Data

Date:: 30-03-2010
Country:: USA
Number:: 09 Civ. 3059 (TPG)
Court:: U.S. District Court, Southern District of New York
Parties:: Guangxi Nanning Baiyang Food Co. Ltd. v. Long River International, Inc.

Keywords

BREACH OF CONTRACT BY BUYER - BUYER'S REFUSAL TO TAKE DELIVERY OF THE GOODS

BUYER’S OBLIGATION TO EXAMINE THE GOODS AS SOON AS PRACTICABLE UNDER THE CIRCUMSTANCES (ART. 38 CISG)

FAILURE TO GIVE TIMELY NOTICE OF NON-CONFORMITY (ART. 39 CISG)

Abstract

A Chinese seller and a U.S. buyer concluded two separate contracts for the sale of frozen fish. Under the first contract the seller timely delivered the three shipments of which the buyer refused to take delivery. However, since the buyer delayed a month in submitting a formal refusal of the goods, the seller had to sell the perishable goods at a below-cost price, incurring additional shipping fees. With respect to the second contract the buyer unilaterally reduced the amount due, claiming that the damage to packaging would require it to compensate its ultimate purchaser. The buyer refused the seller’s offer to send its agent to inspect the goods and to mitigate damage, and the seller later learned that the ultimate purchaser had paid the buyer the full price.

The seller filed a complaint alleging, inter alia, violation of the provisions of CISG. After contending that the Convention applied pursuant to its Art. 1(1)(a), the seller alleged that the buyer’s formal rejection of the goods had been unreasonably late and furthermore lacked the necessary specificity. Referring to Arts. 38 and 39 CISG, the seller argued that the buyer had forfeited its right to rely on lack of conformity. Moreover, the seller requested damages under Art. 74 CISG, and claimed for punitive damages. Since the buyer did not respond to the complaint, the seller moved for entry of a default judgment.

The Court granted the seller’s request for the default judgment. Accordingly, the Court did not address the merits of the case nor the applicability of CISG.

Fulltext

United States District Court, Southern District of New York
Guangxi Nanning Baiyang Food Co., Ltd. v. Long River International, Inc.
30 March 2010 [No. 09 Civ. 3059 (TPG)]

[...]

Thomas P. Griesa, United States District Judge

Opinion
Background
- The Facts
- Procedural History
- Plaintiff's Claims
Discussion
- Analysis of the "Good Cause" Factors
(1) Willfulness
(2) Presentation of a Meritorious Defense
(3) Prejudice
Conclusion

OPINION

Plaintiff Guangxi Nanning Baiyang Food Company ("Baiyang") brought this suit on March 27, 2009, alleging that defendant Long River International, Inc. ("Long River") breached a series of agreements between the parties for the purchase of frozen tilapia filets imported from China to the United States, in violation of the United Nations Convention on Contracts for the International Sale of Goods.

When Long River failed to respond to the complaint within the deadline provided by the Federal Rules of Civil Procedure, a default was entered on June 8, 2009. The very next day, on June 9, 2009, Long River filed an untimely answer asserting affirmative defenses and a counterclaim.

Before the court now is Baiyang's motion for entry of a default judgment under Fed. R. Civ. P. 55(b)(2). Baiyang's motion is granted.

BACKGROUND

The Facts

The following facts are taken from the complaint, from exhibits attached to the complaint, and the parties' briefing. Because defendant is in default, for the purpose of this motion, plaintiff's allegations -- except those relating to damages -- are assumed to be true.

Throughout 2008, Baiyang made at least 14 shipments of frozen tilapia to Long River at various ports in the United States. Long River paid for the first ten of these shipments without raising any complaints. This action concerns the remaining four shipments.

On or about June 18, 2008, Baiyang and Long River entered into three new agreements for the shipment of frozen tilapia to Chicago and New York. On or about September 25, 2008, Baiyang sent invoices to Long River for these shipments, totaling $422,664. The goods arrived on schedule, on October 23, 2008, October 31, 2008, and November 3, 2008, respectively. Although Long River filed a customs declaration for these shipments, it then refused, without explanation, either to accept the goods or make payment to Baiyang. As a result, U.S. Customs could not release the tilapia for resale until Long River provided an official letter of refusal. Thus the fish sat in its containers.

Over the next few weeks, both Baiyang and its shipping agent, Alliance Logistics, Inc., repeatedly contacted Long River, requesting it to furnish payment or properly reject the goods so that they could be resold. Finally, on November 21, 2008, Aubrey Tarn, Vice-President of Long River, sent Baiyang a letter of refusal, citing continuous complaints from its customers concerning crushed boxes as well as a "lack of quality consistence [sic]" in Baiyang's fish. Once Long River officially refused the goods, Baiyang sold the tilapia filets to another purchaser at a loss. Baiyang contends that this loss was attributable both to a reduction in the value of the fish because it sat in its containers for nearly a month and a decline in the market price of tilapia filets. Baiyang also incurred demurrage fees, which are charged by the shipping carrier for each additional day that the containers are used after the period allotted for the shipment. Baiyang is claiming damages consisting of lost profits and demurrage fees for the three shipments, a total of $141,588.

There also is an issue about a fourth shipment of frozen tilapia which arrived in Boston ("Boston Shipment") on October 8, 2008. Alliance inadvertently released the goods to Long River prior to payment. Thereafter, on October 25, 2008, Long River alleged that certain cartons in the shipment were damaged and requested a discount of $ 0.25 per pound ($11,000 total on a shipment of 44,000 lbs) based on its supposed need to indemnify its customer, Channel Fish Processing Co., Ltd. In support of its claim that the boxes were crushed, Long River has provided the court with photographs of the Boston Shipment. These photographs, however, only show one or two misshapen boxes. In response to Long River's complaint, Baiyang offered to send Alliance to Boston to inspect the Boston Shipment, agreeing to reimburse Long River if the cartons were damaged as described. But Long River rejected this proposal, instead taking an advance deduction of $11,000, which would be adjusted upon receipt of Channel's claim. Channel, however, informed Baiyang that it accepted all of the fish in the Boston Shipment at full price and did not claim any discount as a result of the damage to the boxes. Baiyang now requests reimbursement of the $11,000 deducted from payment for the Boston Shipment.

Procedural History

Once Long River issued its letter of rejection on November 21, 2008, Baiyang endeavored to reach a resolution out of court. Baiyang's counsel contacted Long River's counsel repeatedly over the next few months, only to be told that he could not reach his client. Baiyang then filed its complaint on March 27, 2009. Long River was served with the summons and complaint through the Secretary of State for the State of New York on March 30, 2009. Its answer was due on April 20, 2009.

Because Tarn of Long River had relocated to Toronto, Canada from New York in February 2009, he did not receive actual notice of the complaint until approximately April 13, 2009. That day, Tarn contacted Clyde Mitchell of Claugus & Mitchell LLP to inquire about engaging the law firm to represent Long River. Mitchell of that firm then sent an e-mail to Baiyang's counsel stating that he was in the process of investigating the facts and would be in touch. On April 27, 2009, a week after the answer was due, Baiyang's counsel notified Long River that it was in default. In response, Mitchell informed Baiyang's counsel that Long River would be filing an answer within the week and proposed settlement negotiations.

Unbeknownst to Baiyang, from approximately mid-April to late-May 2009, Tarn and Winston Ye, President of Long River, were engaged in an "internal power struggle" for control of the company and its assets. During this time, Tarn instructed Mitchell to suspend all work on the case.

On May 19, 2009, Baiyang expressed its intent to seek entry of default. On May 22, 2009, Ye met with Mitchell, and work on the case resumed. Baiyang then filed for entry of default against Long River on June 5, 2009. On June 8, 2009, the Clerk of the Court issued a certificate of default. The next day, on June 9, 2009, nearly six weeks after the deadline to answer the complaint had passed, Long River filed an untimely answer to Baiyang's complaint.

A conference with the court was held on March 9, 2010.

Plaintiff's Claims

Baiyang requests that the court enter a default judgment in its favor under Fed. R. Civ. P. 55(b)(2) and award compensatory damages of $152,588.00 plus interest and punitive damages of $500,000 as a deterrent. Baiyang also seeks a declaratory judgment that Long River (i) excessively delayed before refusing the goods shipped by Baiyang under the parties' agreements, (ii) refused these goods without a proper legal basis, and (iii) provided an insufficiently specific explanation for its rejection of the goods.

DISCUSSION

A plaintiff does not enjoy an automatic right to entry of judgment. Rather, "dispositions of motions for entries of defaults and default judgments ... are left to the sound discretion of a district court because it is in the best position to assess the individual circumstances of a given case and to evaluate the credibility and good faith of the parties." Shah v. N.Y. State Dep't of Civil Serv., 168 F.3d 610, 615 (2d Cir. 1999); S.E.C. v. McNulty, 137 F.3d 732, 738 (2d Cir. 1998). Because the Second Circuit has expressed on numerous occasions its preference that disputes be resolved on the merits, not by default, see Marfia v. T.C. Ziraat Bankasi, 100 F.3d 243, 249 (2d Cir. 1996), motions for default judgments will be denied where a party appears to defend "unless it is clear that under no circumstances could the defense succeed." Connell v. City of N.Y., 230 F. Supp. 2d 432, 438 (S.D.N.Y. 2002).

The filing of a late answer is tantamount to a motion to vacate a default. See John v. Sotheby's, Inc., 141 F.R.D. 29, 35 (S.D.N.Y. 1992). Fed. R. Civ. P. 55(c) empowers a court to set aside an entry of default upon a showing of "good cause." Because the rule does not define the term explicitly, the Second Circuit has established three criteria that must be assessed in order to decide whether to relieve a party from default: (1) whether the default was willful; (2) whether a meritorious defense is presented; and (3) whether setting aside the default would prejudice the adversary. See Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993). The court also considers these factors when determining whether to enter a default judgment under Fed. R. Civ. P. 55(b). See Bank of N.Y. v. Meridien Biao Bank Tanzania Ltd., No. 95 CV 4856(SS), 1998 U.S. Dist. LEXIS 11288, 1998 WL 417510, at *2 (S.D.N.Y. July 24, 1998). All three factors do not need to be met; rather, a default may be entered upon a showing that the three factors on balance support relief.

In this case, the criteria militate in favor of entering Baiyang's requested default judgment.

Analysis of the "Good Cause" Factors

(1) Willfulness

In the context of a default, willfulness requires conduct that is more than merely negligent or careless; the defaulting party must have engaged in egregious or deliberate conduct or conduct that was egregious and was not satisfactorily explained. See N.Y. v. Green, 420 F.3d 99, 108 (2d Cir. 2005). A desire to avoid litigation cannot provide an excuse for failing to satisfy a party's obligations in litigation. See Kuklachev v. Gelfman, No. 08-CV-2214 (CPS)(WP), 2009 U.S. Dist. LEXIS 15592, 2009 WL 497576, at *3 (E.D.N.Y. Feb. 26, 2009). Similarly, a defendant's choice to default for strategic reasons or in order to gain some tactical advantage weighs strongly in favor of entering default judgment. See Am. Alliance Ins. Co. v. Eagle Ins. Co., 92 F.3d 57, 60 (2d Cir. 1996).

Long River neglected to submit an answer and affirmative defenses to the complaint until more than six weeks had elapsed since the filing of the complaint. Baiyang contends that Long River's default was plainly willful based on the parties' history and Long River's pattern of ignoring correspondence and communications from Baiyang. And it appears that it was only Baiyang's filing of its application for entry of default that spurred Long River into finally answering the complaint.

Baiyang acted in the utmost good faith throughout the course of the dispute. The same cannot be said for Long River. Long River delayed for a substantial period of time, even in letting Baiyang know whether it was refusing or accepting the three shipments. When it finally rejected the shipments, it spoke of complaints from customers, which apparently had no basis whatsoever. As to the Boston Shipment, Long River deducted $11,000 from the price without any basis for such deduction, since Long River's customer took and paid for the whole shipment. After Baiyang was finally forced to sue, Baiyang attempted to engage in settlement negotiations, but there was no response. Long River knew full well that it needed to answer the complaint, but did not do so until Baiyang had obtained entry of the default. Long River's conduct was willfully obstructive throughout, and the failure to file a timely answer to the complaint was plainly willful.

(2) Presentation of a Meritorious Defense

A defendant seeking to prevent entry of a default judgment must present some evidence beyond conclusory denials to support his defense. See Sony Corp. v. Elm State Elecs., Inc., 800 F.2d 317, 320-21 (2d Cir. 1986). The test of such defense is measured not by whether there is a likelihood that it will carry the day, but whether the evidence submitted, if proven at trial, would constitute a complete defense. See McNulty, 137 F.3d at 738. He must present a defense "which directly relates ... to the allegations set forth in plaintiff's pleadings and raises a serious question as to the validity of those allegations." Salomon v. 1498 Realty, 148 F.R.D. 127, 130 (S.D.N.Y. 1993). Indeed, without the prospect of a valid defense, "there is little point in setting aside the default judgment." Brown v. Gabbidon, No. 06 Civ. 8148, 2007 U.S. Dist. LEXIS 35134, 2007 WL 1423788, at *4 (S.D.N.Y. May 14, 2007); see also State of N.Y. & Erin D. Crotty v. Kevan M. Green 6s Polymer Applications, Inc., 420 F.3d 99, 109 (2d Cir. 2005) (characterizing the existence of a meritorious defense as the "key factor").

The court has held a conference to explore whether Long River has a meritorious defense. There is no such defense. The only thing tendered by Long River is a photograph of some of the boxes involved in the Boston Shipment, but all this shows is some minor deformation of certain boxes. And again, this purported evidence has nothing to do with the three shipments. There is apparently no meritorious defense to this case.

(3) Prejudice

In the context of a default, "prejudice" means the loss of evidence, increased difficulties of discovery, or greater opportunity for fraud and collusion -- circumstances that make it more difficult for a plaintiff to prosecute its case. See Davis v. Musler, 713 F.2d 907, 916 (2d Cir. 1983).

The usual considerations about prejudice do not weigh strongly in this case. If there were real issues about the condition of the fish, there might be prejudice from any delay which made it difficult to assemble evidence. However, here there are no real issues about the condition or quality of the fish. Therefore, the two factors described above are decisive, and prejudice is not really a relevant factor.

CONCLUSION

Long River has demonstrated willfulness and a lack of a meritorious defense to this action. Plaintiff's motion for entry of a default judgment therefore is granted.

Since a factual dispute exists concerning the amount of damages, the court will hold an inquest to determine a proper damages award in accordance with Rule 55(b).

SO ORDERED.

[...]

2009 WL 2472515 (S.D.N.Y.) (Trial Motion, Memorandum and Affidavit)
For opinion see 2010 WL 1257573

United States District Court, S.D. New York.
GUANGXI NANNING BAIYANG FOOD CO., LTD., Plaintiff,
v.
LONG RIVER INTERNATIONAL INC., Defendant.
No. 09 Civ. 3059 (TPG) (KNF).
June 29, 2009.

Plaintiff Guangxi Nanning Baiyang Food Co., Ltd.'s Motion for Entry of an Order of Default Judgment and to Strike Defendant Long River, Inc.'s Untimely Answer

This action for breach of contract, violation of the United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, S. Treaty Doc. No. 98-9 (1983), 1489 U.N.T.S. 3, 19 I.L.M. 668 (1980) (“CISG” or the “Convention”) and fraud arises out of Long River International Inc.'s (“Long River”) material and willful breach of a series of agreements between the parties (the “Agreements”) for the purchase of frozen tilapia fillet to be imported from China to the United States (Cplt. ¶¶ 1, 15-30) and its scheme to defraud Baiyang in connection with one of these transactions (Cplt. ¶¶ 31-44).
[…]

B. Violation of the Convention for the International Sale of Goods
In order to prevail on a claim for breach of contract under the United Nations Convention for the International Sale of Goods (“CISG”), a plaintiff must show that
(i) parties are citizens of signatories to the Convention and the contract falls within its scope ( see Ex. K, CISG arts. 1 & 3);
(ii) the seller fulfilled its obligations to the buyer ( id. arts. 35-36);
(iii) the buyer breached the agreement, for example, by wrongfully refusing to accept delivery ( id. arts. 53-54; 61-64); and
(iv) damages ( id. arts. 74-79).[FN8]
Under the CISG, where the buyer failed to inspect or failed to provide timely and specific notice of alleged nonconformity, it is therefore precluded from relying on a non-conformity defense. See CISG art. 38.

FN8. The CISG is a self-executing agreement between the United States and other signatories, including China, which governs the formation of international sales contracts as well as the rights and obligations of the parties. See CISG, Jan. 1, 1988, 15 U.S.C. App., art. I. For the Court's convenience, a full-copy of the CISG is annexed to the Rosenfeld Affidavit as Exhibit K. Because there is virtually no American case law under the CISG, the Second Circuit has directed courts to look to the treaty's language and the general principles on which it is based, and has recognized that case law interpreting analogous provisions of Article 2 of the Uniform Commercial Code (“UCC”) “may . . . inform the court where the language of the relevant CISG provisions tracks that of the UCC.” Delchi Carrier SpA v. Rotorex Corp., 71 F.3d 1024, 1027-1028 (2d Cir. 1995) (citation omitted).
Satisfying each and every one of these elements, Baiyang has pled that both the United States and China are parties to the Convention; that the parties' transactions under and pursuant to Contracts BYT08076, BYT08077 and BYT08078 are within the scope of said Convention ( id. ¶¶ 5-7, 49);[FN9] and that Long River breached those Agreements, as described in Section H.A., supra.

FN9. The CISG creates a private right of action in federal court between signatories to the Convention, including the United States and China. Delchi Carrier, 71 F.3d at 1027-28. Article 1 provides that the CISG “applies to contracts of sale of goods between parties whose places of business are in different States ... when the States are Contracting States.” CISG art. 1(1)(a),19 I.L.M. at 672.
[…]

E. Violation of CISG - Agreement BYT08079
As set forth in Sections II. B and C [Fraud/Intentional Misrepresentation], supra, Baiyang's breach of contract BYT08079 also violates the CISG.
[…]

III. PLAINTIFF IS ENTITLED TO MONETARY RELIEF
[…] A. Breach of Contract Claims
[…] Likewise, Article 74 of the CISG permits a plaintiff to recover authorizes “a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach ... not [to] exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.” CISG art. 74, 19 I.L.M. at 688. The Second Circuit has explained that the forseeability requirement of the CISG follows the rule of Hadley v. Baxendale, 156 Eng. Rep. 145 (Ct. Exch.1854), and that relevant interpretations of that rule can guide the Court's reasoning regarding proper damages. See Delchi Carrier, 71 F.3d at 1030. In addition, “the loss” itself, as opposed to the defendant's liability for the loss, is all that need be foreseeable. Id. at 1029; see also TeeVee Toons, Inc. v. Gerhard Schubert GmbH, No. 00 Civ. 5189(RCC), 2006 WL 2463537, at *9-14 (S.D.N.Y. Aug. 23, 2006) (holding that, under CISG § 74, only the loss, not the actual liability for the loss, need be foreseeable). In Delchi Carrier, the Second Circuit found that the plaintiff was entitled to recover legitimate and reasonably foreseeable consequential and incidental damages under the CISG (including costs incurred by shipping, storage, etc. of the allegedly non-conforming goods), by reference to the definitions of these terms in the U.C.C. [FN11] 71 F.3d at 1030.
[…]

IV. LONG RIVER'S UNTIMELY ANSWER, AFFIRMATIVE DEFENSES AND COUNTER-CLAIMS SHOULD BE STRICKEN AS UNTIMELY
[…] Moreover, [Plaintiff’s counterclaim and affirmative defenses] seek relief unavailable under the CISG for the following reasons:[FN15]
FN15. When dealing with an international convention, the United States Supreme Court has indicated that the opinions of international tribunals under the convention are also to be given considerable weight. El Al Israel Airlines, Ltd. v. Tsui Yuan Tseng, 525 U.S. 155, 176 (1999)(interpretation of the Warsaw Convention).
• First, Articles 38 and 39 of the CISG govern the buyer's obligations upon discovery of an alleged nonconformity. The buyer bears the burden of proving both that (i) the nonconformity existed at the time the risk of loss was transferred to buyer and (ii) that the notice of nonconformity was specific and provided within a reasonable time. In Kingfisher Seafoods, the Spanish tribunal found that a delay of weeks in examination and notice unreasonable where food is involved, even if it is frozen. (Ex. T.) The notice must contain a specific description of the nonconformity alleged and be specific enough for the seller to identify the defect without further investigation and determine unmistakably what was meant. General statements that the product quality is “miserable”,[FN16] the product is “rancid”,[FN17] suffers from “poor workmanship”,[FN18] “or did not fulfill the obligations”[FN19] are not sufficiently specific. Furthermore, where multiple shipments or deliveries are involved, the notice must specifically note which shipments are affected by which complaint. See Rancid Bacon Case, http://cisgw3.law.pace.edu/cases/9503020g1.html (Ex. V.).
FN16. See Ex. U, Parties Unidentified--Flowers Case, http:// cisgw3.law.pace.edu/cases/980603g1.html (Germany 3 June 1998 Appellate Court Saarbrucken)(“Flowers Case”).
FN17. See Ex. V, Parties Unidentified--Rancid Bacon Case, http:// cisgw3.law.pace.edu/cases/950320g1.html (Germany 20 March 1995 District Court Munchen)(“Rancid Bacon Case”).
FN18. See Ex. W, Parties Unidentified--Fashion Textiles Case, http:// cisgw3.law.pace.edu/cases/890703g1.html (Germany 3 July 1989 District Court Munchen)(“Fashion Textiles Case”).
FN19. See Ex. X, Parties Unidentified--Furniture Case, http:// cisgw3.law.pace.edu/cases/971203s1.html (Switzerland 3 December 1997 District Court Nidwalden)(“Furniture Case”).

• Second, a buyer who fails to give timely and specific notice is precluded from relying on a non-conformity defense. CISG Art. 39.
• Third, to extent buyer alleges fundamental breach due to non-conformity of prior installments, the buyer must give proper notice of suspension or declare contract avoided (CISG Arts. 71(3); 72; 73(1-2)) and demonstrate an interdependence between shipments under CISG Art. 73(3).

Here, the Defendant
(i) did not collect and could not conduct any examination of the goods shipped by Baiyang under and pursuant to Agreements BYT08076, BYT08077 and BYT08078 and, therefore, cannot allege any non-conformity as to that product;
(ii) violated the CISG by delaying for weeks in rejecting the goods and failing to provide the requisite specificity;
(iii) is precluded from relying on any non-conformity defense as to those shipments due to its failure to provide timely and specific notice; and
(iv) to, the extent that Defendant seeks to rely on prior shipments, it failed to give proper notice of suspension or declare contract avoided, see CISG Arts. 71(3); 72; 73(1-2), or demonstrate an interdependence between shipments as contemplated by CISG Art. 73(3).
Moreover, Long River's allegations as to the only alleged “nonconformity” were fraudulent, as Baiyang has alleged based on its direct conversations with Long River's customer, Channel. Long River has alleged no additional facts in support of any of its contentions.
[…]}}

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