United States District Court, D. Utah
U.S. SMALL BUSINESS ADMINISTRATION, Plaintiff,
BRANSON PROPERTIES, LC D/B/A SONIC DRIVE-INS and BRANSON MANAGEMENT, INC., Defendants.
MEMORANDUM DECISION GRANTING IN PART AND DENYING IN
PART MOTION FOR DEFAULT JUDGMENT
N. PARRISH DISTRICT JUDGE
the court is a motion for default judgment [Docket 25]
brought by the U.S. Small Business Administration (SBA)
against Branson Properties, LC and Branson Management, Inc.
The court GRANTS IN PART AND DENIES IN PART the motion and
enters a default judgment against Branson Properties and
Branson Management in accord with this memorandum decision.
2005, Branson Properties borrowed a sum of money. Branson
Management guaranteed the loan. The SBA also guaranteed 75%
of the loan. The promissory note contains the following
Without notice and without Borrower's consent, Lender
may: . . . Incur expenses to collect amounts due under this
Note, enforce the terms of this Note or any other Loan
Document, and preserve or dispose of the Collateral. Among
other things, the expenses may include payments for property
taxes, prior liens, insurance, appraisals, environmental
remediation costs, and reasonable attorney's fees and
costs. If Lender incurs such expenses, it may demand
immediate repayment from Borrower or add the expenses to the
principal balance . . . .
[Docket 2-4, p.3]
2010, Branson Properties defaulted on the loan. The lender
subsequently assigned the note to the SBA for collection. The
SBA filed a complaint against Branson Properties and Branson
Management alleging a single cause of action for breach of
the loan contract. [Docket 2]. Neither of the defendants
answered the complaint. The clerk of this court, therefore,
entered default certificates against both defendants.
then filed a motion for default judgment. The motion
requested entry of a default for the principal balance owed
on the note: $469, 404.90. The motion also requested
“administrative fees resulting from collections
efforts” in the amount of $159, 694.46 for a total
judgment of $629, 099.36.
the SBA has requested an award of administrative fees, it is
not seeking a judgment for “a sum certain or a sum that
can be made certain by computation.” Fed.R.Civ.P.
55(b)(1). The SBA, therefore, must rely upon rule 55(b)(2) of
the Federal Rules of Civil Procedure for its motion for entry
of a default judgment.
support of its request for the unliquidated administrative
fees, the SBA cites 31 U.S.C. § 3717(e), which provides
that a government agency “shall assess on a claim owed
by a person . . . a charge to cover the cost of processing
and handling a delinquent claim.” The SBA also cites a
federal statute that permits the Secretary of the Treasury to
either retain a portion of amounts it collects on debts or
bill the agency transferring the claim to the Treasury
“based on actual administrative offsets
completed.” 31 U.S.C. § 3716(c)(4). A federal
regulation further states that “[a]gencies shall assess
administrative costs incurred for processing and handling
delinquent debts. The calculation of administrative costs
should be based on actual costs incurred or upon estimated
costs as determined by the assessing agency.” 31 C.F.R.
§ 901.9(c). Finally, the SBA asserts that the Treasury
has determined that a 30% surcharge on a debt delinquent by
two years or more is a reasonable estimate of administrative
costs. The SBA, however, provides no citation to authority or
an affidavit to support this claim. Based upon these statutes
and regulations, the SBA argues that a 30% surcharge,
totaling $140, 821.48, should be added to the amount owed on
also argues for further administrative surcharges. It points
to a public law that permits the Department of Justice to
retain “up to 3 percent of all amounts collected
pursuant to civil debt collection litigation
activities” of the Department. 21st Century Department
of Justice Appropriations Authorization Act, Pub. L. No.
107-273, § 11013, 116 Stat. 1758 (2002). The SBA
interprets this authorization to retain a portion of debts
collected to be a cost authorized by section 3717(e).
See 31 U.S.C. § 3711(g)(6) (“Any agency
operating a debt collection center to which nontax claims are
referred or transferred under this subsection may charge a
fee sufficient to cover the full cost of implementing this
subsection. . . . Amounts charged under this subsection
concerning delinquent claims may be considered as costs
pursuant to section 3717(e) of this title.”). The SBA
therefore assesses an additional 3% surcharge on both the
principal amount due on the loan ($469, 404.90) and the 30%
Treasury surcharge discussed above ($140, 821.48), for an
additional charge of $18, 872.98.
the SBA request a default judgment for the $469, 404.90
remaining on the loan as well as a total of $159, 694.46 in
administrative fees charged by the Treasury and the
Department of Justice, which amounts to approximately a 34%
surcharge on the amount owed. This requested administrative
fee award is not based upon an evaluation of the actual
expenses incurred by federal agencies in collecting on the
debt, but rather on a web of statutes, regulations, public
laws, and administrative decisions regarding inter-agency
charges for debt collection that assess fixed percentages on
the amount owed. The linchpin for the SBA's request for
administrative fees, however, is 31 U.S.C. § 3717(e),
which requires a federal agency to assess “a charge to
cover the cost of processing and handling a delinquent
court denies the SBA's request for a default judgment on
the requested administrative fees for two reasons. First, the
SBA never pled a cause of action based upon section 3717(e).
The complaint alleged a single cause of action for breach of
contract based upon the terms of the loan agreement. It never
even mentions section 3717(e). Although the complaint
requested a surcharge in the amount of $159, 694.46, it
specifically stated that this amount was for
“attorney's fees and costs . . . resulting from
collection efforts, ” indicating that this amount was
calculated pursuant to the collection costs clause of the
promissory note. [Docket 2, pp. 3- 4]. A defaulting defendant
“‘admits the plaintiff's well-pleaded
allegations of fact' and forfeits his ability to contest
those facts.” Tripodi v. Welch, 810 F.3d 761,
763 (10th Cir. 2016). “However, it follows from this
that facts which are not established by the pleadings of the
prevailing party, or claims which are not well-pleaded, are
not binding and cannot support the judgment.”
Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir.
1978); accord Nishimatsu Const. Co. v. Houston Nat.
Bank, 515 F.2d 1200, 1206 (5th Cir. 1975) (“[A]