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Fundex Capital Corporation v. Rochelle


March 6, 2006



This is an action brought by Fundex Capital Corporation ("Fundex") to collect on obligations created by guaranties entered into by defendants Donald B. Rochelle, Charles D. McDermott, Cinira G. Rochelle, and E. John Shaw. When the defendants failed to answer the complaint, a default judgment was entered, and the case was referred to me to hold an inquest on damages. A hearing was held on February 15, 2006, and despite being afforded notice, the defendants did not appear. Donald B. Rochelle did, however, submit a letter in advance of the hearing. The following findings are therefore based on the evidence presented in connection with the hearing, including Mr. Rochelle's letter.


On May 11, 2000, Fundex, a New York corporation, agreed to extend credit to CourierWorks, Inc. ("CourierWorks"), a corporation based in Texas, up to the amount of $300,000.00. (Complaint ("Compl."), ¶¶ 4, 11, 12). In return, CourierWorks executed a promissory note, by which it agreed to repay any amount borrowed together with interest at the rate of 17.5% per year. (Compl., ¶ 12 & Exh. A (the "Note") at 1). Initially, Fundex advanced CourierWorks $150,000.00, as a result of which CourierWorks agreed to make a one-time payment of $1,385.41, together with monthly installments of $2,654.68, representing both principal and interest. (Note at 1). Pursuant to the terms of the Note, the amount of the monthly installments would be adjusted if CourierWorks borrowed additional amounts. (Note at 1).

At the same time, as an inducement to Fundex to extend credit to CourierWorks, Mr. and Mrs. Rochelle and Mr. McDermott executed a guaranty, agreeing to be liable for the full amount of CourierWorks's obligations under the Note. (Compl., ¶ 13 & Exh. B (the "2000 Guaranty")).*fn1 The 2000 Guaranty was absolute and unconditional and did not require Fundex to seek recourse against CourierWorks before demanding payment from the guarantors for payments as they came due. (Compl., ¶ 16; 2000 Guaranty at 1-2). Furthermore, the guarantors waived presentment, demand, protest, notice of protest, and notice of non-payment. (Compl., ¶ 15; 2000 Guaranty at 1).

In May 2004, CourierWorks requested that Fundex release its security interest in CourierWorks's assets. (Compl., ¶ 17).

Fundex agreed, provided that CourierWorks could supply alternate security. (Compl., ¶ 18). In response, CourierWorks provided a guaranty executed by Mr. Shaw by which he agreed to be liable for all of CourierWorks's obligations under the Note. (Compl., ¶ 19 & Exh. C (the "2004 Guaranty")). Like the 2000 Guaranty, the 2004 Guaranty allowed Fundex to require payment from the guarantor without first seeking payment from CourierWorks. (Compl., ¶ 21; 2004 Guaranty, ¶ 10). Mr. Shaw, too, waived presentment, demand, protest, and notice of dishonor. (Compl., ¶ 20; 2004 Guaranty, ¶ 7).

For some time, CourierWorks met its obligations under the Note. However, it defaulted with respect to payment due on December 1, 2004, and all times thereafter. (Compl., ¶ 22). On February 7, 2005, Fundex notified CourierWorks as well as each of the defendants of the default and demanded payment in full of the total outstanding amount of the debt together with interest at the agreed upon default rate. (Compl., ¶ 23 & Exh. D). When payment was not forthcoming, Fundex filed the instant action. Discussion

A. Jurisdiction

Subject matter jurisdiction in this case is based on diversity of citizenship under 28 U.S.C. § 1332(a)(1) because Fundex is a New York Corporation while each of the defendants is a Texas domiciliary (Compl., ¶¶ 4, 5, 6, 7, 8), and the amount in controversy exceeds $75,000.00. In addition, each defendant consented to personal jurisdiction in this Court as part of the guaranties. (2000 Guaranty at 2; 2004 Guaranty, ¶ 20).

B. Liability

All of a plaintiff's factual allegations, except those relating to damages, must be accepted as true where, as here, the defendants default. See Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 108 (2d Cir. 1997); Cotton v. Slone, 4 F.3d 176, 181 (2d Cir. 1993); Time Warner Cable of New York City v. Barnes, 13 F. Supp. 2d 543, 547 (S.D.N.Y. 1998). In this case, the allegations of the complaint establish the defendants' liability under the guaranties.

The parties agreed that their rights and obligations would be governed by New York law. (2000 Guaranty at 4; 2004 Guaranty, ¶ 19). Under that law, a prima facie case for breach of a guaranty is established by demonstrating (1) an absolute and unconditional guaranty; (2) the underlying debt; and (3) failure of the guarantor to perform under the guaranty. See Buffalo and Erie Regional Development Corp. v. World Auto Parts, Inc., 306 A.D.2d 857, 858, 761 N.Y.S.2d 893, 894 (4th Dep't 2003); Kensington House Co. v. Oram, 293 A.D.2d 304, 304-05, 739 N.Y.S.2d 572, 572-73 (1st Dep't 2002); City of New York v. Clarose Cinema Corp., 256 A.D.2d 69, 71, 681 N.Y.S.2d 251, 253 (1st Dep't 1998). Here, both the 2000 Guaranty and the 2004 Guaranty are absolute and unconditional. The unpaid portion of the Note reflects the underlying debt. And, finally, the defendants have not performed their obligations under the guaranties in that they have not made any payment for the installments that came due after December 1, 2004. Accordingly, Fundex has established a prima facie case for the liability of each defendant.

In his letter to the Court, Mr. Rochelle raised five points, three of which relate to liability. (Letter of Donald B. Rochelle dated Feb. 14, 2006 ("Rochelle Letter")).*fn2 Because a default judgment has been entered and the defendants have made no motion to vacate it, Mr. Rochelle cannot now controvert the allegations of the complaint except insofar as they are contradicted by some indisputable fact or fail to constitute a legitimate cause of action. See United States v. New-Form Manufacturing Co., 277 F. Supp. 2d 1313, 1326 (Ct. Int'l Trade 2003); In re Industrial Diamonds Antitrust Litigation, 119 F. Supp. 2d 418, 420 (S.D.N.Y. 2002). Nevertheless, I will address each of his contentions.

First, Mr. Rochelle maintains that a $50,000.00 payment made by CourierWorks to Fundex on May 19, 2004, "was suppose [sic] to bring the note current by agreement[.]" (Rochelle Letter, ¶ 2). But to the extent that Mr. Rochelle is suggesting that there was an enforceable agreement to modify the terms of the Note, his argument fails. The Note provides that "[n]o executory agreement unless in writing and signed by the holder, and no course of dealing between the maker, endorser(s) or guarantor(s) hereof and the holder shall be effective to change or modify or discharge in whole or in part, this note." (Note at 1). No such document memorializing any modification has been submitted.

Second, Mr. Rochelle argues that "[t]he conditions for adding guarantor were not met and no benefit was derived by new guarantor, guarantor was in jeopardy upon signing due to loan was still in default [sic]." (Rochelle Letter, ¶ 4). If he means to contend that the 2004 Guaranty is void for lack of consideration, Mr. Rochelle is incorrect. As he observes, payments were not current at the time Mr. Shaw entered into the 2004 Guaranty, and forbearance in declaring a default constitutes adequate consideration. See Paterno Imports, Ltd. v. International Wine Co., No. 89 C 339, 1989 WL 131201, at *2 (E.D.N.Y. 1989); All Terrain Properties, Inc. v. Hoy, 265 A.D.2d 87, 94, 705 N.Y.S.2d 350, 355 (1st Dep't 2000).

Third, Mr. Rochelle asserts that "[s]pousal guarantee is in question." (Rochelle Letter, ¶ 5). However, he provides no further explanation, and the 2000 Guaranty appears on its face to have been signed by Cinira G. Rochelle, who is presumably the spouse to whom he refers. (2000 Guaranty at 4). Fundex has thus established the liability of each defendant.

C. Damages

In support of its damages claim, Fundex submitted the affidavit of its president, Lawrence I. Linksman. (Supplemental Affidavit of Lawrence I. Linksman dated Jan. 30, 2006 ("Linksman Aff."). Mr. Linksman sets forth calculations showing the amounts that CourierWorks paid on the underlying debt as well as the resulting monthly balances. After the initial loan of $150,000.00, CourierWorks made a series of payments that reduced the outstanding balance to $143,365.76 as of June 1, 2001. (Linksman Aff., ¶¶ 1-16). On June 20, 2001, Fundex advanced CourierWorks another $100,000.00, increasing the principal balance to $243,365.76 and the amount of each monthly installment to $4,247.49. (Linksman Aff., ¶ 17). By December 1, 2001, CourierWorks had made additional payments, reducing the balance to $239,346.30. (Linksman Aff., ¶¶ 18-22). Fundex then lent Courierworks $50,000.00 more, increasing the balance to $289,346.30 and the monthly payments to $5,488.77. (Linksman Aff., ¶ 23). Courierworks made payments until November 18, 2004, reducing the principal balance to $187,162.91. (Linksman Aff., ¶¶ 24-57).

Thereafter, CourierWorks made no further payments on the debt. Therefore, the guarantors are liable for the principal amount of $187,162.91. In addition, under the terms of the Note, they are liable for interest at the default rate of 24% per year after December 1, 2004, the date of default.*fn3 (Note at 2). Based on the principal amount, interest accrues at a rate of $123.07 per day.*fn4 Since there are 469 days from December 1, 2004, until March 15, 2006, interest of $57,719.83 should be awarded as of the latter date. Finally, Fundex is entitled to an award of $1,097.76 in penalties for four late monthly payments. (Linksman Aff., ¶61; Note at 2).

Mr. Rochelle appears to question the damages sought by Fundex when he asserts that "[t]he principle [sic] balance due at default was not the same as principle [sic] balance due per law suit." (Rochelle Letter, ¶ 3). Apparently, he is referring to a discrepancy between the principal amount due on December 1, 2004, as indicated in Mr. Linksman's affidavit ($187,162.91) and the ad damnum clause in the complaint ($200,980.77). This difference is explained by the fact that the amount sought in the complaint included interest at the default rate only through March 15, 2005 (Tr.*fn5 at 4; Compl. at 6); it does not affect the accuracy of the final calculation in which interest is brought forward to March 15, 2006.


For the reasons set forth above, I recommend that judgment be entered in favor of Fundex and against Donald B. Rochelle, Charles McDermott, Cinira G. Rochelle, and E. John Shaw, jointly and severally, for $187,162.91 in principal, $57,710.83 in interest through March 15, 2006, and $1,097.76 in late fees, for a total of $245,980.50. Pursuant to 28 U.S.C. § 636(b)(1) and Rules 72, 6(a), and 6(e) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from this date to file written objections to this Report and Recommendation. Such objections shall be filed with the Clerk of the Court, with extra copies delivered to the chambers of the Honorable Richard M. Berman, Room 201, 40 Foley Square, New York, New York 10007 and to the chambers of the undersigned, Room 1960, 500 Pearl Street, New York, New York 10007. Failure to file timely objections will preclude appellate review.

Respectfully submitted,


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