Am. Transit Ins. Co. v. Bilyk
| Decision Date | 29 June 2021 |
| Docket Number | 19-cv-5171 (BMC) |
| Citation | 546 F.Supp.3d 192 |
| Parties | AMERICAN TRANSIT INSURANCE COMPANY, ATIC, v. Yulia BILYK, et al., Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Robert A. Stern, Daniel Scott Marvin, James A. McKenney, Lee Pinzow, Morrison Mahoney LLP, New York, NY, for American Transit Insurance Company.
Raymond Joseph Zuppa, The Zuppa Firm PLLC, Garden City, NY, Martin Wolf, Wolf and Associates, PLLC Wolf & Associates PLLC, Brooklyn, NY, for Defendants Russell Ionin, Active Care Medical Supply Corporation.
This RICO action is before me on the motion of defendants Russell Ionin and his wholly-owned company, Active Care Medical Supply Corporation, Inc., to vacate the default judgment against them pursuant to Federal Rules of Civil Procedure 55(c) and 60(b). I find that the Ionin defendants’ default was willful; that they have failed to demonstrate a meritorious defense; and that that have failed to show that ATIC would not be prejudiced by granting the motion to vacate. The motion is therefore denied.
I. Procedural Background
Plaintiff American Transit Insurance Company ("ATIC") originally commenced this action against 29 different individuals and corporations and 40 John Doe defendants for fraudulent submission of insurance claims concerning the sale of medical devices. ATIC settled with most of the defendants and sought a default judgment against the five individual defendants and five of their wholly owned companies who had not appeared.1 The Clerk entered the default against these defendants pursuant to Rule 55(a) of the Federal Rules of Civil Procedure between the end of December 2019 and the beginning of January 2020, and ATIC moved for entry of default judgment against them on February 10, 2020. The Ionin defendants were among those who had failed to appear and thus were the subject of the default judgment motion.
On February 21, 2020, while the motion for a default judgment was pending, Attorney Martin Wolf filed a notice of appearance on behalf of the Ionin defendants. He took no action in the case until, by sealed letter filed three weeks later, on March 6, 2020, Attorney Wolf requested a "telephone conference with the Court to discuss the withdrawal of [ATIC's motion for a default judgment] with leave to file an answer or if the same is not successful, to obtain a briefing schedule for the opposition and reply to the aforesaid motion for default." By Order that same day, I directed the unsealing of the letter (as there had been no grounds to file it under seal) and rejected the request for a telephone conference. However, I also noted that the proper procedure was for the Ionin defendants to move to vacate their default under Rule 55(c) of the Federal Rules of Civil Procedure upon a showing of good cause, and that the Ionin defendants were free to make that motion.
I heard nothing further from Attorney Wolf or the Ionin defendants. Nine months later, I proceeded to rule on the motion for a default judgment. Initially, I denied it. ATIC had not explained how the 186-page complaint and 300 pages of exhibits tied all of the defendants together in a common RICO enterprise. I therefore concluded that ATIC had failed to state a plausible claim. See Gunawan v. Sake Sushi Rest., 897 F. Supp. 2d 76, 83 (E.D.N.Y. 2012) ().
However, by Order entered January 21, 2021, I granted ATIC's motion for reconsideration. ATIC's motion explained that the complaint actually alleged fourteen separate RICO schemes against groups of defendants and non-parties, and the reconsideration motion tied each of the defaulting defendants into their respective RICO schemes. The defaulting defendants were members of five of the fourteen separate RICO enterprises. ATIC made this showing, as to the defaulting defendants, by walking me through each fraudulent transaction described in the exhibits and matching it to the particular allegations as to each RICO enterprise, which it had not done in its motion for a default judgment. Recognizing that the pleading problem was one of improper joinder, not failure to state a claim, and that improper joinder is a waivable defense that need not be considered on a motion for a default judgment, I granted the motion for reconsideration, and, upon reconsideration, granted ATIC's motion for a default judgment.2
As against the Ionin defendants, the complaint alleges the following scheme. Many prescriptions for medical devices are generic in nature, allowing the provider discretion as to the particular type of device to provide. ATIC alleged that the Ionin defendants would bill ATIC for expensive items, using insurance codes reserved for such items, when the items actually provided were not the same expensive items and were in fact worth much less. Instead of charging for a regulatorily-allowed profit on the top of the wholesale cost of the item for which they billed ATIC, the Ionin defendants would receive a super-premium by buying a lower-cost item at wholesale and then billing for a higher-cost item which they did not provide.
The complaint provided details of multiple transactions in which the Ionin defendants engaged in this practice. One of them, for example, was that the Ionin defendants charged for special customized knee braces that require a custom fitting, but only supplied a cheap one-fits-all brace. Another example is that the Ionin defendants would bill for "egg crate mattresses" that cost over $95, when the item provided was a cheap, thin mattress pad.
Having heard nothing more from Attorney Wolf or the Ionin defendants, the Clerk entered default judgment against them on January 27, 2021. Their liability was by far the largest against any of the defaulting defendants: $227,871.09 against Ionin, of which Active Care Medical was jointly and severally liable for $88,937.61.
Several weeks later, on February 11, 2021, a new attorney for the Ionin defendants, Raymond Zuppa, filed a letter motion requesting leave to file a motion to vacate the default judgment against those defendants. The request was purportedly made pursuant to my Individual Practice Rules. It made no mention of Attorney Wolf's submissions a year earlier. I denied the motion as unnecessary because: (1) my Individual Practice Rules do not require a premotion conference for a motion to vacate a default judgment; and (2) I had already informed Attorney Wolf nearly a year earlier that the Ionin defendants were free to make whatever motion they deemed appropriate.
The Ionin defendants filed their motion to vacate the default judgment on March 2, 2021.
Federal Rule of Civil Procedure 55(c) provides that a "court may set aside an entry of default for good cause, and it may set aside a final default judgment under Rule 60(b)." Rule 60(b)(1), in turn, provides that a default judgment may be set aside due to "mistake, inadvertence, surprise, or excusable neglect." The Second Circuit has held that three factors govern a district court's decision to set aside a default judgment under either Rule 55(c) or 60(b) : "(1) whether the default was willful; (2) whether setting aside the default would prejudice the adversary; and (3) whether a meritorious defense is presented." Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993) ; see also State St. Bank and Tr. Co. v. Inversiones Errazuriz Limitada, 374 F.3d 158, 166-67 (2d Cir. 2004) (). These factors are applied more rigorously against a defendant after a default judgment has been entered. Meehan v. Snow, 652 F.2d 274, 276 (2d Cir. 1981) ; Wright & Miller, 10A Fed. Prac. & Proc. Civ. § 2692 (West 2021). Moreover, the preference for resolving disputes on the merits does not go so far as to relieve the defendant from the burden of proving the applicable factors. See Sony Corp. v. Elm State Elecs., 800 F.2d 317, 320 (2d Cir. 1986).
As the text of the Rules suggests and the applicable case law provides, "[t]he dispositions of motions for entries of defaults and default judgments and relief from the same ... are left to the sound discretion of a district court because it is in the best position to assess the individual circumstances of a given case and to evaluate the credibility and good faith of the parties." Enron Oil, 10 F.3d at 95. The scope of this discretion, however, is limited by the Second Circuit's "oft-stated preference for resolving disputes on the merits." Id. "[B]ecause defaults are generally disfavored and are reserved for rare occasions, when doubt exists as to whether a default should be granted or vacated, the doubt should be resolved in favor of the defaulting party." Id. at 96. Nevertheless, the Second Circuit has recognized that default procedures Id.
The Ionin defendants offer a number of reasons why their failure to timely respond was a "mistake" or "inadvertent." The undisputed facts do not support that characterization for a greater number of reasons.
First, defendants assert that they had no knowledge of this action until they were served with ATIC's motion for a default judgment on February 10, 2020. I will assume that it is true. But the reason they did not receive it earlier was because of repeated failures on their part, despite the full portfolio of litigation in which the Ionin defendants have engaged (as described below), to...
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