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M-Tek Kiosk, Inc. v. Clayton

United States District Court, M.D. North Carolina

March 22, 2017

M-TEK KIOSK, INC., Plaintiff,


          N. Carlton Tilley, Jr. Senior United States District Judge

         This matter is before the Court on a Motion for Default Judgment against Defendant Ryan Clayton [Doc. #44] by Plaintiff M-Tek Kiosk, Inc. (“MTEK”). On October 30, 2014, MTEK filed a Complaint against Clayton and John W. Gosnell, and, on November 4, 2014, summons was served on Clayton. (Compl. [Doc. #1]; Executed Summons [Doc. #3].) After Clayton failed to answer or otherwise respond, MTEK moved for an entry of default. (See Mot. for Entry of Default [Doc. #9].) On December 8, 2014, the Clerk entered default against Clayton.[1] (See Entry of Default [Doc. #10].) On August 12, 2016, MTEK moved for a default judgment against Clayton. In its motion, MTEK seeks (1) trebled compensatory damages in the amount of $1, 130, 663.76 or actual and punitive damages totaling the same amount; (2) pre-judgment interest at a rate of 8% per annum; (3) post-judgment interest as provided in 28 U.S.C. § 1961; and (4) attorneys' fees. For the reasons explained below, MTEK's motion is denied as to attorneys' fees, but otherwise granted.

         As a result of Clayton's default, the well-pled factual allegations in the Complaint are admitted.[2] See Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir. 2001). However, allegations with respect to damages are not deemed admitted. 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.”) A court may hold a hearing pursuant to Rule 55(b)(2)(B) of the Federal Rules of Civil Procedure to determine damages, but “may also award damages based on affidavits and documentary evidence.” Masco Corp. v. Bennett, No. 3:08-cv-161-RJC-DCK, 2010 WL 1405136, at *2 (W.D. N.C. Mar. 31, 2010). Here, in addition to the allegations, MTEK has submitted an affidavit with accompanying documentary evidence in support of damages, [see Docs. #45-1, 45-4 to 45-15], such that a hearing is not necessary.


         Clayton, a citizen of North Carolina, held a 36.50913% ownership interest in Luxury Tec, LLC (“Luxury Tec”), a company that also went by the name of Mirrus. (Compl. ¶¶ 8, 14.) Clayton was the Senior Vice President of International Business for Mirrus, a technology company that developed and sold digital advertising media to commercial retail companies. (Id. ¶¶ 15, 16.) In May 2013, Clayton reached out to David Thibeau, president of MTEK, an Oregon corporation, about Mirrus's purchasing specialized electronic equipment from MTEK. (Id. ¶¶ 4, 31.) In July 2013, Clayton met again with Thibeau and other MTEK representatives and toured MTEK's facilities in Oregon at which time Clayton and Thibeau discussed various projects. (Id. ¶ 32.) Following that meeting, MTEK and Mirrus reached an agreement for MTEK to develop and deliver prototypes, which it did by September 2013. (Id. ¶¶ 33, 34.) In September and October 2013, Clayton travelled to Oregon multiple times to discuss additional projects. (Id. ¶¶ 35, 36.) During this time period, Clayton represented to Thibeau and MTEK that Mirrus was adequately capitalized and had secured a $3 million line of credit for purchasing equipment and provided MTEK with a list of Mirrus's investors who had provided operational funding. (Id. ¶¶ 37-40.) MTEK reasonably relied on Clayton's representations, which Clayton knew to be false at the time he made them. (Id. ¶¶ 42, 43.) He intended to induce MTEK to design and deliver the electronic products and services to Mirrus. (Id. ¶ 41.) In other words, on behalf of Mirrus, Clayton entered into agreements with MTEK while knowing that Mirrus was insolvent and incapable of paying for the products and services that it purchased. (Id. ¶ 55.)

         On November 14, 2013, Luxury Tec filed for bankruptcy. (Id. ¶ 46.) The previous day, The Mirrenium Group, LLC (“Mirrenium”) had been formed in Delaware with Clayton holding a 29.80515% ownership interest and serving among its principal members and as its Chief Technology Architect and Managing Director of Global Markets. (Id. ¶¶ 18, 20-22, 130-31.) Mirrenium was formed to operate as the functional successor of Mirrus, but Clayton knew it was undercapitalized when it was formed. (Id. ¶¶ 54, 138.) He did not disclose to MTEK that Mirrus[3] had filed for bankruptcy and, instead, intentionally concealed the bankruptcy filing. (Id. ¶ 51.) He also represented to MTEK that Mirrus had changed its name to Mirrenium as a strategic branding decision. (Id. ¶ 52.) Just as he had with Mirrus, Clayton then entered into agreements on behalf of Mirrenium with MTEK even though he knew that Mirrenium was insolvent and could not pay for the products and services that it purchased. (Id. ¶¶ 55, 139.)

         Specifically, in the fall of 2013, Clayton informed Thibeau that he needed countertop units for Estee Lauder Companies, Inc. and The LIDS Sports Group (“LIDS”). (Id. ¶¶ 58-59.) From September through December 2013, Clayton and representatives from MTEK met in person and communicated over the telephone and email about those countertop units and ultimately entered into an agreement according to which Clayton would purchase from MTEK ten units for $29, 411.47. (Id. ¶¶ 60-62.) After MTEK delivered those units on December 2, 2013, Thibeau emailed Clayton documenting the specifics of the completed order for which MTEK also provided Clayton an invoice. (Id. ¶¶ 63-66.) From March through June of 2014, MTEK attempted numerous times to collect payment from Clayton, which he failed to remit. (Id. ¶¶ 67-68.)

         Beginning in November 2013, Clayton discussed with MTEK representatives in person and over the telephone and email the purchase of six LCD units for the Chicago Paul Mitchell store for which Clayton and MTEK eventually entered into a written agreement. (Id. ¶¶ 69-77.) After MTEK delivered the units, it sent Clayton an invoice totaling $11, 528.65. (Id. ¶¶ 78-80.) As above, from March through June 2014, MTEK was unsuccessful in its numerous attempts to collect payment from Clayton. (Id. ¶¶ 81-82.)

         From September 2013 through January 2014, Clayton discussed with MTEK representatives in person and over the telephone and email the purchase of “2260 Display” units and countertop units for Macy's and LIDS. (Id. ¶¶ 83-89.) Ultimately, Clayton and MTEK entered into a written agreement for the purchase of fifty countertop units for a total price of $135, 830.17 and entered into a separate written agreement for the purchase of thirty 2260 Display units for a total price of $159, 474.93. (Id. ¶¶ 90-91.) On December 12, 2013, Clayton notified MTEK that a colleague would be “sending out a $30, 000 check for the start of the LIDs/Macys [sic] deal.” (Id. ¶ 93.) On December 30, 2013, he emailed MTEK, stating in part: “Can you generate an invoice for the $30k initial payment on the Macy's/Lids install we discussed for December and then a 2nd one for $40, 000 for January. . . . We will send checks out this week once I get these.” (Id. ¶ 94.) MTEK provided those invoices and others and delivered the units as agreed. (Id. ¶¶ 95-107.) As it was doing for its other agreements with Clayton, from March through June 2014, MTEK attempted numerous times to collect payment from Clayton, which he failed to remit. (Id. ¶¶ 108-11, 114-15, 117-18.)

         In July 2014, Mirrenium filed for bankruptcy. (Id. ¶¶ 26, 127, 161.) In total, Clayton owes MTEK $376, 887.92. (Id. ¶¶ 119-120; see also Invoice Nos. 6505, 6522, 6550, 6552, 6553, 6577, 6578, 6590, 6651-54 [Docs. #45-4 to 45-15]; Aff. of Gary Beaver ¶¶ 12, 19 [Doc. #45-1].) The agreements[4] between MTEK and Clayton state, in part, “In return for MTEK extending credit under this Agreement, you jointly and severally agree to pay for all the purchases pertaining to this agreement and all other charges . . . according to the terms of this agreement.” (Id. ¶ 122.) The agreements also provide,

You are in default of this agreement if you: (a) fail to pay the balance due by the due date, (b) breach any other term or condition of this agreement, (c) have made a material misrepresentation or misstatement in the Application, financial statement or other document submitted to us in connection with this agreement, (d) become the subject of a bankruptcy, receivership, or other insolvency proceeding.

(Id. ¶ 123.) MTEK performed its obligations under the agreements, but Clayton breached the agreements by (1) not timely and fully remitting payment to MTEK, (2) falsely and deceptively representing that Mirrus and Mirrenium were adequately capitalized, (3) and Mirrenium's filing for bankruptcy on July 21, 2014. (Id. ¶¶ 124-27.)

         In addition, despite owing money to MTEK and knowing Mirrenium was insolvent, Clayton took advantage of his position as a corporate officer and acted in his own self-interest rather than the interest of Mirrenium by misappropriating corporate funds. (Id. ΒΆ 140-41.) Specifically, between December 5, 2013 and April 7, 2014, ...

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