that the balance of conveniences in this case favors the Chilean forum.
2. Defendants' Counterclaims
As suggested previously, defendants advance a host of counterclaims,
rooted in contract and tort law, arising out of plaintiff's allegedly bad
faith and tortious conduct. First, defendants allege that plaintiff has
impermissibly interfered with defendants' property, prior to a court
judgment on the merits of their dispute, in violation of United States
Supreme Court and New York State Court of Appeals precedent. (Defs.'
Mem. at 107-11.) Second, defendants claim that plaintiff has engaged in
activity that constitutes a breach of its implied obligation of
good-faith and fair dealing under the Credit and Guaranty Agreements.
Id. at 112. Third, defendants allege that plaintiff has engaged in
knowing, intentional, and/or tortious interference with defendants'
contractual relations, business operations, and prospective economic
advantage. Id. at 113-16. Fourth, defendants accuse plaintiff of having
made fraudulent and/or negligent misrepresentations regarding their
rights under the Credit and Guaranty Agreements. Id. at 11617. Fifth,
defendants claim that plaintiff has breached its fiduciary duty owed
under the Credit and Guaranty Agreements. Id. at 118-120. Sixth,
defendants argue that plaintiff's suit against them is defective because
it violates the conditions for bringing suit set forth in the Credit and
Guaranty Agreements. Id. at 75. Seventh, defendants contend that the
default judgment filed by plaintiff is defective because it contains a
declaratory ruling that restricts the assets of a company that is not
even a party to the lawsuit. (Defs.' Reply Mem. at 5-9.) Eighth and
finally, defendants contend that the default judgment is defective
because it awards damages against four defendants who are not guarantors
under either the 1996 or 1994 Credit Agreements, and two other defendants
who are not Guarantors under the 1996 Agreement. Id. at 10.
Plaintiff urges the court to reject all of defendants' counterclaims as
invalid as a matter of law. Plaintiff offers two principal justifications
for this result. The first is that defendants' counterclaims should be
dismissed because they do not arise from the same transaction as that at
the core of this case. (Pl.'s Opp'n Mem. at 18-21.) However, many of
defendants' counterclaims seem to involve breaches of the very same
Credit Agreements that plaintiff sues under. As such, they almost
certainly do arise out of the same transaction, broadly defined.
Plaintiff's other main argument is that defendants waived their right to
interpose such counterclaims as a condition of both Credit Agreements.
Id. at 21-22, However, New York law does not permit a party to invoke
such waiver provisions to shield its malicious or fraudulent conduct.
See, e.g., Mfrs. Hanover Trust Co. v. Palmer Corp., 798 F. Supp. 161, 167
(S.D.N.Y. 1992) (Haight, J.) ("[W]aivers [of defense] will not be
enforced so as to bar a viable setoff or counterclaim sounding in
fraud.") (quotations omitted).
Only the first of defendants counterclaims is so clearly invalid that
the court is prepared to dismiss it out of hand. The cases cited by
defendants, all of which deal simply with the limits on a court's
equitable power to preliminarily enjoin a debtor's asset transfers,
cannot serve as the basis for a viable counterclaim.*fn15
Accordingly, defendants' first counterclaim is dismissed. However, the
factual record regarding defendants' seven remaining counterclaims is
simply too incomplete for the court to conclude one way or the other
whether they constitute meritorious defenses. These seven remaining
counterclaims, like the question of the willfulness of defendants' default,
are thus referred to the magistrate judge for further inquiry. After
defendants have been given an opportunity to flesh out the factual
foundation for each counterclaim, Magistrate Judge Maas will decide
"whether the defendants possess a substantial meritorious defense, or
whether the claims made in defendants' papers on these motions are just
'spurious.'" Ferraro, 131 F.R.D. at 420. Defendants insist that,
given a meaningful opportunity, they can present compelling evidence of the
viability of the seven remaining counterclaims.*fn16 Until they
do, however, the default judgment stays in effect.
A similar problem surrounds the third and final inquiry this court must
make in reviewing a F.R.Civ.P. 60(c) motion to vacate on grounds of
excusable neglect: whether plaintiff would suffer prejudice if the
default judgment were vacated. Plaintiff argues that the prejudice here
is "palpable" because "for more than one year defendants have been
orchestrating a campaign to spirit assets beyond the reach of plaintiff
and creditors." (Pl.'s Opp'n Mem. at 22, 23.) These are troubling
allegations, indeed. The difficulty is that plaintiff fails to support
them with anything more than its own attorney's affirmation, which is
based mostly on secondhand information and belief. The court does not
mean to suggest that plaintiff bears the ultimate burden of demonstrating
prejudice to the satisfaction of the court. Indeed, if defendants fail to
offer some compelling proof of their own on this subject, the
determination should prove a fairly easy one. However, as with
defendants' counterclaims, there simply is not enough information on the
record for this court to make a reasoned determination on this issue. And
given the enormous sums of money at stake in this case, along with the
Second Circuit's avowed preference for setthng disputes on the merits,
the court believes it wise to refer this factual dispute to Magistrate
Judge Maas as well.
To summarize, defendants have not, as yet, presented sufficient
evidence on the issues of willfulness, meritorious defense, and prejudice
to justify vacating the default judgment. What they have done is raise a
number of questions that warrant further briefing and factual inquiry.
Accordingly, the court refers them to Magistrate Judge Frank Maas for
report and recommendation.
IT IS SO ORDERED.