United States District Court, D. Rhode Island
M. Lisi, Senior United States District Judge
matter is before the Court on review of a Report and
Recommendation (“R&R”) issued by Magistrate
Judge Sullivan on November 21, 2016 (ECF No. 46). The
Defendants have filed a timely objection to the R&R;
accordingly, the Court reviews de novo those
portions of the R&R to which an objection has been made.
See Fed.R.Civ.P. 72(b). The Court has thoroughly
reviewed and considered the complaint (ECF No. 1), the
parties' motion papers (ECF Nos. 35-39, 41-45), the
R&R, the Defendants' objection thereto (ECF No. 47),
and the Plaintiff's response (ECF No. 48). Having done
so, the Court now adopts the R&R in its entirety.
Accordingly, the Defendants' motion to vacate the default
(ECF No. 36) is DENIED, with prejudice, as to liability and
GRANTED as to the amount of damages. The Plaintiff's
motion to voluntarily dismiss the individual Defendants is
DENIED without prejudice.
Factual Background and Procedural Summary
23, 2014, Plaintiff Timothy Conley (“Conley”)
brought claims for Breach of Contract (Count I), quantum
meruit (Count II), and Intentional Interference with a
Business Contract (Count III) against Defendants Competitive
Technologies, Inc. (“CTI”), CTI CEO and
Director Carl O'Donnell (“O'Donnell”),
and CTI CEO and President Conrad Mir (“Mir”).
Complaint (ECF No. 1).
claims were based on a letter agreement (the
“Agreement”) Dated: May 1, 2012 by Conley and
then CTI CEO Johnnie D. Johnson (ECF No. 1-2). The Agreement
was set for a term of twenty-four months and subject to
automatic renewal unless terminated by written notice after
the first twelve months. Agreement ¶1. It called for
Conley to provide services to CTI in connection with a
medical device; Conley was to be compensated for his services
with a fixed fee as well as a commission for completed sales
of the device. Agreement ¶¶2-4.
to the Complaint, Conley provided all services pursuant to
the Agreement but was not compensated accordingly. Complaint
¶¶19, 20. With respect to O'Connell and Mir,
Conley alleged that they “intentionally and maliciously
directed management to stop making payments” due to
Conley under the Agreement. Complaint ¶¶36, 38. On
its part, CTI denied the allegations and it offered the
unsupported assertion that the Agreement was entered into
“ultra vires.” Answer 5 ¶2 (ECF No.
Conley experienced some difficulties in pursuing the
litigation when his counsel simply abandoned the case. CTI
filed a motion to default, but then dropped the matter after
Conley obtained new counsel and began to engage in the
months later, on December 28, 2015, Defendants' counsel
moved to withdraw on the grounds that Defendants were not
paying their legal bills and were unresponsive to
counsel's communications. Motion to Withdraw 1 (ECF No.
22). As set forth in counsel's motion, Defendants were
properly advised of the motion to withdraw. Simultaneously,
CTI's counsel also filed a motion to extend discovery
deadlines (ECF No. 23). In response to counsel's motion
to withdraw, Magistrate Judge Sullivan entered an order on
January 22, 2016 (ECF 24). In the order, she noted that an
objection to counsel's motion had been due January 14,
2016 and that no objection had been received, nor had
substitute counsel entered an appearance for the Defendants.
Notwithstanding the lack of an objection or entry of
appearance, Magistrate Judge Sullivan only provisionally
granted counsel's motion to withdraw as of March 23,
2016, finding that counsel had complied with the requirements
of the Rules of Professional Conduct and the Local Rules of
this Court. She also extended the time for Defendants to
object to the motion to withdraw to March 7, 2016. The Order
specifically noted “the potential for serious
consequences for the individual Defendants, if they do not
either enter and defend the case pro se or retain successor
counsel, and the substantial likelihood of default for
the corporate Defendant, if it does not retain successor
counsel.” Order at 2 (emphasis added). To provide
the Defendants with further notice of the consequences of
failing to comply with the March 7, 2016 deadline, Magistrate
Judge Sullivan required Defendants' counsel to provide
additional notice to all Defendants, such notice to include
specific warnings, in bold lettering, that they “are at
risk that judgment of default will be entered against
them.” Order at 3, 4. In compliance with the January
22, 2016 order, Defendants' counsel filed a certification
of compliance on February 3, 2016, detailing that he had
provided the requisite notice to both the individual
Defendants and to CTI (ECF No. 25).
February 5, 2016, Conley filed a motion to compel answers to
interrogatories (ECF No. 26-1), which had first been
submitted to CTI in July 2015, but had been ignored thus far
(ECF No. 26). On February 15, 2016, while Defendants'
counsel's motion to withdraw was pending, Defendants'
counsel properly filed a motion for an extension of time to
file a response to Conley's motion to compel (ECF No.27).
Magistrate Judge Sullivan granted Defendants' motion to
extend the deadline on February 16, 2016. She again directed
Defendants' counsel to advise Defendants of the legal
significance of failing to file a timely objection (due on
March 22, 2016). 02/16/2016 text order. As before,
Defendants' counsel filed a certification of compliance
with the February 16, 2016 order on February 22, 2016 (ECF
no communication of any kind was received from the Defendants
in response to any of the foregoing, Magistrate Judge
Sullivan granted Defendants' counsel's motion to
withdraw on March 23, 2016. 03/23/2016 Text Order. On March
25, 2016, she also granted Plaintiff's motion to compel
(in the absence of an objection) and she ordered CTI to
respond to Plaintiff's first set of interrogatories
within thirty days. 03/25/2016 Text Order. On March 29, 2016,
Defendants' counsel filed a further certification,
confirming that he had notified his former clients of the
March 23, 2016 text order. The certificate specified that the
individual Defendants had been notified by mail directed to
what appears to be their residential addresses and via
e-mail. CTI had been notified by mail to Mir's attention
at CTI's corporate offices and to CTI's Secretary at
the same address, as well as via e-mail to Mir's CTI
e-mail account (ECF No. 29).
April 4, 2016, Conley filed a motion for entry of default
against CTI (ECF No. 30). Notwithstanding Defendants'
complete disregard for any of the preceding orders,
Magistrate Judge Sullivan waited yet another month before
granting Conley's motion. 05/05/2016 Text order. Again,
no objection or other communication was received from any of
21, 2016, Conley filed a motion for entry of final judgment
(ECF No. 31). On June 22, 2016, the same day on which this
Court granted Conley's motion, three new counsel for
Defendants entered their appearances (ECF Nos. 32, 33, 34).
On June 24, 2016, Conley filed for voluntary dismissal of Mir
and O'Connell, “conditioned upon entry of Judgment
by the Court against [CTI]” (ECF No. 35), to which
Defendants filed an objection (ECF NO. 37).
30, 2016, CTI filed a motion to vacate the default on the
grounds that (1) the default was “not willful but
rather a result of financial constraints and plaintiff's
failure to provide notice;” (2) setting aside the
default would cause no prejudice since discovery was not
completed; (3) meritorious affirmative defenses were asserted
in the answer; and (4) “defendants acted in good faith
throughout these proceedings.” Defs.' Mem. (ECF
36-1). Subsequently, Conley filed a timely response to the
Defendants' motion (ECF No. 38), to which Defendants
filed a reply (ECF No. 39), prompting Conley to file (with
the Court's permission) a sur-reply (ECF No. 41).
the Magistrate Judge conducted a hearing on Defendants'
motion to vacate the default on September 15, 2016, the
parties were given another opportunity to submit affidavits
and additional memoranda. Conley filed a memorandum on
October 13, 2016 (ECF No. 42) and Defendants filed a
memorandum on October 21, 2016 (ECF 44). Conley filed a
further reply on October 27, 2016, in which he noted that,
notwithstanding CTI's counsel's representation at the