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Bhungalia Family LLC v. Agarwal

United States District Court, S.D. New York

May 24, 2018





         This matter has been referred to this Court for a damages inquest, following the entry of an Order by the Honorable John G. Koeltl, U.S.D.J., finding that plaintiff Bhungalia Family, LLC (“BFL”) was entitled to a default judgment against defendant Deepak Agarwal (“Agarwal”) on BFL's claim for breach of a guaranty. (See Dkts. 17, 18; see also Complaint, dated May 12, 2017 (“Compl.”) (Dkt. 1).)[1] For the reasons below, I recommend that BFL be awarded judgment against Agarwal as follows: (1) damages of $589, 990.44, representing outstanding principal due and owing under the guaranty; (2) interest owing on the unpaid principal in the amount of $41, 888.58 through September 25, 2016 (which, as set forth below, was the “Maturity Date” of the debt); (3) additional prejudgment interest on the total outstanding loan balance of $631, 879.02, to be calculated by the Clerk of Court at the rate of $351.04 per day from September 26, 2016 to the date of entry of judgment; (4) $13, 798.63 in attorneys' fees; and (5) $968.34 in costs.


         A. Factual Background[2]

         Plaintiff BFL is a limited liability company located in Vienna, Virginia. (Proposed Findings ¶ 1; Compl. ¶ 3.) Defendant Agarwal is a natural person residing in New York, New York. (Proposed Findings ¶ 5; Compl. ¶ 8.)

         1.The Choxi Promissory Note

         On September 25, 2015, the corporate entity, Inc. (“Choxi”), an online retailer with which Agarwal was affiliated, executed a promissory note (the “Promissory Note”) in favor of BFL, in exchange for a $1 million loan made by BFL to Choxi. (Proposed Findings ¶¶ 6-7, 11; Compl. ¶ 12; Bhungalia Decl. ¶ 9 & Ex. A (Promissory Note).)[3]

         Under the terms of the Promissory Note, Choxi agreed to repay to BFL the principal amount of the loan, plus interest at the rate of 12 percent per annum (to be calculated based on a 360-day year), compounded annually. (Proposed Findings ¶ 8(a); Compl. ¶ 13(a); Bhungalia Decl., Ex. A, Section 1(a).) More specifically, Choxi agreed to pay BFL at least accrued interest in monthly installments, beginning in or about September 2015, [4] with the entire remaining principal amount, together with any remaining accrued and unpaid interest, to become due and payable on the Promissory Note's maturity date of September 25, 2016 (the “Maturity Date”). (Proposed Findings ¶ 8(a), (b); Compl. ¶ 13(a), (b); Bhungalia Decl., Ex. A, Section 1(a).)

         The parties further agreed that if Choxi failed to make a payment under the Promissory Note when due, then an “Event of Default” would occur, giving BFL the right to accelerate the Promissory Note and to declare all of Choxi's obligations thereunder to be “immediately due and payable.” (Proposed Findings ¶ 8(c), (d); Compl. ¶ 13(c), (d); Bhungalia Decl., Ex. A, Section 2(a), Section 3.) The parties also agreed that “the filing or commencement for [sic] any proceedings for relief under the United States Bankruptcy Code” with respect to Choxi would similarly constitute an Event of Default, permitting acceleration of Choxi's payment obligations. (Bhungalia Decl., Ex. A, Section 3; see also Proposed Findings ¶ 8(c); Compl. ¶ 13(c).)

         Finally, of relevance here, the Promissory Note contains the following provision, allowing for BFL to recover additional amounts - including attorneys' fees and costs, and interest at a modified rate - in the event that Choxi were to fail to make payments when due, necessitating collection efforts by BFL:

Additional Expense. If this Note or any Principal Amount or interest thereon is not paid when due, whether by reason of acceleration or otherwise, and this Note is placed in the hands of any attorney or attorneys for collection, [Choxi] promises to pay, in addition to the other amounts due hereon, the reasonable costs and expenses of such collection, including reasonable attorneys' fees and expenses. In addition, if this Note or any Principal Amount or interest thereon is not paid when due and the Company is in default beyond any applicable notice and cure period, interest shall be due on the Principal Amount, from the Maturity Date, at the rate of twenty percent (20%) per annum (“Default Interest”), calculated on the basis of the actual number of days elapsed over a year of 360 days.

(Bhungalia Decl., Ex. A, Section 2(c); see Proposed Findings ¶ 8(f), (g); Compl. ¶ 13(f), (g).)

         2.The Agarwal Guaranty

         This action against Agarwal is based on the fact that, “[a]s an inducement for BFL to lend Choxi the $1, 000, 000 pursuant to the Promissory Note, and as additional security for the repayment of the amounts due under the Promissory Note, on or about September 25, 2015, Agarwal concurrently executed a written Continuing Unconditional Guaranty of Choxi's repayment obligations under the Promissory Note in favor of BFL (the ‘Guaranty').” (Proposed Findings ¶ 9; see also Compl. ¶ 14; Bhungalia Decl., Ex. B (Guaranty).)

         Under the terms of the Guaranty, Agarwal “absolutely and unconditionally guarantee[d], as a primary obligor and not as a surety, the full and punctual payment” of Choxi's “Guaranteed Obligations” under the Promissory Note, including any such Guaranteed Obligations incurred or accrued during the pendency of any bankruptcy proceeding, “whether or not allowed or allowable in such proceeding.” (Bhungalia Decl., Ex. B, Section 2.) The term “Guaranteed Obligations” is defined in the Guaranty to be “used in its most comprehensive sense, ” and to include, inter alia, principal, interest, collection costs, and attorneys' fees. (Id.) In addition, the Guaranty contains a separate provision regarding “Costs of Enforcement, ” under which Agarwal agreed to pay “all costs and expenses including, without limitation, all court costs and attorneys' fees and expenses paid or incurred by [BFL] . . ., in endeavoring to collect all or any part of the Guaranteed Obligations from, or in prosecuting any action against, . . . [Agarwal].” (Id., Section 15.)

         The Guaranty is governed by New York law. (Id., Section 18.)

         3. Choxi's Default Under the Promissory Note, and Agarwal's Failure To Make Payment Under the Guaranty

         Choxi made payments to BFL (representing interest, plus some repayment of principal) under the Promissory Note from October 7, 2015 through February 25, 2016 (see Proposed Findings ¶¶ 12, 30, 31; Compl. ¶ 17; Bhungalia Decl., ¶ 23 & Ex. E (spreadsheet showing payments made)[5]), but then failed to make the interest payment that was due in March 2016, thereby defaulting in its obligations under the Promissory Note (Proposed Findings ¶ 13; Compl. ¶ 18; Bhungalia Decl. ¶ 15). As the Promissory Note did not set out the precise monthly dates on which installment payments of interest were due, BFL apparently afforded Choxi until the last day of the month of March 2016 to make its interest payment for that month, and therefore deemed March 31, 2016 the “Default Date.” (See Bhungalia Decl. ¶ 15 (stating that a monthly payment of accrued interest was “due on or before March 31, 2016, ” and identifying that date as the “Default Date”).)

         On or about September 1, 2016, BFL extended Agarwal's time to make payment under the Guaranty through March 25, 2017. (Proposed Findings ¶ 15; Compl. ¶ 20; see Bhungalia Decl., Ex. C (Extension of Time).[6])

         On March 27, 2017, given that BFL had still not received the amounts owed under the Promissory Note and Guaranty, counsel for BFL sent Agarwal a demand letter, stating that Choxi was in default under the Promissory Note, and demanding from Agarwal “the immediate payment” of $689, 162.73, which counsel represented to be the remaining balance due on the Promissory Note (including both principal and accrued interest) as of March 25, 2017. (Proposed Findings ¶ 16; Compl. ¶ 21; Bhungalia Decl., Ex. D, at 1 (Demand Letter).) Counsel further demanded payment of additional interest accruing from March 25, 2017 to the date of payment, as well as “attorneys' fees, costs and expenses incurred in connection with this matter pursuant to Paragraph 15 of the Guaranty, ” which, counsel indicated, totaled $3, 500.00 as of that time. (Bhungalia Decl., Ex. D., at 1.)

         Despite its demand letter, BFL has represented to the Court that it received no further payments from Choxi or Agarwal. (Proposed Findings ¶ 14; Compl. ¶¶ 19, 23; Bhungalia Decl. ¶¶ 16, 19.) Further, this Court notes that, according to BFL's Complaint, “[a]n involuntary Chapter 7 bankruptcy petition was filed against Choxi on November 10, 2016 and it remain[ed] in bankruptcy as of the filing of this action.” (Compl. ¶ 19.)

         B. Procedural History

         BFL commenced this action on May 12, 2017, by filing a Complaint alleging that Agarwal had breached the Guaranty. (See generally Compl.) BFL has certified that it duly served Agarwal with process (see Affidavit of Service, sworn to May 25, 2017 (Dkt. 7); see also Ziluck Decl. ¶¶ 7, 8) but, to date, Agarwal has not moved, answered, or otherwise responded to the Complaint (see generally Dkt.).

         On July 7, 2017, the Clerk of Court issued a Certificate of Default against Agarwal. (Dkt. 12.) On July 18, 2017, Judge Koeltl then ordered Agarwal to show cause why a default judgment should not be entered against him (Dkt. 15), and BFL filed proof that, on July 20, 2017, it served the Order To Show Cause on Agarwal (Dkt. 16). When Agarwal did not respond, Judge Koeltl proceeded to issue another Order, stating that BFL had “shown that it is entitled to a Default Judgment” against Agarwal, and referring the matter to this Court for a damages inquest. (Dkt. 17.)

         On September 5, 2017, this Court issued a Scheduling Order, by which it directed BFL to submit proposed findings of fact and conclusions of law concerning damages. (Dkt. 19.) In that Scheduling Order, this Court directed BFL to explain how it calculated its damages, to tie the proposed damages specifically to the legal claim on which liability had been established, and to support any claimed damages with an affidavit and attached documentary evidence. (Id.) This Court also cautioned Agarwal that, if he failed to respond to BFL's submissions or to contact the Court to request a hearing by November 6, 2017, then this Court's would issue a report and recommendation on the basis of BFL's written submissions alone. (Id.)

         BFL timely filed inquest submissions (Dkts. 20, 21, 22), but the supporting Declaration of Haresh Bhungalia (“Bhungalia”), who represented that he was a duly appointed trustee of the trusts comprising the members of BFL and a custodian of the business records of those trusts (Bhungalia Decl. ¶ 1), was neither sworn nor expressly stated to be under penalty of perjury, as required by 28 U.S.C. § 1746 (see generally Bhungalia Decl.). As Bhungalia had been put forward by BFL as the party representative with personal knowledge of the amounts due and owing under the Promissory Note (and, hence, the Guaranty) (see Bhungalia Decl. ¶¶ 20-26), this Court, on May 7, 2018, issued another Order, directing BFL to supplement its submissions with a certification signed by Bhungalia stating, under penalty of perjury, that the statements contained in his Declaration were true and correct (see Dkt. 24). On May 11, BFL submitted the supplemental certification from Bhungalia, together with proof of service on Agarwal of both the certification and this Court's May 7 Order. (See Dkts. 25, 26.)

         As of the date of this Report and Recommendation, Agarwal has neither responded to BFL's original or supplemental submission nor requested a damages hearing (see generally Dkt), and this Court will therefore ...

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