Lead Real Estate Co., Ltd. v. BF Borgers CPA PC

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 25-cv-01698-CNS-NRN
LEAD REAL ESTATE CO., LTD.,
Plaintiff,
v.
BF BORGERS CPA PC,
Defendant.
REPORT AND RECOMMENDATION ON
PLAINTIFF’S MOTION FOR DEFAULT JUDGMENT (ECF No. 16)
N. REID NEUREITER
United States Magistrate Judge
This matter is before the Court pursuant to an Order by Judge Charlotte N.
Sweeney, ECF No. 17, referring Plaintiff Lead Real Estate Co., Ltd.’s (“Plaintiff”) Motion
for Default Final Judgment (“Motion”), ECF No. 16. A Clerk’s Entry of Default was
entered on July 8, 2025 against Defendant BF Borgers SPA PC (“BF Borgers” or
Defendant”). ECF No. 11.
Defaulting Defendant failed to appear, answer, or otherwise plead to the
Complaint, ECF No. 1, despite having been served. See ECF No. 7. The Court heard
oral argument on October 22, 2025. The Court has carefully considered the Motion, the
record in this case, the applicable law, and is otherwise fully advised. For the following
reasons, the Court RECOMMENDS that Plaintiff’s Motion be GRANTED.
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 1 of 14

2
I. 	BACKGROUND1
Plaintiff had contracted with Defendant to audit Plaintiff’s balance sheets and
related statements of operations, stockholders’ equity and income, and cash flows
(collectively, “Financial Statements”). On February 2, 2022, Plaintiff engaged Defendant
to audit its Financial Statements for the years ending June 30, 2020 and June 30, 2021.
ECF No. 1-1. On May 31, 2022, Plaintiff engaged Defendant to audit its Financial
Statements for the year ending June 30, 2022. ECF No. 1-2. On August 27, 2023,
Plaintiff engaged Defendants to provide the same services for the year ending June 30,
2023. ECF No. 1-3. The price of each contract was $550,000.00, $660,000.00, and
$660,000.00 respectively. In conjunction with the 2023 agreement, Defendant also
agreed to perform reviews of Plaintiff’s unaudited quarterly financial information for each
of the quarters in the year ending June 30, 2024. Id.
The objective of each audit was for Defendant to “express an opinion on the
relevant Financial Statements in accordance with generally accepted accounting
principles accepted in the United States (‘GAAP’).” ECF No. 1 at 3. In connection with
Plaintiff’s audits, Defendant consistently and expressly represented that it would
conduct each of the audits in accordance with the standards established by the Public
Company Accounting Oversight Board (“PCAOB”). Id. Additionally, Defendant agreed
that it was responsible for communicating with Plaintiff’s audit committee regarding its
responsibilities under PCAOB standards. Id.
1 All citations to docketed materials are to the page number in the CM/ECF
header, which sometimes differs from a document’s internal pagination.
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 2 of 14

3
On May 3, 2024, the Securities and Exchange Commission (“SEC”) announced
that it was simultaneously filing and settling an administrative enforcement action
against Defendant and its managing partner, Benjamin F. Borgers. Id. at 4. The SEC
found that from at least January 2021 through at least June 2023, Defendant had
deliberately and systematically failed to audit and review public company financial
statements in accordance with PCAOB standards, while fraudulently issuing audit
reports falsely representing that it had done so. Id. The SEC also found that Defendant
had falsely represented in engagement letters to public company clients that Defendant
would conduct the audits and quarterly reviews of those clients’ financial statements in
accordance with PCAOB standards. Id. Furthermore, the SEC found that Defendant
knew the falsified audit reports it generated were required to be, and would be, included
in the public company clients’ required filings with the SEC which, for public companies,
would be publicly available to investors. Id.; see also ECF No. 1-4 (“Order Instituting
Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the
Securities Act of 1933, Sections 4C and 21C of the Securities Exchange Act of 1934,
and Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing
Remedial Sanctions and a Cease-and-Desist Order,” hereinafter, “May 3, 2024 Order”).
In connection with these findings, the SEC denied Defendant the privilege of appearing
or practicing before the SEC as an accountant and ordered it to pay a civil monetary
penalty. Id.
At no point did Defendant inform Plaintiff of the SEC investigation or its findings.
Plaintiff ultimately learned about Defendant’s settlement agreement with the SEC
directly from Plaintiff’s counsel and from the SEC. ECF No. 1 at 6. In a letter dated May
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 3 of 14

4
9, 2024, the SEC notified Plaintiff of Defendant’s suspension from appearing and
practicing before the SEC. ECF No. 1-5 (“May 9, 2024 Letter”). In that same letter, the
SEC advised Plaintiff that Plaintiff would not be allowed to include audit reports from
Defendant in any filings with the SEC on or after May 9, 2024. Any financial statements
that Defendant had audited that Plaintiff would be required to include in filings with the
SEC would need to be re-audited by an auditing firm in good standing. Id. As a result,
Plaintiff appointed Marcus Asia CPAs LLP (“Marcus Asia”) as its independent registered
public accounting firm on May 31, 2024. Plaintiff dismissed Defendant on June 10,
2024. Marcus Asia was appointed to redo Defendant’s audit work for 2022 and 2023.
ECF No. 1 at 7. Plaintiff alleges that Marcus Asia “will likely be required to redo
Defendant BF Borgers’ prior years of audit work as well.” Id.
Based on the above allegations, Plaintiff filed this lawsuit and alleged claims for
(1) professional malpractice; (2) negligent misrepresentation; (3) breach of contract; and
(4) unjust enrichment. Plaintiff requests the following relief: (1) liquidated damages in
the amount of $1,870,000.00 for breach of the three agreements with Defendant; (2)
compensatory damages in the amount of $78,005.81 for a separate consultation fee
that was paid to Aprio Advisory Group, LLC; (3) pre and post-judgement interest; (4)
litigation costs in the amount of $547.46; and (5) any other relief that the court may
deem just, fair, and equitable.
II. 	LEGAL STANDARD
a. 	Entry of Default Judgment
Federal Rule of Civil Procedure 55 specifies a two-step process for obtaining a
default judgment. First, the party must seek and obtain an entry of default by the Clerk
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 4 of 14

5
of Court under Rule 55(a). See Wendell H. Stone Co., Inc. v. Five Star Advert., LLC,
No. 19-cv-03157-PAB-STV, 2022 WL 4094067, at *2 (D. Colo. Sept. 7, 2022) (citations
omitted). Second, once default has been entered by the Clerk, the party must move for
default judgment under Rule 55(b). Id. Whether to grant default judgment is committed
to the Court’s discretion. Olcott v. Del. Flood Co., 327 F.3d 1115, 1124 (10th Cir. 2003).
In exercising its discretion, the Court must keep in mind that “strong policies favor
resolution of disputes on their merits,” and that default judgment is normally appropriate
“only when the adversary process has been halted because of an essentially
unresponsive party.” In re Rains, 946 F.2d 731–33 (10th Cir. 1991) (quotation and
citation omitted).
Before entering a default judgment, the Court must first establish that it has
personal jurisdiction over the defendant and subject-matter jurisdiction over the suit.
See Williams v. Life Sav. & Loan, 802 F.2d 1200, 1203 (10th Cir. 1986) (“[W]hen entry
of a default judgment is sought against a party who has failed to plead or otherwise
defend, the district court has an affirmative duty to look into its jurisdiction both over the
subject matter and the parties.”). Next, the Court must consider “whether the admitted
facts demonstrate a right to recovery.” Am. S. Ins. Co. v. Wallz, Inc., No. 24-cv-01191-
DDD-SBP, 2025 WL 685696, at *3 (D. Colo. Jan. 29, 2025), report and
recommendation adopted, 2025 WL 1251203 (D. Colo. Feb. 25, 2025), reconsideration
denied, 2025 WL 1927583 (D. Colo. June 13, 2025). At this step, “a complaint still must
contain either direct or inferential allegations respecting all the material elements
necessary to sustain a recovery under some viable legal theory.” Bryson v. Gonzales,
534 F.3d 1282, 1286 (10th Cir. 2008) (quotation and citation omitted). The Court
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 5 of 14

6
accepts all well-pled facts as true. Similarly, “undisputed facts alleged in affidavits and
exhibits are deemed true.” Miller v. Dirty Pit Craft House LLC, No. 23-cv-00183-GPG-
SBP, 2024 WL 4110792, at *2 (D. Colo. Mar. 24, 2024) (citing Eighth Dist. Elec.
Pension Fund v. Teter Indus., Inc., No. 22-cv-02521-CNS, 2023 WL 3819339, at *2 (D.
Colo. June 5, 2023)). When assessing damages, however, the Court must establish the
amount that the moving party is entitled to recover. Mrs. Condies Salad Co. v. Colo.
Blue Ribbon Foods, LLC, 858 F. Supp. 2d 1212, 1218 (D. Colo. 2012).
In determining the damages amount, a hearing is not always required. “[T]he
hearing requirement can be satisfied by the submission of affidavits or other proper
documentary evidence if doing so will create a record sufficient for the court to decide
the matters before it.” Malluk v. Berkeley Highlands Prods., LLC, No. 19-cv-01489-CMA,
2020 WL 1033339, at *2 (D. Colo. Mar. 3, 2020). The Court need not conduct a hearing
“if the amount claimed is a liquidated sum or one capable of mathematical calculation.”
Venable v. Haislip, 721 F.2d 297, 300 (10th Cir. 1983). In this case, the Court did
conduct a hearing. See ECF No. 23.
III. 	JURISDICTION
a. 	Subject Matter Jurisdiction
This Court finds it has subject matter jurisdiction over this action pursuant to 28
U.S.C. § 1332, because the amount in controversy exceeds $75,000, exclusive of
interest, costs and attorneys’ fees, and the action is between citizens of different states.
Plaintiff is a Japanese corporation with its principal place of business in Plano, Texas,
and Defendant is a Colorado professional corporation with its principal place of
business in Lakewood, Colorado. ECF No. 1 at 1–2.
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 6 of 14

7
b. Personal Jurisdiction
It is Plaintiff’s burden to establish personal jurisdiction over Defendant. See
Rambo v. Am. S. Ins. Co., 839 F.2d 1415, 1417 (10th Cir. 1988). Within the default
judgment context, a plaintiff “need only make a prima facie showing [of personal
jurisdiction] if the motion [for default judgment] is decided only on the basis of the
parties’ affidavits and other written materials.” Dennis Garberg & Assocs., Inc. v. Pack-
Tech Int’l Corp., 115 F.3d 767, 773 (10th Cir. 1997).
Accepting the well-pled facts in the Complaint as true, the Court finds that it has
general and personal jurisdiction over Defendant. Defendant is a Colorado professional
corporation with its principal place of business in Lakewood, Colorado. Defendant
conducts business within this District, and the unlawful breaches and activity occurred
within this District. ECF No. 1 at 2.
Additionally, the Court finds that Plaintiff properly served the Defendant on June
16, 2025, at its principal place of business via U.S. Certified Mail, return receipt
requested. ECF No. 7-2. Service via U.S. Certified Mail was proper in this case because
Defendant’s registered agent was not located at the registered agent address listed with
the Colorado Secretary of State, and could not be served with reasonable diligence.
See Colo. Rev. Stat. § 7-90-704(2) (“If an entity that is required to maintain a registered
agent . . . , or if the registered agent is not located under its registered agent name at its
registered agent address, . . . the entity may be served by registered mail or by certified
mail, return receipt requested, addressed to the entity at its principal address.).
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 7 of 14

8
IV. 	ANALYSIS
Once default is entered, “‘it remains for the court to consider whether the
unchallenged facts constitute a legitimate cause of action, since a party in default does
not admit mere conclusions of law.’” Bixler v. Foster, 596 F.3d 751, 762 (10th Cir. 2010)
(quoting Nishimatsu Constr. Co. v. Houston Nat’l Bank, 515 F.2d 1200, 1206 (5th Cir.
1975)). Accepting the well-pled facts as true, the Court finds that Plaintiff has alleged
sufficient facts to support the entry of default judgment against Defendant.
a. 	Count III - Breach of Contract
“Under Colorado law, a breach of contract claim has four elements: ‘(1) the
existence of a contract; (2) performance by the plaintiff or some justification for
nonperformance; (3) failure to perform the contract by the defendant; and (4) resulting
damages to the plaintiff.’” Spring Creek Expl. & Prod. Co. v. Hess Bakken Inv., LLC, 887
F.3d 1003, 1017–18 (10th Cir. 2018). Plaintiff must also identify which contractual
provision was allegedly breached. Pernick v. Computershare Tr. Co., Inc., 136 F. Supp.
3d 1247, 1266 (D. Colo. 2015).
Plaintiff has sufficiently alleged the existence of the three contracts at issue,
which are attached as exhibits to the Complaint. See ECF Nos. 1-1–3. All three
agreements are written on Defendant’s letterhead, contain Defendant’s signature, and
include a “response” section at the end indicating that the “letter correctly sets forth the
understanding of Lead-Real Estate Co., Ltd.” Id. Pursuant to each of the agreements,
the parties had an understanding that “[t]he objective of an audit of the financial
statements is to express an opinion on the financial statements in accordance with
[GAAP] in the United States.” ECF No. 1-1 at 2. Defendant also agreed that the “audit of
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 8 of 14

9
the financial statements [would] be conducted in accordance with the standards
established by the [PCAOB] . . . .” Id. Furthermore, Defendant was responsible for
“communicating with [Plaintiff’s] audit committee about certain other matters related to
[Defendant’s] audit, including (1) [Defendant’s] audit responsibility under PCAOB
standards; . . . (16) any significant difficulties encountered in performing the audit . . . .”
Id. at 3–4.
In the May 3, 2024 Order, the SEC’s investigation into Defendant found that from
at least January 2021 through at least June 2023 (which overlaps with the contractual
periods at issue), Defendant engaged in the deliberate and systematic failure to audit
and review public company financial statements in accordance with PCAOB standards,
while fraudulently issuing audit reports falsely representing that Defendant had done so.
ECF No. 1-4 at 3. Defendant was also found to have falsely represented in engagement
letters to clients, including Plaintiff, that Defendant would conduct audits and quarterly
reviews of financial statements in accordance with PCAOB standards. Id. Defendant
made these false representations with the knowledge that the falsified audit reports it
generated would be included in clients’ filings with the SEC, which would be publicly
available to investors. Id. As noted in the SEC’s Order, “[i]nvestors regularly rely on the
financial statements of public companies when making investment decisions. This
reliance is based on important safeguards built into the system, including the
requirement that a PCAOB-registered accounting firm audit those financial statements
annually and review them on a quarter basis in accordance with PCAOB standards.”
ECF No. 1-4 at 3. Despite its contractual obligations, Defendant failed to inform Plaintiff
of the SEC investigation and related sanctions. On May 9, 2024, Plaintiff received notice
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 9 of 14

10
from the SEC that Defendant had been suspended from practicing before the SEC and
that all financial statements that had been audited by Defendant, and that were required
to be filed with the SEC on or after May 9, 2024, would need to be re-audited by a
different auditing firm in good standing. Plaintiff argues that the audits performed by
Defendant were rendered “useless” as a result of Defendant’s failure to comply with the
PCAOB standards. ECF No. 16 at 9. These facts, which are uncontested, are sufficient
to establish Defendant’s nonperformance.
Defendant’s breach caused Plaintiff to pay a new firm, Marcus Asia, to redo all
the auditing work that Defendant had performed for 2022 and 2023. In addition to the
cost of the new contract with Marcus Asia, Plaintiff was required to pay a separate
consultant to review Defendant’s prior work. ECF No. 16-1 at 4. Based on the above
facts, the Court finds that Plaintiff is entitled to relief under the claim for breach of
contract.
b. Professional Malpractice (count I), Negligent Misrepresentation
(count II), and Unjust Enrichment (count III)
In addition to the breach of contract claim, Plaintiff brings claims for professional
malpractice, negligent misrepresentation, and, in the alternative, for unjust enrichment.
While there may be an argument that these additional claims are barred by the
economic loss doctrine or otherwise subsumed under the breach of contract claim, the
Court need not reach that determination here. Plaintiff does not request additional
recovery under these claims; the Motion seeks only to recover contractual damages.
V. 	DAMAGES
In its Motion, Plaintiff seeks an award of $1,870,000.00 in “liquidated damages”
for breach of the three agreements. However, Plaintiff inaccurately characterizes the
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 10 of 14

11
relief requested as one for breach of contract damages. “‘The root purpose of a contract
remedy is to place the plaintiff-promisee in as good a position as [it] would have
occupied had the defendant-promisor not breached the contract.’” Spring Creek Expl. &
Prod. Co., LLC v. Hess Bakken Inv., II, LLC, 887 F.3d 1003, 1026 (10th Cir. 2018), as
revised (Apr. 13, 2018) (quoting In re Carvalho, 335 F.3d 45, 51 (1st Cir. 2003)
(alteration in original)) (internal quotation marks omitted). In an action for breach of
contract, expectation damages are the norm. See Smith v. Farmers Ins. Exch., 9 P.3d
335, 337 (Colo. 2000) (“Generally, in a breach of contract action, a plaintiff may recover
the amount of damages necessary to place him in the same position he would have
occupied had the breach not occurred.”).
Here, the relief sought by Plaintiff is appropriately characterized as the remedy of
rescission of the contracts rather than damages. Plaintiff seeks to render the
agreements void ab initio and requests restitution of all payments that were made to
Defendant. Rescission of a contract normally is accompanied by restitution on both
sides. 1 Dan B. Dobbs, Law of Remedies § 4.3(6) at 614 (2d ed. 1993). The contract is
“being unmade, so restoration of benefits received under the contract seems to follow.”
Id. Restitution, which seeks to prevent unjust enrichment of the defendant, differs in
principle from contract damages, which measure the remedy by the plaintiff's loss and
seek to provide compensation for that loss. EarthInfo, Inc. v. Hydrosphere Res.
Consultants, Inc., 900 P.2d 113, 118 (Colo. 1995).
The Court finds there is sufficient basis in the record to grant Plaintiff restitution
with respect to the three agreements at issue. In Colorado, “[g]enerally, rescission may
be granted if the facts show that there is a substantial breach, that the injury caused is
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 11 of 14

12
irreparable, or that damages would be inadequate, difficult, or impossible to assess.”
Wall v. Foster Petroleum Corp., 791 P.2d 1148, 1150 (Colo.Ct.App.1989). Here, the
Court finds that Defendant substantially breached all three agreements. Plaintiff paid
Defendant the total amount that the parties had contracted for in exchange for auditing
services that were to be in accordance with PCAOB standards. As found by the SEC,
Defendant deliberately failed to adhere to these standards from at least January 2021
through at least June 2023. Plaintiff was required to hire a new firm to redo Defendant’s
auditing work for 2023 and 2022. Plaintiff further alleges that the new firm will likely be
required to redo Defendant’s prior years of auditing work as well. These circumstances
constitute a substantial breach on Defendant’s part of all three agreements, making
restitution an appropriate remedy.
Finally, a “default judgment cannot be entered against a party until the amount of
damages has been ascertained.” Herzfeld v. Parker, 100 F.R.D. 770, 773 (D. Colo.
1984) (citing 10 Wright and Miller’s Federal Practice and Procedure § 2692 (1983)).
“Actual proof must support any default judgment for money damages.” Gomez v.
Timberline Custom Builders, LLC, No. 23-cv-01510-RMR, 2025 WL 2613741, at *6 (D.
Colo. Sept. 10, 2025).
In support of its Motion, Plaintiff has provided the Court with a copy of the three
agreements at issue; a declaration by Daisuke Takahashi, (current Chief Financial
Officer (“CFO”) for Plaintiff; a declaration by Plaintiff’s counsel, Mr. Hunter; a
supplemental declaration by Mr. Hunter; as well as invoices for all payments made to
Defendant and Aprio Advisory Group, LLC (the separate consultant). Based on this
record, the Court finds that Plaintiff is entitled to the following:
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 12 of 14

13
(1) Restitution in the amount of $1,870,000.00 for breach of the three separate
contracts ($550,000.00 + $660,000.00 + $660,000.00 = $1,870,000.00);
(2) Compensatory damages in the amount of $78,005.81 for the separate
consultation fee paid to Aprio Advisory Group, LLC;
(3) Prejudgment interest at a rate of 8% per annum, compounded annually, from
May 9, 2024, on the amount of $1,870,000.00 pursuant to Colo. Rev. Stat. § 5-
12-102;
(4) Prejudgment interest at a rate of 8% per annum, compounded annually, from
September 30, 2024,2 on the amount of $78,005.81 pursuant to Colo. Rev. Stat.
§ 5-12-102;
(5) Post-judgment interest at a daily rate as determined by the Clerk of Court until
Defendant complies with the judgment; and
(6) Litigation costs in an amount to be determined by the Clerk of Court upon
Plaintiff’s counsel’s further submission.
VI. 	RECOMMENDATION
Based on the foregoing, it is RECOMMENDED that Plaintiff’s Motion for Final
Default Judgment, ECF No. 16, be GRANTED and judgment be entered accordingly.
NOTICE: Pursuant to 28 U.S.C. § 636(b)(1)(c) and Fed. R. Civ. P. 72(b)(2),
the parties have fourteen (14) days after service of this recommendation to serve
and file specific written objections to the above recommendation with the District
2 This reflects the date of payment to Aprio Advisory Group, LLC. See ECF No.
22-4 at 2.
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 13 of 14

14
Judge assigned to the case. A party may respond to another party’s objections
within fourteen (14) days after being served with a copy. The District Judge need
not consider frivolous, conclusive, or general objections. A party’s failure to file
and serve such written, specific objections waives de novo review of the
recommendation by the District Judge, Thomas v. Arn, 474 U.S. 140, 148-53
(1985), and also waives appellate review of both factual and legal questions.
Makin v. Colo. Dep’t of Corr., 183 F.3d 1205, 1210 (10th Cir. 1999); Talley v. Hesse,
91 F.3d 1411, 1412-13 (10th Cir. 1996).
Dated at Denver, Colorado this 1st Day of December 2025
_______________________
N. Reid Neureiter
United States Magistrate Judge
Case No. 1:25-cv-01698-CNS-NRN Document 25 filed 12/01/25 USDC Colorado
pg 14 of 14