FETCHO v. Takhar Collection Services, LTD. et al
-CLERK TO FOLLOW UP---DECISION AND ORDER denying Defendants' [27, 28] MOTIONS to Vacate Clerk's Entry of Default. Signed by Hon. John T. Curtin on 6/25/2014. (JEC)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
TAKHAR GROUP COLLECTION SERVICES, LTD.,
FINANCIAL DEBT RECOVERY LIMITED,
F.D.R. CREDIT RECOVERY LTD,
HARDIAL S. TAKHAR,
SUKCHARN S. TAKHAR, and
This is an action pursuant to the Fair Debt Collection Practices Act, 15 U.S.C. §
1692 et seq. (“FDCPA”). It is currently before the court on the motion to vacate the
Clerk’s Entry of Default by defendants Hardial S. Takhar and Sukcharn S. Takhar. Item
BACKGROUND and FACTS
Plaintiff commenced this action with the filing of a complaint on February 28,
2013, naming Takhar Group Collection Services, Ltd. and five unnamed “Doe”
defendants. Item 1. On April 8, 2013, plaintiff sought a Clerk’s Entry of Default against
Takhar Group Collection Services, Ltd. (Item 5), and default was entered on April 11,
2013. Item 7. On September 2, 2013, plaintiff filed an amended complaint, adding
Financial Debt Recovery Limited (“Financial Debt”), F.D.R. Credit Recovery Ltd
(“F.D.R.”), and the individual Takhar defendants. Item 8.
On October 18, 2013, plaintiff requested a Clerk’s Entry of Default as against
F.D.R. (Item 11), which was entered on October 23, 2013. Item 12. Thereafter, F.D.R.
moved to vacate the Clerk’s Entry of Default (Item 15), and the motion was granted on
January 17, 2014. Item 21. On February 14, 2014, plaintiff requested a Clerk’s Entry
of Default against the individual Takhar defendants (Items 24, 25), which was entered
on February 21, 2014. Items 26, 27.
On March 21, 2014, the Court received a letter, dated March 1, 2014, from the
Takhar defendants, which the court has treated as a motion to vacate the Clerk’s Entry
of Default. Item 28. In the letter, the Takhar defendants stated that they had just
received notice of the Clerk’s Entry of Default and were “not aware of any other
correspondence regarding this matter.” Id. They stated that they were “not associated
with” Takhar Collection Services, Ltd. and that all shares and liabilities of that
corporation were sold on April 17, 2013. Id. Enclosed with the letter was a document
entitled “Full and Final Mutual Release,” dated August 1, 2013, in which it is purported
that the Takhars and FDR “discharge each other . . . from all actions, causes of actions,
suits, proceedings, liabilities, debts, guarantees, claims, and demands . . . arising out of
any matters between them, known to them or reasonably known to them, relating in any
way to the purchase of” Takhar Collections Services Ltd. by FDR and another
company, 2070708 Ontario Limited. Id.
Plaintiff filed a response in opposition to the motion on April 16, 2014. Item 30.
On April 30, 2014, plaintiff and defendants Financial Debt and F.D.R. filed a stipulation
of discontinuance. Item 31. The court has determined that oral argument is
unnecessary. For the reasons that follow, the motion of the Takhar defendants to
vacate the Clerk’s Entry of Default is denied.
Rule 55(a) of the Federal Rules of Civil Procedure provides that “[w]hen a party
against whom a judgment ... is sought has failed to plead or otherwise defend, and that
failure is shown by affidavit or otherwise, the clerk must enter the party's default.”
Fed.R.Civ.P. 55(a). Rule 55(c) provides that “[t]he court may set aside an entry of
default for good cause, and it may set aside a default judgment under Rule 60(b).”
Fed.R.Civ.P. 55(c). The factors used by courts to decide whether to set aside a default
or a default judgment are the same, but “courts apply the factors more rigorously in the
case of a default judgment ... because the concepts of finality and litigation repose are
more deeply implicated in the latter action.” Enron Oil Corp. v. Diakuhara, 10 F.3d 90,
96 (2d Cir. 1993).
The determination of whether to set aside a default is left to the “sound discretion
of the judge, the person most familiar with the circumstances of the given case and ... in
the best position to evaluate the good faith and credibility of the parties.” Action S.A. v.
Marc Rich & Co., 951 F.2d 504, 507 (2d Cir. 1991) (citations and quotation marks
omitted). Because Rule 55(c) does not define the term “good cause,” the Second
Circuit has established three criteria that district courts must assess in deciding whether
to relieve a party from a default: (1) whether the default was willful; (2) whether setting
aside the default would prejudice the adversary; and (3) whether a meritorious defense
is presented. Enron Oil Corp., 10 F.3d at 96. These criteria must be applied in light of
the Second Circuit's “strong preference for resolving disputes on the merits.” Brien v.
Kullman Indus., Inc., 71 F.3d 1073, 1077 (2d Cir. 1995); accord Meehan v. Snow, 652
F.2d 274, 277 (2d Cir. 1981) (“Defaults are not favored ... and doubts are to be resolved
in favor of a trial on the merits.”) (citations omitted).
The Second Circuit has interpreted “willfulness” in the context of a default to
refer to conduct that is “more than merely negligent or careless.” S.E.C. v. McNulty,
137 F.3d 732, 738 (2d Cir. 1998). Here, the record indicates that the Takhar
defendants were personally served with the summons and amended complaint (Items
22, 23) and plaintiff’s counsel has stated that copies of the summons, amended
complaint, and the request for Clerk’s Entry of Default were mailed to the defendants’
same residential addresses. It appears that the Takhar defendants willfully chose not
to respond until they received notice of the Clerk’s Entry of Default from the court. The
court further notes that, having given the Takhars an opportunity to move to vacate the
Clerk’s Entry of Default, no attorney has filed a Notice of Appearance on their behalf.
There is no indication that, were the court to grant the motion, the defendants intend to
appear, defend, answer the complaint, or move against it.
On the issue of prejudice, the Second Circuit has held that “[d]elay alone is not a
sufficient basis for establishing prejudice.” Davis v. Musler, 713 F.2d 907, 916 (2d Cir.
1983) (citations omitted). “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.” Id. (citation omitted). Here, plaintiff has not articulated any specific
prejudice, but it is likely that further delay could result in the loss of evidence and other
difficulties contemplated by the Second Circuit.
Finally, on the question of a meritorious defense, the defendant “need not
conclusively establish the validity of the defense(s) asserted,” Davis, 713 F.2d at 916,
but need only present evidence of facts that, “if proven at trial, would constitute a
complete defense.” Enron Oil Corp., 10 F.3d at 98 (citations omitted). “Though a
defendant need not conclusively establish the validity of the defense asserted, [he]
must, nonetheless, articulate a defense with a degree of specificity which directly
relates that defense to the allegations set forth in the plaintiff's pleadings and raises a
‘serious question’ as to the validity of those allegations.” DeCurtis v. Upward Bound
Int’l, Inc., 2012 WL 4561127, at *8 (S.D.N.Y. Sept. 27, 2012), aff’d, 528 Fed. App’x 85
(2d Cir. 2013) (citing Salomon v. 1498 Third Realty Corp., 148 F.R.D. 127, 130
(S.D.N.Y. 1993)). Here, the defendants contend that they are not associated with
Takhar Collection Services Ltd. and were released from all liabilities by Financial Debt.
In support of their defense, they have submitted a “Full and Final Mutual Release”
which purports to settle all claims among the Takhars, Financial Debt, and 2070708
Ontario Ltd., “relating in any way to the purchase of” Takhar Collection Services Ltd.
Generally, the purchaser of the assets of a corporation is not liable to the seller’s
creditors unless the purchaser expressly or impliedly assumes the predecessor
corporation’s liabilities. New York v. Nat’l Serv. Indus., Inc., 460 F.3d 201, 209 (2d Cir.
2006). Having reviewed the relevant document, it does not appear to the court that
Financial Debt expressly assumed the liabilities of Takhar Collection Group Ltd. Claims
by the plaintiff and others, not parties to the release, which relate to conduct which
occurred prior to the sale of Takhar Collections Services Ltd., do not appear to be
precluded by this release. Accordingly, the defendants have not articulated a specific
defense to the plaintiff’s allegations and have failed to raise a serious question as to the
validity of those allegations.
The court concludes that the consideration of all relevant factors weighs against
vacatur. Despite the Second Circuit's preference for resolving disputes on the merits,
the defendants’ motion to vacate the Clerk's Entry of Default is denied.
The defendants’ motion to vacate the Clerk’s Entry of Default (Item 28) is denied.
_____\s\ John T. Curtin___
JOHN T. CURTIN
United States District Judge
Dated: June 25, 2014
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