Court Opinion

ID: 9930454
Source: CourtListenerOpinion
Date Created: 2024-02-06 21:07:46.921836+00
Date Added: 2024-06-11T11:17:52.677007
License: Public Domain

Wolman v Now Solutions, Inc.
               2024 NY Slip Op 30375(U)
                    February 2, 2024
           Supreme Court, New York County
        Docket Number: Index No. 651502/2017
                 Judge: David B. Cohen
Cases posted with a "30000" identifier, i.e., 2013 NY Slip
 Op 30001(U), are republished from various New York
 State and local government sources, including the New
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 This opinion is uncorrected and not selected for official
                       publication.
  FILED: NEW YORK COUNTY CLERK 02/02/2024 04:32 PM                                                  INDEX NO. 651502/2017
  NYSCEF DOC. NO. 56                                                                      RECEIVED NYSCEF: 02/02/2024

                             SUPREME COURT OF THE STATE OF NEW YORK
                                       NEW YORK COUNTY
            PRESENT:        HON. DAVID B. COHEN                              PART    58
                                                                   Justice
            ------------------X                                              INDEX NO.          651502/2017
             DEREK WOLMAN
                                                                             MOTION SEQ. NO.            003
                                                Plaintiff,

                                        -v-
                                                                                DECISION + ORDER ON
             NOW SOLUTIONS, INC.,                                                     MOTION

                                                Defendant.
            -------------------X
            The following e-filed documents, listed by NYSCEF document number (Motion 003) 28, 29, 30, 31, 32,
            33,34,35,36,37,38,39,40,41,42,43,44,46,47,48,49,50,51,52,53,54,55
            were read on this motion to/for                  VACATE - DECISION/ORDER/JUDGMENT/AWARD.

                   In this breach of contract action, defendant moves, pursuant to CPLR 317, 5015(a)(l), and

           5015(a)(3), to vacate this Court's prior order granting a default judgment against it.

                                              I. Factual and Procedural Background

                   In March 2017, plaintiff commenced this action against defendant after it allegedly

           defaulted on two promissory notes (NYSCEF Doc Nos. 1-2). Plaintiff moved (Seq. 001), pursuant

           to CPLR 3213, for summary judgment in lieu of a complaint, which was unopposed (Doc No. 2).

           By decision and order entered August 29, 2017, plaintiff's motion was granted on default and the

           Clerk was directed to enter a judgment against defendant for the sum of$282,299.40, with interest

           (Doc No. 10). Plaintiff then served defendant with notice of entry of the August 2017 order (Doc

           Nos. 11-12). That judgment was then entered by the Clerk on September 19, 2017 (Doc No. 15).

                   In October 2023, defendant moved by order to cause (Seq. 002) to vacate the default

           judgment against it pursuant to CPLR 5015(a)(4), arguing that this Court lacked jurisdiction to

           render the default judgment due to improper service (Doc Nos. 20-21). This Court declined to

           sign the order to show cause after finding, among other things, that defendant's "assertion of
            651502/2017 WOLMAN, DEREK vs. NOW SOLUTIONS, INC.                                       Page 1 of9
            Motion No. 003

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            improper service [wa]s controverted by the language in the relevant agreements between the

            parties which permits service of process by overnight delivery" (Doc No. 25).

                   Defendant now moves by order to show cause (Seq. 003) to, among other things, vacate

            the default judgment against it pursuant to CPLR 317, 5015(a)(l), and 5015(a)(3), and in the

            interest of justice. In support of its order to show cause, defendant submitted, among other things,

            an affidavit from Len Chermack, the current Chief Executive Officer (CEO) of Vertical Computer

            Systems, Inc. (Vertical), defendant's parent company, and stock transfer certificates indicating that

            plaintiff obtained eight million shares of stock in Vertical in November 2015. In opposition,

            plaintiff submitted, among other things, an affidavit from Richard Wade, defendant's former CEO,

            and filings Vertical submitted to the Securities and Exchange Commission (SEC) between March

            2017 and Sept 2018.

            Affidavit ofLen Chermack (Doc No. 30)

                   In his affidavit, Chermack explained that Wade was voted out by shareholders in October

            2020, and Vertical later obtained a substantial judgment against Wade in federal court after

            asserting claims against him for breach of fiduciary duty, embezzlement, and fraud. Chermack

            reviewed defendant's business records and averred that defendant was never served with the initial

            pleadings in this matter, although he did not identify what specific records he reviewed and such

            records were not annexed to his affidavit. However, he speculated that if service was made, it was

            received by Wade or one of Wade's subordinates. Although he discussed receipt of the initial

            pleadings, he failed to mention whether defendant was served with notice of entry of the August

            2017 order and the September 2017 judgment.

            Affidavit ofRichard Wade (Doc No. 37)

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             Motion No. 003

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                   In his affidavit, Wade averred that he was defendant's CEO from 1999-2020 and handled

            the negotiation of the two promissory notes at issue in this action. He also indicated that, while

            CEO of defendant, he "personally received service of process in this action . . . on behalf of

            [defendant]" after it was commenced by plaintiff. Defendant allegedly chose not to respond at that

            time because Wade believed defendant had no defense to the action and plaintiff was owed the

            money sought.

            Vertical's Filings with the SEC (Doc No. 49)

                   In March 2017, June 2017, September 2017, March 2018, June 2018, and September 2018,

            Vertical submitted quarterly reports to the SEC as required by law. In all six of those filings,

            Vertical provided that:

                   "On April 12, 2017, [defendant] was served with a Notice of Motion for Summary
                   Judgment in Lieu of Complaint, which was filed by [plaintiff] in the Supreme Court
                   of the State of New York in County of New York for failure to make outstanding
                   payments on the outstanding balance due under [two promissory notes] ... , both
                   of which were issued by [defendant] to [plaintiff]."

                   In the filings from September 2017, March 2018, June 2018, and September 2018, Vertical

            also indicated that: "On September 8, 2017, the court awarded [plaintiff] a judgment in the amount

            of $282,299."

                                            II. Legal Analysis and Conclusions

            A. Vacatur Pursuant to CPLR 317

                   Defendant contends that it is entitled to vacatur of the default judgment pursuant to CPLR

            317 because it never received notice of the initial pleadings in time to defend itself in this action

            and has a meritorious defense to plaintiffs claims. Plaintiff maintains in opposition that the statute

            is inapplicable because defendant waited more than six years after entry of the September 2017

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             Motion No. 003

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            judgment to move to vacate, and was personally served, as evidenced by Wade's affidavit and

            Vertical' s SEC filings.

                   Although a party who failed to appear in an action and was not served personally may

            defend themselves in the action within one year after obtaining knowledge of the default judgment,

            that party may not defend themselves if the default judgment was entered more than five years

            ago, regardless of knowledge of the judgment (see CPLR 317; Olivaria v Lin & Son Realty Corp.,

            84 AD3d 423, 424-425 [1st Dept 2011]). Here, the default judgment was entered on September

            19, 2017, meaning defendant's time to seek vacatur of the judgment expired in September 2022,

            over one year prior to the date of the instant order to show cause. Therefore, defendant cannot

            obtain vacatur under CPLR 317 (see Anderson v GHI Auto Serv., Inc., 45 AD3d 512,513 [2d Dept

            2007] [finding defendant "barred from obtaining vacatur of the default judgment against him

            pursuant to CPLR 317" because "more than five years elapsed between the entry of the judgment

            in 1997 and the defendant's underlying motion in 2006"]).

            B. Vacatur Pursuant to CPLR 5015{a)(l)

                   Defendant contends that it is entitled to vacatur because it has a reasonable excuse for

            failing to appear and a meritorious defense to the action. Regarding its reasonable excuse, it

            maintains that it never received the pleadings. With respect to its meritorious defense, it contends

            that plaintiff committed professional misconduct by commencing this action while still serving as

            defendant's in-house counsel, and failed to properly account for shares of stock he received in his

            calculations, resulting in defendant suffering excessive penalties and interest in violation of

            criminal usury statutes.

                    Plaintiff maintains in opposition that defendant's motion is untimely, because it was made

            more than one year after defendant was served with notice of entry of the August 2017 order. He

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             Motion No. 003

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            also argues that defendant has no reasonable excuse because it failed to rebut the presumption

            created by plaintiffs affidavit of service, and that defendant has no meritorious defense to the

            action because Wade's affidavit dispels any allegations of fraud.

                   The plain language of CPLR 5015(a)(l) requires that a motion to vacate a default judgment

            based on reasonable excuse must be made "within one year after service of a copy of the judgment

            or order with written notice of its entry upon the moving party." Here, defendant failed to move

            within that required timeframe. Plaintiffs affidavit of service, which creates a presumption of

            service (see Astraea NYNY LLC v Ganley, 214 AD3d 528, 528-529 [1st Dept 2023]), indicated

            that defendant was served with a copy of the August 2017 order by mail in September 2017 (Doc

            No. 12). Defendant, therefore, had until September 2018 to move to vacate. Yet, it waited until

            November 2023 to make the instant order to show cause-well outside the one-year window.

                   Defendant attempts to rebut the presumption of service by submitting Chermack's

            affidavit. However, the affidavit is insufficient to rebut the presumption for several reasons. First,

            the affidavit fails to address the question of whether defendant was served with notice of entry of

            the August 2017 order, Chermack only asserted that defendant never received the initial summons

            and CPLR 3213 motion. Second, that assertion of lack of service is directly contradicted by

            Vertical's SEC filings and Wade's affidavit. In its SEC filings, Vertical admitted that defendant

            was initially served in this action and aware of the September 2017 order. In Wade's affidavit, he

            averred that he received service on behalf of defendant, because he was defendant's CEO in 2017.

                   Third, and finally, Chermack' s denial of service is conclusory and lacks any probative

            value. His affidavit contained a single, generalized reference to service of process and indicated

            that he concluded defendant was never served after reviewing "[b]usiness [r]ecords" maintained

            by defendant, yet he failed to identify, produce, or annex those records to his affidavit. "[W]here

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             Motion No. 003

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            an affiant's knowledge is based on unidentified and unproduced records, the affidavit lacks any

            probative value" (Residential Credit Solutions, Inc. v Gould, 171 AD3d 638, 638-639 [1st Dept

            2019]; see Bank of N.Y. Mellon v Gordon, 171 AD3d 197, 208-209 [2d Dept 2019] [finding

            affidavit of business employee lacked probative value because purported knowledge came from

            unidentified business records]).

                    Therefore, defendant "did not move within the statutorily prescribed one-year time limit

            and failed to present a valid excuse for [its] failure to do so," and its motion to vacate pursuant to

            CPLR 5015(a)(l) is denied (Matter of Duval v Centerlight Health Sys., Inc, 216 AD3d 529, 530

            [1st Dept 2023] [internal quotation marks and citation omitted] [affirming denial of motion to

            vacate pursuant to CPLR 5015(a)(l) because movant failed to move within one year]).

                    Even assuming defendant's motion was timely, it fails to demonstrate that it had a

            reasonable excuse for its failure to appear in this action for the same reasons it failed to demonstrate

            a reasonable excuse for its delay in moving to vacate. Chermack's affidavit providing that

            defendant was never served with the initial summons and CPLR 3213 motion is conclusory, lacks

            probative value, and is contradicted by other pieces of evidence provided by plaintiff. Thus,

            defendant fails to provide a reasonable excuse for its default in opposing the initial CPLR 3213

            motion, and its motion would be denied (see US. Bank Trust N.A. v Rivera, 187 AD3d 624, 625

            [1st Dept 2020] [denying motion to vacate because defendant failed to proffer reasonable excuse

            for failing to answer pleadings]). "Since defendant failed to proffer a reasonable excuse for [its]

            default, this Court need not consider whether [it] demonstrated a potentially meritorious defense"

            (id).

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             Motion No. 003

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            C. Vacatur Pursuant to CPLR 5015(a)(3)

                   Defendant contends that it is entitled to vacatur because plaintiff obtained the judgment

            through fraud and misrepresentation, based on his failure to disclose that he was defendant's in-

            house attorney at the time he commenced this action and his intentional omission of payments

            received through stock shares in calculating the amount he was owed.           Plaintiff argues in

            opposition that defendant failed to demonstrate any fraud or misrepresentation occurred in the

            issuance of the judgment and, in any event, defendant's motion is untimely.

                   "Although there is no express time limit for seeking relief from a judgment pursuant to

            CPLR 5015(a)(3), a party is required to make the motion within a reasonable time" (Aames Capital

            Corp. v Davidsohn, 24 AD3d 474,475 [2d Dept 2005] ,[citations omitted]; see Molina v Chladek,

            140 AD3d 523, 524 [1st Dept 2016]).         Similar to the five-year period seen in CPLR 317,

            CPLR 5015(a)(3)'s period of reasonable time is measured from the date the judgment is entered,

            regardless of whether the defendant has knowledge o·fthe judgment (see Aames Capital Corp., 24

            AD3d at 475 [calculating period of reasonable time beginning with date judgment was entered]).

                   As explained above, here, defendant waited over six years to move to vacate the default

           judgment against it. That substantial delay is sufficient to deny the motion for failure to be made

            within a reasonable time (see Molina, 140 AD3d at 524 [denying motion to vacate default

           judgment pursuant to CPLR 5015(a)(3) because defendant waited five years to move]; Mark v

            Lenfest, 80 AD3d 426,426 [1st Dept 2011] [denying CPLR 5015(a)(3) motion for failure to move

            within a reasonable time where defendant waited over four years to move]; Aames Capital Corp.,

            24 AD3d at 475 [similar]).

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             Motion No. 003

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            D. Vacatur Pursuant to the Interests o(Justice

                   Defendant contends that it is entitled to vacatur pursuant to the interests of justice because

            plaintiffs conduct in obtaining the promissory notes, stock certificates, and commencing this

            action allegedly caused "the payment and receipt of usurious interest."          Plaintiff argues in

            opposition that the instant matter does not contain any unique or unusual circumstances justifying

            vacating the judgment.

                   "In addition to the grounds specifically set forth in CPLR 5015(a), a court may vacate its

            own judgment for sufficient reason and in the interests of substantial justice" (City of New York v

            OTR Media Group, Inc., 175 AD3d 1163, 1163 [1st Dept 2019] [internal quotation marks and

            citation omitted]). "However, this discretion is reserved for unique or unusual circumstances that

            warrant such action" (Kopsick v Town ofHempstead, 213 AD3d 830,832 [2d Dept 2023] [internal

            quotation marks, brackets, and citations omitted]), and courts addressing this issue routinely

            emphasize that the interest of justice avenue should be a last resort (see Long Is. Light. Co. v

            Century Indem. Co., 52 AD3d 383,384 [1st Dept 2008]).

                   When a movant delays in seeking to vacate and fails to pursue "other available avenues of

            relief," vacatur is not warranted (Countrywide Home Loans Servicing, L.P. v DiGiovanni, 205

            AD3d 676,677 [2d Dept 2022] [affirming denial of vacatur in interest of justice because plaintiff

            waited more than four years to move to vacate and pursued no other options prior to moving]; see

            Kopsick, 213 AD3d at 832 [reversing grant of vacatur because defendant's roughly three-year

            delay in moving to vacate and lack of excuse for doing so was not in the interest of justice]). Here,

            defendant waited over six years to seek vacatur of the default judgment against it, offered no

            reasonable excuse for its delay in doing so, and failed to pursue other avenues ofreliefto challenge

            the judgment before making the instant order to show cause. Therefore, this case does not fall into

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             Motion No. 003

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            the category of unique or unusual circumstances where vacatur is warranted in the interest of

            justice.

            E. Defendant's Alternative Reguest to Compel Plaintiffto File a Satisfaction-Piece

                       Defendant's contention that plaintiff should be compelled to file a satisfaction-piece since

            he "received remuneration in amount well above those called for under [the promissory notes at

            issue here]" is unavailing because defendant challenges the underlying calculations used to

            determine the amount identified in the August 2017 order, instead of asserting that payment was

            made after the September 2017 judgment was entered. CPLR 5020 pertains to payments made in

            satisfaction of a judgment after it has been entered, not payments made prior to entry (see CPLR

            5020 [a]; Wanda Borges, Enforcing Judgments and Collecting Debts§ 11:13 [West's NY Prac

            Series, Dec. 2023 update]; H D. L Diamonds v Frederick Modell, Inc., 86 AD2d 561, 561 [1st

            Dept 1982]). Here, defendant does not assert that it made payments after the September 2017

            judgment was entered, meaning no satisfaction-piece is required.

                       The parties remaining contentions are either meritless or need not be addressed given the

            findings set forth above.

                       Accordingly, it is hereby:

                       ORDERED that defendant NOW Solutions, Inc.'s motion to vacate the default judgment

            against it is denied.

                       2/2/2024
                         DATE                                                                ~um111-e. coRr~-,
                                       ~
             CHECK ONE:                     CASE DISPOSED                  NON-FINAL DISPOSITION                J.$, ~ •
                                            GRANTED         0    DENIED    GRANTED IN PART         □ OTHER
             APPLICATION:                   SETTLE ORDER                   SUBMIT ORDER
             CHECK IF APPROPRIATE:          INCLUDES TRANSFER/REASSIGN     FIDUCIARY APPOINTMENT   □ REFERENCE

             661602/2017 WOLMAN, DEREK vs. NOW SOLUTIONS, INC.                                       Page9of9
             Motion No. 003

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