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Paul Saleh v. Albert Francesco

March 30, 2012


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


By Memorandum and Order filed November 9, 2010, this Court entered default judgment against the defendants in this action. Saleh v. Francesco, 2011 WL 5513375 (S.D.N.Y. Nov 10, 2011). Defendants now move for reconsideration, to vacate the judgment, to stay execution of the judgment, to allow defendants to prosecute their counterclaim, and to set aside the award of attorneys' fees. For reasons explained, these motions are denied.


Familiarity with the Court's earlier Memorandum and Order is assumed. See 2011 WL 5513375. Plaintiff alleged that he loaned roughly $600,000 to a trio of companies referred to for convenience as the "Qdero Entities." A contract memorializing that agreement was signed by defendant Gaines, and its authenticity has not been challenged. The contract stated that certain executives of the Qdero Entities had agreed to execute personal guarantees on the loan.

Plaintiff alleged that the executives who guaranteed the loan were defendants Francesco, Buffalino, and Gaines. Plaintiff annexed to the amended complaint a document memorializing the guarantees that bore the apparent signatures of each of the three defendants. That document recited that the defendants agreed to pay the principal amount and "all costs, interest, and reasonable attorney's fees incurred by [plaintiff] in collecting any amounts [th]ereby guaranteed, whether from Company or Guarantor[s]." (Am. Compl. Ex. B.) Plaintiff alleged, and defendants have not disputed, that the Qdero Entities defaulted on the loan, that plaintiff demanded that defendants meet their obligations under the guarantees, and that defendants have not met those obligations.

Plaintiff filed suit against defendants in January 2011. Defendants were properly served with summonses and copies of the amended complaint. Defendants filed neither an answer nor a responsive motion, nor did they seek an enlargement of time to do either. In due course, the Clerk of the Court noted the defaults of the defendants. Thereafter, on July 6, 2011, plaintiff moved for entry of default judgment, serving the motion papers on defendants by mail on July 21, 2011. On July 29, 2011, defendant Francesco made defendants' first communication to the Court, asking for an extension of time to answer the amended complaint. On August 16, 2011, defendants filed an affirmation, signed by all defendants, opposing the motion. Defendants attached to the affirmation a copy of their proposed answer.

The Court treated defendants' affirmation in opposition as a motion to vacate entry of default. The Court assessed whether "good cause" existed to vacate entry of default, pursuant to Rule 55(c), Fed. R. Civ. P. The Court addressed the three good cause factors, to wit, the willfulness of the default, the prejudice to plaintiff if the default were vacated, and the existence of any meritorious defenses to plaintiff's claim. See Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993) (discussing good cause factors). The Court held that defendants' default was willful, based largely on their inadequately explained failure to respond to the amended complaint. The Court further held that vacating the default would prejudice the plaintiff because it would allow significant interest to accrue on the unpaid debt at time when, by defendants' own admission, they were under severe financial strain. Finally, the Court held that the defendants offered no meritorious defenses.

As regards meritorious defenses, the Court focused on defendants' assertion, contained in their proposed answer, that they "did not sign personal guarantee." (See Def. Affirmation Supp. Mot. for Reconsideration, Ex. C., Answer, "Affirmative Defenses" ¶ 1.) The Court noted that this assertion was ambiguous because it did not explain whether defendants did not believe the document they signed was a guarantee or whether, by contrast, they accepted that it was a guarantee but denied signing it. The Court also laid emphasis on the fact that this assertion was made in an unsworn portion of defendants' papers. In sum, the Court held, the ambiguous, unsworn assertion was a conclusory denial of the sort that is inadequate to establish good cause to vacate entry of default. See New York v. Green, 420 F.3d 99, 109-10 (2d Cir. 2005) (defendant must present more than conclusory denials). Because all three good cause factors weighed against defendants, the Court denied their imputed motion to vacate and instead entered default judgment against the defendants.

On December 5, 2011, defendants filed the present motion and attached to it an affirmation signed by all defendants. (ECF No. 32.) In the affirmation, defendants state under penalty of perjury that "[n]one of the defendants ever personally guaranteed the note." (Def. Affirmation ¶ 7.) They further state under penalty of perjury that "[t]he signatures contained on the personal guarantee attached to the note submitted to the Court by the plaintiff are not the signatures of any of the defendants." (Id.) To support these assertions, defendants ask the court to compare their signatures on their new affirmation to the signatures on the guarantee. (Id. ¶ 31.)

Defendants also assert that plaintiff breached a fiduciary duty he owed them because he informed a company that was considering acquiring one or all of the Qdero Entities that he would exchange his loan to the Qdero Entities for "equity in the new business." (Id. ¶¶ 9-11.)


Defendants style the present motion as one "for an order pursuant to Federal Rules of Civil Procedure Sections 55, 60(b), 56, 58, 59, 59(e), granting Reconsideration of the Order dated 10th day of November; vacating the default judgment in this matter; staying execution pending hearing and determination of this motion; allowing Defendants to proceed in prosecuting their counterclaim; and in setting aside the granting of attorneys' fees as unwarranted and unreasonable."*fn1 (Def. Mot. at 2.) The Court addresses these requests as separate motions and regards them with the special solicitude afforded pro se plaintiffs, see Traguth v. Zuck, 719 F.2d 90, 95 (2d Cir. 1983).

I. Defendants' Motion to Vacate Default Judgment is Denied.

Defendants move under Rule 60(b) to vacate the default judgment entered against them.*fn2 When a party brings a motion to vacate default judgment under Rule 60(b), courts apply the same three "good cause" factors used to assess motions to vacate entry of default under Rule 55(c): willfulness of default, prejudice to plaintiff, and existence of meritorious defenses. See State St. Bank & Trust Co. v. Inversions Errazuriz Limitada, 374 F.3d 158, 166-67 (2d Cir. 2004). However, "[Rule 60(b)] may not be used as a substitute for timely appeal." Cent. Vt. Pub. Serv. Corp. v. Herbert, 341 F.3d 186, 190 (2d Cir. 2003) (quoting Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir. 1986)). Rule 60(b) is therefore not appropriately invoked to ask a court to revisit an earlier ruling based on the same facts and law. See Robinson v. Sanctuary Record Grps., Ltd, 249 F.R.D. 144, 146 (S.D.N.Y. 2008). Here, the Court already examined the three good cause factors under Rule ...

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