Without Proof of Meritorious Defense, Default Stands

A defendant who failed to timely answer a complaint was recently rebuffed in his attempt to set aside the ensuing entry of default. Magistrate Judge Davis of the Eastern District of Virginia found that a brief filed by defendant’s counsel, which consisted of a single page referring the Court to an affidavit filled with grammatical errors and incoherent statements, failed to meet a “minimum threshold of proficiency” and demonstrated “a lack of respect for this Court.” The court found that the defendant failed to show “good cause” under Rule 55(c) for setting aside the default in that he failed to establish the existence of a meritorious defense.

MSSI Acquisition (“MSSI”) sued Tariq Azmat for breach of a financing contract in December 2011. Process was served (and later mailed) on Azmat’s cousin at Azmat’s residence on December 7, but Azmat claimed to have not come across the notice until February 2012 because he was on multiple trips and did not have a chance to check his mail until then. When Azmat failed to respond in a timely manner, MSSI filed for a default judgment on February 17, 2012. Azmat promptly reacted and filed a motion to set aside the default entered against him on March 12, 2012, asserting that he was fraudulently induced into making the financing contract with an insolvent corporation and that the contract in question had been rescinded anyway.

In Virginia, fraudulent inducement exists where a party intentionally and knowingly makes a false representation of a material fact and the other party suffers damages as a result of relying on that misrepresentation. In this case, the court found that Azmat could not have reasonably relied on any alleged misrepresentations as to MSSI’s solvency because the contract language drafted by Azmat’s own attorney referred to MSSI’s bankruptcy reorganization and Azmat had access to MSSI’s financial information, since the company was publicly traded. Moreover, the court pointed out that Azmat failed later to disavow the contract, even though he clearly knew about MSSI’s insolvency by that point, thus suggesting he did not rely on the misrepresentation that MSSI was solvent in deciding whether to enter into the financing contract.

The court noted that several factors weighed in favor of setting aside the default, such as the fact that Azmat acted reasonably promptly upon learning of the default, but ultimately found that Azmat’s failure to demonstrate the existence of a meritorious defense or counterclaim compelled a finding that setting aside the default would be futile.