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State Farm Mutual Automobile Insurance Co. v. Cohan

March 8, 2010

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, PLAINTIFF,
v.
BARRY COHAN, D.D.S., DENTAL HEALTH CARE, P.C., NEW YORK DENTAL PAIN, P.C., AND LONG ISLAND DENTAL PAIN, P.C., DEFENDANTS.



The opinion of the court was delivered by: Seybert, District Judge

MEMORANDUM & ORDER

Plaintiff State Farm Mutual Insurance Company ("State Farm") sued Barry Cohan, D.D.S., and three professional corporations he controls (collectively, the "Corporate Defendants"), alleging that the Defendants defrauded State Farm by submitting hundreds of bills for medically useless dental and physical therapy services. After Defendants failed to respond to the Complaint, State Farm moved for a default judgment. The Court referred this motion to Magistrate Judge William D. Wall, who issued his Report and Recommendation ("R&R") on December 30, 2009. Magistrate Judge Wall recommended that the Court award Plaintiff a default judgment on all their claims, except for the RICO claims brought against the Corporate Defendants.

Pending before the Court are: (1) Defendants' motion to vacate the default judgment; and (2) Plaintiff's limited objections to Magistrate Judge Wall's R&R. For the foregoing reasons, Defendants' motion is denied, and Plaintiff's objections are OVERRULED. Magistrate Judge Wall's R&R is, accordingly, adopted in its entirety.

BACKGROUND

On July 13, 2009, Plaintiff commenced this action by filing its Complaint. On July 24, Plaintiff's counsel spoke with Mr. Cohan and Defendants' counsel to discuss settlement, but the parties did not reach any agreement. Cohan Nov. 6, 2009 Aff. ¶ 4. Supposedly in light of this settlement discussion, Defendants did not move, answer or otherwise respond to the Complaint. Nor did they seek any extension of time to enable them to move, answer or otherwise respond at a later date.

On August 11, 2009, Plaintiff moved for a default judgment against each Defendant. On August 12, the Clerk of the Court noted Defendants' default. Defendants still did not move, answer or otherwise respond to the Complaint. On September 30, 2009, the Court referred Plaintiff's motion to Magistrate Judge Wall. On October 30, 2009, Plaintiff filed a memorandum of law in support of its pending default judgment motions.

On November 13, 2009, Defendants' counsel filed a notice of appearance and the Corporate Defendants filed Local Rule 7.1 disclosure statements. But, despite appearing, Defendants still did not answer, move or otherwise respond to the Complaint. Nor did they file any paperwork in response to Plaintiff's pending default judgment motions.

On December 30, 2009, Magistrate Judge Wall issued his R&R. See Docket No. 25. Magistrate Judge Wall recommended that the Court enter a default judgment against each Defendant on the fraud, unjust enrichment and declaratory judgment claims. Magistrate Judge Wall also recommended that a judgment be entered against Mr. Cohan, but not the Corporate Defendants, on the RICO claim. Magistrate Judge Wall then recommended that the Court hold Defendants jointly and severally liable in the amount of $1,006,161.93 on the state law claims, plus $436,738.12 in prejudgment interest, and that it also hold Mr. Cohan liable for $3,018,485.79 in treble damages on the RICO claim. Finally, Magistrate Judge Wall recommended that the Court enter a declaratory judgment setting forth that Plaintiff has no obligation to pay Defendants' outstanding bills.

On January 5, 2010, Defendants filed a "motion to vacate the default judgment entered in this matter." Because no default judgment has yet been entered, the Court construes this filing as both a motion to vacate the entry of default, and as objections to Magistrate Judge Wall's R&R. In this motion, Defendants essentially ask the Court to excuse their default and reset this litigation to square one.

On January 13, 2010, Plaintiff filed limited objections to Magistrate Judge Wall's R&R. Specifically, Plaintiff objected to Magistrate Judge Wall's finding that the Complaint "did not sufficiently allege that [the Corporate Defendants] were persons distinct from the alleged association-in-fact RICO enterprise." Pl. Object. at 2. In so objecting, Plaintiff also contests Magistrate Judge Wall's recommendation that the Court enter a default judgment on the RICO count against Dr. Cohan, but not the Corporate Defendants. Plaintiff asks the Court to also hold the Corporate Defendants liable under RICO.

DISCUSSION

I. Standard of Review

Because Defendants have filed objections, the Court reviews the objected-to portions of Magistrate Judge Wall's R&R de novo. See Fed. R. Civ. P. 72(b)(3). In conducting this review, the Court "may accept, reject, or modify the recommended disposition; receive further evidence; or return the matter to the magistrate judge with instructions." Id.

Here, the dueling objections concern whether Magistrate Judge Wall should have entered a default judgment against the Defendants, and whether he should have also subjected the defaulting Corporate Defendants to RICO liability. "When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default." Fed. R. Civ. P. 55. The Court, however, "may set aside an entry of default for good cause." Good cause, in turn, depends upon: (1) the willfulness of the default; (2) the existence of a meritorious defense; and ...


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