United States District Court, E.D. New York
U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff,
SAFETY CAPITAL MANAGEMENT, INC. d/b/a FOREXNPOWER, GNS CAPITAL, INC. d/b/a FOREXNPOWER, JOHN H. WON, SUNGMI KANG, and TAE HUNG KANG a/k/a KEVIN KANG, Defendants.
REPORT AND RECOMMENDATION
KUO United States Magistrate Judge
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.
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
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." (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.)
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 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.
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.)
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).
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.
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 ...