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Continental Insurance Co. v. Huff Enterprises Inc.

November 6, 2009

CONTINENTAL INSURANCE COMPANY, PLAINTIFF,
v.
HUFF ENTERPRISES INC., HUFF ROOFING, INC., ROCHDALE VILLAGE, INC., AND COASTAL ATLANTIC ASSOCIATIONS, INC., DEFENDANTS.



The opinion of the court was delivered by: Nicholas G. Garaufis United States District Judge

NICHOLAS G. GARAUFIS, United States District Judge.

MEMORANDUM & ORDER

Plaintiff Continental Insurance Company ("Plaintiff") seeks a judicial determination that it has no contractual obligation to provide insurance coverage for Defendants. (See Complaint (Docket Entry # 1).) Defendants Huff Enterprises Inc. and Huff Roofing, Inc. (collectively, "Huff") are have been sued by Defendant Rochdale Village, Inc. ("Rochdale") in a state court action (the "Rochdale action") arising out of construction defects at a worksite in Queens. (See id. ¶¶ 1-2.) As Huff's insurer, Plaintiff is defending the Rochdale action. (See id. ¶ 4.) In this court, Plaintiff seeks three forms of relief: (1) a declaration that it has no coverage obligation to any party in the Rochdale action, (2) money damages for the uncovered costs it has incurred in connection with the Rochdale action, and (3) the "costs, expenses, disbursements, and attorneys' fees incurred in this action." (See id., Prayer for Relief ¶¶ 1-3.)

Defendants failed to appear before this court and the Clerk of Court entered default on January 31, 2008. (See Clerk's Certificate of Default (Docket Entry # 16).) Plaintiff subsequently moved for default judgment under Federal Rule of Civil Procedure 55(b)(2), which the court granted on March 27, 2008. (See Docket Entries ## 17, 22.)*fn1 Plaintiff subsequently requested that the court withdraw and vacate the entry of default judgment. Plaintiff asked that the court instead enter summary judgment under Federal Rule of Civil Procedure 56. (See Notice of Motion for Summary Judgment (Docket Entry # 34).)

On December 12, 2008, the court held a pre-motion conference with Plaintiff regarding its request to vacate the default judgment and move for summary judgment. (See Transcript dated Dec. 12, 2008 (Docket Entry # 33) ("Tr.").) At the conference, Plaintiff indicated that its motion would seek "a declaration . . . that Continental has no obligation to defend or indemnify Huff in the underlying suit." (Id. at 5.) Regarding it reasons for seeking summary judgment rather than default judgment, Plaintiff expressed concern about whether "simply having a default would have that effect . . . ." (Id.)

At the conference, the court repeatedly inquired about the propriety of entering summary judgment when the defending parties had never appeared. For example, Plaintiff's counsel was asked: "[w]hy would I withdraw the default judgment, which is the law of the case, so that you can make a motion for summary judgment where the parties haven't appeared." (Id.) Plaintiff's counsel did not have an answer, and the court withdrew the default judgment without prejudice in order to determine whether entering summary judgment would be appropriate "where I have already declared a default and where the parties have not responded." (Id. at 7.)

Plaintiff has filed its motion papers in support of summary judgment, but has not addressed the propriety of granting summary judgment in this procedural situation. The court turns to that issue now, and concludes that considering summary judgment is not appropriate. As set forth below, the court will refer the previous motion for default judgment to Magistrate Judge Andrew L. Carter for a determination of the appropriate remedy.

I. DISCUSSION

Plaintiff has not cited, and the court has not found, any case law on the issue of whether it is appropriate to withdraw a default judgment and consider a motion for summary judgment when none of the defendants have appeared. Plaintiff presented this issue to the court because of its concern that the default judgment previously entered is insufficient to provide it with the declaratory relief that it seeks. Having considered the issue, the court concludes that default judgment is the appropriate procedure in this case, and that Plaintiff's concerns do not support consideration of a motion for summary judgment.

A. Availability of Declaratory Relief

"Federal Rule of Civil Procedure 55 is the basic procedure to be followed when there is a default in the course of litigation." Vermont Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 246 (2d Cir. 2004). Under Rule 55(a), a plaintiff must first obtain an entry of default against a party that has not appeared or defended; under Rule 55(b), the plaintiff may then move for entry of default judgment. New York v. Green, 420 F.3d 99, 104 (2d Cir. 2005). Rule 55 applies when "only the first step [of a lawsuit] has been taken -- i.e., the filing of a complaint -- and the court thus has only allegations and no evidence before it." D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 107 (2d Cir. 2006). The Rule "tracks the ancient common law axiom that a default is an admission of all well-pleaded allegations against the defaulting party." Vermont Teddy Bear, 373 F.3d at 246.

By contrast, "[m]otions for summary judgment, . . . lack these ancient common law roots," and "are governed by Rule 56 under which the failure to respond to the motion does not alone discharge the burdens imposed on a moving party." Id. Under Rule 56, "[a]lthough the failure to respond may allow the district court to accept the movant's factual assertions as true, the moving party must still establish that the undisputed facts entitle him to a judgment as a matter of law." Id. (internal citations and quotation marks omitted). Accordingly, in reviewing a motion for summary judgment -- even one that is unopposed -- the court must "determine from what it has before it whether the moving party is entitled to summary judgment as a matter of law." Id. (internal quotation mark omitted). The Second Circuit has made clear that summary judgment is distinct from default judgment, and "does not embrace default judgment principles." Id. at 242.

The distinction between summary judgment and default judgment is supported by Federal Rule of Civil Procedure 54(c), under which default judgment is treated differently than all other forms of judgment. Under that Rule, "[a] default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings." Fed. R. Civ. P. 54(c). This limitation "anticipates that defendants will look to [a complaint's] demand clause to understand their exposure in the event of default." Silge v. Merz, 510 F.3d 157, 160 (2d Cir. 2007). It allows a defendant who is served with a complaint to make an informed decision about whether to defend the suit, with full notice of possible legal exposure. In contrast, Rule 54(c) places no such limitations on judgments outside of the default context: "[e]very other final judgment should grant the relief to which each party is entitled, even if the party has not demanded that relief in its pleadings." Fed. R. Civ. P. 54(c) (emphasis added). In other words, the authority to grant relief under Rule 54(c) is plainly broader in summary judgment cases than in default judgment cases. Given the significance of this distinction, a court must take care not to sidestep the limitations of Rule 54(c) by granting summary judgment in a procedural circumstance that calls for default judgment.

The procedural history of this case makes default judgment procedures more appropriate than summary judgment procedures. The Complaint was filed and served on Defendants. (See Docket Entries ## 1, 3-6.) Those Defendants failed to appear, and the Clerk of Court subsequently entered default on January 31, 2008. (See Docket Entry # 16.) Plaintiffs then moved for default judgment under Rule 55(b). (See Docket Entry # 17.) Thus, in this case, "only the first step has been taken -- i.e., the filing of a complaint -- and the court thus has only allegations and no evidence before it." Blair, 462 F.3d at 107.*fn2 Moreover, there has plainly been a "default in the course of litigation," a situation in which the Second Circuit has deemed Rule 55 to be the appropriate procedure to follow. Vermont Teddy Bear, 373 F.3d at 246; see also Emanuel v. Barry, No. 83-CV-810 (RJD), 1990 WL 172681, at *4 (E.D.N.Y. Oct. 25, 1990) ("In view of [the defendant's] failure to defend, plaintiffs are granted leave to file an appropriate motion ...


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