Opinion ID: 2977841
Heading Depth: 2
Heading Rank: 2

Heading: Determination as to Damages

Text: Without contesting the award of damages of $99,906.99 in unpaid wages or $34,967 in prejudgment interest on those unpaid wages, DSI argues that the district court erred in awarding $36,000 for plaintiff’s 1.5% equity interest in DSI without conducting an evidentiary hearing. It is true, as DSI argues, that: “‘Where damages are unliquidated a default admits only [the defaulting party’s] liability and the amount of damages must be proved.’” Antoine v. Atlas Turner, Inc., 66 F.3d 105, 110 (6th Cir. 1995) (quoting Fehlhaber v. Fehlhaber, 681 F.2d 1015, 1026 (5th Cir. 1982) (en banc)). As the Second Circuit explained: “Even when a default judgment is warranted based on a party’s failure to defend, the allegations in the complaint with respect to the amount of the damages are not deemed true. The district court must instead conduct an inquiry in order to ascertain the amount of damages with reasonable certainty.” Credit Lyonnais Sec. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999) (citations omitted). It is more than evident from the record, however, that the district court did not treat the default as an admission with respect to damages. This is demonstrated by the district court’s denial of the plaintiff’s first motion for default judgment on the grounds that there was not sufficient evidence in the record to make a determination as to damages. A district court’s determination that a hearing is not necessary to determine the amount of damages under Rule 55(b)(2) is reviewed for abuse of discretion. Ortiz-Gonzalez v. Fonovisa, 277 F.3d 59, 63 (1st Cir. 2002) (citing Pope v. United States, 323 U.S. 1, 12 (1944) (“It is a familiar practice and an exercise of judicial power for a court upon default, No. 08-5942 9 by taking evidence when necessary or by computation from facts of record, to fix the amount which the plaintiff is lawfully entitled to recover and to give judgment accordingly.”)). Here, the district court’s reliance on plaintiff’s third sworn declaration to provide the necessary evidentiary basis for calculating the unpaid wages and the amount of prejudgment interest on the unpaid wages was not an abuse of discretion. We cannot conclude the same, however, with respect to the determination regarding the value of the 1.5% equity interest in DSI. The only evidence in the record was plaintiff’s declaration, in which he attested as follows: In support of my revised motion for a sum certain, I submit my good faith valuation of the 1.5% interest in DSI to be $36,000. This valuation is based on my intimate knowledge of DSI and its products, services, and projects and the market it served. More specifically, while the company’s assets have been transferred to Dialysis Dimensions, Inc. (“DDI”), there is still substantial value in DSI. My valuation relies on DSI’s net operating losses (“NOLs”) of $2,400,000, which NOLs I believe have value (to DDI) for tax planning purposes. My understanding of these NOLs is that they can be assigned to and assumed by DDI and utilized to offset DDI gain. My understanding of the deal between DSI and DDI will allow such assignment and assumption, and I understand that it is the intention of DSI to assign the NOLs to DDI. DSI still validly exists for this purpose. It is my belief that DDI intends to, upon securing a new investor for DDI, pull forward the NOLs from DSI and place them into DDI to boost profitability. I am aware of many phone calls in the months prior to the asset reassignment from DSI to DDI in which Michael Peterson discussed with company’s counsel the strategies and legal maneuverings necessary to accomplish this utilization of the NOLs for the financial benefit of DDI. This evidence, apparently based on personal knowledge, indicates that DSI’s net operating losses have “value,” but also that such “value” depends on the ability to use the NOLs to offset the future gains of DDI. Peterson’s affidavit filed in support of DSI’s motion to alter or amend judgment conceded that the NOLs have value to the extent of any profit earned by No. 08-5942 10 DDI, but asserted that the NOLs had no value because DDI had never earned a profit. On this record, we find plaintiff’s declaration provided insufficient evidence to determine with reasonable certainty that the value of the 1.5% equity interest in DSI was equal to $36,000. For this reason, it was an abuse of discretion not to make further inquiry before determining the value of plaintiff’s 1.5% equity interest in DSI. Accordingly, the judgment is AFFIRMED in part and REVERSED in part, the judgment is VACATED only with respect to the award of $36,000, and the matter is REMANDED for further proceedings to determine the value of the 1.5% equity interest in DSI.