Opinion ID: 773118
Heading Depth: 2
Heading Rank: 2

Heading: Existence of a Meritorious Defense

Text: 19 In connection with a motion to vacate a default judgment, a defendant must present more than conclusory denials when attempting to show the existence of a meritorious defense. See Enron Oil, 10 F.3d at 98. 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. 20 Because appellants did not move to vacate the default judgment before the district court and because the proceedings in this class action had not moved beyond discovery when Proskauer Rose withdrew, appellants' defense has only been subject to review in the context of their unsuccessful 12(b)(6) motion. See In re Gaming Lottery Sec. Litig., No. 96 CIV. 5567, 96 CIV. 7527, 96 CIV. 7936, 1998 WL 276177 (S.D.N.Y. May 29, 1998). This class action was brought pursuant to Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 of the Rules of the Securities and Exchange Commission on behalf of purchasers of Gaming Lottery Corporation, which was the former name of Galaxiworld. The class action is based on the defendants' allegedly misleading public statements and financial reports issued during the class period that caused the stock of Gaming Lottery to be overvalued. In response to the plaintiffs' claim that defendants misrepresented the status of Galaxiworld's acquisition of Specialty Manufacturing, defendants argue that two of the five allegedly misleading statements that plaintiffs suggest had a material effect on Gaming Lottery's stock price were true. As for the remaining allegedly misleading statements, defendants argue that all of those included a disclaimer pointing out that the acquisition of Specialty Manufacturing was subject to regulatory approval. With respect to appellees' claim that the appellants knew or recklessly disregarded the inaccuracy of Galaxiworld's financial statements, appellants justify their decision to consolidate the earnings from Specialty by pointing out their reliance on the advice of their accounting firm and auditors. Appellants argue that, because they relied on the oral and written advice of their chartered accountants, they cannot be found to have acted recklessly. Because these claims, if proven at trial, would constitute a complete defense, appellants have demonstrated a meritorious defense for purposes of vacating the default judgment entered against them.