Eagle Associates v. Bank of Montreal

• Decision Date: 11 February 1991
• Docket Number: D,No. 646,646
• Citation: 926 F.2d 1305
• Parties: , 18 Fed.R.Serv.3d 1483 EAGLE ASSOCIATES, Appellant, v. BANK OF MONTREAL, Appellee. ocket 90-7707.
• Court: U.S. Court of Appeals — Second Circuit

Page 1305

926 F.2d 1305

59 USLW 2516, 18 Fed.R.Serv.3d 1483

EAGLE ASSOCIATES, Appellant, v. BANK OF MONTREAL, Appellee.

No. 646, Docket 90-7707.

United States Court of Appeals, Second Circuit.

Argued Nov. 21, 1990.

Decided Feb. 11, 1991.

Jacob Laufer, New York City (Patricia M. Karish, and Laufer & Farkash, New York City, on the brief) for appellant Eagle Associates.

Charles A. Crocco, Jr., New York City (John J. Hasluck, and Lunney & Crocco, New York City, on the brief) for appellee Bank of Montreal.

Before TIMBERS, VAN GRAAFEILAND and WALKER, Circuit Judges.

TIMBERS, Circuit Judge:

Appellant Eagle Associates ("Eagle"), appeals from a default judgment entered July 7, 1989, in the Southern District of New York, John F. Keenan, District Judge, based on Eagle's failure to appear through counsel as ordered by the district court. The court awarded appellee Bank of Montreal ("Montreal") $401,668.18 on a note issued by Eagle, and dismissed Eagle's counter-claims and cross-claims.

On appeal, Eagle contends that the district court abused its discretion in entering the default judgment.

In this case of first impression in this Court, we hold that the district court did not abuse its discretion.

We affirm.

I.

We shall summarize only those facts and prior proceedings believed necessary to an understanding of the issues raised on appeal.

Eagle, a limited partnership with its principal place of business in New York, was organized for the purpose of acquiring, owning, and promoting the motion picture "Gorky Park". Eagle was composed of two general partners, Howard H. Schuster (Schuster) and Robert R. Bolding (Bolding) and various limited partners. Eagle sold limited partnership interests pursuant to a private placement memorandum. Each limited partner purchased his or her respective interest either by paying cash or by executing a promissory note for the benefit of Eagle (investor notes).

In order to obtain funds necessary to promote the film, Eagle obtained financing from Montreal in the form of three promissory notes (Eagle notes). Pursuant to a provision in the Eagle note agreement, Montreal became the beneficiary of investor notes and letters of credit in the amount equal to the value of the Eagle notes. The Eagle notes were to be paid on May 15, 1984. The note agreement also provided that Eagle would pay all costs and expenses, including the reasonable fees and out-of-pocket expenses of counsel for Montreal in connection with the enforcement of the Eagle notes.

Investors Burton Rayden and Jeffrey Rayden (collectively "the Raydens") jointly owned a limited partnership interest in Eagle. In consideration of that partnership interest, the Raydens executed a note (Rayden note) in the amount of $150,000 which matured on May 15, 1984, the same date as the Eagle notes. The Rayden note was secured by an irrevocable standby letter of credit issued by Mitsui Manufacturers Bank (Mitsui) which expired on July 1, 1984. Pursuant to the Eagle note agreement, Eagle endorsed the Rayden note in blank and delivered it to Montreal.

The Raydens failed to pay their note on May 15, 1984. Montreal then sought payment from Mitsui in New York on June 30, 1984. Mitsui refused to pay pursuant to the letter of credit, claiming that the letter provided that payment was to be made in California. The letter of credit expired on the following day, July 1, 1984. On February 26, 1985, Montreal commenced an action against the Raydens to recover $150,000 plus collection costs resulting from their default. On August 29, 1986, Montreal commenced the instant action against Eagle, and the two general partners, Schuster and Bolding, seeking $150,000 due on the Eagle notes. Judge Leisure consolidated the two cases by an opinion and order dated November 30, 1987. The consolidated case was assigned to Judge Keenan.

On March 22, 1989, the court granted Spengler & Carlson's application to withdraw as counsel to Eagle, Schuster, and Bolding. In its order granting the application to withdraw, the court instructed Spengler & Carlson to inform their clients that they should "take immediate action to procure new counsel or, if permitted by law, notify the Court of an intention to proceed pro se."

By an order dated May 1, 1989, the court granted Montreal's request to schedule a status conference for June 5, 1989. In its order, the court stated that "at [the time of the conference], the Court will describe the sanctions that may be imposed against a corporate party that does not appear by counsel". On June 5, 1989, the court adjourned the conference until June 19, 1989. At the time of the adjournment, the court instructed Montreal to advise Schuster and Bolding that failure of Eagle to appear on June 19 through an attorney, or failure of Schuster or Bolding to appear through an attorney or pro se, would result in a default judgment being entered against them. Montreal complied with the court's order by letter to Eagle dated June 7, 1989. On June 19, neither Eagle, Schuster or Bolding appeared by attorney. Instead, they sent a representative. Although the representative was an attorney, he did not appear in that capacity. The representative informed the court that Eagle would represent itself through Schuster.

By letter dated June 22, 1989, Schuster personally informed the court of his intention that Eagle appear pro se through himself and Bolding. Schuster relied on 28 U.S.C. Sec. 1654 (1988) and N.Y. Civ. Prac. L. & R. Sec. 321(a) (McKinney 1990) in support of his contention that a partnership may appear pro se. He contended that a "partnership, unlike a corporation, is not in the eyes of the law a legal entity separate and apart from the individuals composing it." Accordingly, he surmised that "a partnership need not be represented by an attorney and may, instead, appear pro se." He enclosed a copy of a notice of appearance, which he filed with the court on June 26, 1989. On July 7, 1989, the court entered a default judgment against Eagle for not appearing by counsel as ordered.

The court scheduled a conference between Montreal and Schuster and Bolding, in their individual capacities, for July 25, 1989. Neither Schuster nor Bolding appeared at the conference. The court scheduled a second conference involving the same parties for August 29, 1989. Again, neither Schuster nor Bolding appeared. On September 12, 1989, the court entered a default judgment against Schuster and Bolding.

On September 27, 1989, Schuster, individually and on behalf of Eagle, moved to set aside the default judgments. Schuster argued that the Eagle judgment should be vacated, since Eagle filed a pro se notice of appearance on June 26, 1989. On November 2, 1989, the court entered an order which declined to vacate the default judgments entered against Eagle and Schuster. It held that none of the "excuses [advanced by Schuster were] persuasive and believe[d] that the record [showed] a purposeful and willful disregard of [its] orders."

On November 8, 1989, Schuster wrote the court again requesting that the court vacate the default judgments entered against Eagle and him. A full hearing was held on the matter on November 14. In an order dated November 15, the court again rejected Schuster's argument that he could appear pro se on behalf of Eagle. It found that 28 U.S.C. Sec. 1654, which allows parties to plead their cases personally, does not apply to non-individuals.

On appeal, Eagle contends that the district court abused its discretion in entering a default judgment against it.

II.

We review the district court's entry of a default judgment for an abuse of discretion. Davis v. Musler, 713 F.2d 907, 912 (2 Cir.1983); Bourgeois v. El Paso Natural Gas Co., 257 F.2d 807 (2 Cir.1958). "Default judgments implicate sharply conflicting policies, and the trial judge, who is usually 'the person most familiar with the circumstances of the case and is in the best position to evaluate the good faith and credibility of the parties', is entrusted with the task of balancing these competing considerations." Davis, supra, 713 F.2d at 912 (citations omitted) (quoting 10 Wright, Miller & Kane, Federal Practice & Procedure Sec. 2693 (1983)). We also have emphasized that "the proper disciplining of a party under circumstances of default must usually be left to the control of the trial judge." Bourgeois, supra, 257 F.2d at 808. We therefore defer to the decision of the district court unless it is "clearly wrong". Davis, supra, 713 F.2d at 912 (citation omitted).

With this standard of review in mind, we turn to appellant's claim of error. Eagle contends that the district court abused its discretion since Eagle filed a pro se notice of appearance on June 26, 1989. Relying principally on United States v. Reeves, 431 F.2d 1187, 1188-89 (9 Cir.1970), Eagle contends that the district court erroneously concluded that a partnership cannot appear pro se under 28 U.S.C. Sec. 1654. We disagree.

Section 1654 provides "[i]n all courts of the United States the parties may plead and conduct their own cases personally or by counsel as, by the rules of such courts, respectively, are permitted to manage and conduct causes therein." This provision has been interpreted to allow for two types of representation: "that by an attorney admitted to the practice of law by a governmental regulatory body and that by a person representing himself. The statute does not allow for unlicensed laymen to represent anyone else other than themselves." Turner v. American Bar Ass'n, 407 F.Supp. 451, 477 (N.D.Tex.1975), aff'd sub nom. Pilla v. American Bar Ass'n, 542 F.2d 56 (8 Cir.1976) (appeal from multi-district litigation); see also McShane v. United States, 366 F.2d 286 (9 Cir.1966) (individual prohibited from representing anyone other than himself).

Courts also have interpreted this section to preclude a corporation from appearing through a lay representative. E.g., Jones v. Niagara Frontier Transp. Authority, 722 F.2d 20, 22...