LTO Properties Corp. v. Currey et al

Filing 37

MEMORANDUM AND ORDER: MJ Kuo's Report and Recommendation 30 is DENIED and plaintiff's motion 30 for a default judgment is DENIED. Defendant Currey's motion 34 to set aside default and for extension of time to answer andhis motion 36 to vacate the default are GRANTED. Ordered by Judge Frederic Block on 9/24/2024. (MI)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
LTO PROPERTIES CORP.,
Plaintiffs,
MEMORANDUM AND ORDER
Case No. 23-CV-1795-FB-PK

-againstKEN CURREY, AMERICAN
EXPRESS CENTURION BANK, and
NEW YORK CITY
ENVIRONMENTAL CONTROL
BOARD,
Defendants.
Appearances:
For the Plaintiff:
ALYSSA L. KAPNER
ALAN H. WEINREB
Margolin, Weinreb & Nierer LLP
165 Eileen Way, Suite 101
Syosset, NY 11791

For the Defendant:
RANDI SCHERMAN
DARRYL BARNEY
Brooklyn Legal Services
29 Albany Avenue, 2nd Floor
Brooklyn, NY 11216

BLOCK, Senior District Judge:
On March 8, 2023, LTO Properties Corp. (“LTO” or “Plaintiff”) commenced
this foreclosure action against borrower Ken Currey (“Currey”) and American
Express Centurion Bank and City of New York Environmental Control Board, each
a judgment creditor against Joyce Currey, his late mother and another borrower on
the loan agreement concerning the property at issue (collectively, “Defendants”).
Plaintiff asserted that it had served all Defendants by April 3, 2023, and after none
of the Defendants appeared, moved for entry of default, which the Clerk of Court
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entered on May 4, 2023. On January 3, 2024, LTO then filed a motion for a default
judgment against the Defendants, seeking a foreclosure and sale.
On August 12, 2024, Magistrate Judge Peggy Kuo issued a Report and
Recommendation (“R&R”) recommending that LTO’s motion be granted, and the
property at issue be foreclosed and sold. Magistrate Judge Kuo directed LTO to
serve the R&R on Defendants and explained that any objections to the R&R had to
be filed within 14 days, i.e., by August 26, 2024. On August 19, 2024, Magistrate
Judge Kuo received a letter from an attorney with Brooklyn Legal Services
(“BLS”), explaining that her office had been contacted by Currey in an unrelated
matter and asking the Court to delay any further action until BLS had a chance to
evaluate whether it could represent Currey in this foreclosure action. After
receiving an extension, Plaintiff, with BLS as counsel, then moved to set aside the
default previously entered against him.
“The court may set aside an entry of default for good cause[.]” Fed. R. Civ.
P. 55(c). The Second Circuit has explained that in evaluating whether such “good
cause” exists, a district court should consider three criteria: “(1) whether the
default was willful; (2) whether setting aside the default would prejudice the party
for whom default was awarded; and (3) whether the moving party has presented a
meritorious defense.” Peterson v. Syracuse Police Dep’t, 467 Fed. Appx. 31, 33 (2d
Cir. 2012) (citing Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993)).
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Currey asserts that all three of these factors weigh in favor of setting aside
his default. He explains that he first learned about the motion for default judgment
and foreclosure not from LTO but from conversations with Brooklyn Legal
Services in connection with a separate, state foreclosure action brought by his first
mortgage lender. See Currey Decl. ¶¶ 21–22. He states that he simply never
received service of process from LTO’s server, who made an apparent mistake of
identity. See id. at ¶ 15. Additionally, although an attorney for LTO provided him a
“forbearance agreement offer,” the offer was confusing and LTO’s counsel never
informed him of this ongoing proceeding. See id. at ¶¶ 10–13, 17. Currey thus
contends that his default was not willful, but rather derived from a
misunderstanding that LTO either generated or failed to clarify.
Currey also contends that LTO would not be prejudiced by setting aside the
default previously entered against him because the case is still in an early stage,
and discovery has not yet begun. See Def.’s Mem. of Law in Supp. of Mot. to
Vacate Default at 15 (citing Windward Bora LLC v. Armstrong, No. 18-CV-6355,
2021 WL 606713, at *4 (E.D.N.Y. Feb. 16, 2021) (“A plaintiff must show the loss
of evidence, increase difficulties of discovery, or greater opportunity for
collusion—circumstances that make it more difficult to prosecute its case—to
establish that vacatur would prejudice its interests” (cleaned up))). Currey also
argues that LTO sought to bypass New York law providing that residential
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foreclosure actions require a settlement conference prior to foreclosure, and so
cannot complain of prejudice if Currey’s default were to be vacated. See id. (citing
N.Y. Civil Practice Law and Rules § 3408).
Lastly, Currey asserts that he has several potential defenses, which he sets
forth in a proposed answer. See Currey Decl. at Ex. A. These defenses include
arguments that LTO lacks standing and has failed to comply with provisions of
New York’s Real Property Actions and Proceedings Law which oblige LTO to
provide a statutorily prescribed notice of foreclosure and submit filings to the N.Y.
Department of Financial Services. See id. Currey also raises a defense of “unclean
hands” on the part of LTO, suggesting that, among other conduct, LTO tricked him
into signing a Stipulation of Consent to a Final Judgment in a case that he was not
aware of, and presenting him with a misleading forbearance agreement. See id.
Currey has thus presented facts and arguments that appear to tilt each of the
three factors the Court considers towards setting aside his default. He has presented
facts and arguments indicating that his earlier failure to appear was not willful, that
LTO will not be prejudiced by permitting him to defend the action on the merits,
and that he has viable meritorious defenses at his disposal, including arguments
that LTO misled him into defaulting in the first instance. Additionally, “because
defaults are generally disfavored and are reserved for rare occasions, when doubt
exists as to whether a default should be granted or vacated, the doubt should be
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resolved in favor of the defaulting party.” Enron Oil, 10 F.3d at 96. Thus “good
cause . . . should be construed generously.” Id. (citing Davis v. Musler 713 F.2d
907, 915 (2d Cir. 1983)).
On balance, a generous construction of the contentions Currey has put
forward support setting aside the default entered against him so that he may defend
this foreclosure action. The Court now does so. Accordingly, the Clerk shall grant
Currey’s motion to set aside default and vacate the entry of default.

SO ORDERED.
_/S/ Frederic Block__________
FREDERIC BLOCK
Senior United States District Judge
Brooklyn, New York
September 24, 2024

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