U.S. All. Fed. Credit Union v. M/V Kamara Family

1

US ALLIANCE FEDERAL CREDIT UNION, Plaintiff, v. M/V KAMARA FAMILY A/K/A SOULSTICE, her engines, tackle, apparel, appurtenances, etc., having Official No. 1248827 and Hull Serial No. XAX40137E313, in rem, and RUSLAN AGARUNOV, in personam, Defendants.

No. 20-CV-1733-AMD-SJB

United States District Court, E.D. New York

August 16, 2023

REPORT AND RECOMMENDATION

SANKET J. BULSARA United States Magistrate Judge.

US Alliance Federal Credit Union (“US Alliance”) filed this action seeking foreclosure of the vessel M/V Kamara Family a/k/a Soulstice (the “Vessel”) alleging that its owner, Ruslan Agarunov (“Agarunov” and collectively “Defendants”) defaulted on the $350,000 loan used to purchase the Vessel. U.S. Alliance has now filed a third motion for default judgment. (Mot. for Default J. and Order of Sale dated Sept. 2, 2022 (“Third Mot. for Default J.”), Dkt. No. 39). Defendants failed to appear or otherwise defend the lawsuit, and U.S. Alliance seeks authorization to sell the Vessel so it can recover the remaining principal, attorney's fees and costs, and additional expenses. The Honorable Ann M. Donnelly referred the motion for default judgment to the undersigned. For the reasons stated below, the Court respectfully recommends the motion be granted in part and denied in part.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Agarunov in connection with the Purchase of the Vessel, executed a Loan and Security Agreement (the “Note”) and a First Preferred Ships Mortgage (the “Mortgage”) on October 13, 2015, in the principal amount of $350,000 with an interest rate of 7.740% per year. (Am. Compl. dated Mar 30, 2022 (“Am. Compl.”), Dkt. No. 30 ¶¶ 9, 10, 13; see also Loan and Security Agreement dated Oct. 13, 2015 (the “Note”), attached as Ex. C to Am. Compl., at 1; First Preferred Ships Mortgage dated Oct. 13, 2015 (the “Mortgage”), attached as Ex. D to Am. Compl., at 1). Agarunov made payments until January 2020. (Am. Compl. ¶¶ 14-15).

The Note provides that U.S. Alliance may accelerate the remaining amounts due following default by the mortgagor. (Note at 2 ¶ 6). The Mortgage provides for the same. (Mortgage ¶ 22). Following Agarunov's default, U.S. Alliance accelerated the remaining balance plus applicable interest and declared the entire sum under the Note due and payable. (Am. Compl. ¶ 23). Accordingly, on February 3, 2020, U.S. Alliance sent a Right to Cure letter to Agarunov. (Id. ¶ 16; Notice of Right to Cure dated Feb. 3, 2020, attached as Ex. E to Am. Compl.). Following an Order of Judge Donnelly, on September 3, 2020, the Vessel was arrested by the U.S. Marshal. (Order of Issuance of Process of Maritime Attach. and Arrest dated Apr. 22, 2020, Dkt. No. 10; Notice of Action and Arrest of Vessel dated Sept. 10, 2020, Dkt. No. 13). On September 18, 2020, U.S. Alliance published notice of the action and arrest in the newspaper, Daily News. (Aff. of Publication dated Sept. 18, 2020 (“Aff. of Publication”), attached as Ex. 12 to Third Mot. for Default J.).

The Court previously denied two motions for default judgment filed by U.S. Alliance. See U.S. All. Fed. Credit Union v. M/V Kamara Fam., No. 20-CV-1733, 2021 WL 1795313, at *2 (E.D.N.Y. Apr. 16, 2021), report and recommendation adopted, 2021 WL 1784316, at *1 (May 5, 2021); US All. Fed. Credit Union v. M/V Kamara Fam., No. 20-CV-1733, 2022 WL 607048, at *4 (E.D.N.Y. Feb. 8, 2022), report and recommendation adopted, 2022 WL 603933, at *1 (Mar. 1, 2022). The Court identified three deficiencies in the second motion: (1) a failure to attach the Note to the Complaint; (2) discrepancies between the dates of the Note; and (3) a failure to cite to authority to support the damages or other relief sought. M/V Kamara Fam., 2022 WL 607048, at *2-*4.

On March 30, 2022, U.S. Alliance filed an Amended Complaint. (Am. Compl.). Both Defendants were served with a summons and the Amended Complaint. (Summonses Returned Executed, Dkt. Nos. 35, 36). Neither appeared, both failed to answer, and, as a result, the Clerk of Court entered default against both on July 5, 2022. (Entry of Default, Dkt. No. 38).

On September 2, 2022, U.S. Alliance filed a motion for default judgment against Defendants. (Third Mot. for Default J.). Pursuant to Local Civil Rule 55.2(c), U.S. Alliance mailed the motion papers to the last known address of both Defendants. (Certificate of Service dated Sept. 2, 2022, attached as Ex. 17 to Third Mot. for Default J.).

As of August 31, 2022, the following sums were due and payable: (1) principal: $312,643.12; (2) accrued interest: $64,703.66; (3) late charges: $1,600; (4) U.S. Marshals' fees: $1,047.10; (5) filing fee: $400; (6) publication fee for Notice of Arrest:

$1,836.34; (7) legal fees: $26,642.20;^[1] (7) abstract of title fee: $50; and (8) substitute custodian and storage fees: $54,806.10. (Aff. of Melissa Patzelt-Russo in Supp. of Mot. for Default J. dated Sept. 2, 2022 (“Russo Aff.”), attached as Ex. 1 to Third Mot. for Default J., ¶ 38; Mem. in Supp. of Mot. for Default J. and Order of Sale dated Sept 2, 2022 (“Mem.”), attached as Ex. 16 to Third Mot. for Default J., at 9-10).

The third motion cured all but one of the deficiencies. U.S. Alliance attached the Note to the Amended Complaint, which was re-served on the Defendants. (Note; Summonses Returned Executed, Dkt. Nos. 35, 36). The Amended Complaint, the Mortgage, and the Note attached to the third motion for default judgment all now refer to the same Dated: October 13, 2015. (Am. Compl. ¶ 9; Mortgage at 1; Note at 1). But while U.S. Alliance has now provided authority for the relief it seeks and calculated the daily amount in interest, it seeks attorney's fees for the work of present and prior counsel. Present counsel is entitled to fees; prior counsel, which was replaced, filed motions that were denied, and is not entitled to any recovery. Separately, U.S. Alliance has failed to properly substantiate some of the costs it now seeks. As such, the Court recommends granting and denying the motion in part.

DISCUSSION

I. Entry of Default Judgment

Rule 55 of the Federal Rules of Civil Procedure establishes a two-step process for obtaining a default judgment. See Shariff v. Beach 90th St. Realty Corp., No. 11-CV-2551, 2013 WL 6835157, at *3 (E.D.N.Y. Dec. 20, 2013) (adopting report and recommendation). First, “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.” Fed.R.Civ.P. 55(a). Second, after default has been entered, and the defendant fails to appear or move to set aside the default under Rule 55(c), the Court may, on plaintiff's motion, enter a default judgment against that defendant. Id. r. 55(b)(2).

Whether to enter a default judgment is committed to the discretion of the district court, within the limits articulated by the Second Circuit. Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir. 1993) (“The circumscribed scope of the district court's discretion in the context of a default is a reflection of our oft-stated preference for resolving disputes on the merits.”). That is, the Second Circuit “ha[s] a strong preference for resolving disputes on the merits” and has cautioned that “a default judgment is the most severe sanction which the court may apply.” City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 129 (2d Cir. 2011) (quotations omitted).

In deciding a motion for default judgment, a court “is required to accept all of the [plaintiff]'s factual allegations as true and draw all reasonable inferences in its favor.” Finkel v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009). A party's default is deemed an admission of all well-pleaded allegations of liability. See Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992); Morales v. B & M Gen. Renovation Inc., No. 14-CV-7290, 2016 WL 1266624, at *2 (E.D.N.Y. Mar. 9, 2016), report and recommendation adopted, 2016 WL 1258482, at *2 (Mar. 29, 2016). The Court must then determine “whether the unchallenged facts constitute a legitimate cause of action.” 10A Charles Alan Wright & Arthur R. Miller et al., Federal Practice and Procedure § 2688.1 (4th ed. 2022) (“Once the default is established, defendant has no further standing to contest the factual allegations of plaintiff's claim for relief. Even after default, however, it remains for the court to consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit conclusions of law.”); Labarbera v. ASTC Lab'ys Inc., 752 F.Supp.2d 263, 270 (E.D.N.Y. 2010) (adopting report and recommendation).

In determining whether to enter a default judgment, the Court is guided by the same factors that apply to a motion to set aside entry of a default. See Diakuhara, 10 F.3d at 96. “These widely accepted factors are: (1) whether the default was willful; (2) whether setting aside the default would prejudice the adversary; and (3) whether a meritorious defense is presented.” Id.; see also, e.g., Brooklyn Navy Yard Dev. Corp. v. Harbor Diesel Fuel Servs., Inc., No. 10-CV-5715, 2014 WL 4364628, at *2-*3 (E.D.N.Y. Aug. 1, 2014), report and recommendation adopted, 2014 WL 4385413, at *1 (Sept. 3, 2014).

First, Agarunov and the Vessel's failure to respond to the Amended Complaint demonstrates their default was willful. See, e.g., Indymac Bank, F.S.B. v. Nat'l Settlement Agency, Inc., No. 07-CV-6865, 2007 WL 4468652, at *1 (S.D.N.Y. Dec. 20, 2007) (finding defendants' non-appearance and failure to respond “indicate[d] willful conduct” and granting plaintiff's default judgment against them).

They had sufficient notice of the present litigation. Agarunov was served by delivery of a...