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Conley v. Competitive Technologies, Inc.

United States District Court, D. Rhode Island

January 17, 2017



          Mary M. Lisi, Senior United States District Judge

         This 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.

         I. Factual Background and Procedural Summary

         On June 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”)[1], CTI CEO and Director Carl O'Donnell (“O'Donnell”), and CTI CEO and President Conrad Mir (“Mir”). Complaint (ECF No. 1).

         Conley's 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)[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.

         According 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. 7).

         Initially, 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 discovery process.

         Five 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).

         On 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. 28).

         After 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).

         On April 4, 2016, Conley filed a motion for entry of default against CTI (ECF No. 30).[3] 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 the Defendants.

         On June 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).

         On June 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).

         After 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 ...

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