Travelers by Alcorn County.

         1. Contract Claims

         a. Indemnification

         Under Mississippi law, [7] “[a]n obligation to indemnify may arise from a contractual relation ….” Bush v. City of Laurel, 215 So.2d 256, 259 (Miss. 1968). A party seeking indemnity “must prove that (1) it was legally liable to an injured third party, (2) that it paid under compulsion, and that (3) the amount it paid was reasonable.” Certain Underwriters at Lloyd's of London v. Knostman, 783 So.2d 694, 698 (Miss. 2001).

         The Public Official Application and Indemnity Agreement (“Agreement”), signed by Nelms, provides in relevant part:

Indemnitors will at all times indemnify and exonerate [Travelers] from and against any and all loss, cost, expense of whatever kind which it may incur or sustain as a result of or in connection with the furnishing of the Bond and/or the enforcement of this Agreement, including unpaid premiums, interest, court costs and counsel fees, and any expense incurred or sustained by reason of making any investigation.

Doc. #1-3 at 4.

         Travelers issued a public official bond in the amount of $100, 000.00 on behalf of Nelms, which bound it to Alcorn County in the event Nelms failed to faithfully perform the duties of his office during his term as a supervisor. Doc. #1-1. When Nelms allegedly entered into joint and/or separate conspiracies to commit several crimes against Alcorn County, Travelers paid the $100, 000.00 to Alcorn County. Doc. #1 at ¶ 13. Considering that the bond was for $100, 000.00, and Travelers paid such amount, the Court considers $100, 000.00 reasonable. See Bush v. City of Laurel, 215 So.2d 256, 259 (Miss. 1968) (“When one person is required to pay money which another person in all fairness should pay, then the former may recover ...

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