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Virginia International Terminals, LLC v. Keystone Transportation Solutions, LLC

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

April 5, 2018

VIRGINIA INTERNATIONAL TERMINALS, LLC, Plaintiff,
v.
KEYSTONE TRANSPORTATION SOLUTIONS, LLC, Defendant.

          UNITED STATES MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION

          Robert J. Krask United States Magistrate Judge

         This matter is before the Court on a motion for default judgment, filed on December 12, 2017, by plaintiff Virginia International Terminals, LLC ("VIT"), against defendant Keystone Transportation Solutions, LLC ("KTS"). ECF No. 10. VIT's motion was referred to the United States Magistrate Judge pursuant to the provisions of 28 U.S.C. § 636(b)(1)(B) and (C) and Rule 72 of the Rules of the United States District Court for the Eastern District of Virginia. ECF No. 11. The Court recommends that VIT's motion be GRANTED IN PART and DENIED IN PART.

         I. PROCEDURAL HISTORY

         On October 12, 2017, VIT filed this action against KTS alleging breach of contract and seeking monetary damages (count one) and declaratory relief (count two). Compl., ECF No. 1. Due to KTS's failure to enter an appearance or otherwise file a responsive pleading, the Clerk entered default against KTS on November 17, 2017. ECF No. 9. Thereafter, VIT filed the pending motion on December 12, 2017. ECF No. 10. KTS did not respond, and the deadline for a response has expired. On February 20, 2018, the Court held a hearing on the motion.[1] ECF No. 15. David Ventker, Esq., and Marissa Henderson, Esq., represented VIT. Id. Neither KTS nor a KTS representative appeared. Id. After the hearing, the Court ordered supplemental briefing related to the propriety of declaratory relief, the reasonableness of attorneys' fees, and certain invoices labeled "Rail: Container/Chassis." ECF No. 16. VIT filed its supplemental brief in support of default judgment on March 5, 2018. ECF No. 21.

         II. FACTUAL BACKGROUND

         The following factual allegations from the complaint are deemed admitted by virtue of KTS's default. VIT is an entity that manages the Virginia Inland Port (the "terminal") in Front Royal, Virginia. Compl., ECF No. 1 ¶ 4. On or about August 1, 2015, KTS, which desired to "fumigate, handle, and stuff logs into shipping containers at the Terminal, " entered into a license agreement with VIT (the "agreement"). Id. ¶ 5. As part of the agreement, VIT licensed a portion of the terminal to KTS so that KTS could provide its desired services. License Agreement, ECF No. 1-1 at 1. In exchange, "KTS agreed to pay VIT a monthly License Fee and a monthly Variable Fee based on the numbers of containers KTS handled at the Terminal." Compl. ¶ 8. Section three of the agreement details the fees and charges to be paid to VIT. ECF No. 1-1 at 3. Section 3(a) specifies that KTS would pay VIT a fee of $10, 000.00 per month for the licensed use of the premises. Id. Section 3(c)(i) of the agreement provides, among other things, that KTS must pay VIT $85.00 per container for every container it processed, beginning in August 2015. Id. at 4. The agreement also incorporated the VIT Schedule of Rates and the Virginia Inland Port Tariff. Compl. ¶ 9. The schedule of rates and tariff set forth rail service charges, which KTS incurred when moving containers from the terminal to other terminals operated by VIT in Hampton Roads. Id. KTS has admitted by its default that VIT at all times performed its obligations under the agreement. Id. ¶ 7. KTS has further admitted that it failed to provide services as required in the agreement, and that it failed to make the required payments under the agreement. Id. ¶¶ 11-15.

         Section 14(b) of the agreement states, in part, "[i]f any payment due to VIT under this Agreement is not paid when due, then at VIT's option such unpaid sum shall bear interest at an annual rate of twelve percent (12%), or the highest legal rate if lower, from the date it is due until paid." ECF No. 1-1 at 11-12. VIT has submitted invoices and a chart that show the payments owed and the interest accrued. ECF No. 1-2.

         KTS has purported to assign any tort and contract claims arising from VIT's termination of the agreement to Teak, LLC, which was created under the laws of Delaware on or about March 22, 2017. Compl. ¶ 17. With respect to assignments, the agreement provides that:

9. Assignment and Sublicensing. Licensee shall not assign or transfer this Agreement, or sublicense any part of the Premises, in whole or in part, without the prior written consent of VIT, which consent VIT may withhold in its sole discretion.

         ECF No. 1-1 at 8. Teak has made written and verbal demands to VIT for monetary damages allegedly suffered by KTS related to or arising from the agreement. Compl. ¶¶ 18-19. Prior to these demands, VIT had no relationship with Teak, which did not exist at the time the agreement was terminated. Compl. ¶ 22.

         The agreement further provides:

10. Indemnification, (a) Except to the extent caused by the negligence or intentional misconduct of the VIT Parties, [2] Licensee shall indemnify, defend and hold harmless the VIT Parties from and against all liability, claims, actions, suits, losses, damages, fines, penalties, fees, and expenses (including without limitation attorney's and consultant's fees and expenses), of every kind and nature (a) incurred by, or asserted or threatened against, any of the VIT Parties and (b) arising out of or related to (i) the use of the Terminal or the Premises by any of the Licensee Parties, (ii) activities of any of the Licensee Parties on the Terminal or the Premises, (iii) Licensee's breach of this Agreement, and/or (iv) the discovery of any Hazardous Materials brought on to the Terminal or Premises by any of the Licensee Parties.

         ECF No. 1-1 at 8. Relatedly, the agreement also requires KTS to maintain liability insurance in connection with its obligations under paragraph ten recited above. Compl. ¶ 24; ECF No. 1-1 at 9 ("Such liability insurance shall also . . . include contractual liability for [KTS's] indemnity and hold harmless obligations under this Agreement.").

         III. JURISDICTION AND VENUE

         To render a default judgment, the Court must have subject matter jurisdiction over the case and personal jurisdiction over the defaulting parties. Venue must also be proper. Here, the Court has subject matter jurisdiction over VIT's claims based on diversity of citizenship pursuant to 28 U.S.C. § 1332, because VIT is a Virginia limited liability company, KTS is a Pennsylvania limited liability company, and the amount in controversy exceeds $75, 000.00. The Court also has federal question subject matter jurisdiction over count two pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202.

         The Court has personal jurisdiction over KTS because KTS transacted business in the state of Virginia which gave rise to the cause of action. See Va. Code Ann. § 8.01-328.1(A)(1); Fed.R.Civ.P. 4(k)(1)(A). Further, section 20 of the agreement states that "[t]he state and federal courts having territorial jurisdiction in Norfolk, Virginia shall have exclusive jurisdiction and shall be the exclusive venue for the resolution of all disputes arising out of or relating to this Agreement or the Premises. This Agreement shall be deemed made in Norfolk, Virginia regardless of which party is the last to sign." ECF No. 1-1 at 14. See Pee Dee Health Care, P. A. v. Sanford, 509 F.3d 204, 213 (4th Cir. 2007) ("A forum-selection clause is 'prima facie valid and should be enforced unless enforcement is shown by the resisting party to be "unreasonable" under the circumstances.'"). Venue is also proper by virtue of the forum selection clause.

         IV. LEGAL STANDARD

         Rule 55 of the Federal Rules of Civil Procedure governs entries of default and default judgments. Pursuant to Rule 55(a), the Clerk must enter default against a party that "has failed to plead or otherwise defend" against an action. After the Clerk has entered default, a plaintiff may seek a default judgment against a defendant pursuant to Rule 55(b). A court must "exercise sound judicial discretion" when considering whether to enter default judgment, "and the moving party is not entitled to default judgment as a matter of right." EMI Apr. Music, Inc. v. White, 618 F.Supp.2d 497, 505 (E.D. Va. 2009) (citing Sentry Select Ins. Co. v. LBL Skysystems (U.S.A.) Inc., 486 F.Supp.2d 496, 502 (E.D. Pa. 2007)). The United States Court of Appeals for the Fourth Circuit has expressed "a strong preference that, as a general matter, defaults be avoided and that claims and defenses be disposed of on their merits." Colleton Preparatory Acad., Inc. v. Hoover Universal, Inc., 616 F.3d 413, 417 (4th Cir. 2010). Default judgment may be appropriate, however, "when the adversary process has been halted because of an essentially unresponsive party." S.E.C. v. Lawbaugh, 359 F.Supp.2d 418, 421 (D. Md. 2005).

         Although a defaulting party admits the factual allegations in the complaint, a court must evaluate the sufficiency of the allegations to determine if the complaint states a cause of action. See 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."). See also Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir. 2001) ("The court must . . . determine whether the well-pleaded allegations in [the] complaint support the relief sought in th[e] action."); Anderson v. Found for Advancement, Educ. & Emp't of Am. Indians, 155 F.3d 500, 506 (4th Cir. 1998) (holding that the district court erred in granting default judgment to plaintiff where plaintiff failed to state a valid claim).

         V. ANALYSIS

         A. KTS is liable for breach of contract, and VIT is entitled to its requested damages, with the exception of two invoices which predate the agreement.

         1. VIT is entitled to recover its requested damages, with the exception of two March 2015 invoices.

         In count one, VIT alleges that KTS breached the license agreement by not paying VIT what was due under the agreement. In its motion, VIT seeks judgment in the amount of $191, 551.05, plus interest of $47.15 per day beginning from December 31, 2017. ECF No. 10 at 3; ECF No. 10-3. This number purportedly represents the $165, 244.80 VIT claims it would be owed as of December 31, 2017, plus $31, 306.25 in attorneys' fees VIT claims to have accrued "to investigate the claims made against it by Teak, LLC in violation of the License Agreement and to pursue this recovery action." ECF No. 10 at 2. The Court notes, however, that those two amounts (amounts due under the agreement and attorneys' fees) do not add up to the total amount requested, but rather total $196, 551.05. In any case, the Court concludes that VIT is not entitled to all of the damages it asks for, and the amounts will be adjusted.

         To succeed on a claim for breach of contract under Virginia law, VIT must prove (1)KTS had a legally enforceable obligation to VIT; (2) KTS breached that obligation; and (3) KTS's breach caused injury or damage to VIT. Sunrise Continuing Care, LLC v. Wright, 671 S.E.2d 132, 135 (Va. 2009) (citing Filak v. George, 594 S.E.2d 610, 614 (Va. 2004)). A Virginia cause of action for breach of contract is subject to a five-year statute of limitations period, which begins to run from the date the breach occurs. Va. Code Ann. § 8.01-246(2).

         To support the first element, VIT submitted the license agreement entered into between VIT and KTS on August 1, 2015, which specifies the terms and conditions of the contractual relationship. ECF No. 1-1. The fees and charges to be paid by KTS to VIT are covered in section three of that agreement. Id. at 3-5. Section 14 of the agreement specifies that failure by KTS to pay any fees within five days of written notice of such failure is deemed to be an event of default. Id. ...


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