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U.S. Commodity Futures Trading Commission v. Safety Capital Management, Inc.

United States District Court, E.D. New York

July 11, 2017



          PEGGY KUO United States Magistrate Judge

         Plaintiff U.S. Commodity Futures Trading Commission ("CFTC" or "Plaintiff") brought this action against Safety Capital Management, Inc. ("Safety") and GNS Capital, Inc. ("GNS") (collectively, the "Corporate Defendants"), Sungmi Kang ("S. Kang") and Tae Hung Kang ("T. H. Kang") ("the Kang Defendants"), and John H. Won ("Won") (Won, S. Kang, and T. H. Kang, collectively, the "Individual Defendants, " and together with the Corporate Defendants, "Defendants"), alleging violations of the Commodity Exchange Act, 7 U.S.C. § 1 et seq. and CFTC Regulations, 17 C.F.R. § 1 et seq. (See Compl., Dkt. 1.) The Corporate Defendants are New York corporations, and GNS was registered with the CFTC as a commodity pool operator and commodity trading advisor. (Id. ¶¶ 1, 5, 18-19.) The Individual Defendants were officers, employees, and agents of Safety; Defendants Won and S. Kang were also officers, employees, and agents of GNS. (Id. ¶¶ 8-9, 20-22.) The Individual Defendants are residents of Queens. (Id. ¶¶ 20-22.)

         Before this Court on referral from the Honorable Raymond J. Dearie is Won's Motion to Vacate an Entry of Default. (See Dkt. 35; Order, May 17, 2017.) For the reasons stated herein, the undersigned respectfully recommends that Won's Motion be granted.


         Plaintiff commenced this action by filing the Complaint on September 24, 2015, alleging that Defendants fraudulently solicited investors and prospective investors and misappropriated investors' funds. (Compl. ¶ 1, Dkt. 1.) Defendant Won was served on October 2, 2015, by personal service on a "suitable age person, " at his "place of Work, " "156-14 Sanford Avenue, Flushing, NY 11355, " and by first class mail to the same address. (Aff. of Service, Dkt. 7.) The Affidavit of Service indicates that this person was "Hanna Won."[1] (Id.) The Corporate Defendants were served on October 5, 2015. (Affs. of Service, Dkts. 5-6.) Neither Won nor the Corporate Defendants answered, and Plaintiff requested a Certificate of Default as to all three on November 25, 2015. (Dkt. 8.) Default was entered as to Won and the Corporate Defendants on November 30, 2015. (Dkts. 9-11.)

         Plaintiff was granted extensions of time to serve the Kang Defendants (Order, December 22, 2015; Dkt. 17), and permission to serve them by publication (Dkt. 17), which Plaintiff did on August 22, 2016, and again on September 1, 2016 (Affs. of Service, Dkts. 18, 20-21, 23). Plaintiff then obtained an updated address for the Kang Defendants[2] and served them at the new address on December 20, 2016. (Affs. of Service, Dkts. 28-29.) The Kang Defendants' answer was due on January 10, 2017 (Fed. R. Civ. P. 12(a)(1)(A)(i)), and none was filed. However, on February 28, 2017, Plaintiff mailed to the Kang Defendants a letter informing them that Plaintiff would seek default if they did not answer by March 15, 2017 (Dkts. 30-31) - effectively extending to that date the time for the Kang Defendants to answer. The Kang Defendants, together with Won, filed an answer, pro se, on March 15, 2017. (Dkt. 33.)

         An Initial Conference was held before the undersigned on April 12, 2017, which Defendant Won attended. (See Min. Entry, Apr. 12, 2017.) At the conference, Won was advised of the Certificate of Default entered against him, and given a deadline of May 12, 2017 for moving to vacate the certificate. (Id.) Won timely filed the Motion to Vacate on May 12, 2017. (Dkt. 35.)


         I. Legal Standard

         A litigant may seek to vacate an entry of default pursuant to Federal Rule of Civil Procedure 55(c), which provides that an entry of default may be set aside for "good cause." Fed.R.Civ.P. 55(c). The Second Circuit has "established three criteria that must be assessed in order to decide whether to relieve a party from default or from a default judgment: (1) whether the default was willful; (2) whether setting aside the default would prejudice the adversary; (3) whether a meritorious defense is presented." Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993); see also Bricklayers & Allied Craftworkers Local 2 Pension Fund ex rel. O'Sick v. Moulton Masonry & Construction, LLC, 119 F.3d 182, 186 (2d Cir. 2015).

         When the question is one of setting aside a default - as opposed to a default judgment -these factors are assessed less rigorously, because there are fewer concerns about "the concepts of finality and litigation repose." Enron Oil, 10 F.3d at 96; see Sream Inc. v. Saakshi Enters. Inc., No. 16-CV-1408 (NG)(RML), 2017 WL 2633510, at *2 (E.D.N.Y. June 15, 2017) ("[i]mportantly, the standard for vacating an entry of default pursuant to Rule 55(c).. .is less rigorous than vacating a default judgment pursuant to Rule 60(b)" (emphasis in the original)). And although "[t]he dispositions of motions... [to vacate an entry of default] are left to the sound discretion of a district court..., " Enron Oil, 10 F.3d at 95, the Second Circuit maintains an "oft-stated preference for resolving disputes on the merits." Id. at 96. In addition, "[a] party appearing without counsel is afforded extra leeway in meeting the procedural rules governing litigation...." Id. Therefore, "a district court should.. .grant leave to set aside the entry of default freely when the defaulting party is appearing pro se." Id.

         II. Analysis

         A. Willfulness

         "[W]illfulness, in the context of a default... refer[s] to conduct that is more than merely negligent or careless, but is instead egregious and not satisfactorily explained." Bricklayers, 119 F.3d at 186 (quoting S.E.C v. McNulty,137 F.3d 732, 738 (2d Cir. 1998)) (citation omitted) (punctuation omitted). Even a defendant who was "grossly negligent" in failing to answer was not necessarily willful; "[r]ather, the defaulting party must have engaged in deliberate or egregious conduct." Sream Inc., 2017 WL 2633510, at *2. Indeed, "a showing that a default was inadvertent is ...

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