92 F.3d 57, 60-61 (2d Cir. 1996) (discussing
cases). The standard for setting aside an entry of default pursuant to
Federal Rule of Civil Procedure 55(c) is less rigorous than the standard
for setting aside a default judgment pursuant to Rule 60(b). American
Alliance, 92 F.3d at 59.
Defendant argues that since its current management was unaware of this
action, its failure to answer cannot be considered willful. Argus,
however, counters with the fact that the former president of Defendant,
Cook, who had knowledge of this action, continues to be President and
work in Defendant's office in Florida. Argus further points out that
although the new management clearly had notice of this lawsuit in
November, it still did nothing for three months until it retained counsel
at the end of February. Finally, Argus argues that if Cook did indeed
fail to disclose the existence of this lawsuit, Defendant should look to
Cook for indemnification.
A review of the record reveals that Defendant's conduct falls short of
the deliberate standard for willfulness contemplated by the Second
Circuit. For example, in American Alliance Insurance Co. v. Eagle
Insurance Co., 92 F.3d 57, 60-61 (2d Cir. 1996), the Second Circuit
vacated a default judgment that resulted from a filing error committed by
a clerk for in-house counsel. In reaching its decision, the court focused
on whether the default was the result of "willful" conduct. Although the
lawyer had not discovered the misfiling for two months, the court stated
that, because the act was merely one of carelessness or negligence, the
harsh application of a default judgment was inappropriate. Id. A default
judgment, according to the court, should be entered only in the event of
either deliberate conduct or bad faith, neither of which was present in
that case. Id. Similarly, in Davis v. Mushler, 713 F.2d 907 (2d Cir.
1983), the Second Circuit cautioned that "the extreme sanction of a
default judgment must remain a weapon of last, rather than first,
resort, which should only be imposed upon a serious showing of willful
default." Id. at 916 (internal quotations and citations omitted).
Here, after receiving notice of Plaintiffs motion for entry of default
judgment, Defendant retained counsel and has appeared in all subsequent
court appearances. After participating in the mediation sessions,
Defendant expeditiously moved to vacate the default entered by the
Clerk. Since Kay has acted diligently since he received notice of this
lawsuit, Defendant's conduct does not rise to the level of conduct that
the Second Circuit has found to be willful. See e.g., SEC v. McNulty, 137
F.3d at 738 (Defendant failed to answer complaint, even after Plaintiff
had repeatedly warned him that it would move for entry of default);
Commercial Bank of Kuwait v. Rafidain Bank, 15 F.3d 238, 243-44 (2d Cir.
1994) (default deemed willful where, after purposely evading service for
several months, defendants failed for untenable reasons to answer the
complaint). Accordingly, this Court finds that Defendant's default was
Argus claims that it will be prejudiced if this Court vacates the
default because it has been trying to resolve this dispute for three
years. Delay alone, however does not establish prejudice. Enron Oil, 10
F.3d at 98. Rather, to establish prejudice, a plaintiff must demonstrate
that the delay will result in the loss of evidence, create increased
difficulties of discovery, or provide greater opportunity for fraud and
collusion. Davis, 713 F.2d 907, 916 (2d Cir. 1983) (quoting C. Wright,
A. Miller and M. Kane, FEDERAL PRACTICE AND PROCEDURE § 2699 at
536-537). Argus has not made any such claim. Accordingly, Argus
has failed to establish that it will be prejudiced if the default is
3. Meritorious Defense
The final factor to weigh in deciding whether to vacate the entry of
default is whether Defendant has presented a meritorious defense. The
Second Circuit has stated that a "defense is meritorious if it is good at
law so as to give the fact-finder some determination to make." American
Alliance, 92 F.3d at 61. This Court is not to determine whether Defendant
will ultimately prevail at trial. Rather, the establishment of a
meritorious defense depends on "whether the evidence submitted, if proven
at trial, would constitute a complete defense." Enron Oil, 10 F.3d
[at] 98 (citations omitted).
Defendant has imposed the defense of laches. Laches is an equitable
defense that bars a plaintiffs claim where he is guilty of unreasonable
and inexcusable delay that has resulted in prejudice to the defendant.
Ikelionwu v. United States, 150 F.3d 233, 237 (2d Cir. 1998). Laches is
based on the maxim that equity aids the vigilant and not those who sleep
on their rights. Id. To succeed on a defense of laches, a party "must
establish that: (1) the plaintiff knew of the defendant's misconduct; (2)
the plaintiff inexcusably delayed in taking action; and (3) the defendant
was prejudiced by the delay." Id. (citing Tri-Star Pictures, Inc. v.
Leisure Time Prod, B. V., 17 F.3d 38, 44 (2d Cir. 1994).
Defendant has operated under the Argus name since March 10, 1977.
Thus, Defendant contends that Argus knew of or should have known of its
existence for the last twenty-three years. Defendant further argues that
it has built up substantial equity in its use of the Argus name and if it
is forced to change its name, it will likely lose its customers and be
forced to go out of business.
Although Argus counters that Defendant has failed to establish that its
use of the Argus name was prominent or that it has developed any
significant consumer recognition for its name, Defendant need not
establish that it will prevail on its detense. Rather, Defendant must
present some evidence to support its defense. Enron Oil, 10 F.3d at 98.
Here, Defendant has raised a question regarding when Argus knew of
Defendant's use of the Argus name and thus whether Argus inexcusably
delayed in bringing this action. Thus, resolving doubts in favor of
Defendant, this Court determines that Defendant has asserted a
meritorious defense claim sufficient to meet its burden under this prong
of the analysis.
This Court finds that Defendant's default was not willful; setting
aside the default will not prejudice Argus; and Defendant has alleged a
meritorious defense. As such, Defendant's motion to vacate the default is
GRANTED, and the motion by Argus for a default judgment is DENIED.
Defendant shall file and serve an answer within twenty days of this
Order, and the parties are directed to contact United States Magistrate
Judge Arlene Rosario Lindsay forthwith to proceed with discovery. And it
is SO ORDERED.
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