Opinion
03 Civ. 6764 (PKL)(JCF).
September 7, 2004
REPORT AND RECOMMENDATION
TO THE HONORABLE PETER K. LEISURE, U.S.D.J.:
The plaintiff, Aetna Life Insurance Company ("Aetna"), brings this action alleging fraud and related claims pertaining to bills for medical treatment submitted by the defendants. When Aetna's complaint went unanswered, a certificate of default was entered by the Clerk of Court. The parties then entered into a stipulation obligating the defendants to disclose their assets in exchange for vacating the certificate of default. Subsequently, Aetna moved for entry of a default judgment, asserting that the defendants had not complied with the terms of the stipulation. The Honorable Peter K. Leisure, U.S.D.J., entered judgment by default and referred the case to me for an inquest. Before the inquest was held, the defendants moved to vacate the default judgment pursuant to Rule 55(c) of the Federal Rules of Civil Procedure. For the reasons that follow, I recommend that the defendants' motion be granted.
Background
Dr. David Licht, the individual defendant in this action, is a dentist operating under various individual and business names, including "New York City Pain Relief." (Complaint ("Compl."), ¶¶ 1, 2). During the relevant period, Dr. Licht treated patients suffering from chronic pain with trigger point injections, a procedure involving injections of pain medication directly into an affected tendon sheath or ligament. (Compl., ¶ 2). Dr. Licht submitted the bills for this treatment to Aetna. (Compl., ¶¶ 4, 5). Aetna asserts that the bills were fraudulent because they: (1) designated the treatment as "medically indicated" when it was provided by a dentist, (2) identified Dr. Licht as "Dr." David Light without disclosing his credentials, (3) described services provided to patients for whom treatment was unwarranted, (4) falsely represented that patients suffered from "craniocervical myofascitis," a condition which often requires trigger point injections, and (5) claimed reimbursement for services administered in greater quantity and frequency than prescribed by sound medical practice. (Compl., ¶¶ 20-24; Plaintiff Aetna Life Insurance Company's Proposed Findings of Fact and Conclusions of Law ("Pl. Proposed Findings"), ¶ 11(a)).
According to the complaint, Dr. Licht operated under the names "David Light," "New York City Pain Relief," and "NYC Facial Pain Center." (Compl., ¶ 2).
Aetna filed the complaint in this action on September 5, 2003 and served it on September 8, 2003. (Affidavit of Alexander D. Tripp dated Feb. 25, 2004 ("Tripp Aff."), Exh. C). On October 22, 2004, after the defendants had failed to file an answer, the Clerk of Court issued a certificate of default. (Tripp Aff., Exh. D).
According to the defendants, Dr. Licht was out of the state when he was served with the complaint. (Undated Declaration of Donald Neidhardt attached to defendants' Notice of Motion dated March 10, 2004 ("Neidhardt Decl."), at 1st unnumbered page). Upon his return in mid-October 2003, Dr. Licht contacted his attorney, Donald Neidhardt, who suggested that he forward the complaint to his medical malpractice insurance carrier. (Neidhardt Decl. at 1st unnumbered page). A few weeks later, Dr. Licht informed his attorney that he had received no response from his insurance carrier. Mr. Neidhardt subsequently called the carrier, who informed him that it had never received a copy of the complaint. (Neidhardt Decl. at 1st unnumbered page). Mr. Neidhardt then contacted Aetna's counsel, Robert Helfand, and informed him that he would serve as the defendants' interim counsel while Dr. Licht's insurance carrier decided whether to extend coverage to the claims asserted in this action. (Neidhardt Decl. at 1st unnumbered page).
On November 13, 2003, the parties entered into a stipulation by which the defendants agreed to provide by December 5, 2003 an affidavit identifying all of their assets; the defendants were also enjoined from transferring their assets except for ordinary living and business expenses. (Stipulation and Order dated Dec. 1, 2003 (the "Stipulation and Order")). The parties agreed that upon the disclosure of the defendants' assets to the plaintiff, the certificate of default would be vacated and the time for answering the complaint would be extended to December 15, 2003. (Stipulation and Order at 5, 6). On December 1, 2003, Judge Leisure endorsed the Stipulation and Order as an order of the Court. (Stipulation and Order at 6).
Mr. Neidhardt states that in late November 2003, he became ill and was bedridden for three weeks. (Neidhardt Decl. at 1st-2nd unnumbered pages). He subsequently left a telephone message notifying Mr. Helfand of his condition. (Neidhardt Decl. at 2nd unnumbered page; Affidavit of Robert D. Helfand in Opposition to Defendants' Motion to Vacate the Default Judgment dated April 26, 2004 ("Helfand Aff."), ¶ 8). Mr. Neidhardt states that on December 17, 2003, he sent to Mr. Helfand a copy of the defendants' answer to the complaint and enclosed a letter indicating that he was "in the process" of obtaining other exhibits. (Neidhardt Decl. at 2nd unnumbered page). However, Mr. Helfand denies receiving this letter, and during a status conference held on January 6, 2004, he asserted that the defendants were in violation of the Stipulation and Order. (Helfand Aff., ¶¶ 10-11). On January 19, 2004, after returning from a trip to attend to a family member's illness, Mr. Neidhardt sent to Mr. Helfand another copy of the defendants' answer as well as an affidavit signed by Dr. Licht listing his assets. (Neidhardt Decl. at 2nd unnumbered page; Helfand Aff., ¶ 12).
On January 20, 2004, a hearing was held before Judge Leisure, and a default judgment was entered the next day. (Tripp Aff., Exh. F). In late February 2004, the defendants forwarded to the plaintiffs' counsel copies of Dr. Licht's tax returns for the years 2000-02, and in March 2004, they produced a copy of a statement from Dr. Licht's checking account. (Helfand Aff., ¶¶ 15-16). In April 2004, the defendants moved to vacate the default judgment.
Discussion
Rule 55(c) of the Federal Rules of Civil Procedure 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 based on grounds including "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). In determining whether to vacate a default, a court must consider: (1) whether the default was willful, (2) whether the defendant has a meritorious defense, and (3) whether and to what extent setting aside the default would prejudice the non-defaulting party. See Securities and Exchange Commission 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).
The Second Circuit has interpreted "willfulness" in the context of a default to mean conduct that is more than merely negligent.See McNulty, 137 F.3d at 738; Gonzalez v. City of New York, 104 F. Supp. 2d 193, 195 (S.D.N.Y. 2000). Conduct may be deemed "willful" if it is "egregious" or "not satisfactorily explained."Gonzalez, 104 F. Supp. 2d at 196. Thus, willfulness may be found where an attorney has "thoroughly neglected" the client's case, Schwarz v. United States, 384 F.2d 833, 836 (2d Cir. 1967) (cited in American Alliance Insurance Co. v. Eagle Insurance Co., 92 F.3d 57, 61 (2d Cir. 1996)), but mere "carelessness" will not suffice. American Alliance, 92 F.3d at 61 n. 1.
The facts of this case do not rise to the level of willfulness. Dr. Licht was apparently out of town when the complaint was served at his place of business. When he contacted his attorney immediately upon his return, he was advised to contact his insurance carrier. When the carrier did not respond promptly, Dr. Licht's attorney immediately negotiated a stipulation with Aetna's counsel to avoid a default by agreeing to disclose Dr. Licht's assets. To be sure, Dr. Licht did not strictly comply with the terms of the stipulation. However, this resulted largely from his attorney's physical illness and personal obligations, along with a breakdown of communication between counsel. The conduct of Dr. Licht and his attorney was indeed careless, but it was not so egregious as to warrant a finding of willfulness.
In order to establish a meritorious defense sufficient to warrant vacating a default, a defendant need not prove the defense conclusively. See McNulty, 137 F.3d at 740;Gonzalez, 104 F. Supp. 2d at 197. Rather, the defendant need only present facts that "if proven at trial, would constitute a complete defense." Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 98 (2d Cir. 1993) (citations omitted). Here, Dr. Licht has submitted a copy of a decision by the State of New York Regents Review Committee of the New York State Board of Dentistry that appears to support his contention that a dentist may be authorized to administer trigger point injections. (Neidhardt Decl., Exh. B). Further, Dr. Licht has indicated that his mentor, Dr. Errol Lader, would provide expert testimony that Dr. Licht's administration of the therapy was medically necessary. (Neidhardt Decl. at 3rd unnumbered page). The defendants have thus proffered a potentially meritorious defense.
Aetna has not demonstrated that it would be unduly prejudiced by the reopening of this case. To be sure, there will be some delay in reaching a final resolution, but delay alone does not establish prejudice. See Thomson Information Services, Inc. v. Wedbush Morgan Securities, Inc., No. 96 Civ. 127, 1996 WL 161798, at *3 (S.D.N.Y. April 5, 1996) (citing Davis v. Musler, 713 F.2d 907, 916 (2d Cir. 1983)). Rather, the plaintiff must show that delay will "result in the loss of evidence, create increased difficulties of discovery or provide greater opportunity for fraud and collusion." Id. (citing Brown v. DeFilippis, 695 F. Supp. 1528, 1530 (S.D.N.Y. 1988). Aetna has made no such showing. While there is some indication that both Dr. Licht and his counsel, Mr. Neidhardt, are preparing to leave the state to open new practices elsewhere (Affirmation of Donald Neidhardt in Support of Application to Vacate Default dated May 1, 2004, at 2nd unnumbered page), Aetna has protected its interests by enjoining the defendants from transferring their assets pursuant to the Stipulation and Order. In addition, the defendants have made certain asset disclosures which the plaintiff can further explore through discovery.
Finally, it is important to note that there is a strong preference for determining cases on the merits and resolving any disputes concerning a default in favor of vacating the judgment.See Shah v. New York State Department of Civil Service, 168 F.3d 610, 615 (2d Cir. 1999); Springs v. Clement, 202 F.R.D. 387, 394 (E.D.N.Y. 2001). The facts here support such an outcome.
Conclusion
For the reasons set forth above, I recommend that the defendants' motion to vacate judgment be granted. Pursuant to 28 U.S.C. § 636(b)(1) and Rules 72, 6(a), and 6(e) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from this date to file written objections to this Report and Recommendation. Such objections shall be filed with the Clerk of the Court, with extra copies delivered to the chambers of the Honorable Peter K. Leisure, Room 1910, and to the chambers of the undersigned, Room 1960, 500 Pearl Street, New York, New York 10007. Failure to file timely objections will preclude appellate review.