Opinion
00 CIV. 5390 (DLC)
June 12, 2001
Susan C. Stanley, Shustak Jalil Heller For plaintiff.
Takashi Kanamori, pro se.
OPINION AND ORDER
Plaintiff Chieko Uehigashi ("Uehigashi") filed the complaint in this action on July 20, 2000. On January 19, 2001 and January 25, 2001 the Court entered Orders of default against defendant Takashi Kanamori ("Kanamori"). Kanamori, appearing pro se, has filed a motion to vacate the defaults pursuant to Rule 55(c), Fed.R.Civ.P. For the reasons stated below, defendant's motion is granted.
Kanamori has filed a "Motion to Set Aside Default and Default Judgment" pursuant to Rules 55(c) and 60(b), Fed.R.Civ.P. The Court did not, however, enter a default judgment against Kanamori. Rather, the Court entered Orders of default against him. "A motion to vacate a default is subject to a less rigorous standard than applies to a Rule 60(b) motion to vacate a default judgment." American Alliance Ins. Co., Ltd. v. Eagle Ins. Co., 92 F.3d 57, 59 (2d Cir. 1996).
BACKGROUND
On July 24, 2000, plaintiff executed service on Kanamori. At the November 3, 2000 initial pretrial conference, attended by Kanamori, the Court granted the application of Richard Weltman, Esq. to withdraw as counsel for individual defendant Kanamori and corporate defendants Transcendence Perfection Beyond, Inc., Music Works, Inc., Avatar Entertainment Corp., and F.B. Communications, Inc., as of November 10, 2000. On November 10, 2000, plaintiff served an amended complaint on Kanamori's then counsel, Mr. Weltman. Kanamori contends that he never received the amended complaint. Although plaintiff's counsel attempted to file the amended complaint on November 10, 2000, it was not filed at that time because it lacked an original signature by plaintiff's counsel.
The Court advised the parties that, while Kanamori could elect to proceed pro se, the corporate defendants would be in default if no notice of appearance were entered on their behalf by November 10, 2000. On December 5, 2000, the Court entered an Order of default against the corporate defendants.
As the docket sheet indicated that Kanamori had failed to file an answer to the original complaint, the Court issued an Order to Show Cause for default on January 5, 2001, returnable January 19, 2001, for Kanamori's failure to answer the original complaint. When no appearance was made on behalf of Kanamori on the return date, the Court entered an order of default against him.
At the January 19 hearing, the Court also addressed the status of the amended complaint. Plaintiff's counsel was informed of the need for an original signature before the complaint would be filed. Plaintiff's counsel stated that Kanamori's former counsel had been served with the amended complaint on November 10, 2000. The Court requested that plaintiff's counsel submit an affidavit with respect to service of the amended complaint on Kanamori. On January 23, 2001, plaintiff's counsel submitted the amended complaint with an original signature, as well as an affidavit stating that Kanamori's former counsel had been served with the amended complaint on November 10, 2001. Plaintiff's counsel did not indicate, however, whether defendant's counsel was authorized to accept service on behalf of Kanamori.
On January 24, 2001, the plaintiff filed the amended complaint. On January 25, 2001, based upon Kanamori's failure to answer the amended complaint and his failure to appear at the January 19, 2001 hearing, an Order of default was entered against Kanamori on the amended complaint. On January 26, 2001, the case was referred to The Honorable Frank Maas, United States Magistrate Judge, for an inquest on damages.
On March 29, 2001, Judge Maas held a hearing on damages, and on May 31, 2001 he issued a Report and Recommendation recommending that judgment be entered against Kanamori in the amount of $5,965,679.
On March 21, 2001, the plaintiff filed a second amended complaint, adding as new defendants Solid State Logic, Inc, The Terminal Marketing Company, Inc., and Kanamori's wife, Yoko Kanamori, and her daughter, Yuka Kanamori. On March 23, 2001, Kanamori filed the instant motion.
On May 24, 2001, the plaintiff filed a third amended complaint.
DISCUSSION
Rule 55(c), Fed.R.Civ.P., allows the Court to set aside a default "[f]or good cause shown." The Second Circuit has stated that
[i]n determining whether to set aside a party's default, the district court should consider principally "(1) whether the default was willful; (2) whether setting aside the default would prejudice the adversary; and (3) whether a meritorious defense is presented."Powerserve Int'l, Inc. v. Lavi, 239 F.3d 508, 514 (2d Cir. 2001) (citation omitted). Further, "[b]ecause there is a `preference for resolving disputes on the merits,' doubts `should be resolved in favor of the defaulting party.'" Id. (citation omitted).
Defendant makes several arguments in support of his motion to vacate the defaults. With respect to the original complaint, Kanamori argues that his default was not willful because his former counsel prepared and served an answer to the original complaint, and Kanamori believed that the answer had been filed with the Court. Indeed, at the initial pretrial conference in this action, Mr. Weltman told the Court that an answer had been filed. Thus, it appears that Kanamori's failure to file an answer to the original complaint was caused not by a willful disregard of pleadings, but by his counsel's mistake. See American Alliance Ins. Co., Ltd. v. Eagle Ins. Co., 92 F.3d 57, 59 (2d Cir. 1996) (where defendant's failure to answer the complaint was caused by a filing mistake by counsel's clerk, default was not willful). Moreover, Kanamori's answer to the original complaint was served on the plaintiff in October 2000. The plaintiff did not inform the Court at the January 19, 2001 hearing, however, that it had been served with Kanamori's answer.
With respect to the amended complaint, Kanamori asserts that he never received it. As discussed above, plaintiff's counsel asserts that the amended complaint was served on Kanamori's former counsel. Plaintiff has failed to show, however, that Mr. Weltman was authorized to accept service on behalf of Kanamori or that Kanamori received actual notice of the amended complaint. Further, Kanamori was proceeding pro se during the time his answer to the amended complaint was due. While Kanamori's pro se status does not relieve him of his obligations to comply with deadlines and discovery requests, the Second Circuit has observed: "as a general rule a district court should grant a default judgment sparingly and grant leave to set aside the entry of default freely when the defaulting party is appearing pro se." Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993).
Kanamori also failed to appear at the January 19, 2001 show cause hearing. Plaintiff asserts that the Court's January 5, 2001 Order to Show Cause was served on Kanamori by Federal Express Overnight delivery on January 5, 2001, and by personal service and regular first class mail on January 9, 2001. Kanamori asserts that he was not served with the Order to Show Cause, that he had no notice of the hearing, and that he did not learn that a default was entered against him until early February 2001. Kanamori claims that plaintiff did not effect personal service on him because the described recipient of the Order, who identified herself as "Ms. Kanamori" and as a "relative" Kanamori, was neither Ms. Kanamori nor a relative of Kanamori. Defendant asserts that he was home all day and did not receive any deliveries. In sum, there is some evidence that Kanamori never received notice of the order to show cause hearing. In light of the fact that "all doubts must be resolved in favor of trial on the merits," Enron, 10 F.3d at 98, as well as the plaintiff's prior receipt of Kanamori's answer to the complaint, and the uncertainty regarding service of the amended complaint on Kanamori, Kanamori's failure to appear at the show cause hearing should not prevent this Court from vacating the entry of the defaults if it is otherwise appropriate to do so.
Kanamori has submitted photocopies of airline tickets and visas of his wife, Yoko Kanamori, and her daughter, Yuka Kanamori, to demonstrate that they were out of the country on January 9, 2001, the date plaintiff states that Kanamori was personally served. Kanamori states that his wife and her daughter are the only possible "Ms. Kanamori" to whom he is related or with whom he is acquainted.
Kanamori does not discuss why the January 5, 2001 Order to Show Cause, which was delivered to his home address via regular mail and Federal Express, was not returned to plaintiff as undeliverable.
Kanamori also argues that the plaintiff will not be prejudiced by setting aside the default. Because there has been a receiver appointed, Kanamori argues that there is no urgency to prevent him from dissipating the corporate assets at issue in this action. Kanamori also asserts that the plaintiff has expanded and prolonged this action by filing a second amended complaint. Indeed, on March 21, 2001, the plaintiff filed a second amended complaint and named Yoko Kanamori and Yuka Kanamori as defendants. While the plaintiff argues that she has been prejudiced by unnecessary delay and expense, the plaintiff has not shown how vacating the default would cause such prejudice. In particular, the plaintiff has not explained how vacating the default would prejudice her in light of the appointed receiver and the addition of more defendants, including members of Kanamori's family, in the second amended complaint. Delay alone does not establish prejudice. Enron, 10 F.3d at 98. Thus, the Court finds that setting aside the entry of default will not prejudice the plaintiff.
As noted, on May 24, 2001, plaintiff filed a third amended complaint. There is evidence from the course of these proceedings, some of which is described in this Opinion, that Kanamori was willing to accept entry of a default judgment in this action until members of his family were joined as defendants.
Finally, Kanamori asserts that he has several meritorious defenses that should prevent entry of judgment on plaintiff's fraud claims, including that the plaintiff's financial losses were a result of a downward turn in the recording industry and not a result of fraud. Kanamori argues that while he may have made some unwise decisions and investments, they were reasonable at the time they were made. Moreover, Kanamori asserts that the actions he took were taken to advance the financial interests of Avatar Studios, Inc., and not to defraud the plaintiff. "To satisfy the criterion of a `meritorious defense,' the defense need not be ultimately persuasive at this stage." American Alliance, 92 F.3d at 61. "`A defense is meritorious if it is good at law so as to give the factfinder some determination to make.'" Id. Without ruling on the actual merits of these defenses, Kanamori has shown that he has potentially meritorious defenses such that vacating the default is appropriate.
In addition to the factors discussed above, the Court also considers that defaults "are particularly disfavored . . . when substantial sums of money are demanded." Enron, 10 F.3d at 97. Here, the judgment recommended by the Magistrate Judge in the May 31, 2001 Report is for $5,965,679, which is a substantial sum of money. Considering all of the relevant factors, the Orders of default against Kanamori should be vacated.
CONCLUSION
For the reasons stated, Kanamori's motion to vacate the default is granted. Plaintiff shall serve Kanamori with the third amended complaint by June 22, 2001. Kanamori shall serve and file his answer within the time required by the Federal Rules of Civil Procedure. The Recommendation by the Magistrate Judge for entry of judgment against Kanamori is denied.
SO ORDERED: