TURQUOISE REEF HOTEL, LTD. v. LEWIS C. BOWERS & SONS, INC., et al.
Civil No. H-90-490 (PCD)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
1991 U.S. Dist. LEXIS 12524
July 15, 1991, Decided
RULING ON MOTION TO VACATE DEFAULT JUDGMENT
This breach of contract action, originally filed in the Superior Court for the Judicial District of Hartford/New Britain on May 8, 1990, was removed to this court by defendants, Lewis C. Bowers & Sons, Inc. (“LCB”) and CCI-Bowers Company (“CCI”), on June 14, 1990. Defendants move, pursuant to Fed. R. Civ. P. 60(b) to vacate the default and to reopen the judgment of default entered on November 7, 1990.
Procedural History
This action arises out of a contract entered into by the parties on September 1, 1988, whereby defendants were to provide the design and build a hotel and casino complex on the Island of Providenciales, Turks, and Caicos Islands, British West Indies. On May 18, 1990, plaintiff filed a complaint in superior court in Connecticut alleging that LCB and CCI, assignee of the contract, breached the construction contract, defrauded plaintiff, and acted in violation of the Connecticut Unfair Trade Practices Act (“CUTPA”).
On June 15, 1990, plaintiff filed a motion for default against LCB and a “motion to cite in CCI as a defendant,” whose identity, although disclosed within the complaint, was inadvertently omitted from the caption and the summons. Having failed to file an answer to the complaint in superior court, defendants filed a petition for removal with this court on June 18, 1990.
Thereafter, a notice of default, dated July 25, 1990, issued against defendants for failure to file a pleading within twenty days of the filing of the petition, as required by Rules 55(a) and 81(c), Fed. R. Civ. P. On September 14, 1990, this court issued a notice to counsel that, in view of plaintiff’s failure to move for default judgment, all claims would be dismissed unless plaintiff moved for default judgment within thirty days. Plaintiff moved for entry of default judgment in the amount of $2,223,718.74, on October 15, 1990, which was granted by the court on November 6, 1990. On November 7, 1990, the clerk entered judgment against defendants in the amount of $2,223,718.74.
On December 27, 1990, defendants moved to vacate the default judgment asserting delay caused by counsel’s neglect, due to pressure from other litigation involving defendants. In candid affidavits, defendants’ counsel admits receipt of all notices of default and warnings and explains his failure to respond as follows:
During late July, 1990, I became involved in complex and intense litigation . . . [which] consumed virtually all my time . . . . At the same time I continued my involvement as lead counsel for four solid waste transfer stations and ten garbage collection companies . . . In August, 1990, I moved my family, my wife and three children, from our home of fourteen years . . . to my parents home, having purchased my parents home from my mother. My father had deceased one year prior.
Toward the end of July, 1990, . . . I received a Notice of Default . . . . Due to the press of other matters, and with my attention at that time focused . . . [other] litigation I did not react to the Notice of Default, intending to make a motion to vacate the Default.
On September 17, 1990, I received a Notice to Counsel which stated . . . , that the Court would dismiss the claims of the plaintiff within thirty days if plaintiff did not move for default judgment. I was still embroiled in the litigation . . . previously mentioned. Again, I failed to adequately protect my client’s interests.
Richard M. Crowley, President and Chief Executive Officer of both LCB and CCI, continually pressed me to bring the matter current. I told him I would do so. However, I was unable to focus on this case due to the intensity of other commitments, having over-extended the limited resources of my office, which experienced several changes in personnel during the Summer and Fall of 1990.
The above mentioned circumstances resulted in my failure to communicate properly and timely with Connecticut counsel, . . ., my adversaries, and the Court, to coordinate representation and file responsive pleadings in a timely manner . . . .
Affidavit of Howard C. Trueger, dated December 24, 1990, at 3-5. In a supplemental affidavit counsel added:
The pressures upon me caused by the major litigation in this office and other factors as referred to and described in my December 24, 1990 Affidavit were compounded by a medical condition that culminated in my hospitalization approximately one year ago and has necessitated and required my being under a doctor’s care and medication since that time. Since 1985 I have been treated, and continue to be treated . . . for an adjustment disorder manifested by an inability, at times, to handle stress. Since the Fall, 1989, . . . an internist, . . . have [sic] been treating several chronic medical problems which apparently are the result of my difficulty in handling stress. . . . As a consequence of these conditions and pressures, I found myself unable to cope with the stress that flowed from this situation, and could not address the demands placed upon me by the Turquoise Reef lawsuit and Richard C. Crowley . . . . In fact, during this entire period, after the filing of the Complaint . . ., Mr. Crowley was constantly making inquiries to me concerning the status of the litigation. On some occasions I assured him that I had taken all legal steps on his and his companies’ behalf and had filed documents even though I had not done so. On several other occasions I met with him and members of his staff to discuss the merits of the case and to prepare documents in support of LCB’s and CCI’s claims. I further assured Mr. Crowley that I had taken all procedural steps which were necessary to ensure that the default judgment was vacated and to have the matter transferred . . . . These assurances to my client were not accurate, but were intended to lead him to believe that I had everything under control.
Affidavit of Howard C. Trueger, dated February 12, 1991, at 3-4. Accepting responsibility for the gross failure to timely respond to the proceedings, defendants’ counsel contends that the default should be vacated because his client has a meritorious defense and should not be penalized for his delinquencies.
Discussion
Rule 60(b), Fed. R. Civ. P., allows a court to relieve a party from a final judgment for reasons of “(1) mistake, inadvertence, surprise or excusable neglect; . . . or (6) any other reason justifying relief from the operation of the judgment.” Motions under Rule 60(b) are within the trial court’s discretion and are only granted under exceptional circumstances to avoid an extreme and undue hardship. Mendell v. Gollust, 909 F.2d 724, 731-32 (2d Cir. 1990), aff’d, 111 S. Ct. 2173 (1991). The motion must be made within a reasonable time and not more than one year after judgment has entered. Usery v. Weiner Bros., Inc., 70 F.R.D. 615, 616 (D. Conn. 1976).
In deciding a motion under Rule 60(b)(1), the court must consider the following factors: (1) whether the default was willful; (2) whether defendant has a meritorious defense; and (3) the level of prejudice that may occur to the non-defaulting party if relief is granted. Wagstaff-El v. Carlton Press Co., 913 F.2d 56, 57 (2d Cir. 1990), citing Davis v. Musler, 713 F.2d 907, 915 (2d Cir. 1983); see also Kumar v. Ford, 111 F.R.D. 34 (S.D.N.Y. 1986). A review of the criterion here suggests relief from the final order is not warranted in this case.
There is no doubt that the failure to respond was not only grossly dilatory but willful. If counsel’s affidavit is credited, the failure to act was simply a total disregard of the most obviously fundamental obligation of an attorney to his client and to the court. Relying on Augusta Fiberglass Coatings v. Fodor Contracting, 843 F.2d 808, 811 (4th Cir. 1988), defendants’ counsel contends his clients should not be penalized for his fault alone in failing to timely comply with the deadlines. Drawing a distinction between the source of the fault, the court in Augusta held that a party should not be prejudiced by the errors of his counsel. Id. However, the Second Circuit, which applies a stricter standard, will not “relieve a party of the burdens of a final judgment entered against him due to the mistakes or omission of his attorney by reason of the latter’s ignorance of the law or his inability to efficiently manage his case load.” United States v. Cirami, 563 F.2d 26, 30 (2d Cir. 1976) (court reversed and remanded denial of relief when, on rehearing, defendants demonstrated counsel suffered from a mental disorder), citing United States v. Cirami, 535 F.2d 736, 739 (2d Cir. 1976) (relief denied where counsel allowed default to enter for unknown reasons); see also Schwarz v. United States, 384 F.2d 833 (2d Cir. 1967); Bortugno v. Metro-North Commuter RR, 905 F.2d 674, 676 (2d Cir. 1990) (excusable neglect cannot be based on a party or his counsel’s oversight or administrative failure, but events outside their control).
Even applying the Fourth Circuit’s more lenient standard, defendants are not entitled to relief. Unlike the defendant in Augusta, who moved for relief within two weeks of entry of judgment, defendants here are not completely blameless. Richard M. Crowley, President of LCB and CCI, admits “receipt of papers on or about October 18, 1990 . . . indicating that [plaintiff] was making a motion for judgment . . . , [which] was a shocking surprise.” Affidavit of Richard M. Crowley, undated but filed February 13, 1991, at 6-7. While he claims to have contacted counsel immediately and met with him to prepare necessary documentation to rectify the matter, he concedes learning, on or about November 8, 1990, from his local counsel’s office, that a judgment had entered against LCB and CCI. Id. After many frantic telephone calls to counsel, he was once again reassured by counsel that the matter would be corrected. Id. He concedes taking no further action until December 13, 1990 when, after he “saw no documentation to support any action,” he met with counsel again on December 13, 1990.” Id. While Crowley attempts to explain his indulgence with counsel by virtue of their long-term relationship, defendants were fully aware of the entry of default and default judgment. There is no showing of diligence on the part of defendants to permit them to benefit from counsel’s inaction. Cirami, 535 F.2d at 741 (record did not establish misleading of party by counsel or diligence on the part of client); see also Park Corp. v. Lexington Ins. Co., 812 F.2d 894, 897 (4th Cir. 1987) (affirming denial of relief where party, who never contacted counsel, received process in its mailroom and inexplicably lost papers).
Defendants claim a meritorious defense to the action by their assertion of a counterclaim, lack of service on CCI and a motion to remove the matter to the United States Bankruptcy Court for the District of New Jersey, and affirmative defense. The existence of valid counterclaims does not necessarily constitute a meritorious defense since defendants have not shown that they will be precluded from relief thereon. CCI’s claim of improper service is frivolous because counsel removed case and entered appearance on behalf of CCI, thereby accepting service on behalf of CCI and waiving that defense. Schwarz v. Thomas 222 F.2d 305, 308 (D.C. Cir. 1955); see also, Broadcast Music, Inc. v. M.T.S. Enterprises, 811 F.2d 278, 281 (5th Cir. 1987).
While defendants need not conclusively establish the validity of their defenses, they must establish their existence other than by mere allegations. Kumar, 111 F.R.D. at 39. Defendants’ purported defenses are not sufficiently demonstrated as to overcome the gross negligence of counsel and defendants and to establish their entitlement to a disposition on the merits.
Delay appears to be the only prejudice suffered by plaintiffs if the default were vacated. However, delay alone is insufficient to establish prejudice. Kumar , 111 F.R.D. at 39. Plaintiff must show “that delay will ‘result in the loss of evidence, create increased difficulties of discovery, or provide a greater opportunity for fraud and collusion.'” Id., quoting Davis, 713 F.2d at 916. While there is no substantial basis for a finding of prejudice to plaintiffs, the other factors, particularly the indifferent approach to the judicial proceedings, weigh heavily against granting relief.
Conclusion
Accordingly, defendants’ motion to vacate default judgment is denied. In addition, defendants’ motion to remove is denied as moot.
SO ORDERED.
Dated at Hartford, Connecticut, this 15th day of July, 1991.