Shi v. Don Le
| Decision Date | 02 March 2022 |
| Docket Number | 21 CV 1361 (ARR) (CLP) |
| Court | U.S. District Court — Eastern District of New York |
| Parties | JOHN SHI and KEVIN WHITE, Plaintiffs, v. DON LE, Defendant. |
REPORT AND RECOMMENDATION
On March 15, 2021, plaintiffs John Shi (“Shi”) and Kevin White (“White”) commenced this diversity action against defendant Don Le (“Le”), seeking injunctive relief and equitable or compensatory damages based on defendant's failure to return plaintiffs' 100 ether (“ETH”) tokens. . Plaintiffs also request attorney's fees and costs. (Id. at 9).
Currently pending before this Court is plaintiff's motion for default judgment. For the reasons set forth below, the Court respectfully recommends that plaintiffs' motion be denied.
Plaintiff Shi resides in Brooklyn, New York, while plaintiff White resides in San Francisco, California. (Id. ¶ 3). Defendant Le is “believed to reside in Springfield Virginia, ” and is alleged to be the “Founder and General Partner of ChainRock, a research and investment firm focused on blockchain technology and cryptocurrencies that has since ceased all operations.” (Id. ¶ 2). According to the Complaint, plaintiffs contacted defendant on March 25, 2018 in order to purchase a cryptocurrency called Kadena (“KDA”) that would be issued by a third-party, Kadena LLC (“Kadena”). (Id. ¶¶ 1, 6). The third party entity, Kadena, is allegedly located in Brooklyn, New York. (Id. ¶ 1). Plaintiffs were to pay for the KDA using their ETH tokens and defendant was to serve as an intermediary between Kadena and plaintiffs. (Id. ¶¶ 9-10). Although defendant worked for ChainRock, defendant informed plaintiffs that he would be serving as an intermediary in his personal capacity, and not as a representative of ChainRock. (Id. ¶ 9). All communications between plaintiffs and defendant were conducted by plaintiff White although plaintiffs allege that defendant was aware that the transaction was to be made on behalf of both plaintiffs. (Id. ¶ 6).
After several conversations regarding the number of KDA that plaintiffs would purchase, the number of ETH tokens that would be transferred, and the logistics of transferring the ETH tokens, plaintiffs transferred 100 ETH tokens representing 50 tokens owned by each plaintiff, to an “address for an Ethereum wallet”[2] provided by defendant on March 30, 2018. (Id. ¶¶ 7-10). After confirming that he received the tokens, defendant ceased communicating with plaintiffs for several days. (Id. ¶¶ 11-12). Plaintiffs were able to contact defendant on April 3, 2018; however, by December 2018, defendant “had stopped communicating with Plaintiffs altogether.” (Id. ¶ 12). On July 3, 2019, plaintiffs contacted another partner at ChainRock, Mr. Jeremy Seow, who told plaintiffs that he was also unable to contact defendant and “expressed his frustration” because he apparently had also made an investment in KDA by transferring ETH tokens to defendant. (Id. ¶ 13).
In October 2019, plaintiffs contacted Kadena to see if anyone there had been in communication with defendant. (Id. ¶ 14). Kadena's CEO stated that, while Kadena had discussed a transaction with defendant on behalf of ChainRock, defendant later became “completely unresponsive.” (Id.) In November 2019, Kadena's CEO informed Mr. Seow that defendant had contacted Kadena and defendant was aware that plaintiffs wanted him to contact them. (Id. ¶ 15). Plaintiffs were later able to contact defendant on November 11, 2019, who stated he was willing to get on a phone call with plaintiffs; however, according to plaintiffs, the phone call never took place. (Id. ¶ 16).
According to plaintiffs, they do not know if defendant “ever purchased any KDA tokens using Plaintiffs' funds.” (Id. ¶ 18). On August 26, 2020, plaintiffs reached out to defendant “to demand that Defendant return Plaintiffs' ETH tokens, ” and, while they were able to make contact with him, defendant later “disappeared.” (Id. ¶ 20). Plaintiffs allege that between when they transferred their ETH tokens and the filing of the Complaint, the price of each token has risen from $416.29 to $1, 779.50 per token. (Id. ¶ 19).
Following the filing of the Complaint on March 15, 2021, the Summons and Complaint were served on Le through personal service upon his “Father and Co-Resident” at 6101 Hibbling Avenue in Springfield, Virginia 22150, followed by service by first class mail to the same address. (ECF No. 5). On April 12, 2021, when defendant failed to answer or otherwise respond to plaintiffs' Complaint, the Clerk of Court entered a Certificate of Default against defendant. (ECF No. 7). Thereafter, on April 13, 2021, plaintiffs filed a motion for default judgment. (See Mot.[3]). The default judgment motion was served on defendant by “mailing it to Defendant's last known address, 6101 Hibbing Avenue” in Springfield, Virginia 22150. (See ECF No. 8-2). The motion for default judgment was referred to the undersigned by the Honorable United States District Judge Allyne R. Ross for a Report and Recommendation on April 14, 2021. (See Judge Ross's Electronic Order, filed Apr. 14, 2021).
On November 5, 2021, this Court Ordered plaintiffs to supplement their filings with the paperwork required by Local Rule 7.1, including a Memorandum of Law and documentation in support of their claim that they transferred 100 ETH tokens to the defendant as alleged in the Complaint. (See ECF No. 9). Plaintiffs then submitted a Memorandum of Law, as well as two supporting exhibits on November 17, 2021. (See Mem.;[4] Trans. Rec.;[5] Facebook Mess.[6]).
I. Default and Default Judgment Standard
Rule 55 of the Federal Rules of Civil Procedure sets forth a two-step process for entry of a default judgment. See Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95-96 (2d Cir. 1993). First, the Clerk of Court enters the default pursuant to Rule 55(a) by notation of the party's default on the Clerk's record of the case. See id.; see also Fed R. Civ. P. 55(a) (). Second, after the Clerk of Court enters a default against a party, if that party fails to appear or otherwise move to set aside the default pursuant to Rule 55(c), the court may enter a default judgment. See Fed.R.Civ.P. 55(b). The Clerk of the Court entered a default against defendant on April 12, 2021. (See ECF No. 7).
The Second Circuit has cautioned that since a default judgment is an extreme remedy, it should only be entered as a last resort. See Meehan v. Snow, 652 F.2d 274, 277 (2d Cir. 1981).
While the Second Circuit has recognized the “push on a trial court to dispose of cases that, in disregard of the rules are not processed expeditiously [and] . . . delay and clog its calendar, ” it has held that the district court must balance that interest with its responsibility to “[afford] litigants a reasonable chance to be heard.” Enron Oil Corp. v. Diakuhara, 10 F.3d at 95-96. Thus, in light of the “oft-stated preference for resolving disputes on the merits, ” default judgments are “generally disfavored, ” and doubts should be resolved in favor of the defaulting party. Id. Accordingly, plaintiffs are not entitled to a default judgment as a matter of right simply because defendant is in default. See Erwin DeMarino Trucking Co. v. Jackson, 838 F.Supp. 160, 162 (S.D.N.Y. 1993) ().
The Court has significant discretion to consider a number of factors in deciding whether to grant a default judgment, including (1) whether the grounds for default are clearly established; (2) whether the claims were adequately pleaded in the Complaint, thereby placing the defendant on notice, see Fed.R.Civ.P. 54(c) (); and (3) the amount of money potentially involved - the more money involved, the less justification for entering the default judgment. See Hirsch v. Innovation Int'l, Inc., No. 91 CV 4130, 1992 WL 316143, at *2 (S.D.N.Y. Oct. 19, 1992). Additionally, the Court may consider whether material issues of fact remain, whether the facts alleged in the complaint state a valid cause of action, whether plaintiff has been substantially prejudiced by the delay involved, and whether the default judgment might have a harsh effect on the defendant. See Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981).
A party defaults when it “has failed to plead or otherwise defend” the case. Fed.R.Civ.P. 55(a). The Second Circuit has “embraced a broad understanding of the phrase ‘otherwise defend.'” City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 129 (2d Cir. 2011). Indeed, a defendant may fail to defend by “failing to appear for a deposition, dismissing counsel, giving vague and unresponsive answers to interrogatories, and failing to appear for trial, ” Au Bon Pain Corp. v. Artect, Inc., 653 F.2d at 65, or by failing to comply with discovery orders or failing to appear for trial. Guggenheim Cap., LLC v. Birnbaum, 722 F.3d 444, 454 (2d Cir. 2013) (citing Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 917-19 (3d Cir. 1992)). However, the “typical Rule 55 case is one in which a default has entered because a defendant failed to file a timely answer.” City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d at 129 (alterations and quotations omitted).
As a threshold matter, “[i]t is well-established that a default judgment entered by a court that...
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