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Cadles of Grassy Meadows Ii, LLC v. Jeffrey St. Clair and

December 15, 2010

CADLES OF GRASSY MEADOWS II, LLC, PLAINTIFF,
v.
JEFFREY ST. CLAIR AND CATHLEEN ST. CLAIR, DEFENDANTS.



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

ORDER ADOPTING REPORT AND RECOMMENDATION

Magistrate E. Thomas Boyle issued a Report and Recommendation ("R&R") on October 14, 2010 recommending that the Court grant Defendants Jeffrey and Cathleen St. Clair's ("Defendants") motion to vacate the July 14, 2010 default judgment. Plaintiff Cadles of Grassy Meadows II, LLC ("Plaintiff") filed its Objections to the R&R on November 1, 2010. Over these Objections, the Court ADOPTS the R&R in its entirety.

BACKGROUND

The Court assumes familiarity with the nature and posture of this case, the facts of which are set out in the R&R. Briefly, Plaintiff sued to collect on a promissory note on April 15, 2010. Plaintiff's Complaint failed to establish diversity jurisdiction, and this Court directed Plaintiff to file an Amended Complaint by May 30, 2010. On May 20, 2010, Defendants answered the original Complaint. Six days later, Plaintiff filed its Amended Complaint, which Defendants did not timely answer.

Plaintiff moved for a default judgment on July 7, 2010. The return date on Plaintiff's motion was July 30, 2010. This Court entered a default judgment on July 14, 2010, one week after Plaintiff's motion, in apparent contravention of the Local Civil Rule affording non-moving parties fourteen days to file an opposition. See Local Civ. R. 6.1(b).

DISCUSSION "When evaluating the report and recommendation of a magistrate judge, the district court may adopt those portions of the report to which no objections have been made and which are not facially erroneous." Walker v. Vaughan, 216 F. Supp. 2d 290, 291 (S.D.N.Y. 2002) (citation omitted). However, if a party serves and files specific, written objections to a magistrate's report and recommendation within fourteen days of receiving the recommended disposition, see FED. R. CIV. P. 72(b),

the district "court may accept, reject, or modify, in whole or in part, the findings and recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(C); see also Fed. R. Civ. P. 72(b). When a party raises an objection to a magistrate judge's report, "the court is required to conduct a de novo review of the contested sections." See Pizarro v. Bartlett, 776 F. Supp. 815, 817 (S.D.N.Y. 1991). However, "[w]hen a party makes only conclusory or general objections, or simply reiterates his original arguments, the Court reviews the Report and Recommendation only for clear error." Barratt v. Joie, No. 96-CV-0324, 2002 U.S. Dist. LEXIS 3453, at *2 (S.D.N.Y. 2002) (citations omitted).

In the present case, Plaintiff argues that Defendants' motion to vacate should be denied because Defendants have not offered a reasonable excuse for their default or set forth a meritorious defense to the suit, and because Defendants did not strictly comply with the Eastern District's Local Rules when filing their motion.

I. Vacating The Default Judgment: Whether The Default Was Willful And Whether The Defendants Can Mount A Meritorious Defense

A district court may set aside a default judgment in accordance with the provisions of either Federal Rule 55(c) or 60(b). When considering whether to set aside a default judgment, district courts should evaluate whether (1) the default was willful," (2) defendants can mount a meritorious defense; and (3) vacating the judgment would prejudice the plaintiff. Credit Lyonnais Securities (USA), Inc. v. Alcantara, 183 F.3d 151, 154 (2d Cir. 1999). Courts should exercise their discretion when examining these factors, mindful that there is a strong preference for resolving disputes on their merits and that all doubts should be resolved in favor of the party seeking relief from the judgment. Keebler v. Rath, No. 09-CV-4476, 2010 WL 4140306, at *1 (2d Cir. Oct. 22, 2010).

The Court has reviewed de novo Plaintiff's Objections to Judge Boyle's conclusions that the default was not willful and that Defendants proffered a meritorious defense. Plaintiff's Objections on these points are OVERRULED. Defendants' default was not willful; they answered the original Complaint and presumably would have answered the Amended Complaint were they not under the mistaken belief that their Answer remained in effect after Plaintiff filed its Amended Complaint. (See Deft. Reply ¶ 4.) Further, they intended to contest Plaintiff's motion for a default judgment, and they appeared at the courthouse on the return date that Plaintiff specified in its motion. (See Deft. Mot. ¶ 3.) Clearly, Defendants did not "simply ignore[] the complaint without action" such that their default should be considered willful.

Arista Records, Inc. v. Musemeci, No. 03-CV-4465, 2007 U.S. Dist. LEXIS 81630, at *12 (E.D.N.Y. 2007) (report and recommendation).

It is less clear that Defendants can mount a meritorious defense but, given the "low threshold required to demonstrate" such a defense, see United States Small Business Administration v. Dae Youn Lee, No. 00-CV-8850, 2001 U.S. Dist. LEXIS 19359, at *5 (S.D.N.Y. 2001), the Court finds that Defendants' allegations that Plaintiff lacks privity to enforce the promissory note and that the suit is barred by the laches doctrine are sufficient to assert a potentially meritorious defense, at least for the purposes of vacating a default judgment. (See Deft. Mot. at 1.) This conclusion is warranted in part by the strong preference for resolving disputes on their merits, see Keebler, 2010 WL 4140306, at *1 (2d Cir. Oct. 22, 2010), and by the recognition that a default judgment is "a harsh remedy to be utilized in extreme situations." United States Small Bus. Admin., 2001 U.S. Dist. LEXIS 19359, at *3. The Court ...


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