Opinion
97 CV 6560 (ILG), 97 CV 6561 (ILG), 98 CV 4843 (ILG)
November 6, 2001
MEMORANDUM ORDER
SUMMARY
Plaintiffs in these three related actions allege that defendant Reverend Jerry B. West ("West"), through a number of entities which he controlled, defrauded plaintiffs out of certain parcels of real property plaintiffs owned in Queens and Brooklyn, New York. On or about March 28, 2001, West served plaintiffs with a motion to dismiss one of the three actions (the Ravenal action, No. 98 CV 4843); however, West never filed that motion with the Court. In response to West's motion, plaintiffs moved, in all three actions, for default judgments against defendants Christian Services, Mount Moriah Church of God in Christ, Inc. ("Mount Moriah"), and Interdenominational Brotherhood, Inc. ("IBDI") (collectively, the "West Entities") for failing to answer or otherwise respond to the Amended Complaint. No opposition to plaintiffs' motions has been submitted by West or the West Entities. For the reasons that follow, plaintiffs' motions for default judgments should be granted.
Accordingly, no action is necessary on West's motion to dismiss; because it was not filed with the Court, it is "of no force and effect."Ryan v. Allen, 992 F. Supp. 152, 153 n. 1 (N.D.N.Y. 1998); see also Fed.R.Civ.P. 5(d) (requiring all papers to be filed with the Court within a reasonable time after service). In any event, it appears that West's motion has no merit. West argues that the claims asserted in the Amended Complaint must be dismissed, because the property transfers at issue here violated various sections of the New York Religious Corporation Law. Thus, argues West, none of the transfers was valid, and ownership of the properties therefore must revert back to plaintiffs immediately. Yet such allegations suggest that plaintiffs' claims (which include a claim to restore plaintiffs' property rights) are not subject to dismissal.
The amended complaints in these three actions are substantially similar: each complaint was amended on the same date to allege similar causes of action against substantially the same defendants. Therefore, for ease of reference, the amended complaints in these actions are collectively referred to herein as the "Amended Complaint."
Plaintiffs also have moved to "pierce the corporate veil of Mount Moriah and [IBDI] for the purposes of discovery." (Affirmation in Support of Default Judgment ¶ 2.) Plaintiffs are directed to sever this portion of their motions and bring it before Magistrate Judge Pohorelsky, who is supervising discovery in this case.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiffs are individuals who once owned (and continue to reside in) properties at various locations in Queens and Brooklyn, New York. (See Amended RICO Complaint, Grant v. West, No. 97 CV 6560, ¶¶ 2, 13-15; Amended RICO Complaint, Broadnax v. West, No. 97 CV 6561, ¶¶ 2, 14-23; Amended RICO Complaint, Ravenal Tabernacle Holiness Church v. West, No. 98 CV 4843, ¶¶ 2-3, 12.) (Copies of these complaints are attached as Exhibit B to plaintiffs' "Exhibits for Default Motions.") The properties plaintiffs owned were encumbered by substantial mortgages. Sometime in 1993 or 1994, each plaintiff received a solicitation in the mail from defendant West. West is an officer of each of the West Entities, a group of religious corporations organized under New York law, and is the reverend of the churches "associated" with the West Entities. (See, e.g., Broadnax Compl. ¶ 3-7.) The solicitation stated that West and the West Entities could help people refinance their mortgages at more favorable terms under a federal program known as the "203(k)" program. Plaintiffs, after receiving the solicitations, each contacted West to gain assistance in refinancing their properties under the 203(k) program. (See, e.g., id. ¶ 25.)Instead of assisting them in refinancing their properties, however, West and the West Entities allegedly engaged in a scheme whereby they fraudulently transferred title to plaintiffs' properties out of plaintiffs' names. According to plaintiffs, West, with the assistance of defendant Allen C. Rolle, Esq. ("Rolle"), induced plaintiffs to transfer their properties to Mount Moriah as part of the purported "refinancing." (See, e.g., id. ¶¶ 30-32.) This generally occurred by convincing the property owner to allow the property to go into foreclosure, at which point Mount Moriah would buy the property at a foreclosure sale. (See, e.g., id. ¶¶ 27-31, 42, 52-53; see also Exhibit G of plaintiffs' "Exhibits for Default Motions" ¶¶ 51-53.) Once Mount Moriah acquired title to a particular property, West — acting as an officer of Mount Moriah — caused Mount Moriah to transfer the property to IBDI. (See, e.g., Broadnax Compl. ¶ 32.) IBDI then signed a mortgage note for the property with defendant Amerifirst Mortgage Corp. ("Amerifirst"). The amount of the mortgage note was substantially higher than that paid by Mount Moriah at the foreclosure sale. (See, e.g., id. ¶ 33; see also Exhibit G of plaintiffs' "Exhibits for Default Motions" ¶¶ 51-53.)
The plaintiffs in the Grant and Ravenal actions allege that their signatures were forged on documents purporting to transfer their properties to Mount Moriah.
Plaintiffs allege that, after receiving the funds from Amerifirst, IBDI used the funds to cover the cost of Mount Moriah's purchase of the property at the foreclosure sale. The excess funds were then kept by either West or the West Entities. (See, e.g., Affirmation in Support of Motion for Default Judgment in the Grant action ¶ 11; see also Exhibit G of plaintiffs' "Exhibits for Default Motions" ¶¶ 51-53.) Amerifirst, meanwhile, assigned its interest in each mortgage note to the Government National Mortgage Association ("Ginnie Mae"), and Ginnie Mae subsequently assigned its interest to defendant Great Financial Bank, FSB. (See, e.g., Broadnax Compl. ¶¶ 40-41.)
As these transfers were occurring, plaintiffs allegedly were told that their properties had been refinanced, and that their monthly mortgage payments should be paid to defendant Christian Services, an other entity controlled by West which allegedly was "servicing" the mortgages. (See, e.g., Grant Compl. ¶ 31.) Eventually, however, plaintiffs became aware of West's scheme, and the fact that they had lost title to their properties. Accordingly, in 1996 and 1997, plaintiffs commenced these actions in New York state court against West, the West Entities, Rolle, Amerifirst, Ginnie Mae, and Great Financial Bank.
Also in 1996, a different group of plaintiffs commenced a similar action, in this Court, against most of the defendants named herein. That action, entitled Ifill v. West, No. 96 CV 6308, is currently pending before the Honorable Sterling Johnson, Jr.
The lawsuits appear to have found their way to this Court only after plaintiffs filed and served amended complaints in the state court actions. Upon being served with an amended complaint in a particular action, Ginnie Mae, as an agency of the United States, would remove the action to this Court pursuant to, inter alia, 28 U.S.C. § 1442. (See, e.g., Notice of Removal in the Ravenal action, dated July 23, 1998.)
Surprisingly, it also appears that defendant Rolle and his law firm, Horing Wellikson, represented West and the West Entities in these lawsuits for some of the time they were pending. In August 1999, however, plaintiffs filed a motion seeking to disqualify Rolle and the Horing firm as attorneys for West and the West Entities. No opposition to the motion was filed, and the Court granted the motion on November 5, 1999. The Court ordered the West Entities to retain counsel "immediately," and further required said counsel to file a notice of appearance on or before December 15, 1999. The Court warned West and the West Entities that "corporations cannot appear pro se," and that, in the event no notice of appearance was filed on behalf of the West Entities prior to December 15, 1999, the West Entities "may be declared to be in default and judgment may be entered against them." (See November 9, 1999 Order.)
On October 17, 2000, plaintiffs filed an Amended Complaint in each of these actions. The Amended Complaint added a civil RICO claim against the defendants. Although plaintiffs duly served a copy of the Amended Complaint on each West Entity, none answered the Amended Complaint. Nor did an attorney file a notice of appearance on behalf of any of the West Entities after the Court issued its November 5, 1999 Order. Plaintiffs therefore moved for default judgments against each of the West Entities on or about June 5, 2001.
On September 13, 2001, West, purportedly acting "pro se on behalf of" the West Entities, filed a "Verified Answer" to the Amended Complaint. West's pleading is insufficient to cure the West Entities's defaults, for two reasons. First, the West Entities were required to respond to the Amended Complaint within ten days after it was served.See Fed.R.Civ.P. 15(a) ("A party shall plead in response to an amended pleading . . . within 10 days after service of the amended pleading. . . ."). Second, although West purports to be an officer of each of the West Entities, he nevertheless cannot appear in this action on behalf of the West Entities. Pecarsky v. Galaxiworld.com Ltd., 249 F.3d 167, 172 (2d Cir. 2001) ("As a corporation, appellant, Galaxiworld, could only appear with counsel. Banks [one of Galaxiworld's principals] could not represent the corporation, pro se."); see also Rowland v. Calif. Men's Colony, 506 U.S. 194, 201-02 (1993) ("It has been the law for the better part of two centuries . . . that a corporation may appear in the federal courts only through licensed counsel.") (citations omitted).
At a hearing on plaintiffs' motions, West and Ozro Thaddeus Wells, Esq., an attorney purporting to represent the West Entities, argued that an attorney named Christopher Sowers had represented the West Entities after the Court ordered the West Entities to retain counsel on November 5, 1999. According to Wells, West was "arguably under the impression that attorney Sowers had taken whatever steps [were] necessary to comply with the rules and orders of this court to ensure that" representation of the West Entities "was in compliance." (October 22, 2001 letter from Ozro Thaddeus Wells, Esq. to Hon. I. Leo Glasser.) The West Entities argued that a default judgment therefore was inappropriate, and that Wells should be permitted to represent the West Entities going forward.
On October 9, 2001, three days before the hearing on plaintiffs' motions, Wells submitted a letter to the Court indicating that he would be representing the West Entities at the hearing. Mr. Wells has not filed a formal notice of appearance, however.
According to a July 11, 2001 letter from plaintiffs' counsel, Robert Litwack, Esq., to West, Sowers has, at certain times, told Litwack that he represents the West Entities, and at other times told Litwack that he represents only Mount Moriah. Mr. Sowers has not filed a notice of appearance in any of these actions, however, and there are no motion papers, pleadings, or other documents in the court files indicating that Mr. Sowers represents any of the West Entities.
Shortly after the hearing on plaintiffs' motions, defaults were entered by the Clerk of the Court against each of the West Entities, in each of these three actions.
Plaintiffs moved for default judgments without first obtaining entries of default against the West Entities, as required under Rules 55(a) and (b) of the Federal Rules of Civil Procedure, as well as this Court's Local Rules 55.1 and 55.2.
DISCUSSION
Default judgments have been described as "drastic remedies" to be used only in "extreme circumstances." Independent Prods. Corp. v. Loew's Inc., 283 F.2d 730, 733 (2d Cir. 1960). Ordinarily they are imposed only after consideration of alternative less drastic sanctions. See John B. Hull, Inc. v. Waterbury Petroleum Prods., Inc., 845 F.2d 1172, 1176 (2d Cir. 1988). Defaults are not favored and any doubts about whether a default is appropriate in a given case must be resolved in favor of a trial on the merits. See Meehan v. Snow, 652 F.2d 274, 277 (2d Cir. 1981). Nonetheless, the strong judicial preference for trial on the merits "is counterbalanced by considerations of social goals, justice and expediency, a weighing process which is largely within the domain of the judge's discretion." Leon B. Rosenblatt Textiles, Ltd. v. Griseto, No. 96 Civ. 2925, 1999 WL 739532, at 2 (S.D.N.Y. Sept. 22, 1999) (quoting Gomes v. Williams, 420 F.2d 1364, 1366 (10th Cir. 1970)); see also Wing v. East River Chinese Restaurant, 884 F. Supp. 663, 669 (E.D.N.Y. 1995) (judge required to exercise his "sound judicial discretion" in determining whether default judgment should be entered).In determining whether to enter a default judgment, a court may consider:
a number of factors that may appear from the record before it. Among these [factors] are . . . whether material issues of fact . . . are at issue; . . . whether the grounds for default are clearly established or are in doubt; . . . how harsh an effect a default judgment might have; and whether the court thinks it later would be obliged to set aside the default on defendant's motion.Federal Home Loan Mortgage Corp. v. 41-50 78th St. Corp., No. 92-CV-5692, 1997 WL 177862, at 3 (quoting 10 Wright, Miller Kane, Federal Practice and Procedure § 2685 (2d ed. 1983)). Each of these factors weigh in favor of granting plaintiffs' motions for default judgments against the West Entities. There are no material questions of fact at issue because the West Entities, by failing to answer the Amended Complaint, have conceded the allegations therein. See id. Moreover, the prerequisites for a default judgment are clearly established — service of process has been adequately demonstrated, the West Entities have not responded to the Amended Complaint, and the Clerk of the Court has entered a default against each of the West Entities. Furthermore, there is no reason to believe that a default judgment will have harsh effects. If any of the West Entities believed that it had a meritorious defense to the claims asserted in the Amended Complaint, surely it would have set forth that defense in the year's time that has passed since the Amended Complaint was served, or in the more than three years which have passed since these lawsuits were commenced. See id. (no harsh effects when defendants never answered complaint; "Had any of the defendants believed that their liens were not subordinate to the plaintiffs, they would have set forth their argument in an answer.").
Finally, there is no reason to believe that the Court will be required to set aside a default judgment on motion by any of the West Entities. Pursuant to Federal Rule of Civil Procedure 55(c), a default judgment can be set aside for any of the reasons set forth in Federal Rule of Civil Procedure 60(b). Rule 60(b) specifies six grounds for relief from a judgment, only two of which appear relevant here: Rule 60(b)(1), which permits relief from a judgment due to "mistake, inadvertence, surprise or excusable neglect," and Rule 60(b)(6), a "catch-all" proviso permitting relief "for any other reason justifying relief from the operation of the judgment."
Certainly, the West Entities cannot demonstrate "mistake, inadvertence, surprise or excusable neglect." The Amended Complaint in this action was properly served more than a year ago, while the original complaints were served over three years ago. The West Entities have never responded to either the original complaints or the Amended Complaint, despite proper service and notice that the failure to respond could result in a default judgment being entered against them. Furthermore, for at least some of the time these actions have been pending, the West Entities were represented by counsel. The failure to file an answer in these circumstances simply cannot be attributed to "mistake, inadvertence, surprise or excusable neglect."
Similarly, Rule 60(b)(6) does not help the West Entities's cause. "Rule 60(b)(6) requires a demonstration of a much more extraordinary circumstance than does Rule 60(b)( 1)." 10A Wright, Miller Kane, Federal Practice and Procedure § 2695 (3d ed. 1998). The West Entities have failed to proffer any evidence indicating that "extraordinary circumstances" render default judgments in this case inappropriate.
Therefore, the West Entities's unexplained failure to answer the Amended Complaint renders default judgments appropriate in this case. However, default judgments against the West Entities are appropriate for another, though no less important, reason: the West Entities's inexplicable failure to retain counsel in accordance with the Court's November 5, 1999 Order.
"[D]efault judgments and dismissals are important weapons in a trial court's arsenal of sanctions and must be available for dealing with 'willful violations of court rules, contumacious conduct, or intentional delays.'" Griseto, 1999 WL 739532, at 2 (quoting Ackra Direct Mktg. Corp. v. Fingerhut Corp., 86 F.3d 852, 856 (8th Cir. 1996)); see also Shapiro, Bernstein Co. v. Continental Record Co., 386 F.2d 426, 427 (2d Cir. 1967). It has been noted that, "in an appropriate case[,] a district court has power to default a defendant, as it does to nonsuit a plaintiff, for failure to comply with the court's orders or rules of procedure." Luis C. Forteza e Hijos, Inc. v. Mills, 534 F.2d 415, 419 (1st Cir. 1976) (citations omitted); see also Bonanza Int'l. Inc. v. Corceller, 480 F.2d 613, 614 (5th Cir. 1973); Griseto, 1999 WL 739532, at 4 (granting default judgment against defendant who "twice wilfully refused to comply with Court orders"). The Second Circuit has repeatedly affirmed district court cases that granted default judgments against corporate defendants that were specifically instructed to retain counsel by a certain date, yet failed to do so. See, e.g., Powerserve Int'l. Inc. v. Lavi, 239 F.3d 508, 514 (2d Cir. 2001) (affirming default judgment where corporate defendant failed to retain counsel by date specified by district court); Eagle Assocs. v. Bank of Montreal, 926 F.2d 1305, 1310 (2d Cir. 1991) (affirming default judgment entered against corporate defendant that failed to comply with court order requiring appearance through counsel by date certain); see also Continental Record, 386 F.2d at 427 (reversing district court's refusal to grant default judgment where corporate defendant failed to comply with court order requiring appearance through counsel); Leffel Co. v. Am. Thermophilic Corp., No. 95 CIV 6142, 1996 WL 272124, at 1 (S.D.N.Y. May 22, 1996) (striking answer of, and granting default judgment against, corporate defendant who failed to comply with court order to appear via counsel).
Here, the Court's November 5, 1999 Order could not have been clearer with respect to the West Entities's obligations: retain counsel "immediately," and have said counsel file a notice of appearance on or before December 15, 1999, or risk default. (See November 9, 1999 Order.) The West Entities failed to comply. Only on the eve of the hearing on plaintiffs' motions for default judgments — almost two years after the Court imposed deadline — did the West Entities finally retain counsel. This belated attempt to comply with the Court's order will not be countenanced. The West Entities chose to ignore the Court's directive at their own peril, fully aware that the failure to retain counsel could result in the West Entities being "declared to be in default and judgment . . . entered against them." (Id.)
Furthermore, West's so-called "belief' that Christopher Sowers purportedly represented the West Entities, and that Sowers had "taken whatever steps [were] necessary to comply with the rules and orders of this court to ensure that" representation of the West Entities was in compliance," does not alter this analysis. West appears to be playing fast and loose with this Court. Indeed, it appears that Sowers repeatedly waffled as to which of the West Entities, if any, he represented in these actions. (See supra note 9.) Moreover, Sowers filed no pleadings or motions on the West Entities's behalf, and never filed a notice of appearance indicating that he represented the West Entities. The fact that Sowers (1) never filed an answer on behalf of any of the West Entities and (2) never responded to the plaintiffs' motions for default judgments suggests that, despite West's "belief," Sowers was not actually representing the West Entities, and that West pressed this point merely to avoid default judgments.
CONCLUSION
For the foregoing reasons, plaintiffs motions for default judgments against each of the West Entities is granted.
SO ORDERED.