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Paul Saleh v. Albert Francesco

November 10, 2011

PAUL SALEH,
PLAINTIFF,
v.
ALBERT FRANCESCO, CHRISTOPERH BUFFALINO AND ANDREW M. GAINES II, DEFENDANTS.



The opinion of the court was delivered by: P. Kevin Castel, District Judge:

MEMORANDUM AND ORDER

Plaintiff Paul Saleh claims that defendants Albert Francesco, Christopher Buffalino and Andrew M. Gaines, II, breached their personal guarantee of a loan made by Saleh to Qderopateo LLC, Qdero Limited (BVI), and Qdero Limited Hong Kong (collectively the "Qdero Entities"). Now plaintiff moves for entry of default judgment against the guarantors pursuant to Rule 55(b)(2), Fed. R. Civ. P. For the reasons discussed below, the Court grants plaintiff's motion and enters default judgment against all defendants.

BACKGROUND

Plaintiff alleges that on July 7, 2010, he loaned $596,000 at 20% interest per annum to the Qdero Entitites. (Am. Compl. ¶¶ 12-13 and Ex. A.) The loan agreement recites that the term of the loan ended on September 10, 2010, on which date all unpaid principal and interest were due. (Am. Compl. Ex. A. ¶¶ 3,4.) The agreement also recites that "[c]ertain company executives" had offered personal guarantees on the loan. (Am. Compl. Ex. A ¶ 6.) Plaintiff further alleges that, also on July 7, 2010, defendants Francesco, Buffalino, and Gaines signed a personal guarantee of the loan. (Am. Compl. ¶ 17 and Ex. B.) The guarantee recites that defendants jointly and severally guarantee the loan and agree "to pay all costs, interest, and reasonable attorney's fees incurred by [Saleh] in collecting any amounts [] guaranteed, whether from Company or Gurantor[s]." (Am. Compl. Ex. B.) Lastly, plaintiff alleges that he received only one payment, of $100,000, on September 23, 2010, and that, despite demand, defendants have not met their obligations under the personal guarantee. (Am. Compl. ¶¶ 20, 25.)

The defendants were personally served with the Amended Complaint as follows: Gaines on February 14, 2011 (Docket # 10); Buffalino on February 17, 2011 (Docket # 14); Francesco on May 19, 2011 (Docket # 15). None of the defendants answered the Amended Complaint, filed a responsive motion or sought an adjournment of their time to do either. On June 15, the Clerk of Court noted the defaults of the defendants. (See Statement of Damages (docket # 20), Ex. 3, Clerk's Certificates.) On July 6, plaintiff moved for entry of default judgment against the defendants. (Docket # 18, Appl. for Default J.; Docket # 19, Affirmation for J. by Default; Docket # 20, Statement of Damages.) On July 21, plaintiff served the motion papers on defendants by mail. (Docket ## 22, 24.)

Defendant Francesco wrote to the Court on July 29, asserting that there had been "considerable confusion on each side" regarding the case. (Docket # 23.) The first area of confusion was "Mr. Saleh's attorneys filing an amended complaint before the first complaint was actually filed [served] on any of us." (Id.) Francesco said that some confusion was due to the defendants' proceeding pro se, but adverted again to the confusing "quickness of filing an Amended complaint and [the defendants] having to be served again." (Id.) Francesco acknowledged the motion for default judgment but asked that the defendants "be allowed to answer, individually, the Amended complaint by Wednesday, August 10th." (Id.)

On August 16, the defendants jointly filed an Affirmation in Opposition to the motion for default judgment and attached to it their proposed answer to the Amended Complaint. (Docket # 26.) Therein, the defendants affirm that they "possess knowledge of crucial facts which affect the instant motion and opposition," though no further facts are supplied. (Affirmation in Opp'n ¶ 2.) They further affirm that plaintiff "did not have a proper service address for Albert Francesco and [that] the respondents have not received any case related correspondence by mail or otherwise." (Affirmation in Opp'n ¶ 3.) They do not, however, deny having been personally served. Additionally, in the attached proposed answer, the defendants assert twelve affirmative defenses but do not assert lack of personal jurisdiction or improper service of process. (Affirmation in Opp'n, Attach., Answer, Affirmative Defenses ("Defenses"), ¶¶ 1, 12); see Rule 12(b)(2), (5), Fed. R. Civ. P.

On September 29, plaintiff's counsel Charles Schmidt filed a Reply Affirmation. (Docket # 28.) Therein, Schmidt affirms, with supporting exhibits, that he had had extensive email correspondence in February and March with defendant Francesco and an attorney, Bruno Codispoti, who briefly represented Francesco and said he would be representing all three defendants (though he ultimately represented none). (See Reply Affirmation ¶¶ 11-22 and Ex's A-H.) Schmidt further affirms that the correspondence included Schmidt's forwarding copies of the Amended Complaint, the order for a pretrial conference, and information on this Court's Pro Se Office. (Id. ¶¶ 12, 16 and Exs. B, C, E.) And, Schmidt affirms, the correspondence also included Francesco's forwarding to Schmidt, on March 22, a copy of "the response [defendants] intend to file with the Court," which "response" is substantially the same as the one defendants attached to their Affirmation in Opposition of August 16. (Id. ¶ 14 and Ex. D.) Finally, Schmidt affirms that he emailed Francesco and the other defendants twice in late March to alert them to the need to answer the Amended Complaint and that he received no response until the July 29 letter. (Id. ¶¶ 20-22 and Exs. G-H.)

ENTRY OF DEFAULT JUDGMENT

a. Applicable Law

Rule 55, Fed R. Civ. P., provides a "two-step process" for the entry of judgment against a party who fails to defend: first, the entry of a default, and second, the entry of a default judgment. New York v. Green, 420 F.3d 99, 104 (2d Cir. 2005). "The first step, entry of a default, formalizes a judicial recognition that a defendant has, through its failure to defend the action, admitted liability to the plaintiff." City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 128 (2011). "The second step, entry of a default judgment, converts the defendant's admission of liability into a final judgment that terminates the litigation and awards the plaintiff any relief to which the court decides it is entitled . . . ." Id. at 129.

The disposition of motions for entries of default judgment is left to the sound discretion of the district court. Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir.1993). This discretion is circumscribed "because there is a strong preference for resolving disputes on the merits." City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 129 (2011) (internal citations and quotations omitted). Furthermore, the Court has an obligation "to make reasonable allowances to protect pro se litigants from inadvertent forfeiture of important rights." Traguth v. Zuck, 710 F.2d, 90, 95 (2d Cir. 1983). However, "the right [to self-representation] 'does not exempt a party from compliance with relevant rules of procedural and substantive law.'" Id. (quoting Birl v. Estelle, 660 F.2d 592, 593 (5th Cir. 1981)). And "[d]efault procedures . . . provide a useful remedy when a litigant is confronted by an obstructionist adversary. Under such circumstances those procedural rules play a constructive role in maintaining the orderly and efficient administration of justice." Enron, 10 F.3d at 96 (citing 10 Charles A. Wright et al., Federal Practice and Procedure § 2692, at 464 (2d ed. 1983).

When the defaulted defendant opposes default judgment, courts treat the opposition as a motion to vacate entry of default and examine whether good cause exists to vacate the entry. See Meehan v. Snow, 652 F.2d 274, 276 (2d. Cir. 1981); Walprex Trading Co. v. Yacimeinetos Petroliferos Fiscales Bolivianos, 109 F.R.D. 692, 694 (S.D.N.Y. 1986); see also Fed. R. Civ. P. 55(c) ("The court may set aside an entry of default for good cause.") "Because Rule 55(c) does not define the term 'good cause,' [the Second Circuit has] established three criteria that must be assessed . . . . These widely accepted factors are: (1) whether the default was willful; (2) whether setting aside the default would prejudice the adversary; and (3) whether a meritorious defense is presented." Enron, 10 F.3d at 96.

If examination of the factors establishes good cause, the entry of default should be vacated and the motion for default judgment denied. E.g. Walprex, 109 F.R.D. at 698. If good cause is not shown, the motion for default judgment may be granted. See e.g. New York v. Green, 420 F.3d 99, 108 (2d Cir. 2005) (affirming district court's refusal to vacate default judgment based on good cause factors); Kauhsen v. Aventura Motors, Inc., No. 09 ...


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