United States District Court, E.D. New York
July 9, 2004.
THEODORE KING and GARY LA BARBERA, as Trustees and Fiduciaries of the Local 282 Pension Trust Fund, the Local 282 Welfare Trust Fund, the Local 282 Annuity Trust Fund, the Local 282 Job Training Trust Fund and the Local 282 Vacation and Sick Leave Trust Fund, Plaintiffs,
GALLUZZO EQUIPMENT & EXCAVATING, INC., BTS CONSTRUCTION CORP. and DOMINICK GALLUZZO Defendants.
The opinion of the court was delivered by: I. LEO GLASSER, Senior District Judge
MEMORANDUM & ORDER
This motion to vacate the default judgment arises out of a
claim by plaintiffs, Theodore King and Gary LaBarbera, in their
capacity as trustees for various trust funds of Local 282,
International Brotherhood of Teamsters ("Local 282"), alleging
that defendants Galluzzo Equipment & Excavating ("Galluzzo
Equipment"), BTS Construction Corp. ("BTS"), and Dominick
Galluzzo ("Galluzzo"), failed to make required contributions to
the Local 282 trusts. Plaintiffs brought this claim pursuant to
the Employee Retirement Income Security Act of 1974, as amended,
29 U.S.C. § 1001, et seq. ("ERISA"), and Section 301 of the
Labor Management Relations Act, 29 U.S.C. § 185 ("LMRA"). A
default judgment was entered against defendants on May 9, 2003.
Almost one year later, on March 24, 2004, defendants brought this
motion to vacate the default judgment. For the reasons set forth
below, this motion is denied. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
On or about September 9, 1998, Galluzzo Equipment executed a
New York City Heavy Construction & Excavating Contract with Local
282 ("1998 contract"), which was to be in effect through June 20,
1999. The 1998 contract was later extended through June 30, 2002.
Around the time that the 1998 contract was extended, Galluzzo
Equipment was provided with a copy of a contract between it and
Local 282 for the period 1999-2002 ("1999 contract"). According
to defendants, the 1999 contract was not signed by Galluzzo or by
any representative of Galluzzo Equipment or BTS. On or about
March 31, 2000, Local 282 commenced an ERISA action against
defendants for unpaid contributions, King, et al. v. Galluzzo
Equipment & Excavating, Inc., No. CV 00 1889 ("Prior Action").
Galluzzo Equipment failed to answer the complaint or appear in
the Prior Action; plaintiffs moved for a default judgment, which
was entered against Galluzzo Equipment on June 29, 2000. A
satisfaction of judgment in the Prior Action was filed by the
plaintiffs on April 18, 2001.
Plaintiffs filed this action on October 18, 2000, alleging that
Galluzzo Equipment and its controlling officer, Galluzzo, engaged
in a scheme in which an alter-ego corporation (BTS) was used to
employ and pay a number of employees covered by the 1998
Contract. The complaint further alleges that, as a result of this
scheme, the Remittance Reports submitted to the Funds for each
month from September 1998 through July 2000 misrepresented the
number of hours worked by employees covered by the 1998 Contract.
According to plaintiffs, as a result of the misrepresentations,
the contributions to the Funds for these months were
substantially lower than what was actually owed.
Defendants were originally represented in this action by
Herrick Feinstein, LLP ("Herrick Feinstein"). Defendants filed an answer and later moved for
partial summary judgment on the grounds of insufficient service
of process and res judicata. Their motion was denied in its
entirety. See King v. Galluzzo Equipment & Excavating, Inc.,
2001 WL 1402996, at *1 (E.D.N.Y. Nov. 8, 2001). According to
plaintiffs, following the denial of summary judgment, plaintiffs
attempted to proceed with discovery but defendants refused to
respond to discovery requests.
When defendants fell behind in payment of their legal bills,
Herrick Feinstein moved to be relieved as counsel and their
motion was granted on July 9, 2002. In granting that motion, this
Court warned that the corporate defendants had to retain new
counsel by August 6, 2002, that Galluzzo would be deemed to be
appearing pro se if he did not retain new counsel, and that all
defendants risked default judgment. Defendants did not retain new
counsel did nor did they request an extension of time to do so.
Plaintiffs subsequently filed a default application with the
Court on April 3, 2003, copies of which were served on all
defendants who had not even by then retained new counsel. By
letter dated April 16, 2003, copies of which were also sent to
defendants, plaintiffs confirmed with the court that a hearing on
the default application would take place on May 9, 2003.
Defendants did not attend the default hearing and on May 9, 2003,
a default judgment was entered against them, jointly and
severally, in the amount of $338,711.80. According to plaintiffs,
this amount was based on an estimated audit and on the trust
agreements, and included interest, liquidated damages, audit
fees, and attorney's fees and costs. All defendants were served
with the default judgment on September 12, 2003.
According to plaintiffs, defendants failed to respond to
plaintiffs' post-judgment discovery requests until plaintiffs
sought judicial intervention in a New Jersey state court. Defendants eventually retained new counsel and filed this motion
to vacate the default judgment on March 24, 2004.
I. Legal Standard
Rule 60(b) of the Federal Rules of Civil Procedure provides, in
pertinent part, that "[o]n motion and upon such terms as are
just, the court may relieve a party or a party's legal
representative from a final judgment . . . [because of] mistake,
inadvertence, surprise or excusable neglect." In the Second
Circuit, courts evaluate whether to grant such motions by
weighing three criteria: "(1) whether the default was willful;
(2) whether defendant has a meritorious defense; and (3) the
level of prejudice that may occur to the non-defaulting party if
relief is granted." Davis v. Musler, 713 F.2d 907, 915 (2d Cir.
1983). "An application for relief under 60(b) `shall be made
within a reasonable time . . . not more than one year after the
judgment . . . was entered or taken.'" Sasso v. M. Fine Lumber
Co., Inc., 144 F.R.D. 185, 188 (E.D.N.Y. 1992) (quoting F.R.C.P.
60(b)). "Proper application of the rule strikes a balance between
serving the ends of justice and preserving the finality of
judgments." Id. (quoting House v. Sec'y of Health & Human
Servs., 688 F.2d 7, 9 (2d Cir. 1982)).
A motion under Rule 60(b) is addressed to the sound discretion
of the trial court. Velez v. Vassallo, 203 F. Supp.2d 312, 333
(S.D.N.Y. 2002). On a motion to set aside a default judgment, the
defaulting party bears the burden of proof, see In re
Martin-Trigona, 763 F.2d 503, 505 n. 2 (2d Cir. 1985), but
doubts should be resolved in favor of the party seeking relief.
Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993).
Because Rule 60(b) allows extraordinary relief, it should be invoked only if the moving party meets its
burden of demonstrating "exceptional circumstances." Paddington
Partners v. Bouchard, 34 F.3d 1132, 1142 (2d Cir. 1994); see
also Artmatic USA Cosmetics v. Maybelline Co., 906 F. Supp. 850,
853 (E.D.N.Y. 1995) (Glasser, J.).
Defendants argue that their default was not willful but was a
result of their inability to retain new counsel and Galluzzo's
mistaken belief that defendants were unable to oppose the
application for a default judgment. Plaintiffs, however, point to
four facts that demonstrate that defendants were acting willfully
and with knowledge of the default and its consequences: (1) this
Court's order dated July 9, 2002 requiring the corporate
defendants to obtain counsel by August 6, 2002 or risk default;
(2) plaintiffs' default application of April 3, 2003, copies of
which were sent to defendants; (3) defendants' absence at the
default hearing; and (4) defendants' failure to respond to
plaintiffs' pre- and post-judgment discovery requests. "The
boundary of willfulness lies somewhere between a case involving a
negligent filing error, which is normally considered an excusable
failure to respond, and a deliberate decision to default, which
is generally not excusable." Int'l Painters and Allied Trades
Union and Indus. Pension Fund v. H.W. Ellis Painting Co., Inc.,
288 F. Supp.2d 22, 26 (D.D.C. 2003) (citing Gucci Am., Inc. v.
Gold Ctr. Jewelry, 158 F.3d 631, 634 (2d Cir. 1998), cert.
denied, 525 U.S. 1106 (1998)); see also Am. Alliance Ins.
Co., Ltd. v. Eagle Ins. Co., 92 F.3d 57 (2d Cir. 1996) (filing
mistake by clerk for defendant's in-house counsel not willful but
weighs somewhat against granting relief). Defendants' actions
here bespeak a deliberate decision to default, rather than
Defendants contend first that Galluzzo's lack of sophistication
resulted in their failure to respond to plaintiffs' default application. Lack of
sophistication, however, is no excuse for a defendants' default.
Original Appalachian Artworks, Inc. v. Yuil Int'l Trading
Corp., 105 F.R.D. 113, 116 (S.D.N.Y. 1985) ("the lack of legal
sophistication on the part of a corporation and its principal
simply cannot form the basis of a claim of excusable neglect or
fraud for purposes of Rule 60(b)"); ILGWU Nat'l Retirement Fund
v. Empire State Mills Corp., 696 F. Supp. 885, 887-88 (S.D.N.Y.
1988) (same). Moreover, defendants' claim of ignorance about the
consequences of a default judgment is belied by the fact that the
Prior Action also ended with the entry of a default judgment
against defendants. In addition, Galluzzo had the opportunity in
this action to consult with highly competent counsel who filed
both an answer and a motion for summary judgment. "A party's
decision to ignore the dangers attendant to litigation cannot
serve to excuse his default." Original Appalachian Artworks,
105 F.R.D. at 116.
Furthermore, defendants' inability to hire new counsel does not
serve as an excuse for default. "[W]here a party is notified that
he is in default and he apparently makes no effort to appear pro
se or to explain his situation to the opposing party and the
court, such neglect is inexcusable." Original Appalachian
Artworks, 105 F.R.D. at 116. Here, it is clear that defendants
had more than adequate notice that a default was to be entered
against them and nevertheless failed to appear or notify the
court of any difficulty in retaining counsel. Cf. Traguth v.
Zuck, 710 F.2d 90 (2d Cir. 1983) (defaulting individual
defendant had written to court asking assistance in obtaining
counsel and describing her position in lawsuit). That defendants
could not afford attorney's fees does not justify their "complete
disregard of the rules of the court or [their] failure to notify
the court of [their] predicament." ILGWU, 696 F. Supp. at 888
(citing Original Appalachian Artworks, 105 F.R.D. at 116;
Usery v. Weiner Bros., Inc., 70 F.R.D. 615, 617 (D.Conn. 1976) (defendant's decision that attorney's fees
were too high to warrant retaining counsel did not justify
failure to appear); Rinieri v. News Syndicate Co.,
385 F.3d 818, 823 (2d Cir. 1967) ("If a party lacks funds it is not given
to him to decide ex parte that he is justified in not prosecuting
his suit and is thus free to ignore the rules of the courts."))
Defendants have failed to demonstrate that their default was a
result of excusable neglect, rather than willfulness. See
Eagle Assoc. v. Bank of Montreal, 926 F.2d 1305, 1310 (2d Cir.
1991) (district court properly entered default judgment against
defendant partnership when partnership willfully disregarded
court's order to appear through counsel rather than a layperson).
As such, this factor weighs strongly in favor of plaintiffs.
III. Meritorious Defenses
Defendants present several defenses that they claim would
entitle them to relief on the merits, including that the default
judgment overstates the amount of delinquent contributions, that
Galluzzo cannot be held personally liable under ERISA, and that
plaintiffs submitted inadmissible evidence to establish the
amount of judgment. Furthermore, defendants argue that due to the
judgment obtained in the Prior Action, plaintiffs' claims are
barred by res judicata. As an initial matter, on defendants'
motion for summary judgment, this Court determined that
plaintiffs' claims were not barred by res judicata because
defendants had fraudulently concealed information. See King v.
Galluzo Equipment & Excavating, Inc., 2001 WL 1402996, at *1
(E.D.N.Y. Nov. 8, 2001). The defense of res judicata is no more
meritorious being brought in a motion to vacate a default
judgment than it was at the summary judgment stage.
Defendants further argue that Galluzzo may not be held
personally liable because he was not an employer within the
meaning of ERISA, nor was he a party to the 1998 Contract. "[T]o the extent that a controlling corporate official defrauds or
conspires to defraud a benefit fund of required contributions,
the official is individually liable under Section 502 of ERISA."
Leddy v. Standard Drywall, Inc., 875 F.2d 383, 388 (2d Cir.
1989); NYSA-ILA Medical & Clinical Servs. Fund v. Catucci,
60 F. Supp.2d 194, 206 (S.D.N.Y. 1999) ("Even an individual defendant
who . . . enjoys a dominant role in the affairs of a corporate
employer will not be liable for the corporation's delinquent fund
contributions where he did not act in concert with a fiduciary to
breach a fiduciary obligation, he did not commit fraud, and there
is no claim and no basis in the record to support a claim that
. . . defendant is the corporation or its alter ego.") Defendants
merely assert in a conclusory fashion that "the delinquent
contributions were not the result of fraud." (Def. Mem. at 11.)
Nevertheless, they provide no evidence that Galluzzo did not act
in concert to breach the contribution obligations, did not commit
fraud, or is not the corporation or its alter ego. Although the
defendant need not conclusively establish the validity of the
defense asserted in order to prevail on the motion, see
Davis, 713 F.2d at 916, "in light of the defendant's prolonged
and uncooperative course of conduct, as well as his unreasonable
delay in bringing this application, the defense he asserts here
is inadequate grounds upon which to reopen the final judgment."
Sasso, 144 F.R.D. at 191.
Defendants further argue that the default judgment was based on
an estimate that overstates the amount of delinquent
contributions and that plaintiffs did not provide the court with
the content of the trust agreements, but rather, relied on the
declaration of counsel to state the damages owed. Plaintiffs
respond that the trust agreement was, in fact, part of the record
of the case and that the estimated contribution was supported by
a declaration of plaintiffs' auditor, as well as by plaintiffs'
counsel. Defendants cannot now be heard to complain that the
amount of the judgment was incorrectly calculated when they consistently
refused to respond to discovery requests and to plaintiffs'
application for a default judgment. Sasso, 144 F.R.D. at 190
("it may well be true that had defendant . . . not sat on his
hands and instead defended this action, some legal issue might
have presented itself"); Solomon v. 318 Fashion, Inc., 1994 WL
702008, at *2 (S.D.N.Y. Dec. 14, 1994) (although meritorious
defense was presented, court declined to vacate the judgment
because defendant did not meet burden of showing that his
behavior was excusable and not willful). Such meritorious
defenses as defendants now, nearly a year later, claim they have,
they chose not to present when they could have, but chose,
instead, to forego them by default. This factor favors the
IV. Prejudice to Plaintiffs
The final element a court should consider in determining
whether to vacate a default judgment is the level of prejudice
the non-defaulting party will suffer if the motion to vacate is
granted. This may be shown if the party's "ability to pursue the
claim has been hindered since the entry of the judgment" or by
"the loss of available evidence, increased potential for fraud or
collusion, or substantial reliance upon the judgment." Farrell
v. County Van & Storage, Inc., 1996 WL 705276, at *3 (E.D.N.Y.
Nov. 25, 1996) (Glasser, J.) (quoting Feliciano v. Reliant
Tooling Co., Ltd., 691 F.2d 653, 657 (3d Cir. 1982)).
Nevertheless, "delay alone is not a sufficient basis for
establishing prejudice." Davis, 713 F.2d at 916.
Plaintiffs argue that they will be prejudiced because this case
was filed nearly four years ago and would be difficult to prove
now. Plaintiffs' claim of prejudice is further supported by
defendants' repeated failure to cooperate with plaintiffs' pre-
and post-judgment discovery requests. See Trustees of Tapers'
Ins., Annuity & Pension Funds v. Albee Drywall Partitions Corp., 1996 WL 294306, at *5 (S.D.N.Y. June 3, 1996) (prejudice
where plaintiffs would have to proceed with a lengthy trial and
defendants had never responded adequately to discovery requests);
Sony Corp. v. S.W.I. Trading, Inc., 104 F.R.D. 535, 541
(S.D.N.Y. 1985) (prejudice where vacating judgment against
defendant with history of failing to respond to discovery
requests "would provide defendant an additional opportunity for
stonewalling and even for disposing of additional evidence").
Because plaintiffs would be prejudiced if the default judgment
they obtained against defendants were to be vacated, this factor
weighs in plaintiffs' favor. See Sasso, 144 F.R.D. at 190 (in
ERISA case, plaintiffs' "diligent efforts met largely with
reluctance on the part of the defendant, and should not now serve
as a basis for allowing the defendant further to delay
Defendants have not met their burden to prove any exceptional
circumstances that would warrant vacating the default judgment
against them. As such, defendant's motion is denied.
V. Plaintiff's request for sanctions
In its response to defendants' motion to vacate the default
judgment, plaintiffs request costs and attorney's fees incurred
in opposing defendants' motion. A motion for sanctions under
Federal Rule of Civil Procedure 11(c) must be made separately
from other motions or requests and must specify the conduct
alleged to violate Rule 11(b). See Perpetual Sec., Inc. v.
Tang, 290 F.3d 132, 141-42 (2d Cir. 2002). Because plaintiffs'
request for sanctions was not made separately from its opposition
to defendants' motion, it is procedurally flawed and must be
For the foregoing reasons, this Court denies defendant's motion
to vacate the default judgment previously entered in this action.
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