United States District Court, S.D. New York
MEMORANDUM OPINION & ORDER
J. NATHAN, District Judge:
case concerns a vessel foreclosure action brought by
Plaintiff PMJ Capital Corp. ("PMJ"). At issue are
two cross-motions: (1) a motion by PMJ to order the
interlocutory sale of Defendant The Lady Antoinette
("the Vessel"); and (2) a motion by Defendants
Frank and Antoinette Bauco ("the Baucos") to vacate
the default entered against them on March 9, 2017. For the
reasons provided below, the Court conditionally grants the
vacatur, provided that the Baucos provide security, and
denies the motion for an interlocutory sale.
2013, the Baucos sought a loan from PMJ. According to Frank
Bauco, he needed the loan to cover his personal expenses.
See Dkt. No. 80, Ex. A ("Bauco Affidavit")
¶¶ 16-20. On November 20, 2013, PMJ entered a loan
agreement with 550 Realty Associates, LLC ("550
Realty"), of which Mr. Bauco was a managing member.
See Dkt. No. 74, Ex. B ("Promissory
Note"). Under the terms of the Promissory Note
("the Note"), PMJ gave 550 Realty $75, 000, which
550 Realty agreed to pay back at an interest rate of 16%.
Id. Also on November 20, 2013, the Baucos signed a
Guaranty of Payment, personally guaranteeing the Note.
See Dkt. No. 74, Ex. C ("Guaranty of
Payment"). In addition, to secure the loan, the Baucos
executed in favor of PMJ a First Preferred Ship Mortgage on
the Vessel, which they own. See Dkt. No. 74, Ex. D
("First Preferred Ship Mortgage"). After fees were
taken out of the $75, 000 loan payment, 550 Realty received
approximately $65, 500 from PMJ. See Bauco Affidavit
¶ 26. According to Mr. Bauco, the money from the loan
"was used for primarily personal, family, and household
purposes." See Id. ¶ 28.
Realty made payments on the Note for approximately one year.
See Bauco Affidavit ¶ 27; Dkt. No. 79, Ex. 1
("State Court Complaint") ¶ 13. There is no
evidence that 550 Realty or the Baucos made any payments to
PMJ after July 2015. See Bauco Affidavit ¶ 27;
State Court Complaint ¶ 13.
in August 2016, PMJ brought suit against the Baucos and the
Vessel alleging that the Baucos were in default
under the terms of the Guaranty and the Mortgage and seeking
to foreclose on the Vessel. See Dkt. No. 1
to PMJ, on September 22, 2016, the Baucos' attorney at
the time, Phillip Grimaldi, accepted service of the Summons
and Complaint on behalf of the Baucos. See Dkt. No.
13 ("Affirmation of Service") ¶ 4. In
exchange, PMJ agreed to extend the time for the Baucos to
respond until October 20, 2016. See Dkt. No. 57, Ex.
1 ("Emails with Grimaldi"). According to Mr. Bauco,
at some point Grimaldi assured him that Grimaldi would file
an answer in response to PMJ's complaint. Bauco Affidavit
October 26, 2016, upon PMJ's application, the Court
authorized the issuance of a warrant for the arrest of the
Vessel. Dkt. No. 15 ("Order Authorizing Issuance of
Warrant"). Around the same time, PMJ requested an entry
of default against the Baucos because they had failed to file
any responsive pleading. See Dkt. No. 18
("First Request for Entry of Default"). The Court
denied the request without prejudice because it could not
conclude that service on Grimaldi clearly constituted proper
service. See Dkt. No. 31 ("Order Denying
November 30, 2016, the United States Marshal for the Southern
District of New York arrested the Vessel. See Dkt.
No. 54 ("Receipt and Return of Service Executed").
A few days later, on December 2, 2016, PMJ informed Grimaldi
of the Vessel's arrest. See Dkt. No. 57, Ex. 2
("12/2/16 Letter to Grimaldi"). In late January
2017, Grimaldi informed PMJ that he no longer represented the
Baucos. Dkt. No. 57 ("Ware Declaration") ¶ 7.
Grimaldi's statement and the Court's earlier denial
of its request for an entry of default, PMJ decided to serve
the Baucos personally, which it did on February 14, 2017.
See Dkt. No. 48 ("Affidavit of Service on Frank
Bauco"); Dkt. No. 49 ("Affidavit of Service on
Antoinette Bauco"). In addition, in early March 2017,
PMJ informed the Baucos of the Vessel's arrest.
See Dkt. No. 57, Ex. 4 ("3/2/17 Letter to
the Baucos failed to respond to the complaint, PMJ again
requested to enter default against them. See Dkt.
No. 50 ("Second Request for Entry of Default").
This time, on March 9, 2017, the Clerk of the Court entered a
Certificate of Default against the Baucos. Dkt. No. 52
("Certificate of Default").
April 6, 2017, PMJ moved for an interlocutory sale of the
Vessel. Dkt. No. 55 ("Motion for Interlocutory
Sale"). On May 4, 2017, the Baucos, in their first
filing in this litigation, requested an extension of time to
respond to PMJ's motion. See Dkt. No. 64. The
Court granted the extension, Dkt. No. 65, and on May 16,
2017, the Baucos submitted their opposition to PMJ's
motion and also moved to vacate the default, Dkt. No. 73
("Cross Motion to Set Aside Default").
Court addresses each motion in turn, beginning with the
Baucos' motion to vacate the default.
MOTION TO VACATE DEFAULT
Rule 55(a) of the Federal Rules of Civil Procedure,
"[w]hen a party against whom a judgment for affirmative
relief is sought has failed to plead or otherwise defend ...,
the clerk must enter the party's default." However,
after such default is entered, "[t]he court may set
aside an entry of default for good cause." Fed.R.Civ.P.
55(c). The standard for vacating a default is more lenient
than that for a default judgment, but the "good
cause" factors are the same for both. See Meehan v.
Snow, 652 F.2d 274, 276 (2d Cir. 1981); Enron Oil
Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993).
Courts assess three criteria to determine whether "good
cause" exists: "(1) the willfulness of default, (2)
the existence of any meritorious defenses, and (3) prejudice
to the non-defaulting party." Bricklayers &
Allied Craftworkers Local 2, Albany, N.Y.Pension Fund v.
Moidton Masonry & Constr., LLC, 779 F.3d 182, 186
(2d Cir. 2015) (quoting Guggenheim Capital, LLC v.
Birnbaum, 722 F.3d 444, 455 (2d Cir. 2013)). The Second
Circuit has expressed a strong "preference for resolving
disputes on the merits." New York v. Green, 420
F.3d 99, 104 (2d Cir. 2005) (quoting Powerserve
Int'l, Inc. v. Lavi, 239 F.3d 508, 514 (2d Cir.
Baucos contend that all three "good cause" factors
weigh in favor of vacating the default here.
Willfulness of Default
Baucos argue that the default was not willful but was instead
the result of negligence by their former counsel, Grimaldi.
See Diet. No. 74 ("Opposition to Motion for
Interlocutory Sale") ¶¶ 28-32.
Second Circuit has interpreted willfulness "to refer to
conduct that is more than merely negligent or careless."
S.E.C. v. McNulty, 137 F.3d 732, 738 (2d Cir. 1998).
Instead, willful conduct is that which is
"egregious" and "not satisfactorily
explained." Id. However, "a finding of bad
faith is [not] a necessary predicate to concluding that a
defendant acted 'willfully.'" Gucci Am.,
Inc. v. Gold Or. Jewelry, 158 F.3d 631, 635 (2d Cir.
1998). Thus when a defendant "does not deny that he
received the complaint, the court's orders, ... or that
he never answered the complaint, " and "does not
contend that his non-compliance was due to circumstances
beyond his control, " an inference of willful default is
justified. Guggenheim Capital, LLC, 722 F.3d at 455.
"[D]efaults have been found willful where, for example,
an attorney failed, for unexplained reasons, to respond to a
motion for summary judgment, or failed, for flimsy reasons,
to comply with scheduling orders . . . ."
McNulty, 137 F.3d at 738-39 (internal citations
"where the attorney's conduct has been found to be
willful, the willfulness will be imputed to the party himself
where he makes no showing that he has made any attempt to
monitor counsel's handling of the lawsuit."
Id. at 740. When a party has "diligently
inquired of [his] attorney as to the status of [his] case
'three or four times a week' over a six-month period
and ... the attorney ha[s] given assurances on each occasion
that the matter [i]s being handled properly, " the party
is not responsible for the attorney's neglect.
Id. But when a party does "not talk to his
attorney for nearly a year, and . . . receive[s] no bills