Merrill Lynch Mortg. Corp. v. Narayan

• Decision Date: 30 July 1990
• Docket Number: No. 89-1489,89-1489
• Citation: 908 F.2d 246
• Parties: MERRILL LYNCH MORTGAGE CORPORATION, a New York corporation, as general partner of Merrill Lynch Realty Operating Partnership, L.P., a Delaware limited partnership, Plaintiff-Appellee, v. Satendra NARAYAN and Sudha Narayan, his wife, citizens and residents of New Jersey, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 246

908 F.2d 246

17 Fed.R.Serv.3d 645

MERRILL LYNCH MORTGAGE CORPORATION, a New York corporation as general partner of Merrill Lynch Realty Operating Partnership, L.P., a Delaware limited partnership, Plaintiff-Appellee, v. Satendra NARAYAN and Sudha Narayan, his wife, citizens and residents of New Jersey, Defendants-Appellants.

No. 89-1489.

United States Court of Appeals Seventh Circuit.

Argued Feb. 22, 1990.

Decided July 30, 1990.

John T. Schriver and Fred I. Feinstein, McDermott, Will & Emery, Chicago, Ill., for plaintiff-appellee.

Enrico J. Mirabelli, Amari, Mirabelli & Associates, Chicago, Ill., for defendants-appellants.

Before BAUER, Chief Judge, and CUMMINGS, Circuit Judge, and PELL, Senior Circuit Judge.

PELL, Senior Circuit Judge.

This is an appeal from the district court's entry of default and default judgment against the defendants, Satendra and Sudha Narayan, ("the Narayans"), for their failure to file an Answer and for their repeated failures to attend scheduled court dates in this fraudulent misrepresentation case. Also on appeal is the district court's denial of a Fed.R.Civ.P. 55(c) motion to set aside the entry of default and the court's denial of a Fed.R.Civ.P. 60(b) motion to vacate the default judgment.

On January 21, 1988, Merrill Lynch Mortgage Corp. ¹ ("Merrill Lynch") filed a two-count complaint against the Narayans in federal district court, alleging fraudulent misrepresentation and breach of contract in the resale of a residence located at 11 Delaine Drive, near Illinois State University in Normal, Illinois. The complaint alleged the following facts: on August 13, 1985, the Narayans entered into a contract to purchase the multi-story residence near Normal. At the time, the property was rented out as a student rooming house in violation of its zoned use as a single-family residence. The Narayans unsuccessfully attempted to obtain a zoning variance. To purchase the residence, the Narayans obtained a mortgage loan from Olympic Federal Savings & Loan for $43,600 based on the written contract which stated that the purchase price was $62,000; the Narayans actually paid only $35,000 for the home. The Narayans thereafter rented rooms to students until late in 1986.

Merrill Lynch became involved in the property when Satendra Narayan accepted a transfer in employment from Illinois to New Jersey early in 1987. Merrill Lynch agreed to purchase the residence from the Narayans. In the contract with Merrill Lynch, the Narayans "guaranteed" that they would not state incorrectly or fail to state any fact regarding any condition affecting the property that if known would affect the property's value. The Narayans also "guaranteed" in writing that the continued use of the property for the same purposes and use in the same manner would not violate zoning ordinances. The contract further provided that if any of the information the Narayans supplied to the appraisers was incorrect, the price would be subject to adjustment. Two appraisers met with Satendra Narayan during March, 1987 and determined that the fair market value of the property was between $62,000 (as a "duplex"), and $62,500 (as a nonconforming single-family residence). Narayan did not inform the appraisers of the price he actually paid for the property nor did he discuss the zoning violation. Narayan did, however, inform one appraiser that he paid $62,000 for the residence and also called him, explaining that the third floor of the home could be used for additional student housing. Narayan presented the other appraiser with a copy of his original settlement statement which listed that the Narayans paid $62,000 for the residence.

In May, 1987, Merrill Lynch purchased the property from the Narayans for $62,250. In 1988, the Narayans' tax return for the year of the purchase and sale, 1987, showed a capital gain of $20,813 on the sale of the residence to Merrill Lynch. In listing the property for resale at $62,250, Merrill Lynch for the first time learned that the use violated local zoning ordinances. Merrill Lynch's appraisers reappraised the property, concluding that its fair market value as a single-family residence was between $40,000 and $41,500. On August 11, 1987, Merrill Lynch contracted to sell the property to a third party for $34,500.

Merrill Lynch filed its complaint and personally served the Narayans with a Summons and Complaint on February 12, 1988. The district court set a status hearing for March 18, 1988, and asked counsel for Merrill Lynch to inform any defendants of the hearing. On March 14, 1988, Merrill Lynch's counsel wrote a letter to defendants' attorney, Attillio Fiumetto of Amari, Mirabelli & Associates, advising counsel of the hearing date. In the letter, Merrill Lynch also informed the defendants that an Appearance and Answer were due prior to March 18, 1988, and stated that if not received by then, Merrill Lynch would move for an entry of default. On March 15, 1988, Enrico Mirabelli of Amari, Mirabelli & Associates filed an appearance on behalf of the defendants.

On March 18, 1988, counsel for Merrill Lynch appeared before Judge Williams for the status hearing, requesting a delay of the hearing since the Narayans' attorney had informed counsel by phone that he would be late. When the Narayans, by their attorney, failed to appear by the end of the call, Judge Williams asked for a status report of the case from Merrill Lynch's counsel. The court then ordered an informal exchange of documents and required Merrill Lynch to make a demand on the Narayans prior to the pre-trial conference. The same day, counsel for Merrill Lynch wrote to Mirabelli advising him of the court's instructions and again requesting that the defendants file an answer. On April 18, 1988, counsel for both parties met at Mirabelli's office and exchanged documents. At that time, Merrill Lynch made a demand on the defendants but Mirabelli stated that he only had authority to recommend a nominal settlement.

On May 17, 1988, the district court sent notice to the parties of a June 10, 1988 pre-trial conference. On June 7, 1988, counsel for the Narayans informed Merrill Lynch's counsel that "I will be out of town on June 10, 1988 but one of my associates will appear at the pre-trial." Merrill Lynch appeared by counsel but no one appeared for the Narayans. The court continued the pre-trial hearing until June 17, 1988 and mailed notices to the parties. On June 15, 1988, Merrill Lynch informed the Narayans' counsel by hand-delivered letter of the revised pre-trial date. Mirabelli again failed to appear. The district court reset the pre-trial conference for July 1, 1988, and again mailed notices to the parties. Merrill Lynch additionally sent a letter to Mirabelli, informing him of the new date. Merrill Lynch also spoke by telephone with Mirabelli's secretary, confirming the time and date of the pre-trial conference and Mirabelli's knowledge of it.

Neither the Narayans nor their counsel appeared before Judge Williams for the pre-trial conference on July 1, 1988. Counsel for Merrill Lynch, who did appear, called Mirabelli's office which informed him that Mirabelli was en route. After forty-five minutes, counsel for Merrill Lynch once again called Mirabelli's office, and found Mirabelli there. The district court then conducted the pre-trial conference by telephone.

At the next status hearing on July 7, 1988, which both parties attended, Merrill Lynch filed a motion for entry of default against the Narayans for their failure to answer the complaint or otherwise plead. Merrill Lynch also filed a motion for sanctions and attorney's fees. The Narayans, by their counsel, sought and were granted leave to respond to the motion. On July 22, 1988, the Narayans filed their response and attached documents which they claimed were "pleadings" they had delivered to Merrill Lynch on April 18, 1988. On August 11, 1988, the district court conducted a hearing on the motion but neither Mirabelli nor any other person appeared on behalf of the Narayans. The district court concluded the hearing by granting Merrill Lynch's motion for entry of default.

On August 25, 1988, counsel for both parties appeared, and the court, on Mirabelli's request, granted the Narayans until September 28, 1988 to file a response to Merrill Lynch's motion for default judgment which was filed earlier. On September 28, 1988, Mirabelli filed a motion for an extension of time in which to file the response, and supplied a certificate of service to Merrill Lynch on that date. Merrill Lynch states that it did not receive notice, and therefore, it filed a second memorandum in support of its motion for default judgment. On October 20, 1988, the Narayans filed their response. On December 16, 1988, the district court informed the parties by minute order that it would rule on Merrill Lynch's motion for default judgment on January 13, 1989. On January 12, 1989, however, the Narayans filed a Fed.R.Civ.P. 55(c) motion to set aside the August 11 entry of default. In addition, the Narayans sought leave to file a draft answer to the complaint.

On January 13, 1989, the district court granted a default judgment against the Narayans. As for damages, the court concluded that the selling price of $34,500 was not abnormally low, and that Merrill Lynch was entitled to the difference between the price it paid ($62,250) and its selling price. In addition, the court found that Merrill Lynch was entitled to its carrying costs ("the costs for maintaining the property until it could be sold to a third-party") because these damages "flow directly from the breach and are recoverable." Also, the court awarded pre-judgment interest to Merrill Lynch because the damages were "easily ascertainable." See Emmenegger Construction Co., Inc. v. King, 103 Ill.App.3d 423, 59 Ill.Dec. 237, 431 N.E.2d 738 (5th Dist.1982). The court asked plaintiff to submit a statement of its carrying cost and pre-judgment interest. Finally,...