ELIAV v. MILLENNIUM PRODUCTS GROUP LLC (2021)

SUMMARY ORDER

E & A Worldwide Traders Inc. and Elan Eliav (collectively, “E&A”) appeal from the May 27, 2020 order of the United States District Court for the Eastern District of New York (Feuerstein, J.) granting third party defendants’ Millennium Products Group, LLC and Steven Goldmeier's motion to vacate a January 7, 2020 $2.8 million amended default judgment entered against them for lack of an arguable basis for subject matter jurisdiction. We assume the parties’ familiarity with the underlying facts, procedural history, and specification of issues for review.

E&A is a wholesale company that purchases and sells goods from excess or overstock inventory. Millennium is a company that specializes in the manufacture and wholesale distribution of toys to retailers. Steven Goldmeier is a Member of Millennium. Haris Radoncic and his corporate alter ego, Closeout Binge, Inc. (“Closeout”) identified sellers and purchasers of excess inventory for E&A. In its amended answer and counterclaims, E&A alleged that after Millennium and Goldmeier solicited E&A to purchase Millennium's excess toy inventory, Radoncic, as E&A's representative, continued meetings with Goldmeier (of Millennium), but began directing prospective purchases and sales of goods to Millennium as opposed to E&A. E&A then terminated its relationship with Radoncic and his entity, Closeout. After his termination, Radoncic took E&A's customer list and entered into a business relationship with Millennium to perform the same duties he previously performed for E&A.

In March 2018, Radoncic sued E&A, alleging claims under the Fair Labor Standards Act (“FLSA”), New York Labor Law (“NYLL”), and New York common law sounding in breach of contract and unjust enrichment due to unpaid commissions and unpaid overtime pay. In July 2018, E&A filed an amended answer setting forth counterclaims against Radoncic and Closeout,² and six claims against Millennium and Goldmeier for: (1) aiding and abetting breach of a fiduciary duty, (2) aiding and abetting breach of an implied covenant of good faith and fair dealing, (3) tortious interference with existing contractual relations, (4) tortious interference with prospective contractual relations, (5) replevin, and (6) unjust enrichment.

In 2019, Radoncic, Closeout, Millennium, and Goldmeier filed a motion to dismiss E&A's claims against them for failure to state a claim, or, in the alternative, for lack of subject matter jurisdiction. Millennium and Goldmeier's counsel then moved to withdraw as counsel due to Millennium and Goldmeier's failure to execute a retainer agreement. A magistrate judge granted counsel's motion to withdraw in a July 2019 order, which the district court adopted, that included the following language:

Millennium and Goldmeier are hereby given 30 days to obtain new counsel. Millennium is advised that it cannot proceed pro se. Accordingly, to proceed with this case, Millennium must retain counsel. Failure to do so on or before August 9, 2019, may result in a Report and Recommendation to the District Judge that a default judgment be entered against it. Moreover, in light of the above, under separate cover, the undersigned will recommend to District Judge Feuerstein that the plaintiff/third-party defendants’ motion to dismiss [ECF No. 51] and the plaintiff's motion to amend the complaint to, among other things, assert a claim of retaliation against the defendants for filing the answer with third-party claims [ECF No. 42] be temporarily denied with leave to reinstate after the issue of the third-party defendants’ representation is addressed by the Court.

Special App'x at 3 (citations omitted).

By September 2019, Millennium and Goldmeier had failed to appear or otherwise defend the action, and the district court entered default pursuant to Rule 55(a) of the Federal Rules of Civil Procedure. E&A then filed a motion for default judgment against Millennium and Goldmeier. The district court granted the motion and issued a $2.8 million amended default judgment against Millennium and Goldmeier. After the judgment, the law firm that previously withdrew as Millennium and Goldmeier's counsel entered a notice of appearance on their behalf. Millennium and Goldmeier moved to vacate the $2.8 million default judgment as void for lack of subject matter jurisdiction pursuant to Rule 60(b)(4). The district court granted their motion to vacate the default judgment, stating only that: “Having considered all of the parties’ submissions, the Court ruled that there were [sic] no common nucleus of operative facts that would sustain, even arguably, subject matter jurisdiction.” Special App'x at 10.

Rule 55(c) provides that a “court may set aside an entry of default for good cause, and it may set aside a default judgment under Rule 60(b).” Fed. R. Civ. P. 55(c). Rule 60(b)(4) provides that “[o]n motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding ․ [if] the judgment is void.” Fed. R. Civ. P. 60(b)(4). “[A] judgment may be declared void for want of jurisdiction [under Rule 60(b)(4)] only when the court plainly usurped jurisdiction, or, put somewhat differently, when there is a total want of jurisdiction and no arguable basis on which it could have rested a finding that it had jurisdiction.” Gater Assets Ltd. v. AO Moldovagaz, 2 F.4th 42, 53 (2d Cir. 2021) (internal quotation marks and citations omitted). We review de novo a district court's decision on a Rule 60(b)(4) motion to vacate. See, e.g., id.; Cent. Vt. Pub. Serv. Corp. v. Herbert, 341 F.3d 186, 189 (2d Cir. 2003).

E&A argues that Millennium and Goldmeier were barred from collaterally attacking the district court's implied finding of subject matter jurisdiction upon entry of the amended default judgment because they had the opportunity to litigate the question of subject matter jurisdiction but abandoned the litigation while their motion to dismiss was still pending. We disagree. E&A primarily relies on authorities standing for the proposition that “a court's determination that it has jurisdiction of the subject matter is binding on that issue, if the jurisdictional question actually was litigated and decided, or if a party had an opportunity to contest subject-matter jurisdiction and failed to do so.” 11 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2862 (3d ed.). These authorities are inapposite. While E&A argues that Millennium and Goldmeier had an opportunity to contest subject matter jurisdiction and failed to do so, they filed a motion to dismiss asserting that the district court lacked subject matter jurisdiction.

E&A argues that the district court erred when it concluded that it lacked even an arguable basis for exercising subject matter jurisdiction. E&A argues that the district court could have reasonably determined that it had supplemental jurisdiction over its state-law claims against Millennium and Goldmeier because they are “so related to [Radoncic's FLSA claims] that they form part of the same case or controversy under Article III of the United States Constitution.” 28 U.S.C. § 1367. We agree. District courts in our circuit have come to different conclusions on whether a court can properly exercise subject matter jurisdiction over an employer's claims in an action alleging FLSA or NYLL violations. Compare, e.g., Turban v. Bar Giacosa Corp., No. 19-cv-1138 (JMF), 2019 WL 3495947, at *3–4 (S.D.N.Y Aug. 1, 2019) (partially denying motion to dismiss and exercising supplemental jurisdiction over employer's breach of fiduciary duty counterclaim), with Torres v. Gristede's Operating Corp., 628 F. Supp. 2d 447, 468–69 (S.D.N.Y. 2008) (declining to exercise supplemental jurisdiction over employer's permissive faithless servant counterclaims). Because reasonable minds have disagreed on the measure of shared operative facts needed to exercise supplemental jurisdiction over an employer's claims when the plaintiff asserts claims under FLSA, the district court had, at a minimum, an arguable basis to exercise jurisdiction when it entered its default judgment order. We need not, and therefore do not, rule on the question of whether the district court in fact had subject matter jurisdiction over E&A's claims. The district court erred when it vacated the default judgment as void under Rule 60(b)(4).

We decline to consider E&A's arguments that Goldmeier and Millennium waived their remaining defenses to the entry of judgment, that Goldmeier and Millennium did not meet their burden of demonstrating good cause under Rules 55 and 60, and that the district court erred in considering Goldmeier and Millennium's motion despite their failure to serve and file a written notice of motion or bring it through an order to show cause signed by the district court. The district court did not address these issues below, and the parties agree that E&A's arguments are not properly before this Court. The district court shall consider these questions on remand.

We have considered the remainder of E&A's arguments and find them to be without merit. Accordingly, the judgment of the district court hereby is REVERSED and REMANDED for further proceedings consistent with this order.

FOOTNOTES

2.   In September 2019, Radoncic and E&A entered into a settlement agreement resolving all claims and counterclaims by and between them. Thus, Radoncic and Closeout are not parties to this appeal.