Messer, As Trustee of the FKF Trust v. GMR, LLC et al

FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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: 	Chapter 11
In re: 	:
: 	Case No. 10-37170 (CGM)
FKF 3, LLC, 	:
: 	Adv. Pro. No. 12-09072
Debtor. 	:
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Gregory Messer, as Trustee of the FKF Trust, 	:
:
Plaintiff, 	:
:
against, 	:
:
GMR, LLC, 	:
Ariston Properties, L.L.C., 	:
One Development of Edgewater, L.L.C., 	:
One Degree, LLC, 	:
333, LLC, 	:
Gary M. Ricci, and 	:
Conrad Roncati, 	:
:
Defendants. 	:
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MEMORANDUM DECISION GRANTING DEFAULT JUDGMENTS
A P P E A R A N C E S:
Gregory Messer, as Trustee of the FKF Trust
Chapter 7 Trustee
Klestadt & Winters, LLP
Attorneys for Gregory Messer, Trustee
570 Seventh Ave. 17th Floor
New York, New York 10019
By: Fred Stevens, Esq.
Maeghan J. McLoughlin, Esq.
Law Offices of Charles Shaw, P.C.
Attorneys for Conrad Roncati & Ariston Properties, LLC.
170 Washington Avenue
Dumont, NJ 07628
By: Charles Shaw, Esq.
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CECELIA G. MORRIS
CHIEF UNITED STATES BANKRUPTCY JUDGE
Before the Court is the Trustee’s motion for an order directing entry of default judgments
against seven defendants (referring to any number of them as the “Defendant(s)”). Defendants
Gary M. Ricci; GMR, LLC; 333, LLC; Conrad Roncati; and Ariston Properties, L.L.C., failed to
establish good cause sufficient to set aside the entries of default. Each objection is overruled for
reasons stated herein, and the Trustee’s motion is granted.
Jurisdiction
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(a), 157(a), and
the Amended Standing Order of Reference signed by Chief Judge Loretta A. Preska dated
January 31, 2012.
Background
On July 19, 2010, three creditors filed an involuntary Chapter 11 petition against FKF 3,
LLC (“Debtor”) in the United States Bankruptcy Court for the Southern District of New York.
The Debtor consented to the order for relief, and the Court entered it on August 9, 2010. On
April 18, 2011, the Court confirmed the Joint Plan of Liquidation of FKF 3, LLC, pursuant to
which the FKF Trust (“Trust”) was created and Gregory Messer was appointed trustee
(“Trustee”).
The Trustee commenced the instant adversary proceeding on July 18, 2012 by filing a
complaint (“Complaint” or “Adversary Complaint”). Compl., ECF No. 1. The Complaint seeks
to recover $3,193,750 from GMR, LLC (“GMR”), Gary M. Ricci (“Ricci”), and Conrad Roncati
(“Roncati”), jointly and severally, for breach of contract and turnover of property of the estate.
Compl. ¶ 43-64. The Complaint also seeks to recover $1,100,000 from Ariston, L.L.C.
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(“Ariston”), 333, LLC (“333”), One Development of Edgewater, L.L.C. (“One Development”),
and One Degree, LLC (“One Degree”), jointly and severally, for certain alleged fraudulent
transfers made by the Debtor to these entities. Compl. ¶ 65-142. At the center of both of these
claims is an alleged loan made by the Debtor to GMR and its principal, Gary M. Ricci. Compl. ¶
27-42.
The Trustee alleges that in April 2006, GMR presented the Debtor with an amended note
(“Note”), promising to repay $1,500,000, together with interest, on the Note’s maturity date.1
Compl. ¶ 27. The Note replaced a previous promissory note (“Original Note”). Compl. ¶28. In
total, the Trustee alleges that the Debtor loaned various entities $1,100,000 in cash, with the
remaining $400,000 in principal attributable to another transfer to Ricci. Compl. ¶ 29.
Contemporaneous with the execution of the Note, Ricci and Roncati allegedly guaranteed the
full, prompt, and unconditional repayment of the loan. Compl. ¶ 34 (citing Guaranty of Payment,
Ex. B ¶2). In addition, Ricci and Roncati pledged their membership interests in Ariston and
GMR, respectively, to the Debtor as additional security for GMR’s obligations under the Note.
Compl. ¶ 35 (citing Pledge and Security Agreement, Ex. C).
The Trustee filed the Adversary Complaint on July 18, 2012 and served it upon all
Defendants on July 24, 2012. Aff. Serv., ECF No. 3; Mot. Default J. ¶ 17, ECF No. 20. The
deadline to file an answer, or otherwise reply expired on August 22, 2012 without a response
from any of the Defendants. At the Trustee’s request, the Clerk of Court entered a default
against all Defendants on September 6, 2012.
On September 5, 2012, the Trustee requested that another summons be issued. Letter to
Clerk of Ct., ECF No. 8. The new summons (the “Second Summons”) was issued by the Clerk’s
1 	The Note had a maturity date of September 30, 2007, an annual interest rate of 15%, a default interest rate
of 20%, required that cash collateral be deposited with the Debtor, and granted the Debtor a valid and binding
security interest in the cash collateral. Compl. ¶ 31.
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Office and GMR, Ricci, Ariston, and Roncati were re-served at different addresses on September
10, 2012. Compare Aff. Serv., ECF No.3 with Cert. Serv., ECF No. 17; see also Mot. Default J.
¶ 17, ECF No. 20. The deadline to file an answer or otherwise reply to the Second Summons
expired on October 9, 2012 without a response from any of these Defendants. Thereafter, the
Trustee requested that a second default be entered against GMR, Ricci, Ariston, and Roncati.
Aff. Req. Default, ECF No. 19. The Trustee states that the Clerk’s Office advised that the
defaults previously entered were valid. See Aff. Req. Default, ECF No. 19; see also Resp. to Obj.
¶ 37, ECF No. 35.
On November 15, 2012, the Trustee filed a Motion for Default Judgment, which was
served upon all Defendants at all addresses previously utilized by the Trustee for service. 	Cert.
Serv., ECF No. 18. The deadline to file a response expired on December 10, 2012 without a
response from any of the Defendants. On December 21, 2012, Ricci filed an objection on behalf
of himself, GMR, and 333 (“Ricci Objection”). Ricci Obj., ECF No. 24. On December 26, 2012,
Roncati filed an objection, through counsel, on behalf of himself and Ariston (“Roncati
Objection”). Roncati Obj., ECF No. 26.
On January 4, 2013, the Trustee filed a response to the objections. Resp. to Obj., ECF
No. 35. On January 18, 2012, Ricci filed a letter with the Court regarding his failure to appear at
the January 8, 2013 hearing, in which he advised the Court that he was under the impression that
he did not need to attend the hearing. See Letter from Ricci, ECF, No. 41.
Discussion
Rule 55(c) of the Federal Rules of Civil Procedure, applicable to adversary proceedings
through Federal Rule of Bankruptcy Procedure 7055, states that “[t]he court may set aside an
entry of default for good cause.” Fed. R. Civ. P. 55(c); Fed. R. Bankr. P. 7055. Two of the seven
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Defendants—One Development and One Degree—have not opposed the Trustee’s motion and
did not appear at the hearing held January 9, 2013. The Trustee’s motion for default judgments
are granted as to these two Defendants.
The Roncati Objection requests that the Clerk’s entry of defaults against him and Ariston
be vacated, and the Court will construe the Ricci Objection under the same standard. See Meehan
v. Snow, 652 F.2d 275, 276 (2d Cir. 1981). “When the defaulted defendant opposes default
judgment, courts treat the opposition as a motion to vacate entry of default and examine whether
good cause exists to vacate the entry.” Capitol Records v. Defries, 2012 WL 3041583, at *5
(S.D.N.Y. July 20, 2012).
“Good cause” is not defined by Rule 55(c). The Second Circuit has established a three
factor test to help determine whether good cause exists: (1) was the default willful; (2) will
setting aside the default prejudice the adversary; and (3) was a meritorious defense presented.
Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993). If good cause is not shown, a
motion for default judgment may be granted. See New York v. Green, 420 F.3d 99, 110 (2d Cir.
2005) (affirming district court’s refusal to vacate default judgment where good cause factors
were not met).
Despite the “strong preference for resolving disputes on the merits,” the Defendants in
this case have not satisfied their burden of establishing good case sufficient to vacate the entry of
default. See City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 129 (2d Cir. 2011);
Enron, 10 F.3d at 95-96.
I. 	Whether the Default was Willful
The first “good cause” factor is whether Defendants willfully defaulted. Enron Oil Corp.
v. Diakuhara, 10 F.3d at 96. To be charged with willful default, service must have been proper,
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meaning that it must have satisfied the procedural rules governing service and due process.
Ackermann v. Levine, 788 F.2d 830, 838 (2d Cir. 1986) (“Service of process must satisfy both
the statute under which service is effectuated and constitutional due process.”); Ms. Interpret v.
Rawe Druck—und Veredlungs—GmbH (In re Ms. Interpret), 222 B.R. 409, 415 (Bankr.
S.D.N.Y. 1998) (“Due process requires notice which will warn parties about the action and allow
them to present their positions.”).
Pursuant to Federal Rule of Bankruptcy Procedure 7004(b), service upon an individual or
corporation within the United States can be made by first class mail; personal service is not
required. Fed. R. Bankr. P. 7004(b) (stating that mail service is in addition to those methods
authorized by Fed. R. Civ. P. 4(e)-(j)). If service is mailed to an individual, it must be sent to
that individual’s house, usual place of abode, or to the place where the individual regularly
conducts a business or profession. Fed. R. Bankr. P. 7004(b)(1). For corporations, partnerships,
and unincorporated associations, mail service must be made to the attention of an officer,
managing or general agent, or to any other agent authorized to receive service of process. Id.
7004(b)(3); see also Moglia v. Lowitz & Sons (In re Outboard Marine Corp.), 359 B.R. 893, 899
(Bankr. N.D. Ill. 2007) (stating that the mailing must be sent to the attention of, but need not
specifically name, the officer, managing or general agent). Although Rule 7004(b)(3) does not
specify where mail service for a corporation defendant must be sent, the requirement that service
be made to the attention of an officer, managing or general agent implies that service must be
directed to an address where this individual would receive it. See Harman Auto. v. Barrincorp
Indust., Inc. (In re Harvard Industries, Inc.), 173 B.R. 82, 88 (Bankr. D. Del. 1994) (finding that
the officer of a corporate defendant was duly served with a complaint, even when the officer was
not served at the office of the defendant).
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Constitutional due process requires that defendants be afforded notice “reasonably
calculated, under all circumstances, to apprise interested parties of the pendency of the action
and afford them an opportunity to present their objections.” Mullane v. Cent. Hanover Bank &
Trust Co., 339 U.S. 306, 314 (1950). Under Mullane, actual notice is not required; instead, the
question is whether the party giving notice acted reasonably in selecting means likely to inform
the party entitled to notice. See Weigner v. City of New York, 852 F.2d 646, 649 (2d Cir. 1988);
see also Tulsa Prof’l Collection Servs., Inc v. Pope, 485 U.S. 478, 490 (1982) (explaining that
“mail service is an inexpensive and efficient mechanism that is reasonably calculated to provide
actual notice”).
When service of process is mailed under Rule 7004(b), “[c]ourts uniformly presume that
an addressee receives a properly mailed item when the sender presents proof that it properly
addressed, stamped, and deposited the item in the mail.” In re Dana Corp., 2007 WL 1577763, at
*4 (Bankr. S.D.N.Y. May 30, 2007) (noting that the presumption is very strong); see also
Hagner v. United States, 285 U.S. 427, 430 (1932) (“[T]he rule is well settled that proof that a
letter properly directed was placed in a post office creates a presumption that it reached its
destination in usual time and was actually received by the person to whom it was addressed.”); In
re Freedom Commc’n Holdings, 472 B.R. 257, 262 (Bankr. D. Del. 2012) (noting that “mailing a
notice to a party’s last-known address is reasonably calculated to provide actual notice”). A
party who wishes to rebut the presumption of proper service of process by mail can do so by
introducing evidence that supports a finding that the mailing was not received. Ms. Interpret v.
Rawe Druck—und Veredlungs—GmbH (In re Ms. Interpret), 222 B.R. 409, 413 (Bankr.
S.D.N.Y. 1998). The presumption of non-receipt must be rebutted only with specific, objective
facts; an affidavit indicating non-receipt is insufficient. Id. at 413 (requiring that a party “do
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more than merely assert that it did not receive the mailing; its testimony or affidavit of non-
receipt is insufficient, standing alone, to rebut the presumption”).
Here, evidence proffered by the Trustee creates the presumption that proper mail service
was received by all Defendants. See Aff. Serv., ECF No. 3; Cert. Serv., ECF No. 17; Cert. Serv.,
ECF No. 22. In response, the objections filed by Defendants Ricci and Roncati fail to rebut this
presumption as their conclusory denials of receipt do not state the specific, objective facts
necessary to indicate that service was not received.
A. 	Service of Process on Ricci, GMR, and 333
In his objection, Ricci argues that service was ineffective as he, GMR, and 333, were not
personally served. Ricci Obj. at 1, ECF No. 24. As detailed above, Federal Rule of Bankruptcy
Procedure 7004(b) expressly authorizes service by first class mail upon individuals and
corporations, and thus Ricci’s threshold argument is without merit. See In re Quigley Co., Inc.,
437 B.R. 102, 129 (Bankr. S.D.N.Y. 2010); Fed. R. Bankr. P. 7004(b)(1), (3). Furthermore,
Ricci admits that he, GMR, and 333 “found out about the matter in October 2012 upon receiving
mail forwarded from an old address listed in the complaint.” See Ricci Obj. at 1, ECF No. 24; see
also Harris v. Pettibone Corp., 142 B.R. 763, 766 (M.D. La. 1992) (treating statements made by
defendants that they received service as judicial admissions that service was made). The Second
Summons was mailed to Ricci at the same address that is listed at the top of the Ricci Objection.
Compare Cert. Serv., ECF No. 16 (noting that the Second Summons was mailed to P.O. Box 43,
Haworth, NJ 07641), with Ricci Objection, ECF No. 24 (using letterhead with an address of P.O.
Box 43, Haworth, NJ 07641), and Letter from Ricci, ECF No. 41 (same). Ricci failed to come
forth with any evidence that the addresses used by the Trustee were not valid and failed to
provide any evidence indicating that he, GMR, and 333 were not served. Based on this evidence,
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the Court finds that service was reasonably calculated to put Ricci, GMR and 333 on notice of
the pendency of the action against them, and the presumption of receipt was not rebutted. See
Aff. Serv., ECF No. 3; Cert. Serv., ECF No. 17; Cert. Serv., ECF No. 22.
B. 	GMR and 333 Cannot Appear Without Counsel
Having determined that GMR and 333 were properly served, the Court notes that limited
liability companies can only appear in federal court through a licensed attorney. Lattanzio v.
COMTA, 481 F.3d 137, 140 (2d Cir. 2007) (discussing how this rule applies to partnerships,
corporations, and limited liability companies, including solely-owned limited liability
companies). Because GMR and 333 failed to appear in this lawsuit through counsel, the
objection filed by Ricci on behalf of GMR and 333 is ineffective. The Court grants the Trustee’s
motion as to these Defendants. Grace v. Bank Leumi Trust Co. of N.Y., 443 F.3d 180, 192 (2d
Cir. 2006) (noting that a default judgment may be entered against a corporation that fails to
appear through counsel); see also SEC v. Research Automation Corp., 521 F.2d 585, 589 (2d Cir.
1975) (“It is settled law that a corporation may not appear in a lawsuit against it except through
an attorney, . . . and that, where a corporation repeatedly fails to appear by counsel, a default
judgment may be entered against it.”).
C. 	Service of Process on Roncati and Ariston
Roncati argues that “while [the Trustee] asserts service by regular mail on [Roncati and
Ariston’s] current addresses, through mistake or inadvertence, Defendants did not receive the
pleadings . . . . [] Defendants became aware of the instant matter in November 2012 through
happenstance when co-Defendant Gary Ricci showed Roncati a pleading for the instant
matter . . . .” Roncati Obj. at 4, ECF No. 26. As the above case law makes clear, allegations of
mistake or inadvertence, without more, cannot rebut the presumption of receipt. In re Dana
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Corp., 2007 WL 1577763, at *4 (Bankr. S.D.N.Y. May 30, 2007); Ms. Interpret, 222 B.R. at
413.
On September 10, 2012, the Second Summons was mailed to Roncati’s business and
home addresses.2 Cert. Serv., ECF No. 19. With respect to the business address, Roncati argues
that “the property houses several other businesses and it is not uncommon for an article of mail
to be accidentally delivered to or picked up by another tenant in the building.” Roncati
Certification ¶ 6, ECF No. 26. With respect to the personal address, Roncati states that “[i]f
these pleadings were indeed sent to this address, assuming they arrived, the documents may have
been misplaced by the person whom I have hired to perform household duties, which includes
collecting the mail.” Roncati Cert. ¶ 7, ECF No. 26. Absent from the Roncati Objection is an
allegation that the address used for Ariston─2200 Fletcher Ave., Fort Lee, NJ─was incorrect.
See Roncati Obj., ECF No. 26.
Roncati has failed to rebut the presumption that proper service has been effectuated. See
Aff. Serv., ECF No. 3; Cert. Serv., ECF No. 17; Cert. Serv., ECF No. 22; see also Ms. Interpret,
222 B.R. at 413 (stating that more than an affidavit is required to overcome the presumption of
receipt). In particular, nowhere does Roncati set forth specific, objective facts to substantiate his
allegations that another tenant received his mail and never returned it, or that his household staff
improperly handled his mail. See Dana Corp., 2007 WL 1577763, at *4 (“Evidence of an
objective nature going beyond the claimant’s statement of non-receipt is necessary.”). Rather, he
merely speculates that these events may have occurred. As such, the Court finds that service was
reasonably calculated to put Roncati and Ariston on notice of the pendency of the action against
them, and the presumption of receipt was not rebutted.
2 Roncati confirms that the business address for Architectura, Inc. is 935 River Road, Edgewater, NJ, and that his
personal residence is located at 430 Homans Avenue, Closter, NJ. These are the exact addresses listed in the
Certificate of Service.
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D. 	Willful Default
Willfulness has been found where a party makes a strategic decision to default.
American Alliance Ins. Co. Ltd. v. Eagle Ins. Co., 92 F.3d 57, 60-61 (2d Cir. 1996) (confirming
that the standard does not include careless or negligent errors). A willful default will also be
found when the “claimant made a conscious decision to allow a hearing to go forward without a
response.” In re FairPoint Commc’n, 462 B.R. 75, 80 (Bankr. S.D.N.Y. 2012); see also SEC v.
McNulty, 137 F.3d at 738-39 (noting that attorney failure, noncompliance with scheduling
orders, purposeful avoidance of service, and failed appearances or unaccountable delays are all
examples of willful default) (internal citations omitted). For a default to be willful, there must be
a finding of deliberate conduct as opposed to mere negligence. Gucci America, Inc. v. Gold
Center Jewelry, 158 F.3d 631, 635 (2d Cir. 1998). A deliberate decision not to respond supports
a finding of willfulness. Id.; see also In re Staffieri, 2012 WL 1945697, at *2 (Bankr. E.D.N.Y.
May 30, 2012) (noting that a key consideration is “whether the claimant made a conscious
decision to allow a hearing to go forward without a response”) (internal citation omitted).
In this case, the Defendants’ failure to file a responsive pleading, in light of reasonably
calculated service, amounts to a willful default. Saleh v. Francisco, 2011 WL 5513375, *4
(S.D.N.Y. Nov. 10, 2011) (“Defendants’ failure to file a response to a properly served pleading
amounts to a willful default unless convincingly explained.”). The Second Summons was mailed
on September 10, 2012; neither party appeared until after the Trustee made his motion for an
entry of a default judgment—and even these responses were untimely. In his opposition, Ricci
admits to receiving a copy of the complaint as early as October 2012. Ricci Obj. at 1. Likewise,
Roncanti and Ariston admit to “becom[ing] aware” of the action in November 2012. By this
time, defaults had been entered against the Defendants. None of these Defendants made motions
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to vacate the default or otherwise attempted to rectify their defaults once they became aware of
the action.
Moreover, no Defendant entered a timely response to the Trustee’s motion for default
despite having been served with the motion and having been aware of the action. The Trustee’s
motion for default judgment was filed on November 15, 2012 and objections were due December
10, 2012. The Trustee noticed the motion with a presentment date of December 17, 2012. All
three Defendants have admitted to being aware of this action prior to the response deadline.
Despite having more than enough time to enter a timely response, each chose not to respond to
the motion or otherwise appear in the case until after the objection deadline and the presentment
date had run. See McLoughlin Aff., ECF No. 35, Ex.1 (stating that the Trustee and Roncanti’s
lawyer had been in touch several times in November, including to discuss an extension of time to
file opposition to the motion for default judgment but Roncanti delayed in retaining his lawyer
and was not timely in responding to his lawyers calls); see also Ricci Obj. (dated December 19,
2012 and filed December 21, 2012); Roncati Obj. (filed on December 26, 2012).
Ricci, Roncati, and Ariston have failed to prove that their defaults were anything other
than willful. Instead, they rely on cursory denials of receipt in support of their positions. As
detailed above, a denial of receipt, even for mistake or inadvertence, is not sufficient to rebut the
presumption of receipt. Ms. Interpret, 222 B.R. at 413; see also CUNA Mutual Ins. Grp. v.
Williams (In re Williams), 185 B.R. 598, 600 (B.A.P. 9th Cir. 1995) (“[A] statement of non-
receipt is not a nullity, but does address the presumption, which then is weighed against the
declaration of non-receipt together with any other evidence submitted.”).
Moreover, Ricci admits that he was aware of the motion and hearing yet he failed to
appear at the January 8, 2013 hearing to argue his objection. Letter from Ricci to Court (Jan. 15,
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2013), ECF No. 41. While Ricci did file a letter with the Court on January 15, 2013 indicating
that he was “under the impression” that he did not need to appear after speaking with Ms.
McLoughlin of Klestadt & Winters, LLP, his statement is unconvincing in light of the evidence
presented at the January 8, 2013 hearing. See id. (acknowledging that he was aware of the
hearing and referring to his absence as a “misunderstanding”). At the January 8, 2013 hearing,
the Court heard testimony from Ms. McLoughlin. When questioned by the Court, Ms.
McLoughlin testified that she personally and repeatedly informed Ricci of his need to appear at
the hearing. Ricci was also on notice of his need to appear at the hearing as the Court set a
Notice of Hearing in response to his late filed opposition. See Notice of Hearing, ECF No. 32.
Ricci could have easily confirmed same by reading the agenda for the January 8, 2013 hearing or
by calling the Court. See First Amended Notice of Agenda for January 8, 2013 hearing, ECF
No. 36 (stating that “[t]his matter is going forward”).
Based on the foregoing, the Court finds that Defendants willfully defaulted. See New
York v. Green, 420 F.3d 99, 109 (2d Cir. 2005) (affirming the finding that default was willful
where defendants did not provide any justification for their failure to take action after receiving
notice that a default had been entered against them). His request for a new hearing date is
denied.
II. 	Prejudice to the Trustee
Prejudice against a non-defaulting party lies where delay thwarts his or her opportunity
for remedy or chance of recovery, and provides greater opportunity for fraud and collusion. See
New York v. Green, 420 F.3d 99, 110 (2d Cir. 2005). Delay alone is not a sufficient basis for
establishing prejudice, and the moving party has the burden of showing the absence of prejudice.
Capitol Records v. Defries, 2012 WL 3041583, at *6 (S.D.N.Y. July 20, 2012).
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Ricci does not contest the fact that the Trustee will be prejudiced by vacating the default.
See Ricci Obj., ECF No. 24. Roncati, on the other hand, admits that the Trustee suffered a
multiple month delay in the litigation, yet shifts the focus by indicating that greater prejudice lies
with Roncati and Ariston if the default against them is upheld. Roncacti Obj., ECF No. 26. The
Trustee counters by arguing that interest continues to accrue, and that delay prejudices his
chance of recovery. Resp. to Obj. ¶ 66, ECF No. 35.
Here, the facts do not indicate mere delay. Instead, the Trustee has “articulated
prejudicial consequence[s]” that will result from the Defendant’s measures to frustrate recovery
in this case. See In re Emmerling, 223 B.R. 860, 869 (B.A.P. 2d Cir. 1997) (noting that without
any articulated prejudicial consequence, mere delay is not sufficient to constitute prejudice). The
Court finds a discussion of prejudice from Saleh v. Francesco instructive on this point. 2011 WL
5513375, *3 (S.D.N.Y. Nov. 10, 2011). In Saleh, the district court noted that the defendants
personally guaranteed a $596,000 loan that was accruing interest at 20% per annum. Id. at *5.
As the delay in prosecution increased the total recovery sought, the risk that plaintiff’s recovery
would be hindered was sufficient prejudice in the court’s view. Id.
Here, like in Saleh, the Trustee alleges that the Defendants owe $1.5 million, plus
interest, accruing at 20% per annum, and that the delay due to the Defendants failure to respond
increases the risk that he will not be able to recover. Resp. to Obj. ¶ 66, ECF No. 35. The Court
finds that the Trustee’s increased risk of recovery is sufficient prejudice to the Trustee.
III. 	Meritorious Defense
The third factor in the “good cause” analysis is whether the defaulting party presents a
meritorious defense. Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993). Although a
meritorious defense need not be ultimately persuasive, the party seeking to vacate a default must
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provide sufficient law and fact to give the fact finder some determination to make. American
Alliance Ins. Co., Ltd. v. Eagle Ins. Co., 92 F.3d 57, 61 (2d Cir. 1996). “[T]he defendant must
present evidence beyond conclusory denials . . . and such evidence, if proven at trial, [should]
constitute a complete defense.” In re JWP Info. Serv., Inc., 231 B.R. 209, 213 (Bankr. S.D.N.Y.
1999); see also Enron, 10 F.3d at 98 (“A defendant seeking to vacate an entry of default must
present some evidence beyond conclusory denials to support his defense.”).
Ricci, Roncati, and Ariston allege that their liability is limited by citing to the same two
documents: (i) Assignment and Assumption Agreement, Consent and Release (“Consent and
Release”), and (ii) Assignment of Membership Interest. Ricci Obj., ECF No. 24; Roncati Obj.,
Ex. A, ECF No. 26.
A. 	Ricci Does Not Have A Meritorious Defense
In support of his argument that he has a meritorious defense, Ricci focuses on two
provisions of the Consent and Release:3 Recital D and Paragraph 1. Recital D is an overview of
the transaction entered into by the parties, while Paragraph 1 states that the “Transferee [Ariston]
hereby assumes all payment and performance obligations and liability of the Transferor under
the Note.” 	Neither provision overrides the preservation of liability as detailed in Paragraph 5 of
the Consent or the Release (“Paragraph 5”). Paragraph 5 states:
5. Release of Transferor Ricci and Roncati. [stet] In reliance on the Transferor’s
and the Transferee’s representations and warranties in this Agreement, Lender
releases 	Transferor 	from 	his 	obligations 	under 	the 	Note 	and 	the 	Security
Instrument, provided, however, that the Transferor is not released from any
liability that relates to the period prior to the date hereof, regardless of when such
matter is discovered. In reliance on Ricci’s representations and warranties in this
Agreement, Lender releases Ricci and Roncati from their obligations under the
Guaranty, provided, however, that Ricci is not released from any liability that
3 A copy of the “Assignment and Assumption Agreement Consent and Release” can be found on pages 8-14 of the
Ricci Objection, ECF 24 and at pages 7-13 of Exhibit A to the Roncanti Objection, ECF No. 26.
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relates to the period prior to the date hereof, regardless of when such matter is
discovered.4
Paragraph 5 appears to release Ricci from his obligations under the Guaranty, but the words
following the release counter any allegation that Ricci is absolved of all liability. The relevant
proviso states that “Ricci is not released from any liability that relates to the period prior to the
date hereof, regardless of when such matter is discovered.” 	This statement indicates that Ricci
was not released from any liability arising before the date of the assignment, and thus Ricci is
still liable for the principal balance of the loan because the principal balance is a liability that
relates to the period prior to the date of the assignment. It is also reasonable to believe that the
last portion of the sentence—“regardless of when such matter is discovered” —is broad enough
to encapsulate any accrued interest to date.
Aside from pointing out the language of Recital D and Paragraph 1, both of which are
contradicted by Paragraph 5, Ricci has failed to provide any additional evidence sufficient to
support a defense or position, as is his burden under this prong of the “good cause” analysis. In
re Fairpoint, 462 B.R. at 81-82. 	His response amounts to nothing more than conclusory
denials, which are insufficient to establish a meritorious defense. In re JWP Info. Serv., Inc., 231
B.R. 209, 213 (Bankr. S.D.N.Y. 1999).
B. 	Roncati and Ariston Do Not Have A Meritorious Defenses
Paragraph 9 of the Consent and Release dated August 11, 2006 applies specifically to
Roncati, and counters any assertion that he is free of liability. It states:
9. Ratification and Reaffirmation. 	Roncati hereby ratifies and reaffirms
his 	absolute 	and 	unconditional 	obligations 	under 	the 	Loan, 	the 	Security
Instrument and the other documents executed by Roncati in connection with the
Loan, and represents and warrants to FKF that the Security Instrument and other
loan documents are in full force and that he has no know right of set-off, defense
4 For purposes of this paragraph, the “Transferor” is GMR, the “Transferee” is Ariston, and the “Lender” is FKF 3,
LLC
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or counterclaim with respect to his obligations under the Loan, the Security
Instrument and such other loan documents as of the date of this Agreement.
This paragraph affirmatively evidences Roncati’s obligation with respect to the $1,500,000 loan,
an obligation that includes full payment of principal and all contractual interest to date.
Although Paragraph 5 includes language relating to Roncati’s release under the guaranty, there
has been no evidence presented which indicates that Roncati was released of his obligations
under the loan or security agreement. In fact, further evidence of Roncati’s obligation to repay
the loan is found in Paragraph 6 of the Consent and Release, which states in part “Roncati agrees
that his obligations under the Note shall in no way be affected by the release by lender of Ricci
from his obligations under the Loan . . . .” Roncati Obj. (Consent and Release, Ex. A), ECF No.
26.
With respect to Ariston, any argument that the Consent and Release or Assignment of
Membership Interest releases it from liability is untenable. In fact, nothing evidences Ariston’s
obligation more clearly than Paragraph 1 of the Consent and Release (titled “Assumption of
Obligations”), which states that “[t]he Transferee [Ariston] hereby assumes all of the payment
and performance obligations and liability of the Transferor under the Note, as expressly provided
in the Note.” A full review of all documents filed in connection with Ariston’s objection
uncovers nothing which limits Ariston’s liability or contradicts Paragraph 1.
Returning to the standard for a meritorious defense, the Court finds that Roncati and
Ariston fail to put forth sufficient law or fact to support a defense as to liability under the Note.
Liability under the Note is the basis of the breach of contract and fraudulent conveyance claims
at the center of the Trustee’s Adversary Complaint, and a legally supported defense or position
has not been put forth by either Roncati or Ariston. See In re JWP Info. Serv., Inc., 231 B.R. 209,
213 (Bankr. S.D.N.Y. 1999).
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Conclusion
For the foregoing reasons, the Trustee’s motion for default judgment is granted. 	The
Trustee should submit an order consistent with this decision.
Dated: Poughkeepsie, New York
March 13, 2013 	/s/ Cecelia G. Morris 	.
. 	CECELIA G. MORRIS
CHIEF UNITED STATES BANKRUPTCY JUDGE
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