United States District Court, D. Minnesota
Lucas J. Thompson, Aaron D. Hall, Mark Santi, Twin Cities Law Firm LLC, Minneapolis, Minnesota, for Plaintiff.
Robert M. Gardner, Gardner Law Office, Burnsville, Minnesota, for Defendant and, Third-Party Plaintiff Brent Johnson.
MEMORANDUM OPINION AND ORDER
RICHARD H. KYLE, District Judge.
In this action, Plaintiff Integrity Dominion Funds, LLC ("Integrity") alleges that Lazy Deuce Capital Co., LLC ("Lazy Deuce"), which defaulted on $1.5 million of Integrity's loans, and Lazy Deuce's officers, including Defendant Brent Johnson, were engaged in a fraudulent investment scheme. Integrity now moves for default judgment against Lazy Deuce and Johnson moves for summary judgment on Integrity's claims. For the reasons that follow, the Court will grant Integrity's Motion and decline to exercise supplemental jurisdiction over the remaining claims.
Integrity is a small private investment fund operated by three principals, Thomas Barrett, George Bakalov, and H. Chris Poole. Lazy Deuce is an investment company that was owned and operated by Defendants Brent Johnson, Kenneth Haglind, Brian Baldwin, and Frank Delahanty III.
In October 2010, Lazy Deuce approached Integrity about short-term, high-interest investment opportunities. Lazy Deuce described itself as an entity providing "nontraditional financing" to parties with "unusual collateral." Beginning November 2010, Integrity extended Lazy Deuce 30- and 90-day loans with monthly interest rates between 3.5% and 10%. Lazy Deuce timely repaid the first nine loans in full. But in May 2011, it defaulted on three of Integrity's loans, totaling $1.5 million in principal:
(1) a $200, 000 90-day loan made on March 28, 2011, at 3.5% monthly interest; (2) a $700, 000 90-day loan made on April 21, 2011, at 4% monthly interest; and (3) a $600, 000 30-day loan made on May 26, 2011, at 4% monthly interest. (Barrett Aff. ¶ 5 & Ex. A.) Lazy Deuce timely paid the first two months of interest on the two 90-day loans, but defaulted on the final payment of principal and interest for all three.
In 2012, Integrity commenced the instant action against Lazy Deuce, Johnson, Baldwin, and eight other individuals and related entities, asserting a single federal claim under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-68 ("RICO"), and several state-law claims, including breach of contract, fraudulent misrepresentation, and fraudulent transfer. Integrity has since amended its Complaint three times. In response to the latest Complaint, several Defendants asserted cross-claims, third-party claims, and moved to dismiss. Before the Court had decided their Motions, all of the Defendants settled with Integrity (and dismissed their cross-claims), except Johnson, Baldwin, and Lazy Deuce. Of those three Defendants, only Johnson had moved to dismiss, and the Court granted his Motion in part, dismissing the federal RICO claim against him. At that time, the Court decided to exercise supplemental jurisdiction over the remaining state-law claims against Johnson to prevent Integrity from litigating the case simultaneously against Lazy Deuce and Baldwin in federal court and against Johnson in state court. However, Baldwin has since settled with Integrity, which leaves pending only (1) Integrity's claims against Johnson and Lazy Deuce, and (2) Johnson's and Lazy Deuce's state-law cross-claims and third-party claims. Integrity now moves for default judgment or, alternatively, summary judgment against Lazy Deuce, and Johnson also moves for summary judgment. The Motions have been fully briefed, the Court heard oral argument on January 29, 2014, and the Motions are now ripe for disposition.
I. Integrity's Motion for Default Judgment
Integrity moves for entry of default and default judgment against Lazy Deuce for its failure to defend itself in this action. Under Federal Rule of Civil Procedure 55(a), "[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default." Although Rule 55 contemplates the Clerk entering default first, the Court has discretion to direct the entry of default and default judgment under Rule 55(b) simultaneously. See Ackra Direct Mktg. Corp. v. Fingerhut Corp. , 86 F.3d 852, 855 (8th Cir. 1996); e.g., Operating Eng'rs Local No. 49 Health & Welfare Fund v. A.B. Envt'l Corp., Civ. No. 06-4470, 2007 WL 1888451, at *1 (D. Minn. June 29, 2007) (Schiltz, J.).
Lazy Deuce was initially represented in this action by counsel Brian McMahon and timely answered Integrity's First and Second Amended Complaints in May and August of 2012, respectively. But in November 2012, Kenneth Haglind resigned as CEO, leaving McMahon unsure who-if anyone-had authority to act on Lazy Deuce's behalf, as all of its other principals also had resigned. McMahon indicated to the Court in an April 2013 hearing that he had "no one to take direction from" since Haglind's resignation and he had not filed an Answer to Integrity's Third Amended Complaint on behalf of Lazy Deuce because he had been told "not to take any more action on behalf of the corporation." (Doc. No. 93 at 32.) At that same hearing, Johnson's counsel, Robert Gardner, described Lazy Deuce ...