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Home > 2016 > October > 2 > Vacating / Reopening Default Judgment in Consumer Credit Actions in New York
Published October 2, 2016 by Yuri Starikov

Vacating / Reopening Default Judgment in Consumer Credit Actions in New York

credit-cardsReal income of U.S. households continues to fall.  See e.g. FED report (April 6, 2015).  One solution for folks, wishing not to downgrade their lifestyle, was to go into debt, including consumer credit or “credit card” debt.  Id.  But, with increased credit card debt, coupled with failure to increase real incomes, the inevitable outcome is the failure to pay.  Throwing someone into jail for failure to pay debt is not a popular tool in the United States.  (Unpopular does not mean improbable.  See Debtors’ prison Wikipedia post)   For banks, one way to get their money back, is to seek enforcement through court judgment, and then hunt debtor’s bank assets, if any.  One example of such bank collection activity is Information Subpoena and Restraining Notice.

The problem with such collection activity, from alleged debtor’s vantage point, can be his or hers lack of awareness that the action has ever been commenced.  By the time s/he receives the notice, the judgment is entered.  Judgment also shows up on the credit report and negatively affects the score, making all further credit transactions more expensive.  What can be done by the alleged debtor in post-judgment stage to improve his or hers position?  Perhaps, exploring the possibility of vacating or opening the default can be an option.

cplrGrounds for vacating or opening the default are grounded in the Civil Practice Law and Rules (CPLR) §§ 317 and 5015.

CPLR § 317 says:

A person served with a summons other than by personal delivery to him or to his agent for service designated under rule 318, within or without the state, who does not appear may be allowed to defend the action within one year after he obtains knowledge of entry of the judgment, but in no event more than five years after such entry, upon a finding of the court that he did not personally receive notice of the summons in time to defend and has a meritorious defense. If the defense is successful, the court may direct and enforce restitution in the same manner and subject to the same conditions as where a judgment is reversed or modified on appeal. This section does not apply to an action for divorce, annulment or partition.

Of course, there must be no personal delivery, one year knowledge, and meritorious defense requirement according to the statute.  The meritorious defense requirement has been somewhat curtailed by Peralta v. Heights Med. Ctr., Inc., 485 U.S. 80, 108 S. Ct. 896, 99 L. Ed. 2d 75 (1988) (holding that State statute requiring meritorious defense for defendant that have not been personally served and had no notice of the judgment is constitutionally infirm).  However, it is still on the books of CPLR, and trial courts are not likely to disregard the meritorious defense easily.

In Peralta, Texas trial court issued a default judgment against the defendant, who did not appear and was defectively served: no personal service and untimely substitute service.  The judgment was for the debt allegedly owned, which resulted in Peralta defendant being deprived of the property.  Defendant’s “real property was sold to satisfy the judgment and for much less than its true value.”  Peralta defendant did not receive notice of judgment.  Peralta plaintiff argued that under state law, defendant was required to show meritorious defense in order for to vacate the default judgement.  U.S. Supreme Court disagreed with Peralta plaintiff and vacated default judgment holding that “a judgment entered without notice or service violates the Due Process Clause.”

CPLR § 5015 is another ground upon which a move to have a judgment vacated can be made.  The statute states, in relevant part:

(a) On motion. The court which rendered a judgment or order may relieve a party from it upon such terms as may be just, on motion of any interested person with such notice as the court may direct, upon the ground of:

1. excusable default, if such motion is made within one year after service of a copy of the judgment or order with written notice of its entry upon the moving party, or, if the moving party has entered the judgment or order, within one year after such entry; or

* * *

4. lack of jurisdiction to render the judgment or order; or

* * *

Statutory language of CPLR 5015 has no requirement of meritorious defense an its face, but even post-Peralta New York courts disagree.  See e.g. Navarro v. A. Trenkman Estate, Inc., 279 AD 2d 257 (2001) (It is well established that in order to obtain relief from an order or judgment on the basis of an excusable default pursuant to CPLR 5015 (a) (1), the moving party must provide a reasonable excuse for the failure to appear and must further demonstrate that the case has merit).  Additionally, grounds listed under CPLR 5015(a) are discretionary in nature.  Nash v. Port Auth. of New York & New Jersey, 22 N.Y.3d 220, 225, 3 N.E.3d 1128, 1132 (2013) (stating that “section 5015(a) makes clear that the motion court’s determination to vacate a judgment is a discretionary one”).  In exercising its discretion, the motion court should “consider the facts of the particular case, the equities affecting each party and others affected by the judgment or order, and the grounds for the requested relief.”  Id.  22 N.Y.3d at 226.

One reason for “excusable default” is unawareness of the defendant, notwithstanding the service of plaintiff.  This can be done if the service was not personally delivered to defendant, but rather to his or her roommate or other person of “reasonable age and discretion” who unreasonably may have not delivered the message to defendant.  Without being aware of the commencement of the action, the court cannot reasonably expect defendant to appear, hence the excusable default.  However, when structuring defective service argument, one should keep in mind burden of proof requirements.  Goal is to keep away from “conclusory” label and persuade the court of defective service through “sworn, nonconclusory, factually specific, denial of service.” Capital Equity Magagement, LLC v. Weisz (2d Dept. App. Term 2015).  Special attention must be paid to “provide any information regarding the accuracy of the description in the affidavit of service,” and a statement that “defendant recognizes such description.”  Capital One Bank v. Muradyan (Civ. Ct. Kings Co. 2016).  Defendant should exclude the possibility that “anyone fitting such description was visiting or had access to his residence at the time of service.”  Id.

Defendant should also check the record room of the court to see if plaintiff complied with 22 NYCRR 208.6(h) requirements.  This is a relatively recent rule adopted in light of heavy default judgment rate in New York, where many defendants claimed unawareness of the action against them.  Under 22 NYCRR 208.6(h), bank is required to submit to the clerk a stamped unsealed envelope addressed to the defendant together with a written notice having a language prescribed by the rule.  The rule states that: “[n]o default judgment based on defendant’s failure to answer shall be entered unless there has been compliance with this subdivision.”

CPLR § 3215 is yet another possible criteria if there was a default judgment.  Defaults are done by the clerk, not the judge, of a courthouse.  In order for clerk’s actions to be valid, “sum certain” criteria must be met.  Accordingly, if there is a dispute to the amount of debt owed, there is not “sum certain” and judgement was erroneously entered.  The term “sum certain” in this context contemplates a situation in which, once liability has been established, there can be no dispute as to the amount due, as in actions on money judgments and negotiable instruments.  Reynolds Sec., Inc. v. Underwriters Bank & Trust Co., 44 N.Y.2d 568, 572, 378 N.E.2d 106, 109 (1978).  When damages cannot be determined without resort to extrinsic proof, the amount sought does not qualify as a sum certain.  See Gaylord Bros. v. RND Co., 134 A.D.2d 848, 849, 523 N.Y.S.2d 4, 5 (4th Dept. 1987) (In a case such as this where “the damages sought cannot be determined without extrinsic proof,” an inquest must be ordered), citing Reynolds Sec., Inc. v. Underwriters Bank & Trust Co., 44 N.Y.2d 568.

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22 NYCRR 208 CPLR 317 CPLR 3215 CPLR 5015 New York State

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