Opinion
03 Civ. 6764 (PKL) (JCF).
October 25, 2004
ROBERT D. HELFAND, ESQ., Eaton Van Winkle LLP, New York, NY, Attorneys for Plaintiff.
DONALD NEIDHARDT, ESQ., Mineola, NY, Attorney for Defendants.
OPINION AND ORDER
The plaintiff, Aetna Life Insurance Company ("Aetna"), brings this action for fraud, breach of contract, negligent misrepresentation, conversion, and unjust enrichment against defendants, David Licht, aka David Light, and New York City Pain Relief, regarding defendants' submission of bills for treatment of patients with trigger point injections to plaintiff. Aetna's complaint went unanswered and the Clerk of Court entered a certificate of default. Subsequently, the parties entered into a stipulation requiring defendants to disclose the specifics of their assets and enjoining defendants from transferring assets in exchange for vacatur of the certificate of default. When the stipulation was not complied with by the stated date, Aetna moved for entry of a default judgment. This Court ordered the defendants to show cause why a default judgment should not be entered and, after a hearing wherein both parties participated, found defendants had not shown cause and entered default judgment against them. The case was referred to Magistrate Judge James C. Francis IV for an inquest. Prior to the inquest, defendants filed the instant motion to vacate the default judgment. Judge Francis issued a Report and Recommendation ("Report") recommending that defendants' motion to vacate be granted. After de novo review, this Court adopts Judge Francis' Report in whole with the clarifications below.
I. Factual History
Dr. David Licht is a dentist operating under various names,inter alia, Dr. David Light and New York City Pain Relief. (Plaintiff's Complaint ("Compl.") ¶¶ 1, 2.) During the relevant period, Dr. Licht treated patients suffering from chronic pain with trigger point injections — injections of pain medication directly into an affected tendon sheath or ligament — and submitted the bills for payment to Aetna. (Compl. ¶¶ 2, 4-5.) Aetna asserts the bills constituted fraud because: 1) dentists are not authorized to administer the trigger point injections and thus the procedures were not "medically indicated"; 2) Dr. Licht did not disclose his dental credentials to his patients or Aetna; 3) defendants falsely stated patients suffered from "craniocervical myofascities," a condition often requiring trigger point injection treatment, and; 4) the injections were administered in greater quantity and frequency than warranted by sound medical practice. (Compl. ¶¶ 16, 20-24; Plaintiff's Proposed Findings of Fact and Conclusions of Law ("Pl.'s Proposed Findings") ¶ 11(a).)
Aetna filed the complaint in this case on September 5, 2003 and served it on defendants on September 8, 2003. After defendants failed to file an answer, the Clerk of Court issued a certificate of default on October 22, 2003. According to defendants, Licht was out of the state when the complaint was served and therefore he was unaware of the pending litigation until his return in mid-October 2003. (Declaration of Donald Neidhardt, Esq. attached to Defendants' Notice of Motion to Vacate Default Judgment dated March 10, 2004 ("Neidhardt Decl.") at 1st unnumbered page.) When Licht returned, he contacted his attorney, Mr. Neidhardt, regarding the complaint. Id. Mr. Neidhardt suggested Licht forward the complaint to his insurance carrier as Mr. Neidhardt believed the claim sounded in medical malpractice. Id. After a few weeks, there was no response from the insurance carrier, which claimed it had never received the complaint. Id. Mr. Neidhardt re-sent the complaint and contacted Aetna's counsel, Robert D. Helfand, Esq., to inform him of the situation. Id. Mr. Neidhardt stated he would act as interim counsel until the insurance carrier provided defendants with counsel. Id. Subsequently, the parties negotiated and entered into a stipulation agreement requiring that defendants provide duly executed affidavits by December 5, 2003 detailing defendants' assets and enjoining defendants from transferring assets in return for vacatur of the certificate of default and extension of defendants' time to answer to December 15, 2003. (Stipulation and Order dated December 1, 2003 ("Stip.").) This Court endorsed the stipulation as an Order of the Court on December 1, 2003. (Stip. at 6.)
Mr. Helfand claims that he did not receive any affidavits by December 5, 2003 nor any answer to the complaint by December 15, 2003. (Affidavit of Robert D. Helfand, Esq., in Opposition to Defendants' Motion to Vacate the Default Judgment ("Helfand Aff.") ¶ 12.) On December 9, 2003, Mr. Helfand wrote to Mr. Neidhardt warning that defendants were in violation of the stipulation and that plaintiff would move for entry of default judgment if defendants failed to respond. (Helfand Aff. ¶ 9, Exhibit ("Exh.") C.) Mr. Neidhardt claims he was bed-ridden with the flu from late November through mid-December and left Mr. Helfand voice messages to that effect. (Neidhardt Decl. at 1st-2nd unnumbered pages.) Mr. Helfand claims that he received one voice message one week before the December 5, 2003 stipulation deadline regarding Mr. Neidhardt's illness but that Mr. Neidhardt stated he was beginning work on the necessary papers and did not request an extension of time. (Helfand Aff. ¶ 8.)
At the January 6, 2004 status conference before this Court, plaintiff informed the Court that he had not received any affidavit or answer from defendants. (Helfand Aff. ¶ 10.) Mr. Neidhardt claimed he sent defendants' answer and affidavit to Mr. Helfand on December 17, 2003 but Mr. Helfand claimed he did not receive the correspondence. (Helfand Aff. ¶ 10; Neidhardt Decl. at 2nd unnumbered page.) Mr. Neidhardt represented he would resend the documents immediately. Id. This Court then signed an order to show cause, with a hearing scheduled for January 20, 2004. (Helfand Aff. ¶ 11.) Mr. Helfand claims he did not receive any correspondence from defense counsel until January 19, 2004, when Mr. Neidhardt sent via facsimile an Answer to the Complaint and Licht's unsigned affidavit, which substantially, but not completely, complied with the stipulation, and specifically stated Licht owned no real property. (Helfand Aff. ¶ 12, Exh. D.) No affidavit was ever sent from New York City Pain Relief. (Plaintiff's Memorandum of Law in Opposition to Defendants' Motion to Vacate the Default Judgment ("Pl.'s Mem. in Opp'n") at 10.) Mr. Neidhardt represents that the reason for this delay was an unexpected out of town trip to attend to a family member's illness. (Neidhardt Decl. at 2nd unnumbered page.) Messrs. Helfand and Neidhardt both participated in the argument at the January 20, 2004 order to show cause hearing. Id. This Court found that defendants had not shown cause why a default judgment should not be entered and therefore, default judgment was entered against defendants on January 21, 2004. (Order of this Court Entering Default Judgment Against Defendants dated Jan. 21, 2004 ("Default Order") at 1.) The Court then referred the matter to Magistrate Judge Francis for an inquest. Id. In late February 2004, defendants sent plaintiff's counsel copies of Dr. Licht's 2000, 2001, and 2002 tax return statements, showing income on average of $752,459 per year and seeming to identify real property holdings in Florida. (Helfand Aff. ¶ 15; Plaintiff's Objections to the Report and Recommendation of Magistrate Judge James C. Francis, IV ("Pl.'s Objections") at 10.) In March 2004, defendants sent a copy of a statement from Licht's checking account identifying $4,773.49 in liquid assets. (Pl.'s Objections at 10.) Defendants moved to vacate the default judgment on March 31, 2004 and have made no further efforts to comply with the stipulation. (See Pl.'s Objections at 10-11.)
Mr. Helfand states that he eventually received the same affidavit signed by Licht but not duly notarized in February, 2004. (Helfand Aff. ¶ 17 n.*.)
Magistrate Judge Francis issued his Report on September 7, 2004, recommending that defendants' motion to vacate the default judgment be granted pursuant to Rule 55(c), which incorporates Rule 60(b), of the Federal Rules of Civil Procedure ("FRCP"). Judge Francis assessed the facts in light of the Second Circuit's strong preference for disposition of matters on the merits and found that, resolving all doubts in favor of movant, defendants did not act willfully, defendants presented a meritorious defense, and vacatur would not unduly prejudice plaintiff. Plaintiff filed objections to the Report on September 21, 2004 in accordance with FRCP Rule 72(b).
II. Discussion
The Court conducted a de novo review of Magistrate Judge Francis' Report recommending vacatur of the default judgment entered against defendants. De novo review was necessary pursuant to 28 U.S.C. § 636(b)(1)(C) as plaintiff objected to all of Judge Francis' proposed findings:
A judge of the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made. A judge of the court may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate.
28 U.S.C. § 636(b)(1)(C) (2004). The Second Circuit reviews vacatur of default judgments for abuse of discretion. See Davis v. Musler, 713 F.2d 907, 912 (2d Cir. 1983). However, the Second Circuit can find abuse even where it is not glaringly obvious. See Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir. 1993). The Second Circuit cautioned district courts that "[t]his limitation on the scope of the district court's discretion reflects our preference for resolving disputes on the merits. `Dismissal is a harsh remedy to be utilized only in extreme situations.'" Brien v. Kullman Indus., Inc., 71 F.3d 1073, 1077 (2d Cir. 1995) (quoting Cody v. Mello, 59 F.3d 13, 15 (2d Cir. 1995)) (internal citation omitted).
FRCP Rule 55(c) provides that "[f]or good cause shown the court may set aside an entry of default and, if a judgment by default has been entered, may likewise set it aside in accordance with Rule 60(b)." Rule 60(b), in turn, authorizes the court to relieve a party from final judgment due to "mistake, inadvertence, surprise, or excusable neglect" or for "any other reason justifying relief from the operation of the judgment." Fed.R.Civ.P. 60(b)(1), (6). Motions to vacate default judgments are assessed via the more stringent standard of Rule 60(b), rather than the lesser standard of Rule 55(c) governing certificates of default, because courts are less willing to upset a final judgment. See Am. Alliance Ins. Co. v. Eagle Ins. Co., 92 F.3d 57, 59 (2d Cir. 1996) ("A motion to vacate a [certificate of default is subject to a less rigorous standard than applies to a Rule 60(b) motion to vacate a default judgment.") (citing Meehan v. Snow, 652 F.2d 274, 276 (2d Cir. 1981) ("[T]he standard for setting aside the entry of a default pursuant to Rule 55(c) is less rigorous than the `excusable neglect' standard for setting aside a default judgment by motion pursuant to Rule 60(b).")). In determining whether to vacate a default judgment, a court must consider: 1) whether the default was willful; 2) whether defendant has satisfactorily alleged a meritorious defense and; 3) whether and to what extent plaintiff would be prejudiced by vacating the default judgment entered against defendant. See Sec. Exch. Comm'n v. McNulty, 137 F.3d 732, 738 (2d Cir. 1998); Commercial Bank of Kuwait v. Rafidain Bank, 15 F.3d 238, 243 (2d Cir. 1994). Further, "the defaulting party bears the burden of proof, see In re Martin-Trigona, 763 F.2d 503, 505 n. 2 (2d Cir. 1985), but doubts should be resolved in favor of the party seeking relief."King v. Galluzzo Equip. Excavating, Inc., 223 F.R.D. 94, 97 (E.D.N.Y. 2004) (citing Enron Oil, 10 F.3d at 96).
A. Willfulness
This District has interpreted willfulness as something more than merely neglect or carelessness. Jet Star Enters., Ltd. v. CS Aviation Servs., No. 01 Civ. 6590, 2004 U.S. Dist. LEXIS 2760, *14-17 (S.D.N.Y. Feb. 23, 2004) (finding that a law firm's failure to notify its client of its withdrawal and of the deadline for retaining new counsel was careless, irresponsible, and likely violated ethical and professional responsibility standards, but did not constitute willfulness or gross negligence). The default need not have occurred due to bad faith but must be the deliberate and intended consequence of movant's actions. Gucci Am., Inc. v. Gold Ctr. Jewelry, 158 F.3d 631, 635 (2d Cir. 1998). Conduct may be found to be willful where it is egregious, not satisfactorily explained, or is rationalized by flimsy excuse. See McNulty, 137 F.3d at 738-39.
On the record before it, the Court agrees with the Report that defendants' conduct was not willful. Defendants took immediate, though ineffective, action when they became aware of plaintiff's complaint. Mr. Neidhardt was, however, remiss in his duties as he should have realized defendants would soon be in default, yet let the matter languish for three weeks without ensuring the insurance carrier would represent defendants' interests. Mr. Neidhardt also failed to ensure the stipulation was satisfied by December 5, 2003, or to request the necessary extension of the deadline date. Finally, defendant Licht's affidavit and post-judgment disclosures have not completely fulfilled the terms of the stipulation. However, these failures were due, in part, to unexpected illnesses, afflicting both Mr. Neidhardt and his family. This Court believes both Mr. Neidhardt and defendants neglected this action, but finds their explanations plausible and acceptable, thus supporting a finding of excusable neglect under Rule 60(b). Moreover, Licht's initial attempt at compliance with the stipulation and post-judgment disclosures further lead the Court to believe this was not a willful, deliberate avoidance meant to derail plaintiff's action. Thus, resolving all doubt in favor of the movant, see Enron Oil, 10 F.3d at 96, this Court finds that defendants' actions to date do not amount to willful default.
B. Meritorious Defense
Defendants must also present a meritorious defense warranting vacatur of final judgment. The Second Circuit has held that a meritorious defense must be complete but not absolute to support vacatur. McNulty, 137 F.3d at 740 ("[T]he defendant need not establish his defense conclusively, see, e.g., Davis v. Musler, 713 F.2d at 916, but he must present evidence of facts that, `if proven at trial, would constitute a complete defense.'" (citing Enron Oil, 10 F.3d at 98)). The District Court is not the trier of fact at this juncture and should not require an ultimately persuasive defense. See Am. Alliance Ins., 92 F.3d at 61. However, defendants cannot simply assert in a conclusory fashion that they would prevail at trial. King, 223 F.R.D. at 98-99.
In this case, the call is close but in light of the Second Circuit's strong preference for disposition on the merits and resolving all doubts in favor of movant, Enron Oil, 10 F.3d at 96, the Court finds that defendants have presented a meritorious defense as defined by the case law. Defendants assert they will call Dr. Errol Lader, D.D.S., defendant Licht's mentor regarding trigger point injections, as an expert witness. (Neidhardt Decl. at 3rd unnumbered page.) Dr. Lader's testimony will allegedly support defendants' claim that Licht was properly trained and performed the procedures skillfully with good effect. Id. Further, defendants submit a report and decision issued from the Regents Review Committee of the New York State Board of Dentistry that arguably supports defendants' contention that Licht was authorized to administer the injections. (Neidhardt Decl. Exhibit ("Exh.") B.) Finally, defendants submit an unsigned affidavit, purportedly from Licht, stating that he "always accurately reflected the nature of treatments in any request for insurance reimbursement." (Neidhardt Decl. Exh. A.) Dr. Lader's expert testimony and the Regents Report both support a defense to Aetna's claim that these procedures were not medically indicated, authorized, or performed in accordance with medical standards; however, neither speak to the allegation of falsifying patients' diagnoses on the insurance forms. Licht's unsigned, self-serving, post-judgment claim that his insurance filings were all accurate provides little comfort to this Court in its ruling. However, the Court finds that, if proven at trial, the averments would constitute a complete defense to Aetna's allegations. Further, as stated above, this is not a case of defendants' egregious failure to act which would justify contravention of the Second Circuit's strong preference for disposing litigation on the merits and resolving all doubts in favor of vacating the default judgment. See Shah v. New York State Dept. of Civil Servs., 168 F.3d 610, 615 (2d Cir. 1999); Springs v. Clement, 202 F.R.D. 387, 394 (E.D.N.Y. 2001).
C. Prejudice to Plaintiff
Finally, plaintiff has not shown it will be unduly prejudiced by vacatur. Plaintiff claims it will be prejudiced due to delay but delay alone does not establish prejudice. Davis, 713 F.2d at 916. Plaintiff asserts that the delay here prejudices it because "[d]efendants delayed this action for a full year, while Licht moved to California and gained additional time to secrete his assets." (Pl.'s Objections at 26 (emphasis omitted).) Though emphatically worded, plaintiff's objection is wanting for substance as plaintiff presents absolutely no evidence defendants are secreting their assets to frustrate a possible future money judgment for plaintiff in this matter. Therefore, this Court finds no prejudice to plaintiff and vacates the default judgment entered against defendants.
D. December 1, 2003 Stipulation
One last matter must be resolved by this Court. Plaintiff's invocation of defendants' post-judgment non-compliance with the December 1, 2003 stipulation is inapposite to the instant motion to vacate. The stipulation was mooted by the entry of default judgment and is no longer in effect. The stipulation specifically states that the certificate of default will stand until defendants make the disclosures required by the stipulation. (Helfand Aff. Exh. B.) Because defendants did not comply, default judgment was entered against them, thus fulfilling the terms of the stipulation and rendering it moot. The motion to vacate default judgment is reviewed under entirely different criteria, as shown above, none of which require post-judgment compliance with a pre-judgment stipulation.
Conclusion
In full consideration of the arguments raised in plaintiff's objections to Magistrate Judge Francis' Report and Recommendation recommending vacatur of the default judgment entered against defendants, this Court undertook a de novo review of the record and found the Report to be legally correct. The Court adopts the Report in its entirety with the clarifications above. The December 1, 2003 stipulation is no longer in effect. Defendants are Ordered to answer plaintiff's complaint within twenty days of this Opinion and Order in accordance with Rule 12(a)(1)(A) of the Federal Rules of Civil Procedure. The parties are Ordered to appear before this Court in Room 18b at the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, New York, NY on December 16, 2004 at 10:00 a.m. for a status conference and should discuss a proposed case management plan prior to this conference. Either party may request an earlier conference date if necessary.
SO ORDERED.