Conley v. Competitive Technologies, Inc. et al

Filing 50

ORDER adopting 46 Report and Recommendations in its entirety. Defendant Competitive Technologies, Inc.'s 36 Motion to Vacate is DENIED with respect to liability and GRANTED with respect to a determination of damages. Plaintiff's 35 Motion to Dismiss individual Defendants Mir and O'Connell is DENIED without prejudice. So Ordered by Senior Judge Mary M. Lisi on 1/17/2017. (Feeley, Susan)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
TIMOTHY CONLEY
v.

C.A. No. 14-288-ML

COMPETITIVE TECHNOLOGIES, INC;
CONRAD MIR; and CARL O’CONNELL;

ORDER
This matter is before the Court on review of a Report and
Recommendation (“R&R”) issued by Magistrate Judge Sullivan on
November 21, 2016 (ECF No. 46). The Defendants have filed a timely
objection to the R&R; accordingly, the Court reviews de novo those
portions of the R&R to which an objection has been made. See Fed.
R. Civ. P. 72(b). The Court has thoroughly reviewed and considered
the complaint (ECF No. 1), the parties’ motion papers (ECF Nos. 3539, 41-45),

the R&R, the Defendants’ objection thereto (ECF No.

47), and the Plaintiff’s response (ECF No. 48). Having done so, the
Court

now

adopts

the

R&R

in

its

entirety.

Accordingly,

the

Defendants’ motion to vacate the default (ECF No. 36) is DENIED,
with prejudice, as to liability and GRANTED as to the amount of
damages.

The

Plaintiff’s

motion

to

voluntarily

dismiss

the

individual Defendants is DENIED without prejudice.
I. Factual Background and Procedural Summary
On June 23, 2014, Plaintiff Timothy Conley (“Conley”) brought
claims for Breach of Contract (Count I), quantum meruit (Count II),
1

and Intentional Interference with a Business Contract (Count III)
against Defendants Competitive Technologies, Inc. (“CTI”)1, CTI CEO
and

Director

Carl

O’Donnell

(“O’Donnell”),

and

CTI

CEO

and

President Conrad Mir (“Mir”). Complaint (ECF No. 1).
Conley’s

claims

“Agreement”) signed

were

based

on

a

letter

agreement

(the

on May 1, 2012 by Conley and then CTI CEO

Johnnie D. Johnson (ECF No. 1-2)2. The Agreement was set for a term
of twenty-four months and subject to automatic renewal unless
terminated

by

written

notice

after

the

first

twelve

months.

Agreement ¶1. It called for Conley to provide services to CTI in
connection with a medical device; Conley was to be compensated for
his services with a fixed fee as well as a commission for completed
sales of the device. Agreement ¶¶2-4.
According to the Complaint, Conley provided all services
pursuant to the Agreement but was not compensated accordingly.
Complaint ¶¶19, 20. With respect to O’Connell and Mir, Conley
alleged

that

they

management

to

stop

Agreement.

Complaint

“intentionally
making
¶¶36,

payments”
38.

On

and
due
its

maliciously
to

Conley

part,

CTI

directed
under

the

denied

the

allegations and it offered the unsupported assertion that the

1

CTI changed its name to Calmare Therapeutics on August 14,
2014 (ECF No. 23).
2

O’Connell became CEO on November 1, 2012 and Mir became CEO on
October 4, 2013.
2

Agreement was entered into “ultra vires.” Answer 5 ¶2 (ECF No. 7).
Initially, Conley experienced some difficulties in pursuing
the litigation when his counsel simply abandoned the case.

CTI

filed a motion to default, but then dropped the matter after Conley
obtained new counsel and began to engage in the discovery process.
Five months later, on December 28, 2015, Defendants’ counsel
moved to withdraw on the grounds that Defendants were not paying
their

legal

bills

and

were

unresponsive

to

counsel’s

communications. Motion to Withdraw 1 (ECF No. 22). As set forth in
counsel’s motion, Defendants were properly advised of the motion to
withdraw. Simultaneously, CTI’s counsel also filed a motion to
extend discovery deadlines (ECF No. 23). In response to counsel’s
motion to withdraw, Magistrate Judge Sullivan entered an order on
January 22, 2016 (ECF 24). In the order, she noted that an
objection to counsel’s motion had been due January 14, 2016 and
that no objection had been received, nor had substitute counsel
entered an appearance for the Defendants. Notwithstanding the lack
of an objection or entry of appearance, Magistrate Judge Sullivan
only provisionally granted counsel’s motion to withdraw as of March
23, 2016, finding that counsel had complied with the requirements
of the Rules of Professional Conduct and the Local Rules of this
Court. She also

extended the time for Defendants to object to the

motion to withdraw to March 7, 2016. The Order specifically noted
“the

potential

for

serious

consequences

3

for

the

individual

Defendants, if they do not either enter and defend the case pro se
or retain successor counsel, and the substantial likelihood of
default

for

the

corporate

Defendant,

if

it

does

not

retain

successor counsel.” Order at 2 (emphasis added). To provide the
Defendants with further notice of the consequences of failing to
comply with the March 7, 2016 deadline, Magistrate Judge Sullivan
required Defendants’ counsel to provide additional notice to all
Defendants, such notice to include specific warnings, in bold
lettering, that they “are at risk that judgment of default will be
entered against them.” Order at 3, 4. In compliance with the
January 22, 2016 order, Defendants’ counsel filed a certification
of compliance on February 3, 2016, detailing that he had provided
the requisite notice to both the individual Defendants and to CTI
(ECF No. 25).
On February 5, 2016, Conley filed a motion to compel answers
to interrogatories (ECF No. 26-1), which had first been submitted
to CTI in July 2015, but had been ignored thus far (ECF No. 26). On
February 15, 2016, while Defendants’ counsel’s motion to withdraw
was pending, Defendants’ counsel properly filed a motion for an
extension of time to file a response to Conley’s motion to compel
(ECF No.27). Magistrate Judge Sullivan granted Defendants’ motion
to extend the deadline on February 16, 2016. She again directed
Defendants’ counsel to advise Defendants of the legal significance
of failing to file a timely objection (due on March 22, 2016).

4

02/16/2016 text order. As before, Defendants’ counsel filed a
certification of compliance with the February 16, 2016 order on
February 22, 2016 (ECF No. 28).
After no communication of any kind was received from the
Defendants in response to any of the foregoing, Magistrate Judge
Sullivan granted Defendants’ counsel’s motion to withdraw on March
23, 2016. 03/23/2016 Text Order. On March 25, 2016, she also
granted

Plaintiff’s

motion

to

compel

(in

the

absence

of

an

objection) and she ordered CTI to respond to Plaintiff’s first set
of interrogatories within thirty days. 03/25/2016 Text Order. On
March 29, 2016, Defendants’ counsel filed a further certification,
confirming that he had notified his former clients of the March 23,
2016 text order. The certificate specified that the individual
Defendants had been notified by mail directed to what appears to be
their residential addresses and via e–mail. CTI had been notified
by mail to Mir’s attention at CTI’s corporate offices and to CTI’s
Secretary at the same address, as well as via e-mail to Mir’s CTI
e-mail account (ECF No. 29).
On April 4, 2016, Conley filed a motion for entry of default
against CTI (ECF No. 30).3 Notwithstanding Defendants’ complete

3

As noted in the R&R, Conley conceded that he served the motion
for entry of default only by electronic filing. Because Defendants
had not complied with the Court’s January 22, 2016 order, only
CTI’s mailing address was on the docket, the individual Defendants’
addresses not having been provided. R&R at 6.

5

disregard

for

any

of

the

preceding

orders,

Magistrate

Judge

Sullivan waited yet another month before granting Conley’s motion.
05/05/2016 Text order. Again, no objection or other communication
was received from any of the Defendants.
On June 21, 2016, Conley filed a motion for entry of final
judgment (ECF No. 31). On June 22, 2016, the same day on which this
Court granted Conley’s motion, three new counsel for Defendants
entered their appearances (ECF Nos. 32, 33, 34). On June 24, 2016,
Conley

filed

for

voluntary

dismissal

of

Mir

and

O’Connell,

“conditioned upon entry of Judgment by the Court against [CTI]”
(ECF No. 35), to which Defendants filed an objection (ECF NO. 37).
On June 30, 2016, CTI filed a motion to vacate the default on
the grounds that (1) the default was “not willful but rather a
result of financial constraints and plaintiff’s failure to provide
notice;” (2) setting aside the default would cause no prejudice
since discovery was not completed; (3) meritorious affirmative
defenses were asserted in the answer; and (4) “defendants acted in
good faith throughout these proceedings.” Defs.’ Mem. (ECF 36-1).
Subsequently, Conley filed a timely response to the Defendants’
motion (ECF No. 38), to which Defendants filed a reply (ECF No.
39), prompting Conley to file (with the Court’s permission) a surreply (ECF No. 41).
After the Magistrate Judge conducted a hearing on Defendants’
motion to vacate the default on September 15, 2016, the parties

6

were given another opportunity to submit affidavits and additional
memoranda. Conley filed a memorandum on October 13, 2016 (ECF No.
42) and Defendants filed a memorandum on October 21, 2016 (ECF 44).
Conley filed a further reply on October 27, 2016, in which he noted
that,

notwithstanding

CTI’s

counsel’s

representation

at

the

September 15, 2016 hearing that CTI would be compliant with the
Court’s order, discovery had still not been provided (ECF No. 45).
On November 21, 2016, Magistrate Judge Sullivan issued a
detailed and carefully reasoned 18-page R&R in which she set forth
the combined efforts by the Court, Plaintiff, and CTI’s former
counsel to keep Defendants informed of ongoing proceedings and to
move the litigation forward.
In their objection to the R&R, filed on December 8, 2016, the
Defendants suggest that (1) the R&R “creates inconsistent results
between defendants;” and that (2) Defendants met the standard to
vacate pursuant to Rule 55 of the Rules of Civil Procedure. With
respect to the latter, Defendants assert that their conduct was not
willful and that, even if it were determined to be willful, the
motion to vacate should be granted. They also maintain that the
Agreement was entered into by a person acting without proper
authority and, therefore, it was void under the doctrine of ultra
vires. Conley’s response (ECF No. 48) points out, inter alia, that
CTI disregarded this Court’s explicit orders and did not obtain new
counsel until the day after Conley moved for entry of final

7

judgment, six months after receiving the appropriate notice.
II. Standard of Review
It is well established that a motion to set aside an entry of
default lies within the sound discretion of this Court. Coon v.
Grenier, 867 F.2d 73, 75 (1st Cir. 1989 (listing cases). When
deciding the motion, the Court considers the “good cause” standard
set by Rule 55(c) of the Federal Rules of Civil Procedure. Id. at
75-76 (noting that “[w]hile the exercise of discretion is, of
course, bounded by the specific circumstances of each case, the
frontier

is

staked

out

by

the

‘good

cause’

criterion

of

Fed.R.Civ.P. 55(c).”). The First Circuit has identified no fewer
than seven factors a court may consider in a “good cause” analysis:
(1) whether the default was willful; (2) whether setting
it aside would prejudice the adversary; (3) whether a
meritorious defense is presented; (4) the nature of the
defendant's explanation for the default; (5) the good
faith of the parties; (6) the amount of money involved;
(7) the timing of the motion [to set aside entry of
default].
KPS & Associates, Inc. v. Designs By FMC, Inc., 318 F.3d 1, 12 (1st
Cir. 2003)(citing McKinnon v. Kwong Wah Restaurant, 83 F.3d 498
(1st Cir.1996)). The burden of demonstrating good cause rests with
CTI as the party seeking to set aside the default. Bond Leather
Co., Inc. v. Q.T. Shoe Mfg. Co., Inc., 764 F.2d 928, 938 (1st Cir.
1985).

8

III. Discussion
As set forth in this Memorandum and Order, as well as in the
Magistrate Judge’s detailed R&R, CTI elected, at its peril, to
ignore the January 22, 2016 order for many months. The efforts by
CTI’s former counsel to provide proper notice to his clients and to
impress upon them the risk of failing to obtain new counsel or to
enter the case pro se are well documented. CTI’s suggestion,
bolstered by the Mir Affidavit, that it never received proper
notice of the January 22, 2016 order is entirely unsupported and,
in light of CTI’s former counsel’s certifications, unbelievable. If
CTI was encountering any financial difficulty in obtaining new
counsel, it could have petitioned the Court accordingly, instead of
ignoring the Court’s orders and notifications by its own counsel
outright. Moreover, even after making a promise in open Court that
long overdue discovery would be provided, CTI elected not to
deliver. Under those circumstances, the Court is compelled to
conclude that CTI’s continued disregard of the Magistrate Judge’s
orders was willful. The timing of CTI’s engagement of (three) new
counsel, the inconsistencies of the Mir Affidavit with CTI’s former
counsel’s certifications, and the sudden request to vacate the
default one day after the motion for entry of final judgment was
filed only support that conclusion.
Regarding the question of prejudice to the Plaintiff, the
record reflects that the Defendants’ conduct has impacted the

9

Plaintiff by delaying the case for more than a year and has forced
him to incur additional expense in pursuing this litigation solely
because of CTI’s refusal to adhere to proper procedure and to
follow the Court’s explicit directives. As to CTI’s ability to
raise

a

meritorious

defense,

the

Court

considers

(1)

the

authenticity of the Letter Agreement, which is uncontested; (2) the
acknowledgment that Plaintiff did provide certain services under
the Letter Agreement; and (3) the lack of any legal or factual
support for CTI’s suggestion that the Letter Agreement is void
under the ultra vires doctrine.
In sum, the record reflects the Magistrate Judge’s extended
patience and careful consideration for CTI, as well as CTI’s former
counsel’s

professional

and

appropriate

conduct

in

seeking

withdrawal from the case. On its part, CTI continued to ignore the
Court’s orders and made no effort to comply with the local rules,
nor did CTI attempt to avoid the explicitly described consequences
of letting deadlines pass without a response.
For all those reasons, the Court adopts the November 21, 2016
R&R in its entirety. CTI’s motion to vacate the default is DENIED
with

respect

to

liability

and

GRANTED

with

respect

to

a

determination of damages. Plaintiff’s motion to voluntarily dismiss

10

individual

Defendants

Mir

and

O’Connell

prejudice.
SO ORDERED.
/s/ Mary M. Lisi
Senior United States District Judge
January 17, 2017

11

is

DENIED

without