Opinion
23-cv-2267 (LGS) (JW)
04-23-2024
NAVCAN.DC, INC.; DACH HOLDINGS, LLC; SILVERSTEIN REALTY GROUP, INC.; SILVER SPRINGS DEVELOPMENT, INC. GGH, INC.; and RESIDENCIAL DE CHIHUAHUA 2001, S.A. DE C.V., Plaintiffs, v. JEFFREY RINDE and CKR LAW, LLP, Defendants.
To the Honorable Lorna G. Schofield, United States District Judge:
REPORT & RECOMMENDATION
JENNIFER E. WILLIS UNITED STATES MAGISTRATE JUDGE
Before this Court is Plaintiffs' request to seek a default judgment against Defendants given the failure to timely answer the complaint. Dkt. Nos. 70, 75. In the interest of resolving this dispute on the merits, see, e.g., Powerserve Int'l, Inc. v. Lavi, 239 F.3d 508, 514 (2d Cir. 2001), this Court recommends that Defendants' default be excused and Plaintiffs' request to seek a default judgment be DENIED.
BACKGROUND
On March 16, 2023, Plaintiffs NAVCAN.DC, Inc., f/k/a Cascade Divide Data Centers, Inc. (“NAVCAN”); DACH Holdings, LLC (“DACH”); Silverstein Realty Group, Inc. (“SRG”); Silver Springs Development, Inc., assignee of Cordella Developments Corp. (including its assignee, “Silver Springs”); GGH, Inc. (“GGH”); and Residencial de Chihuahua 2001, S.A. de C.V. (“Residencial,” collectively “Plaintiffs”) commenced this action against Defendants Jeffrey Rinde and CKR Law, LLP, alleging, inter alia, breach of contract, fraudulent concealment, breach of fiduciary duty, conversion, unjust enrichment, and breach of an arbitration agreement. Dkt. No. 1 (the “Complaint” or “Compl.”).
On May 17, 2023, a clerk's certificate of default was entered against Defendants on the grounds that they had not answered the Complaint. Dkt. No. 22 (the “Certificate of Default”). Upon request by Defendants, Dkt. No. 27, District Judge Schofield ordered the vacatur of the Certificate of Default and directed Defendants to answer or otherwise respond to the Complaint by June 14, 2023. Dkt. No. 29. On June 14, 2023, Defendants filed a letter motion for conference regarding a request for leave to file a motion to compel arbitration, and dismiss and/or stay this action. Dkt. No. 38. District Judge Schofield ordered Defendants to file their motion to compel arbitration by July 7, 2023, Dkt. No. 42, which Defendants did on the day of the deadline. Dkt. No. 49. This Court granted Defendants' request to stay the action pending a ruling by District Judge Schofield on the underlying motion to compel arbitration. Dkt. No. 64. On October 11, 2023, District Judge Schofield denied the motion to compel arbitration. Dkt. No. 66. This Court issued an order lifting the stay of this action on October 20, 2023. Dkt. No. 68. Defendants' answer was due within 14 days of the ruling by District Judge Schofield on the motion to compel arbitration. Fed.R.Civ.P. 12(a)(4)(A).
On November 21, 2023, Plaintiffs filed a letter notifying this Court of Defendants' second default for failure to timely answer the Complaint. Dkt. No. 70. On November 27, 2023, this Court issued an order for Defendants to show cause as to why Plaintiffs should not be permitted to seek a default judgment. Dkt. No. 71 (the “OTSC”). Defendants filed an Answer the next day. Dkt. No. 72 (the “Answer”).
Defendants timely responded to the OTSC on December 3, 2023. Dkt. No. 7374. Plaintiffs' filed an opposition renewing their request to seek a default judgment on December 6, 2023. Dkt. Nos. 75-76. Defendants argue that Plaintiffs should not be permitted to seek a default judgment because (i) Defendants delay in filing the Answer was not willful, (ii) there was no prejudice to Plaintiffs, and (iii) Defendants have meritorious defenses based on the terms of the escrow agreements at issue in this action. Dkt. No. 74. Conversely, Plaintiffs counter that they should be permitted to seek a default judgment because (i) Defendants' repeated defaults illustrate willful delay tactics, (ii) Plaintiffs have been prejudiced by the delays, and (iii) Defendants have no meritorious defenses. Dkt. No. 75.
LEGAL STANDARD
The issue before this Court is whether Defendants' late answer should be considered or whether Plaintiffs should be permitted to seek a default judgment. See Pension Ben. Guar. Corp. v. Canadian Imperial Bank of Com., No. 87-CV-1046 (MBM), 1989 WL 50171, at *2 (S.D.N.Y. May 8, 1989) (“a motion to file a late answer is closely analogous to a motion to vacate a default”). “Courts in this Circuit have analyzed a motion to file a late answer under both Federal Rules of Civil Procedure 6(b) and 55(c).” Packard v. City of New York, No. 1:15-CV-07130(ATS)(DA), 2018 WL 2229123, at *1 (S.D.N.Y. Apr. 30, 2018)(collecting cases).
Defendants' memorandum of law asks the Court to “enter an Order ruling that Defendants' Answer is timely nunc pro tunc,” Dkt. No. 74 at 17, so this Court interprets the submission as a request to file a late answer.
Pursuant to Fed.R.Civ.P. 6(b), a party requesting an extension “after the time to answer has expired.must file a motion demonstrating that its failure to act was the result of ‘excusable neglect.'” Yahoo, Inc. v. Nakchan, No. 08-CV-4581 (LTS) (THK), 2011 WL 666678, at *1 (S.D.N.Y. Feb. 22, 2011)(quoting Fed.R.Civ.P. 6(b)(1)(B)). “[T]o establish excusable neglect, the moving party must show both good faith and a reasonable basis for not acting within the specified period.” Georgopolous v. Int'l Bhd. of Teamsters, AFL-CIO, 164 F.R.D. 22, 22 (S.D.N.Y. 1995)(internal citations and quotation marks omitted). “Excusable neglect may be found where the relevant circumstances reveal inadvertent delays, mistakes, or carelessness[,]” and this standard “is broad enough to encompass even those omissions caused by circumstances within the movant's control.” In re Painewebber Ltd. Partnerships Litig., 147 F.3d 132, 135 (2d Cir. 1998)(internal citations omitted). Courts have discretion to “grant an enlargement of time in which to answer[ ]” and have done so where defendants have shown “that [their] failure to answer was reasonable.” Interactive Gift Express, Inc. v. Compuseve Inc., No. 95-CV-6871 (BSJ), 1996 WL 420193, at *2 (S.D.N.Y. July 25, 1996).
Under Fed.R.Civ.P. 55(c), “[a] certificate [of default] may be vacated for good cause.” Bank of Am., N.A. v. BK Inner City Chicken, Inc., No. 09-CV-6789 (LAK), 2010 WL 1372673, at *1 (S.D.N.Y. Mar. 29, 2010). “In determining whether to set aside a party's default, the district court should consider principally ‘(1) whether the default was willful; (2) whether setting aside the default would prejudice the adversary; and (3) whether a meritorious defense is presented.'... Because there is a ‘preference for resolving disputes on the merits,' doubts ‘should be resolved in favor of the defaulting party.'” Powerserve Int'l, Inc. v. Lavi, 239 F.3d at 514 (citing Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95-96 (2d Cir.1993)). “A default may be vacated upon a showing that the three factors on balance support relief.” Holford USA Ltd., Inc. v. Harvey, 169 F.R.D. 41, 44 (S.D.N.Y. 1996) (citing Grant v. City of New York, 145 F.R.D. 325, 326 (S.D.N.Y.1992)).
“Ultimately, the matter of whether to grant relief from the entry of a default is left to the sound discretion of a district court because it is in the best position to assess the individual circumstances of a given case and to evaluate the credibility and good faith of the parties.” Powerserve Int'l, Inc. v. Lavi, 239 F.3d at 514 (citing Enron Oil Corp. v. Diakuhara, 10 F.3d at 95-96). The Second Circuit has “expressed a strong ‘preference for resolving disputes on the merits.'” New York v. Green, 420 F.3d 99, 110 (2d Cir. 2005).
DISCUSSION
Defendants do not dispute that they filed a late Answer in this action, but instead ask that the late Answer be excused, and Plaintiffs not be permitted to seek a default judgment. Dkt. No. 74. Both Parties have made arguments under the Fed.R.Civ.P. 55(c) standard. Dkt. Nos. 74-75. As this request may be analyzed under the standard of Fed.R.Civ.P. 6(b) or Fed.R.Civ.P. 55(c), this Court will address each in turn.
1. Excusable Neglect under Fed.R.Civ.P. 6(b)
To contend that their extension should be granted based on excusable neglect, Defendants must “demonstrate both good faith and a reasonable basis for not acting within the specified period.” In re Bressler, No. 06-11897 (AJG), 2007 WL 2089739, at *2 (Bankr. S.D.N.Y. July 20, 2007). Defendants contend that the delay in filing a timely answer was due to “[counsel's] trial preparation in [another] case, an inadvertent oversight, and an unexpected illness[.]” Dkt. No. 74 at 4. Defendants further reiterate that they previously expressed interest in appealing the ruling of District Judge Schofield on the motion to compel arbitration, and such appeal would have stayed the answer deadline in this action. Id. at 6. Defendants' counsel contends that he calendared the deadline to appeal, but mistakenly did not calendar the answer deadline in the event no appeal was filed. Id.
As the Second Circuit has noted, “[e]xcusable neglect is an ‘elastic concept.'” Luo v. Baldwin Union Free Sch. Dist., 677 Fed.Appx. 719, 720 (2d Cir.2017)(summary order)(quoting Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 392 (1993)). Here, Defendants have pled more than “mere inadvertence,” which “can in some circumstances be enough to constitute excusable neglect.” Raymond v. Int'l Bus. Machines Corp., 148 F.3d 63, 66 (2d Cir. 1998)(internal quotations omitted). Therefore, considering the flexibility of the standard, as well as the relatively early stage of this case, this Court believes that Defendants have shown excusable neglect.
2. Vacatur under Fed.R.Civ.P. 55
In assessing whether good cause exists to relieve Defendants from default and grant Defendants an extension to file the late Answer under Fed.R.Civ.P. 55(c), this Court will consider (1) the willfulness of default, (2) the prejudice to the opposing party, and (3) any meritorious defenses presented. Powerserve Int'l, Inc. v. Lavi, 239 F.3d at 514.
First, the willfulness element addresses “those defaults that arise from egregious or deliberate conduct.” Am. All. Ins. Co. v. Eagle Ins. Co., 92 F.3d 57, 61 (2d Cir. 1996). Defendants explain that their failure to file an answer within the specified time was reasonable due to counsel's “trial preparation in [another] case, and inadvertent oversight, and unexpected illness,” and therefore not willful. Dkt. No. 74 at 4. Defendants filed the Answer the day after this Court issued an OTSC. Dkt. No. 72. While Plaintiff contends that Defendants' default was deliberate because Defendants “have blown off virtually every deadline,” Dkt. No. 75, this Court is persuaded that Defendants have proffered some excuse for their failure to timely answer. Because there is a “preference for resolving disputes on the merits,” and doubts “should be resolved in favor of the defaulting party,” Enron Oil Corp. v. Diakuhara, 10 F.3d at 95-96, this Court does not conclude that Defendants' default was willful.
Next, regarding prejudice, “delay alone is not a sufficient basis for establishing prejudice.” Davis v. Musler, 713 F.2d 907, 916 (2d Cir. 1983)(citing Feliciano v. Reliant Tooling Co., Ltd., 691 F.2d 653, 656-57 (3d Cir.1982)). Defendants argue that the late Answer did not prejudice Plaintiffs because in the prior arbitration, Defendants served a virtually identical answer including the same affirmative defenses. Dkt. No. 74 at 8. Plaintiffs counter that they have been prejudiced by Defendants' “continuous delay tactics” and where the other factors weigh heavily in favor of a default judgment, a plaintiff need not make a strong showing of prejudice. Dkt. No. 75 at 11 (citing cases). While this Court is sympathetic to Plaintiffs' history with Defendants, this Court does not find any prejudice in the late Answer considering that Plaintiffs were on notice about the sum and substance of the Answer and the case is still in the early stages. Additionally, Plaintiffs “have not identified any loss of evidence or concern regarding fraud or collusion that stems from the [defendants'] failure to answer.” Packard v. City of New York, 2018 WL 2229123, at *2. Therefore, this Court believes this factor weighs against permitting Plaintiffs to seek a default.
Additionally, “‘[t]o make a sufficient showing of a meritorious defense' on a motion to vacate a default judgment, a movant ‘need not establish his defense conclusively,' but must present evidence of facts that, ‘if proven at trial, would constitute a complete defense.'” Hong v. Mommy's Jamaican Market Corp., 2021 WL 6064101 (LJL), at *3 (S.D.N.Y. 2021)(quoting other sources). Defendants argue that they have meritorious defenses under the terms of the escrow agreements which allegedly limit the scope of Defendants' liabilities and obligations to Plaintiffs. Dkt. No. 74 (citing cases). Plaintiffs counter that Defendants have no meritorious defenses. Dkt. No. 75 at 12-14. “[T]he question at this stage is not whether the Court finds Defendants' arguments to be credible but rather whether Defendants have presented sufficient evidence that, if true, they would prevail and therefore are entitled to have the case resolved on the merits.” Hong v. Mommy's Jamaican Market Corp., 2021 WL 6064101, at *4. While Plaintiffs contend that Defendants have no meritorious defense because no defendant can contract away liability for intentional fraud, Dkt. No. 75 at 8, this Court believes that the affirmative defenses pled by Defendants meet the “low threshold” for sufficiently showing a meritorious defense. Levy v. Nierman, No. 17-CV-4022 (NSR), 2019 WL 147462, at *3 (S.D.N.Y. Jan. 8, 2019). Therefore, this Court finds that on balance these factors favor a finding of good cause.
Finally, “[d]efaults are not favored” under Second Circuit precedent. Meehan v. Snow, 652 F.2d 274, 277 (2d Cir. 1981). Accordingly, “‘motions to set aside default judgments should be granted liberally[ ]'” in favor of resolving disputes on the merits. Joe Hand Promotions, Inc. v. Kirvens LLC, No. 21-CV-10140 (ALC), 2023 WL 2465629, at *1 (S.D.N.Y. Feb. 17, 2023)(quoting Crawford v. Nails on 7th By Jenny Inc., 18-CV-9849, 2020 WL 564059, at *2 (S.D.N.Y. Feb. 5, 2020) and citing Powerserve Int'l, Inc. v. Lavi, 239 F.3d at 514)). This longstanding principle further favors finding for Defendants under Rule 55(c).
RECOMMENDATION
For the foregoing reasons, this Court recommends that Defendants' default be excused, the Answer at Dkt. No. 72 be considered operable, and Plaintiffs' request to seek a motion for default judgement be DENIED.
FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have fourteen days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections, and any responses to objections shall be filed with the Clerk of Court and on ECF. Any requests for an extension of time for filing objections must be directed to Judge Schofield. Failure to file objections within fourteen days will result in a waiver of objections and will preclude appellate review. See Thomas v. Arn, 474 U.S. 140 (1985); Cephas v. Nash, 328 F.3d 98, 107 (2d Cir. 2003).
SO ORDERED.