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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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Shoemaker Const. Co., 652 F. Supp.2d 599, 605 (E.D. Pa. 2009) (“A party’s default does not suggest that the party has admitted the amount of damages that the moving party seeks.”). Even in the default judgment context, “[a] court has an obligation to assure that there is a legitimate basis for any damage award it enters.” Anheuser Busch, Inc. v. Philpot, 317 F.3d 1264, 1266 (11th Cir. 2003); see also Credit Lyonnais Securities (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999) (even where default judgment is warranted based on failure to defend, allegations in complaint with respect to damages are not deemed true, and district court must conduct inquiry to ascertain damages with reasonable certainty); Patray v. Northwest Pub., Inc., 931 F.

Supp. 865, 869-70 (S.D. Ga. 1996) (it is proper exercise of judicial power for court upon default to take evidence, fix amount which prevailing party should recover, and then give judgment).

In that regard, the Eleventh Circuit has explained that “[f]ederal law similarly requires a judicial determination of damages absent a factual basis in the record,” even where the defendant is in default. Anheuser Busch, 317 F.3d at 1266. Ordinarily, unless a plaintiff’s claim against a defaulting defendant is for a sum certain, the law “requires the district court to hold an evidentiary hearing” to fix the amount of damages. S.E.C. v. Smyth, 420 F.3d 1225, 1231 (11th Cir. 2005). However, no hearing is needed “when the district court already has a wealth of evidence from the party requesting the hearing, such that any additional evidence would be truly unnecessary to a fully informed determination of damages.” Id. at 1232 n.13.5 See also Flynn v. Extreme Granite, Inc., --- F. Supp.2d ----, 2009 WL 4363218, *2 (D.D.C. Dec. 3, 2009) (district court is not required to hold hearing to fix damages in default judgment context as long as it ensures there is a basis for damages specified); Eastern Elec.

Corp., 652 F. Supp.2d at 605 (“In considering the amount of damages..., the Court may make its

-6Case 1:09-cv-00089-WS-B Document 35 Filed 03/03/10 Page 7 of 13 Here, Penn National has come forward with extensive affidavits and other documentation to support the requested damage award. In particular, plaintiff submits the Affidavit of Katheryn R. Scott, a certified fraud examiner and forensic financial analyst who studied Centerline’s financial records pertaining to Edmonds’ misconduct and prepared a comprehensive 56-page report (which is appended to the Affidavit) detailing her investigation and findings. (Doc. 34, Exh. A.) By Scott’s calculations, the total loss to Centerline arising from Edmonds’ misappropriation of funds between January 2003 and April 2008 is $417,885.76. (Id. at 7.) Scott’s research, investigation and conclusions concerning the Edmonds matter were independently audited by Gregory B. Pellish, a certified public accountant who also submitted an affidavit in support of Penn National’s Motion for Default Judgment. (See Doc. 34, Exh. C.) Based on his review of Scott’s report, Pellish opined that her conclusions and loss figures were well-documented, reasonable, and derived from an extensive forensic audit. (Id. at 6-7.) In further support of its damages request, Penn National submits the Affidavit of Mark Broadrick, a general adjuster for Penn National. Broadrick confirms that Centerline made a claim to Penn National in April 2008 under the applicable fidelity bond for employee dishonesty loss. (Doc. 34, Exh. B at 4.) Broadrick avers that Penn National investigated this claim for more than a year, after which it concluded that, as a result of Edmonds’ fraudulent activities, Centerline had suffered an employee dishonesty loss in the amount of $417,885.76 between January 2003 and April 2008. (Id. at 6, 10.) According to Broadrick, the portion of that loss covered by the Penn National fidelity bond (coverage for which did not commence until December 8, 2004, some 23 months after Edmonds’ fraudulent activity began) was $359,167.08.

determination by conducting a hearing or by receiving detailed affidavits from the claimant.”);

Virgin Records, 510 F. Supp.2d at 593-94 (“Where the amount of damages sought is a sum certain, or where an adequate record has been made via affidavits and documentary evidence to show... damages, no evidentiary hearing is required.”); Natures Way Marine, LLC v. North American Materials, Inc., 2008 WL 801702, *3 (S.D. Ala. Mar. 24, 2008) (“Although the trial court must make determinations as to the amount and character of damages, it is not necessary to conduct an evidentiary hearing to fix damages if the amounts sought by plaintiff are adequately supported by supporting affidavits and other documentation.”).

-7Case 1:09-cv-00089-WS-B Document 35 Filed 03/03/10 Page 8 of 13 (Id. at 11.)6 The Broadrick Affidavit also establishes that Penn National ultimately paid Centerline the sum of $359,167.08 based on its investigation of the claim. (Id. at 13, 14.) Finally, Broadrick shows that Penn National and Centerline had entered into an agreement whereby Centerline “assigned all of its rights against Edmonds to Penn National, encompassing the entire Loss, not just the portion of the Loss covered by the Bond.” (Id. at 16.) This arrangement was also pleaded in the Complaint as a factual matter.

On the basis of that factual showing, Penn National seeks an award of damages against Edmonds in the total amount of $417,885.76, representing the entire loss incurred by Centerline, rather than just the portion for which Penn National provided coverage. In light of this comprehensive and meticulous evidentiary submission, the Court is satisfied that plaintiff has met its burden of making an adequate showing of damages, and that no evidentiary hearing is required to fix those amounts. Simply put, Penn National has furnished this Court with all necessary information to make a determination of the amount of damages; therefore, no hearing will be conducted. After consideration of the record materials, and bearing in mind plaintiff’s burden of proving its damages, the Court finds that the total loss to Penn National from Edmonds’ misconduct is $359,167.08. The Court further finds that Centerline suffered an additional loss of $58,781.68 because of Edmonds’ activities, which loss was not covered by Penn National’s insurance policies and fidelity bonds issued to Centerline because it predated the December 8, 2004 coverage date; nonetheless, because Centerline has assigned that portion of the claim to Penn National and the Complaint apprised Edmonds of that assignment, Penn National can properly claim that additional sum as part of the compensable losses.





C. Discrepancy Between Complaint and Damages Sought.

Notwithstanding the foregoing, Penn National is not entitled to the full measure of damages delineated in its evidentiary submission accompanying its Motion for Default Judgment. The sticking point is that there is a disconnect between the relief sought in the Complaint and that for which Penn National is petitioning the Court in its Rule 55 motion. The This figure is firmly grounded in Scott’s report, pages 5 and 12 of which summarize data demonstrating that of the total loss of $417,885.76, some $359,167.08 “occurred during the time that [Centerline] was bonded” through Penn National. (Doc. 34-1, at 18.)

–  –  –

Complaint is confined to specific, narrow allegations of misconduct by Edmonds, including (i) using company credit cards to make unauthorized purchases and paying those credit card invoices with company funds, (ii) depositing customer checks payable to Centerline in her personal bank account or cashing them for her personal use, (iii) engaging in unauthorized counterwithdrawals from Centerline’s checking account and/or writing checks to herself to transfer cash from that account to her, and (iv) overpaying herself and her husband through payroll checks. (Doc. 1, 10-13, 21-41.) The Complaint does not couch this in-depth recitation of Edmonds’ fraudulent schemes as illustrative, rather than exhaustive. It does not allege that she engaged in other types of fraudulent behavior. It does not place defendant on notice that Penn National is seeking to recover funds beyond these specifically enumerated categories of misappropriation. It lacks any kind of catch-all language that might reasonably evince an intent to claim damages for other types of fraudulent activities by Edmonds. Similarly, although the Complaint mentions Centerline’s line of credit in passing on two occasions, nowhere does the 12-page, 82-paragraph pleading suggest that Edmonds’ wrongful conduct led to a vast increase in Centerline’s interest obligations on that line of credit, much less that Penn National seeks recovery of those interest payments here.

These limitations in the pleading are of considerable importance for default judgment purposes, because plaintiff’s evidence of damages encompasses items omitted from the Complaint. In particular, Penn National’s proposed damages figure includes sums attributable to Edmonds’ theft of petty cash funds ($3,239.12), diversion of cash payments intended for petty cash ($771.20), travel advance irregularities ($56,162.00), skimming of customer payments via a lapping scheme (i.e., application of second customer’s check to a first customer’s account to conceal the theft of the first customer’s payment) ($9,014.00), on-line payments of Edmonds’ personal charge and service accounts (as opposed to Centerline charge accounts) using funds from Centerline’s bank account ($26,394.90), and increased interest obligations of Centerline based on the elevated line of credit balance arising from Edmonds’ misconduct ($67,018.64).

(See doc. 34, Exh. A, at 11, 16-18, 22-43.) The Complaint references none of these forms of misappropriation or loss.

The law is quite clear that a plaintiff seeking a default judgment is confined to the specific factual allegations and demands delineated in the Complaint. A default judgment “does

-9Case 1:09-cv-00089-WS-B Document 35 Filed 03/03/10 Page 10 of 13 not give the plaintiff a blank check to recover from the defaulting defendant any losses it had ever suffered from whatever source.” Jackson v. Correctional Corporation of America, 564 F.

Supp.2d 22, 27 (D.D.C. 2008) (citations omitted). Rather, recovery is limited to the kind and amounts of losses set forth in the pleadings. The Federal Rules of Civil Procedure emphasize the point by stating that “[a] default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings.” Rule 54(c), Fed.R.Civ.P.; see also WMS Gaming Inc. v.

WPC Productions Ltd., 542 F.3d 601, 606 (7th Cir. 2008) (“because this was a default judgment, the usual rule that a party should be given the relief to which it is entitled whether or not it has requested that relief does not apply”); Ward v. Real Ships, Inc., 2009 WL 3528365, *5 n.12 (S.D.

Ala. Oct. 22, 2009) (“It is improper for a plaintiff to expand the tenor and scope of its factual allegations in... default judgment proceedings.”); United States v. Giles, 538 F. Supp.2d 990, 994 (W.D. Tex. 2008) (“the relief prayed for in a complaint defines the scope of relief available on default judgment”); Capitol Records v. Carmichael, 508 F. Supp.2d 1079, 1084 (S.D. Ala.

2007) (notwithstanding defendant’s default, “judgment may be granted only for such relief as may lawfully be granted upon the well-pleaded facts alleged in the complaint”) (citation omitted).

The case of Silge v. Merz, 510 F.3d 157 (2nd Cir. 2007), is instructive on this issue. In Silge, the plaintiff sought an award of pre-judgment interest from a defaulted defendant, but the complaint omitted reference to any such claim. After observing that the plaintiff’s failure to articulate a demand for pre-judgment interest limited his damages under Rule 54(c), the appellate court explained that “This is a sensible rule. Because complaints can be long and intricate, a lawyer is often required to help a defendant gain a full understanding of the plaintiff’s claims. By limiting damages to what is specified in the ‘demand for judgment,’ the rule ensures that a defendant who is considering default can look at the damages clause, satisfy himself that he is willing to suffer judgment in that amount, and then default without the need to hire a hire a lawyer.” Id. at 160 (footnote omitted).

Simply stated, the Complaint does not demand relief for Edmonds’ theft of petty cash funds, diversion of cash payments intended for petty cash, travel advance irregularities, lapping scheme for customer payments, on-line payments of Edmonds’ personal charge and service

-10Case 1:09-cv-00089-WS-B Document 35 Filed 03/03/10 Page 11 of 13 accounts, or increased interest obligations arising from Edmonds’ draw-down of Centerline’s line of credit. A defendant reviewing the Complaint and deciding whether or not to defend against Penn National’s claims would not reasonably be on notice that these categories of fraud were in play, given the specificity of the Complaint and the omission of these items.7 Accordingly, under Rule 54(c) and the case authorities cited above, the Court excludes these categories of compensatory damages, which equate to $162,599.86 in the aggregate, according to plaintiff’s evidence. After subtracting this excluded amount from the total loss proven by plaintiff (which, again, is $417,885.76), the Court awards compensatory damages to Penn National in the amount of $255,285.90.

D. Award of Punitive Damages.

Finally, Penn National requests that the default judgment include an award of punitive damages in the amount of $150,000. In contrast to the excluded categories of compensatory damages discussed supra, Penn National properly pleaded a demand for punitive damages.

Indeed, the ad damnum clause of the Complaint specifically requests “[p]unitive damages against Edmonds in the amount of $150,000.” (Doc. 1, at 12.) It is hornbook law that “the purpose of punitive damages is not to compensate the plaintiff but to punish the wrongdoer and to deter the wrongdoer and others from committing similar wrongs in the future.” Green Oil Co. v. Hornsby, 539 So.2d 218, 222 (Ala. 1989).



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