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Ilani v. Abraham

United States District Court, D. Nevada

March 13, 2018

EZRA ILANI and CATHY ILANI, Plaintiffs,
v.
SIMON S. ABRAHAM, et al., Defendants.

          ORDER (1) GRANTING DEFENDANTS'MOTIONTO VACATEDEFAULTJUDGMENT; AND(2)DENYINGAS MOOT PLAINTIFFS'MOTION FOR PUNITIVEDAMAGES (ECF Nos. 34, 41)

          ANDREW P. GORDON, UNITED STATES DISTRICT JUDGE.

         This 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.

         The 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.

         Abraham 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.

         The 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.

         I. ANALYSIS

         The 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).

         The 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.

         1. Order Striking Answer and Counterclaim

         The 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.

         The 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 60(b)(6).

         2. Excusable Neglect

         Under 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).

         a. Prejudice ...


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