TAIZHOU ZHONGNENG IMPORT AND EXPORT CO. LTD v. KOUTSOBINAS No. 11-4020-cv.
TAIZHOU ZHONGNENG IMPORT AND EXPORT CO., LTD, Plaintiff-Appellee, v. VASILIOS KOUTSOBINAS, Defendant-Appellant, EUROSPEED, INC., EURO GROUP OF COMPANIES, INC., Defendants.
United States Court of Appeals, Second Circuit.
January 30, 2013.
Stephen R. Bellis , The Pellegrino Law Firm, New Haven, CT., for Appellant.
Evelyn R. Storch , Harwood Lloyd, LLC, Hackensack, NJ, for Appellee.
PRESENT: DENNY CHIN, CHRISTOPHER F. DRONEY, JOHN GLEESON,
Defendant-Appellant Vasilios Koutsobinas ("Koutsobinas") appeals from an order of the district court denying his motion under Federal Rule of Civil Procedure 60(b) to vacate a default judgment issued against him. Plaintiff Taizhou Zhongneng Import & Export Co. ("Taizhou") sued Eurospeed; Eurospeed's parent company Euro Group; and Koutsobinas, chairman and CEO of Euro Group and CEO of Eurospeed, over the defendants' alleged failure to pay Taizhou the full balance due on an order of motor scooters. Defendants failed to answer the complaint and a default judgment was issued against them on October 4, 2010. On August 1, 2011, defendants moved to vacate the default judgment under Federal Rule of Civil Procedure 60(b). The district court denied the motion and Koutsobinas appeals.
We review a district court's denial of a Rule 60(b) motion to vacate a default judgment for abuse of discretion. New York v. Green, 420 F.3d 99, 104 (2d Cir. 2005). A district court abuses its discretion when its error rests on an error of law or a clearly erroneous factual finding, or its decision, though not the product of legal error or a clearly erroneous factual finding, cannot be located within the bounds of permissible decisions. United States v. Figueroa, 548 F.3d 222, 226 (2d Cir. 2008).
We have identified three factors relevant to deciding a motion to vacate a default judgment pursuant to 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." State Street Bank & Trust Co. v. Inversiones Errazuriz Limitada, 374 F.3d 158, 166-67 (2d Cir. 2004). Although a motion to set aside a default judgment is "addressed to the sound discretion of the district court . . . we have expressed a strong preference for resolving disputes on the merits." Green, 420 F.3d at 104 (internal citations and quotation marks omitted). As a result, 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 in order to ensure that to the extent possible, disputes are resolved on their merits." Id.
Apart from this inquiry under Rule 60(b), before a district court enters a default judgment, it must determine whether the allegations in a complaint establish the defendant's liability as a matter of law. See Finkel v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009). This is because "[i]t is an ancient common law axiom that a defendant who defaults thereby admits all well-pleaded factual allegations contained in the complaint." City of N.Y. v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011) (citation and quotation marks omitted). A default, then, only establishes a defendant's liability if those allegations are sufficient to state a cause of action against the defendant.
Here, Taizhou's primary allegation was that the defendants breached a contract to purchase motor scooters by failing to deliver the purchase price. However, the contract at issue was between Taizhou and Eurospeed; neither Euro Group nor Koutsobinas was a party to the contract. Thus Koutsobinas was only liable on the contract, and a default judgment could only be issued against him, if Taizhou stated a well-pleaded veil-piercing claim against Eurospeed so as to reach him. Under New York law,
The allegations in Taizhou's complaint are plainly inadequate to establish Koutsobinas's liability for Eurospeed's contract. It asserts that there is a "unity of interest and common ownership" between the companies and Koutsobinas; that "at all relevant times the business affairs of the Defendants were so mixed and intermingled that the same cannot reasonably be segregated, and the same are in inextricable confusion"; and that "at all relevant times each of the Defendants used the others as mere shells and conduits for the conduct of their affairs."
Taizhou attempts to avoid this deficiency by pointing out that its complaint also contains allegations of negligent and fraudulent misrepresentation and for fraud. Under New York law, "a corporate officer who commits or participates in a tort, even if it is in the course of his duties on behalf of the corporation, may be held individually liable." Bano v. Union Carbide Corp., 273 F.3d 120, 133 (2d Cir. 2001) (citation and quotation marks omitted). This argument is unavailing, however, because a cause of action for negligent or fraudulent misrepresentation cannot arise "out of the same facts that serve as the basis for [a plaintiff's] causes of action for breach of contract." Losascio v. James V. Aquavella, M.D., P.C., 185 A.D.2d 689, 690 (N.Y. App. Div. 1992); see also Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 516 N.E.2d 190, 193-94 (N.Y. 1987) ("It is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated."). Here, Taizhou's fraud allegations are nothing more than a restatement of its breach of contract claim, alleging that the defendants misrepresented that Taizhou would be paid on delivery of the scooters. The only alleged misrepresentations made by Koutsobinas occurred after Taizhou had already performed under the contract. Thus even if Taizhou's claims were read as something more than a restated breach of contract claim, they fail to make out a cause of action against Koutsobinas because Taizhou could not have relied on any of Koutsobinas's representations.
Because the well-pleaded allegations in Taizhou's complaint do not state a claim against Koutsobinas, a default judgment should not have been entered against him in the first place. For this reason, the district court's decision to deny his Rule 60(b) motion was outside the bounds of permissible decisions.
The judgment of the District Court is REVERSED and the case is REMANDED for proceedings not inconsistent with this summary order.
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