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Precision Franchising LLC v. Galaxie Cartune, Inc.

United States District Court, E.D. Virginia, Alexandria Division

March 23, 2018

PRECISION FRANCHISING LLC, et at, Plaintiffs.
v.
GALAXIE CARTUNE, INC., et al., Defendants.

          PROPOSED FINDINGS OF FACT AND RECOMMENDATIONS

          John F. Anderson United States Magistrate Judge.

         This matter is before the court on plaintiffs' motion for default judgment pursuant to Federal Rule of Civil Procedure 55(b)(2). (Docket no. 13). In this action, plaintiffs Precision Franchising LLC and Precision Tune Auto Care. Inc. (collectively "'Precision Franchising" or "plaintiffs") seek a default judgment against defendants Galaxie Cartune, Inc., Matthew Gallagher, and Kari Gallagher (collectively "defendants") in the amount of $301, 746.14, plus attorney's fees and costs. Pursuant to 28 U.S.C. § 636(b)(1)(C), the undersigned magistrate judge is filing with the court his proposed findings of fact and recommendations, a copy of which will be provided to all interested parties.

         Procedural Background

         On November 17, 2017. plaintiffs tiled a complaint against defendants alleging three counts of breach of contract (Docket no. 1). On November 22. 2017, plaintiffs fded a materially similar amended complaint (Docket no. 3). On November 24, 2017, summonses were issued as to defendants Galaxie Cartune, Inc., Matthew Gallagher, and Kari Gallagher (Docket no. 5). The summonses were returned executed on December 7, 2017. and indicated that defendants were served on November 28, 2017. (Docket no. 8). In accordance with Fed.R.Civ.P. 12(a).

         defendants' responsive pleading was due on December 19, 2017, twenty-one (21) days after service of process. On December 20, 2017, at the request of defendant Matthew Gallagher, plaintiffs granted defendants an extension to December 29, 2017 to answer or otherwise respond to the amended complaint. (Docket no. 13 ¶ 44). After defendants failed to answer or otherwise respond by December 29, 2017, plaintiffs refrained from seeking a default judgment as the parties explored an amicable resolution to the matter, but the parties were unable to reach an agreement, and further attempts to engage defendants did not yield a meaningful response. (Docket no. 13 ¶ 45). Plaintiffs requested entry of default as to defendants on January 23, 2018 (Docket no. 9), which the Clerk of Court entered as to defendants Galaxie Cartune, Inc., Matthew Gallagher, and Kari Gallagher on January 24, 2018 (Docket no. 10). On February 6, 2018, plaintiffs filed this motion for default judgment (Docket no. 13) and noticed the hearing for 10:00 a.m. on Friday, March 9, 2018 (Docket no. 14). On March 8, 2018, plaintiffs filed an amended notice for hearing setting a hearing on this motion for Friday, March 23, 2018 at 10:00 a.m. (Docket no. 17). At the hearing on March 23, 2018, counsel for the plaintiffs appeared, but no one appeared on behalf of defendants.

         Factual Background

         The following facts are established by the amended complaint (Docket no. 3) ("Compl.") and plaintiffs' motion for default judgment (Docket no. 13). Defendant Galaxie Cartune, Inc. ("Galaxie") is a former franchisee of Precision Tune Auto Care pursuant to a franchise agreement with plaintiffs dated March 1, 2003 (the "Franchise Agreement"), a renewal dated June 29, 2012 (the "Renewal"), and an addendum dated November 23, 2013 (the "Addendum"). (Compl. ¶¶ 11-12, 14). Defendant Matthew Gallagher ("Mr. Gallagher") executed two guaranty agreements, dated March 1, 2003 and July 1, 2012, personally guaranteeing Galaxie's obligations under the franchise agreement (the "Guarantee Agreements"). (Compl. ¶¶ 11-12). In 2015, after a third-party lessor threatened to evict Galaxie from the premises where Galaxie was operating its Precision Tune Auto Care Center, Galaxie induced plaintiffs to purchase the premises, including an adjoining carwash. (Compl. ¶ 13). Galaxie assured plaintiffs that purchasing and then leasing the premises to Galaxie would allow it to reorganize its business and timely pay its obligations. (Id.). On November 24, 2015, plaintiffs leased the premises and the adjoining carwash to defendants in two separate lease agreements (the "Leases"): (1) a lease agreement for the Apple Valley Precision Tune Auto Care Center (the "Center"); and (2) a lease agreement for the Apple Valley Carwash (the "Carwash"). (Compl. ¶ 14). In connection with the Leases, Mr. Gallagher and Kari Gallagher executed a guaranty agreement, guaranteeing Galaxie's obligations under the leases. (Id.). In addition, on November 22, 2016, Galaxie and Mr. Gallagher granted plaintiffs a promissory note in the principal amount of $13, 592.13 with interest accruing at a rate of 0% per annum (the "Promissory Note"). (Compl. ¶ 15).

         At some point after November 24, 2015, defendants began subleasing the Carwash without obtaining plaintiffs' prior written approval as required under the Carwash lease, and became delinquent on the Leases. (Compl. ¶¶ 42-43). On October 31, 2017, after plaintiffs offered to terminate the Franchise Agreement and the lease on the Center, defendants abandoned the Center and ceased all operations, and failed to remit past due balances. (Compl. ¶¶ 45-46). On November 16, 2017, plaintiffs sent defendants a letter withdrawing the October 27 offer, along with notices of termination of the Franchise Agreement and Leases. (Compl. ¶ 47). To date, defendants have outstanding obligations under the Franchise Agreement, Leases, and Promissory Note, and have failed to comply with any of the post-termination obligations under the Franchise Agreement. (Compl. ¶¶ 48-49).

         Proposed Findings and Recommendations

         Rule 55 of the Federal Rules of Civil Procedure provides for the entry of a default judgment when "a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend." Based on defendants' failure to plead or otherwise defend against the action, the Clerk of Court has entered a default as to defendants Galaxie Cartune, Inc., Matthew Gallagher, and Kari Gallagher. (Docket no. 10).

         A defendant in default admits the factual allegations in the complaint. See Fed. R. Civ. P. 8(b)(6) ("An allegation-other than one relating to the amount of damages-is admitted if a responsive pleading is required and the allegation is not denied."); see also GlobalSantaFe Corp. v. Globalsantafe.com, 250 F.Supp.2d 610, 612 n.3 (E.D. Va. 2003) ("Upon default, facts alleged in the complaint are deemed admitted and the appropriate inquiry is whether the facts as alleged state a claim."). Rule 55(b)(2) of the Federal Rules of Civil Procedure provides that a court may conduct a hearing to determine the amount of damages, establish the truth of any allegation by evidence, or investigate any other matter when necessary to enter or effectuate judgment.

         Jurisdiction and Venue

         A court must have both subject matter and personal jurisdiction over a defaulting party before it can render a default judgment. Plaintiffs allege that this matter is properly brought in this court under 28 U.S.C. § 1332 based on complete diversity of citizenship and an appropriate amount in controversy. (Compl. ¶ 7).

         Plaintiff Precision Franchising LLC is wholly owned by plaintiff Precision Tune Auto Care, Inc., a Virginia corporation with its principal place of business in Leesburg, Virginia. (Compl. ¶ 3). Defendant Galaxie Cartune, Inc. is a Minnesota corporation with its principal place of business in Minnesota, and defendants Matthew Gallagher and Kari Gallagher are residents of Minnesota. (Compl. ¶¶ 4-6). Plaintiffs complaint also seeks a judgment in excess of $75, 000. (Compl. ¶ 7). ...


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