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Pinnacle Credit Services, LLC v. APM Financial Solutions, LLC

United States District Court, D. Minnesota

August 31, 2017

Pinnacle Credit Services, LLC, Plaintiff,
v.
APM Financial Solutions, LLC, Account Portfolio Management, LLC, LMM Management, LLC, Lawrence Weil, and Mary Weil, Defendants.

          MEMORANDUM AND ORDER

          Paul A. Magnuson, United States District Court Judge.

         This matter is before the Court on Plaintiff's Motion for Default Judgment. For the following reasons, the Motion is granted in part and denied in part.

         BACKGROUND

         Plaintiff Pinnacle Credit Services, LLC (“Pinnacle”) manages the debt collection for its affiliate company Fourscore Resource Capital (“Fourscore”). (Compl. (Docket No. 1) ¶ 9.) Pinnacle contracts with third-party debt collectors like Defendants APM Financial Solutions, LLC, Account Portfolio Management, LLC, and LMM Management, LLC (collectively, the “APM Entities”), who directly recover debt or hire law firms to do so. (Id. ¶ 12.)

         On January 1, 2010, Pinnacle and the APM Entities entered into a Servicing Agreement, under which the APM entities agreed to undertake collection activities for some of Pinnacle's accounts. (Id. ¶ 16.) Pinnacle would then pay the APM Entities a fee based on the amount of debt that the APM Entities recovered. (Id. ¶ 15; see also Castle Aff. Ex. A (Docket No. 80-1) ¶ 3(A).) Defendants Lawrence and Mary Weil, the owners of the APM Entities, also signed a joinder to the Servicing Agreement, in which they agreed to be personally bound to certain provisions. (Id. ¶¶ 11, 17.)

         Under the Servicing Agreement, the APM Entities agreed to collect both principal and interest on all the accounts that Pinnacle placed with the APM Entities for collection. (Castle Aff. Ex. A ¶¶ 1, 2(A).) The APM Entities also agreed to post collection activity in their computer collection system on a daily basis, provide weekly updates to Pinnacle, and notify Pinnacle promptly of any settlements. (Compl. ¶ 25.)

         In 2011, the APM Entities breached the Servicing Agreement by improperly diverting over $1, 000, 000 collected for and owed to Pinnacle. (Id. ¶ 31.) After Pinnacle discovered the breach, Pinnacle withdrew all of Pinnacle's accounts from the APM Entities, except those in which the debtors were actively paying down their debts. (Id. ¶ 35.) In response to the breach, Pinnacle, the APM Entities, and the Weils entered into an additional Letter Agreement, in which the APM Entities and the Weils acknowledged their wrongdoing and agreed to repay the wrongfully diverted funds and keep all received payments in a trust account. (Id. ¶ 36-40.) The Letter Agreement also reiterated the APM Entities' obligations to report all of their collection activity to Pinnacle and remain in compliance with the Servicing Agreement at all times. (Id.) The Weils additionally agreed to personally reimburse Pinnacle for all fees, costs, and expenses, including reasonable attorney's fees, incurred in connection with enforcing the Letter Agreement and Servicing Agreement. (Id. ¶ 40.)

         On March 26, 2015, the APM Entities once again diverted funds owed to Pinnacle. (Id. ¶ 42.) On April 1, 2015, Pinnacle pulled back the remaining 408 accounts from the APM Entities after the APM Entities failed to respond to Pinnacle's demand to return the accounts. (Id. ¶ 46.) On April 15, 2015, Pinnacle terminated the Servicing Agreement because of the breach. (Id. ¶ 47.)

         On July 1, 2015, Pinnacle filed this lawsuit against the APM Entities and the Weils (collectively, “Defendants”), alleging that Defendants breached the Servicing Agreement and Letter Agreements. Pinnacle served Defendants with a copy of the Summons and Complaint, and when Defendants failed to answer, the Clerk entered a default against Defendants on September 10, 2015. (Docket No. 18.)

         On September 15, 2015, the Court granted Pinnacle's motion for partial default judgment on its claims for injunctive relief and ordered Defendants to submit to an audit so Pinnacle could determine the amount of its damages. (Docket No. 26.) As the audit progressed, Pinnacle found various discrepancies between Defendants' and Pinnacle's records including Defendants' failure to collect interest on the accounts and to maintain accounting records adequate to be able to determine accurate balances on the accounts. (Castle Aff. (Docket No. 80) ¶ 30.) In addition, consumer debtors indicated that Defendants' computer collection system did not maintain accurate balances on their accounts. (Id. ¶ 38; see also Castle Aff. Ex F (attaching letters from debtor detailing the discrepancies between Defendants' computer collection system and the accurate amount of debt he owed).) As a result of these discrepancies, Pinnacle ceased collection efforts on all accounts it had assigned to Defendants because continuing to attempt to collect debt without accurate records would expose Pinnacle to liability under the Fair Debt Collection Practices Act. (Id. ¶¶ 40-41.)

         Pinnacle now moves for a final default judgment and requests that the Court enter a damages award in the amount of $2, 491, 901.75. (Pl.'s Supp. Mem. (Docket No. 78) at 15.) This figure reflects the principal and interest that Pinnacle would have received had Defendants fully performed under the Servicing and Letter Agreements, less the fees that Defendants would have been owed for their collection services. (Id.) Pinnacle also requests an attorney's fee award in the amount of $181, 983.91. (Id.)

         DISCUSSION

         A. Damages

         “Once a default has been entered on a claim for an indefinite or uncertain amount of damages, ‘facts alleged in the complaint are taken as true, except facts relating to the amount of damages, which must be proved in a supplemental hearing or proceeding.'” Cutcliff v. Reuter, 791 F.3d 875, 882 (8th Cir. 2015) (quoting Everyday Learning Corp. v. Larson, 242 F.3d 815, 818 (8th Cir. 2001)). Although the parties initially scheduled an evidentiary hearing to determine the amount of damages, they later agreed to forego the hearing, and the Court concluded that Pinnacle's Motion could be considered on the parties' submissions. See id. (“The necessity of an evidentiary hearing to determine a plaintiff's damages is committed to the sound discretion of the district court.”) Under Minnesota law, “the appropriate ...


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