Opinion ID: 773118
Heading Depth: 2
Heading Rank: 1

Heading: Willfulness of Galaxiworld's default

Text: 10 After approximately four years of pre-trial litigation, on January 10, 2000, defendants' attorneys at Proskauer Rose LLP made a motion to withdraw as counsel. The district court ordered the defendants to appear in court three days after the motion was filed to show cause why Proskauer should not be allowed to withdraw. As president of Galaxiworld, defendant Banks received the order to show cause on January 11, 2000 by fax. 11 On January 13, 2000, none of the defendants appeared in court to explain why Proskauer should not be allowed to withdraw. In response to the plaintiffs' motion for entry of default against the defendants, the district court entered an order, which, inter alia, indicated that the defendants may be held in default should they not file a notice of appearance within five days, by January 18, 2000. 12 Galaxiworld received the January 13 order on January 17, 2000 and, on January 18, advised the district court that it had been trying to find new legal counsel. Banks requested thirty days to find new counsel for Galaxiworld and even requested to act on behalf of Galaxiworld during that period. The district court denied Galaxiworld's request on January 18. See Shapiro, Bernstein & Co. v. Cont'l Record Co., 386 F.2d 426, 427 (2d Cir. 1967) (per curiam) (holding that a corporation cannot appear other than by its attorney). On January 19, 2000, Banks sent another letter to the district court. In this letter, Banks reiterated his frustration with the short time frame that the court was operating under. In response, on January 19, 2000, the district court vacated its January 13 judgment and set a new hearing date of January 25, 2000. On January 24, 2000, Banks sent a letter to the district court, explaining his inability to retain new counsel in time for the January 25 hearing. In his letter, Banks explained that his attempts to retain new counsel were ongoing and requested thirty days to complete this task. 13 On January 25, 2000 the district court denied Banks's application for a thirty day extension. After the January 25 hearing, a default judgment was entered with the amount of damages for the class plaintiffs to be set at a February 9, 2000 inquest. Defendants did not appear at any of these hearings. Therefore, on February 16, 2000, just over one month after plaintiffs' counsel had moved for a default judgment and just over one month after Galaxiworld's counsel in the class action had withdrawn, the district court entered a default judgment in favor of the plaintiffs and against Galaxiworld in the amount of $22,084,844. 14 This Court has held that [s]trong public policy favors resolving disputes on the merits and that, [a]lthough courts have an interest in expediting litigation, abuses of process may be prevented by enforcing those defaults that arise from egregious or deliberate conduct. Am. Alliance Ins. Co. v. Eagle Ins. Co., 92 F.3d 57, 61 (2d Cir. 1996). As a corporation, appellant, Galaxiworld, could only appear with counsel. Banks could not represent the corporation, pro se. In light of Galaxiworld's repeated contact with the district court and apparent efforts to retain new counsel, we cannot say that Galaxiworld deliberately chose not to appear. 15 Aside from not appearing in court, the record shows that appellants were in constant contact with the district court. Appellants were not ignoring the court's orders; instead, they made repeated efforts to inform the court of their difficulties in finding new counsel. Galaxiworld's inability to find new counsel and resultant inability to appear in court is understandable when the circumstances are considered. Cf. Shapiro, Bernstein & Co., 386 F.2d at 427 (holding that a corporation cannot appear other than by its attorney). 16 Galaxiworld had been involved in the underlying securities litigation since 1996. Proskauer Rose, Galaxiworld's former attorneys, who had been allowed to withdraw, was holding Galaxiworld's files until Galaxiworld paid fees that were owed to Proskauer. Therefore, on less than one week's notice (January 19 to January 25), Galaxiworld was required to find new counsel in a complicated securities class action without the benefit of even being able to turn the files in the case over to the new counsel. Considering these circumstances, Galaxiworld's inability to find new counsel is not surprising, and its failure to appear cannot accurately be described as willful. Resolving all doubts in favor of the party seeking relief, we cannot say that Galaxiworld would not have appeared should it have been able to find new counsel. See Jackson v. Beech, 636 F.2d 831, 836 (D.C. Cir. 1980) (holding that all doubts are to be resolved in favor of the party seeking relief thus increasing the likelihood that disputes will be resolved on their merits). 17 In addition, consideration of other cases in which default judgments have been entered illustrates that the district court in this case ordered a default judgment more quickly than usual. See SEC v. McNulty, 137 F.3d 732, 735-36 (2d Cir. 1998) (describing default entered almost one year after the action was commenced and after defendant failed to file an answer despite two extensions of time); State Bank of India v. Chalasani (In re Chalasani), 92 F.3d 1300, 1305 (2d Cir. 1996) (describingdefault judgment ordered three and one half months after court ordered defendant to produce requested discovery and pay withdrawing counsel's legal fees); Action S.A. v. Marc Rich & Co., Inc., 951 F.2d 504, 507-08 (2d Cir. 1991) (describing default judgment ordered when defendant admitted that he deliberately chose not to appear [and] would not appear for discovery or for trial); Sieck v. Russo, 869 F.2d 131, 133 (2d Cir. 1989) (describing default judgment entered after defendant failed to appear for a deposition for at least three months and ignored two orders to appear). 18 In Eagle Associates v. Bank of Montreal, 926 F.2d 1305 (2d Cir. 1991), this Court affirmed the entry of a default judgment under facts that are similar to those in the case before the bar. However, in Eagle Associates, the corporate defendant had approximately three months to find new counsel after its predecessor counsel's application to withdraw was granted. See id. at 1306-07 (explaining that predecessor counsel's application to withdraw was granted on March 22, 1989 and corporate defendant was ordered to appear at a status conference with new counsel on June 19, 1989). In addition, a default judgment for not appearing by counsel as ordered was not entered until July 7, 1989, three and one half months after the corporate defendant's predecessor counsel withdrew. Id. at 1307. In affirming the district court's entry of default judgment, this Court explained that the [corporate defendant] willfully disregarded the district court's order [and] [t]he court was confronted by a recalcitrant party who failed to comply with its order to obtain counsel. Id. at 1310. Because Galaxiworld tried to obtain new counsel on an extremely tight schedule, without the benefit of having its files, and kept the district court aware of its efforts, we cannot compare the situation in Eagle Associates favorably to the situation in this case. See also Flaks v. Koegel, 504 F.2d 702, 709-11 (2d Cir. 1974). As in Enron Oil Corp. v. Diakuhara, 10 F.3d 90 (2d Cir. 1993), Galaxiworld's conduct and Banks's correspondence evidence[] [their] intent to fulfill [their] obligations as . . . litigant[s]. Enron Oil, 10 F.3d at 97-98; see Allen Russell Publ'g, Inc. v. Levy, 109 F.R.D. 315, 317-18 (N.D. Ill. 1985) (holding that defendant's inability to retain counsel either due to lack of funds or conflicts of interest, despite reasonable attempts, should be considered in determining whether entry of default should be set aside).