Direct LLC-Member Claims for Personal Harm and Default Damages Without a Hearing When the Record Suffices

1. Introduction

This case concerns when an investor may recover personally for assets placed into a limited liability company and later misappropriated, and when a court may determine default damages without an evidentiary hearing.

Pablo Dario Castillo, an Argentine citizen, sued Fernando Colmenares, a Florida citizen, alleging breach of fiduciary duty, conversion, and entitlement to a constructive trust. According to Castillo, Colmenares offered to facilitate Florida real estate investments and persuaded him to place properties and capital into a Delaware limited liability company. Colmenares allegedly represented that a domestic resident had to manage the company and induced Castillo to designate him as a member and manager.

Castillo believed that he remained the sole owner of the investment assets. He later discovered that Colmenares was allegedly representing himself as the company’s sole owner and misappropriating its assets.

After the district court entered default as a sanction for Colmenares’s litigation conduct, it awarded Castillo $598,734.95. On appeal, Colmenares did not seek to undo the default as to liability. Instead, he challenged Castillo’s entitlement to recover personally, the absence of a damages hearing, and the opportunity afforded to contest supplemental damages materials.

2. Summary of the Opinion

Procedural background

Colmenares initially challenged the complaint through an untimely motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). He argued that Castillo had not satisfied the requirements for a direct or derivative claim. He also challenged the amount in controversy necessary for diversity jurisdiction under 28 U.S.C. § 1332. The district court rejected those motions and a subsequent request for reconsideration.

After Colmenares failed to attend a pretrial conference, the district court found a “pattern of willful, bad faith, and dilatory behavior.” Relying on the sanctions framework of Rules 16 and 37, it directed Castillo to submit the factual, evidentiary, and legal grounds for default judgment under Rule 55.

Colmenares opposed Castillo’s initial motion. Castillo subsequently submitted affidavits and other documents, including property deeds. The district court ruled before Colmenares responded to that supplementation. It also construed his “Notice of Apology,” which attributed his missed conference to car trouble and an hour-late arrival, as a motion to set aside the default and denied it.

The damages award

The district court awarded that total, with interest beginning on the judgment’s entry date. It denied prejudgment interest and reserved the question of costs pending an affidavit.

The appellate holdings

The Eleventh Circuit affirmed the judgment and the denial of postjudgment relief. It concluded that:

1. Castillo could recover directly: His injury arose from personal inducement and misappropriation, rather than merely from a reduction in the value of an ownership interest following harm to the company.
2. No damages hearing was required: Rule 55 permits, but does not invariably require, an evidentiary hearing when the existing record adequately supports the award.
3. Due process was satisfied: Colmenares had an opportunity to be heard through his motion to alter or amend the judgment.

3. Analysis

A. Precedents cited and their influence

1. Freedman v. magicJack Vocaltec Ltd., 963 F.3d 1125, 1136 (11th Cir. 2020)

   This precedent supplied the controlling two-part framework for a direct action under Florida law. A shareholder or LLC member must allege both:

   • A direct injury that does not arise subsequently from an initial injury to the company; and
   • A special injury separate and distinct from injuries sustained by other shareholders or members.

   The panel relied principally on the first requirement. Castillo’s loss was linked to representations made personally to induce him to contribute his properties and capital, coupled with assurances that those assets would remain his. The court therefore did not regard his claim as merely an indirect consequence of company losses.

   Although the opinion quoted both requirements, it did not separately develop an extended analysis of the special-injury requirement. Its conclusion should accordingly remain tied to the individualized allegations before it.

2. Strazzulla v. Riverside Banking Co., 175 So. 3d 879, 883 (Fla. Dist. Ct. App. 2015)

   This Florida appellate decision supplied the contrasting rule: an injury is not direct when wrongdoing first harms the company and harms its owners only through diminished ownership value.

   The distinction shaped the panel’s rejection of Colmenares’s argument that use of an LLC necessarily made Castillo’s claims derivative. The relevant inquiry was the source and character of the injury, not simply whether the disputed assets had been placed into a company.

3. Anheuser-Busch, Inc. v. Philpot, 317 F.3d 1264, 1266 (11th Cir. 2003)

   This decision supported both abuse-of-discretion review and the district court’s independent responsibility to verify damages. A court must ensure a legitimate factual basis for its award; a defendant’s failure to respond does not justify unreasonable or speculative damages.

   That principle limits the consequences of default. Even where liability is established, the court must still examine whether the monetary award has adequate support. The panel found no abuse of discretion in the award before it.

4. Kerrivan v. R.J. Reynolds Tobacco Co., 953 F.3d 1196, 1204 (11th Cir. 2020)

   The opinion cited this authority alongside Anheuser-Busch, Inc. v. Philpot for abuse-of-discretion review of the decision whether to hold an evidentiary hearing on damages. Its stated role was procedural: the appellate court reviewed the district court’s exercise of judgment rather than deciding the hearing question anew.

5. Adolph Coors Co. v. Movement Against Racism & the Klan, 777 F.2d 1538, 1544 (11th Cir. 1985)

   This case supplied the evidentiary foundation rule: damages may be awarded when the record adequately establishes their basis through either a hearing or detailed affidavits establishing the necessary facts.

   Its importance is the alternative it recognizes. A hearing is one way to substantiate damages, not the only way. Castillo’s affidavits and documentary submissions provided the record against which the district court could evaluate the claimed losses.

6. Giovanno, 804 F.3d at 1366

   The supplied opinion identifies this authority only by the short form “Giovanno”; it does not provide a full case title. The panel quoted it for two propositions: Rule 55(b)(2) does not require a damages hearing in every case, and a court may dispense with a hearing when all essential evidence is already in the record.

   This authority directly answered Colmenares’s contention that an evidentiary hearing was mandatory.

7. Lary v. Trinity Physician Fin. & Ins. Servs., 780 F.3d 1101, 1106 (11th Cir. 2015)

   This decision established that default admits a plaintiff’s well-pleaded factual allegations. The panel applied it to Castillo’s allegations that Colmenares’s deception caused the loss of investments totaling $598,734.95.

   This use of admitted allegations must be read together with the independent damages-verification requirements discussed above. The opinion does not eliminate the need for a legitimate factual basis for the amount awarded.

8. Am C.L. Union of Fla., Inc. v. Miami-Dade Cnty. Sch. Bd., 557 F.3d 1177, 1229 (11th Cir. 2009)

   The panel cited this decision when rejecting the due process challenge. It reasoned that Colmenares obtained an opportunity to be heard through his motion to alter or amend the judgment.

   The opinion used the precedent narrowly to support its conclusion about the procedural opportunity available in this case. It did not announce that postjudgment motions invariably cure every earlier denial of an opportunity to respond.

B. Legal reasoning

1. Personal inducement distinguished Castillo’s injury from ordinary company loss

Colmenares characterized the disputed losses as injuries to Cash Investments LLC. On that account, any recovery belonged to the company and had to be pursued derivatively, rather than paid to Castillo individually.

The court rejected that characterization because the allegations connected the loss to Colmenares’s dealings with Castillo personally. Colmenares allegedly persuaded Castillo to contribute assets based on assurances that Castillo would retain sole ownership, and then misappropriated those assets. The court treated that sequence as personal harm rather than a loss transmitted to Castillo solely through his company interest.

The reasoning is therefore more specific than a rule allowing investors to recover company losses whenever their own money funded the business. The decisive allegations concerned individualized inducement, ownership assurances, and subsequent diversion.

The company’s Delaware organization did not lead the panel into a choice-of-law discussion; it applied Florida law. The opinion should not be read as resolving when Florida law governs every claim involving a Delaware LLC.

2. Default resolved factual liability issues but did not remove judicial scrutiny of damages

The default originated as a sanction for litigation misconduct, not simply from a failure to answer. The district court invoked Rule 16’s pretrial-management authority and Rule 37’s sanctions framework, with judgment entered under Rule 55.

Because Colmenares expressly declined to challenge the default as to liability on appeal, the panel did not undertake a broad examination of the circumstances necessary to impose that sanction. Its focus was the recovery available after default.

The reasoning preserved two complementary principles: default admits well-pleaded facts, but the court remains responsible for ensuring that damages are factually supported. The panel invoked the admitted loss allegation alongside the record-based standards governing default awards. Its analysis does not authorize arbitrary damages merely because the defendant defaulted.

3. A hearing is necessary only when the existing record is insufficient

Rule 55(b)(2)(B) permits an evidentiary hearing when needed to determine damages. The permissive wording matters: it gives the district court a method for resolving evidentiary gaps, not an obligation to hold a hearing in every default case.

Here, Castillo identified three property-sale amounts and a specific cash diversion, supported by affidavits and documents. The panel concluded that the district court did not abuse its discretion by deciding the award without live testimony.

The governing inquiry is therefore functional: does the record contain the essential evidence needed to determine damages? Where it does not, this opinion offers no justification for dispensing with further proof.

4. The postjudgment opportunity defeated the due process claim

Colmenares argued that judgment was entered before he could respond to Castillo’s supplemental materials. The district court rejected that objection, noting his opportunity to oppose the original motion and concluding that he was not entitled to respond to the supplement.

The appellate court’s stated constitutional rationale was that Colmenares could present his objections in his motion to alter or amend the judgment. It therefore found no due process violation.

That conclusion should not be enlarged into an unconditional approval of deciding motions before all contemplated responses. The panel resolved the particular due process challenge by considering the opportunity for postjudgment presentation available here.

C. Potential impact

• LLC litigation: The opinion illustrates why courts should examine the origin of an investor’s injury rather than automatically treating every loss involving company-held assets as derivative.
• Pleading personal harm: Specific allegations of individualized representations and injury may be crucial. Merely identifying an owner’s financial loss does not satisfy the quoted two-part test.
• Default-damages practice: Plaintiffs should provide detailed affidavits and supporting records even after default. A supported calculation can permit judgment without a separate evidentiary hearing.
• Defense strategy: A demand for a hearing alone is insufficient where the record already supplies the essential evidence. Identifying concrete factual gaps or unsupported components is more directly responsive to the governing standard.
• Procedural objections: An opportunity to present objections after judgment can matter to the due process analysis, although its adequacy remains context-dependent.

Because the decision is unpublished, its principal contribution is persuasive and illustrative rather than binding doctrinal expansion.

4. Complex Concepts Simplified

Direct action

A claim brought by an owner for an injury legally suffered by that owner personally. Recovery goes to the owner.

Derivative action

A claim brought by an owner on the company’s behalf for an injury to the company. Recovery ordinarily belongs to the company.

Direct harm and special injury

Under the test quoted in this opinion, the injury must neither flow merely from an earlier company injury nor simply duplicate injuries sustained by other owners.

Default judgment

A judgment entered after a party’s procedural default, including default imposed as a sanction. It establishes well-pleaded facts but does not make every requested damages figure automatically proper.

Abuse of discretion

A deferential review standard. The appellate court asks whether the trial court exceeded its lawful decision-making range, not merely whether another approach was possible.

Constructive trust

An equitable remedy aimed at preventing someone from wrongfully retaining property or its benefits. Although Castillo sought this relief, the appeal’s central issues concerned direct recovery and monetary damages.

Prejudgment and postjudgment interest

Prejudgment interest concerns the period before judgment; postjudgment interest concerns the period afterward. The district court denied the former and awarded interest beginning upon entry of judgment.

Opportunity to be heard

A meaningful chance to present objections. It does not necessarily require live testimony; here, the panel relied on the opportunity provided by the postjudgment motion.

5. Conclusion

The Eleventh Circuit affirmed Castillo’s $598,734.95 recovery because the allegations established personal investment harm and the record supported damages without an evidentiary hearing. It also found the postjudgment opportunity to object sufficient to defeat Colmenares’s due process challenge.

The opinion’s central lesson is a qualified one: company involvement does not automatically make an injury derivative, and default does not automatically require—or eliminate the need for—a damages hearing. The character of the injury and the sufficiency of the evidentiary record remain decisive.