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«IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION PENNSYLVANIA NATIONAL MUTUAL ) CASUALTY INSURANCE COMPANY, ...»

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Case 1:09-cv-00089-WS-B Document 35 Filed 03/03/10 Page 1 of 13

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

PENNSYLVANIA NATIONAL MUTUAL )

CASUALTY INSURANCE COMPANY, )

) Plaintiff, ) ) v. ) CIVIL ACTION 09-0089-WS-B ) BRANDY EDMONDS, ) ) Defendant. ) ORDER This matter comes before the Court on plaintiff’s Motion for Default Judgment (doc. 33) and supporting evidentiary submission.

I. Relevant Background.

This action concerns the misappropriation of hundreds of thousands of dollars belonging to a Mobile, Alabama metal fabricating company called Centerline, Inc. d/b/a the Coppersmith (“Centerline”) by one of its former employees, defendant Brandy Edmonds.

In the Complaint (doc. 1) filed on February 20, 2009, plaintiff, Pennsylvania National Mutual Casualty Insurance Company (“Penn National”), set forth very specific allegations describing Edmonds’ course of conduct in stealing from her employer.1 The Complaint alleged that Edmonds worked for Centerline as a bookkeeper and office manager, pursuant to which her job duties included payment of legitimate invoices submitted to Centerline and deposit of All well-pleaded factual allegations in the Complaint are deemed admitted by virtue of defendant’s default. See, e.g., Eagle Hosp. Physicians, LLC v. SRG Consulting, Inc., 561 F.3d 1298, 1307 (11th Cir. 2009) (defaulting defendant “admits the plaintiff’s well-pleaded allegations of fact, is concluded on those facts by the judgment, and is barred from contesting on appeal the facts thus established”) (citation omitted); Nishimatsu Const. Co., Ltd. v. Houston Nat. Bank, 515 F.2d 1200, 1206 (5th Cir. 1975) (“The defendant, by his default, admits the plaintiff’s well-pleaded allegations of fact.”); Capitol Records v. Carmichael, 508 F. Supp.2d 1079, 1084 n.3 (S.D. Ala. 2007) (“The effect of a default is to render all well-pleaded factual allegations of the complaint (except those relating to damages) admitted.”).

Case 1:09-cv-00089-WS-B Document 35 Filed 03/03/10 Page 2 of 13 customer checks in Centerline’s corporate checking account. (Doc. 1, 6, 8.) In performing these duties, “Edmonds engaged in an intentional, systematic campaign of misappropriating company funds for her personal use.” (Id. at 9.) As reflected in the Complaint, Edmonds’ theft from Centerline was accomplished through the following types of conduct: (i) use of Centerline credit cards to make unauthorized charges and payment of the ensuing invoices with Centerline funds; (ii) deposit of Centerline customer checks in Edmonds’ personal bank account; (iii) frequent, unauthorized counterwithdrawal of funds from Centerline’s checking account, resulting in cash transfers from that account to Edmonds; and (iv) overpayment of Edmonds and her husband through Centerline payroll checks. (Id. at 10-13.)2 As of the filing of the Complaint, it was estimated that Edmonds had misappropriated at least $250,000 through these methods over a period spanning several years. (Id. at 14.) As noted, the named plaintiff is Penn National, not Centerline, the employer who was directly injured by Edmonds’ misconduct. However, the Complaint adequately explained Penn National’s involvement in the case, and its standing to pursue causes of action against Edmonds.

In particular, the well-pleaded factual allegations of the Complaint reflect that Centerline maintained an insurance policy and fidelity bond (collectively, the “Policy”) with Penn National for the period from December 8, 2004 through December 8, 2008, that the Policy covered losses caused by employee dishonesty, that Centerline had made a claim on the Policy after discovering Edmonds’ transgressions, that Penn National had paid its insured $150,000 on the claim, and that further payments were contemplated (up to a total of $500,000 or more) as the investigation continued. (Id. at 16-18, 53-54, 61-62, 67-68, 73-74, 81-82.) The Complaint also referenced The Complaint amplified each of these categories of misconduct with additional facts. With respect to credit cards, the Complaint included allegations that Edmonds had charged approximately $138,399.08 in personal, unauthorized expenses on a Centerline corporate American Express credit card between 2005 and April 2008, as well as $10,564.77 on a Centerline corporate credit card with Advanta, and had then paid those bills using funds from Centerline’s checking account or line of credit. (Id. at 21-32.) As to customer checks, the Complaint alleged that in 2006, Edmonds had taken customer checks payable to Centerline in amounts approximating $22,000 and had deposited or cashed those checks for personal use. (Id.

at 33-37.) The Complaint further alleged that between October 2005 and February 2008, Edmonds improperly withdrew approximately $75,000 from the Centerline checking account via counterwithdrawals or checks written to herself. (Id. at 41.)

-2Case 1:09-cv-00089-WS-B Document 35 Filed 03/03/10 Page 3 of 13 an Assignment of Claims agreement through which Centerline “assigned to Penn National any and all claims it may have for losses that occurred prior to the Policy period.” (Id. at 19.)3 The Complaint indicated that Penn National was bringing this action “as subrogee and assignee of Centerline to recover monies paid to Centerline pursuant to the Policy.” (Id. at 20.) Based on these allegations, Penn National brought five causes of action against Edmonds, including claims for conversion (predicated on allegations that Edmonds had wrongfully exercised dominion and control over Centerline’s checking account and customer checks), civil theft / embezzlement (again, based on Edmonds having stolen funds from Centerline’s checking account and customer checks payable to Centerline), unjust enrichment (based specifically on Edmonds’ theft of assets from the Centerline checking account as well as customer checks payable to Centerline), breach of duty of loyalty and fiduciary duty (again pertaining to theft of funds from the Centerline checking account and diversion of customer checks), and suppression of facts concerning the misappropriated assets.





Edmonds was served with process on March 20, 2009, when a private process server delivered copies of the summons and complaint to Edmonds at an address in Chunchula, Alabama. (Doc. 11.) Despite such service, Edmonds did not appear or defend against plaintiff’s claims within the time prescribed by the Federal Rules of Civil Procedure. Upon proper application by plaintiff, the Clerk of Court entered a default against Edmonds on April 28, 2009, pursuant to Rule 55(a), Fed.R.Civ.P. (Doc. 17.) On April 29, 2009, the undersigned entered an Order (doc. 19) that, inter alia, placed Edmonds on notice of the pending default proceedings.

That April 29 Order unequivocally alerted Edmonds that if she or her representative did not appear in this action, she would not be entitled to, and would not be given, any further notice concerning Penn National’s efforts to secure a default judgment against her. Despite this notice, which was mailed to her service address, Edmonds has never appeared or participated in this litigation.

After a stay of more than seven months to enable Penn National to complete its This Assignment conferred upon Penn National the right to sue Edmonds for losses to Centerline predating the December 2004 coverage date under the Policy. That detail is significant because the wrongdoing for which Penn National seeks recovery in these proceedings stretches back to early 2003, well before the Policy’s effective date.

-3Case 1:09-cv-00089-WS-B Document 35 Filed 03/03/10 Page 4 of 13 investigation of Centerline’s insurance claim, plaintiff filed a Motion for Default Judgment (doc.

33). In that Motion, Penn National seeks entry of default judgment against Edmonds in the total amount of $567,885.76, consisting of $359,167.08 in Penn National losses covered by the Policy, an additional $58,781.68 in non-covered losses to Centerline that predate the Policy, and $150,000 in punitive damages.

II. Analysis.

A. Propriety of Default Judgment.

In this Circuit, “there is a strong policy of determining cases on their merits and we therefore view defaults with disfavor.” In re Worldwide Web Systems, Inc., 328 F.3d 1291, 1295 (11th Cir. 2003); see also Varnes v. Local 91, Glass Bottle Blowers Ass'n of U.S. and Canada, 674 F.2d 1365, 1369 (11th Cir. 1982) (“Since this case involves a default judgment there must be strict compliance with the legal prerequisites establishing the court’s power to render the judgment.”). Nonetheless, it is well established that a “district court has the authority to enter default judgment for failure... to comply with its orders or rules of procedure.” Wahl v. McIver, 773 F.2d 1169, 1174 (11th Cir. 1985).

Where, as here, a defendant has failed to appear or otherwise acknowledge the pendency of a lawsuit for nearly a year after being served, entry of default judgment is appropriate.

Indeed, Rule 55 itself provides for entry of default and default judgment where a defendant “has failed to plead or otherwise defend as provided by these rules.” Rule 55(a), Fed.R.Civ.P. In a variety of contexts, courts have entered default judgments against defendants who have failed to defend the claims against them following proper service of process.4 In short, then, “[w]hile modern courts do not favor default judgments, they are certainly appropriate when the adversary See, e.g., In re Knight, 833 F.2d 1515, 1516 (11th Cir. 1987) (“Where a party offers no good reason for the late filing of its answer, entry of default judgment against that party is appropriate.”); Matter of Dierschke, 975 F.2d 181, 184 (5th Cir. 1992) (“when the court finds an intentional failure of responsive pleadings there need be no other finding” to justify default judgment); Kidd v. Andrews, 340 F. Supp.2d 333, 338 (W.D.N.Y. 2004) (entering default judgment against defendant who failed to answer or move against complaint for nearly three months); Viveros v. Nationwide Janitorial Ass'n, Inc., 200 F.R.D. 681, 684 (N.D. Ga. 2000) (entering default judgment against counterclaim defendant who had failed to answer or otherwise respond within time provided by Rule 12(a)(2)).

-4Case 1:09-cv-00089-WS-B Document 35 Filed 03/03/10 Page 5 of 13 process has been halted because of an essentially unresponsive party.” Flynn v. Angelucci Bros.

& Sons, Inc., 448 F. Supp.2d 193, 195 (D.D.C. 2006) (citation omitted). That is precisely what Edmonds has done here.

The law is clear, however, that Edmonds’ failure to appear and the Clerk’s subsequent entry of default do not automatically entitle Penn National to a default judgment in the requested (or any) amount. Indeed, a default is not “an absolute confession by the defendant of his liability and of the plaintiff’s right to recover,” but is instead merely “an admission of the facts cited in the Complaint, which by themselves may or may not be sufficient to establish a defendant’s liability.” Pitts ex rel. Pitts v. Seneca Sports, Inc., 321 F. Supp.2d 1353, 1357 (S.D. Ga. 2004);

see also Nishimatsu Constr. Co. v. Houston Nat’l Bank, 515 F.2d 1200, 1204 (5th Cir. 1975) (similar); Descent v. Kolitsidas, 396 F. Supp.2d 1315, 1316 (M.D. Fla. 2005) (“the defendants’ default notwithstanding, the plaintiff is entitled to a default judgment only if the complaint states a claim for relief”). Stated differently, “a default judgment cannot stand on a complaint that fails to state a claim.” Chudasama v. Mazda Motor Corp., 123 F.3d 1353, 1370 n.41 (11th Cir. 1997);

see also Eagle Hosp. Physicians, LLC v. SRG Consulting, Inc., 561 F.3d 1298, 1307 (11th Cir.

2009) (“A default defendant may, on appeal, challenge the sufficiency of the complaint, even if he may not challenge the sufficiency of the proof.”).

In light of these principles, the Court has reviewed the Complaint and is satisfied that it sets forth viable causes of action against Edmonds under Alabama law. The intentional misconduct ascribed to Edmonds in the Complaint (to-wit, making unauthorized personal charges on corporate credit cards, paying for those charges using funds in Centerline’s checking account, depositing customer checks payable to Centerline in her personal account or cashing them for her personal use, making unauthorized counterwithdrawals from Centerline’s checking account, overpaying herself and her husband through payroll checks, and concealing her wrongdoing for years) is pleaded with sufficient detail to state cognizable claims for conversion, civil theft / embezzlement, unjust enrichment, breach of duty of loyalty / fiduciary duty, and fraudulent suppression. Because all of these well-pleaded factual allegations are deemed admitted by virtue of Edmonds’ default, the Court finds that she is liable to Penn National.

The Court having determined that Edmonds’ non-responsiveness justifies entry of default judgment against her under Rule 55, Fed.R.Civ.P., and that the well-pleaded factual allegations

-5Case 1:09-cv-00089-WS-B Document 35 Filed 03/03/10 Page 6 of 13 that Edmonds has admitted through her default are sufficient to establish her liability to Penn National on the stated legal theories, the only remaining question is the amount of damages to which Penn National is entitled.

B. Adequacy of Plaintiff’s Proof of Damages.

“While well-pleaded facts in the complaint are deemed admitted, plaintiffs’ allegations relating to the amount of damages are not admitted by virtue of default; rather, the court must determine both the amount and character of damages.” Virgin Records America, Inc. v. Lacey, 510 F. Supp.2d 588, 593 n.5 (S.D. Ala. 2007); see also Eastern Elec. Corp. of New Jersey v.



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