No. 99-CV-4338 (JBW)
February 1, 2002
REPORT AND RECOMMENDATION
Plaintiff Healthshield Capital Corp. ("plaintiff") filed this diversity action in July 1999. Although the two defendants initially defended the action and asserted a counterclaim, they thereafter abandoned their defense and their own claim. For the reasons detailed below, it is the recommendation of this Court that a default judgment be entered against the defendants in the amount of $350,000 plus interest, and that their counterclaim be dismissed with prejudice for lack of prosecution.
Plaintiff was formerly known as CMI Capital Corp., the name in which the complaint was originally filed. See Stipulation and Order amending caption, entered on June 12, 2000.
In its complaint for breach of contract and fraud, plaintiff alleges that, in 1997, it entered into a financing agreement with defendant DHKT Investment Co., Inc., d/b/a Sterling Home Health Care ("DHKT"), pursuant to which plaintiff purchased certain medical accounts receivable for $350,000. Plaintiff complains that, contrary to the terms of the contract, DHKT, aided by its owner and alter ego, Robert Dupont ("Dupont") (collectively referred to herein as "defendants"), sold plaintiff accounts receivable that defendants knew were never capable of collection; those accounts were thereafter frozen by the Federal Bureau of Investigation, which — unbeknownst to plaintiff but known to defendants — was investigating defendants for Medicare and Medicaid fraud.
Defendants moved to dismiss the complaint. After Judge Weinstein denied the motion from the bench on February 23, 2000, defendants answered the complaint and asserted a counterclaim for failure to pay certain sums allegedly due under the contract. On May 16, 2000, this Court held an initial conference and set a schedule for discovery.
In a letter to this Court dated January 17, 2001, plaintiff's counsel advised that defendants had agreed to withdraw their counterclaim and to permit plaintiff to enter default judgments against them. The Court therefore cancelled the settlement conference scheduled for January 19, 2001, and directed the parties to file a fully executed stipulation of discontinuance by February 5, 2001. On January 29, 2001, defense counsel moved for permission to withdraw from the case. This Court deferred the motion to withdraw until after the filing of the stipulation of discontinuance. See Endorsed Order dated February 1, 2001.
By then, defendants reportedly had failed to respond to plaintiff's document demands or to appear for depositions. See Affidavit of Leslie Case, Esq., dated April 3, 2001, at ¶¶ 4-5 and Exhibit C (appended to Notice of Motion for Default Judgment).
Thereafter, plaintiffs counsel notified the Court that defendants had not returned the signed stipulation. During a conference held on February 13, 2001, defense counsel explained that defendants lacked the funds to defend the action but were not prepared to waive their challenge to personal jurisdiction in the event defaults were entered. The Court proposed several possible resolutions and directed the parties to confer further and report back to the Court regarding the status of their negotiations. In a letter dated February 28, 2001, defense counsel belatedly wrote that he had been unable to reach Dupont since the February 13th conference, and he therefore renewed his motion to withdraw.
In an order dated March 13, 2001, this Court directed defendants to show cause, in writing, by March 20, 2001, why their lawyer's request for permission to withdraw as counsel should not be granted. Defendants were expressly warned that their failure to serve and submit a timely response would result in the granting of the motion, and that entities are not permitted to proceed pro se in federal court. See Eagle Associates v. Bank of Montreal, 926 F.2d 1305 (2d Cir. 1991). Defendants nonetheless ignored the Court's order. Having received no objection from defendants, this Court granted defense counsel's motion to withdraw, under Local Civil Rule 1.4. See Order dated April 6, 2001 ("4/6/01 Order").
Meanwhile, on April 3, 2001, plaintiff filed a motion for default judgments against defendants. This Court directed defense counsel to forward a copy of plaintiff's motion to his former clients, and directed defendants to show cause, in writing, by April 16, 2001, why default judgments should not be entered against them. Defendants were warned that their continued failure to comply with court orders would result in entries of default judgment. See 4/6/01 Order. The Order was telecopied directly to defendants, as well as to their former lawyer. Defendants again ignored the Court's order, and have taken no further action either to defend this action or to pursue their counterclaim.
As demonstrated by the foregoing factual recitation, defendants have plainly abandoned their defense and their own claim, and have repeatedly violated judicial orders. Moreover, DHKT has not retained new counsel, despite this Court's admonition that it would not be permitted to proceed pro se. Under these circumstances, the entry of default judgments against both defendants is fully warranted under Fed.R.Civ.P. 55(b)(2). See Au Bon Pain Corp. v. Artect. Inc., 653 F.2d 61, 65 (2d Cir. 1981) (upholding entry of default judgment where defendant failed to appear for deposition, dismissed counsel, failed to adequately respond to interrogatories, and failed to appear for trial); see also Eagle Associates, 926 F.2d at 1310 (upholding entry of default judgment where defendant partnership ignored court order directing that it retain counsel). Additionally, defendants' counterclaim should be dismissed with prejudice under Fed.R.Civ.P. 41(b)-(c), for lack of prosecution and for violating court orders. See Stoenescu v. Jablonsky, 162 F.R.D. 268, 270-71 (S.D.N.Y. 1995) (dismissing action for failure to prosecute wherepro se plaintiff failed to appear at pretrial conference or respond to motion to dismiss).
For the foregoing reasons, it is the recommendation of this Court that default judgments be entered against both defendants, jointly and severally, in the amount of $350,000 plus interest, and that their counterclaim be dismissed with prejudice.
Any objections to the recommendations contained herein must be filed with the Honorable Jack B. Weinstein on or before February 14, 2002. Failure to file objections in a timely manner may waive a right to appeal the District Court order. See 28 U.S.C. § 636 (b)(1); Fed.R.Civ.P. 6(a), 6(e), 72; Small v. Secretary of Health and Human Servs., 892 F.2d 15, 16 (2d Cir. 1989).