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Handan Haxing Toys v. Elko Ltd.

February 13, 2006

HANDAN HAXING TOYS, PLAINTIFF,
v.
ELKO (USA), LTD., DEFENDANTS.



The opinion of the court was delivered by: Sifton, Senior Judge.

MEMORANDUM OPINION AND ORDER

Handan Haxing Toys Co, Ltd. ("Handan Haxing")*fn1 commenced this action for an order confirming a foreign arbitral award against Elko (USA) Ltd. ("Elko") under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 (the "Convention") codified at 9 U.S.C. §201, et. seq. Elko did not answer or otherwise move with respect to the complaint within the time allotted for it to do so. Accordingly, on September 14, 2005 Handan Haxing filed for a default judgment pursuant to Federal Rule of Civil Procedure Rule 55(a). On September 28, 2005 that default judgment was granted. Now before this Court is Elko's motion to vacate that default judgment pursuant to Federal Rules of Civil Procedure 55(c) and 60(b)(4). For the reasons set forth below, Elko's motion is granted.

BACKGROUND

The following facts are taken from the submissions of the parties in connection with this motion, including the arbitration decision at issue. They are undisputed except where noted.

In February of 2000, Handan Haxing and Elko entered into a contract in Handan, China, under which Elko would purchase toys from Handan Haxing on a monthly basis. The contract also included provisions under which Elko would repay a pre-existing debt to Handan Haxing. The contract contained the following arbitration clause:

Party A [Handan Haxing] and Party B [Elko] shall cooperate in good faith. In the event that any dispute arises from or in relation to the trade exchange between both parties, Party A and Party B shall (1) try to resolve such dispute through consultation and negotiation; (2) submit the dispute to arbitration authority of the People's Republic of China for determination.

Although each party initially performed under the contract, in August of 2000, Elko ceased to make payments under the contract. According to Elko it did so because the shipments of toys were unsatisfactory and in breach of the contract. On February 20, 2003, Handan Haxing submitted a written request for arbitration to the China International Economic And Trade Arbitration Commission ("CIETAC"). CIETAC accepted the dispute for arbitration and on March 17, 2003, sent a Notice of Arbitration to Elko via courier service at the address provided by Handan Haxing, specifically, 52-02 Grand Avenue, Maspeth, NY 11378. The courier service did not deliver the notice to a person because of "incorrect address and telephone number" but rather left the notice at the specified address. On April 14, 2004 CIETAC made a second attempt to deliver the Notice of Arbitration to Elko via a service agent named Global Law Firm. All subsequent arbitration notices were delivered via the same service.*fn2

This method of service is permitted under CIETAC's arbitration rules which provide that:

If none of the respondent's domicile, habitual residence, place of business, office or the place stipulated by the respondent as the place of delivery of documents from the Petitioner or his arbitration representative can be found after making a reasonable inquiry by the Petitioner, following delivery to the respondent of the request for arbitration to the respondent' last known domicile, habitual residence, place of business or the place of delivery by registered mail or any other means by which the attempt to deliver it can be certified shall be deemed by CIETAC as satisfactory delivery."

Accordingly, CIETAC determined that Elko had been adequately served with notice.

On July 16, 2003 the arbitral tribunal commenced hearing the case. Handan Haxing presented evidence and attended the hearing. Elko did not attend the hearing and submitted no evidence. On September 9, 2003 the arbitral tribunal issued a written decision in which it ordered Elko to pay the unpaid contractual payments, interest on those payments, legal fees of Handan Haxing, and the costs of the arbitration.

On March 10, 2005 Handan Haxing filed a complaint in this Court to enforce the foreign arbitration award. According to the affidavit of service filed by Handan Haxing, the notice of petition and petition were served on Elko by delivery to an employee, identified as Laura Smith, at Elko's place of business, 52 39th St, 7th floor, Brooklyn, NY 11232. The employee was identified as Laura "Smith" because she refused to provide her last name to the process server. Elko disputes that it ever received service or that it has any employee named Laura Smith. After the time for Elko to answer had expired, Magistrate Go ordered Handan Haxing to move for default judgment. Handan Haxing did so on September 14, 2005. Notice of the motion for default judgment was served on Elko on September 19, 2005. The motion did not contain a return date. On September 28, 2005 the default judgment was granted, and a copy was sent to, and received by Elko.

DISCUSSION

Elko now moves for an order vacating the default judgment against it pursuant to Federal Rule of Civil Procedure 55(c) and 60(b). Rule 55(c) provides that "[f]or good cause shown the court may set aside an entry of default judgment, and if judgment by default has been entered, may likewise set it aside in accordance with 60(b)." Defendant argues that the default judgment should be vacated under Rule 60(b)(4) and under Rules 60(b)(1) and (6). Rule 60(b)(4) authorizes the court to relieve a party from final judgment "when the judgment is void." Rule 60(b)(1) allows a court to vacate a judgment on the basis of mistake, surprise, inadvertence, or excusable neglect. Rule 60(b)(6) allows a default judgment to be vacated for any other justifying reason. A motion predicated on subsection four is unique, however, in that "relief is not discretionary and a meritorious defense is not necessary" as on motions made pursuant to other 60(b) subsections. Covington Indus. Inc. v. Resintex A.G., 629 F.2d 730, 732 n.3 (2d Cir. 1980). Thus, "when a ...


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