Castillo, IV v. 6D Global Technologies, Inc. et al
Filing
213
OPINION & ORDER re: 185 MOTION to Vacate the Certificate of Default, dtd June 27, 2019 filed by Benjamin Tianbing Wei. The Court grants Wey's motion to vacate the default entered against him. Wey is ordered to respond to Plaintiffs' Second Amended Complaint within 14 days of the date of this Opinion and Order. Also within 14 days of the date of this Opinion and Order, Plaintiffs may, if necessary, submit letter briefing requesting that Wey pay their fees and costs in filing for the entry of default. This resolves Dkt. No. 185. SO ORDERED. (Signed by Judge Alison J. Nathan on 5/31/2020) (rro)
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5/31/20
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
JOSEPH PUDDU, MARK GHITIS, VALERY
BURLAK, and ADAM BUTTER,
15-cv-8061 (AJN)
Plaintiff,
OPINION & ORDER
–v–
6D GLOBAL TECHNOLOGIES, INC., NYGG
(ASIA), LTD., BENJAMIN TIANBING WEI
A/K/A BENJAMIN WEY, TEJUNE KANG,
MARK SZYNKOWSKI, TERRY MCEWEN,
AND NYG CAPITAL LLC D/B/A NEW YORK
GLOBAL GROUP,
Defendants.
ALISON J. NATHAN, District Judge:
Defendant Benjamin Wey has moved to vacate the default entered against him in this
case on April 30, 2019. For the reasons stated below, this motion is GRANTED.
I.
BACKGROUND
Plaintiffs, stockholders of Defendant 6D Global Technologies, Inc., initiated this putative
securities class action by filing a Complaint on October 13, 2015. See Compl. (Dkt. No. 1). The
Complaint has since been amended twice, and the operative pleading—the Second Amended
Complaint—was filed on April 4, 2016. See Second Am. Compl. (Dkt. No. 107). The Second
Amended Complaint alleges that Defendant Benjamin Wey, the alleged “unofficial CEO” of
Defendant 6D, violated the federal securities laws by failing to disclose in numerous securities
filings that he was the beneficial owner of 46% of 6D’s stock that was held in the name of a
China-based investment banking firm he controlled and that he conducted and controlled 6D’s
operations. See Second Am. Compl. ¶¶ 10, 86–195. It specifically alleges that Wey himself
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violated Section 10(b) of the Exchange Act, Rule 10b-5, and Rule 20(a) of the Exchange Act as a
controlling person of 6D. Id. ¶¶ 205–224. Wey argues that the Second Amended Complaint is
devoid of any allegations that he made any affirmative misstatements or omissions that could
support a fraud claim against him relating to 6D, fails to adequately allege his scienter, and fails
to allege loss causation. See generally Dkt. No. 169.
As set out above, the original Complaint in this action was filed on October 13, 2015.
Dkt. No. 1. Lead Plaintiffs were appointed on January 14, 2016, Dkt. No. 92, and Wey was
served on January 16, 2016, by leaving the original Complaint and summons with the doorman
of his building and mailing copies of both documents to him at the same address. See Dkt. No.
94. Plaintiffs did not request that the Clerk of Court enter a default against Wey until over two
and a half years later, on September 27, 2018. Dkt. No. 134. On September 28, 2018, the Clerk
of Court rejected the request because Plaintiffs had not served Wey with the Amended and
Second Amended Complaints. Plaintiffs subsequently mailed Wey copies of the Amended and
Second Amended Complaints and filed affirmations of service on the docket. See Dkt. Nos. 148,
153. On April 29, 2019, Plaintiffs again requested that the Clerk of Court enter a default against
Wey, see Dkt. No. 157, and on April 30, 2019, the Clerk of Court entered a certificate of default
against him, see Dkt. No. 161.
On June 13, 2019, Wey’s counsel noticed an appearance on his behalf and filed a motion
to dismiss the claims alleged in the Second Amended Complaint and strike portions thereof. See
Dkt. Nos. 166, 167. On June 14, 2019, this Court directed the Clerk of Court to terminate that
motion in light of the default that had previously been entered against Wey and ordered the
parties to meet and confer regarding a proposed briefing schedule for any intended motion to
vacate the default. See Dkt. No. 174. On June 24, 2019, the Court so ordered the parties’
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proposed briefing schedule for Wey’s motion to vacate the default pursuant to Rule 55(a) of the
Federal Rules of Civil Procedure. See Dkt. No. 184. This motion was fully briefed on August 9,
2019. See Dkt. Nos. 185, 194, 197.
II.
LEGAL STANDARD
Under 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, “[t]he court may set aside an entry of default for good
cause.” Fed. R. Civ. P. 55(c). Courts consider three factors in determining 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. Moulton 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)).
These factors are construed generously, id., in light of the Second Circuit’s “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. 2001) (internal
quotation marks omitted)). Moreover, though the same factors are examined in deciding whether
to set aside a default judgment, courts apply the factors less rigorously where, as here, a
defendant has moved to set aside entry of a default, because “the concepts of finality and
litigation repose” are less deeply implicated in the latter action. See Enron Oil Corp. v.
Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993).
A defendant’s failure to meet one of these factors will not defeat a motion to vacate
default if other factors weigh in favor of setting aside the default. See Sea Hope Navigation Inc.
v. Novel Commodities SA, 978 F. Supp. 2d 333, 341 (S.D.N.Y. 2013) (collecting cases).
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Moreover, “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 resolved in
favor of the defaulting party.” Enron Oil, 10 F.3d at 96.
III.
DISCUSSION
The Court considers each “good cause” factor in turn below and concludes that, on
balance and in light of the “strong preference” in this Circuit for resolving cases on their merits,
these factors weigh in favor of vacating the default in this case.
A. Prejudice
The Court considers the last “good cause” factor first, because “[p]rejudice to the
nondefaulting party is ‘the single most persuasive reason for denying a Rule 55(c) motion . . . .’”
Murray Eng’g, P.C. v. Windermere Properties LLC, No. 12-cv-52 (JPO), 2013 WL 1809637, at
*5 (S.D.N.Y. Apr. 30, 2013) (quoting Wright & Miller, Federal Practice and Procedure § 2699
(3d ed. 2010)). As to this factor, the Second Circuit has made clear that “delay standing alone
does not establish prejudice” in the context of a request to set aside an entry of default. Enron
Oil, 10 F.3d at 98. “Rather, it must be shown that delay will result in the loss of evidence, create
increased difficulties of discovery, or provide greater opportunity for fraud and
collusion.” Davis v. Musler, 713 F.2d 907, 916 (2d Cir. 1983) (internal quotation marks
omitted).
Here, the prejudice Plaintiffs assert is based, almost entirely, on pure speculation. They
argue that were this Court to vacate the default, they may be unable to obtain relevant documents
from Wey and 6D needed to prove their claims. Specifically, and without any support for their
allegations, they argue that Wey has “probably already destroyed many of the documents that are
in his possession” and that “key documents” may be destroyed in 6D’s alleged impending
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bankruptcy. Dkt. No. 194 at 12. The Court does not credit these unsupported loss of evidence
allegations, and, without them, Plaintiffs’ prejudice argument is founded on nothing more than
delay. See Dkt. No. 194 at 12 (“Plaintiffs risk that witnesses’ memories will fade during any stay
of this four-year old action.”). But “delay standing alone does not establish prejudice” in the
context of a request to set aside an entry of default. Enron Oil, 10 F.3d at 98
Furthermore, Plaintiffs’ prejudice argument is undermined by the fact that they took over
two years to even request entry of a default in this case. See supra Section I. Such a delay on
Plaintiffs’ end “strongly suggests that some further delay will not unduly prejudice [them].” See
Enron Oil, 10 F.3d at 98 (“The fact that plaintiff waited over a year before seeking such relief
strongly suggests that some further delay will not unduly prejudice it.”). Even if Plaintiffs are
correct that they could not have requested entry of default against Wey between March 2017—
when co-defendants’ motion to dismiss was granted—and August 2018— when that dismissal
was vacated—they do not adequately explain why they did not request an entry of default against
Wey at any point prior to March 2017. See Dkt. No. 194 at 8. That the Private Securities
Litigation Reform Act may have prevented them from seeking a default judgment against Wey
while co-defendants’ motion to dismiss was pending—a proposition Wey contests, see Dkt. No.
197 at 8 n.8 (citing Rensel v Centra Tech, Inc., 2019 U.S. Dist. LEXIS 38633, at *6 (S.D. Fla.
Mar. 8, 2019))—is, in any event, no excuse for their tarrying in seeking entry of a default against
him.
Thus, because Plaintiffs have failed to establish prejudice and, indeed, have delayed
themselves in seeking entry of a default against Wey, the Court concludes that this factor weighs
in favor of vacating the default.
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B. Willfulness of Default
The Court next considers whether Wey’s default was deliberate. In the context of a
default, “willfulness” refers to “conduct that is more than merely negligent or careless, but is
instead egregious and . . . not satisfactorily explained.” Bricklayers & Allied Craftworkers, 779
F.3d at 186 (internal quotation marks omitted). However, “a finding of bad faith is [not] a
necessary predicate to concluding that a defendant acted ‘willfully.’” Gucci Am., Inc. v. Gold
Ctr. Jewelry, 158 F.3d 631, 635 (2d Cir. 1998). Instead, to find that a default was willful “it is
sufficient to conclude that the defendant defaulted deliberately.” Bricklayers & Allied
Craftworkers, 779 F.3d at 187 (internal quotation marks omitted). Thus, if 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,” a court can infer willfulness. Guggenheim Capital, 722 F.3d at 455; see also S.E.C. v.
McNulty, 137 F.3d 732, 738–39 (2d Cir. 1998) (“[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[.]”) (internal citations
omitted)).
Here, Wey provides several satisfactory explanations for why he failed to timely respond
to the complaint. Cf. Rolex Watch U.S.A., Inc. v. City Styles 313, LLC, No. 12-cv-4754 (AJN),
2012 WL 5992102, at *2 (S.D.N.Y. Nov. 29, 2012) (finding willfulness because defendant failed
to provide the court with any explanation for his untimely submission). Setting to one side
whether Wey was properly served, which the parties dispute, Wey asserts in his affidavit that his
delay is attributable to the fact that he has no recollection of ever being served with any of the
pleadings and therefore believed that he had not been served in this case. See Dkt. No. 187 ¶ 2.
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Wey does concede—and the evidence very clearly indicates—that he was nonetheless aware that
he had been named as a defendant in this case, see, e.g., Dkt. No. 195-1 (Mar. 9, 2017 tweet by
Wey referencing the grant of co-defendants’ motion to dismiss), but he argues that he was not
aware that his time to respond had begun to run, see Dkt. No. 188 at 6. If he had been aware of
that fact, he argues, he would have immediately responded and sough a stay of this case in light
of the criminal prosecution that was then pending against him. See id. at 7. Indeed, Wey did just
that in the Securities and Exchange Commission enforcement action that was filed against him
just one month prior to when this case was initiated. See Securities and Exchange Commission,
No. 15-cv-7116 (PCK), Dkt. No. 103 (S.D.N.Y. June 9, 2016) (granting stay). This fact, he
argues, cuts against any finding that his default was deliberate, because there was no litigation
advantage to be had in delaying. Cf. Kulwa v. Obiakor OB/GYN P.C., No. 12-cv-1868 (JG)
(MDG), 2013 WL 504383, at *4 (E.D.N.Y. Feb. 8, 2013) (finding default willful where it was
“calculated to advance defendants’ interests in delaying the day when they had to address the
allegations levied against them”). Furthermore, Wey argues that his voluntary attendance at a
settlement conference in this matter before Magistrate Judge Netburn in late 2018 and his filing
of a motion to dismiss very shortly after the certificate of default was entered against him both
cut against any finding that his default was deliberate. See Dkt. No. 188 at 6–7.
Plaintiffs rely heavily on Wey’s actual notice of this case as evidence of the fact that his
default was deliberate, see Dkt. No. 194 at 8–10, but they do not contend with his concession
that he was aware of this litigation but nonetheless believed his time to respond had not yet
begun to run. Indeed, they have no explanation for why Wey would have voluntarily appeared
before the Court in a settlement conference had he been in deliberate defiance of his obligation to
respond. They further argue that a stay of this action would not have been a guarantee, Dkt. No.
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194 at 10, but this argument misses the mark. The relevant consideration is not whether a stay
would have been a guarantee, but rather whether Wey’s failure to appear and seek a stay, as he
did in the SEC enforcement action against him, bolsters his assertion that he was unaware of his
obligation to respond in this action. The Court believes that it does. Finally, Plaintiffs argue that
Wey did, in fact, have a litigation advantage to gain by deliberately defaulting: paying attorneys
to defend him in this action would have undermined his negotiating position in another case in
which he was arguing that he was impecunious. Id. at 11. However, this argument is undercut
by the fact that paying attorneys to defend him in this action may have amounted to nothing
more—at least initially—than litigating a stay motion. Accordingly, the Court does not credit
Plaintiffs’ speculative argument that Wey had some litigation advantage to gain in other
litigations to which he was a party by defaulting in this one.
While it may have been careless or even grossly negligent for Wey—a sophisticated
businessman who is no stranger to litigation—to sit by and await service of the pleadings having
been made aware of the fact that he had been named as a Defendant in this action, the Court
cannot conclude—in light of his explanations and resolving all doubts in his favor—that Wey’s
actions rise to the level of willfulness. Though it is a close call, the Court concludes that this
factor weighs in favor of vacating the default.
C. Meritorious Defenses
Turning to the final factor, whether Wey has any meritorious defenses, “[a] defendant
seeking to vacate an entry of default must present some evidence beyond conclusory denials to
support his defense.” Enron Oil Corp., 10 F.3d at 98 (internal citations omitted). “The test of
such a defense is measured not by whether there is a likelihood that it will carry the day, but
whether the evidence submitted, if proven at trial, would constitute a complete defense.” Id.
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“The defaulting defendant ‘need only meet a low threshold to satisfy this factor.’” Gench v.
HostGator.com LLC, No. 14-cv-3592 (RA) (GWG), 2015 WL 3757120, at *5 (S.D.N.Y. June
17, 2015) (quoting MD Produce Corp. v. 231 Food Corp., 304 F.R.D. 107, 110 (E.D.N.Y.
2014)); see also Am. Alliance Ins. Co., Ltd. v. Eagle Ins. Co., 92 F.3d 57, 61 (2d Cir. 1996) (A
defense “need not be ultimately persuasive at this stage” to satisfy this factor.). A court will find
that a “defendant’s allegations are meritorious if they contain ‘even a hint of a suggestion’
which, if proven at trial, would constitute a complete defense.” Sea Hope Navigation Inc, 978 F.
Supp. 2d at 339 (quoting Weisel v. Pischel, 197 F.R.D. 231, 239 (E.D.N.Y. 2000)). Nonetheless,
a defendant must do more than offer “conclusory assertions” in an affidavit or simply “dispute
the amount of damages[.]” Bricklayers & Allied Craftworkers, 779 F.3d at 187.
Here, Wey has met the low threshold necessary to satisfy this factor. A review of the
Second Amended Complaint reveals that the securities claims asserted against Wey could be
vulnerable to a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can
be granted. See Fed. R. Civ. P. 12(b)(6). Indeed, though the motion was terminated due to his
default, see Dkt. No. 167, Wey has filed a motion to dismiss in this case that “contains detailed
analyses of facts and legal contentions that [he] maintain[s] are warranted by existing law.”
Sardarian v. Fed. Emergency Mgmt. Agency, 2020 WL 1542374, at *5–6 (D. Conn. Jan. 9,
2020). Wey refers to his terminated motion to dismiss in his briefing on this motion and
reiterates the arguments made therein here. 1 On this basis, the “meritorious defense” factor
supports Wey’s request for relief. See Pecarsky v. Galaxiworld.com Ltd., 249 F.3d 167, 173–74
(2d Cir. 2001) (finding that because claims asserted in appellants 12(b)(6) motion, “if proven at
1
The Court agrees with Wey that the bases for his defenses are outlined in his briefing on this motion, see Dkt. No.
197 at 9 n.9, and thus does not address Plaintiffs’ request that the Court not consider Wey’s terminated
memorandum of law here, see Dkt. No. 194 at 6.
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trial, would constitute a complete defense, appellants have demonstrated a meritorious defense
for purposes of vacating the default judgment entered against them”); Davis, 713 F.2d at 916
(finding, with respect to this factor, that “the motion papers submitted to the district judge were
sufficient to raise a serious question as to whether the second complaint stated a claim upon
which any relief could be granted”); Sardarian, 2020 WL 1542374, at **5–6 (“The Court
concludes that in filing their motion to dismiss, Defendants have fulfilled the second factor for
the Court to set aside the default. Although they have not established their defenses
conclusively, they have ‘present[ed] evidence of facts’ and legal authorities that may potentially
‘constitute a complete defense.’” (quoting McNulty, 137 F.3d at 740)); Saunders v. Morton, 269
F.R.D. 387, 403 (D. Vt. 2010).
Accordingly, the Court concludes that this factor also weighs in favor of vacating the
default.
D. Balance of the Factors
All three factors weigh in favor of vacating the default: Plaintiffs will not suffer any
prejudice if the entry of default is set aside, the default was not willful, and Wey has potentially
meritorious defenses. While the first and third factors clearly weight in favor of setting aside the
entry of default, the Court recognizes that Wey’s actions in sitting idly by even after learning that
this action had been filed against him came close to rendering the default willful. Though the
Court ultimately concluded above that Wey’s default was not willful, a contrary conclusion
would not alter the balance of the factors, which would still weigh in favor of vacating the
default. See Sea Hope Navigation Inc., 978 F. Supp. 2d at 341 (collecting cases in which vacatur
was warranted in spite of willfulness of default). To be sure, even were the Court to conclude
that the default was willful, it would resolve any doubt as to whether the default should be
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vacated in Defendants’ favor and vacate the default nonetheless. See Enron Oil Corp., 10 F.3d at
96 (“[Wh]en doubt exists as to whether a default should be granted or vacated, the doubt should
be resolved in favor of the defaulting party.”).
E. Plaintiffs’ Request for Conditional Vacatur
Having concluded that the default should be vacated in this case, the Court considers
Plaintiffs’ alternative request that the Court condition vacatur on Wey’s waiver of his right to file
any motion to dismiss or motion for judgment on the pleadings. See Dkt. No. 194 at 15–16.
The Second Circuit has held that, “[i]n determining whether to exercise its discretion to
set aside a default, a district court has inherent power to impose a reasonable condition on the
vacatur in order to avoid undue prejudice to the opposing party.” Powerserve Int’l, 239 F.3d at
515 (citation omitted). Though a district court has “substantial flexibility” in fashioning an
appropriate remedy, Nat. Organics, Inc. v. TRC Nutritional Labs., Inc., 2009 WL 2957816, at *2
(E.D.N.Y. Sept. 10, 2009), the Court is unaware of any case in which a court has conditioned
vacatur on a defendant’s waiver of a right to file a potentially dispositive motion, and Plaintiffs
do not provide any authority for their request. The Court does not believe that such a condition
is reasonable here.
However, one such condition that is routinely imposed is the requirement that the
defaulting party reimburse the plaintiff its reasonable attorneys’ fees and costs incurred as a
result of the default. See, e.g., Pall Corp. v. Entegris, Inc., 249 F.R.D. 48, 52 (E.D.N.Y. 2008)
(“[C]ourts in this Circuit have ‘consistently’ permitted an ‘award of attorney’s fees incurred in
bringing the default motion as a condition to vacating a default judgment.’” (quoting Richardson
v. Nassau County, 184 F.R.D. 497, 503 (E.D.N.Y. 1999))). The Court will consider—and is
likely to grant—a request for reasonable attorneys’ fees and costs. The parties shall meet and
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confer within 7 days of the date of this Opinion and Order to see if they can reach resolution on
reasonable attorneys’ fees and costs. If they are unable to do so, Plaintiffs may file a request for
such fees and costs with the Court within 14 days of the date of this Opinion and Order.
IV.
CONCLUSION
The Court grants Wey’s motion to vacate the default entered against him. Wey is ordered
to respond to Plaintiffs’ Second Amended Complaint within 14 days of the date of this Opinion
and Order. Also within 14 days of the date of this Opinion and Order, Plaintiffs may, if
necessary, submit letter briefing requesting that Wey pay their fees and costs in filing for the
entry of default.
This resolves Dkt. No. 185.
SO ORDERED.
Dated: May 31, 2020
New York, New York
____________________________________
ALISON J. NATHAN
United States District Judge
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