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United States District Court, Southern District of New York

April 25, 2003


The opinion of the court was delivered by: Laura Taylor Swain, United States District Judge


Plaintiffs Jerome L. Schostak and Elyse Schostak ("Plaintiffs") bring this action for replevin, conversion, breach of contract and accounting against defendants Jack Wright and Wright Gallery ("Defendants"). Subject matter jurisdiction is premised on diversity of citizenship, pursuant to 28 U.S.C. § 1332(a)(1). Before the Court is Plaintiffs' motion for a default judgment.

The Court has considered thoroughly all submissions related to this motion. For the following reasons, Plaintiffs' motion is granted, and damages and costs are awarded to the extent set forth below.

The following facts are taken from the complaint. Plaintiffs are citizens of the State of Michigan. Upon information and belief, Defendants are citizens of the State of New York. Defendants are engaged in the business of exhibiting and selling works of art, and presented themselves to Plaintiffs as a single business operated by Mr. Wright. Plaintiffs are the owners of a painting by the artists Milton Avery entitled "March on the Rocks" (the "Painting"). By written consignment agreement dated July 11, 2001, Plaintiffs consigned the Painting to Defendants. The consignment agreement provided, in part, that if the Painting was not sold it was to be returned to Plaintiffs on or before August 31, 2001. See Consignment Agreement, dated July 11, 2001, Ex. A to Notice of Mot. for Default J. The consignment agreement also specified that the value of the Painting was $650,000. Id. During the month of August, Defendants asked for a two month extension of time until the end of October for selling the Painting. The Plaintiffs consented to the extension. On October 11, 2001, Defendants advised Plaintiffs that they had received an offer for the purchase of the Painting. The terms of the proposed transaction were that Plaintiffs would receive net sales proceeds of $570,000 payable in three installments: $100,000 in October 18, 2001; $200, 000 on November 30, 2001; and a final payment of $270,000 on December 31, 2001. It was expressly confirmed as an integral component of the offer that Defendants would hold the Painting at their gallery until Plaintiffs had received their payment in full. Full payment was never made. Months after the deadline, Plaintiffs had received only $306,000 toward the $570,000 owed. By letter dated, January 14, 2002, Plaintiffs demanded that the Painting be returned to them unless full payment was made by January 24, 2002 in accordance with the consignment agreement. The January 24, 2002 deadline was not complied with and the Painting was not returned. Defendants then promised by e-mail to pay the full remaining balance by March 15, 2002. On March 15, 2002, defendant Jack Wright notified Plaintiffs by email that the full payment would not be made and the Painting would be returned to Plaintiffs.

Defendants thereafter shipped Plaintiffs a different Milton Avery painting entitled "Rolling Surf." Plaintiffs informed Defendants of the error by email dated March 19, 2002. May 14, 2002, Defendants sent Plaintiffs an invoice for the purchase of "Rolling Surf," applying the balance still due on the sale of the Painting as a credit against the asserted purchase price of "Rolling Surf." By letter dated May 15, 2002, Plaintiffs informed Defendants that the invoice should be cancelled because they never requested, purchased or had any conversation concerning "Rolling Surf." By letter dated May 15, 2002, Plaintiffs were informed by the Alpha Gallery of Boston, Massachusetts that the Milton Avery Trust was the rightful owner of "Rolling Surf." The Alpha Gallery demanded the return of "Rolling Surf" and Plaintiffs agreed to turn over the painting to Alpha Gallery.

Plaintiffs allege that Defendants' failure to provided proof of their possession of the Painting and Defendants' deceitful use of the painting "Rolling Surf" constitute a fraudulent scheme to defraud Plaintiffs. Plaintiffs ask that default judgment be granted and that the Court enter an order providing for, at the option of the Plaintiffs, either the return of the Painting or tort damages for conversion equal to $344,000, representing the fair market value of the Painting a the time of conversion ($650,000) less payments already received by Plaintiffs for the Painting ($306,000), plus prejudgement interest from March 15, 2002, the date of conversion.

Federal Rule of Civil Procedure 4(e) governs service of process in diversity actions. Rule 4(e) provides, in relevant part, that a plaintiff may effectuate service "pursuant to the law of the state in which the district court is located, or in which service is effected." Fed.R.Civ.P. 4(e)(1). New York law provides for personal service upon a natural person via delivery of summons "to the person to be served." N.Y.C.P.L.R. § 308(1). The record indicates that, on or about November 12, 2002, Defendants were served by personal service with a summons and complaint in this action. Defendants failed to serve any responsive pleading within the twenty-day period ending December 2, 2002. A Preliminary Pretrial Order was entered in this matter on November 19, 2002. Plaintiffs filed an affidavit of service of the Preliminary Pretrial Order as to Defendants on December 27, 2002. On December 27, 2002, the Clerk of the Court entered a Certificate of Default against Defendants. See Clerk's Cert., Ex. 1 to Notice of Mot. for Default J. Plaintiffs served Defendants by first class mail on January 3, 2003 with their notice of motion for default judgment. By Order dated February 13, 2003, the Court ordered that any opposition to the motion for default judgment was to be made by February 28, 2003. No opposition was received and, to date, Defendants have not appeared in this matter. Pursuant to the Order of the Court dated December 13, 2002, Plaintiffs' motion was accompanied by evidence, in admissible form, of such facts as they would have proffered to meet their burden of proof of their direct case had a trial been held in this action. See Aff. of Jerome Schostak, Ex. 2 to Notice of Mot. for Default J.

Pursuant to Rule 55 of the Federal Rules of Civil Procedure, this Court may, when a default has been entered against a party, enter a judgment by default upon application by the Plaintiffs. Fed.R.Civ.P. 55(b)(2). "[T]he core function of service is to supply notice of the pendency of a legal action, in a matter and a time that afford the defendant a fair opportunity to answer the complaint and present defenses and objections." Henderson v. United States, 517 U.S. 654, 672 (1996), quoted in Citadel Management, Inc. v. Telesis Trust, Inc., 123 F. Supp.2d 133, 145 (S.D.N.Y. 2000). An entry of default judgment should be made only where there was willful default, such that the failure to answer was more than mere negligence or carelessness. See SEC v. McNulty, 137 F.3d 732, 738 (2d Cir. 1998).

In deciding a motion for default judgment, the Court considers the following three factors: 1) whether the defendant's default was willful; 2) whether defendant has a meritorious defense to plaintiff's claims; and 3) the level of prejudice the non-defaulting party would suffer as a result of the denial of the motion for default judgment. See Mason Tenders District Council v. M&M Contracting & Consulting, 193 F.R.D. 112, 114-15 (S.D.N.Y. 2000). Dispositions of motions for default judgments are left to the sound discretion of the district court. See Shah v. New York State Dep't of Civil Service, 168 F.3d 610, 615 (2d Cir. 1999). Default constitutes an admission of all well-pleaded allegations of the complaint by the defaulting party, except those relating to damages. Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1985).

In light of all the circumstances previously outlined, the Court finds that denial of this motion would be unfairly prejudicial to Plaintiffs. Defendants, having failed to respond in any way to the summons and complaint or the instant motion, or otherwise to make any appearance in this action and having failed to provide any explanation for their failure to defend, have defaulted willfully. Since Defendants have failed to proffer any defense and are therefore deemed to have admitted the well-pleaded allegations of the complaint, other than those as to the amount of damage (Fed.R.Civ.P. 8(d)), the second factor — whether Defendant has a meritorious defense — is not at issue. Thus, all of the facts alleged in Plaintiffs' complaint are, as a matter of law, deemed admitted by Defendants, including the specific allegations of misrepresentations as to the return of the Painting and the failure to make full payment.

Plaintiffs' evidence supports a presumption that the Defendants' statements induced Plaintiffs' to rely on Defendants' representations. Defendants, by defaulting, have failed to rebut the presumption of actual reliance on the misrepresentation. Plaintiffs have proffered sufficient, uncontroverted evidence that Defendants have not complied with the consignment agreement and have made misrepresentations as to the delivery of the Painting. Plaintiffs have provided evidence that the parties agreed that the value of the Painting at the time of the conversion was $650,000. See Consignment Agreement.

Judgment shall therefore be entered against Defendants, jointly and severally. Plaintiffs shall have the option of either the return of the Painting or tort damages for conversion equal to $344,000, representing the fair market value of the Painting a the time of conversion ($650,000) less payments already received by Plaintiffs for the Painting ($306,000), plus prejudgement interest from March 15, 2002.



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