Securities & Exchange Commission v. Getanswers, Inc.
Securities & Exchange Commission v. Getanswers, Inc.
Opinion of the Court
ORDER DENYING DEFENDANT CHARLES B. EHRLICH’S MOTION TO VACATE DEFAULT JUDGMENT AND FOR LEAVE TO FILE AN ANSWER
THIS CAUSE comes before the Court upon Defendant Charles B. Ehrlich’s Motion
BACKGROUND
Receiver brought this action in connection with the SEC’s underlying enforcement action against Defendant GetAnswers. On February 20, 2003, Receiver filed a Complaint against Defendant, alleging conversion and unjust enrichment and seeking imposition of a constructive trust. Specifically, the Complaint alleges that Defendant “improperly retained $514,590.50 in ‘commissions’ from his solicitation of GetAnswers’ stock.” (Receiver’s Resp. at 2.) Defendant executed a formal acceptance of service of the Complaint but never responded to the Complaint in any manner. Accordingly, on June 12, 2003, Receiver moved for a clerk’s entry of default (DE # 107), and on June 13, 2003, the Clerk of Court entered a default against Defendant (DE # 109). When Defendant again failed to respond in any manner, Receiver moved for a default final judgment on August 13, 2003, pursuant to Fed.R.Civ.P. 55(b) (DE # 129). On August 15, 2003, the Court entered a default final judgment against Defendant (DE # 130).
In his current Motion, Defendant argues that the Court’s default final judgment was improper for two reasons. First, Defendant argues that pursuant to Fed. R. Civ P. 55(b)(2), Receiver was required to provide Defendant with notice of her motion for a default judgment and failed to do so. Second, Defendant argues that pursuant to Fed.R.Civ.P. 60(b)(1), Defendant’s failure to respond to the Complaint constituted excusable neglect.
DISCUSSION
A. Receiver was not require to provide notice of her motion for a default judgment because Defendant did not make an appearance in this action.
Fed.R.Civ.P. 55(b)(2) states, “if the party against whom judgment by default is sought has appeared in the action, the party (or, if appearing by representative, the party’s representative) shall be served with written notice of the application for judgment at least 3 days prior to the hearing on such application.” Though the rule only applies when the defendant has “appeared,” the defendant does not have to make a formal appearance to trigger the notice requirement. The defendant must simply manifest a clear intention to defend. New York Life Ins. Co. v. Brown, 84 F.3d 137, 141-42 (5th Cir. 1996); Key Bank of Maine v. Tablecloth Textile Corp., 74 F.3d 349, 353 (1st Cir. 1996); Wilson v. Moore and Assocs., Inc., 564 F.2d 366 (9th Cir. 1977). Some courts have held that participation in settlement negotiations constitutes a clear intention to defend. Key Bank, 74 F.3d at 353; H.F. Livermore Corp. v. Aktiengesellschaft Gebruder Loepfe, 432 F.2d 689, 691 (D.C.Cir. 1970). However, settlement negotiations do not constitute an appearance if the party seeking a default clearly communicates an intention to seek a default judgment if settlement negotiations do not produce results by a specific deadline. Port-Wide Container Co. v. Interstate Maintenance Corp., 440 F.2d 1195, 1196 (3rd Cir. 1971); see also Wilson, 564 F.2d at 369. Moreover, informal contacts alone do not constitute an appearance if they fail to rise to the level of settlement negotiations. Wilson, 564 F.2d at 369.
In this case, it is undisputed that Receiver failed to provide Defendant with written notice of her motion for a default judgment. It is also undisputed that Defendant failed to make a formal appearance prior to the entry of judgment against him. The sole point at issue is whether Defendant appeared informally. The Court finds that Defendant’s alleged participation in settlement negotiations did not constitute an appearance under Rule 55(b)(2). Defendant could have triggered the notice requirement by simply filing a Notice of Appearance with this Court, but Defendant chose not to respond at all. Given the ease with which Defendant could have made a formal appearance, this Court does not wish to conduct a
Defendant also cites three cases for the proposition that an appearance in one proceeding may constitute an informal appearance in a related proceeding.
B. Defendant’s failure to respond to the Complaint did not constitute excusable neglect.
Fed.R.Civ.P. 60(b)(1) states that a court may overturn a default judgment because of “mistake, inadvertence, surprise, or excusable neglect.” To establish excusable neglect, a defaulting party must show that (1) a good reason existed for failing to respond to the complaint; (2) vacating the default judgment would not result in prejudice to the non-moving party; and (3) the party had a meritorious defense that might have affected the outcome. Fla. Physician’s Ins. v. Ehl-ers, 8 F.3d 780, 783 (11th Cir. 1993).
Defendant argues that excusable neglect justified his failure to respond to Receiver’s Complaint. Defendant contends he had a good reason for his failure to respond because he wished to cooperate with both Receiver and the SEC and did not wish to sabotage his efforts by alerting other defendants of his intentions. However, Defendant fails to show how a perfunctory filing would have hindered his cooperative aspirations. Defendant might simply have put forth a general denial of the claims against him, moved the Court for an extension of time to file an Answer, or even moved the Court for an extension of time to move to vacate the clerk’s entry of default. Instead, Defendant chose to do nothing. Therefore, Defendant has failed to provide a good reason for his failure to respond to the Complaint.
Turning to the second requirement, vacating the default judgment will result in prejudice to Receiver. As noted in her Response, Receiver’s task is to “quickly and efficiently marshal GetAnswers’ assets and to recover as much as possible from those who wrongfully obtained or retained GetAnswers’ funds.” (Resp. at 18.) Vacating any default judgment prejudices the non-moving party by delaying resolution of court proceedings, but in this case Defendant’s stalling tactics have already delayed these proceedings unnecessarily. Defendant’s response to Receiver’s Complaint was due by April 28, 2003, yet Receiver waited almost four months to move for a default judgment because Defendant repeatedly promised settlement offers that never materialized. Granting Defendant’s Motion would further prejudice Receiver’s efforts to complete her appointed task in an efficient manner.
Accordingly, after a careful review of the record and the Court being otherwise fully advised, it is
ORDERED and ADJUDGED that Defendant Charles B. Ehrlich’s Motion to Vacate Default Judgment and For Leave to File Answer be, and the same is hereby, DENIED.
. Defendant cites In re Roxford Foods, Inc. v. Ford, 12 F.3d 875 (9th Cir. 1993); Turner v. Salvatierra, 580 F.2d 199, 201 (5th Cir. 1978); Press v. Forest Labs., Inc., 45 F.R.D. 354 (S.D.N.Y. 1968).
Reference
- Full Case Name
- SECURITIES AND EXCHANGE COMMISSION v. GETANSWERS, INC., James Koenig and Robert Cournoyer, and Oceanmark Consulting Group, Inc., Relief Defendant Kathy Klock, in her capacity as the Court Appointed Receiver for Getanswers, Inc. and Answersoft, Inc., Receivership v. Robert Cournoyer, Holly Cournoyer a/k/a Annette Berry, Oceanmark Consulting Group, Inc., David Nepo, Nepo, Inc., Charles B. Ehrlich a/k/a John Lloyd, Miami Education & Multimedia Entertainment, Barington Schneer, Ronald Saul Welch, Ladies of Style, Inc., Neil Marcellino, Andrew Rosenbaum, and Jorge Semper, Receivership
- Cited By
- 2 cases
- Status
- Published