SRS Distribution Inc. v. Southers Construction Incorporated et al

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
SRS Distribution Inc.
v. 	Case No. 1:24-cv-50-PB-AJ
Southers Construction
Incorporated, et al.
REPORT AND RECOMMENDATION
Plaintiff SRS Distribution Inc. (“SRS”) filed suit against
Southers Construction Incorporated (“Southers Construction”) and
Ricky Southers (“Southers”), individually, to recover money owed
under the terms of a promissory note and personal guaranty.1
Neither Southers Construction nor Southers responded to SRS’s
complaint, and on May 16, 2024, the Clerk of Court entered
default against them. 	(Doc. No. 10). 	Before the court for
recommendation as to disposition is SRS’s motion for default
judgment (Doc. No. 16) pursuant to Federal Rule of Civil
Procedure 55(b)(2).2 	For reasons explained below, the court
1 This court has diversity jurisdiction under 28 U.S.C. §
1332(a).
2 At the September 9, 2024 damages hearing, SRS clarified
that it seeks default judgment under Rule 55(b)(2). 	See, e.g.,
Trustees of Sheet Metal Workers Local Union No. 17 Ins. Fund v.
Phils HVAC, Inc., No. 21-cv-10680-ADB, 2021 WL 4594925, at *2
(D. Mass. Oct. 6, 2021) (noting plaintiffs must utilize Rule
55(b)(2) because the reasonableness of their request for
attorneys' fees requires judicial review).
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recommends that SRS’s motion be granted and that damages be
awarded in the amount of $266,773.07.
STANDARD OF REVIEW
A defaulted party “is deemed ‘to have conceded the truth of
the factual allegations in the complaint as establishing the
grounds for liability as to which damages will be calculated.’”
Universitas Educ., LLC v. Granderson, 98 F.4th 357, 377 (1st
Cir. 2024) (quoting 	Franco v. Selective Ins. Co., 184 F.3d 4, 9
n.3 (1st Cir. 1999)). 	“Notwithstanding that concession, the
district court ‘may 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)).
Further, the court may hold a hearing “to establish the truth of
any averment in the complaint,” or a hearing may be required “to
set damages when the amount is in dispute or is not
ascertainable from the pleadings.” 	In re The Home Restaurants,
Inc., 285 F.3d 111, 114 (1st Cir. 2002) (citing Fed. R. Civ. P.
55(b)(2)).
BACKGROUND
By virtue of their default, Southers Construction and
Southers concede the following facts alleged in SRS’s verified
complaint (Doc. No. 1). 	On March 9, 2023, SRS, Southers
Construction, and Southers executed a promissory note (the
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“Note”). 	Under the terms of the Note, Southers Construction and
Southers, in his individual capacity, agreed to pay SRS the
principal amount of $407,905.14 in weekly installments of
$5,000.00 until October 31, 2023, when the balance was due in
full.3 	See Note, Ex. A to Verified Compl., (Doc. No. 1-1) at 1-
4. 	In addition to the Note, Southers executed a personal
guaranty (the “Guaranty”). 	Under the terms of the Guaranty,
Southers agreed to “personally and individually . . .
unconditionally guarantee to [SRS] the full and prompt payment
of all obligations which [Southers Construction] presently or
hereafter may have to [SRS].” 	See Guaranty, Ex. B to Verified
Compl., (Doc. No. 1-1) at 5-6.
Defendants’ last payment under the Note occurred on October
24, 2023, and as of that date, the balance totaled $258,848.65.
On November 20, 2023, SRS sent a demand to Southers, requesting
that the outstanding balance be paid immediately. 	Neither
Southers Construction nor Southers made any further payments to
SRS.
On February 22, 2024, SRS initiated this action against
Southers Construction and Southers. 	See Verified Compl. (Doc.
3 The terms of the Note state that interest shall accrue on
the unpaid balance at the rate of 12% per year, but SRS has not
included that interest in its request for damages.
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No. 1). 4 	SRS attached a copy of the Note, the Guaranty, and a
ledger to its verified complaint. 	Id. 	The ledger identified
payments received by SRS and the outstanding balance in the
amount of $258,848.65. 	See Ledger, Ex. E to Verified Compl.,
(Doc. No. 1-1) at 12. 	Southers Construction and Southers were
served with a copy of the summons and complaint on March 21,
2024, and SRS filed a return of service (Doc. No. 7) on March
29, 2024. 	When neither Southers Construction nor Southers filed
a response within the time allowed, the Clerk of Court entered
default against them. 	Entry of Default (Doc. No. 10). 	SRS now
moves for default judgment as to Southers Construction and
Southers (Doc. No. 16).
On September 9, 2024, the court held a hearing on damages.
Counsel for SRS appeared, and Tonya Morgan, a credit manager for
SRS, appeared by telephone. 	Defendants did not appear. 	During
the hearing, Morgan testified that she oversaw the Southers
Construction and Southers account and that she created the
ledger for the Note as a business record for SRS. 	Morgan
4 Provident Bank was also named as a trustee defendant. 	On
May 17, 2024, Provident Bank filed a trustee disclosure form
(Doc. No. 13), representing under oath that it holds no assets
of the primary defendants. 	No other party objected to the
notice. 	Accordingly, on July 11, 2024, the court issued an
order (Doc. No. 15), dismissing Provident Bank as a nominal
defendant pursuant to N.H. Rev. Stat. § 512:18-a.
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further testified that, as part of her job, she manually updated
the ledger using Microsoft Excel and processed defendants’
payments on the date of receipt. 	She logged 28 payments by
defendants, and when they stopped making payments, she
calculated the outstanding balance of $258,848.65.
DISCUSSION
SRS brings claims of breach of contract against Southers
Construction (Count I) and Southers, individually (Count II).
In its motion for default judgment, SRS seeks the entry of
judgment on both claims and damages in the amount of
$266,773.48, reflecting the outstanding balance of $258,848.65
under the Note and attorneys’ fees in the amount of $7,924.82.
I. 	Liability
A. Choice of Law
The Note contains the following choice of law provision:
“This Note will be construed in all respects and enforced
according to the laws of Texas.” 	Note, Ex. A to Verified
Compl., (Doc. No. 1-1) at 2. 	In a diversity action, as here,
“the forum state’s substantive law governs, so the court must
apply New Hampshire’s choice-of-law principles to determine the
applicable law.” 	Ortiz v. Sig Sauer, Inc., 596 F. Supp. 3d 339,
350 (D.N.H. 2022). 	“According to New Hampshire’s choice-of-law
rules, the party claiming that another state’s law applies must
demonstrate ‘that the relevant substantive New Hampshire law is
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in actual conflict with that of the other interested state.’”
Id. (quoting Fujifilm N. Am. Corp. v. M&R Printing Equip., Inc.,
565 F.Supp.3d 222, 232 (D.N.H. 2021)). 	If the moving party
demonstrates an actual conflict, the court must proceed with the
choice-of-law analysis, but “[i]f the moving party does not so
demonstrate, the court applies New Hampshire law.” 	Id.
During the September 9, 2024 damages hearing, SRS
represented that it was not aware of an actual conflict between
Texas and New Hampshire law. 	Accordingly, the court will apply
New Hampshire law.5
B. Breach of Contract (Counts I and II)
“To state a claim for breach of contract under New
Hampshire law, a plaintiff must allege (1) that a valid, binding
contract existed between the parties, and (2) that the defendant
breached the terms of that contract.” 	Doe v. Trustees of
Dartmouth College, 615 F. Supp. 3d 47, 60 (D.N.H. 2022). “A
breach of contract occurs when there is a failure without legal
excuse to perform any promise which forms the whole or part of a
contract.” 	Lassonde v. Stanton, 157 N.H. 582, 588, 956 A.2d 332
5 The court notes that as to the calculation of reasonable
attorneys’ fees, Texas applies the lodestar method, whereas New
Hampshire does not. 	Because the court reaches the same
conclusion under either approach, the court need not resolve
which law applies.
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(2008); see also Abraxas Petroleum Corp. v. Hornburg, 20 S.W.3d
741, 758 (Ct. App. Tex. 2000) (noting that under Texas law,
“[t]he elements of a breach of contract claim are the existence
of a valid contract; performance or tendered performance by the
plaintiff; breach of the contract by the defendant; and damages
to the plaintiff resulting from that breach.”).
“A guaranty is a conditional promise to pay the debt of
another in the event of default by the principal debtor.”
Middleton Bldg. Supply, Inc. v. Gidge, No. 98-C-185, 2000 WL
33915975, at *2 (N.H. June 5, 2000). 	“It constitutes ‘a
separate, independent contract between the guarantor and the
creditor, and is collateral to the contractual obligation
between the creditor and the principal debtor.’” 	Id. (quoting
38 Am Jur 2d, Guaranty § 2). 	The rules “governing construction
of contracts apply to the construction of a guaranty.” 	Id.
(quoting 38 Am Jur 2d, Guaranty § 5); 	see also Interstate
35/Chisam Road, L.P. v. Moayedi, 377 S.W.3d 791, 796 (Ct. App.
Tex. 2012) (“Courts construe guaranty agreements as any other
contract.”). 	Where the terms of a guaranty agreement are “clear
and explicit,” and show “with reasonable clarity, an intent to
be liable on an obligation in case of default by the primary
obligor, it is enforceable as a guaranty.” 	Gidge, 2000 WL
33915975, at *3 (quotation omitted).
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Based on the admitted allegations, SRS sufficiently
demonstrated that Southers Construction and Southers breached
the terms of the Note and the Guaranty. 	Specifically, the Note
is a valid and binding contract between SRS, Southers
Construction, and Southers, individually. 	The terms of the Note
required Southers Construction and Southers to pay SRS the
principal amount of $407,905.14 in weekly installments of
$5,000.00 until October 31, 2023, when the balance was due in
full. 	See Note, Ex. A to Verified Compl., (Doc. No. 1-1) at 1-
4. 	Where defendants made no further payments under the Note
after October 24, 2023, despite SRS’s demand for payment of
the $258,848.65 outstanding balance, defendants are in breach of
the Note.
In addition, under the terms of the Guaranty, Southers
agreed to “personally and individually . . . unconditionally
guarantee to [SRS] the full and prompt payment of all
obligations which [Southers Construction] presently or hereafter
may have to [SRS].” 	Guaranty, Ex. B to Verified Compl., (Doc.
No. 1-1) at 5. 	The Guaranty expressly states that SRS is
providing “valuable consideration . . . including but not
limited to the extension of credit . . . to Southers
[C]onstruction.” 	Id. 	Thus, the terms of the Guaranty clearly
demonstrate Southers’s intent to be personally liable in
exchange for credit being extended to Southers Construction, and
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therefore, the Guaranty constitutes a valid, binding agreement.
By failing to make payment under the Note, Southers also
breached the terms of the Guaranty. 	Accordingly, Southers
Construction and Southers are liable to SRS for breach of
contract.
II. 	Damages
In the case of defaulting defendants, “the amount of
damages are not necessarily established as a result of the
default.” 	Int’l Union of Operating Eng’rs, Local 4 v. Stanley
Excavation, 243 F.R.D. 25, 27 (D. Me. 2007) (quotation omitted).
Rather, allegations of damages “must be established by proof
unless the damages involve a sum certain or are for liquidated
damages.” 	Id. (quotation omitted). 	Where a party seeks to
recover both a sum certain and damages that require judicial
determination under Rule 55(b)(2), “the entire matter, including
the sum certain, must be determined under Rule 55(b)(2).” 	Id.
at 27 n.5 (citing Conetta v. Nat'l Hair Care Ctrs., Inc., 186
F.R.D. 262, 268 (D.R.I.1999) (“A case is either for a ‘sum
certain’ or not. A party must choose one of the two procedures
offered by Fed. R. Civ. P. 55(b) . . . .”), aff’d, 236 F.3d 67
(1st Cir.2001)). 	An award of attorneys’ fees is not a sum
certain where the reasonableness of attorneys’ fees requires
judicial review. 	Id.
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Here, SRS seeks to recover: (1) the outstanding balance
under the Note, which totals $258,848.65; and (2) attorneys’
fees and costs under the Note. 	Accordingly, the court must
analyze SRS’s request for damages under Rule 55(b)(2).
A. Contractual Damages
Damages for breach of contract are intended to “put the
non-breaching party in the same position it would have been in
if the contract had been fully performed.” 	Audette v. Cummings,
165 N.H. 763, 770, 82 A.3d 1269 (2013) (quotation omitted). 	“A
party claiming damages for breach of contract must show, by a
preponderance of the evidence, that the damages were caused by
the defendant’s alleged wrongful act, as well as the extent and
amount of such damages.” 	Id.; see also Hornburg, 20 S.W.3d 	at
760 (noting that the “universal rule for measuring damages for
the breach of a contract is just compensation for the loss
or damage actually sustained.” ).
During the September 9, 2024 damages hearing, SRS’s credit
manager, Morgan, testified that she created the ledger for the
Note as a business record for SRS. 	Morgan further testified
that, as part of her job, she manually updated the ledger using
Microsoft Excel and processed payments on the date of receipt.
She logged 28 payments by Southers and/or Southers Construction.
Defendants made no further payments under the Note after October
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24, 2023, and at that time, the outstanding balance totaled
$258,848.65. 	Thus, as damages for breach of contract under the
terms of the Note and the Guaranty, SRS has demonstrated that it
is entitled to judgment in the amount of $258,848.65.
B. Attorneys’ Fees and Costs
The Note provides that Southers and Southers Construction
“will pay all reasonable attorneys’ fees and other expenses that
[SRS] may incur in connection with the collection or enforcement
of [the] Note or the preservation or disposition of any
Collateral.” 	Note, Ex. A to Verified Compl., (Doc. No. 1-1) at
2.
In a diversity action that raises state law claims, “state
law governs the award of fees.” 	GT Solar Inc. v. EMX Controls,
Inc., No. 12-CV-253-JD, 2012 WL 6214405, at *1 (D.N.H. Dec. 10,
2012) (citing In re Volkswagen & Audi Warranty Extension Litig.,
692 F.3d 4, 15 (1st Cir. 2012)). 	To determine the
reasonableness of attorneys’ fees under New Hampshire law,
courts consider “the amount involved, the nature, novelty, and
difficulty of the litigation, the attorney's standing and the
skill employed, the time devoted, the customary fees in the
area, the extent to which the attorney prevailed, and the
benefit thereby bestowed on his clients.” 	Town of Barrington v.
Townsend, 164 N.H. 241, 250, 55 A.3d 952 (2012).
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Texas, consistent with federal law, applies the lodestar
method to evaluate the reasonableness of an award of attorneys’
fees. 	See El Apple I, Ltd. v. Olivas, 370 S.W.3d 757, 760 (Tex.
2012). 	Under the lodestar method, courts first “calculate the
number of hours reasonably expended by the attorneys for the
prevailing party, excluding those hours that are ‘excessive,
redundant, or otherwise unnecessary.’” 	Cent. Pension Fund of
the Int'l Union of Operating Eng'rs & Participating Emp'rs v.
Ray Haluch Gravel Co., 745 F.3d 1, 5 (1st Cir. 2014) (quoting
Hensley v. Eckerhart, 461 U.S. 424, 434 (1983)). 	Courts then
determine “a reasonable hourly rate or rates — a determination
that is often benchmarked to the prevailing rates in the
community for lawyers of like qualifications, experience, and
competence.” 	Id. (citation omitted). 	Multiplying the results
of these two inquiries yields the lodestar amount. 	Id. 	A court
may then adjust the potential award based on factors not
captured in the lodestar calculation. 	See Hensley, 461 U.S. at
434; Coutin v. Young & Rubicam P.R., Inc., 124 F.3d 331, 337
(1st Cir. 1997). 	“The party seeking the [fee] award has the
burden of producing materials that support the request.”
Hutchinson ex rel. Julien v. Patrick, 636 F.3d 1, 13 (1st Cir.
2011) (citing Hensley, 461 U.S. at 433).
In support of its request for fees, SRS’s counsel submitted
a copy of its invoices for the matter and an invoice summary,
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which provided fees in the total amount of $7,924.42. 	See
Billing History Report, (Doc. No. 16-1) at 1; Invoices, (Doc.
No. 16-1) at 2-17.6 	The court reviewed these invoices and is
satisfied that the time expended by SRS’s counsel in preparing
the complaint, the petitions to attach, and the motion for
default judgment was reasonable. 	The time entries appear
related to necessary work concerning the enforcement of the Note
and the preservation of collateral. 	Further, the court
identified no excessive or duplicative entries.
In addition, during the September 9, 2024 hearing, Attorney
Amann testified to the reasonableness of his rate, a senior
associate’s rate, and a paralegal’s rate in light of each
individual’s experience. 	Attorney Amman further testified that
he had an associate and paralegal perform the work when possible
to keep costs down and engaged in ethical billing. 	In sum, the
court finds SRS’s proposal for fees and costs to be reasonable
under New Hampshire law and under the lodestar method.
Accordingly, the court recommends that the district judge award
SRS fees and costs in the amount of $7,924.42.
6 Although SRS’s motion for default judgment requests
$7,924.82 in fees, the statement balance totals $7,924.42 in
fees.
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CONCLUSION
For the foregoing reasons, the court recommends that the
district judge: (1) grant SRS’s motion for default judgment
(Doc. No. 16) as to its claims for breach of contract (Counts I
and II); and (2) award SRS damages in the amount of $266,773.07,
reflecting the outstanding balance of $258,848.65 and attorneys’
fees and costs in the amount of $7,924.42.
Any objections to this Report and Recommendation must be
filed within fourteen days of receipt of this notice. 	See Fed.
R. Civ. P. 72(b)(2). 	The fourteen-day period may be extended
upon motion. 	Only those issues raised in the objection to this
Report and Recommendation are subject to review in the district
court. 	See Sch. Union No. 37 v. United Natl Ins. Co., 617 F.3d
554, 564 (1st Cir. 2010). 	Any issues not preserved by such
objection(s) are precluded on appeal. 	See id. 	Failure to file
any objections within the specified time waives the right to
appeal the district court's order. 	See Santos-Santos v. Torres-
Centeno, 842 F.3d 163, 168 (1st Cir. 2016).
__________________________
Andrea K. Johnstone
United States Magistrate Judge
November 20, 2024
cc: 	Southers Construction Incorporated
Ricky Southers
Counsel of Record
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