Zawadski De Bueno v. Bueno Castro

• Decision Date: 02 July 1987
• Docket Number: No. 86-3555,86-3555
• Citation: 822 F.2d 416
• Parties: Clara ZAWADSKI DE BUENO v. Alejandro BUENO CASTRO and A.B.P. Corporation, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

Page 416

822 F.2d 416

Clara ZAWADSKI DE BUENO v. Alejandro BUENO CASTRO and A.B.P. Corporation, Appellants.

No. 86-3555.

United States Court of Appeals, Third Circuit.

Argued May 1, 1987.

Decided July 2, 1987.

Joel H. Holt (Argued), Christiansted, St. Croix U.S. Virgin Islands, for appellants.

Judith A. Turner (Argued), Richard H. Hunter, Isherwood, Hunter and Colianni, Christiansted, St. Croix U.S. Virgin Islands, for appellee.

Before SEITZ, HIGGINBOTHAM, and ROSENN, Circuit Judges.

OPINION OF THE COURT

ROSENN, Circuit Judge.

This appeal raises a number of intricate questions concerning a 1975 "Separation of Properties Agreement" (agreement) executed in Columbia, South America, between the plaintiff and her deceased husband, a 1979 power of attorney from the husband to his son, and the effect of both documents upon the son's transfer of his father's Virgin Islands real property to a corporation apparently owned by the son and his siblings. The plaintiff, Clara Zawadski de Bueno (Zawadski), originally filed suit in the District Court for the District of the Virgin Islands seeking an order declaring the transfer invalid, quieting title to the property in the name of the decedent's estate, and declaring her entitlement to a one-third intestate share in that estate. The defendants failed to answer Zawadski's complaint, however, and the district court ultimately granted a default judgment both declaring the transfer invalid and quieting title to the property as requested. The district court deferred the question of Zawadski's right to an intestate share in the estate for a later determination by the probate division of the Virgin Islands territorial court.

The defendants appeal from the district court's denial of their motion to set aside the default judgment, and urge as grounds therefor excusable neglect under Fed.R.Civ.P. 60(b), ¹ a meritorious defense by virtue of both the 1975 agreement and the 1979 power of attorney, and a lack of prejudice to the plaintiff. We agree with the defendants that the facts in this case establish excusable neglect. We conclude that the district court erred both in holding to the contrary and in failing to address the defendants' contentions with respect to the 1975 agreement and the absence of prejudice to the plaintiffs. Accordingly, we vacate the order refusing to set aside the default judgment and remand.

I.

Zawadski, a citizen of Colombia, South America, married Adolfo Bueno Plaza (Bueno Plaza), a citizen of Venezuela, in the Catholic Church in Colombia in 1958. The two informally separated in or about 1967, however, and were formally separated through legal proceedings in Colombia in 1975. Apparently as a part of the separation process, the parties entered into a lengthy "Separation of Properties Agreement," which was approved by the Colombian court. This agreement refers in several places to a "liquidation of the conjugal society," and pursuant to the agreement the Colombian court ordered the parties "to proceed towards the liquidation, inventory, valuation, and partition of all the properties that are under usufruct of the dissolved society."

Several years after executing the "Separation of Properties Agreement," on March 26, 1979, Bueno Plaza purchased real property on the island of St. Croix with a stated value for stamp tax purposes of $265,000. Shortly thereafter, on May 29, 1979, Bueno Plaza gave a general power of attorney to one of his sons, defendant Alejandro Bueno Castro (Bueno Castro). This document, which was executed in Venezuela, provided in part:

Therefore my above-named attorney is hereby authorized to buy, sell, interchange, or rent all kinds of properties and rights and to stipulate and receive costs or other products or equivalents in that kind of business; ... and, in general, power of attorney to do, in respect and concerning my properties and rights, all and everything that I could do in my own benefit and without limitations and in accordance with the law.

On July 12, 1984, Bueno Castro transferred his father's above-mentioned St. Croix property by warranty deed to the A.B.P. Corporation. ² A.B.P. is a Panamanian corporation not registered to do business in the Virgin Islands, and is apparently owned jointly and in equal shares by Bueno Castro and his siblings. ³ The deed stated that the transfer was for ten dollars and other good consideration; however, the actual payment of consideration is in dispute. In a related Florida lawsuit dealing with a similar transfer of Florida real property, Bueno Castro admitted that no money was actually paid for the Florida property, and that the only consideration paid to Bueno Plaza was "what his children have always given him; a lot of affection and a lot of love."

Bueno Plaza died intestate on November 8, 1984, approximately four months after his son had transferred the St. Croix property to A.B.P. ⁴ Shortly thereafter, Zawadski instituted suit in St. Croix as well as in Florida, asserting in each jurisdiction that the relevant transfer of property was a gift, and that therefore each transfer should be set aside as improper under the terms of the 1979 power of attorney. In each case she sought her intestate share of the property as a surviving spouse, and in the instant action this claim is predicated upon 15 V.I.C. Sec. 84(1). Section 84(1) provides that one-third of an intestate decedent's real property be distributed to his or her surviving spouse. Both the Florida complaint and the Virgin Islands complaint named Bueno Castro and A.B.P. as defendants, and both defendants were properly served in both actions.

The defendants assert that both complaints were promptly forwarded to the law firm of Castro & Castro in Miami, Florida. That firm entered an appearance in Florida and assertedly retained John F. James, a St. Croix attorney, for the St. Croix case. Attorney James did not file an answer, however, and a variety of excuses have been offered for this failure. According to the defendants, James believed that he was not to do anything until he received further instructions and, although "technically plaintiff's counsel did not have to advise him of its default motions," he had previously informed plaintiff's counsel of "his interest in the case." Further, the defendants assert that when James subsequently contacted Florida counsel regarding instructions, he received a notice of dismissal of the Florida suit and concluded that the St. Croix case would likewise be dismissed. Accordingly, he did nothing further. Apparently unknown to James, however, the Florida suit had been dismissed without prejudice, and the plaintiff quickly reinstated it by filing an amended complaint. James' error in this respect is blamed on Florida attorney Castro's alleged preoccupation with the arrest and subsequent conviction of his law partner/brother.

On November 21, 1985, Zawadski filed a motion for a default in the instant action. The court granted this motion, and on June 6, 1986, Zawadski filed a motion for a default judgment. Her default judgment motion sought an order declaring the St. Croix property transfer invalid, quieting title to the property in the name of Bueno Plaza's estate, and declaring Zawadski's entitlement to a one-third interest in that estate. On June 12, 1986, the district court issued an order granting Zawadski's first two requests, but not her third, deferring the question of her statutory interest in the estate to the probate division of the territorial court.

On July 11, 1986, the defendants moved to set aside the default judgment. The defendants argued excusable neglect, and urged a meritorious defense by virtue of both the 1975 agreement and the 1979 power of attorney. ⁵ The district court rejected these arguments without a hearing, concluding that the failure to file an answer was a deliberate "trial strategy," and that the transfer was a gift impermissible under the wording of the power of attorney. The district court did not address the effect, if any, of the 1975 "Separation of Properties Agreement" or whether the plaintiff would be prejudiced if the default judgment were vacated.

II.

Weighing the equities on a motion to vacate a default judgment and the need to finally resolve controversies "does not lend itself to a rigid formula or per se rule." Hritz v. Woma Corp., 732 F.2d 1178, 1181 (3d Cir.1984). Rather, in exercising its discretion, the trial court must consider three factors: (1) whether the plaintiff will be prejudiced if the default is lifted; (2) whether the defendant has a meritorious defense; and (3) whether the default was the result of the defendant's culpable conduct. Id.; Feliciano v. Reliant Tooling Co., 691 F.2d 653, 656 (3d Cir.1982). "These factors inform both the district court's initial determination regarding a default judgment as well as appellate review of that decision." Hritz, 732 F.2d at 1181. As a general matter, this court does not favor default judgments and in a close case, doubts should be resolved in favor of setting aside the default and reaching the merits. Gross v. Stereo Component Systems, Inc., 700 F.2d 120, 122 (3d Cir.1983); Farnese v. Bagnasco, 687 F.2d 761, 764 (3d Cir.1982).

A.

In holding the defendants' conduct to be culpable, the district court concluded that "[t]he decision not to appear, and thus permit a default judgment to be entered, was strictly a matter of defense strategy, and thus it was culpable conduct on the part of the defendants which led to the default." In support of this holding Zawadski points to an affidavit by John James, the Virgin Islands counsel originally contacted by Castro & Castro, in which James asserted that Florida counsel led him to believe that the Florida case had been dismissed, and told him that "the similarity of the Florida and Virgin Islands cases was such that the Florida case might be d[is]positive of all matters between Mr[s]. Zawadski [de] Bueno and the children of Adolfo Bueno Pla[z]a....