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Creekstone Farms Premium Beef, LLC v. Decisions Energy Management

United States District Court, D. Kansas

August 4, 2014

CREEKSTONE FARMS PREMIUM BEEF, LLC, a Delaware Limited Liability Company, Plaintiff,
v.
DECISIONS ENERGY MANAGEMENT, d/b/a/KEYSTONE LLC, a/k/a DECISIONS ENERGY MANAGEMENT d/b/a KEYSTONE, a/k/a DECISIONS ENERGY MANAGEMENT d/b/a KEYSTONE ENERGY, DECISIONS ENERGY MANAGEMENT, LLC, KEYSTONE ENERGY, INC., KEYSTONE ENERGY, LLC, DOUGLAS G. HAUNSCHILD and PAUL L. COLE, SR., Defendants.

MEMORANDUM AND ORDER

ERIC F. MELGREN, District Judge.

Plaintiff Creekstone Farms Premium Beef, LLC ("Plaintiff") seeks monetary damages, both compensatory and punitive, and attorney's fees from Defendants Decisions Energy Management (d/b/a Keystone, LLC); Decisions Energy Management (d/b/a Keystone); Decisions Energy Management (d/b/a Keystone Energy, a/k/a KeyStone Energy); Decisions Energy Management, LLC; Keystone Energy, Inc.; Keystone Energy, LLC;[1] Douglas G. Haunschild ("Haunschild"); and Paul L. Cole, Sr. ("Cole") for breach of contract, implied indemnity, and fraud for damages arising out of a contract between the parties. This matter is before the Court on Plaintiff's Motions for Default Judgment (Docs. 17 and 26).[2] The Court conducted an evidentiary hearing on the matter on July 3, 2014. For the reasons stated below, Plaintiff's Motions are granted.

I. Parties

Plaintiff Creekstone Farms Premium Beef, LLC is a limited liability company organized pursuant to the laws of Delaware and registered to do business in Kansas. Its principal place of business is in Arkansas City, Kansas.

Defendant Decisions Energy Management, LLC is or was a Texas limited liability company with a principal place of business in Richardson, Texas.

Defendant Keystone Energy, LLC is a Florida limited liability company with a principal place of business in Miami, Florida.

Defendants Decisions Energy Management (d/b/a Keystone LLC), Decisions Energy Management (d/b/a Keystone), Decisions Energy Management (d/b/a Keystone Energy, a/k/a KeyStone Energy), and Keystone Energy, Inc. are all believed to be fictitious business entity names used at various times by Defendants Douglas G. Haunschild and/or Paul L. Cole, Sr.

Defendant Douglas G. Haunschild is believed to be a resident of Texas. At all times material to Plaintiff's Complaint and Motions for Default Judgment, Haunschild held himself out to be the President and Chief Executive Officer of KeyStone Energy, with an office in the "Corporate Headquarters."

Defendant Paul L. Cole, Sr. is believed to be a resident of Florida. At all times material to Plaintiff's Complaint and Motions for Default Judgment, Cole was held out to be the "Managing Director, East Coast" of KeyStone Energy.

II. Factual and Procedural Background[3]

Plaintiff processes and sells beef from a facility in Arkansas City, Kansas. Given its requirement for cold storage facilities and the use of other mechanical processing equipment, electricity costs are significant ongoing expenses of Plaintiff's business. As such, Plaintiff is constantly researching and investigating possible methods to reduce these costs. On December 14, 2011, Defendants approached Plaintiff with a proposal for a "Technology Retrofit" of Plaintiff's Arkansas City facility whereby Defendants would install and implement various methods of energy reduction for the facility. On April 3, 2012, the parties entered into an "Energy Services Performance Contract, " (the "Contract") under which the agreed compensation due was $1, 367, 529.00, to be paid in twenty-five percent (25%) increments, with the final twenty-five percent increment paid upon project completion.

In addition to its basic provisions, the Contract also contained a Performance Guarantee, whereby Defendants guaranteed that, in each of the first two years after completion of the project, Plaintiff would save at least $659, 986.92 in energy costs (the "guaranteed energy savings"). In the event that Plaintiff did not realize these savings during each of the first two years following completion of the project, Defendants would pay to Plaintiff the difference between the guaranteed energy savings and Plaintiff's actual energy savings. To ensure this payment, Defendants agreed to obtain insurance to fund their potential liability (the "energy savings warranty"). To fulfill this obligation, Defendants retained the services of insurance broker JonesBirdsong, LLP who in turn retained Energi Insurance Services, Inc. ("Energi") to provide the actual energy savings warranty. Sometime after the Contract was signed, the parties agreed to split the cost of the energy savings warranty. Plaintiff's portion of the premium was $24, 750, which Plaintiff forwarded to Defendants on June 22, 2012, in addition to its second twenty-five percent payment. Plaintiff alleges that Defendants failed to remit any portion of the insurance premium to Energi. Furthermore, Plaintiff claims that Defendants were unable to obtain the energy savings warranty because they failed to submit to Energi the required three years of Keystone's audited financial statements.[4] In January 2013, Energi returned Plaintiff's premium check, uncashed, to Defendants. Defendants never returned this check to Plaintiff and Plaintiff was unaware that Defendants had been unable to secure the energy savings warranty.

At some point after Plaintiff had paid seventy-five percent (75%) of the contract price, Defendants requested a payment of $200, 000 to pay two of their subcontractors, namely Graham Electric Co. and Mining Controls, LLC (d/b/a Gilbert Electrical Systems & Products). Plaintiff forwarded this payment to Defendants on June 13, 2013. Plaintiff later learned that Defendants failed to forward this payment to either subcontractor. As such, Graham Electric and Gilbert Electrical each filed subcontractor's mechanics liens. These liens remain unsatisfied as of the date of this judgment.

Defendants abandoned work on Plaintiff's facility in August 2013, after Plaintiff had paid seventy-five percent (75%) of the Contract amount, $24, 750 for its portion of the energy savings warranty premium, and $200, 000 to satisfy Defendants' subcontractors, for a total of $1, 214, 382.23. The work performed before Defendants' abandonment has yielded energy savings of approximately $200, 000 per year, substantially less than the guaranteed energy savings.

On January 25, 2014, Plaintiff filed a Complaint against Defendants in the United States District Court for the District of Kansas. Defendants failed to respond. On February 28, 2014, Plaintiff filed a Motion for Entry of Default against Defendants Decisions Energy Management (d/b/a Keystone, LLC), Decisions Energy Management (d/b/a Keystone), Decisions Energy Management (d/b/a Keystone Energy, a/k/a KeyStone Energy), Decisions Energy Management, LLC; Keystone Energy, Inc., and Douglas G. Haunschild (Doc. 14), which was granted on March 5, 2014. Defendants again failed to respond. On March 26, 2014, Plaintiff filed a Motion for Entry of Default against Defendant Keystone Energy, LLC (Doc. 21), which was granted on March 27, 2014. Defendant failed to respond. Therefore, on March 18, 2014, and April 14, 2014, Plaintiff filed motions for default judgment (Docs. 17 and 26) against all named Defendants[5] for compensatory and punitive damages, seeking a total judgment of $2, 259, 342.97, assessed as follows: (1) $1, 016, 086.64 for breach of contract, which includes the total unrealized guaranteed energy savings and Plaintiff's cost to complete the unfinished project; (2) $243, 256.33 for fraud, which includes the insurance premium, the payment to Defendants' subcontractors, and prejudgment interest; and (3) $1, 000, 000 in punitive damages.[6] The Court conducted an evidentiary hearing on July 3, 2014, at which time it heard the testimony of Thomas H. Minton ("Minton"), Plaintiff's controller, and admitted into evidence the depositions of the designated representatives of JonesBirdsong and Energi as well as Plaintiff's other exhibits. Defendants failed to appear.

III. Jurisdiction

Plaintiff is a Delaware limited liability company registered to do business in Kansas with a principal place of business in Kansas. Keystone and Haunschild are from Texas. Work performed under the Contract was performed in Arkansas City, Kansas. The amount in controversy is well in excess of $75, 000. Furthermore, the parties previously agreed to: (1) submit any disputes arising from the Contract to the exclusive jurisdiction of the courts of the State of Kansas, (2) waive any defense based on lack of personal jurisdiction or sufficiency of service of process, and (3) resolve any disputes using Kansas law. Consequently, the Court has subject matter jurisdiction over this action.

Plaintiff obtained personal service on Haunschild both individually and in his capacity as an officer, registered agent, or proprietor of several business entities identified in the Contract, including: Decisions Energy Management (d/b/a Keystone Energy Services), Decisions Energy Management (d/b/a Keystone LLC), Decisions Energy Management (d/b/a Keystone), and Decisions Energy Management (d/b/a KeyStone Energy).

With the exception of Decisions Energy Management, LLC and Keystone Energy, LLC, Plaintiff's searches failed to confirm the existence of the other various legal entities identified in the Contract and other documents. Consequently, it is reasonable for the Court to conclude that the Keystone Defendants, under their various names, were nothing more than Haunschild doing business as Keystone.

Plaintiff caused summons to be issued to all potential legal entity names known to it through internet searches and to Haunschild at three potential residential addresses. All nine summonses were personally served on Haunschild on February 3, 2014. Service of process was had on the registered agent for Keystone Energy, LLC on March 3, 2014.[7] Consequently, the record establishes personal jurisdiction over all Defendants, including Haunschild and the various entity names under which he purported to do business in his relationship with Plaintiff.

IV. Legal Standard

Federal Rule of Civil Procedure 55(a) allows a default entry against a party when that party has "failed to plead or otherwise defend" itself. Following entry of default by the clerk, Rule 55(b)(2) permits a district court to enter default judgment. In cases where a plaintiff's claim is for a sum certain or a sum that can be made certain by computation, the clerk, upon a plaintiff's request, must enter judgment for that amount and costs.[8] However, in cases where a plaintiff's claim is not for a sum certain or cannot be made certain by computation, the party must apply to the court for a default judgment.[9] "The court may conduct hearings or make referrals... to determine the amount of damages."[10] "A trial court is vested with broad discretion in deciding whether to enter a default judgment."[11]

"Once the default is established, defendant has no further standing to contest the factual allegations of plaintiff's claim for relief."[12] All well-pleaded factual allegations of a plaintiff's complaint must be taken as true, except for those relating to the amount of damages.[13] Accordingly, Plaintiff's claims that all Defendants breached the Contract and that ...


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