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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, ΒΆ 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 ...

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