United States District Court, E.D. Missouri, Eastern Division
D. NOCE, UNITED STATES MAGISTRATE JUDGE.
action is before the court on the motion of plaintiff Michael
Henry Blank for a default judgment against defendant
Broadsword Group, LLC. (Doc. 150 oral). The parties have
consented to the exercise of plenary authority by the
undersigned United States Magistrate Judge pursuant to 28
U.S.C. § 636(c). (Doc. 12). The court has subject matter
jurisdiction over the action pursuant to 28 U.S.C. §
1332 by reason of the diversity of the parties'
citizenship and the amount in controversy.
Michael Henry Blank alleges the following facts in his Fourth
Amended Complaint. (Doc. 80). He was the founder and majority
owner of Sharps Rifle Company, LLC, a Montana company, from
2007 to 2011. (Id. at ¶ 3). In 2011, he
transferred various assets of this company to Sharps Rifle
Company, Inc., (“Sharps”) a Wyoming corporation
owned by plaintiff and two others: Kevin Tierney and Bill
Martin. (Id. at ¶ 4).
November 2012, plaintiff met Jay Johnston at a gun show in
Florida. (Id. at ¶ 5). At this meeting,
Johnston told plaintiff he was interested in acquiring an
ownership interest in Sharps, and they spoke about Johnston
acquiring trademarks, patents, inventions, and ideas for
inventions then owned by plaintiff. (Id. at ¶
6). Johnston represented that he would be investing millions
of dollars of his own funds to purchase and provide capital
for the business, specifically stating he would not need to
borrow any money. Id.
November 9, 2012, Mr. Jay Lesser, representing Johnston,
contacted plaintiff and offered a minimum ten percent stake
in a new company if plaintiff assisted Johnston in acquiring
the trademarks, patents, inventions, and other previously
discussed items that plaintiff owned. (Id. at
¶¶ 7-8). Plaintiff contacted Johnston the same day,
and Johnston confirmed that he had in fact made the offer.
(Id. at ¶ 9). Johnston again represented that
he would be investing his own money to purchase and provide
capital for the business, and that therefore a ten percent
ownership interest would have great value. Id.
Plaintiff accepted the offer. (Id. at ¶ 9).
Plaintiff refers to this oral agreement as the
“Ownership Contract.” Id. Plaintiff then
proposed an acquisition strategy for acquiring Sharps from
Tierney and Martin, which was later successful. Id.
December 2012, Johnston formed Broadsword Group, LLC, in
Wyoming. (Id. at ¶ 10). On January 4, 2013,
Johnston, as CEO of Broadsword, sent plaintiff a letter
containing a written “offer of employment (as well as
continued employment)” as the “Chief
Armorer” at Broadsword, with a salary of $60, 000 per
year with eligibility for a year-end performance bonus.
(Id. at ¶ 11; Pl. Ex. 14). The letter made no
mention of the Ownership Contract allegedly formed between
Johnston and plaintiff in November.
contacted Lesser, then Director of Manufacturing for
Broadsword, to inquire about the contract. (Doc. 80, ¶
12). Lesser told him he believed that the offer Johnston sent
“was essentially to get everyone some money coming in
for the time being and that actual salaries, commissions etc.
would be firmed up in February.” Id.; Pl. Ex.
16. Lesser then confirmed with Johnston that this was the
case. Id. Relying on this representation, Blank
signed and returned the offer of employment on January 5,
2013. (Doc. 80, ¶ 12). The employment contract provided
that plaintiff could only be terminated upon 30 days'
notice, unless the termination was for cause. (Id.
at ¶ 13). The contract made no mention of the agreement
between plaintiff and Johnston to exchange intellectual
property for an ownership in Broadsword. (Id. at
¶ 14; Pl. Exs. 14 and 15).
began to work for Broadsword on January 15, 2013, and was
paid at a rate of $75, 000 per year. (Id. at ¶
15, Ex. 1). He alleges that between January 5 and February
11, 2013, Lesser, as president of Broadsword, and Johnston,
as CEO, confirmed to plaintiff that the agreement for a ten
percent ownership share of Broadsword would still be honored.
(Id. at ¶ 16; Pl. Exs. 17, 19). On February 11
and 20, 2013, plaintiff assigned to Sharps several trademarks
he held either personally or in the name of companies of
which plaintiff was the sole owner, because plaintiff
believed he would be receiving a ten percent interest in
Broadsword. (Doc. 80, ¶¶ 17-18, Exs. 2-5; Pl. Exs.
20-24). On February 24, 2013, plaintiff released Sharps from
any and all claims he had and gave up his equity ownership
interest. (Doc. 80, ¶ 19; Pl. Ex. 200). This allowed
Broadsword to acquire full ownership in Sharps sometime
subsequent to February 24, 2013. (Doc. 80, ¶¶
19-20; Pl. Ex. 24).
March 19, 2013, Johnston emailed plaintiff that Broadsword
was working on putting the ten percent ownership interest
into written form, which never happened. (Doc. 80, ¶ 21;
Pl. Ex. 27). Plaintiff alleges that following
Broadsword's acquisition of Sharps, plaintiff continued
to design and develop inventions, some of which were
patented, and some of which are only potential patents.
(Id. at ¶ 22; Pl. Ex. 31). Plaintiff provided
these inventions and patents, per the oral Ownership
Contract, to Broadsword and Sharps. Id. On August 7,
2013, Johnston orally confirmed to plaintiff, again, that he
was to receive ten percent ownership in Broadsword in return
for his trademarks, patents, inventions, and products.
(Id. at ¶ 23). Plaintiff alleges
defendant's agents continued to represent that Broadsword
was privately funded. (Id. at ¶ 16; Pl. Exs.
25, 204, 210).
alleges that Broadsword hired him to live and work in
Missouri, but then began to demand that plaintiff report to
work in Wyoming without relocation assistance or a raise,
even though plaintiff could not afford to relocate his young
children and elderly mother. (Doc. 80, ¶¶ 63-67,
Pl. Exs. 26, 30, 38, 41-43). Plaintiff alleges that requiring
him to engage in uncompensated commuting from Missouri to
Wyoming put him in dire financial need, and it was intended
to force plaintiff to resign and abandon the intellectual
property he had been induced to turn over. Id.
alleges that on March 6, 2014, Lesser and Johnston informed
him that he was terminated effective March 7, 2014. (Doc. 80,
¶ 25-27; Pl. Ex. 44). On March 7, 2014, when plaintiff
came to work, he was told to turn in his keys and vacate the
premises. (Doc. 80, ¶¶ 25-27). Plaintiff was not
provided 30 days' notice prior to the termination, nor
was he paid after March 7, 2014. Id. A March 7, 2014
email from Lesser to plaintiff stated plaintiff's
termination was not for cause. (Doc. 80, ¶¶ 25-27;
Pl. Ex. 44). Plaintiff alleges that on March 17, 2014, he
received a letter from Broadsword stating he was terminated
as of March 7, 2014, and offering payment of plaintiff's
salary through April 7, 2014, if he would waive any claim for
further compensation or other expectation of remuneration
related to plaintiff's employment at Broadsword. (Doc.
80, ¶ 28, Ex. 6). The letter also stated plaintiff would
have to help in the filing of patents for some of the
products plaintiff brought to Broadsword. Id.
Plaintiff did not sign the letter and has not received any
salary or other payments from Broadsword as of March 7, 2014.
(Id. ¶ 29).
alleges that the trademarks, patents, inventions, and
products he made available to Broadsword in fulfilling his
duties under the Ownership Contract provided the foundation
for the entire product line offered for sale by Broadsword
and Sharps. (Id. at ¶ 24). It continues to
provide Broadsword and Sharps with virtually their entire
product line. Id.
also alleges that the funds used to acquire Sharps from
Broadsword and to finance the operation of Broadsword were
not provided by Johnston. Rather, funding came from several
creditors, over whom Johnston has varying degrees of control,
including the Ailsa Craig Trust, the Cima Aviacion LLC, and
the El Morro LLC. Therefore, Broadsword would not be worth as
much as it was represented to be worth. Additionally, because
Johnston has some form of control over the creditors, he
would be able to call in the loans funding Broadsword at any
time, which could result in all of Broadsword's assets
and worth being stripped. (Id. at ¶ 31).
Blank commenced this action pro se on September 10,
2014. (Doc. 1). In April 2015, an attorney entered his
appearance for plaintiff and the parties proceeded with
filing several dispositive motions. (Docs. 38, 41, 51, 85).
In March 2016, a jury trial date was scheduled for October 3,
2016. (Doc. 104). In August 2016, the date was reset to
October 11, 2016. (Doc. 107). The parties held a final
pre-trial conference on September 23, 2016, at which time the
trial was continued to November 7, 2016, and then, on
September 27, 2016, it was continued to February 6, 2017.
December 19, 2016, counsel for defendant Broadsword Group,
LLC, moved for leave to withdraw from representing defendant;
in this motion, counsel represented that defendant understood
it would then be a pro se corporation. (Doc. 139).
For the good order of the progress of the case, the court
denied defense counsel's motion for leave to withdraw.
(Doc. 140). Upon renewed motion, defendant's counsel
sought leave to withdraw from representing defendant. (Doc.
141). Defendant's counsel stated that Broadsword had not
paid its bills for legal services timely, that it had no more
assets and would not be able to pay counsel to further defend
the lawsuit, and that its CEO expected a default judgment
might be issued against it. (Doc. 141). The court held a
hearing on and subsequently granted this motion, on January
9, 2017, but upon the condition that counsel provide the
Clerk of Court and opposing counsel the last known contact
information for defendant Broadsword. (Docs. 143 and 145).
January 19, 2017, the court set a status conference for
January 27, 2017. (Doc. 147). On January 25, 2017, plaintiff
moved for sanctions against Broadsword. (Doc. 148). At the
January 27 status conference, defendant did not appear. (Doc.
150). Plaintiff made an oral motion for default judgment
against defendant and orally waived his right to jury trial.
(Doc. 150). The court vacated the jury trial setting and set
a non-jury trial and motion hearing on all pending motions
for February 6, 2017. (Doc. 150).
February 6 proceeding, defendant again failed to appear.
(Doc. 152). Plaintiff and an expert witness testified. (Doc.
152). Plaintiff was given two weeks to prepare and submit
proposed findings of fact. (Doc. 152). However, eleven days
later, on February 17, 2017, plaintiff filed notice of an
involuntary petition for bankruptcy against defendant
Broadsword in the United States Bankruptcy Court for the
District of Wyoming. (Doc. 155). In light of that notice, the
court stayed the proceedings and denied plaintiff's
motion for sanctions without prejudice. (Docs. 159 and 160).
Plaintiff's attorney withdrew as counsel in March 2017,
and substituted counsel entered his appearance. (Docs. 157
October 11, 2017, plaintiff notified the court that the
involuntary petition for bankruptcy was closed on September
20, 2017. (Doc. 163). Accordingly, the court reopened the
case and lifted the stay. (Doc. 164). Plaintiff filed
proposed findings of fact on October 30, 2017. (Doc. 165).
LEGAL STANDARD FOR DEFAULT JUDGMENT
January 27, 2017 status conference, plaintiff moved orally
for default judgment against defendant. (Doc. 150).
Defendant's representative was served a copy of
plaintiff's written motion requesting default judgment,
via email and postal mail, on January 25, 2017.
(Doc. 148). He was served notice of the hearing in the same
manner on January 27, 2017. The trial of this action had been
set for February 6, 2017, since the court's order of
September 27, 2016. (Doc. 131). After defendant notified the
court of its intent to default, and when plaintiff waived his
right to jury trial, the court vacated the jury trial setting
and set a non-jury proceeding for the same date. (Docs 150,
judgment for failure to defend is appropriate where the party
against whom the judgment is sought has engaged in
“willful violations of court rules, contumacious
conduct, or intentional delays.” Ackra Direct Mktg.
Corp. v. Fingerhut Corp., 86 F.3d 852, 856 (8th Cir.
defendant Broadsword Group LLC's CEO attested that it was
aware the withdrawal of counsel would subject it to a likely
default judgment and agreed to the withdrawal anyway. (Doc.
141, Ex. 2). His declaration further stated that Broadsword
did not intend to retain new counsel to defend the lawsuit.
Id. The law does not allow a corporation to proceed
pro se. See Id. (citing 28 U.S.C. § 1654);
United States v. Van Stelton, 988 F.2d 70 (8th Cir.
1993) (“a corporation cannot appear pro se”).
Defendant has failed to appear at any court hearing following
the withdrawal of its counsel. It has also failed to produce
its representatives and officers for deposition, despite
multiple agreements to do so. (Doc. 148). As an unrepresented
corporation that has failed to appear or communicate with the
court since the withdrawal of its counsel, defendant has
failed to defend this case. It has, moreover, explicitly
acknowledged its intent to be subjected to a default
judgment. (Doc. 141, Ex. 2). Accordingly, for its being
without counsel and for its intentional failure to appear at
a long-set trial of the case, defendant Broadsword Group LLC
is in default. (Doc. 145); Ackra Direct Mktg. Corp. v.
Fingerhut Corp., 86 F.3d at 856.
default is entered, the allegations of the complaint are
taken as true, except as to the amount of damages. Brown
v. Kenron Aluminum & Glass Corp., 477 F.2d 526, 531
(8th Cir. 1973). However, it remains “incumbent upon
the district court to ensure that the unchallenged facts
constitute a legitimate cause of action prior to entering
final judgment.” Marshall v. Baggett, 616 F.3d
849, 852 (8th Cir. 2010); Murray v. Lene, 595 F.3d
868, 871 (8th Cir. 2010). After the entry of default, the
need for an evidentiary hearing on the question of damages is
within the sound discretion of the district court.
Stephenson v. El-Batrawi, 524 F.3d 907, 916 (8th
Cir. 2008). A plaintiff must prove the amount of damages by a
“fair preponderance” of the evidence.
Everyday Learning Corp. v. Larson, 242 F.3d 815,
818-19 (8th Cir. 2001). The court's findings of fact
regarding the damages to which plaintiff is entitled are set
has asserted seven claims: breach of ownership contract
(Count 1), specific performance of an ownership contract
(Count 2), promissory estoppel (Count 3), breach of
employment contract (Count 4), breach of implied covenant of
good faith and fair dealing (Count 5), intentional infliction
of emotional distress (Count 6), and fraud (Count 7). (Doc.
80). “In a diversity action, a district court sitting
in Missouri follows Missouri's choice-of-law rules to
determine applicable state law.” Wolfley v.
Solectron USA, Inc., 541 F.3d 819, 823 (8th Cir. 2008).