# Decor Holdings, Inc. v. Ryniker

> District Court, E.D. New York · January 12, 2023

URL: https://www.frixlaw.com/law-library/cases/10309044

## Case

- **Court:** District Court, E.D. New York
- **Decided:** January 12, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
X

In Re FILED
MEMORANDUM AND CLERK
Decor Holdings, Inc., et al. ORDER
1:27 pm, Jan 12, 2023

Post-Confirmation Debtors
21-CV-6725 (GRB)
U.S. DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
X LONG ISLAND OFFICE

SUMEC TEXTILE COMPANY LIMITED,

Appellant,

v.

BRIAN RYNIKER, IN HIS CAPACITY AS
LITIGATION ADMINISTRATOR OF THE
POST-CONFIRMATION ESTATES OF
DÉCOR HOLDINGS, INC., et al.,
Appellee.
X

GARY R. BROWN, United States District Judge:

Appellant Sumec Textile Company Limited (“Sumec”) moves this Court to vacate an entry
of default judgment entered against it in Bankruptcy Court on the ground that it was improperly
served. For the reasons set forth below, the motion to vacate the default judgment is GRANTED.
Facts
In February 2019, decorative fabric seller Décor Holdings, Inc. filed a voluntary petition
for Chapter 11 bankruptcy. See In re Décor Holdings, Inc., et al., 8-19-71020-reg, Docket Entry
(“DE”) 1. At debtors’ request, Chinese textile manufacturer Sumec continued to supply them
goods post-petition. DE 13, Appendix (“App.”) 75. Sumec held an export credit insurance policy
with China Export & Credit Insurance Corporation (“Sinosure”) and in February 2019 submitted
an insurance claim with Sinosure for debtors’ unpaid balance. App. 75. Sinosure, in turn, hired
the collection agency Brown & Joseph, LLC (“B&J”) to collect the debt. App. 77. In April 2019,
B&J filed a Proof of Claim in Bankruptcy Court asserting Sumec was owed $3,029,719.52. App.
495-98. The Proof of Claim was filled out by Don Leviton, who identified himself as “the

creditor’s attorney or authorized agent” and “Legal Counsel” at B&J. App. 498. In response to
the question, “Where should notices to the creditor be sent?” Leviton listed B&J’s address, “Brown
& Joseph, C/O Don Leviton, PO Box 59838 Schaumburg, IL 60159,” and provided his email
address. App. 496. Attached to the Proof of Claim are (1) a Collection Trust Deed, in which
Sumec authorizes Sinosure to collect the debt on Sumec’s behalf, and (2) a Trust Deed and Letter
of Instruction, in which Sinosure then authorizes B&J to collect the debt on Sinosure’s behalf. The
Collection Trust Deed states:
[W]e [SUMEC] herby confirm our agreement and authorization to [SINOSURE]
of the full rights for collection, on our behalf, against [The Debtors] for the full
amount of 3029719.52 . . . plus the interested accrued.

We further confirm out grant to [SINOSURE] the full power in exercising such
rights and remedies in our or its own name and give any assistance as it may require
of us from time to time.

App. 501.

The Trust Deed and Letter of Instruction states:
We [SINOSURE] hereby confirm our instruction to Brown & Joseph, LLC for debt
collection against [the Debtors] who has defaulted in payment to our client
[SUMEC] . . .. The total amount hereby instructed is USD 3,039,806.24 . . . plus
the interest accrued.

We further confirm to grant Brown & Joseph, LLC the full power in exercising
such rights and remedies in our or its own name for the amicable debt collection
and commit ourselves to render any assistance as it may reasonably require of us
from time to time.

App. 503-04.
Sumec had no involvement in the filing of the Proof of Claim and B&J had no
communication with Sumec before filing it. App. 78-79.
In May 2019, the Bankruptcy Court confirmed a joint Chapter 11 plan of liquidation and
ordered the appointment of a litigation administrator. See In re Décor Holdings, Inc., et al., 8-19-

71020-reg, DE 303.
In October 2019, Sumec assigned its claim against debtors to Sinosure for $1,322,063.39:
In consideration of having received this payment [$1,322,063.39], we [SUMEC]
hereby agree to assign, transfer and subrogate to you [SINOSURE], to the extent
of your interest, all our rights and remedies in and in respect of the subject matter
insured, and to grant you full power and give you any assistance you may
reasonably require of us in the exercise of such rights and remedies in our or your
name.

App. 76, 89.

In August 2020, Brian Ryniker in his capacity as litigation administrator of the post-
confirmation estates of Décor Holdings, Inc. initiated an adversary proceeding against Sumec
seeking to avoid preferential and/or fraudulent transfers of $693,048.84 that debtors allegedly
made to Sumec prior to the filing of the bankruptcy petition. See Brian Ryniker, in his Capacity
as Litigation Administrator of the Post-Confirmation Estates of Décor Holdings, Inc., et al. v.
Sumec Textile Company Limited, 8-20-08130-reg, (“Adversary Proceeding”), DE 1. Three days
later, the litigation administrator mailed a copy of the summons and complaint by first-class mail
to B&J at the Illinois address listed on the Proof of Claim and emailed a copy to Leviton. App.
79; Adversary Proceeding, DE 4.
In September 2020, Leviton forwarded the summons and complaint to B&J employee Peter
Geldes. App. 713. Geldes’s email signature identified him as a “Claims & Investigations
Manager” and B&J as an “Accounts Receivable Management Firm Credit and Collection
Specialist.” App. 713. After this point, Geldes frequently communicated with the litigation
administrator’s counsel and purported to make representations and inquiries on behalf of Sumec.
For instance, in September 2020, Geldes wrote that he is “reviewing with the our [sic] client and
the creditor” and asked if “you have something like [a payment history spreadsheet] for Sumec to
complete?” App. 713. In November 2020 Geldes wrote, “We received notice that suit was

commenced on the above-referenced matter.. . . Sumec is under the impression that the payments
received from Décor Holdings, Inc., et al., were made in the ordinary course of business and are
not subject to preference action.” App. 712. In December 2020, Geldes wrote, “Sumec has asked
that I reach out and clarify if there is a settlement offer to resolve the preference claim.” App. 711.
In January 2021, Geldes wrote that he will continue to “press [his client] for a response” and “if
the preference claim needs to move forward, please keep me posted.” App. 710. Although these
emails suggest that Sumec was in communication with Geldes, Sumec’s senior manager Yan Gu
avers in a sworn statement that Sumec had no contact with B&J during this time and, furthermore,
Sumec never authorized B&J or Sinosure to accept service of process on its behalf in the adversary
proceeding. App. 78, 80. Counsel for Sumec in this appeal claims that Geldes sometimes

mistakenly referred to Sinosure as Sumec in emails. App. 776.
In February 2021, the litigation administrator’s counsel warned Geldes that:
Sumec’s time to respond to the complaint was extended numerous times – the final
extension was to February 15, 2021 and Judge Grossman ordered us not to grant
any more extensions. As such, Sumec is now in default. We intend to ask the court
to enter a default if we don’t receive a substantive response from you by tomorrow.

App. 731.

Shortly thereafter, the litigation administrator filed a Request for Entry of Default against
Sumec and emailed Geldes the default motion papers. Adversary Proceeding, DE 8; App. 731.
According to Sumec, neither B&J nor Sinosure forwarded Sumec a copy of the Request for Entry
of Default and, moreover, Sumec had no actual knowledge of the summons and complaint at this
time. App. 80.
In March 2021, Geldes wrote to the litigation administrator’s counsel:
Thank you for providing that motion. Unfortunately I still have not heard anything
from Sumec. I also wanted to reiterate that Brown & Joseph is not authorized to
accept service on Sumec’s behalf. I believe that was discussed previously, but
wanted to re-clarify. We are not a law firm, we are not Sumec’s attorney of record,
and are only an authorized agent so far as the credit insurance claim that they filed
is concerned.

App. 736.

According to the litigation administrator, this is the first time Geldes disclaimed his ability to
accept service on Sumec’s behalf. Opposition Brief, DE 13 at 21.
In May 2021, the litigation administrator filed a motion for default judgment before the
Bankruptcy Court without disclosing Geldes’s email disclaiming his authority to accept service
for Sumec. Adversary Proceeding, DE 11. Once again, neither B&J nor Sinosure forwarded a
copy of the default judgment motion papers to Sumec. App. 81.
On July 19, 2021, the Bankruptcy Court entered the order for default judgment against
Sumec in the amount of $693,048.84 plus interest. Adversary Proceeding, DE 13.
In August 2021, Sinosure informed Sumec for the first time of B&J’s involvement in the
adversary proceeding. App. 82. Sinosure advised Sumec to pay the full judgment amount. App.
82. Sumec inquired as to when Sinosure and/or B&J first received the complaint but received no
response. App. 82. In September 2021, Sumec requested that Sinosure relay through B&J a
settlement offer to plaintiff. App. 82. According to Sumec, this was the first time it authorized
B&J – either directly or indirectly – to take any actions on its behalf. App. 82. Through Geldes,
Sumec attempted, unsuccessfully, to settle for 50% of the judgment. App. 724.
In October 2021, Sumec filed a motion to vacate the entry of default judgment for failure
to properly serve. Adversary Proceeding, DE 15. If allowed to challenge the action on the merits,
Sumec asserts that it would raise the subsequent new value defense and the ordinary course of
business defense. App. 84. After full briefing and a hearing, the Bankruptcy Court denied Sumec’s
motion and issued a written decision. Adversary Proceeding, Supplemental Findings of Fact and
Conclusions of Law, DE 28; App. 1068-78.

The Bankruptcy Court’s Decision
The Bankruptcy Court held that there was “sufficient indicia of agency between Sumec
and Sinosure to find that Sumec was properly served” because in the Collection Trust Deed
“Sumec expressly permitted Sinosure to use Sumec’s name when collecting on the debt.” App.
1076-77. As “[t]here were no reservations in the grant of authority . . . . Sumec could have
anticipated that Sinosure would be participating in the Debtors’ bankruptcy which would include
the filing of a proof of claim.” App. 1077. The Bankruptcy Court stated, “The law is clear that
listing an agent in a creditor’s proof of claim means that the agent is ‘explicitly appointed . . . as
[the creditor’s] authorized agent for service of process’ under Bankruptcy Rule 7004(b)(3) and
that service of process on that agent at the address listed in the proof of claim constitutes proper

service under Bankruptcy Rule 7004(b)(3).” App. 1076 (quoting In re Takeout, Inc., No. 05-11931
BRL, 2009 WL 8671793, at *2 (Bankr. S.D.N.Y. Mar. 17, 2009); citing In re Ms. Interpret, 222
B.R. 409, 415 (Bankr. S.D.N.Y. 1998)). Since “a subagent, acting within the scope of his
authority, may bind the principal as the agent may bind the principal,” the Bankruptcy Court ruled
that “service of process on Sumec at the name and address listed on the Proof of Claim satisfied
due process requirements and Rule 7004(b)(3).” App. 1077.
This appeal follows.
Jurisdiction
District Courts have jurisdiction to hear appeals from “final judgments, orders, and
decrees” of Bankruptcy Courts. 28 U.S.C. § 158(a). Sumec timely filed its notice of appeal on
December 2, 2021, less than 14 days after the Bankruptcy Court issued its order on November 23,

2021. See Adversary Proceeding, DE 28; 21-cv-6725, DE 1; Fed. R. Bankr. P. 8002(a)(1). Thus,
this Court has jurisdiction to hear Sumec’s appeal.
Standard of Review
“Generally in bankruptcy appeals, the district court reviews the bankruptcy court’s factual
findings for clear error and its conclusions of law de novo.” In re Charter Commc’ns, Inc., 691
F.3d 476, 482–83 (2d Cir. 2012). An entry of default judgment is reviewed for abuse of discretion.
City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 131 (2d Cir. 2011). However, “the
de novo standard of review is . . . used for review of the denial of a motion to vacate a default
judgment challenged, under [Rule 60] subsection (b)(4), for lack of jurisdiction.” Burda Media,
Inc. v. Viertel, 417 F.3d 292, 298 (2d Cir. 2005). “Under Rule 60(b)(4) a deferential standard of

review is not appropriate because if the underlying judgment is void, it is a per se abuse of
discretion for a district court to deny a movant’s motion to vacate the judgment under Rule
60(b)(4).” Id. (citation omitted).
Legal Standards
Under Rule 55(c) of the Federal Rules of Civil Procedure, “The court may set aside an
entry of default for good cause, and it may set aside a final default judgment under Rule 60(b).”
“In order to set aside the entry of default, Sumec would need to demonstrate good cause. The
grounds to consider when determining whether good cause exists are (1) whether the default was
willful, (2) whether setting aside the default would prejudice the adversary and (3) whether a
meritorious defense has been presented. Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir.
1993).” App. 1073. “The same factors are applied in the context of a Rule 60(b) motion to set
aside a default judgment, although they are applied more rigorously, and the district court must
resolve any doubts in the defaulting party’s favor.” Peterson v. Syracuse Police Dep’t, 467 Fed.

App’x 31, 33 (2d Cir. 2012).
The burden of proof for vacating a default judgment depends on whether the defendant had
actual notice. “[O]n a motion to vacate a default judgment based on improper service of process
where the defaulting defendant had actual notice of the original proceeding but delayed in bringing
the motion, the defendant bears the burden of proof to establish that the purported service did not
occur.” Burda Media, Inc., 417 F.3d at 299. However, “[w]here, as here, it is in dispute whether
the defendant had actual notice before the entry of default judgment, courts have found that the
burden of proof properly remains with the plaintiff.” Lu v. Nisen Sushi of Commack, LLC, No.
18-CV-7177(RJD)(ST), 2022 WL 16754744, at *3 (E.D.N.Y. Aug. 29, 2022), report and
recommendation adopted, No. 18-CV-7177(RJD)(ST), 2022 WL 4597436 (E.D.N.Y. Sept. 30,

2022). “Of the grounds for vacating default judgment, Rule 60(b)(4) is ‘unique’ because ‘relief is
not discretionary and a meritorious defense is not necessary.’ Global Gold Mining, LLC v.
Ayvazian, 983 F. Supp.2d 378, 384 (S.D.N.Y. 2013) (quoting Covington Indus. v. Resintex A.G.,
629 F.2d 730, 733 n.3 (2d Cir. 1980)).” App. 1074. “Due process does not require that the party
actually receive notice. Rather it requires that notice be ‘reasonably calculated, under all the
circumstances, to apprise interested parties of the action and afford them an opportunity to present
their objections.’ Jobin v. Otis (In re M&L Bus. Mach. Co.), 190 B.R. 111, 115 (D. Colo. 1995)
(citing Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 314 (1950)).” App. 1075.
Discussion
Under Bankruptcy Rule 7004(b)(3), service of process in an adversary proceeding may be
made, “[u]pon . . . a foreign corporation . . . by mailing a copy of the summons and complaint to
the attention of . . . any other agent authorized by appointment or by law to receive service of

process.” A default judgment is void if service was improper, regardless of whether the defendants
had actual notice. Triad Energy Corp. v. McNell, 110 F.R.D. 382, 386 (S.D.N.Y. 1986). In the
Second Circuit, there is a strong preference that “litigation disputes be resolved on the merits, not
by default.” Cody v. Mello, 59 F.3d 13, 15 (2d Cir. 1995). “[T]he extreme sanction of a default
judgment must remain a weapon of last, rather than first, resort, which should only be imposed
upon a serious showing of willful default.” Davis v. Musler, 713 F.2d 907, 916 (2d Cir. 1983)
(citations and internal quotation marks omitted). As such, “motions to vacate default judgments
are to be granted liberally” and “all doubts should be resolved in favor of the party seeking relief.”
Int’l Cargo & Sur. Ins. Co. v. Mora Textiles Corp., No. 90 CIV. 3880 (KMW), 1991 WL 120359,
at *2 (S.D.N.Y. June 21, 1991).

This appeal turns on whether B&J was an authorized agent for service of process under
Bankruptcy Rule 7004(b)(3). The Bankruptcy Court below ruled there was “sufficient indicia of
agency between Sumec and Sinosure to find that Sumec was properly served.” App. 1076-77. An
agent’s authority can be actual or implied. “Actual authority is created by direct manifestations
from the principal to the agent, and the extent of the agent’s actual authority is interpreted in the
light of all circumstances . . ..” Highland Cap. Mgmt. LP v. Schneider, 607 F.3d 322, 327 (2d Cir.
2010) (quoting Peltz v. SHB Commodities, Inc., 115 F.3d 1082, 1088 (2d Cir. 1997)). Here, B&J
lacked actual authority to accept service for Sumec because Sumec never specifically authorized
B&J to accept service on its behalf; indeed, it never even communicated with B&J prior to the
entry of default judgment. App. 79-80, 82. See In re Reisman, 139 B.R. 797, 800 (Bankr. S.D.N.Y.
1992) (creditor’s attorney lacked explicit authority to accept service where the Notice of
Appearance executed by creditor’s attorney was neither signed nor acknowledged by the creditor).
“Apparent authority consists of two elements: (1) a manifestation by the principal that the

agent has authority and (2) reasonable reliance on that manifestation by the person dealing with
the agent.” In re Kollel Mateh Efraim, LLC, 334 B.R. 554, 560 (Bankr. S.D.N.Y. 2005) (citing
FDIC v. Providence College, 115 F.3d 136, 140 (2d Cir. 1997)). Neither element is satisfied here.
First, there was no manifestation by Sumec that the purported subagent B&J had authority to accept
service of process. Sumec made no direct or indirect communication with the litigation
administrator before the entry of default judgment. App. 79, 82. From the commencement of the
debtors’ bankruptcy in 2019 to the entry of default judgment in 2021, Sumec’s only conduct was
signing a Collection Trust Deed which granted Sinosure the authority to collect on the debt in “our
[Sumec’s] name or its own [Sinosure’s] name.” App. 501. The Collection Trust Document does
not specifically confer the authority to accept service of process. For service upon an agent to be

effective, “an actual appointment for the specific purpose of receiving process normally is
expected.” § 1097 Service on Individuals—Delivery of Process to Agent Appointed by Defendant,
4A Fed. Prac. & Proc. Civ. (Wright & Miller) (4th ed.) (emphasis added). Although “[t]he
requisite intent . . . may be implied . . . from the circumstances surrounding the service upon the
agent,” id., here there was no direct communication between Sumec and the litigation
administrator for over two years. Although Geldes initially purported to act on Sumec’s behalf,
“[o]ne who deals with an agent does so at his peril, and must make the necessary effort to discover
the actual scope of authority.” General Overseas Films, Ltd. v. Robin Int'l, Inc., 542 F.Supp. 684,
690 (S.D.N.Y. 1982) (citation omitted).
Nor can the litigation administrator satisfy the second element of reasonable reliance.
Although initially Geldes appeared to accept service for Sumec, later he unambiguously
disclaimed any such authority. App. 736 (“I also wanted to reiterate that Brown & Joseph is not
authorized to accept service on Sumec’s behalf. . . . We are not a law firm, we are not Sumec’s

attorney of record, and are only an authorized agent so far as the credit insurance claim that they
filed is concerned.”). In the email chain where Geldes purportedly accepted service, his email
signature identified Geldes not as an attorney but a “Claims & Investigations Manager” at a
collection agency. App. 713. Since B&J lacked actual or apparent authority, B&J was not an
“agent authorized by appointment or by law to receive service of process” under Bankruptcy Rule
7004(b)(3). Moreover, the Court finds that under these circumstances notice was not “reasonably
calculated” to apprise interested parties of the action. Mullane, 339 U.S. at 314; see also Robinson
v. Hanrahan, 409 U.S. 38 (1972) (notice of forfeiture proceeding was not reasonably calculated
where the state knew an incarcerated automobile owner was not present at the address to which
notice was mailed even though the manner of service was permissible under statute).

In reaching the opposite conclusion, the Bankruptcy Court principally relied upon the cases
In re Takeout and In re Ms. Interpret for the proposition that service of process on an agent at the
address listed in a proof of claim constitutes proper service. App. 1076. Those two cases are
distinguishable from the instant action in three material respects. First, in those cases service was
made upon the creditor’s actual counsel. See In re Takeout, Inc., 2009 WL 8671793, at *2
(“Plaintiff’s service of process [was] on Defendant’s counsel[.]”); In re Ms. Interpret, 222 B.R. at
411 (“the debtor . . . serv[ed] Rawe by mail at two addresses . . . and in care of . . . Rawe’s
counsel[.]”). Here, service was not made upon Sumec’s counsel but a collection agency hired by
Sumec’s subrogee, Sinosure. Second, in In re Takeout and In re Ms. Interpret the defendants
completed the proof of claim through their attorney. See In re Takeout, Inc., 2009 WL 8671793,
at *1 (“the proof of claim . . . was executed by [counsel] on Defendant’s behalf”); In re Ms.
Interpret, 222 B.R. at 414 (“Rawe filed and signed the proof of claim through its attorney”). Here,
the Proof of Claim was completed not by Sumec but a collection agency hired by Sinosure. Third,

in both cases the creditors impliedly appointed their counsel as agent for service of process by
participating in the creditors’ committee. See In re Takeout, Inc., 2009 WL 8671793, at *3
(“Defendant . . . impliedly appointed [counsel] as its authorized agent for service of process
through his participation . . . on the Creditors’ Committee.”); In re Ms. Interpret, 222 B.R. at 416-
17 (“Rawe implicitly authorized [counsel] to receive service of process” where counsel
“represented Rawe at every meeting of the committee”). Here, Sumec did not participate in any
creditors’ committee meetings. For these reasons, the Court finds the In re Takeout and In re Ms.
Interpret line of cases inapposite.
The factors for setting aside a default judgment weigh in Sumec’s favor. See Enron Oil
Corp., 10 F.3d at 95. First, Sumec’s default was not willful because they had no notice of the

Adversary Proceeding. See Glob. Gold Mining, LLC, 983 F. Supp. 2d at 387, aff’d in part,
modified in part on other grounds sub nom. Glob. Gold Min., LLC v. Ayvazian, 612 Fed. App’x
11 (2d Cir. 2015) (“a showing that a default was inadvertent is sufficient”). Second, appellee
would suffer no prejudice from setting aside the default judgment apart from the additional time
and expense of litigation, which is insufficient. See Davis, 713 F.2d at 916 (“[I]t must be shown
that delay will result in the loss of evidence, create increased difficulties of discovery, or provide
greater opportunity for fraud and collusion.”) (citation and internal quotation marks omitted).
Finally, Sumec has presented meritorious defenses, namely, a subsequent new value defense of
over $500,000 and an ordinary course of business defense from the batching of voluminous
invoices in single payments. DE 12 at 57.
Conclusion
For the foregoing reasons, the Bankruptcy Court’s entry of default judgment against Sumec
is VACATED. The case is REMANDED to the Bankruptcy Court for further proceedings

consistent with this Opinion. Furthermore, the Clerk of Court is directed to release to appellee
forthwith the cash security it posted pending appeal. See Electronic Order dated January 13, 2022.
SO ORDERED.
Dated: January 12, 2023
Central Islip, New York
__/s/ Gary R. Brown_______________
HON. GARY R. BROWN
UNITED STATES DISTRICT JUDGE

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10309044. Public record. Not legal advice.