In re VICTOR INTERNATIONAL, INC v. Taiwan Machinery Trade Center Corp., a/k/a TAIWAN MACHINERY TRADE CENTER - NJ

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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 03-1416
In re VICTOR INTERNATIONAL, INC., DEBTOR
ANDREA DOBIN, TRUSTEE
v.
TAIWAN MACHINERY TRADE CENTER CORP., a/k/a TAIWAN MACHINERY
TRADE CENTER – NJ,
Appellant
On Appeal from the United States District Court
for the District of New Jersey
(Dist. Ct. No. 02-cv-03462)
District Judge: Honorable Garrett E. Brown, Jr.
Submitted under Third Circuit LAR 34.1(a)
November 19, 2003
Before: RENDELL, BARRY, and CHERTOFF, Circuit Judges.
(Filed March 11, 2004)
OPINION

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1 As the record reveals, Victor and Taiwan Machinery shared the same
principal owner, Alen Hueng, as well as a number of board members.
2
CHERTOFF, Circuit Judge.
Appellant Taiwan Machinery Trade Center (“Taiwan Machinery”) appeals a final
order of the United States District Court for the District of New Jersey affirming the
Bankruptcy Court’s entry of a default judgment against appellant. For the reasons cited
below, we will affirm.
I.
We will review the facts briefly. On July 31, 1998, a judgment of approximately
$225,000 was entered against Victor International, Inc. (“Victor”), a New Jersey
corporation. On November 24, 1999, Victor filed for Chapter 7 bankruptcy. On May 10,
2000, the Trustee appointed to Victor’s Chapter 7 bankruptcy filed a two-count
complaint initiating an adversary proceeding against Taiwan Machinery, an entity that
shared substantially common ownership with Victor1. The complaint alleged that Victor
had fraudulently transferred its assets to Taiwan Machinery, in violation of 11 U.S.C. §
548(a) and the New Jersey Uniform Fraudulent Transfer Act, N.J.Stat.Ann. §§ 25:2-
25(a)-(b), 25: 2-27, incorporated into the adversary proceeding through 11 U.S.C. §
544(b). On June 12, 2000, Taiwan Machinery filed an answer denying the allegations in
the complaint and alleging that the demise of Victor’s business was due to market forces
beyond its control.

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The parties engaged in discovery from June of 2000 until April of 2002. During
this period, Taiwan Machinery consistently defied or deflected virtually every document
request put forward by the Trustee and the Bankruptcy Court. When Taiwan Machinery
did deign to provide documents, it did so selectively. Taiwan Machinery refused to
comply with all three of the Bankruptcy Court’s orders, was held in contempt of court
twice, and was subject to monetary sanctions. On May 24, 2002, the Bankruptcy Court
ordered that Taiwan Machinery’s answer be stricken, and it issued a default judgment of
$373,607 in favor of the Trustee and against Taiwan Machinery. The District Court
affirmed the Bankruptcy Court’s decision.
In this appeal, Taiwan Machinery argues that the District Court erred in affirming
the Bankruptcy Court’s default judgment because (1) the Trustee did not present
sufficient evidence before the Bankruptcy Court to support the entry of a default
judgment and (2) the Bankruptcy Court improperly quantified the default judgment.
II.
We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. The
Bankruptcy Court had jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b) and
157(b)(1). The District Court had appellate jurisdiction over the judgment of the
Bankruptcy Court pursuant to 28 U.S.C. § 158(a)(1).
Because the District Court in this case sat as an appellate court reviewing a final
order of the Bankruptcy Court, our review of its determination is plenary. Interface

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Group-Nevada, Inc. v. Trans World Airlines, Inc. (In re Trans World Airlines, Inc.), 145
F.3d 124, 130 (3d Cir. 1998). In reviewing the decision of the Bankruptcy Court, we
exercise the same standard of review as the District Court, that is, we review the
Bankruptcy Court's legal determinations de novo, its factual findings for clear error, and
its exercise of discretion for abuse thereof. Id. at 131.
A.
The Bankruptcy Court entered a judgment by default against Taiwan Machinery
pursuant to Fed.R.Bankr. 7037(b)(2), which adopts verbatim Fed.R.Civ.P. 37(b)(2). We
review a decision to dismiss or enter a default judgment pursuant to Rule 37 under an
abuse of discretion standard. See Poulis v. State Farm Fire & Casualty Co., 747 F.2d
863, 868 (3d Cir. 1984). Substantial deference is afforded to a court’s decision to
dismiss. See Mindek v. Rigatti, 964 F.2d 1369, 1373 (3d Cir. 1992).
In determining whether a court properly exercised its discretion in ordering a
default judgment, this Court takes into account six factors as articulated in Poulis: (1) the
extent of the party’s personal responsibility; (2) the prejudice the adversary caused by the
failure to meet scheduling orders and respond to discovery; (3) a history of dilatoriness;
(4) whether the conduct of the party or the attorney was willful or in bad faith; (5) the
effectiveness of sanctions other than dismissal, which entails an analysis of alternative
sanctions; and (6) the meritoriousness of the claim or defense. Poulis, 747 F.2d at 868
(emphasis omitted). Not all six factors are necessary for the entry of default. Hoxworth

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v. Blinder, Robinson & Co., Inc., 980 F.2d 912, 919-21 (3d Cir. 1992); cf. Hicks v.
Feeney, 850 F.2d 152, 156 (3d Cir. 1988).
The record makes it abundantly clear that the Bankruptcy Court did not abuse its
discretion in filing a default judgment against Taiwan Machinery. In its recitation of the
discovery and motion proceedings, the Bankruptcy Court amply considered the
Poulis factors.
First, there is no dispute that Taiwan Machinery had personal responsibility to
participate in the proceedings. Second, there was prejudice to the Trustee in Taiwan
Machinery’s failure to meet scheduling orders and respond to discovery, namely its
failure to supply its tax returns. See, e.g., Curtis T. Bedwell & Sons, Inc. v. Int’l Fidelity
Ins. Co., 843 F.2d 683, 693 (3d Cir. 1988). Taiwan Machinery’s refusal to provide the
requisite tax returns or even to supply the promised alternative financial materials
substantially hindered the Trustee from analyzing financial transactions between Victor
and Taiwan Machinery.
Third, there was more than a sufficient basis for the Bankruptcy Court’s finding of
dilatoriness. The record of pervasive dilatoriness is set forth in detail in the Bankruptcy
Court’s opinion. Suffice it to say here that Taiwan Machinery’s history of resistance
began with its initial refusal to comply with the Trustee’s request for production of
documents at the start of discovery and continued with Taiwan Machinery’s failure to
follow three of the Bankruptcy Court’s orders, dated June 20, 2001, August 7, 2001, and

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February 5, 2002. Taiwan Machinery’s failure to comply with each order is even more
remarkable in light of the considerable effort expended by the Bankruptcy Court to
accommodate Taiwan Machinery’s objections. Such consistent unresponsiveness
epitomizes evasiveness. See, e.g., Comdyne I, Inc. v. Corbin, 908 F.2d 1142, 1148 (3d
Cir. 1990).
Fourth, we are persuaded by the Bankruptcy Court’s determination that Taiwan
Machinery exhibited willful and contumacious behavior. As discussed, during the
sixteen month discovery period, Taiwan Machinery repeatedly failed to fulfill the
numerous document requests put forward by the Trustee and the Bankruptcy Court. The
Bankruptcy Court granted Taiwan Machinery’s pleas to modify various orders, by, for
example, allowing alternative financial documentation limited to the State of New Jersey
in lieu of the tax returns and accepting modified tax disclosures tailored to the company’s
accounting practices. Taiwan Machinery nevertheless failed even to meet its document
production obligations under these generous accommodations. Taiwan Machinery’s
tactic of only providing those documents it deemed appropriate to produce
understandably prompted the Bankruptcy Court to question its good faith. In the face of
Taiwan Machinery’s repeated and self-serving refusals to comply, we cannot say that the
Bankruptcy Court’s finding that Taiwan Machinery acted in bad faith was clearly
erroneous. See e.g., Hoxworth, 980 F.2d at 921.
Fifth, it is abundantly clear from the record that the Bankruptcy Court tried

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various sanctions or threatened sanctions to compel Taiwan Machinery to produce the
necessary documents. The Bankruptcy Court’s decisions to hold Taiwan Machinery in
contempt and to impose monetary sanctions were not effective. After reminding Taiwan
Machinery’s counsel that it was at the “third or fourth bite at this dealing with monetary
sanctions,” the Bankruptcy Court found, “it seems to me that though this Court is willing
to consider and has considered less drastic remedies . . . [but] the Court is in a position
where it believes it’s run out of rather ordinary sanctions. Monetary sanctions apparently
won’t work.” (Appendix at 514). As the Bankruptcy Court further noted, “[t]his Court
has looked for lesser sanctions than an ultimate sanction and has in the past given any
number of what can only be decided as breaks or relief from previously ordered
penalties, but that soft-handed approach hasn’t worked, in fact, quite the opposite. It
may have made matters worse. So, monetary sanctions are not effective.” (Appendix at
518)
Finally, we are persuaded that the merit of the Trustee’s claims supports the
Bankruptcy Court’s decision to levy a default judgment against Taiwan Machinery. This
Court reviews such claims with a moderately deferential standard of review. See Poulis,
747 F.2d at 869-70. In Poulis, we said, “we do not purport to use summary judgment
standards. A claim, or defense, will be deemed meritorious when the allegations of the
pleadings, if established at trial, would support recovery by plaintiff or would constitute a
complete defense.” Id. As discussed more fully below, the Bankruptcy Court’s findings

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of fraudulent transfer also lend strong support to the final decision. While this Court has
observed that the sanction of default is often disfavored, we have also held that “the
district court rather than the court of appeals is in the best position to evaluate whether a
default is proper.” Hoxworth, 980 F.2d at 922. The Bankruptcy Court extended
considerable latitude, patience, and forbearance to Taiwan Machinery, and the latter
disdained all three. Based on our review of the record and the length and tenor of the
proceedings, there is more than adequate support for the Bankruptcy Court’s findings
and no abuse of discretion.
B.
Appellant takes specific issue with the Bankruptcy Court’s finding of fraudulent
transfer of assets between Victor and Taiwan Machinery. We find that the Bankruptcy
Court did not commit error in concluding that there was fraudulent conveyance between
the parties. The circumstances surrounding the bankruptcy, the demise of Victor, and the
concomitant ascendance of Taiwan Machinery support the determination that a
fraudulent transfer occurred between the parties.
The Bankruptcy Court presented a thorough and full explication of its findings of
fraudulent conveyance between the parties in its discussion in the context of 11 U.S.C.
§§ 548(a), 544(b). In this regard, the Bankruptcy Court correctly relied on considerable
circumstantial evidence to deduce fraudulent transfer. “A court may make a finding of
fraudulent intent under section 548(a)(1) on the basis of circumstantial evidence; direct

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2 In the late fall of 1998 or early 1999, Taiwan Machinery began operating
out of Victor’s New Jersey premises and even began paying utility bills for the space. A
utility bill for service through November 11, 1998, listed “Taiwan Machinery Co. Trade
Center” as the payor for the premises.
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proof of the transferor’s fraudulent intent will rarely be available.” In re Roco Corp., 701
F.2d 978, 984 (1st Cir. 1983). Company representatives admitted that Victor’s
employees, customer base, and physical assets (space and telephone and fax lines) were
subsumed by Taiwan Machinery2. A review of Victor’s bare-bones and belatedly-
supplied financial records established that no “reasonably equivalent value” was
provided to Victor in exchange for the assets transferred to Taiwan Machinery.
Also revealing was the out-of-the-ordinary-course depletion of Victor’s assets, the
elimination of its sales, and the substantially contemporaneous increase in Taiwan
Machinery’s revenues and assets. This evidence is summarized in part as follows:
Victor International, Inc.
1997 Return
7/1/97 - 6/30/98
1998 Return
7/1/98 - 6/30/99
1999 Return
7/1/99 - 2/29/00
Assets $231,465.00 $22,413.00 $8,674.00
Gross receipts $1,511,034.00 $18,514.00 $0.00
Taiwan Machinery Trade Center
year ending 9/30/99 year ending 9/30/00
New Jersey Gross
receipts
$1,580.729.67 $3,156,591.94
Finally, we observe that Taiwan Machinery’s obduracy in discovery and its refusal

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3 In addition, the Bankruptcy Court’s decision could hardly come as a
surprise, given that it clearly warned Taiwan Machinery twice that its failure to comply
fully with the outstanding orders would subject it to the sanctions set out in Rule 37.
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to provide its tax documentation hampered the Trustee and Bankruptcy Court in
resolving the fraudulent transfer charge and assessing the value of the transfer. Taiwan
Machinery’s conduct, among other things, left it with no proof or argument to rebut the
overwhelming circumstantial evidence of fraudulent transfer of assets.3
C.
The Bankruptcy Court also properly exercised its discretion by entering a default
judgment against Taiwan Machinery in an amount equivalent to the sum of the net debt
left behind when Taiwan Machinery assumed Victor’s assets. As the Bankruptcy Court
noted, the measure of damage for a fraudulent conveyance is recovery of the value of the
transfer. See 11 U.S.C. §§ 548(a), 550(a) and N.J.Stat.Ann. § 25:2-30b. Having been
denied the ability to comprehensively assess the extent of the fraudulent transfers through
Taiwan Machinery’s own misconduct, the Bankruptcy Court was reasonable in
determining that the measure of damages should be quantified by the net debt left behind
by Victor. Cf. Acequia, Inc. v. Clinton, 34 F.3d 800, 810-12 (9th Cir. 1994).
The Bankruptcy Court’s alternative determination that Taiwan Machinery’s taking
of Victor’s business amounted to a de facto merger also supports the amount of the
default judgment. As the Bankruptcy Court noted, a company that effects a de facto
consolidation or merger is liable for the debts of each merging entity. See Luxliner P.L.

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Export, Co. v. RDI/Luxliner, Inc., 13 F.3d 69, 73 (3d Cir. 1993). This reinforces the
damages finding.
Taiwan Machinery is in no real position to challenge the Bankruptcy Court’s
reasonable estimate of damages. Taiwan Machinery cannot credibly argue that the
assessment of damages was not based on more accurate data, given that its wrongdoing
rendered such data unavailable. “The most elementary conceptions of justice and public
policy require that the wrongdoer shall bear the risk of the uncertainty which his own
wrong has created.” Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 265 (1946).
We have considered all of the arguments advanced by the parties and conclude
that no further discussion is necessary. Accordingly, the judgment of the District Court
will be affirmed.

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