Wilmington Trust, National Association v. Rafiq

Background

Wilmington Trust, National Association, acting as trustee for the holders of GS Mortgage Securities Trust 2021-GSA3, Commercial Mortgage Pass-Through Certificates, Series 2021-GSA3, sued Jack Rafiq to recover amounts allegedly owed under a guaranty. The guaranty was connected to a $7,150,000 loan to JAX Properties, LLC. The loan was secured by property at 630 & 636 C Street in San Diego, California.

The court had previously ruled that Rafiq was served as of August 11, 2022. The Clerk then entered a certificate of default, and Wilmington Trust moved for default judgment. Rafiq moved under Federal Rule of Civil Procedure 60(b)(6) to set aside the service ruling and opposed default judgment.

Service

The court applied California service law through Federal Rule of Civil Procedure 4(e)(1). A process server left the summons and complaint with a security guard at the property on July 29, 2022, and mailed copies by first-class mail on August 1, 2022. Under California law, this method makes service complete ten days after mailing.

Rafiq argued that the security guard was not apparently in charge of his office or place of business and that the property had been condemned and abandoned. The court rejected both arguments. It concluded that security guards can qualify as people apparently in charge and that Rafiq had designated the property as his notice address in the guaranty. The court also stated that Rafiq’s efforts to evade service supported alternative service by email. It denied Rafiq’s request to set aside the order deeming him served.

Default and Default Judgment

Under Federal Rule of Civil Procedure 55(c), setting aside an entry of default requires good cause. The court considered three factors: whether the default was willful, whether Rafiq had a potentially complete defense, and whether setting aside the default would prejudice Wilmington Trust.

The court found that Rafiq’s default was willful. It relied on evidence that Wilmington Trust attempted service at several locations and by email, that Rafiq failed to attend a meeting arranged with a process server, and that his explanations for not accepting service were not satisfactory. The court found that he intentionally and repeatedly evaded service and ignored the complaint for several months.

The court found that Rafiq had not shown a potentially complete defense. He did not raise a merits defense in his opposition to default judgment. In a reply brief, he argued that the City of San Diego had violated his due-process rights by taking his property, but he did not explain how that conduct provided a defense to his obligations under the guaranty. He also claimed that improper service was a defense, but the court found that argument meritless and unrelated to the merits of the guaranty obligations.

The court further found that setting aside the default would prejudice Wilmington Trust beyond ordinary delay. It cited the time and expense spent attempting service, Rafiq’s evasion and delay, and evidence of a possible transfer of significant borrower assets to a family member of Rafiq shortly before a bankruptcy filing.

Disposition

The court concluded that all three factors favored maintaining the default. Rafiq’s motion to set aside the order deeming him served was DENIED, and Wilmington Trust’s motion for default judgment was GRANTED. Wilmington Trust was directed to submit a proposed judgment stating the principal, interest, attorneys’ fees, and costs, or to state that it would rely on the information previously submitted. If Wilmington Trust chose the latter option, the court stated that final judgment would be entered for $8,238,228.48. The court directed the Clerk to close the two motions.