Opinion
No. C 11-0961-CW (MEJ)
10-07-2011
LEHMAN BROTHERS HOLDINGS INC., Plaintiff, v. BAYPORTE ENTERPRISES, INC., Defendant.
REPORT & RECOMMENDATION RE PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT
(Docket No. 15)
I. INTRODUCTION
Pending before the court is Plaintiff Lehman Brothers Holdings, Inc.'s ("LBHI") Second Amended Motion for Default Judgment ("Motion") against Defendant Bayporte Enterprises, Inc. ("Bayporte"), Docket No. 15. In its Motion, LBHI requests that the Court grant default judgment against Bayporte and award damages and pre-judgment interest in the amount of $3,275,946.83. Id. at 2. Bayporte has not filed an opposition or otherwise appeared in this action. On July 7, 2011, the presiding judge in this matter, the Honorable Claudia Wilken, issued an order referring LBHI's Motion to the undersigned for preparation of a Report and Recommendation. Dkt. No. 14. On September 22, 2011, the undersigned held a hearing on LBHI's Motion; Bayporte did not appear. After consideration of LBHI's Motion, supporting materials, and oral arguments, the undersigned RECOMMENDS that the Court GRANT LBHI's Motion and enter default judgment against Bayporte on each of its claims. The undersigned further RECOMMENDS that the Court GRANT LBHI's request for $3,275,946.83 in damages and prejudgement interest.
II. BACKGROUND
A. Factual Background
LBHI initiated this action on March 1, 2011, by filing a Complaint against Bayporte. Dkt. No. 1 ("Compl"). The relevant facts, taken from the Complaint, are as follows.
From 2004 until 2007, Lehman Brothers Bank, FSB ("LBB") purchased mortgage loans from Bayporte under a series of written contracts. Id. ¶ 3. LBB subsequently assigned its rights under those contracts to LBHI. Id.
On March 9, 2007, Bayporte entered into a written Loan Purchase Agreement ("Agreement") with LBB. Id. ¶ 8. The Agreement incorporates the terms and conditions of the Seller's Guide of LBB and LBHI's agent, Aurora Loan Services, ("Seller's Guide"), which sets forth additional duties and obligations of Bayporte. Id.; Dkt. No. 9-1, Ex. A-B. The loans involved in this proceeding were sold by Bayporte to LBB under the Agreement and the Seller's Guide. Compl. ¶ 10. LBB subsequently sold the loans to LBHI and assigned all of its rights and remedies under the Agreement and Seller's Guide to LBHI. Id. ¶¶ 10-12.
Under the Agreement and Seller's Guide, LBHI or its agent may demand that Bayporte repurchase mortgage loans that become Early Payment Defaults. Id. ¶ 13; See Dkt. 9-1, Ex. A § 715. Bayporte then must repurchase the loan and indemnify LBHI or its agent for its losses on the loans. Id. There are two ways a loan becomes an Early Payment Default. Id. ¶ 14; See Dkt. 9-1, Ex A § 715. For loans that were "prior-approved" by the purchaser, the loan becomes an Early Payment Default if the borrower does not make the first monthly payment within 30 days of that payment's due date. Id. Alternatively, for loans purchased pursuant to the seller's delegated underwriting authority, loans eligible for delegated underwriting, or loans purchased in bulk transactions, the loan becomes an Early Payment Default if the borrower does not make the first or second monthly payment within 30 days of the payment's respective due date. Id. LBHI alleges Bayporte had underwriting authority before it sold the loans involved in this action. Compl. ¶ 15.
LBHI claims seven loans became Early Payment Defaults: Loan ****1523; Loan ****3117; Loan ****3190; Loan ****9224; Loan ****9406; Loan ****3547; and Loan ****7524. Id. ¶¶ 16-20. According to LBHI, Loan ****1523 became an Early Payment Default because no payments were ever made on the loan and the first payment was due in January 2007. Id. ¶ 16. LBHI alleges Loan ****3117 became an Early Payment Default because the first payment was due May 1, 2007, and no payment was made within 30 days of that due date. Id. ¶ 17. It also alleges Loan ****3190 became an Early Payment Default because the first payment was due on May 1, 2007, and the borrower did not make a payment until June 25, 2007. Id. As to Loans ****9224 and ****9406, LBHI alleges these loans became Early Payment Defaults because the borrower did not make the first payments, which were due May 1, 2007. Id. ¶ 18. It alleges Loan ****3547 became an Early Payment Default because the borrower failed to make the first payment which was due September 1, 2007. Id. ¶ 19. Finally, LBHI alleges Loan ****7524 became an Early Payment Default because the borrower failed to make the first payment, due June 6, 2007, within 30 days of the due date. Id. ¶ 20. LBHI claims that this forced LBB and LBHI to sell the loan at a discount price resulting in a substantial loss. Id.
The payment was received July 13, 2007. Id. ¶ 20.
LBHI, through its agent, provided Bayporte with written notice that the above loans became Early Payment Defaults and demanded that Bayporte repurchase those mortgage loans. Id. ¶ 21; Dkt. No. 9-1, Ex. F. LBHI alleges that Bayporte, however, has refused to repurchase the loans or indemnify LBHI for its losses. Compl. ¶ 22. As a result, LBHI alleges that Bayporte's failure and refusal to repurchase the loans is a material breach of the Agreement and Seller's Guide and has proximately caused LBHI to suffer losses on each loan. Id. ¶¶ 22-24.
Further, LBHI alleges that under the Agreement and Seller's Guide, Bayporte made a number of representations, warranties, and covenants regarding the loans it sold to LBB. Id. ¶¶ 25, 29-31; See Dkt. No. 9-1, Ex. A §§ 701-703. These include: 1) the validity of all mortgage loan documentation; 2) the accuracy and integrity of all information and documentation (borrower identity, income, employment, credit, assets, and liabilities) used in making the decision to originate the mortgage loans; 3) the occupancy by the borrower of the property securing the mortgage loan; 4) the ownership, nature, condition, and value of the real property securing the respective mortgage loans; and 5) the conformance of the mortgage loans with applicable underwriting guidelines and loan program requirements. Id.; See Dkt. No. 9-1, Ex. A §§ 703(1), 703(8), 703(12). Additionally, LBHI alleges that Bayporte represented and/or warranted that: 1) no error, omission, misrepresentation, negligence, fraud, or similar occurrence took place in regards to the mortgage loans by any person involved in the origination of the loans; 2) that no predatory or deceptive lending practices were used in the origination of the loans; and 3) that Bayporte had the ability to perform its obligations and satisfy all requirements of the Agreement and Seller's Guide. Id.; See Dkt. No. 9-1, Ex. A §§ 702(5), 702(11), 702(14).
Pursuant to the Agreement and Seller's Guide, in the event of a breach of the representations, warranties, and/or covenant in the Agreement or Seller's Guide, LBHI or its agent may demand that Bayporte repurchase the mortgage loans, and Bayporte then must repurchase the loans and indemnify LBHI or its agent for its losses on the loans. Id. ¶ 33; See Dkt. No. 9-1, Ex. A § 710.
LBHI alleges that the borrower applications for loans ****5791 and ****5908 transmitted to LBB's agent Aurora contained misrepresentations as to the borrower, assets, and occupancy. Compl. ¶ 29. Specifically, LBHI alleges the borrower's file contained two falsified Verifications of Deposit. Id. According to LBHI, Wells Fargo verified that one account did not exist and the other account did not belong to the borrower. Id. Additionally, LBHI claims that on-line verification showed that other people had been residing at the subject address and that these residents had been making payments on the accounts with checks that had the subject address on them. Id. Finally, LBHI alleges that the second file contained a completely different stated income, employment and verification of deposit. Id. Specifically, the W2s appeared falsified and the EIN was invalid. Id. LBHI alleges that these misrepresentations materially and adversely affected the value of the loans and the interests of LBHI. Id. ¶ 32.
LBHI also alleges that Loan ****1953 failed to meet origination, underwriting and servicing compliance. Id. ¶ 31. According to LBHI, the Final Truth in Lending (TIL) disclosure statement was underdisclosed and the loan failed to meet California's high cost loan requirements because the Annual Percentage Rate ("APR") was too high. Id. LBHI alleges that this materially and adversely affected the value of this loan and the interests of LBHI and thereby breached the Agreement. Id. ¶ 32.
California's high cost loan requirements are set forth in the California Covered Loan Law. Cal. Fin. Code § 4970 et seq.
LBHI, through its agent, provided Bayporte with letters informing it of these material breaches of representation, warranties and covenants regarding loans ****5791, ****5908, and ****1953 and demanded that Bayporte repurchase the loans. Id. ¶ 34; Dkt. No. 9-1, Ex. F. Bayporte, however, refused to repurchase the loans, to indemnify LBHI, or otherwise comply with its obligations under the Agreement and Seller's Guide. Compl. ¶ 35.
Based on the foregoing allegations, LBHI asserts claims against Bayporte for breach of contract and breach of express warranty. Id. at 8-9.
B. Procedural Background
LBHI filed its Complaint on March 1, 2011. Dkt. No. 1. On April 6, 2011, LBHI had the Complaint and summons served by personal service on Bayporte's authorized agent for service. Dkt. No. 5. After Bayporte failed to timely respond or otherwise appear, LBHI moved for entry of default (Dkt. No. 6), which the Clerk of Court entered against Bayporte on May 3, 2011. Dkt. No. 7. Thereafter, LBHI filed its Motion for Default Judgment against Bayporte on June 30, 2011. Dkt. No. 9. LBHI filed the instant Second Amended Motion for Default Judgment against Bayporte on July 7, 2011. Dkt. No. 15.
III. DISCUSSION
A. Legal Standard
Federal Rule of Civil Procedure 55(b)(2) allows a court to enter default judgment following an entry of default against a defendant. The court has discretion in deciding whether to grant a motion for default judgment. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In exercising that discretion, the court may consider the following factors: (1) the possibility of prejudice to the plaintiff; (2) the merits of the plaintiff's substantive claim; (3) the sufficiency of the complaint; (4) the sum of money at stake in the action; (5) the possibility of dispute; (6) whether default was due to excusable neglect and; (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).
Upon an entry of default all factual allegations in the complaint are taken as true except allegations relating to damages. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987). Damages must be "proven up" by the plaintiff through "testimony or written affidavit." Lehman Bros. Holding, Inc. v. IZT Mortg., Inc., 2011 WL 2313601, at *5 (N.D. Cal. June 9, 2011); Bd. of Trs. of the Boilermaker Vacation Trust v. Skelly, Inc., 389 F. Supp. 2d 1222, 1226 (N.D. Cal. 2005).
Where the court grants default judgment, the scope of relief is limited by Rule 54(c): " A default judgement must not differ in kind from, or exceed in amount, what is demanded in the pleadings."
B. Jurisdiction
"When entry of judgment is sought against a party who has failed to plead or otherwise defend, a district court has an affirmative duty to look into its jurisdiction over both the subject matter and the parties." In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). Accordingly, the Court will assess whether subject matter jurisdiction over this action exists, whether the Court has personal jurisdiction over Bayporte, and whether LBHI effected proper service of process upon Bayporte.
1. Subject Matter Jurisdiction
Pursuant to 28 U.S.C. § 1332(a)(1), district courts have original jurisdiction over "all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens of different States . . . ." For the purpose of determining whether diversity exists, a corporation is a citizen of the state it was incorporated in and the state where it has its principal place of business. 28 U.S.C. § 1332(c)(1).
Here, the requirements for diversity jurisdiction are satisfied. LBHI seeks more than 2 million dollars in damages, which exceeds $75,000. Dkt. No. 9-1 at 7-8; Dkt. No. 15 at 5. Additionally, the parties are citizens of different states. LBHI was incorporated in Delaware and its principal place of business is in New York, whereas Bayporte was incorporated in California and its principal place of business is in California. Id. ¶¶ 4-5.
2. Personal Jurisdiction
Where there is no applicable federal statute governing personal jurisdiction, the district court applies the law of the state in which the district court sits. See Fed. R. Civ. P. 4(k)(1)(A); Panavision Int'l, L.P. v. Toeppen, 141 F. 3d 1316, 1320 (9th Cir. 1998). In California, a court "may exercise jurisdiction on any basis not inconsistent with the constitution of this state or of the United States". Cal. Code Civ. Proc. § 410.10. In order for personal jurisdiction to be constitutional, a corporate defendant must have "minimum contacts" with the forum state so that a suit in that forum state does not "offend traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Wash., 326 U.S. 310, 316 (1945). If the plaintiff would not have suffered loss "but for" defendant's forum related activity, the minimum contacts test is met as to specific jurisdiction over that claim. Ballard v. Savage, 65 F. 3d 1495, 1500 (9th Cir. 1995). Bayporte is a California corporation with its principal place of business in California and Bayporte engaged in the sale of mortgage loans. Compl. ¶¶ 5, 7. But for Bayporte selling mortgage loans, LBHI would not have suffered the damages it alleges. Bayporte thus has the requisite minimum contacts with the state of California. The Court therefor has personal jurisdiction over Bayporte.
3. Service of Process
Under federal law, service of process upon a corporation is valid when it is done "by delivering a copy of the summons and of the complaint to an officer, a managing or general agent, or any other agent authorized by appointment or by law to receive service of process . . . ." Fed. R. Civ. P. 4(h)(1)(b). Here, LBHI served the Complaint and summons by personal service on Bayporte's authorized agent for service. See Dkt. No. 5. Thus LBHI properly effected service of process. C. Application of the Eitel Factors
Having found that the Court has jurisdiction over this action and Bayporte, it turns to the Eitel analysis to determine whether to grant default judgment.
1. Prejudice to Plaintiff
The first factor the Court may consider in determining whether to grant default judgment is whether LBHI will suffer prejudice if default judgment is not granted. Eitel, 782 F.2d at 1471-72. Because Bayporte has not made an appearance and LBHI would not have any other remedies if a default judgement is denied, this factor favors granting default judgement. See Lehman Bros. Holding, Inc., 2011 WL 2313601, at *3.
2. Sufficiency of the Complaint and Likelihood of Success on the Merits
"The second and third Eitel factors assess whether a plaintiff has plead facts sufficient to maintain its claims, and each claims' likelihood of success." Levi Strauss & Co. v. Toyo Enterprise Co., 665 F. Supp. 2d 1084, 1095 (N.D. Cal. 2009) (citing Eitel, 782 F.2d at 1471-72). A plaintiff must state a claim on which it may recover. Lehman Bros. Holding, Inc., 2011 WL 2313601, at *3 (quoting Philip Morris, USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 499 (C.D. Cal. 2003)). Here, LBHI has asserted claims for breach of contract and breach of express warranty. Compl. at 8-10. The Agreement and Seller's Guide provide that they shall be construed according to New York law. Dkt. No. 9-1, Ex. A § 731.1; see Lehman Bros. Holding, Inc., 2011 WL 2313601, at *3. Accordingly, the Court will assess each claim pursuant to New York state law.
a. Breach of Contract
"Under New York law, a breach of contract claim requires proof of (1) an agreement, (2) adequate performance by the plaintiff, (3) breach by the defendant, and (4) damages." Fischer & Mandell LLP v. Citibank, N.A., 632 F.3d 793, 799 (2d Cir. 2011). In its Complaint, LBHI alleges that on March 9, 2007, LBB and Bayporte entered into the Agreement, which incorporated the Seller's Guide. Compl. ¶ 8. The Agreement and Seller's Guide set forth the parties' duties with regard to the purchase and sale of the subject mortgage loans. Id. ¶ 9. LBHI further alleged that it and LBB substantially performed their obligations under the Agreement and Seller's Guide, and indicated at the hearing on the Motion that it made all necessary payments to Bayporte to purchase the loans. Id. ¶ 39. LBHI also alleged that Bayporte materially breached the Agreement and Seller's Guide by refusing to repurchase and/or refusing to indemnify LBHI for the Early Payment Default loans and the loans which breached express warranties. Id. ¶¶ 40-41, 46. Finally, LBHI alleged that as a result of Bayporte's actions, it suffered monetary damages. Id. ¶ 41, 48. Taking these allegations as true, LBHI has adequately plead a breach of contract claim. See Lehman Bros. Holding, Inc., 2011 WL 2313601, at *3.
b. Breach of Express Warranty
LBHI has also asserted a claim for breach of express warranty. Under New York law, to state a claim for breach of express warranty a plaintiff must show: "(1) plaintiff and defendant entered into a contract; (2) containing an express warranty by the defendant with respect to a material fact; (3) which warranty was part of the basis of the bargain; and (4) the express warranty was breached by the defendant." Promuto v. Waste Mgmt., Inc., 44 F. Supp. 2d 628, 642 (S.D.N.Y. 1999).
Here, LBHI plead that Bayporte entered into the Agreement with LBB, and that LBB sold and assigned the loans purchased under the Agreement to LBHI. Compl. ¶¶ 8-12.
LBHI also alleged that Bayporte made a number of representations, warranties, and covenants regarding the loans it sold to LBB. Id. ¶¶ 25, 29-31; Dkt. No. 9-1, Ex. A §§ 701-703. These include: 1) the validity of all mortgage loan documentation; 2) the accuracy and integrity of all information and documentation (borrower identity, income, employment, credit, assets, and liabilities) used in making the decision to originate the mortgage loans; 3) the occupancy by the borrower of the property securing the mortgage loan; 4) the ownership, nature, condition, and value of the real property securing the respective mortgage loans; and 5) the conformance of the mortgage loans with applicable underwriting guidelines and loan program requirements. Id.; Dkt. No. 9-1, Ex. A §§ 703(1), 703(8), 703(12). Additionally, LBHI alleged that Bayporte represented and/or warranted that: 1) no error, omission, misrepresentation, negligence, fraud, or similar occurrence took place in regards to the mortgage loans by any person involved in the origination of the loans, 2) that no predatory or deceptive lending practices were used in the origination of the loans, and 3) that Bayporte had the ability to perform its obligations and satisfy all requirements of the Agreement and Seller's Guide. Id.; Dkt. No. 9-1, Ex. A §§ 702(5), 702(11), 702(14).
LBHI plead that the express warranties contained in the Agreement and Seller's Guide were part of the basis of the bargain between LBHI, LBB and Bayporte, and that LBHI and LBB relied upon those warranties in executing the Agreement. Compl. ¶ 45.
Finally, LBHI alleged that: (1) the borrower applications for loans ****5791 and ****5908 transmitted to LBB's agent Aurora contained misrepresentations as to borrower, assets, and occupancy (Id. ¶ 29); (2) Loan ****1953 failed to meet origination, underwriting and servicing compliance (Id. ¶ 31); (3) LBHI, through its agent, provided Bayporte with notice as to these material breaches of representation, warranties and covenants, and; (4) Bayporte refused to repurchase or indemnify the loans. Id. ¶¶ 34-35. Taking these allegations as true, LBHI sufficiently plead a claim for breach of express warranty. See Lehman Bros. Holding, Inc., 2011 WL 2313601, at *4.
3. Sum of Money at Stake in the Action
The fourth Eitel factor considers the sum of money at stake in relation to the seriousness of the action. Levi Strauss & Co., 665 F. Supp. 2d at 1097 (citing Eitel, 782 F.2d at 1472). When the money at stake in the litigation is substantial or unreasonable, default judgment is discouraged. Crosthwaite v. Brennan, 2011 WL 589821, at *5 (N.D. Cal. Jan. 25, 2011). Essentially, the amount must not be disproportionate to the harm alleged. See Joe Hand Promotions, Inc. v. Meola, 2011 WL 2111802, at *4 (N.D. Cal. April 22, 2011). Here, LBHI seeks $3,275,946.83 in damages. Dkt. No. 9-1 ¶ 21. The damages are based on a Repurchase Price designed to recoup the amount lost due to Early Payment Default or misrepresentations and prejudgment interest. Id. The money at stake is substantial but not disproportionate to the harm suffered because of Bayporte's breach. Thus, this factor supports granting LBHI's Motion..
4. Possibility of Dispute Concerning Material Facts
The fifth Eitel factor assesses whether there is any possibility of disputed material facts. Eitel, 782 F.2d at 1472. Here, LBHI has plead facts which clearly show borrowers failing to make initial payments and Bayporte breaching express warranties. Dkt. No. 1 ¶¶ 16-20, 29-31. Thus, there is little chance of a dispute concerning these material facts. Accordingly, this factor favors granting default judgment. See Lehman Bros. Holding, Inc., 2011 WL 2313601, at *4; see US v. Approx. $194,752 in US Currency, 2011 WL 3652509, at *3 (N.D. Cal. Aug, 19, 2011).
5. Possibility of Excusable Neglect
The sixth Eitel factor examines whether default was due to excusable neglect. Eitel, 782 F.2d at 1472. When there is no indication that the default was a result of excusable neglect, this factor will weigh in favor of default judgment. See Levi Strauss & Co., 665 F. Supp. 2d at 1097; see Joe Hand Promotions, Inc. v. Piacente, 2011 WL 2111467, at *3 (N.D. Cal. April 11, 2011). Moreover, when default is the result of a failure to appear after a proper service of summons, it is willful and there is no excusable neglect. Id. In this matter, after being properly served, Bayporte has failed to appear. Dkt. No. 5; Dkt. No. 15 at 2. Reviewing the record, there is no indication of excusable neglect. Accordingly, this factor weighs in favor of default judgment.
6. Policy for Deciding on the Merits
The last Eitel factor takes into consideration the strong policy favoring decisions on the merits. Eitel, 782 F.2d at 1472. Default judgments are generally disfavored, but when a defendant's failure to appear makes it impracticable or impossible to decide a case on the merits, default judgment is warranted. Levi Strauss & Co., 665 F. Supp. 2d at 1098. Bayporte has not answered or appeared in this matter, making it impossible to decide this case on the merits. Accordingly, this factor weighs in favor of default judgment.
7. Conclusion
Taking each of the forgoing factors into consideration, each factors weighs in favor of granting LBHI's request for default judgment against Bayporte. Accordingly, the undersigned RECOMMENDS that the Court GRANT LBHI's Motion.
D. Damages
Having found that default judgment is appropriate, this Court must now assess the proper amount of damages. As stated above, damages must be "proven up" by the plaintiff through "testimony or written affidavit." Lehman Bros. Holding, Inc., 2011 WL 2313601, at *5; see Bd. of Trs. of the Boilermaker Vacation Trust, 389 F. Supp. 2d at 1226. Moreover, Rule 54(c) states that "A default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings." Here, LBHI seeks an award of $3,275,946.83 in total damages based on the Repurchase Price of the loans in question and prejudgment interest. Dkt. No. 9-1 ¶ 21. This Court will assess whether LBHI has adequately substantiated these damages.
1. Repurchase Price
LBHI is seeking $2,437,523.86 in damages, which it explains is equal the Repurchase Price of the Early Default Loans and the misrepresented loans identified above. Decl. of John Baker ¶¶ 7-9, 20, Dkt. No. 9-1 .
Pursuant to the Seller's Agreement, the Repurchase Price is defined as:
An amount equal to (i) the greater of the Purchase Price or par multiplied by the outstanding principal balance of the Mortgage Loan as of the Purchase Date; less (ii) the aggregate amount received by [LBB/LBHI] of reductions and curtailments of the principal balance of the Mortgage Note; plus (iii) any and all interest payable on the outstanding principal balance of the Mortgage Note as of the date of repurchase; plus (iv) any and all expenses, including, without limitation, costs of foreclosure and reasonable attorney's fees, incurred by [LBB/LBHI] in the exercise by [LBB/LBHI] of its rights and remedies in connection with the Mortgage Loan, the Mortgaged Property, and/or the Mortgagor, as more specifically defined in this Seller's Guide.Id., Ex. B § 8.
In support of its request, LBHI proffers testimony from John Baker, who calculated the Repurchase Price for the loans in question. Dkt. No. 9-1. Mr. Baker is employed by LAMCO, LLC, a subsidiary of LBHI, and was employed by Aurora Loan Services LLC ("Aurora") as Assistant Vice President and Manager of Surveillance. Baker Decl. ¶ 1. In calculating the damages amount, Mr. Baker used a formula based on the Repurchase Price definition above and filled in the variables with information taken from LBB, LBHI, and Aurora's business records. Id. ¶ 10-20, Ex. C-F. Mr. Baker also provided a spread sheet which summarized the specific inputs for each variable in the Repurchase Price formula as well as the final calculations of the Repurchase Price. Id. at Ex. G.
The Court has reviewed LBHI's methodology and calculations for Loan ****1523, Loan ****3117, Loan ****3190, Loan ****9224, Loan ****9406, Loan ****3547, Loan ****7524, Loan ****5791, Loan ****5908, and Loan ****1953. The Repurchase Price for each loan was determined by taking the greater of the loan's purchase price or the par multiplied by the outstanding principal balance of the loan at the time of LBB's purchase, adding it to the interest payable on the outstanding principal balance and the cost and expenses of the loan (including escrow), and then subtracting any proceeds from a liquidation of the loan. Id. ¶ 20, Ex. G. The Court has review the calculations for each loan and finds them to be correct. Based on the formula used to determine the Repurchase Price, the categories used, and the data associated with those categories, the Court concludes that the Repurchase Price is a reasonable measure of damages and concludes that LBHI has adequately substantiated its request for $2,437,523.86 in Repurchase Price damages.
2. Prejudgment Interest
LBHI also seeks prejudgment interest in the amount of $838,422.97. See Id. ¶ 21, Ex. G (subtracting total damages before prejudgment interests, column 21, from total damages, column 30). As stated above, the Seller's Guide provides that the Agreement be construed under New York law. Id. at Ex. A § 731.1; see Lehman Bros. Holding, Inc., 2011 WL 2313601, at *3. Under New York law, prejudgment interest is a part of damages in a breach of contract case. See N.Y. C.P.L.R. 5001(a). The statutory rate of prejudgment interest is nine percent per year. N.Y. C.P.L.R. § 5004. Section 5001(b) provides that interest is:
computed from the earliest ascertainable date the cause of action existed, except that interest upon damages incurred thereafter shall be computed from the date incurred. Where such damages were incurred at various times, interest shall be computed upon each item from the date it was incurred or upon all of the damages from a single reasonable intermediate date.N.Y. C.P.L.R. § 5001(b).
In support of LBHI's request, it proffers testimony from Mr. Baker regarding the methodology and calculations for prejudgment interests on each loan. Baker Decl. ¶ 21 & Ex. G. Prejudgment interest for each loan was calculated at 9% per year, accruing per day, beginning on the date of Bayporte's breach for each loan in question. Id. The date of breach was determined to be thirty days after Bayporte received LBHI's letters demanding that Bayporte repurchase or indemnify losses for each loan. Id. Additionally, LBHI used June 20, 2011 as its end date of interest accrual for each loan, which is earlier than the actual date interest will stop accruing. Id.; see N.Y. C.P.L.R. § 5001 ("Interest to verdict, report or decision"). For the loans that were liquidated, LBHI calculated interest on the amount of damages from the date of breach to the date of liquidation and then from the date of liquidation to June 20, 2011; this was done in order to account for the difference in principal once the loan was liquidated. Id.
The Court has reviewed the calculations for Loan ****1523, Loan ****3117, Loan ****3190, Loan ****9224, Loan ****9406, Loan ****3547, Loan ****7524, Loan ****5791, Loan ****5908, and Loan ****1953, and finds them to be correct. The Court concludes that LBHI has adequately substantiated its request for $838,422.97 in pre-judgment interest.
3. Summary of Damages
LBHI is entitled to $2,437,523.86 in Repurchase Price damages, and $838,422.97 in pre-judgment interest. Therefor, the undersigned RECOMMENDS the Court award $3,275,946.83 in total damages.
IV. CONCLUSION
Based on the foregoing analysis, the undersigned RECOMMENDS that the District Court GRANT LBHI's Second Amended Motion for Default Judgment. Dkt. No 15. The undersigned further RECOMMENDS that the District Court GRANT LBHI's request for $3,275,946.83 in damages.
Pursuant to Rule 72(b)(2) a party may serve and file objections to this Report and Recommendation ten (14) days after being served.
IT IS SO RECOMMENDED. Dated: October 7, 2011
/s/_________
Maria-Elena James
Chief United States Magistrate Judge