Powerserve Int'l v. Lavi

• Decision Date: 01 August 2000
• Docket Number: Docket No. 00-7438
• Citation: 239 F.3d 508
• Parties: (2nd Cir. 2001) POWERSERVE INTERNATIONAL, INC., Plaintiff-Appellee, v. EDWARD M. LAVI and EDMOND J. LAVI, individually, as partners of and d/b/a The Continental Group, and TONY ZAR, Defendants, PETER LAVI, a/k/a Parviz Lavi, and OMEGA INDUSTRIES & DEVELOPMENT CORP., Defendants-Appellants
• Court: U.S. Court of Appeals — Second Circuit

Page 508

239 F.3d 508 (2nd Cir. 2001)

POWERSERVE INTERNATIONAL, INC., Plaintiff-Appellee, v. EDWARD M. LAVI and EDMOND J. LAVI, individually, as partners of and d/b/a The Continental Group, and TONY ZAR, Defendants, PETER LAVI, a/k/a Parviz Lavi, and OMEGA INDUSTRIES & DEVELOPMENT CORP., Defendants-Appellants.

Docket No. 00-7438

August Term, 2000

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued November 6, 2000

Decided February 13, 2001

Errata Filed February 27, 2001

Appeal from a default judgment entered in the United States District Court for the Eastern District of New York, Thomas C. Platt, Judge, awarding plaintiff damages of $740,000, plus interest totaling $287,321.79, on contract and fraud claims.

Affirmed.

ARTHUR D. RUSSELL, New York, New York (John I. Karesh, Marlene D. Hall, Feltman, Karesh, Major & Farbman, New York, New York, on the brief), for Plaintiff-Appellee.

ROBERT M. CALICA, Garden City, New York (Edward M. Ross, Rosenberg Calica & Birney, Garden City, New York, on the brief), for Defendants-Appellants.

Before: KEARSE, McLAUGHLIN, and STRAUB, Circuit Judges.

KEARSE, Circuit Judge:

Defendants Peter Lavi a/k/a Parviz Lavi ("Lavi" or "Parviz Lavi") and Omega Industries & Development Corp. ("Omega") appeal from an amended default judgment, entered as a final judgment pursuant to Fed. R. Civ. P. 54(b), of the United States District Court for the Eastern District of New York, Thomas C. Platt, Judge, ordering them to pay plaintiff Powerserve International, Inc. ("Powerserve"), $740,000 in damages, plus interest totaling $287,321.79, following the failures of Lavi and Omega (a) to comply with orders of the court to obtain counsel, occasioning the entry of defaults against them, and (b) to post a $500,000 bond in order to have the court vacate the defaults. On appeal, Lavi and Omega contend principally that the district court erred in entering the defaults and in requiring them to post a bond as a condition of vacating the defaults. Finding no merit in their contentions, we affirm.

I. BACKGROUND

According to the first amended and supplemental complaint ("complaint"), Powerserve, whose business is refurbishing and selling gas turbines and related items, was contacted by defendant Tony Zar as an agent for defendants Continental Group ("Continental"), Omega, and/or Lavi, offering to sell a gas turbine rotor. In September 1995, Powerserve agreed to purchase a gas turbine rotor, bearing a specific serial number, for $740,000; the purchase was subject to Powerserve's inspection and acceptance, but Powerserve agreed to make payment of the purchase price within 24 hours of delivery. Defendants warranted, inter alia, that the rotor would be fit for the purposes for which Powerserve purchased it and that if the rotor did not comply with the warranties, the vendor at its own cost would provide replacement or repair.

Thereafter, a rotor was delivered, and Powerserve paid the purchase price; upon inspection, however, it discovered that the rotor (a) was defective and unusable, and (b) bore a different serial number than that specified in the contract and hence was not the rotor Powerserve had agreed to buy. Powerserve revoked its acceptance of the rotor and demanded immediate repayment. Defendants neither reimbursed Powerserve nor gave it instructions for the rotor's return or disposition.

Powerserve commenced the present action in November 1996. As amended, the complaint asserts claims of, inter alia, breach of contract, breach of warranty, and fraud, and seeks damages of $740,000, plus interest and storage expenses. In addition to the above events, it alleges that at some point, defendants had replaced the entity originally identified by Zar as the rotor's owner with Continental, which is believed to lack sufficient assets to satisfy a judgment with respect to the nonconforming and defective rotor. Edward M. Lavi ("Edward") and Edmond J. Lavi ("Edmond"), Lavi's sons who are partners in Continental, were added to the action as defendants in 1998.

In their answers, defendants admit that Powerserve purchased and paid for a rotor and that defendants refused to refund the purchase price. As affirmative defenses, they allege, inter alia, that the sale was on an "as is" basis, that Powerserve's rejection of the rotor was untimely, and that the defendants other than Continental are not proper parties to the action.

A. The Parade of Defense Attorneys and the Entry of Defaults

Defendants were initially represented by the firm of Spilky & Spilky ("Spilky firm"). In January 1998, that firm moved to be relieved on the ground, inter alia, that defendants had failed to pay fees in connection with the defense. The district court allowed the Spilky firm to withdraw and gave defendants four weeks to obtain new counsel. It stated that if new counsel were not obtained within that time, the court would permit Powerserve to move for a default judgment. In February 1998, defendants indicated that Tompkins & Kokkoris would represent them; Tompkins & Kokkoris did not enter its appearance, however, until April 1998.

In November 1998, Tompkins & Kokkoris moved to withdraw from representing all defendants on the ground, inter alia, of defendants' failure to pay fees. The district court held the motion in abeyance, ordering the firm to inform its clients of the motion to withdraw and to appear with the clients at a conference on December 11 ("December 1998 Conference"). At the December 1998 Conference, all counsel appeared; Zar, Edward, and Edmond appeared personally (a new law firm entered an appearance for Edward and Edmond in January 1999; Zar continues pro se). Lavi did not appear at the December 1998 Conference. His daughter Angella Lavi Mottahedeh attended and stated that Lavi was unable to attend because he was incarcerated on an unrelated matter.

The court granted Tompkins & Kokkoris's motion to withdraw with respect to all of the individual defendants; it reserved decision as to Omega, pending the parties' attempt to settle the case. The court gave Lavi and Omega four weeks to negotiate a settlement or retain new counsel; it informed Mottahedeh that if there were no settlement and no retention of new counsel, the court would permit Powerserve to file a motion for a default judgment.

On January 8, 1999, another conference ("January 1999 Conference") was held. The case had not been settled, and Mottahedeh reported that neither Omega nor Lavi had obtained new counsel. The district court granted Tompkins & Kokkoris's motion to be relieved as counsel for Omega. Mottahedeh attempted, pursuant to a power of attorney, to represent Lavi. The district court rejected her attempt as she was not an attorney. Mottahedeh then requested an extension of time to obtain counsel for her father and Omega; the district court denied her request. In accordance with its warning at the December 1998 Conference, the court authorized Powerserve to move for a default judgment against Lavi and Omega. It set a January 29, 1999 deadline for the filing of the motion and a March 1, 1999 deadline for the submission of opposition papers.

On March 11, 1999, in accordance with Fed. R. Civ. P. 55(a), the district court clerk entered the defaults of Lavi and Omega. The default certification noted, inter alia, that Lavi and Omega, having been granted until January 8, 1999, to obtain legal representation, and having advised the court on that date that Lavi could not appear in person and that no attorney had been obtained for either defendant, "Parviz Lavi was in default for not appearing in person or by an attorney as directed by the Court" and "Omega is also in default for not appearing by an attorney as directed by the Court," Clerk's Certificate entered March 11, 1999, ¶3(c).

In the meantime, Powerserve timely moved for a default judgment. In addition to recounting the course of the litigation and noting that discovery had been impeded by the repeated withdrawals of counsel, each of which had asserted a lien on defendants' files, Powerserve argued that the delays imperiled its collection of an eventual judgment against Lavi and Omega because of collusive conveyances. In support of its contentions, Powerserve's counsel submitted an affidavit stating, inter alia, that discovery had revealed that in May 1998, a judgment for more than $1 million had been obtained against Lavi and Omega by Lavi's brother, and that during the past several years

Parviz Lavi ha[d] wire transferred substantial sums of money in excess of $100,000 to his son Edmond Lavi... and... when such funds were needed by Parviz Lavi, Edward Lavi wire-transferred those funds to accounts of Parviz Lavi's daughter, Angela [sic] Mottahedeh for Parviz Lavi's use.

(Affidavit of Michael R. Klekman dated January 22, 1999, ¶14.) Thus, Powerserve noted that though "Parviz Lavi is the real or beneficial owner of several properties in New York and California[,]... there is a danger of transfer of those properties and assets out of the reach of judgment creditors." (Id.)

Lavi and Omega did not file opposing papers by the March1 deadline. On March 10, a third firm, Reisman, Peirez, Reisman & Calica wrote to the court seeking permission to appear as counsel for Lavi/Omega and to cross-move under Fed. R. Civ. P. 6(b) for a nunc pro tunc enlargement of time within which to oppose Powerserve's motion for a default judgment.

B. The Rulings on the Default-Related Motions

In a Memorandum and Order dated July 21, 1999 ("July 1999 Order"), the district court denied without prejudice Powerserve's motion for a default judgment, granted leave for the new law firm to appear and represent Lavi and Omega, and conditionally granted the motion of Lavi and Omega for an extension of time to oppose the motion. The court indicated that it would be inclined to vacate the defaults because it found "no clear evidence of wilful disregard" of its orders but "merely the admittedly lax efforts of a...