Default judgments are merely rubber-stamped when defendant fails to appear and/or answer, right?  Wrong, as the New York County Commercial Division’s recent decision in Gutterman v. Stark (Hon. Shirley Werner Kornreich, J.) reminds us. In Gutterman, a case arising from plaintiff’s failed investment in a would-be ambulatory care surgical facility, the plaintiff purportedly served by personal service the individual (“Stark”) and corporate defendant (“FinPrime”) in question with a summons with notice and subsequently served its complaint on both by overnight express mail. FinPrime never appeared and Stark, after appearing, failed to file an answer. Naturally, plaintiff moved for a default judgment under CPLR § 3215 against Stark and FinPrime. Notwithstanding the FinPrime and Stark’s failures to appear and answer, respectively, the Commercial Division denied the plaintiff’s motion. So, what gives?

The plaintiff failed to satisfy the two fundamental requirements: effectuating proper service and pleading viable claims.  First, the court held that FinPrime was not properly served. Plaintiff’s affidavit of service for FinPrime indicated only that the recipient of service was “a person of suitable age and discretion” who was employed at the location of FinPrime’s principal place of business. The court explained that suitable age and discretion service under CLPR § 308(2) is proper as against a corporation only if the person served is authorized to receive service on the corporation’s behalf. Plaintiff’s AOS did not indicate whether the person served was employed by FinPrim, let alone authorized to accept service on its behalf.  Second, the court held that the plaintiff failed to meet its very minimal pleading burden with respect to each of its claims against Stark. While noting that the standard of proof “is not stringent, amounting only to some firsthand confirmation of the facts,” the Commercial Division explained that notwithstanding, “a default judgment does not ‘give rise to a mandatory ministerial duty to enter a default judgment” but rather it is the plaintiff’s burden to demonstrate that it “at least [has] a viable cause of action.”(quoting the Second Department’s decision in Resnick v. Lebovitz).  With respect to the plaintiff’s claims against Stark, the Court explained that:

  • Its claim for malpractice could not be maintained as a matter of law because financial advisors such as Stark are not “professionals” in the context of professional malpractice;
  • the negligent misrepresentation claim failed to allege specific facts indicating the requisite special relationship between plaintiff and Stark;
  • the negligence claim failed to identify from where Stark’s alleged duty of care originated or how his alleged breaches caused plaintiff’s alleged damages; and
  • that its claims for breach of the implied covenant of good faith and fair dealing were not viable because Stark was not a party to the underlying agreement.

The court did, however, show  plaintiff some leniency by sua sponte granting it leave to amend its Complaint. The lesson to be learned here is that a defendant’s default does not automatically entitle the plaintiff, as a matter of right, to a default judgment. As always, the plaintiff must properly effectuate service and must establish through its complaint that it has viable claims.