In re Drexler
| Decision Date | 06 March 1986 |
| Docket Number | Bankruptcy No. 84 B 10383 (PBA). |
| Citation | 56 BR 960 |
| Parties | In re William R. DREXLER, Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Carl E. Person, New York City, for debtor.
Shea & Gould, New York City, for petitioners; Remy J. Ferrario, of counsel.
David Green, Salomon Green & Ostrow, P.C., New York City, Interim Trustee.
On March 14, 1984, an involuntary Chapter 7 petition was filed against William R. Drexler ("Drexler").1 The petitioners were Michael H. Cockell ("Cockell") in the capacity of underwriter for the F.N. Rouse Syndicate ("Rouse") and as Lead Underwriter for all other underwriters at Lloyd's of London subscribing to contracts designated as B00021 and B00090 (collectively "Underwriters"), and Manning Beard Limited ("Manning"), a London insurance broker, whose principals are named as intermediaries in the two contracts. The claims of the Petitioners are based on two judgments against Drexler and others each dated June 13, 1983 issued in a case brought by the petitioners in the United States District Court for the Southern District of New York captioned Cockell et al. v. Frank Feit Associates, Inc. et al., 83 Civ. 0930(JES) (the "District Court Action").2 One of the judgments is a money judgment for $335,000 (the "Money Judgment).3 The second and a companion judgment (the "Sanctions Judgment"), which is not in any liquidated amount, strikes with prejudice the answer and counterclaim of Drexler and the other defendants and directs judgment on default on the balance of the complaint against Drexler and the other defendants and refers the matter to a magistrate for an inquest on the amount of the judgment.4
The District Court Action had been commenced on February 3, 1983 by the Underwriters and Manning. Drexler individually, the three corporations which are the Original Corporate Debtors and Associates, one of the Additional Corporate Debtors, as well as "Does" One through Twenty were named as defendants. The complaint stated that Drexler and the four named corporate defendants had written policies for liability and property damage for amusement parks and carnivals located within the United States, had collected premiums and had failed to remit collections to the plaintiffs as required under the parties' written agreements. The agreements, contracts designated B00021 and B00090, dated June 1978 and April 1980, authorized Feit Associates to serve as the agent for the Underwriters and gave Drexler, individually, the authority (so-called "tribunal authority") to bind insurance within the limits set forth in the agreements. Pursuant to the agreements and in accordance with customary practice, a document known as a bordereau was to be remitted to the Underwriters each month showing the policies written, premiums collected and claims paid and the net amounts shown as due to the Underwriters on bordereaux were to be settled by payment within 90 days.
In the District Court Action, Drexler appeared pro se on behalf of himself and purported to appear on behalf of the corporations. Drexler was repeatedly advised by the district court that he could not appear for the corporate defendants since he was not an attorney and the corporate defendants were directed to retain counsel. Compare Jones v. Niagara Frontier Transportation Authority, 722 F.2d 20, 22 (2d Cir.1983) () No attorney ever appeared for the defendant corporations.
Drexler filed an answer, on behalf of himself and apparently of the remaining defendants, in the District Court Action on or about February 23, 1983 which denied all the material allegations of the complaint. Thereafter and on or about March 3, 1983, Drexler filed a document styled "Counterclaim", again apparently on behalf of himself as well as the remaining defendants, that asserts a claim for money damages arising out of plaintiffs' acts, individually and in concert with one another, which were alleged to constitute:
It was Drexler's assertion that the plaintiffs had conspired to eliminate "the defendant" as a factor in the amusement insurance business by granting to a competitor a contract permitting the writing of amusement insurance whereby the competitor was able to pirate the business of the defendants. The counterclaim states that while the damages were not then susceptible of precise calculation they were believed to be in excess of six million dollars.
The District Court held several hearings beginning in early February 1983 at which Drexler appeared and at some of which he was examined under oath. In late February 1983, Drexler and his entities moved offices. Thereafter, it appeared that a box containing important documents that Drexler had been directed to produce was missing. Several additional hearings were held at which the missing documents were discussed at length and the District Court found Drexler's explanations for their disappearance incredible and discovery sanctions warranted.5 At a hearing held before the District Court on April 12, 1983, the following exchange occurred:
Drexler's statement had been preceded by similar exchanges at prior hearings. Thereafter, the District Court signed the Money and Sanctions Judgments. Although Drexler took an appeal, he never requested or obtained a stay pending appeal.
Drexler has repeatedly asserted that the petitioners are proceeding in this case on the basis of default judgments. A default judgment is generally given the same effect as a judgment rendered after trial. See 10 Wright, Miller & Kane, Federal Practice and Procedure, Civil 2d, § 2684; Matter of Roloff, 598 F.2d 783 (2d Cir. 1979). See also, Riehle v. Margolies, 279 U.S. 218, 49 S.Ct. 310, 73 L.Ed. 669 (1929). In any event, Drexler mischaracterizes the facts. The Money Judgment is not a default judgment. The Sanctions Judgment is not a default judgment insofar as it grants sanctions and directs the striking of the answer and counterclaim. The Sanctions Judgment goes on to grant judgment of liability by default in petitioners' favor on the other portions of the District Court Action complaint because there was, as a result of the striking of the answer and counterclaim, no legally cognizable opposition. The default portion of the Sanctions Judgment is unliquidated. In the federal system, even when a judgment by default is entered on liability, the defendants are free to appear and defend the issues respecting the calculation of the amount of damages. See Trans World Airlines, Inc. v. Hughes, 449 F.2d 51 (2d Cir.1971); reversed on other grounds, 409 U.S. 364, 93 S.Ct. 647, 43 L.Ed.2d 577 (1973); and 10 Wright, Miller & Kane, Federal Practice and Procedure, Civil 2d, § 2688. Cf. Au Bon Pain Corporation v. Artect, Inc., 653 F.2d 61 (2d Cir.1981). No damage hearing had been held before the involuntary petition was filed.
Drexler also denies that he has more than 12 creditors and denies that he is not generally paying his debts as they become due.
Drexler made demand in his answer for a jury trial. By opinion dated April 6, 1984, the court denied Drexler's request for a jury trial. In re Drexler, 39 B.R. 18 (Bankr.S.D.N.Y.1984).
A trial on the involuntary petition commenced on April 6, 1984. Drexler testified at length on that date concerning the defenses and counterclaims he had raised in the District Court Action and was asserting in his answer to the involuntary petition in defense to the petitioners' claims.6 It became apparent that discovery relative to a third-party witness, the alleged favored third-party competitor, might prove helpful. Discovery against the petitioners was not had, inter alia, because they were situated in London, England. Thereafter, counsel for the petitioners and Drexler undertook discovery from the third-party witness.
Before the trial could resume or any discovery was had of the petitioners and under date of June...
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