Default Judgment Proper Where Party Failed to Update Address and Did Not Receive Service of Process

On July 26, 2022, Justice Borrok of the New York County Commercial Division issued a decision in Shabtai v. HFZ Capital Group, LLC, 2022 NY Slip Op 50669(U) holding that a party’s failure to update its address was not a reasonable excuse for not receiving process and the subsequent failure to respond warranted a default judgment, stating:

To successfully oppose a CPLR 3215(a) motion for default judgment, a defendant must show a reasonable excuse for the default and a meritorious defense (Zhang v Jong, 195 AD3d 435, 435, 144 N.Y.S.3d 581 [1st Dept 2021]). CPLR 3012(d) also allows for an extension of time to appear or plead upon just terms and a showing of reasonable excuse for delay (Velasquez v New York City Transit Auth./MTA, 198 AD3d 555, 556, 152 N.Y.S.3d 823 [1st Dept 2021]). New York has a "strong public policy in favor of disposing of cases on their merits," and the motion court has discretion in determining what constitutes a reasonable excuse [*14] (Zhang, 195 AD3d at 435).

The failure to receive service of process predicated on the failure to maintain a proper address is, under the facts of this case, simply not a reasonable excuse (Majada Inc. v. E&A RE Capital Corp., 205 AD3d 648, 649 [1st Dept 2022]). Nor is it reasonable under the circumstances to have expected HFZ, Monroe's predecessor-in-interest by virtue of Monroe's foreclosure on their equity position, to forward anything to them. HFZ had no obligation to do so. Finally, it does not matter that the defendants were working remotely during the pandemic. Updating an address with the registered agent does not require physical presence in the office and by the defendants' own admission, their office attendance hiatus neither inhibited their ability to operate the Property, nor did it prevent them from filing the Certificate of Cancellation and otherwise intentionally trying to cause the dissolution of the Shore Club Entities.

Shanker v 119 E. 30th, Ltd., 63 AD3d 553, 554, 881 N.Y.S.2d 98 (1st Dept 2009), Berardi Stone Setting, Inc. v Stonewall Contracting Corp., 170 AD3d 934, 936, 96 N.Y.S.3d 318 (1st Dept 2019), Raiola v 1944 Holding Ltd., 1 AD3d 296, 296, 767 N.Y.S.2d 595 (1st Dept 2003) and Cantarelli S.P.A. v L. Della Cella Co., 40 AD3d 445, 446, 837 N.Y.S.2d 40 (1st Dept 2007) do not compel a different result. The Shanker, Berardi, and Raiola courts held that a default can be vacated pursuant to CPLR 317 where a defendant was not personally served, did not receive actual notice, and otherwise has a meritorious defense. CPLR 317 however does not apply to the case at nisi prius. [*15] In this case, as discussed above, the defendants were personally served. Nor are the defendants entitled to relief based on Cantarelli. In Cantarelli, when the defendants received the summons and complaint after the time to answer had expired, the defendant's attorney promptly reached out and negotiated a standstill agreement. When the negotiations broke down, the plaintiff immediately moved for a default judgment (Cantarelli, 40 AD3d at 446). The Court held that the defendant had a reasonable excuse based on law office failure to negotiate the right to file a late answer and a meritorious defense based on the fact that it received less than the goods that the plaintiff billed it for and having provided documentation to the court in support of its position (id.). This is simply not this case here. The defendants in this case were well aware of Mr. Shabtai's position and actively sought to frustrate [**7] his interest and avoid their obligation to pay him. Thus, the motion must be granted and the cross-motion must be denied.

Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding these issues.

Click here to subscribe to this or another of Schlam Stone & Dolan's blogs.