Opinion
No. 04 Civ. 3388 (MHD).
February 25, 2005
MEMORANDUM ORDER
Shanshia Touring, Inc. and Ashanti Douglas commenced this lawsuit in May 2004 against Louise Ferguson, alleging in somewhat confusing terms that Ms. Ferguson had defrauded them in connection with a contractual arrangement between plaintiffs and an entity known as SRM and Associates. Plaintiffs assert numerous claims, the most recognizable of which are for breach of contract, fraud, conversion, fiduciary breach, and violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq.
Plaintiffs have now moved for a default judgment, asserting that defendant has willfully failed to participate in this case. Defendant has filed opposing papers. For the reasons that follow, the motion is denied. Prior Proceedings
Plaintiffs filed their complaint on May 4, 2004 and served defendant, a resident of Georgia, on May 14, 2004. On June 1, 2004 defendant requested a thirty-day extension to file an answer. The court granted that application by endorsed order dated June 3, 2004.
Defendant did not initially obtain an attorney to appear for her, but she filed her answer on July 2, 2004. Following the service of the answer, plaintiffs apparently served some discovery requests by sending them later in July via certified mail to defendant's Georgia residence, but they were returned as "unclaimed". (See Affirmation of Harry M. Stokes, Esq., executed at Jan. 10, 2005, at ¶ 9 Ex. A).
At an initial conference before the District Court, defendant appeared by counsel, Joy Warren, Esq., from the Law Office of James E. McMillan, P.C. At that conference, the District Court ordered that all discovery be completed by November 30, 2004. (See Case Management Plan dated Aug. 11, 2004). Also, both counsel consented on behalf of their respective clients to proceed before a Magistrate Judge for all purposes. The case was accordingly referred to me.
In the wake of that reference, defendant's attorney declined to represent defendant further, apparently because she had been unable to obtain sufficient funds to pay him. Thus, the day before a conference that we had scheduled for September 21, we received a letter from Ms. Warren, attempting to disclaim any role in this case. Because of the ambiguity as to Ms. Warren's status as defendant's counsel and the fact that her firm had appeared at the conference before Judge Berman, we directed that counsel must move to withdraw if she wished to discharge her professional responsibilities to defendant. (See Endorsed Order dated Sept. 20, 2004). We also directed that counsel appear at the conference the next day.
Mr. McMillan filed a motion to withdraw on September 20, but failed to appear, either in person or through Ms. Warren, at the September 21 conference. Not surprisingly, defendant herself also did not appear.
In the wake of these events, we directed that Mr. McMillan pay an award of $200.00 in fees to plaintiffs to compensate them for the time spent at the conference by their attorney. (Order dated Sept. 30, 2004). We also later granted Mr. McMillan's application to withdraw, leaving defendant at that point in a pro se status. (Order dated October 26, 2004). The October 26 order further specified that the prior schedule for completion of discovery remained in effect as of that time. (Id.).
By letter dated November 11, 2004, defendant communicated with Judge Berman, asking for more time and reporting that she had found an attorney who was apparently willing to represent her. In the absence of any sign of an attorney or any application for discovery relief by plaintiffs, we issued an order on December 20, 2004 directing that the parties file a joint pretrial Order by January 10, 2005.
On January 10, 2005, plaintiffs filed their motion for a default judgment. On the same day, an attorney named Paul Chin, Esq., filed an appearance on behalf of Ms. Ferguson. He then wrote to the court on January 18, requesting that her time to respond to plaintiff's motion be extended to January 24, 2005, an application that we granted that same day. (Endorsed Order dated Jan. 18, 2005). Defendant filed a timely response and the motion is now fully briefed.
ANALYSIS
Default is an extreme remedy and is granted only reluctantly in view of the courts' recognized preference for deciding cases on their merits. See, e.g., Pecarsky v. Galaxiworld.com, Ltd., 249 F.3f 167, 174 (2d Cir. 2001); Enron Oil Corp. V. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993). The pertinent considerations include any willfulness or lack of it on the part of the defendant, the existence of a potentially meritorious defense, and the degree of prejudice that the plaintiff would suffer if the default were not granted. See, e.g., Pecarsky, 249 F.3d at 171; Credit Lyonnais Securities (USA), Inc. v. Alcantara, 183 F.3d 151, 154 (2d Cir. 1999).
In light of the entire record, we do not view defendant as having engaged in bad-faith or willful violation of her obligations. She was served in mid-May and communicated shortly thereafter with the court to obtain some additional time in which to respond. Despite her pro se status and the fact that she was located a considerable distance from our district, she filed an answer on time, and actively pursued the task of obtaining legal representation, resulting in the appearance of an attorney on her behalf at the first conference.
Although plaintiffs' counsel notes that he mailed some written discovery requests to defendant in July 2004 and that they were returned to him as unclaimed, he does not indicate that he took up the matter with the attorney who appeared for defendant at the first conference. He is equally silent about any further efforts on his part to seek Ms. Ferguson's cooperation on discovery or to seek court intervention during the discovery period.
It appears that the delays and confusion that were encountered after the case management order had been entered in August were attributable to defendant's inability to obtain sufficient funds to pay her attorney, resulting in the formal departure of that firm in late October. Despite this problem, defendant again communicated with the court in November, alluding to her efforts to obtain a lawyer, and indeed those efforts were finally successful in early January.
Given these facts, we conclude that defendant failed to fulfil her obligations as a litigant for a period of months, but that her failings in this regard were surely not willful, and reflected her apparent focus on the effort to obtain an attorney to represent her. While regrettable and certainly negligent, her approach cannot fairly be said to reflect bad faith or deliberate disregard of this lawsuit, particularly in view of her pro se status for most of the pertinent period.
As to the question of a potentially meritorious defense, the papers before me certainly suggest that defendant may have viable defenses. See generally Pecarsky, 249 F.3d at 73 (defendant need only proffer facts that, if proven at trial, would constitute a complete defense). The complaint, as currently pled, reflects a number of potential vulnerabilities with regard to specificity of pleading of fraud, other possible pleading inadequacies (especially with regard to the RICO claim), and a possible jurisdictional deficiency. In addition, judged from the affidavit of the defendant submitted on the current motion (Affidavit of Louise Ferguson, sworn to Jan. 24, 2005, at ¶¶ 11-12), the facts material to all of the claims appear to be in strong contention. In short, defendant amply meets her burden, for Rule 55 purposes, of showing the existence of a potentially meritorious defense.
Briefly, plaintiffs contend that Ms. Ferguson owes them a substantial amount of money for a concert tour that they undertook in Japan and Hawaii under the auspices of SRM and Associates. In contrast, Ms. Ferguson asserts that she was entitled, by agreement with plaintiff Douglas, to a ten-percent share of their gross talent fees, and that plaintiff Douglas still owes her that payment. (See id. at ¶¶ 3, 11-12).
As for possible prejudice to plaintiffs, we recognize that there has been some delay in processing this case. Nonetheless, we see no basis for inferring from this delay any meaningful prejudice to plaintiffs' ability to prosecute their claims. Indeed, it appears that plaintiffs themselves have not been particularly active at any point in the discovery period after the withdrawal of defendant's first counsel. They neither sought discovery from defendant nor requested relief from the court if defendant was resisting their requests. In short, it is not clear that the absence of progress throughout the relevant period was entirely defendant's fault.
Moreover, even if we were to adopt plaintiffs' view of the appropriateness of a default, before granting them relief on their claims we would have to determine whether their complaint contains a well-pleaded claim, and we would also have to put them to their proof on damages. See, e.g., Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981); Credit Lyonnais, 183 F.3d at 155. Based on the briefing and affidavits before us, it appears that these are matters that are open to serious question, and in any event they would have to be addressed regardless of whether defendant is defaulted.
In sum, we conclude that plaintiffs have not justified their request for entry of a default judgment.
CONCLUSION
For the reasons noted, plaintiffs' motion for a default judgment is denied. The court will conduct a scheduling conference with counsel on March 15, 2004, at 10:00 a.m.