United States District Court, D. Nevada
ORDER (1) GRANTING DEFENDANTS'MOTIONTO
VACATEDEFAULTJUDGMENT; AND(2)DENYINGAS MOOT
PLAINTIFFS'MOTION FOR PUNITIVEDAMAGES (ECF Nos. 34,
P. GORDON, UNITED STATES DISTRICT JUDGE.
dispute arises out of a loan agreement between friends gone
awry. The plaintiffs, Ezra and Cathy Ilani, entered into a
contract with defendants Simon S. Abraham and KDA Holdings
LLC. Under that contract, the Ilanis lent $2 million in
exchange for a $500, 000 loan fee, repayment within 60 days,
and collateral in the form of supposedly valuable gems. The
Ilanis took possession of the gems when the loan fee and
repayment were not paid. Although the gems had been appraised
at a high value, a second appraisal valued them at less than
one-tenth of their originally appraised value.
Ilanis sued the defendants, among others, and eventually
sought and obtained a default. Six days later, defendants
Abraham and KDA filed an answer, counterclaim, and
third-party complaint. However, I struck that pleading upon
motion from the Ilanis because default had already been
entered and the lawyer who filed the pleading was under an
administrative suspension by the State Bar of Nevada. ECF No.
29. The Ilanis then obtained default judgment on some of
their claims against defendants Abraham and KDA with no
opposition. ECF No. 33.
and KDA now move for reconsideration or vacatur of that
default judgment. They argue their pleading should not have
been stricken, and that their counsel's hacked email
account hindered their ability to properly respond and
litigate the case before default judgment was entered. They
also contend that they have meritorious defenses against the
claims for which default judgment was granted, and that
allowing the judgment to stand would be manifestly unjust.
The Ilanis respond that the defendants' neglect in
litigating the case is not excusable. They also argue that
the defendants have not produced any new evidence nor shown
clear error or change in the law that merits reconsideration
of the order granting judgment.
parties are familiar with the facts of the case, and I will
not repeat them here except where necessary. While Abraham
and KDA have not shown that their answer was improperly
stricken, the defendants themselves were not culpable in the
failure to properly file the answer. In light of the strong
policy preference for deciding cases on their merits, I will
vacate the default and default judgment, conditioned upon
Abraham and KDA reimbursing the Ilanis for their fees and
costs caused by the defendants' actions related to the
pleadings. I also deny the Ilanis' motion for punitive
damages as moot at this time.
defendants move for reconsideration under Federal Rules of
Civil Procedure 59(e) and 60(b). They argue first that their
answer should not have been stricken because their attorney
(Andras Babero) was not suspended from practice at the time
he filed that pleading. They also argue that their lack of
response is excusable because Mr. Babero did not receive
notice of the Ilanis' motions to strike and for default
judgment because his email account was hacked. The
allegations in the counterclaim, the defendants argue, show
that the order granting partial default judgment was
manifestly unjust because all of the Eitel factors
favor the defendants. See Eitel v. McCool, 782 F.3d
1470, 1471-72 (9th Cir. 1986).
Ilanis respond that there is no legitimate basis for
reconsideration. They argue there has been no intervening
change in controlling law, nor an allegation of clear error,
particularly because the defendants failed to oppose the
motions for entry of default and to strike, nor do they
request reconsideration of the order granting it. The Ilanis
contend the defendants have not proffered new evidence, only
attorney argument. They express skepticism as to Mr.
Babero's excuse for not opposing any of the motions,
noting that his email issues must have begun the day after
filing the answer and continued through mid-July. In
addition, the Ilanis argue the defendants have not shown Mr.
Babero was not suspended when he filed the pleading.
Order Striking Answer and Counterclaim
defendants first argue that Mr. Babero was not actually
suspended when he filed their answer, so the answer should
not have been stricken and default was not warranted.
See Fed. R. Civ. P. 60(b)(6) (a final judgment may
be set aside for any reason justifying relief). But the
Ilanis, in support of their motion to strike, produced
evidence that on the date the answer was filed, the
defendants' attorney was suspended by the State Bar of
Nevada. See ECF Nos. 26-1; 26-2; 26-3. In an attempt
to counter this, Mr. Babero provides a declaration stating
that “on information and belief” he was not
suspended on April 25, 2017, when the answer was filed. ECF
No. 34 at 17. The defendants also produce an article in
Nevada Lawyer magazine from June 2017 listing
suspended attorneys as of May 16, 2017, which omits Mr.
Babero's name. Id. at 19-20. However, that list
is inconsequential because it does not pertain to the time
period at issue (April 25, 2017). Nor does Mr. Babero's
“belief” counter the evidence produced by the
Ilanis that he was, in fact, suspended.
defendants have not shown that Mr. Babero was not engaging in
the unauthorized practice of law when he filed their answer.
See Nev. Rev. Stat. § 7.285(1)(b). “To
justify relief under [Rule 60(b)](6), a party must show
extraordinary circumstances suggesting that the party is
faultless . . . .” Pioneer Inv. Servs. Co. v.
Brunswick Assocs. Ltd. P'ship, 507 U.S. 380 (1993).
The defendants have not shown such extraordinary
circumstances or faultlessness to justify relief under Rule
Rule 60(b)(1), I may relieve a party from a judgment for
excusable neglect. In determining whether excusable neglect
exists, I consider “(1) whether the plaintiff will be
prejudiced, (2) whether the defendant has a meritorious
defense, and (3) whether culpable conduct of the defendant
led to the default.” Emp. Painters' Trust v.
Ethan Enterps., Inc., 480 F.3d 993, 1000 (9th Cir. 2007)
(internal quotations omitted).