Vacating a Default Judgment Under New York Law: A Primer
New York Courts Prefer Determinations On The Merits
It is well established that New York courts Courts prefer to have cases decided on the merits rather than by default. Smith v. Daca Taxi, 222 A.D.2d 209, 634 N.Y.S.2d 476 (1st Dep't 1995). To that end a liberal policy toward opening defaults exists. Pabone v. Jon-Bar Enterprises Corp., 140 A.D.2d 872, 528 N.Y.S.2d 912, (3rd Dep't 1988). The First Department Appellate Division has repeatedly held that "it is the general policy of the courts to permit actions to be determined by a trial on the merits wherever possible and for that purpose a liberal policy is adopted with respect to opening default judgments in furtherance of justice to the end that the parties may have their day in court to litigate the issues." 38 Holding Corp. v. City of New York, 179 A.D.2d 486, 578 N.Y.S.2d 174 (1st Dep’t 1992) (citations omitted).
In situations where a default is not willful and the defaulting party establishes a meritorious defense, it is preferable to vacate the default to allow for a disposition of the case on its merits. Price v. Polisner, 172 A.D.2d 422, 568 N.Y.S.2d 796 (1st Dep’t 1991).
Vacating A Default Judgment Under CPLR §317
A default judgment can be vacated when a defendant has a meritorious defense and did not receive actual notice of the action in time to defend. Under CPLR §317, four requirements must be met to have a default opened:
- service must have been made in a manner other than personal delivery or delivery to an agent designated under CPLR §318;
- the defendant must show that he or she did not receive actual notice of the process in time to defend the action;
- the showing of a meritorious defense; and
- the making of a motion under CPLR §317 must be made within one year of knowledge of entry of the default judgment with an outside time limit of five years from such entry.
It is well established that service on a corporation through delivery of process to the Secretary of State is not “personal delivery" to the corporation or to an agent designated under CPLR §318. See Eugene Di Lorenzo, Inc. v. A.C. Dutton Lumber Co., Inc., 67 N.Y.2d 138, 492 N.E.2d 116 (1986) (theCourt of Appeals was favorably inclined toward the opening of default judgments that are the result of a wrong address on file with the Secretary of State.) In addition, courts are especially forgiving in cases where plaintiff could have (and should have) made service pursuant to CPLR 311(a)(1). See, e.g., Pabone v. Jon-Bar Enterprises Corp., 140 A.D.2d 872, 528 N.Y.S.2d 912 (3rd Dep't 1988).
Vacating A Default Judgment Under CPLR §5015(a)(1)
Under CPLR §5015(a)(1), a defendant need only show excusable delay and a meritorious defense to vacate a default, when such motion is brought within one year of the filing of the judgment. A motion to vacate a judgment on the grounds of “excusable default" is addressed to the sound discretion of the trial court. MacMarty, Inc. v. Sheller, 201 A.D.2d 706, 608 N.Y.S.2d 294 (2nd Dept. 1994).
In Barazani v. New Line Cinema Corp., 52 A.D.2d 543, 382 N.Y.S.2d 80 (1st Dept. 1976) the First Department found that defendant’s default was excusable where it was shown that “the default was not deliberate, service having been made upon the Secretary of State …….and that the defendant responded virtually immediately by motion to open the default upon advice of the existence of the judgment."
Staying Enforcement Of The Default Judgment(s) Pending The Motion To Vacate
CPLR §2201 provides “the court in which an action is pending may grant a stay of the proceedings in a proper case, upon such terms as may be just." The commentary goes on to explain that “when [§2201] speaks of pending, [it] means ‘captioned’, and the action keeps its caption whatever the status of the judgment rendered in it." (See Seigel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C2201:9).
CPLR §5240 gives the court the power to “make an order denying, limiting, conditioning, regulating, extending, or modifying the use of any enforcement procedure." The courts have held that the application of §5240 is justified to “preserve the due process rights of judgment debtor[s]." Reynders v. Reynders, 155 A.D.2d 987, 548 N.Y.S.2d 130 (4th Dept. 1989). This provision would include the power to stay enforcement of information subpoenas issued pursuant to CPLR §5224.
This Legal Guide is to inform interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. This Legal Guide does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.