Opinion
87 Civ. 9219 (MJL).
August 3, 1989
APPEARANCES: FELTMAN, KARESH, MAJOR FARBAN Attorneys for the Plaintiff New York, N.Y.
BY: JOHN I. KARESH, ESQ. KIM LOUROS Attorneys for the Defendant New York, N.Y.
BY: STEVEN LOUROS, ESQ.
OPINION AND ORDER
This is an action seeking damages in the amount of $215,550.65 for goods which plaintiff Westinghouse Electric Corporation ("Westinghouse") allegedly sold and delivered to defendant Penfield Industrial Technology Inc. ("Penfield"). Penfield did not respond to the complaint, and on Westinghouse's motion this Court entered a default judgment against Penfield. Penfield now moves pursuant to Federal Rule of Civil Procedure ("F.R.Civ.P.") 60(b) to vacate the default judgment. For the reasons set forth below, we deny the motion.
BACKGROUND
The record indicates that on December 28, 1987, Westinghouse filed with the clerk of the Court its complaint against Penfield. On January 21, 1988 a summons and affidavit of service were filed. The affidavit of service, dated January 12, 1988, shows that Diane Wills, the process server, served a summons and copy of the complaint upon Penfield by delivering them to the Office of the Secretary of State of New York. These documents were left with "Karen Sabia, an attorney (clerk) in the Office of the Secretary of State of New York." Penfield Notice of Motion, Exhibit I. A receipt was thereupon issued by the secretary acknowledging acceptance of the summons and complaint. Westinghouse's Further Affidavit In Opposition, Exhibit A. Service on Penfield was thereby effected pursuant to New York's Business Corporation Law section 306.Penfield did not respond to the complaint, timely or otherwise. On March 24, 1988 this Court entered a default judgment against it for the amount of $223,416.92, with interest accruing thereon.
Over eight months later, on December 2, 1988, Penfield filed the present motion to vacate the default judgment. The motion was filed six months after anyone from Penfield acknowledged becoming aware of the judgment. Yoon Aff. at ¶ 8. Mr. Shi Joong Yoon, the president of Penfield, argues that relief from the judgment is warranted because service of process failed to apprise Penfield of the commencement of the action, and because Penfield has a meritorious defense.
DISCUSSION
F.R.Civ.P. 55(c) provides that if a judgment by default has been entered a court may set it aside in accordance with F.R.Civ.P. 60(b). Rule 60(b) states in pertinent part that:
On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect. . . . The motion shall be made within a reasonable time. . . . The determination of a Rule 60(b) motion lies squarely within the district court's sound discretion. Davis v. Musler, 713 F.2d 907, 912 (2d Cir. 1983); Kumar v. Ford, 111 F.R.D. 34, 38 (S.D.N.Y. 1986), citing United States v. Erdoss, 440 F.2d 1221, 1223 (2d Cir. 1971), cert. denied, 404 U.S. 849 (1971). In exercising their discretion, courts have gone beyond the bare wording of the rule and set forth three criteria to be considered in deciding whether the designated standards have been satisfied: (1) whether the default was willful; (2) whether a meritorious defense is presented; and (3) whether setting aside the default would prejudice the nonmoving party. Davis v. Musler, 713 F.2d at 915; Merrill Lynch Business Financial Services, Inc. v. Suri Interiors, Inc., No. 88-2973, slip op. at 2 (E.D.N.Y. Jan. 16, 1989); Leab v. Streit, 584 F. Supp. 748, 754 (S.D.N.Y. 1984). Of course, our law strongly prefers that disputes be resolved on their merits. Klapprott v. United States, 335 U.S. 601, 69 S. Ct. 384 (1949); Davis v. Musler, 713 F.2d at 915; Meehan v. Snow, 652 F.2d 274, 277 (2d Cir. 1981); Brown v. Senior Parole Officer De Fillipis, 695 F. Supp. 1528 (S.D.N.Y. 1988). This preference, however, "must be balanced against the competing interest in maintaining an 'orderly, efficient judicial system.'" Richardson Greenshields Securities, Inc. v. International Petroleum Corp., No. 84-2680, slip op. at 5 (S.D.N.Y. April 8, 1985), quoting 10 Wright, Miller Kane, Federal Practice Procedure Civil 2d § 2693 at 478 (1983). A default judgment is appropriate to protect the non-defaulting party from the "'interminable delay and continued uncertainty as to his rights'" caused by an unresponsive party. Sony Corp. v. S.W.I. Trading Inc., 104 F.R.D. 535 (S.D.N.Y. 1985), quoting Jackson v. Beech, 636 F.2d 831, 836 (D.C. Cir. 1980).
Penfield contends that it is entitled to vacatur of the default judgment "on the grounds of excusable neglect, misrepresentation, willful breach of contract and fraud by plaintiff." Notice of Motion to Vacate Default Judgment. This language tracks that of Rule 60(b) (1), quoted above, as well as 60(b) (3), which lists as grounds for vacatur "fraud, . . . misrepresentation, or other misconduct of an adverse party. . . ." Rule 60 (b) (3) pertains to the means by which a default judgment is obtained by a party rather than a party's defense on the merits of the underlying action. 11 Wright, Miller Kane, Federal Practice Procedure § 2860 at 187 (1973 Supp. 1988). However, a review of Penfield's argument clearly indicates that the misrepresentation, willful breach of contract, and fraud of which he complains refer to his defense on the merits. Thus, we construe Penfield's motion as brought pursuant to Rule 60 (b) (1) only.
Despite its protestations to the contrary, Penfield has failed to present any credible evidence that its default was excusable and not willful. In its rather disjointed pleadings, Penfield variously asserts that it did not receive notice of the action, that one of its principals, Shi Joong Yoon, was unaware of the commencement of the action, and that it did not intend to default. Yoon Aff. at ¶¶ 1, 8, 9. None of these assertions, however, suffice to rebut the presumption created by compelling factual evidence that service was proper.
According to F.R.Civ.P. 4 (c) (2) (C) (i):
[a] summons and complaint may be served upon a [domestic corporate] defendant . . . pursuant to the law of the State in which the district court is held for the service of summons or other like process upon such defendant in an action brought in the courts of general jurisdiction of that State. . . .
Westinghouse opted to serve Penfield pursuant to New York Business Corporation Law ("BCL") § 306, which is quoted above.Supra note 1. As discussed above, Westinghouse's process server personally delivered, in Albany, New York, duplicate copies of the summons and complaint to one Karen Sabia, "an attorney (clerk) in the Office of the Secretary of State." Notice of Motion, Exhibit I. There is neither any allegation nor any indication that Ms. Sabia was unauthorized to receive such service. As § 306 states, such service constitutes complete service on the defendant.
Counsel for Penfield on the current motion, Mr. Louros, states that Penfield's New York City counsel, Lubell Koven, were the "agents for service of process through the Secretary of State." Louros Reply Affirmation at ¶ 3. Yet, Louros admits that "what steps they took to contact Mr. Yoon or Penfield, or whether they ever even received a copy of the summons and complaint in this action is unknown." Id. His only explanation for this lack of knowledge is that he thought that his former ties to Lubell Koven's firm made it inappropriate for him to approach them.Id. Such a vague and not entirely comprehensible reason is hardly a basis for vacating the default judgment, and itself raises questions about whether Louros intentionally decided not to inquire of Lubell Koven whether they received notice of the action.
This statement is a mischaracterization. Under BCL § 306, the secretary of state is the agent of the corporation for service of process. Lubell Koven's lawfirm is registered with the secretary as the addressee for receipt of process.
Mr. Yoon and his counsel state that Penfield moved its offices from New York City to New Jersey in February 1987 and left a forwarding address with the Post Office. Yoon Aff. at ¶ 3; Louros Reply Affirmation at ¶ 2. However, Mr. Yoon does not suggest that he or anyone else at Penfield informed the secretary of state or Westinghouse of the relocation of its principal place of business, much less that the address of that place was the one to which the secretary was thenceforth to mail process. Nor is there any suggestion that the secretary was informed that matters concerning Penfield should be directed to Mr. Yoon personally. Failure to apprise the secretary of state of a change of address does not invalidate service of process. See Colonial Sand Stone Co., Inc. v. Enrico Sons Contractors, Inc., 66 A.D.2d 705, 411 N.Y.S.2d 244, 245 (1st Dept. 1978); Citibank, N.A. v. Press Realty Corp., Inc., 139 Misc. 2d 558, 528 N.Y.S.2d 307, 310 (Sup.Ct. N.Y. Co. 1988). Penfield's apparent failure to notify the secretary makes it "the architect of its own troubles," Citibank, 528 N.Y.S.2d at 310, and constitutes no excuse for its failure to answer.
An additional reason for our finding of willfulness is Penfield's failure to file the present motion within a "reasonable time" of its learning of the default judgment, as required by Rule 60(b). Although the rule states that motions pursuant thereto must be made "not more than one year after the judgment," the motion may still be considered untimely, even though filed within one year of the judgment, if not filed within a "reasonable time". 11 Wright, Miller Kane, Federal Practice Procedure § 2866 at 232 (1973 Supp. 1988); See Central Operating Co. v. Utility Workers of America, 491 F.2d 245 (4th Cir. 1974); Sony Corp., 104 F.R.D. at 541 (four month delay in filing motions to vacate default judgments held unreasonable, and therefore untimely). Generally speaking, reasonableness is determined by assessing whether the movant has some good reason for failing to take appropriate action sooner, and whether the non-moving party has been prejudiced by the delay in seeking relief. Amoco Overseas Oil Co. v. Compagnie Nationale Algerienne de Navigation, 605 F.2d 648 (2d Cir. 1979). Wright, Miller Kane, supra p. 7, at 228-229.
Here, the default judgment was entered on March 24, 1988. Mr. Yoon states that he became aware of the judgment no later than June 1988, and in fact participated in judgment enforcement proceedings in July and August. Yoon Aff. at ¶ 8. The motion to vacate was not filed until December 2, 1988. The only explanation offered for this delay is that Mr. Yoon was unfamiliar with the workings of the legal system. Louros Reply Affirmation at ¶ 4. However, "[t]he lack of legal sophistication on the part of a corporation and its principal simply cannot afford the basis of a claim of excusable neglect or fraud for the purpose of Rule 60 (b)." Original Appalachian Artworks, Inc. v. Yuil International Trading Corp., 105 F.R.D. 113, 116 (S.D.N.Y. 1985). In addition, Penfield's participation in judgment enforcement proceedings prior to filing the motion prejudiced Westinghouse insofar as Westinghouse was led to believe the judgment would, to the extent possible, be enforced. This fact, then, coupled with Penfield's inexcusable delay of more than five months in filing its motion, makes the motion unreasonably late.
Finally, Penfield makes passing reference to section 317 of the New York Civil Practice Law and Rules in support of its claim for relief. This section states in pertinent part that:
A person served with a summons other than by personal delivery to him or to his agent for service designated under rule 318, within or without the state, who does not appear may be allowed to defend the action within one year after he obtains knowledge of entry of judgment, but in no event more than five years after such entry, upon a finding of the court that he did not personally receive notice of the summons in time to defend and has a meritorious defense.
(Emphasis added.) The movant must meet both of these requirements in order to prevail. Interlink Systems Inc. v. Ajinomoto USA Inc., No. 88-2308, slip op. (S.D.N.Y. February 2, 1989) (default judgment vacated because defendant had both lack of notice in time to defend against the action and meritorious defense). Here, Penfield has failed to produce any facts suggesting that it did not receive actual notice in time to defend against the action. Thus, we are precluded from vacating the judgment pursuant to section 317.
CONCLUSION
Penfield has failed to offer any facts to suggest that its default was excusable rather than willful. Accordingly, we decline to vacate the judgment of default entered March 24, 1988. We need not inquire as to the meritoriousness of the defense or the prejudice, if any, to Westinghouse. See Bobrow Greenapple Skolnik v. Woods, 865 F.2d 43, 44 (2d Cir. 1989) (affirming denial of Rule 60(b) motion where defendants "failed to prove that their neglect had been excusable, even though they showed that they had a meritorious defense and that setting aside the judgment would not prejudice" plaintiff), cert. denied, 109 S. Ct. 3188 (1989).
It Is So Ordered.