PMJ Capital Corp. v. The Lady Antoinette et al

Filing 88

MEMORANDUM OPINION & ORDER re: 73 CROSS MOTION to Set Aside Default and in Opposition to Plaintiff's Motion for Interlocatory Sale of Vessel filed by Antoinette Bauco, Frank Bauco, 55 MOTION for Interlocutory Sale of Ves sel Pursuant to Supplemental Rule E(9) filed by PMJ Capital Corp. The Court grants the Baucos' motion to vacate the default provided that the Baucos post a bond or other form of adequate security in the amount of $143,749.92. The Court denies PMJ's motion for an interlocutory sale of the Vessel. The Baucos are ordered to submit a letter to the Court within 3 days of posting the security informing the Court that they have done so. The Baucos are also ordered to file a n answer to PMJ's complaint within 14 days of the date of this Order. The parties are ordered to appear before the Court on March 9, 2018, at 3:30 p.m. for an initial pretrial conference. The parties are directed to submit a joint letter and pr oposed case management plan to the Court 7 days before that conference. This resolves Docket Numbers 55 and 73. (Initial Conference set for 3/9/2018 at 03:30 PM before Judge Alison J. Nathan.) (Signed by Judge Alison J. Nathan on 1/17/2018) (mml)

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PMJ Capital Corp.,

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Plaintiff,
16-cv-6242 (AJN)

-vMEMORANDUM
OPINION & ORDER

Frank Bauco, et al.,
Defendants.

ALISON J. NATHAN, District Judge:
This case concerns a vessel foreclosure action brought by Plaintiff PMJ Capital Corp.
("PMJ"). At issue are two cross-motions: (1) a motion by PMJ to order the interlocutory sale of
Defendant The Lady Antoinette ("the Vessel"); and (2) a motion by Defendants Frank and
Antoinette Bauco ("the Baucos") to vacate the default entered against them on March 9, 201 7.
For the reasons provided below, the Court conditionally grants the vacatur, provided that the
Baucos provide security, and denies the motion for an interlocutory sale.
I.

BACKGROUND
In 2013, the Baucos sought a loan from PMJ. According to Frank Bauco, he needed the

loan to cover his personal expenses. See Dkt. No. 80, Ex. A ("Bauco Affidavit") iii! 16-20. On
November 20, 2013, PMJ entered a loan agreement with 550 Realty Associates, LLC ("550
Realty"), of which Mr. Bauco was a managing member. See Dkt. No. 74, Ex. B ("Promissory
Note"). Under the terms of the Promissory Note ("the Note"), PMJ gave 550 Realty $75,000,
which 550 Realty agreed to pay back at an interest rate of 16%. Id. Also on November 20,
2013, the Baucos signed a Guaranty of Payment, personally guaranteeing the Note. See Dkt. No.
74, Ex. C ("Guaranty of Payment"). In addition, to secure the loan, the Baucos executed in favor

1

of PMJ a First Preferred Ship Mortgage on the Vessel, which they own. See Dkt. No. 74, Ex. D
("First Preferred Ship Mortgage"). After fees were taken out of the $75,000 loan payment, 550
Realty received approximately $65,500 from PMJ. See Bauco

Affidavit~

26. According to Mr.

Bauco, the money from the loan "was used for primarily personal, family, and household
purposes." See id.

~

28.

550 Realty made payments on the Note for approximately one year. See Bauco Affidavit
~

27; Dkt. No. 79, Ex. 1 ("State Court Complaint")~ 13. There is no evidence that 550 Realty or

the Baucos made any payments to PMJ after July 2015. See Bauco

Affidavit~

27; State Court

Complaint ~ 13.
Therefore, in August 2016, PMJ brought suit against the Baucos and the Vessel 1 alleging
that the Baucos were in default under the terms of the Guaranty and the Mortgage and seeking to
foreclose on the Vessel. See Dkt. No. 1 ("Complaint").
According to PMJ, on September 22, 2016, the Baucos' attorney at the time, Phillip
Grimaldi, accepted service of the Summons and Complaint on behalf of the Baucos. See Dkt.
No. 13 ("Affirmation of Service")~ 4. In exchange, PMJ agreed to extend the time for the
Baucos to respond until October 20, 2016. See Dkt. No. 57, Ex. 1 ("Emails with Grimaldi").
According to Mr. Bauco, at some point Grimaldi assured him that Grimaldi would file an answer
in response to PMJ's complaint. Bauco

Affidavit~

7.

On October 26, 2016, upon PMJ' s application, the Court authorized the issuance of a
warrant for the arrest of the Vessel. Dkt. No. 15 ("Order Authorizing Issuance of Warrant").
Around the same time, PMJ requested an entry of default against the Baucos because they had
failed to file any responsive pleading. See Dkt. No. 18 ("First Request for Entry of Default").

1
PMJ also named as a defendant New York Athletic Club ("NYAC"), where the Vessel was and is located. See
Complaint.

2

The Court denied the request without prejudice because it could not conclude that service on
Grimaldi clearly constituted proper service. See Dkt. No. 31 ("Order Denying Default").
On November 30, 2016, the United States Marshal for the Southern District of New
York arrested the Vessel. See Dkt. No. 54 ("Receipt and Return of Service Executed"). A few
days later, on December 2, 2016, PMJ informed Grimaldi of the Vessel's arrest. See Dkt. No.
57, Ex. 2 ("1212116 Letter to Grimaldi"). In late January 2017, Grimaldi informed PMJ that he
no longer represented the Baucos. Dkt. No. 57 ("Ware

Declaration")~

7.

Given Grimaldi's statement and the Co mi's earlier denial of its request for an entry of
default, PMJ decided to serve the Baucos personally, which it did on February 14, 2017. See
Dkt. No. 48 ("Affidavit of Service on Frank Bauco"); Dkt. No. 49 ("Affidavit of Service on
Antoinette Bauco"). In addition, in early March 2017, PMJ informed the Baucos of the Vessel's
arrest. See Dkt. No. 57, Ex. 4 ("3/2/17 Letter to Baucos").
When the Baucos failed to respond to the complaint, PMJ again requested to enter default
against them. See Dkt. No. 50 ("Second Request for Entry of Default"). This time, on March 9,
2017, the Clerk of the Court entered a Certificate of Default against the Baucos. Dkt. No. 52
("Certificate of Default").
On April 6, 2017, PMJ moved for an interlocutory sale of the Vessel. Dkt. No. 55
("Motion for Interlocutory Sale"). On May 4, 2017, the Baucos, in their first filing in this
litigation, requested an extension of time to respond to PMJ's motion. See Dkt. No. 64. The
Court granted the extension, Dkt. No. 65, and on May 16, 2017, the Baucos submitted their
opposition to PMJ's motion and also moved to vacate the default, Dkt. No. 73 ("Cross Motion to
Set Aside Default").

3

The Court addresses each motion in turn, beginning with the Baucos' motion to vacate
the default.
II.

MOTION TO VACATE DEFAULT

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, after such default is entered, "[t]he court may set aside
an entry of default for good cause." Fed. R. Civ. P. 55(c). The standard for vacating a default is
more lenient than that for a default judgment, but the "good cause" factors are the same for both.
See Meehan v. Snow, 652 F.2d 274, 276 (2d Cir. 1981); Enron Oil Corp. v. Diakuhara, 10 F.3d
90, 96 (2d Cir. 1993). Courts assess three criteria to determine 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 & AWed 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)). The Second Circuit has expressed
a 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)).
The Baucos contend that all three "good cause" factors weigh in favor of vacating the
default here.
A. Willfulness of Default

The Baucos argue that the default was not willful but was instead the result of negligence
by their former counsel, Grimaldi. See Dkt. No. 74 ("Opposition to Motion for Interlocutory
Sale'') iri! 28-32.

4

The Second Circuit has interpreted willfulness "to refer to conduct that is more than
merely negligent or careless." S. E. C. v. AfcNulty, 137 F.3d 732, 738 (2d Cir. 1998). Instead,
willful conduct is that which is "egregious" and "not satisfactorily explained." Id. 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). Thus when
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," an inference of willful default is justified. Guggenheim
Capital, LLC, 722 F.3d at 455. "[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 .... " McNulty, 137 F.3d at 738-39
(internal citations omitted).
Moreover, "where the attorney's conduct has been found to be willful, the willfulness
will be imputed to the party himself where he makes no showing that he has made any attempt to
monitor counsel's handling of the lawsuit." Id. at 740. When a party has "diligently inquired of
[his] attorney as to the status of [his] case 'three or four times a week' over a six-month period
and ... the attorney ha[s] given assurances on each occasion that the matter [i]s being handled
properly," the party is not responsible for the attorney's neglect. Id. But when a party does "not
talk to his attorney for nearly a year, and ... receive[ s] no bills during that time to indicate that
any attention [i]s being given to his case," it is appropriate to impute the attorney's willful
default to the client. Id.
Here, the Baucos "do[] not deny that [they] received the complaint" or notice of the
arrest, or ''that [they] never answered the complaint." Guggenheim Capital, LLC, 722 F.3d at

5

455. Indeed, the evidence demonstrates that the Baucos' original counsel, Grimaldi, was aware
of the complaint in this case no later than September 22, 2016. See Emails with Grimaldi. Yet
the Baucos did not file any responsive pleadings or take steps to release the Vessel until May
2017, after PMJ had filed a motion for interlocutory sale of the Vessel. Neither party has
submitted evidence explaining why Grimaldi failed to file a response in this case. That the
failure to respond is unexplained cuts in favor of finding the default to have been willful. See
McNulty, 137 F.3d at 738-39.

However, the Baucos insist that they intended to respond to PM.T's complaint and that the
failure to do so should be attributed to Grimaldi, not to them. Mr. Bauco contends that Grimaldi
"informed and assured" Mr. Bauco that he would "prepare, serve and file a timely answer" to the
complaint, and Mr. Bauco "relied on his representation." Bau co Afiidavit ~ 7. Yet the Baucos
do not allege that they "diligently inquired of their attorney as to the status of their case."
McNulty, 137 F.3d at 740. Moreover, although it is not clear when exactly the Baucos became

aware of the action, they were at least aware by February 14, 2017, see Bauco

Affidavit~

6, and

likely before that, as they communicated with Grimaldi about the case and he ceased
representing them in January 2017, see Bauco Affidavit ir 7; Ware

Declaration~

7. The Baucos

were also aware of the arrest of the Vessel no later than early March 2017. See 312117 Letter to
Baucos. Despite being aware of the action pending against them, there is no evidence that the
Baucos actively monitored the case or consistently communicated with their counsel.
Accordingly, Grimdaldi's willful default is imputed to the Baucos.
The Comi thus finds the default to have been willful.

B. Meritorious Defenses

6

The Baucos assert three defenses to PMJ's underlying claim. See Opposition to Motion
for Interlocutory Sale~~ 34-39.
To succeed on a motion to vacate a default, the defendant does not need to conclusively
establish his defense, but he must present more than conclusory assertions or denials. See

Bricklayers & Allied Crafiworkers Local 2, Albany. N. Y Pension Fund, 779 F.3d at 187;
McNulty, 137 F.3d at 740.
Here, the Baucos allege that PMJ violated New York state's usury rules; that PMJ failed
to name 550 Realty as a necessary party; and that PMJ lacks standing to foreclose on the Vessel.

See Opposition to Motion tor Interlocutory Sale ~l~I 35-38. The Court considers each defense in
turn.

1. Usury Defense
The Baucos allege that PMJ Capital executed a usurious loan because it charged an
interest rate in excess of New York's maximum allowable interest rate. 2 See Opposition to
Motion for Interlocutory Sale~~ 35-36.
New York's usury law prohibits a lender from imposing a rate of interest greater than
16% per year. See N.Y. GEN. 0BLIG. LAW§ 5-501(1); N.Y. BANKING LAW§ 14-a(l). However,
corporations--meaning "all associations, and joint-stock companies having any of the powers
and privileges of corporations not possessed by individuals or partnerships"-may not raise a
civil usury defense, though they may raise a criminal usury defense if the interest rate exceeds
25%. N.Y. GEN. OBLIG. LAW§ 5-521(1), (3); N.Y. PENAL LAW§ 190.40. Likewise, "[a]n
individual guarantor of a corporate obligation is ... precluded from asserting ... a [civil usury]

2

The Baucos note in their reply brief that there might be a question under the terms of the contract whether New
York law applies to the interest rate at issue, but they insist that it does so apply. See Dkt. No. 80 ("Baucos' Reply")
ili! 37-39. PMJ has not argued that under the contract terms New York law does not apply. Accordingly, the Court
assumes for the purposes of this Order that New York law governs the interest rate in the loan.

7

defense." Tower Fund;ng, Ltd. v. David Berry Realty, Inc., 755 N.YS.2d 413, 415 (App. Div.
2003). But "where a corporate form is used to conceal a usurious loan made for personal, not
corporate purposes, the defense of usury may be interposed." Id. That is the case when "the
loan was made to discharge personal debts and obligations of the individual." Schneider v.
Phelps,359N.E.2d 1361, 1364(N.Y.1977).

Furthermore, "where usury does not appear on the face of the note, usury is a question of
fact." Freitas v. Geddes Sav. & Loan Ass 'n, 471 N.E.2d 437, 443 (N.Y. 1984). In determining
the interest rate of a loan, reasonable expenses attendant to the loan are not included. Hillair
Cap;tal Invs., L.P. v. Integrated Freight Corp., 963 F. Supp. 2d 336, 339 (S.D.N.Y. 2013) (citing
Lloyd Capital Corp. v. Pat Henchar, Inc., 603 N.E.2d 246, 247 (N.Y. 1992) ("[A] borrower may

pay reasonable expenses attendant on a loan without rendering the loan usurious.")). "However,
when fee payments do not actually reimburse lenders for expenses associated with the loan, and
instead are a disguised loan payment, then such fee expenses can be considered in determining
the interest rate." Id. (citing Lloyd CapUal Corp., 603 N.E.2d at 247).
Here, PMJ entered the loan agreement with 550 Realty, a limited liability company.
Promissory Note. The Baucos, as individuals, guaranteed 550 Realty's obligations under the
Note, see Guaranty, but 550 Realty received the loan proceeds, see Dkt. No. 74, Ex. I ("Bank of
America Statement"); Bauco

Affidavit~

26. The Baucos are thus individual guarantors of a

corporate obligation and as such should be unable to raise a usury defense. See Tower Funding,
Ltd, 755 N.Y.S.2d at 415. However, the Baucos claim that although 550 Realty entered the loan

agreement with PMJ, the Baucos intended to use the loan for personal expenses and explained
this to PMJ at the time. Bauco

Affidavit~~

18-21. Accordingly, they argue, they may raise the

defense of usury. Although a factfinder may conclude, or the development offmiher facts may

8

show, that the Baucos' allegations regarding the personal purpose of the loan are not credible,
the Court cannot make that determination at this stage. Instead, the Comi concludes that the
Baucos have provided facts that would support a finding that, although they are individual
guarantors of a corporate obligation, they may assert a usury defense because the loan was made
to discharge personal obligations. See Schneider, 359 N.E.2d at 1364.
Whether the "corporate form [was] used to conceal" a loan made for personal purposes
is irrelevant, though, if the loan was not usurious. Here, the Note set the interest rate at 16% per
year. Promissory Note. Even assuming that the usury defense is available to the Baucos, an
interest rate of 16% would not violate the law. See N.Y.

GEN.

OBLIG. LAW§ 5-501(1); N.Y.

BANKING LA w § 14-a( 1). But the Baucos argue that the Court should take into account fees paid
in addition to the interest payments. See Dkt. No. 80 ("Baucos'

Reply")~~

48-52. If such fees

are taken into account, the interest rate would exceed 16%. It is possible that the fee payments
constitute reasonable expenses associated with the loan and thus should not be included in the
interest rate calculation. At this stage, though, the purpose of those payments is a question of
fact. See Freitas, 63 N.Y.2d at 262.
Accordingly, the Baucos have demonstrated that they may be able to successfully claim a
usury defense.

2. Failure to Name 550 Realty
As another defense, the Baucos contend that 550 Realty is a necessary paiiy to this action
that PMJ failed to name as a defendant. See Opposition to Motion for Interlocutory

Sale~

37.

Federal Rule of Civil Procedure l 9(a) requires that a person "whose joinder will not
deprive the court of subject-matter jurisdiction" be joined as a party if: "(A) in that person's
absence, the court cannot accord complete relief among existing parties," or (B) that person has

9

such an interest in the action that "disposing of the action in the person's absence may: (i) as a
practical matter impair or impede the person's ability to protect [his] interest; or (ii) leave an
existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent
obligations." In cases involving guarantees, the beneficiary of a guarantee typically may choose
to sue the guarantor alone, without the principal debtor. See Huber Lathing Corp. v. Aetna Cas.
& Sur. Co., 517 N. Y.S.2d 758, 760 (App. Div. 1987) ("[I]t is not unusual for the beneficiary of a

guarantee to sue a guarantor or surety alone, apart from any against the principal debtor ... and
there is no requirement that the beneficiary join both parties."); Holland v. Fahnestock & Co.,

Inc., No. 01 Civ. 2462, 2002 WL 1774230, at *10 (S.D.N. Y. Aug. 1, 2002), adopted by 210
F.R.D. 487 (S.D.N.Y. 2002) ("If the action is to obtain a money judgment against the surety
alone, the creditor cannot be compelled to bring in the principal as a defendant, unless the
surety ship contract expressly provides as a condition precedent to liability on the paii of the
surety that the principal must be made a party to any action on the undertaking." (quoting 63 N. Y

Jur.2d Guaranty & Suretyship § 335)); see also Lipedes v. Liverpool & London & Globe Ins.
Co., 171 N.Y.S. 484, 486 (App. Div. 1918) ("[T]he courts have repeatedly held that any
instrument named in the statute was void if usury was given, provided the defense was properly
insisted on by the person who gave the usury or his privies to the contract, sureties, devisees, or

personal representatives." (emphasis added)). In addition, when a defendant is the president and
sole shareholder of a company that was not joined in the action, the company is not a necessary
party because the defendant is "certainly ... able to adequately represent [the company]." BMG

Music v. Vanxy, Inc., No. 98 Civ. 6496, 1999 WL 493345, at *2 (S.D.N.Y. July 12, 1999); see
Wilshire Ltd v. Rajaei, No. 06 Civ. 5613, 2007 WL 2457410, at *5 (S.D.N.Y. Aug. 22, 2007);
Rose v. Simms, No. 95 Civ. 1466, 1995 WL 702307, at *6 (S.D.N.Y. Nov. 29, 1995).

10

Here, PMJ named as defendants the Baucos and the Vessel but not 550 Realty, a party to
the Note. See Complaint. As the beneficiary of a guarantee from the Baucos, though, PMJ could
choose to sue the guarantor, the Bacuos, rather than the principal debtor, 550 Realty. See Huber

Lathing Corp., 517 N.Y.S.2d at 760. Indeed, joining 550 Realty is not necessary to accord
complete relief among the parties-the Baucos guaranteed the loan and executed the mortgage at
issue. PMJ can thus obtain complete relief from the Baucos and the Vessel. Moreover, 550
Realty has not claimed an interest relating to the subject of the action. Even if it had, Mr. Bauco,
as a managing member of 550 Realty, can likely represent that interest. See BMG Music, 1999
WL 493345, at *2. The Court notes, however, that there appears to be a question regarding the
extent to which the Baucos could pursue the same defenses that 555 Realty could pursue. See
Baucos' Reply ~~60-61 (contending that 550 Realty has an interest that may be impaired in this
litigation because the loan violates the criminal usury law and if the Court were to find that the
loan was made to 550 Realty for a corporate purpose, 550 Realty "would be the only party that
could assert that [the] transaction [was] void based upon criminal usury" because a usurious
transaction "is void when properly insisted on by the proper party, otherwise it is only
voidable"). It is thus unlikely that the Baucos could succeed on their necessary party defense,
but the Court declines to definitively reject the defense at this stage.

3. PMJ's Interest in the Vessel
Finally, the Baucos argue that PMJ lacks standing to pursue foreclosure on the Vessel
because 550 Realty executed the Note, but 550 Realty does not own the Vessel. Opposition to
Motion for Interlocutory

Sale~

38.

The Court understands the Baucos' argument to be that PMJ has no legally recognized
interest in the Vessel. The record disproves that contention. The Baucos are the guarantors of

11

the loan between PMJ and 550 Realty, and they executed a First Preferred Ship Mortgage in
favor of PMJ to secure that loan. See Guaranty of Payment; First Preferred Ship Mortgage. That
550 Realty does not own the Vessel is irrelevant because the Baucos do own the Vessel, they
agreed to serve as guarantors, and they offered the Vessel as security. The Baucos' assertion that
PMJ lacks any interest in the Vessel is thus not meritorious.

C. Prejudice
The Baucos argue that PMJ will not suffer prejudice if the default is vacated because the
loan was usurious and thus void ab initio. 3 Baucos' Reply~~ 55-56. PMJ responds that the
defense of usury is unavailable to the Baucos and asserts that it would suffer financial prejudice
if the default were vacated. Dkt. No. 85 ("PMJ's Surreply"), at 3-6. PMJ complains that it "has
been paying for the storage of the Vessel at the NY AC, the insurance on the Vessel, and the U.S.
Marhsal's insurance since November 2016 and ... continues to pay the cost of storing the Vessel
at the NYAC and maintaining insurance on the Vessel." Id. at 5. PMJ also emphasizes that the
Vessel has been out of water during this litigation and is thus at an increased risk of
deterioration. Id. at 5-6. The Baucos do not dispute that PMJ has suffered the cost of storing the
Vessel, but they argue that any potential for prejudice could be eliminated if the Court were to
"craft a financial remedy as a condition of vacating the default." Baucos'

Reply~

56.

Delay alone does not constitute prejudice; instead, prejudice exists when, for example,
vacatur will "result in the loss of evidence, create increased difficulties of discovery, or provide
greater opportunity for fraud and collusion." Davis v. Mus/er, 713 F.2d 907, 916 (2d Cir. 1983)

3

The Court notes that the Bacuos do not cite authority to support this argument, and it is in tension with the Baucos'
assertion in the context of their necessary party defense that whether the Joan is void or voidable depends on who is
making the claim of usury. See Baucos' Reply~ 60-61; see also McNellis v. Raymond, 329 F. Supp. 1038, 1046
(N.D.N.Y. 1971) ("As construed by the courts, [the usury] statute has always meant something less than void.").

12

(internal quotation marks omitted). Prejudice may also exist if vacatur would "thwart plaintiffs
recovery or remedy." Green, 420 F.3d at 110 (internal quotation marks omitted).
Here, PMJ may suffer financial prejudice if the default is vacated. Although the storage
costs that PMJ is paying are the result of the Vessel's atTest, not the result of the default, PMJ
may be forced to carry those costs longer if the default is vacated. Moreover, the delay caused
by vacating the default could "thwart [PM.T's] recovery or remedy" because the longer the Vessel
is out of water and not receiving maintenance, the greater the risk of the Vessel's deterioration
and attendant depreciation in value.
D. Balance of the Factors
Although it is close, given the general preference for deciding cases on the merits, the
factors ultimately weigh in favor of vacating the default: although the default was willful, the
Baucos have a potentially meritorious defense. In addition, the prejudice that PMJ may suffer is
largely financial, rather than the loss of evidence or difficulties of discovery. The Court can
protect against the risk of financial harm by imposing a condition on vacatur.
Comis may condition the vacatur of defaults "on the posting of security for payment of
all or paii of an eventual adjudicated judgment." Powerserve Int'!, Inc., 239 F.3d at 515.
"Whether there is justification for such a condition will depend on the circumstances of the case,
and it is incumbent on the district court to make findings sufficient to permit appellate review of
the condition's reasonableness." Id. at 515-16.
In this case, conditioning vacatur on the posting of a bond or other security is necessary
to protect PMJ's rights. As stated above, Defendants' willfully defaulted in this case.
Additionally, this litigation arose when the Baucos defaulted on a loan. To satisfy the loan, PMJ
sought to foreclose on the Vessel. Now, PMJ faces the possibility that it will be unable to fully

13

recover, as the Vessel will likely depreciate in value the longer it remains out of water.
Moreover, PMJ has been paying, and will continue to pay, costs of $32.50 per day since the
Vessel was arrested. See Ware Declaration ~ 17. Finally, the Bau cos themselves suggested "the
Court could craft a financial remedy as a condition of vacating the default." Baucos'

Reply~

56.

The Court thus conditions vacatur on the Baucos' posting a bond or other form of
adequate security in the amount of $143,749.92, the minimum amount PMJ stated it was entitled
to in its complaint. See

III.

Complaint~[

30.

INTERLOCUTORY SALE
PMJ seeks an interlocutory sale of the Vessel and requests the PMJ be allowed to credit

bid at the sale. Dkt. No. 56 ("PMJ Memo"), at 7-9.
Under Supplemental Rule of Civil Procedure E(9)(a)(i), the comi may order the
interlocutory sale of property if:
(A) the attached or arrested propetiy is perishable, or liable to deterioration, decay, or
injury by being detained in custody pending the action;
(B) the expense of keeping the property is excessive or dispropo1iionate; or
(C) there is an unreasonable delay in securing the release of the prope1iy.
PMJ contends that all three of those conditions are satisfied here. PMJ Memo at 7. As
noted above, the Comi acknowledges that the Vessel faces physical harm because it is out of the
water and exposed to the elements; that PMJ has spent thousands of dollars on storage costs; and
that the Baucos failed to make any effort to secure the release of the Vessel for several months.
However, given the possibility that the Baucos have a meritorious defense to the action, the
Court declines to order the sale of the Vessel. Nevertheless, as explained above, in light of the
risk of the Vessel's deterioration and the costs that vacating the default may impose on PMJ, the
Court conditions the vacatur on the posting of security.

IV.

CONCLUSION

14

The Court grants the Baucos' motion to vacate the default provided that the Baucos post
a bond or other form of adequate security in the amount of $143,749.92. The Court denies
PM.J's motion for an interlocutory sale of the Vessel.
The Baucos are ordered to submit a letter to the Court within 3 days of posting the
security informing the Court that they have done so. The Baucos are also ordered to file an
answer to PMJ's complaint within 14 days of the date of this Order.
The parties are ordered to appear before the Court on March 9, 2018, at 3:30 p.m. for an
initial pretrial conference. The parties are directed to submit a joint letter and proposed case
management plan to the Court 7 days before that conference.
This resolves Docket Numbers 55 and 73.

SO ORDERED.

Jl,

Dated: January
2018
New York, New York

United States District Judge

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