AIR SEA TRANSPORT, INC. v. NIKI INTERNATIONAL, INC. et al

Filing 34

OPINION. Signed by Judge Kevin McNulty on 7/17/14. (DD, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

AIR SEA TRANSPORT, INC.,

Civ. No. 2:12-6244 (KM)

Plaintiff,
OPINION
V.

NIKI INTERNATIONAL, INC., et al,
Defendants.

KEVIN MCNULTY, U.S.D.J.:
This matter comes before the Court on the motion (Docket No. 29) of
Plaintiff, Air Sea Transport, Inc. (“AST”), for default judgment against
Defendant Niki International, Inc. (“Niki”). AST moves for a default judgment
against Niki International for failure to obtain substitute counsel and prosecute
the case.
I.

BACKGROUND

AST commenced this action to be indemnified for two 2012 judgments
against AST. The judgments were obtained by Yantai Zhonglian Industry Co.
(“Zhonglian”) in the Qingdao Maritime Court, People’s Republic of China (the
“PRC judgments”). P1. Br. (Docket No. 30) at 4, 7; Complaint (Docket No. 1).
AST asserts claims under admiralty and common tort law against Defendants
Niki and Welton Shipping Co.
The underlying PRC judgments concern two shipments of cotton bedding
to the U.S. Id. at 4. On February 4, 2010, Niki contracted to purchase cotton
bedding from Zhonglian for $192,515.77. Id. at 1-2. On June 11, 2010, Niki
and Zhonglian entered into a second cotton bedding purchase agreement for
$215,058.22. Id. at 2.
Plaintiff AST is a Non-Vessel-Operating Common Carrier. P1. Br. at 2.
AST was engaged by Zhonglian to transport the two shipments by sea from
Qingdao, China, to the Port of Los Angeles, California. Id. The ocean carriage
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was arranged by Bondex, AST’s PRC agent. Id. AST issued two House Bills of
Lading (“HBL”) for the ocean carriage. HBL QD05110060241 was issued June
23, 2010, for the first shipment and HBL QD0510080082 was issued August
11, 2010, for the second shipment. Id. Both HBLs identified Zhonglian as the
shipper and Niki as the consignee/receiver. Id. The first shipment arrived in
Los Angeles on or about July 10, 2010, and was picked up by Niki on or about
July 28, 2010. Id.; Answer (Docket No. 4) ¶ 14. To date, that shipment remains
in Niki’s possession, custody, or control. Id. at 3; Answer ¶ 15. The second
shipment arrived in Los Angeles on or about August 27, 2010, and was picked
up by Niki on or about September 30, 2010. Id.; Answer ¶ 25. That shipment
also remains in Niki’s possession, custody, or control. Id.; Answer ¶ 26.
On May 10, 2011, Zhonglian filed two lawsuits against AST and its agent
Bondex in the Qingdao Maritime Court in the PRC. P1. Br. at 3. Zhonglian
alleged that Niki failed to make payment on the two shipments and further
alleged that AST breached its obligation when it allowed Niki to take delivery of
the shipments without proof that Niki had paid Zhonglian for them. Id. AST
contended that it had no such obligation, but the Qindao Maritime Court
entered judgment against AST in the amount of $405,573.99. Id. (citing Zhou
Cert. (Docket No. 31) ¶ 8). The court also awarded Zhonglian RMB 34,518
(approximately $5,685.42) in court fees. Id. (citing Zhou Cert. ¶ 12). AST
appealed the judgment to the Shandong People’s High Court of the PRC. The
appellate court affirmed the judgment and awarded additional court fees in the
amount of RMB 34,518. Id. at 4 (citing Zhou Cert. ¶f 13-14).
On October 1, 2012, AST commenced this action, asserting that Niki and
Welton Shipping Co. were bound to indemnify AST for its payment of the PRC
judgments. (Docket No. 1). Niki filed an answer to the complaint on November
2, 2012. (Docket No. 4). On November 29, 2012, Welton also answered the
complaint and asserted a cross-claim against Niki. (Docket No. 6).
On June 24, 2013, at an initial scheduling conference before Hon.
Michael A. Hammer, United States Magistrate Judge, Niki’s counsel stated that
Niki had reached a settlement “in principle” with Zhonglian which would
resolve the PRC judgments against AST. P1. Br. at 4. However, no further
communication was received by AST regarding a settlement, and in July 2013,
AST was obligated to pay the two outstanding PRC judgments. Id. On July 12,
2013, Bondex, as AST’s agent, paid the PRC court account RMB 2,801,362.45
(approximately $461,409.62) in satisfaction of the two PRC judgments. Id.
(citing Zhou Cert. ¶ 15).
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On July 29, 2013, Judge Hammer entered a pretrial scheduling Order
directing the parties to serve discovery requests on or before August 12, 2013.
(Docket No. 21). On August 9, 2013, AST served Niki with interrogatories and
document requests. P1. Br. at 4 (citing Chang Decl. (Docket No. 32) Ex. E). Niki
did not respond to the requests as required by Judge Hammer’s July 29, 2013
Order. Id. AST contacted Niki’s counsel by email on September 17, 2013, and
by telephone on September 24, 2013. Id. (citing Chang Decl. Exs. E, F). Niki’s
counsel represented that Niki would respond to the outstanding requests by
October 3, 2013. Id. (citing Chang Decl. Ec. 0). Niki did not do so. Instead,
Niki’s counsel moved to withdraw as counsel on October 8, 2013. (Docket No.
22).
On November 8, 2013, Judge Hammer presided over an inperson
conference and hearing on the motion of Niki’s counsel to withdraw. See
Docket No. 25. Niki’s President/Vice President, Nikhil Poddar, attended the
conference on Nikki’s behalf. In an Order entered the same day, Judge
Hammer granted the motion for withdrawal and directed Niki to obtain
substitute counsel by December 8, 2013. (Docket No. 26). The Order stated
that failure to comply with its terms would “result in sanctions pursuant to
Fed. R. Civ. P. 16(1) and 37.” Id. Despite this warning, Niki failed to obtain
counsel or contact the Court regarding its failure to do so.
On December 10, 2013, AST requested that default be entered against
Niki. The next day, the Clerk of the Court entered default against Niki for
failure to plead or otherwise defend the lawsuit. (Docket No. 27). On December
18, 2013, Welton also requested that default be entered against Niki. (Docket
No. 28). AST now moves for default judgment against Niki.’ P1. Br. (Docket No.
30) at 1. Niki has not opposed or otherwise responded to the motion.
II.

ANALYSIS

In the ordinary course, “the entry of a default judgment is left primarily
to the discretion of the district court.” Hritz v. Woma Corp., 732 F.2d 1178,
1180 (3d Cir. 1984) (citing Tozer v. Charles A. Krause Milling Co., 189 F.2d 242,
244 (3d Cir. 1951)). Because the entry of a default judgment prevents the
resolution of claims on the merits, “this court does not favor entry of defaults
and default judgments.” United States v. $55,518.05 in U.S. Currency, 728 F.2d
192, 194 (3d Cir. 1984). Thus, before entering default judgment, the Court
must determine whether the “unchallenged facts constitute a legitimate cause
Welton has not moved for default judgment on its cross-claim against Niki.
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of action” so that default judgment would be permissible. DirecTV, Inc. v. Asher,
03-cv-1969, 2006 WL 680533, at *1 (D.N.J. Mar.14, 2006) (citing Wright,
Miller, Kane, 1OA Federal Practice and Procedure: Civil 3d § 2688, at 58—59,
63).
In the context of default, “defendants are deemed to have admitted the
factual allegations of the Complaint by virtue of their default, except those
factual allegations related to the amount of damages.” Doe t’. Simone, Civ. No.
12-5825, 2013 WL 3772532, at *2 (D.N.J. July 17, 2013). While “courts must
accept the plaintiffs well-pleaded factual allegations as true,” they “need not
accept the plaintiffs factual allegations regarding damages as true.” Id. (citing
Chanel, Inc. v. Gordashevsky, 558 F.Supp. 2d 532, 536 (D.N.J. 2008)).
Moreover, if a court finds evidentiary support to be lacking, it may order or
permit a plaintiff seeking default judgment to provide additional evidence in
support of the allegations. Id. at *2.
This case presents an unusual backdrop for default judgment. Defendant
Niki International was properly served and it answered the Complaint. (Docket
No. 4). Thereafter, however, Niki failed to comply with discovery orders and
ceased any activity to move the case forward. On November 8, 2013, Niki’s
counsel, with leave of the court, withdrew. Since that date, Niki has failed to
comply with the Magistrate Judge’s order to obtain new counsel, and it has not
participated in the lawsuit in any way. AST moves for default pursuant to Fed.
R. Civ. P. 55 for failure to defend, In the alternative they move for the entry of
default judgment as a sanction under Fed. R. Civ. P. 16(f) and 37(b) for failure
to obey a scheduling or other pretrial order.
Both Rules 55 and 16 provide a basis for entering summary judgment
against Niki.
A. Default Judgment Under Rule 55
Under Rule 55(a), default may be entered “[w]hen a party against whom a
judgment for affirmative relief is sought has failed to plead or otherwise defend,
and that failure is shown by affidavit or otherwise.” This Circuit and others
have broadly interpreted “otherwise defend.” See Hoxworth v. Blinder, Robinson
& Co., 980 F.2d 912, 918 (3d Cir. 1992) (finding that trial court could have
imposed default for failure to comply with orders to obtain substitute counsel,
file a pretrial memorandum, and respond to discovery requests); City of New
York v. Michalis Pawn Shop, LLC, 645 F.3d 114, 130 (2d Cir. 2011) (discussing
failure to defend and withdrawing counsel without finding substitute); Gulf
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Coast Fans, Inc. v. Midwest Elecs. Importers, 740 F.2d 1499, 1512 (11th Cir.
1984) (discussing failure to appear at trial). After the entry of default, the court
may enter default judgment upon a motion from the party seeking the default
judgment. Fed. R. Civ. P. 55(b)(2). If the party against whom a default judgment
is sought has appeared personally, that party or its representative must be
served with written notice of the application at least seven days before the
hearing. Id.
Here, Niki was served personally with the Motion for Default Judgment
by mail on December 23, 2013.2 (Docket No. 29-3). Niki was aware of its
obligation to appoint new counsel and respond to the outstanding discovery
requests pursuant to Judge Hammer’s Order and the status conference its
representative attended on November 8, 2013. (Docket No. 26). In the more
than eight months since that Order was entered, Niki has failed to comply or in
any way participate in this lawsuit. Niki’s failure to obtain new counsel and
participate in discovery thus constitutes “failure to defend” under Rule 55, and
the entry of default judgment is appropriate on that basis. Hoxworth, 980 F.2d
at 919.
B. Default Judgment as a Sanction
Moreover, default judgment is appropriate as a Rule 16(f) sanction
against Niki. Fed. R. Civ. P. 16(i) (incorporating sanctions available under Rule
37(b), including entry of default judgment). To impose the sanction of default
judgment pursuant to Rule 16(1), the district court must consider “some or all”
of the six factors announced in Poulis v. State Farm Fire and Casualty Co., 747
F.2d 863, 868 (3d Cir. 1984). Hoxworth, 980 F.2d at 919. The Poulis factors
are: “(1) the extent of the party’s personal responsibility; (2) the prejudice to the
adversary caused by the failure to meet scheduling orders and respond to
discovery; (3) a history of dilatoriness; (4) whether the conduct of the party of
the attorney was willful or in bad faith; (5) the effectiveness of sanctions other
than dismissal, which entails an analysis of alternative sanctions; and (6) the
meritoriousness of the claim or defense.” 747 F.2d at 868. The district court
must make factual findings as to these factors, but not all of the factors must
“point toward” a default for the sanction to be upheld. Hoxworth, 980 F.2d at
919.

The certificate of service states that the motion was served by mail on Niki’s
President, Nikhil Poddar, who represented Niki at the November 8, 2013 conference
before Judge Hammer. (Docket No. 29-3).
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5

Here, the Poulis factors weigh in favor of the entry of default judgment
against Niki. First, Niki is wholly responsible for its failure to re-appoint
counsel. Poddar, Niki’s President, attended the November 8, 2013 in-person
conference before Judge Hammer. Judge Hammer ordered Niki to procure new
counsel and have the new counsel enter an appearance by December 8, 2013.
(Docket No. 26). The Order also stipulated that fact discovery would close on
February 18, 2014. Id. Niki disregarded this Order and has not, to date,
appointed new counsel to defend this action, nor has it participated in
discovery.
Second, AST is substantially prejudiced by Niki’s failure to comply with
Judge Hammer’s Order and complete discovery. Niki has indefinitely stalled
discovery and halted the case’s progress for eight months. See Gregg v. GI
Apparel, Inc., Civ. No. 06-2367 (GEB), 2009 WL 1687476, *3 (D.N.J. June 16,
2009) (finding failure to appoint counsel delayed proceedings and weighed in
favor of default judgment). In the meantime, AST’s agent, Bondex, paid
Zhonglian upwards of $450,000 in satisfaction of the PRC judgments for which
AST seeks indemnification.
Third, Niki has shown a pattern of dilatoriness throughout this lawsuit.
At the initial scheduling conference on June 23, 2013, former counsel for Niki
represented to Judge Hammer that counsel were in the process of working out
a settlement. P1. Br. at 4. After the conference, Niki’s counsel made no further
contact with AST regarding that settlement. In addition, in August 2013, when
AST served discovery requests on Niki (still represented by counsel), Niki failed
to respond to the requests even after representing that it would do so. P1 Br. at
4. Several months later, in October 2013, Niki’s counsel moved to withdraw
without ever having responded to the discovery requests. (Docket No. 22). Niki
did not appoint new counsel prior to the withdrawal, instead sending its
President, Poddar, to the November 8, 2013 in-person conference. Finally, after
being ordered to appoint new counsel by December 2013, Niki failed to do so
and remains without counsel of record in this case. In sum, Niki has failed to
defend this case and has shown a pattern of disregard for court orders. See
Hunt-Ruble v. Lord, Worrell & Richter, Inc., Civ. No. 10-4520 (JET), 2012 WL
2340418, at *5 (D.N.J. June 19, 2012).
The fourth factor typically looks at whether the conduct of the attorney
was willful or in bad faith. Poulis, 747 F.2d at 868. Here, however, Niki itself
has acted willfully by failing to appoint new counsel in direct contravention of a
court order. Niki has proffered no explanation for its failure to comply with
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Judge Hammer’s Order to appoint new counsel, or its more general failure to
defend this action. There is no possibility that Niki was unaware of its
obligation to comply with the Order because Poddar was present at the
conference regarding its counsel’s motion to withdraw. Therefore, I find that
Niki’s actions constitute “a willful failure to participate in this litigation” that
far surpass mere negligence. Payamps v. Huan Le, Civ. No. 12-7021 (NLH),
2013 WL 6326379, at *4 (D.N.LJ. Dec. 4, 2013) (citing Hunt-Ruble, 2012 Wi
2340418, at *5).
Fifth, alternative sanctions against Niki are not likely to be effective. Niki
has ceased all participation in this case, effectively halting the proceedings for
eight months. Staying further proceedings would only further prejudice AST
and allow Niki to continue avoiding adjudication of AST’s indemnification
claim. Monetary sanctions are also likely to be ineffective. Niki has not
complied with Judge Hammer’s Order even though the order expressly warned
Niki that sanctions would be imposed. See Docket No. 26. Similarly, Niki has
not replied to AST’s motion for default judgment, or indicated in any other way
that it intends to defend its position. In light of Niki’s complete abandonment of
its defense, default judgment is the appropriate remedy. See e.g. Colony Ins. Co.
v. Kwasnik, Kanowitz & Assocs., P.C., Civ. No. 12-722 (NLH), 2013 WL
5176735, at *6 (D.N.J. Sept. 12, 2013) (adopting Report and Recommendation);
Williams v. Sullivan, Civ. No. 08-1210, 2011 WL 2119095, at *8 (D.N.J. May 20,
2011), adopted by, 2011 WL2112301 (D.N.J. May 25, 2011).
Finally, the sixth Poulis factor, the meritoriousness of any defenses Niki
may have asserted, does not weigh against imposing the sanction. Because Niki
abandoned its defense as of November 8, 2013, a full evaluation of the merits is
not possible. The Answer Niki filed (before the withdrawal of counsel) does not
overwhelmingly suggest that Niki’s defense would be meritorious. Although Niki
denied that it owes any payment to Zhonglian, Answer ¶J 14, 25, it does not
contest the key allegations in the complaint regarding AST. Specifically, Niki
admits that it entered into purchase agreements with Zhonglian, that it
received the deliveries from AST, that the goods arrived in the United States,
and that Niki retained possession of them. Answer ¶j 7, 14, 15, 17, 21, 25, 26.
Niki also asserted several affirmative defenses: (1) that AST has unclean hands;
(2) statute of limitations (unspecified) barred the complaint; (3) lack of
jurisdiction over the defendants; (4) failure to state a cause of action; and (5)
lack of consideration. No proofs were proffered in connection with these
defenses prior to the filing of the motion for default judgment.

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Although these defenses are somewhat ambiguous and generic, Niki did
not entirely fail to respond to AST’s claims. Taking the most generous view of
this factor, it has only neutral weight and is not dispositive here. See Hoxworth,
980 F.2d at 922; Colony Ins. Co., 2013 WL 5176735 at *6...7.
Therefore, the first five Poulis factors weigh in favor of entering default
judgment and the sixth factor is neutral. On balance, the Poulis factors
strongly support entering default judgment. Curtis T. Bedwell and Sons Inc. v.
Int’l Fidelity Ins. Co., 843 F.2d 683, 696 (3d Cir. 1988) (dismissing case as
sanction against plaintiff where first five factors weighed in favor of sanction
and sixth factor was neutral); see also Hunt-Ruble v. Lord, Worrell & Richter,
Inc., Civ. No. 10-4520 (JEI), 2012 WL 2340418 (D.N.J. June 19, 2012) (striking
answer and imposing default for failure to appear and participate in discovery).
C. Damages
Having found that default judgment is appropriate, the only issue
remaining is the appropriate amount of damages to be awarded. The relief AST
seeks is permissible under admiralty law and appropriate given the facts
presented. However, because the liability of joint tortfeasor Welton has not yet
been determined, I will not calculate damages or enter final judgment at this
time.
Upon entry of a default judgment, the only allegations in a plaintiffs
complaint not assumed to be true are those pertaining to the amount of
damages. Comdyne I, Inc. v. Corbin, 908 F.2d 1142, 1149 (3d Cir. 1990); 10 C.
Wright, A. Miller, & M. Kane, Federal Practice and Procedure, § 2688 at 444 (2d
ed. 1983) (citing Thomson v. Wooster, 114 U.S. 104, 5 S.Ct. 788, 29 L.Ed. 105
(1885)). Under Fed. R. Civ. P. 55(b)(2), a district court “may conduct such
hearing or order such references as it deems necessary and proper” in order “to
determine the amount of damages.” However, if the damages are for a “sum
certain or for a sum which can by computation be made certain,” further
evidentiary inquiry is not necessary. Fed.R.Civ.P. 55(b) (1); Comdyne I, 908
F.2d at 1149. Here, the Court has sufficient evidence to compute the
appropriate amount of damages.
AST requests the following relief for the entry of default judgment against
Niki: (1) the full amounts of the judgments obtained by Zhonglian against AST
($405,573.99); (2) $11,370.84 in court costs awarded to Zhonglian and paid by
AST in the Qingdao Maritime Court ($5,685.42) and on appeal in the Shandong
People’s High Court ($5,685.42); and (3) the cost of AST’s defenses in the two
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PRC lawsuits ($70,692). P1. Br. at 12. AST argues that the award of its defense
costs are appropriate because this indemnification case was brought under the
Court’s admiralty jurisdiction. Id. at 11.
The award AST seeks, for indemnification and attorney’s fees, is
appropriate under the laws of admiralty. Although most maritime indemnity
cases involve shipowners and stevedors, indemnity may arise in a broader
range of relationships. SMP Corp. v. M/VMing Moon, 22 F. 3d 523, 526 (3d Cir.
1994). Under tort principles, a passively negligent party in admiralty may
recover indemnity damages from a primary negligent party. Id. (citing Parfait v.
Jahncke, 484 F.2d 296, 303 (5th Cir. 1973); Hudson Waterways Corp. v.
Coastal Marine Serv., Inc., 436 F.Supp. 597, 602 (E.D. Tex. 1977)). This
principle also allows indemnification where the indemnification plaintiff’s
liability arises entirely from its contractual relationship with the plaintiff in the
underlying suit, and was triggered by the indemnification defendant’s unlawful
conduct. Id. Accordingly, as the secondarily liable party, AST can be
indemnified by Niki, the primary tortfeasor. Id. (“The general principle allowing
indemnity for secondarily liable parties survives under the regime of maritime
law.”). The entry of default judgment against Niki thus entitles AST to the full
amount of the two PRC judgments, including the court costs obtained by
Zhonglian.
AST is also entitled to its defense costs for the two PRC cases. Consonant
with the general rule, indemnitees in admiralty are entitled to attorney’s fees
for the defense of a claim properly belonging to the indemnitor. SMP Corp., 22
F. 3d at 525-26 (citing Cooper v. Loper, 923 F.2d 1045, 1051-52 (3rd
Cir. 1991)). Therefore, AST is also entitled to its defense costs for the underlying
PRC actions.
However, the current posture of the case militates against awarding
damages at this time. In the Complaint, AST alleges that any liability assigned
to AST in the PRC actions was “caused solely by the acts, omissions, fault,
and/or negligence” of Niki and co-Defendant Welton. Id. ¶ 29. Therefore, AST
seeks indemnification from both Niki and co-Defendant Welton for the PRC
judgments. See Compi. ¶J 30-3 1. AST further requested that the judgment
awarded be imposed jointly or severally against both defendants. Id. ¶ 31.
Welton disputes its liability and asserted a cross-claim against Niki seeking
indemnity and/or contribution from Niki for any judgment or settlement as to
Welton. Welton Answer (Docket No. 6) ¶ 66. Welton requested that the clerk
enter default against Niki for its cross-claim, but it has not moved for default
9

judgment. See Docket No. 28. So although AST’s motion for default judgment
does not apply to its claim against Welton, Welton is still a defendant to this
case.
Under the rules of admiralty, joint tortfeasors are jointly liable. Cooper
Stevedoring Co. v. Fritz Kopke, Inc., 417 U.S. 106, 110 (1974); In re McAllister
Towing and Transp. Co., Inc., 432 F.3d 216, 224 (3d Cir. 2005) (stating that
contribution depends on mutual responsibility and cannot be sought from a
party without liability). Under the “proportionate share rule,” damages are
assessed on the basis of proportionate fault when such an allocation can
reasonably be made. United States v. Reliable Transfer Co., 421 U.S. 397, 409
(1975); McDermott, Inc. v. AmClyde, 511 U.S. 202, 207-08, 221 (1994) (citing
same and holding that rule also applies in cases where there is a settlement
with one or more of several defendants). Moreover, joint and several liability
applies in admiralty cases, that is, the plaintiff can collect the entirety of
damages from one defendant when there is a judgment against multiple
defendants. McDermott, 511 U.S. at 220-2 1 (citing Edmonds v. Compagnie
Generale Transatlantique, 443 U.S. 256, 27 1-72 (1979)).
In this case, Welton’s liability has not yet been determined. That as well
as the availability of joint and several liability cautions me against entering
default judgment for the full amount against Niki at this time. Therefore,
although the motion for default judgment is granted, I will not enter judgment
until Welton’s liability has been decided.
III.

CONCLUSION

For the foregoing reasons, AST’s motion is GRANTED and default
judgment is entered against Defendant Niki International, Inc. A Judgment
awarding monetary relief will be entered at the conclusion of the case.
An Order will be entered in accordance with this Opinion.
Dated: July 17, 2014

)
United States District

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