Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 1 of 28
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`IN THE UNITED STATE DISTRICT COURT
`FOR THE DISTRICT OF COLORADO
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`Civil Action No. 08-cv-01897-PAB-CBS
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`OTO SOFTWARE, INC., a Texas corporation,
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`Plaintiff,
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`v.
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`HIGHWALL TECHNOLOGIES, LLC, a Florida limited liability company; and
`RICH SWIER.
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`Defendants.
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`RECOMMENDATION ON PLAINTIFF OTO SOFTWARE, INC.’S
`MOTION FOR JUDGMENT AGAINST
`HIGHWALL TECHNOLOGIES, LLC and RICH SWIER
`
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`Magistrate Judge Shaffer
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`PENDING before the court is Plaintiff OTO Software, Inc.’s (“OTO”) Motion for
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`Judgment Against Highwall Technologies, LLC (“Highwall”) and Rich Swier (doc. #127), filed
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`on December 6, 2010. Plaintiff’s motion seeks default judgments against Defendants Highwall
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`and Swier pursuant to Fed. R. Civ. P. 55(b)(2). Neither defendant has filed a response to the
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`instant motion. With a Memorandum Order (doc. #128) entered on December 7, 2010, this
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`motion was referred to the Magistrate Judge.
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`This court held a hearing on Plaintiff’s Motion for Judgment on April 4, 2011. At that
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`hearing, Plaintiff presented testimony from Todd Rogers and Christopher Basham, as well as
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`various exhibits. At the conclusion of that hearing, the court gave Plaintiff’s counsel leave to
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`submit further briefing in support of his client’s request for damages and legal fees. OTO
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`submitted a Memorandum Brief on Damages for Default Judgment (doc. #138) on April 13,
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`1
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 2 of 28
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`2011. The court has carefully reviewed the pending motion and related brief and exhibits, the
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`entire case file and the applicable case law.1
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`PROCEDURAL HISTORY
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`At the outset of this litigation, Defendants Highwall, Swier and MobileSecure, Inc.
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`(“MobileSecure”) were all represented by John Tanner. Mr. Tanner appeared at the February 4,
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`2009 scheduling conference on behalf of all three defendants and signed the Fed. R. Civ. P. 16
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`Scheduling Order (doc. #21) in that capacity. The Scheduling Order set a discovery deadline of
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`August 7, 2009 and a dispositive motion deadline of September 18, 2009. On August 14, 2009,
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`this court extended the discovery cutoff to October 26, 2009 and the dispositive motion deadline
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`to November 20, 2009.
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`Mr. Tanner filed a Motion to Withdraw Appearance as Counsel for Highwall
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`Technologies, LLC and Rich Swier (doc. #48) on October 14, 2009. In his motion, Mr. Tanner
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`explained that “Highwall Technologies, LLC and Mr. Swier have not fulfilled their obligation to
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`[defense counsel’s law firm] regarding its services and were given reasonable warning that the
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`lawyer would withdraw unless the obligation was fulfilled.” Both clients were advised of the
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`October 26, 2009 discovery cutoff date, the November 20, 2009 dispositive motion deadline, and
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`a settlement conference set with the court for November 12, 2009. Mr. Tanner also advised
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`Highwall that
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`1I note in passing that Plaintiff’s Motion for Judgment (doc. #127) contains a single
`reference to Rule 55(b) but does not cite any case law pertinent to the issues before the court.
`See D.C.COLO.LCivR 7.1C (“a motion involving a contested issue of law shall state under
`which rule or statute it is filed and be supported by a recitation of legal authority incorporated
`into the motion). With few if any exceptions, every reported decision cited in this
`Recommendation was the product of the court’s own research.
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`2
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 3 of 28
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`As a limited liability company, Highwall Technologies, LLC cannot appear
`without counsel who is admitted to practice before the District Court for the
`District of Colorado, and absent prompt appearance of substitute counsel,
`pleadings, motions, and other papers may be stricken, and default judgment or
`other sanctions may be imposed against Highwall Technologies, LLC.
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`See Exhibit B attached to Motion to Withdraw Appearance as Counsel for Highwall
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`Technologies, LLC and Rich Swier. I granted Mr. Tanner’s motion to withdraw on October 19,
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`2009, with a Minute Order (doc. #50) that again reminded Highwall “that it cannot appear
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`without counsel admitted to practice before this court, and absent prompt appearance of
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`substitute counsel, pleadings, motions and other papers may be stricken, and default judgment or
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`other sanctions may be imposed.”
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`Defendants Highwall and Swier have not been active participants in this litigation since
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`October 19, 2009. Neither defendant attended hearings or status conferences conducted by the
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`court on January 27, 2010 (doc. #83), February 26, 2010 (doc. #89), and June 8, 2010 (doc. #98).
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`The court’s docket sheet shows that notices setting the foregoing hearings and conferences were
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`mailed to the address listed for Defendants Highwall and Swier, and gives no indication those
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`notices were returned undelivered to the District Court. Defendants Highwall and Swier also
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`were served with copies of Plaintiff OTO’s Motion for Sanctions for Admitted Destruction of
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`Evidence (doc. #54), Motion for Summary Judgment Against Highwall Technologies, LLC and
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`Rich Swier, and for Sanctions (doc. #58), and Plaintiff’s Amended Motion for Summary
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`Judgment Against Highwall Technologies, LLC and Rich Swier, and for Sanctions (doc. #70).2
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`2On June 8, 2010, Plaintiff’s counsel moved to withdraw the Amended Motion for
`Summary Judgment Against Highwall Technologies, LLC and Rich Swier (doc. #70), in favor of
`a pending Motion for Clerk’s Entry of Default and Default Judgment (doc. #95). I granted that
`oral motion without prejudice. See doc. #98.
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`3
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 4 of 28
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`Neither defendant filed a response in opposition to any of the foregoing motions. To date, no
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`attorney has entered an appearance on behalf of Highwall Technologies, LLC.
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`On May 10, 2010, Plaintiff OTO filed a Motion for Clerk’s Entry of Default and Default
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`Judgment (doc. #95). Defendants Swier and Highwall declined to respond to this motion. I
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`entered a Minute Order (doc. #112) on September 13, 2010, granting Plaintiff’s motion to the
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`extent it sought a Clerk’s Entry of Default. Default was entered against Defendants Highwall
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`and Swier pursuant to Fed. R. Civ. P. 55(a) on September 20, 2010.
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`Since September 20, 2010, the court has had no contact with either Highwall or Swier.
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`The Clerk’s Entry of Default was mailed to each defendant at the identical address on Latitude
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`Lane, Osprey, Florida which had been provided by these defendants at the outset of the
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`litigation. Mail sent to Defendant Swier at the Latitude Lane address was returned as
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`undeliverable on September 22 and 29, 2010 (doc. ##115, 116 and 118). If Defendant Swier
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`changed his mailing address after September 20, 2010, he failed to comply with
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`D.C.COLO.LCivR 10.1M, which requires a pro se party to file written notice within five days
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`after any change of address, e-mail address or telephone number.
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`Neither defendant served a response to the instant Motion for Judgment, which was
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`mailed to Highwall and Swier at the Latitude Lane address.3 I set a hearing on the instant motion
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`for March 7, 2011, in an Amended Minute Order (doc. #130) that was mailed to the Latitude
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`Lane address on or about December 9, 2010. This mail was not returned to the court as
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`undeliverable, so I will presume it was received by Defendants. The court reset the motion
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`3To the court’s knowledge, this mailing was not returned to Plaintiff OTO’s counsel as
`undeliverable.
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`4
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 5 of 28
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`hearing for March 31, 2011 and issued a corresponding Minute Order (doc. #134) on January 3,
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`2011. Once again, the court utilized the Latitude Lane address and that mailing was not returned
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`as undeliverable. Without evidence to the contrary, I will presume that Defendants Swier and
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`Highwall were aware of Plaintiff’s Motion for Judgment and the related hearings.
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`ANALYSIS
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`Rule 55(a) of the Federal Rules of Civil Procedure provides that a default may be entered
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`against a party that has failed to plead or otherwise defend an action. A corporation or limited
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`liability company in litigation in the federal courts must be represented by counsel. See, e.g., Tal
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`v. Hogan, 453 F.3d 1244, 1254 n. 8 (10th Cir. 2006); De Angeli v. Johnson, 2007 WL 2298333, at
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`*1 (D. Colo. 2007). See also D.C.COLO.LCivR 83.3D. Following the withdrawal of its original
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`counsel, Defendant Highwall was put on notice that it could not appear without counsel and that
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`“absent prompt appearance of substitute counsel . . . default judgment or other sanctions” could
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`be imposed by the district court. As of the date of this Recommendation, substitute counsel has
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`not entered an appearance on behalf of Highwall. Accordingly, I recommend that Highwall
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`Technologies LLC’s Answer (doc. #10) be struck. Cf. DC Aviation, LLC v. Avbase Flight
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`Services, LLC, 2007 WL 2683554, at *1 (D. Colo. 2007) (noting that the court may strike a
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`corporate entity’s answer where it fails to obtain legal representation).
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` Moreover, under the facts of this case, there is ample justification for entering a default
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`judgment against pro se Defendant Swier. While, as a general matter, default judgments are
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`disfavored, see, e.g., Polaski v. Colorado Department of Transportation, 198 Fed. Appx. 684,
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`685 (10th Cir. 2006), entry of a default judgment is committed to the sound discretion of the trial
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`court. See, e.g., International Painters and Allied Trades Industry Pension Fund v. Auxier
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`5
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 6 of 28
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`Drywall, LLC, 531 F. Supp. 2d 56, 57 (D.D.C. 2008). A plaintiff may invoke the court’s
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`inherent power to enter a default judgment when a defendant fails to defend an action or
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`otherwise engages in dilatory tactics. Teamsters Local 639-Employers Health Trust v. Boiler
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`and Furnace Cleaners, Inc., 571 F. Supp. 2d 101, 106 (D.D.C. 2008) (holding that default
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`judgment was appropriate where defendants made no attempt to set aside the clerk’s default or to
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`assert a meritorious defense). Cf. Pleitez v. Carney, 594 F. Supp. 2d 47, 48-49 (D.D.C. 2009)
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`(“defendants cannot escape liability merely by refusing to participate”). Default judgment is an
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`appropriate method for resolving litigation and protecting a diligent plaintiff “when the
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`adversary process has been halted because of an essentially unresponsive party.” Cf. Jackson v.
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`Beech, 636 F.2d 831, 836 (D.C. Cir. 1980). Cf. Mutual Funds Investment Litigation, 590 F.
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`Supp. 2d 741, 758 (D. Md. 2008) (holding that the ultimate sanction of default judgment was
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`warranted where defendants’ failure to respond to communications from plaintiffs’ counsel and
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`oppose plaintiffs’ motion for default constituted a “a pattern of indifference and disrespect to the
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`authority of the court”).
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`In short, a party fails to “otherwise defend” for purposes of Rule 55 by effectively
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`signaling its intention to cease participating in its own defense, even after filing an answer.4 See
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`The City of New York v. Mickalis Pawn Shop, LLC, 2011 WL 1663427, at *11-12 (2d Cir. 2011)
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`and the cases cited therein. Here, Defendant Swier’s complete indifference to his obligations as
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`a pro se defendant cannot become an impediment to the adversary process or to the resolution of
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`4The court acknowledges that a party that previously has participated in the action
`through counsel “must be served with written notice of the application [for default judgment] at
`least 7 days before the hearing.” Fed. R. Civ. P. 55(b)(2). Both Highwall and Swier received
`this notice, and still failed to respond or otherwise appear to protect their interests. See doc. ##
`130 and 34.
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`6
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 7 of 28
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`Plaintiff OTO’s claims. Defendant Swier must bear the consequences of his own inaction.
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`Accordingly, this court recommends that Rich Swier’s Answer (doc. #10) be struck.
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`A.
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`Standard of Review
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`It is well-settled that the default procedure under Rule 55 gives the court a significant
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`tool for enforcing compliance with the Federal Rules of Civil Procedure, as well as protecting
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`diligent parties who have acted in compliance with those rules. See, e.g., Victoria Secret Stores
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`v. Artco Equipment Co., Inc., 194 F. Supp. 2d 704, 717 n.5 (S.D. Ohio 2002) (quoting Chandler
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`Leasing Corp. v. UCC, Inc., 91 F.R.D. 81 (N.D. Ill. 1981)). Consistent with those policy
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`objectives, “a party's default is deemed to constitute a concession of all well pleaded allegations
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`of liability, [but] . . . is not considered an admission of damages." Cablevision of Southern
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`Conn., Ltd. Partnership v. Smith, 141 F. Supp. 2d 277, 282 (D. Conn. 2001) (internal quotation
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`marks and citation omitted). See also Patray v. Northwest Publishing, Inc., 931 F. Supp. 865,
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`869 (S.D. Ga. 1996) ("allegations of the complaint are to be accepted as true, except those
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`relating to the amount of damages") (citation omitted); Kelley v. Carr, 567 F. Supp. 831, 841
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`(W.D. Mich.1983) ("A default judgment on well-pleaded allegations establishes only defendant's
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`liability; plaintiff must still establish the extent of damages.") (citations omitted).
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`While the court should accept the plaintiff’s well-pled factual allegations as true, a
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`defendant’s default does not guarantee a judgment in favor of the moving party. See, e.g.,
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`Jackson v. Correctional Corporation of America, 564 F. Supp. 2d 22, 26-27 (D.D.C. 2008)
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`(noting that a plaintiff is entitled to a default judgment only if the complaint states a claim for
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`relief) and cases cited therein. See also Nishimatsu Construction Co., Ltd. v. Houston National
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`Bank, 515 F.2d 1200, 1206 (5th Cir. 1975) (“a default is not treated as an absolute confession by
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`7
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 8 of 28
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`the defendant of his liability and of the plaintiff’s right to recover;” noting that under Rule 55, a
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`“defendant is not held to admit facts that are not well-pleaded or to admit conclusions of law”);
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`Di Marco Constructors, LLC v. Sinacola, Inc., 407 F. Supp. 2d 442, 445 (W.D.N.Y. 2006)
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`(“judgment against a defaulting party should be granted only after careful examination of the
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`moving party’s claim by the district court . . . a defendant’s default does not itself warrant a court
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`in entering a default judgment because there must be a sufficient basis in the pleadings for the
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`judgment entered”) (quoting Bianco v. Seaway Industrial Services, Inc., 2004 WL 912916, at *1
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`(W.D.N.Y. 2004)); United States v. Ponte, 246 F. Supp. 2d 74, 76 (D. Me. 2003) (even after
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`entry of default, “a plaintiff must nevertheless establish that on the law it is entitled to the relief
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`it seeks, given the facts as established by the default”).
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`"Once the court determines that a judgment by default should be entered, it will
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`determine the amount and character of the recovery that should be awarded." 10 Federal Prac. &
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`Proc. Civil 3d § 2688 at 63 (1998). The trial judge, sitting without a jury, has considerable
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`latitude in determining the amount of the damages. Jones v. Winnepesaukee Realty, 990 F.2d 1,
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`4 (1st Cir.1993). “To award damages [under Rule 55(b)(2)], it is not necessary for a court to
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`hold a hearing; instead a court may rely upon affidavits and documentary evidence.” Overcash
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`v. United Abstract Group, Inc., 549 F. Supp. 2d 193, 196 (N.D.N.Y. 2008).
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`In order to fulfill its’ obligation to ensure that damages are appropriately awarded, the
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`court must do more than merely accept at face value the movant's statement of damages. See
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`Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d
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`Cir.1997) (citations omitted). Cf. Microsoft Corp. v. Nop, 549 F. Supp. 2d 1233, 1236 (E.D. Cal.
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`2008) (for purposes of Rule 55(b)(2), “[u]nliquidated and punitive damages . . . require ‘proving
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`8
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 9 of 28
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`up’ at an evidentiary hearing or through other means”) (citing Dundee v. Cement Co. v. Howard
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`Pipe & Concrete Products, Inc., 722, F.2d 1319, 1323-24 (9th Cir. 1983)). “A plaintiff cannot
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`satisfy the certainty requirement simply by requesting a specific amount. He or she must also
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`establish that the amount requested is reasonable under the circumstances." Hennecke, Inc. v.
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`Advanced Building Composites, LLC, 2010 WL 2464842, at *2 (D. Kan. 2010).5
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`The outer bounds of recovery allowable are of course measured by the principle
`of proximate cause. The default judgment did not give [plaintiff] a blank check to
`recover from [defendant] any losses it had ever suffered from whatever source. It
`could only recover those damages arising from the acts and injuries pleaded and
`in this sense it was [plaintiff's] burden to show "proximate cause." On the other
`hand, there was no burden on [plaintiff] to show that any of [defendant's] acts
`caused the well-pleaded injuries, except as we have indicated that it had to for the
`purpose of establishing the extent of the injury caused [plaintiff], in dollars and
`cents.
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`Cablevision of Southern Connecticut, Limited Partnership v. Smith, 141 F. Supp. 2d at 282
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`(internal quotation marks and citation omitted).
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`B.
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`Plaintiff’s Claims Against Highwall Technologies, LLC and Swier
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`Plaintiff seeks default judgment and damages on the following claims: copyright
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`infringement (against Highwall and Swier); breach of contract (against Highwall); breach of the
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`implied covenant of good faith and fair dealing (against Highwall); and fraud (against Highwall
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`5While a plaintiff cannot recover damages that are speculative, an injured party is not
`required to prove damages with absolute certainty. See, e.g.,. Ripple Resort Media, Inc. v.
`Skiview Corp, 2008 WL 4678518, at *5 (D. Colo. 2008), amended in part on other grounds,
`2009 WL 485172 (D. Colo. 2009); Telex Corp. v. International Business Machines Corp., 367 F.
`Supp. 258, 349 (N.D. Okl. 1973), judgment rev’d on other grounds, 510 F.2d 894 (10th Cir.
`1975). See also Denny Constr., Inc. v. City & County of Denver, 199 P.3d 742, 749 (Colo. 2009)
`(noting that a plaintiff is not barred from recovering damages because the amount of loss was not
`proved with mathematical certainty).
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`9
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 10 of 28
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`and Swier).6 For purposes of this Recommendation, the following facts are derived from
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`Plaintiff’s Complaint, the exhibits appended to OTO’s Motion for Judgment and the testimony
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`and exhibits presented by Plaintiff during the hearing on April 4, 2011. In addition, the court has
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`taken judicial notice of the documents in the court’s file.
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`1.
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`Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair
`Dealing (Against Defendant Highwall)
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`To establish a prima facie case for breach of contract, Plaintiff OTO must show: (1) it
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`entered into a contract with Highwall Technologies, LLC; (2) performance by OTO; (3) a failure
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`to perform on the part of Highwall; and (4) resulting damages to OTO. See Saturn Systems, Inc.
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`v. Militare, P.3d , 2011 WL 543759, at *13 (Colo. App. 2011). Colorado law also
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`recognizes that every contract includes an implied duty of good faith and fair dealing. See, e.g.,
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`Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo. 1995) (noting that “[t]he good faith
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`performance doctrine is generally used to effectuate the intentions of the parties or to honor their
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`reasonable expectations”). “The general measure of damages in breach of contract cases is that
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`sum that places the non-defaulting party in the position the party would have enjoyed had the
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`breach not occurred.” Smith v. Hoyer, 697 P.2d 761, 765 (Colo. App. 1984).
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`For purposes of these claims, the court finds the following facts. Prior to March 2005,
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`OTO created and designed its “Wi-Fi Defense 2.0" software (hereafter “OTO software”) to
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`provide security to laptop and mobile computers, as well as Wi-Fi networks, from unauthorized
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`intrusions. This software was developed by Todd Rogers, who also was a co-founder of OTO.
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`Plaintiff registered a copyright in the OTO software on July 7, 2008.
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`6Plaintiff OTO has not moved for default judgment on its fifth claim for relief (unfair
`competition and false designation of origin) and sixth claim for relief (unjust enrichment).
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`10
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 11 of 28
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`On or about March 15, 2005, Plaintiff entered into a Software Private Label License
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`Agreement (hereinafter the “License Agreement”) with Highwall Technologies, LLC, pursuant
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`to which Defendant Highwall was designated a non-exclusive reseller of the OTO software
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`product. See Exhibit A to the Affidavit of Chris Basham (doc. #127-2), attached to the pending
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`Motion for Judgment. Highwall was permitted to sell the OTO software under its own brand
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`name - either Highwall Personal or Highwall Endpoint - in return for royalty payments set at
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`75% of revenues generated through sales of the product during each calendar year. Id at ¶¶ 2.1
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`and 6.1. While Highwall was obligated to “make its best efforts” to sell the OTO software to its
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`existing and new clients, the License Agreement specifically acknowledged that the “parties are
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`independent contractors” and not any employee, agent or legal representative of the other. Id. at
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`¶ 12.5. In the event of a dispute arising out of or in connection with the License Agreement, the
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`prevailing party was entitled to recover reasonable expenses, costs and attorneys’ fees, in
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`addition to all other appropriate relief. Id. at ¶ 12.4. The License Agreement also included a
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`“LIMITATION OF LIABILITY” clause stating that
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`EXCEPT FOR A CLAIM OF INDEMNIFICATION UNDER SECTION 9,
`NEITHER PARTY SHALL BE LIABLE FOR (I) ANY INDIRECT, SPECIAL,
`INCIDENTAL, EXEMPLARY, OR CONSEQUENTIAL DAMAGES OR (II)
`ANY AMOUNT GREATER THAN THE AMOUNT PAID TO THAT PARTY
`UNDER THIS AGREEMENT. THIS LIMITATION OF LIABILITY WILL
`APPLY REGARDLESS OF THE FORM OF ACTION, WHETHER IN
`CONTRACT OR TORT, INCLUDING NEGLIGENCE, OR ANY LOSS OF
`REVENUE, DATA OR PROFITS, AND INDEPENDENT OF ANY FAILURE
`OF ESSENTIAL PURPOSE OF THE LIMITED WARRANTY AND
`REMEDIES PROVIDED HEREUNDER. THIS DISCLAIMER SHALL APPLY
`WHETHER OR NOT THE OTHER PARTY HAS BEEN APPRISED OF THE
`POSSIBILITY OF SUCH DAMAGES.
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`Id. at ¶ 10.1. All rights and licenses granted to Highwall would revert to OTO upon termination
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`of the License Agreement. Id. at ¶ 7.4.
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`11
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 12 of 28
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`On or about December 14, 2005, Highwall executed a Purchase Order Agreement with
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`the FDIC, under which the FDIC agreed to purchase 3,500 copies of OTO software under
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`Highwall’s private-label name, “Highwall Personal.” See Affidavit of Chris Basham (doc. #127-
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`2), at ¶ 14. Under the terms of the Purchase Order Agreement, the FDIC was obligated to pay
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`Highwall $98,000. Id. at ¶ 19. However, Rich Swier falsely represented to OTO that the FDIC
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`only purchased $20,000 worth of copies of the OTO Software. It is undisputed that OTO and
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`Chris Basham never saw the actual FDIC purchase order.
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`In July 2006, OTO raised questions concerning the FDIC transaction. In an email dated
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`July 11, 2006, OTO’s acting counsel suggested his client was “owed a substantial amount of
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`money” and was “counting on [Highwall] to make things right.” In a follow-up email on July
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`11, 2006, OTO’s counsel asked that Highwall “furnish the license agreement for the server
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`software and program descriptions and evidence that the license fee for your server software
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`license fee to the FDIC was $78K as you stated in your email.” Yet again, on July 12, 2006,
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`counsel for OTO asked Mr. Swier to provide documentation supporting his assertions regarding
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`the FDIC transaction, as well as “[x]erozed copies of all invoices sent to end users of OTO
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`software whom Highwall licensed.” See Order and Recommendation on Pending Motions (doc.
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`#101), at 5-6.
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`As the FDIC dispute continued to fester, OTO’s outside attorney noted in an August 29,
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`2006 letter to Highwall’s counsel that Highwall
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`does not refer to or provide a single document signed on or on behalf of FDIC
`that mentions any service or product other than the items described in the
`purchase order. Further, OTO has reason to believe that no person who was
`actively involved in the transaction will corroborate Highwall’s contention that
`any services or products other than those reflected in the purchase order were
`performed or supplied. . . .
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`12
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 13 of 28
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`Id. at 6.
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`Highwall’s outside counsel responded on September 5, 2006, saying that his client was
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`“contacting the FDIC in order to secure a letter confirming all products and services received for
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`which Highwall was paid fees in addition to the cost of the OTO software.” In the same letter,
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`Highwall’s attorney asked that OTO “refrain from taking any precipitous and unjustified action
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`until I have a reasonable opportunity to review that documentation and deliver it to you which I
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`intend to do promptly upon my return to the office [on September 4, 2006].” When Highwall’s
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`promised documentation failed to materialize, OTO’s outside counsel warned on September 19,
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`2006 that “[i]f I do not receive supporting documentation by 4:00 p.m. Houston time tomorrow, I
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`will assume none exists, and will proceed accordingly.” Highwall’s attorney wrote again on
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`September 20, 2006, assuring OTO of Highwall’s “ongoing efforts to address [OTO’s] concern”
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`and promising that ‘Highwall will continue its efforts to provide the referenced documentation.”
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`No such documentation ever was produced. Id. at 6-7.
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`Had Highwall complied with its royalty obligations under the License Agreement, OTO
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`should have received a royalty payment of $73,500, rather than the $22,500 in royalties actually
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`paid by Highwall. Plaintiff suffered damages of $51,000 as a result of Highwall’s breach. See
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`Affidavit of Chris Basham (doc. #127-1) at ¶¶ 13-19. As part of its claim for breach of contract,
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`Plaintiff also presented evidence, in the form of an unpaid invoice, showing that Defendant
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`Highwall owed OTO $2,874.00 in royalties for software sold to ASG in or about April 2006.
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`See Exhibit D (doc. #127-5) attached to Plaintiff’s Motion for Judgment. I conclude that
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`Plaintiff also should recover this amount as damages under its contract claims.
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`The court will decline, however, to award the $12,000 that OTO attributes to “lost
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 14 of 28
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`royalties on the FDIC maintenance contract” or the $93,000 in “lost royalties” that Plaintiff
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`attributes to the “probabilities of deals in the sales pipeline that did not occur because of
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`MobileSecure’s acquisition of Highwall.” See Affidavit of Chris Basham (doc. #127-1), at ¶19.
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`Based upon the evidence presented by Plaintiff, I conclude these amounts are simply too
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`speculative and not supported by sufficient evidence.
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`At the damages hearing on April 4, 2011, Plaintiff offered an Exhibit O to support its
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`claim for lost royalties on the FDIC maintenance contract. On closer examination, Exhibit O
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`consists of two internal MobileSecure e-mails addressing an inquiry from the FDIC’s vendor
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`about a possible maintenance contract. I conclude this tentative inquiry does not justify an
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`award of damages. Cf. Overcash v. United Abstract Group, Inc., 549 F. Supp. 2d at 196 (under
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`Rule 55(b)(2), the “court may not rubber-stamp the non-defaulting party’s damages, but rather
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`must ensure there is a basis for the damages that are sought”). Moreover, when OTO
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`affirmatively terminated the License Agreement with Highwall on September 26, 20006, it was
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`fully aware of the software purchase by the FDIC. Simple logic suggests that OTO could have
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`independently pursued a maintenance contract with the FDIC. Cf. Westec Construction
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`Management Co. V. Postle Enterprise I, Inc., 68 P.3d 529, 532 (Colo. App. 2002) (noting that
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`the doctrine of failure to mitigate damages applies when the plaintiff fails to exercise reasonable
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`and diligent efforts to minimize or lessen damages occasioned by the defendant’s breach of
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`contract).
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`Plaintiff also seeks as contract damages “the amount of $93,000, which Mr. Basham
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`testified was based on anticipated revenues that were in the pipeline in August of 2006 when
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`Highwall Technologies sold that pipeline of business to MobileSecure.” See Plaintiff’s
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 15 of 28
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`Memorandum Brief on Damages (doc. #138) at 4-5. In support of this amount, Mr. Basham
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`referred to an August 16, 2006 e-mail from Highwall to MobileSecure. This e-mail from Jon
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`Witte is captioned “New Master Forecast” and reads in pertinent part, “Let me know if this is
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`better. I still have some other thoughts on this but it is a start.” See Exhibit M and related
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`spreadsheet introduced by Plaintiff during the hearing on April 4, 2011. I find this e-mail too
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`tentative to form the basis for Plaintiff’s requested royalty damages. Ironically, Plaintiff OTO is
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`seeking damages based, in part, upon its assertion that Highwall and Swier were engaged in
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`deceptive conduct, yet Plaintiff asks the court to place confidence in Mr. Witte’s unsubstantiated
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`projections of future sales. Rule 55(b)(2) requires more than a leap of faith. Cf. Denny
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`Construction, Inc. v. City and County of Denver, 199 P.3d 742, 746 (Colo. 2009) (holding that
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`“lost profits are recoverable only if they be proven with reasonable certainty;” “a plaintiff
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`seeking future damages must provide the trier of fact with ‘(1) proof of the fact that damages will
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`accrue in the future, and (2) sufficient admissible evidence which would enable the trier of fact
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`to compute a fair approximation of the loss”); Acoustic Marketing Research, Inc. v. Technics
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`LLC, 198 P.3d 96, 99 (Colo. 2008) (holding that prospective royalties can be awarded “[w]here
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`there is sufficient reliable evidence royalties would have accrued but for the defendant’s
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`breach”). In the absence of reliable evidence, I can not include these amounts in my
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`recommended damages.
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`Weighing the evidence available to the court and applying the applicable Rule 55(b)(2)
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`standard, I conclude that Plaintiff OTO has established a prima facie case for breach of contract
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`by Highwall Technologies, LLC and recommend that default judgment be entered in favor of
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`Plaintiff OTO on its contract claims. This court further finds that Plaintiff OTO has established,
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`Case 1:08-cv-01897-PAB-CBS Document 139 Filed 07/05/11 USDC Colorado Page 16 of 28
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`with reasonable certainty, contract damages in the amount of $53,875, plus interest in the
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`amount of $23,936 (calculated at 8% through December of 2010), for a total of $77,811. I
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`further find under section 12.4 of the License Agreement that Plaintiff OTO is entitled to recover
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`reasonable expenses, costs and attorney’s fees in connection with the contract dispute with
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`Highwall. Mr. Bornstein, OTO’s counsel, has submitted an affidavit indicating that his net
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`attorney’s fees as of April 13, 2011 are $69,734. Given the protracted nature of this litigation
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`and the court’s knowledge of Mr. Bornstein’s level of experience, I find the requested fees to be
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`reasonable and recommend that they be included in any final judgment.
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`2.
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`Copyright Infringement (Against Defendants Highwall and Swier)
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`The Complaint alleges that Plaintiff’s software is the subject of United States Copyright
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`Office registration TX0006852241 and that OTO has had a copyright in the subject software
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`since its creation in or about March 2005. See Complaint (doc. #1)at ¶¶10, 24 and 25. The
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`Complaint further avers that “Defendants had access and the opportunity to copy OTO
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`Software,” that “Highwall made a copy or copies of OTO Software for sale and