The opinion
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
WILMINGTON TRUST, N.A., AS TRUSTEE FOR RAN
THE REGISTERED HOLDERS OF CREDIT oc 1 “aMLy
SUISSE FIRST BOSTON MORTGAGE ~~ ( )¢ J
SECURITIES CORP., MULTIFAMILY
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 2019-SB67,
Plaintiff,
-against-
1738 EAST 4"4 STREET LLC, ELIE SABBAGH,
THE CITY OF NEW YORK ENVIRONMENTAL
CONTROL BOARD, and JOHN DOE NO. J
THROUGH JOHN DOE NO. XXX, inclusive, the
last thirty names being fictitious and unknown
to Plaintiff, the persons or parties intended
being the tenants, occupants, persons, or
corporations, if any, having or claiming an
interest in or lien upon the premises described
in the Complaint,
Defendants.
NICHOLAS G. GARAUFIS, United States District Judge.
Before the court is Defendants’ motion to vacate this court’s
granting default judgment of foreclosure and sale of 1738 East
4 Street, Brooklyn, New York (the “Property”). (See Motion to
Vacate (“Mot.”) (Dkt. 33-10); PlaintifPs Response in Opposition
(“Opp.”) (Dkt. 34); see also R&R (Dkt. 17); Order Adopting R&R
(Dkt. 19).) For the reasons discussed herein, this motion is
GRANTED. Plaintiffs motion for attorney fees, (Dkt. 25), in-
curred in relation to the discharge is DENIED as premature.
I. BACKGROUND .
The court assumes familiarity with the underlying facts of this
foreclosure action filed on February 16, 2023. (See R&R at 2-4
(reviewing the case’s background and facts).)
On October 30, 2023, the court adopted Magistrate Judge Robert
M. Levy’s report and recommendation, which recommended
granting in part and denying in part Plaintiffs default judgment
motion and appointment of a receiver for the Property. (See gen-
erally Order Adopting R&R; Order Appointing Receiver (Dkt.
20).) Specifically, the court granted the motion for default judg-
ment against Defendant 1738 East 4" Street LLC (“Defendant
LLC” or “Borrower”), appointed Ian Lagowitz as receiver, and de-
nied the motion for default judgment against Defendants Elie
Sabbagh and the Gity of New York Environment Control Board
(“ECB”}. (Order Adopting R&R at 2.)!
Defendant LLC and Defendant Sabbagh (“Defendants”) ap-
peared in this case shortly thereafter and sought a pre-motion
conference in anticipation of filing a motion to vacate under Fed.
R, Civ. P. 55(c) and 60(b). (Letter dated November 20, 2023
(Dkt. 24).) The court granted leave to file the motion, (see Min.
Entry dated February 15, 2024), and the fully briefed motion was
filed on March 18, 2024. (Mot.; Opp.)
Il. LEGAL STANDARD AND DISCUSSION
“A court may set aside any default that has entered for good
cause shown, and if a judgment has entered on the default, the
court is authorized to set the judgment aside in accordance with
the provisions of Rule 60(b).” New York v. Green, 420 F.3d 99,
104 (2d Cir. 2005) (citing Fed. R. Civ. P. 55(c)). “As there is a
final default judgment in this case, this Court only can set aside
1 As discussed in the R&R, Plaintiff preserved its right to seek a deficiency
judgment against Defendant Sabbagh as guarantor. (R&R at 8.)
the default judgment pursuant to Rule 60(b).” Aquapan v. Sun-
shine 39 Windows & Glass, Inc., No. 19-CV-06446 (DLD (RML),
2022 WL 843731, at *1 (E.D.N.Y. Mar. 2.2, 2022).
The decision on whether to vacate a default judgment is “ad-
dressed to the sound discretion of the district court.” Green, 420
F.3d at 104.2 The burden is on the party seeking relief from judg-
ment. United States v. Int'l Bhd. of Teamsters, 247 F.3d 370, 391
(2d Cir, 2001). However, given this Circuit’s “strong preference
for resolving disputes on the merits... in ruling on a motion to
vacate a default judgment, all doubts must be resolved in favor
of the party seeking relief from the judgment.” Green, 420 F.3d
at 104.
The district court is guided by three factors when deciding a mo-
tion to vacate a default judgment under Rule 60(b): “(1) whether
the default was willful, (2) whether the defendant demonstrates
the existence of a meritorious defense, and (3) whether, and to
what extent, vacating the default will cause the nondefaulting
party prejudice.” S.E.C. v. McNulty, 137 F.3d 732, 738 (2d Cir.
1998). These are the same factors courts consider on a motion to
set aside an entry of default under Rule 55(c), but “courts apply
the factors more rigorously in the case of a [final] default judg-
ment[.]” Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir.
1993).
The court also considers “relevant equitable factors,” including
“whether the failure to follow a rule of procedure was a mistake
made in good faith and whether the entry of default would bring
about a harsh or unfair result.” Enron, 10 F.3d. at 96, A defend-
ant’s failure to meet one of the three factors will generally not
defeat a motion to vacate default if the other factors weigh in
favor of setting aside the default. Strulowitz v. Flavor Boutique
2 When quoting cases, unless otherwise noted, all citations and internal
quotation marks are omitted, and all alterations are adopted.
796 Inc., No. 18-CV-8382 (AJN), 2020 WL 2749564, at *2
(S.D.N.Y. May 26, 2020).
In considering these factors, the court finds that vacatur is war-
ranted under Rules 55{c) and 60(b).
A. Willfulness
Willfulness in terms of a default refers “to conduct that is more
than merely negligent or careless, but is instead egregious and .
.. not satisfactorily explained.” Bricklayers & Allied Craftworkers
Loc, 2, Albany, N.Y. Pension Fund y. Moulton Masonry & Const.,
LLC, 779 F.3d 182, 186 (2d Cir. 2015). However, “a finding of
bad faith is not a necessary predicate to concluding that a de-
fendant acted willfully.” Leger v. Navila Asset Mgmt. Inc., No. 20-
CV-3820 (EK) (RML), 2023 WL 2352843, at *1 (E.D.N.Y. Feb. 6,
2023), report and recommendation adopted, No. 2.0-CV-3820
(EK) (RML), 2023 WL 2349581 (E.D.N.Y. Mar. 3, 2023) (citing
Gucci Am., Inc. v. Gold Ctr. Jewelry, 158 F.3d 631, 635 (2d Cir.
1998)). Instead, to find that a default was willful, “it is sufficient
to conclude that the defendant defaulted deliberately.” Bricklay-
ers, 779 F.3d at 187.
Here, Defendants primarily argue that their failure to respond to
the complaint resulted from a family member’s illness and their
devotion of time to caring for that family member, (Mot. at 3.)
Specifically, Defendant Sabbagh swears in a declaration attached
to the Motion to Vacate that upon his son’s diagnosis with cancer
in September 2022, through April 2023, he devoted himself fully
to his son’s care and treatment. (See Sabbagh Decl. (Dkt. 33-11)
{| 4.) Defendant Sabbagh states that his son was “fighting for his
life” and that, as his father, he provided “continuous, around-the-
clock care,” (id. {{ 4-5}, and he provides documentation as to his
son’s illness and the Defendant’s presence at treatment sessions.
Ud. at ECF 5-11.) He states that tending to his son’s medical ill-
ness prevented him from responding to the complaint on behalf
of himself as well as the Defendant LLC, of which he is the sole
member. Ud. { 6; Mot. at 3.) Caring for one’s family is often
found sufficient to demonstrate that default was not willful. See
HICA Educ. Loan Corp. v. Feintuch, No. 12-CV-5243 (ADS), 2013
WL 1898997, at *4 (E.D.N.Y. May 7, 2013); Murray Engineering,
P.C. v. Windermere Properties LLC, No, 12-CV-0052 (JPO), 2013
WL 1809637, at *4 (S.D.N.Y. Apr. 30, 2013).
As the litigation continued past the period in which his son un-
derwent treatment, however, Defendant Sabbagh’s failure to
respond became less excusable. The court granted the motion for
default judgment on October 30, 2023, almost seven months af-
ter the treatment of Plaintiffs son ended, according to the
timeline provided by Defendant Sabbagh. (Sabbagh Decl. {| 4
(noting that Sabbagh was devoted to his son’s care between Sep-
tember 2022 and April 2023).) During this time, Plaintiff
provided certified service of the motion for default judgment in
June 2023 (Dkt. 16), and the R&R in September 2023 (Dkt. 18).}
This length of time would generally support a finding of willful-
ness. However, the court notes that the Defendants appeared in
this action within weeks of this court entering final default judg-
ment and appointing the receiver, which may indicate that once
the consequences of not responding became fully apparent, they
promptly appeared. In addition, Plaintiff has not pointed to any
other indicators of bad faith beyond delay, nor have they identi-
fied any advantages that the delay created.
Ultimately, the need to care for a son, which occurred when the
litigation commenced, provides a concrete reason why Mr. Sab-
bagh did not answer the complaint. And although the delay
extended past the period in which Mr. Sabbagh’s son was in treat-
ment, it is difficult for the court to determine at which point this
serious illness no longer provided a justifiable excuse for failure
to respond, and at what point his failure to appear became will-
ful. The court is especially cautious of drawing a bright line to
say that the length of delay here demonstrates willfulness in the
absence of other evidence of bad faith. Thus, construing the facts
in favor of the defaulting party, the court finds this factor neutral.
It will therefore determine whether to vacate based on the re-
maining two factors.’
B. Meritorious Defense
“In order to make a sufficient showing of a meritorious defense
in connection with a motion to set aside a default, the defendant
need not establish his defense conclusively, but he must present
credible evidence of facts that would constitute a complete de-
fense.” State Farm Mut. Auto. Ins. Co. v. Cohan, 409 F. App’x 453,
456 (2d Gir. 2011) (Summary Order) (citing Enron Oil Corp., 10
F.3d at 96).
Defendants argue that they have a meritorious response based
on Plaintiffs failure to provide notice of the foreclosure action to
tenants at the Property. Under New York Real Property Actions
and Proceedings Law (“RPAPL”) § 1303, any party seeking to
foreclose on a mortgage encumbering “residential real property”
3 Defendants raise additional arguments on this issue, but these provide
little support that default was not willful, They first suggest that service
was improper, stating that the address for Defendant 1738 East 4th Street
LLC was incorrect which would justify the non-response. (Mot. at 5; Sab-
bagh Decl. § 8.) But the address where the pleadings were mailed is the
address listed in the loan documents and on the website of the Secretary
of State. (See Opp. at 2.) The court thus finds that service on Defendant
LLC was preper and does not support vacatur. 77 Charters, Inc. v. SYC Re-
alty LLC, No. 2010-CV-01681 (SLT) (MDG), 2012 WL 1077706, at *6
(E.D.N.Y. Feb. 27, 2012), report and recommendation adopted, No. 10-CV-
1681 (SLT) (MDG), 2012 WL 1078466 (E.D.N.Y. Mar. 30, 2012). Defend-
ants also suggest that service on Defendant Sabbagh was improper because
service was left with a “John Doe” of suitable age and discretion, which
counsel suggests calls into question the “veracity” of the statements in the
affidavit of service. (Mot. at 5.) But Mr. Sabbagh does not expressly state
that he did not receive service nor otherwise argue that he was unaware
of the litigation. (See generally Sabbagh Decl.) The court thus finds the af-
fidavit to be credible and that service was proper.
must provide notice to “any tenant of a dwelling unit.” RPAPL §§
1303(1), 1303(5). This requirement applies “without regard to
the size or occupancy of the dwelling.” 650 Brooklyn LLC v.
Hunte, 3 N.Y.S.3d 909, 917 (N.Y. Sup. Ct. 2015). Such notice is
a “condition precedent to maintenance of a foreclosure action,”
the purpose of which is to protect “tenants who may not be aware
of their rights or even of the pendency of the action.” Plenitude
Cap. LLC v. Utica Ventures, LLC, No, 18-CV-2702 (MKB) (RER),
2019 WL 4014840, at *4 (E.D.N.Y. June 11, 2019), report and
recommendation adopted, No. 18-CV-2702 (MKB) (RER), 2019
WL 3543610 (E.D.N.Y. Aug. 5, 2019).
“A foreclosing mortgagee that does not clearly establish compli-
ance with RPAPL’s notice requirements,” including those set forth
under Section 1303, “fails to meet its prima facie burden of es-
tablishing its entitlement to judgment as a matter of law.” United
States v. Starr, No. 16-CV-1431 (NSR), 2017 WL 4402573, at *4
(S.D.N.Y. Sept. 29, 2017). As Judge Reyes has noted when re-
viewing this notice requirement, “New York authority is clear
that notice is an indispensable element of a prima facie case, such
that a plaintiff bears the burden of establishing that notice was
properly effectuated.” Plenitude Cap, LLC, 2019 WL 4014840, at
*5 (citing First Nat. Bank of Chicago v. Silver, 899 N.Y.S.2d 256,
259, 261 (2d Dep’t 2010) and U.S. Bank Nat'l Ass’n v. Sims, 79
N.Y.S.3d 207, 209 (2d Dep’t 2018)). Thus, “it would be inappro-
priate to issue an order of foreclosure and sale where notice was
deficient.” Id.
Here, Defendants state that tenants did not receive or see the no-
tice that was required under RPAPL § 1303(4). (Mot. at 6-9.)
And they provide evidence to support this assertion in the form
of affidavits from tenants who state they did not receive service
or notice, (Dkts. 33-12 to 33-16.) Plaintiff also implicitly con-
ceded the issue by attempting to cure the deficiency in notice
after Defendants requested a pre-motion conference in anticipa-
tion of filing the present motion. (Mot. at 8; see also Ex. A to Opp.
(Dkt. 34) at ECF 15 (noting that notice was posted on the door
on December 5, 2023).} While notice may have subsequently
been given in December 2023, this would still be untimely under
New York law which requires notice to tenants within “ten days
of the service of the summons and complaint.” RPAPL § 1303(4).
Defendants have thus presented credible evidence of facts that
would constitute a complete defense and this factor weighs in
their favor. See State Farm, 409 F, App’x at 456.
C. Prejudice
“[D]elay standing alone does not establish prejudice.” Enron Oil
Corp., 10 F.3d at 98. And neither do “costs incurred with respect
to countering a defendant’s motion.” OneWest Bank, N.A. y. Ruiz,
No. 14-CV-3207 (RRM) (RLM), 2018 WL 1318983, at *3
(E.D.N.Y. Mar. 13, 2018). Instead, a plaintiff opposing a motion
to vacate a default must generally show “that delay will result in
the loss of evidence, create increased difficulties of discovery, or
provide greater opportunity for fraud and collusion.” Id.
Here, Plaintiff has not shown that vacating the default judgment
would be prejudicial. Plaintiff cites delay and costs associated
with delaying the final judgment, (Opp. at 7), but this is not suf-
ficient. OneWest, 2018 WL 1318983, at *3. The lack of prejudice
to Plaintiff is further supported by the receiver’s appointment,
who will safeguard the property during the pendency of the liti-
gation. Defendants concede that the order appointing the
receiver will remain in “full force and effect” even if default judg-
ment was vacated. (Mot. at 6.)
Plaintiff argues that they are prejudiced by the inability to collect
on their collateral and an increased likelihood that extended liti-
gation will lead to an inability to coliect on this collateral. Even _
if the action is delayed by the resetting of the lawsuit, Defendants’
obligations will continue to accrue at the higher default rate, (See
Note (Dkt. 1-4) § 5(b).) And Plaintiff has not provided any evi-
dence that that they will be unable recover on the full amount
due through a foreclosure action and sale, even if delayed. (See
generally Opp. at 7.), Further, the lender has preserved his right
to pursue the debt through an action against Ellie Sabbagh as
guarantor for any amounts due following foreclosure and sale.
(See R&R at 8.) Thus, while there is always a risk that a delay
will create changed circumstances that impact the value of the
collateral, these risks are not concrete and are mitigated by the
appointment of the receiver.
The court therefore finds that the prejudice factor weighs in favor
of Defendants.
D. Summary
The illness in Defendant’s family is serious, but it is a close call as
to whether it is sufficient to excuse the Defendant’s failure to ap-
pear for nine months once the action was commenced. However,
because there are no other indications of bad faith and because
there is a preference for resolving issues on the merits in this Cir-
cuit, the court finds that while the first factor, willfulness, is
neutral, the second and third factors, meritorious defense and
prejudice, weigh in favor of granting Defendants’ motion to va-
cate. In weighing these factors, the court finds that there is good
cause to vacate the default judgment in this case.
II, CONCLUSION
For the reasons discussed herein, the motion to vacate the fina!
default judgment is GRANTED. The Clerk of the Court is respect-
fully directed to vacate the default judgment and reopen this
case. Defendants shall file their answer within 21 days of the date
of this order.
Plaintiffs motion for attorney fees, (Dkt. 25), incurred in relation
to the discharge is DENIED as premature.
SO ORDERED.
Dated: Brooklyn, New York
April £2; 2024
s/Nicholas G. Garaufis
INIGHOLAS G. GARAUFI4
“United States District Judge
10