Catnip Catlin Investments, LLC et al v. Family Funding Group, LLC et al

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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CATNIP CATLIN INVESTMENTS, LLC
and CRATON EVENT MANAGEMENT,
LLC, d/b/a CRATON PROMOTIONS,
REPORT AND
RECOMMENDATION
24-CV-3946 (PKC) (TAM)
Plaintiffs,
-against-
FAMILY FUNDING GROUP, LLC,
Defendant.
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TARYN A. MERKL, United States Magistrate Judge:
Plaintiffs Catnip Catlin Investments, LLC, and Craton Event Management, LLC,
d/b/a Craton Promotions (together, “Plaintiffs”) commenced this action against
Defendants Family Funding Group, LLC, Ershowsky Verstandig PLLC, Ershowsky,
P.C., and Michael Ershowsky (together, “Defendants”) on November 14, 2023, in the
United States District Court for the Northern District of Georgia. See generally Compl.,
ECF 1. On May 31, 2024, the case was transferred to this District, and on July 10, 2024,
Plaintiffs filed an amended complaint against Defendants seeking damages in
connection with various allegations that Defendants caused the improper seizure of
Plaintiffs’ bank accounts through purported false representations made in a New York
state court action. Am. Compl., ECF 41, at 1. Prior to the case being transferred to this
District, the frozen funds were released. Joint Order to Inform of Error, ECF 27; Tr. of
Default Mot. Hr’g (“Default Hr’g”), ECF 80, at 13:13. Plaintiffs continue to seek
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damages, including attorneys’ fees and costs, as well as punitive damages.1 See
Proposed Order, ECF 72-2, at 12.
Plaintiffs have since settled their claims against Defendants Ershowsky
Verstandig PLLC, Ershowsky, P.C., and Michael Ershowsky (together, the “Ershowsky
Defendants”). See Stip. of Dismissal, ECF 71. Accordingly, only Defendant Family
Funding Group, LLC (“Defendant” or “FFG”) remains. Since the filing of this action,
Defendant has not answered or otherwise appeared in this case.
Currently before the Court is Plaintiffs’ motion for default judgment against
Defendant FFG, which the Honorable Pamela K. Chen referred to the undersigned
Magistrate Judge for a report and recommendation. See Mot. for Default J. (“Mot.”),
ECF 72; May 12, 2025 ECF Order Referring Mot. For the reasons set forth below, the
Court respectfully recommends denying Plaintiffs’ motion.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
I. 	Factual Background2
As set forth in the amended complaint, Plaintiffs allege that Defendants falsely
represented to the Supreme Court of the State of New York that Plaintiffs’ bank
1 Specifically, Plaintiffs seek $32,135.05 in damages, including damages stemming from
the seizure of the accounts as well as attorneys’ fees and costs, and $51,657.37 in punitive
damages. See Proposed Order, ECF 72-2, at 12.
2 The Court recites the facts as alleged in the amended complaint. See, e.g., Mikhlin v.
Oasmia Pharm. AB, No. 19-CV-4349 (NGG) (RER), 2021 WL 1259559, at *1 (E.D.N.Y. Jan. 6, 2021).
In the default posture, “where a defendant has presented no defense to the court, the allegations
in a plaintiff’s complaint are deemed admitted.” Joseph v. HDMJ Rest., Inc., 970 F. Supp. 2d 131,
143 (E.D.N.Y. 2013). When considering a default motion, a court may consider the complaint
and documents incorporated in or integral to the complaint. See Xiamen ITG Grp. Corp. v. Peace
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accounts belonged to a borrower of Defendant FFG and sought an order authorizing the
seizure of Plaintiffs’ accounts by Wells Fargo Bank.3 See Am. Compl., ECF 41, ¶¶ 21–22;
Ex. A (“State Court Order”), ECF 41, at ECF pp. 15–18. As a result of these
representations, the New York state court issued an order and two of Plaintiffs’ bank
accounts were frozen by Wells Fargo. Am. Compl., ECF 41, ¶¶ 21–22; State Court
Order, ECF 41, at ECF pp. 15–18; see generally Family Funding Group LLC v. Chazzy Retail
Services LLC and Charles Thomas Craton III (Index No. 609048/2023) (N.Y. Sup. Ct.
Nassau County).
Defendant Family Funding Group, LLC is a merchant cash advance (“MCA”)
lender.4 Am. Compl., ECF 41, ¶ 16. The amended complaint avers that “MCAs purport
Bird Trading Corp., No. 19-CV-6524 (DLI) (ST), 2024 WL 5399245, at *1 n.3 (E.D.N.Y. Aug. 30,
2024) (noting that “courts considering motions for default judgment consider documents
attached to, incorporated in, or integral to the complaint according to the same standards
applicable for Rule 12(b)(6) motions”), report and recommendation adopted, Sept. 26, 2024 ECF
Order Adopting R. & R.; FoxMind Can. Enters. Ltd. v. YoYo Lip Gloss, Inc., No. 22-CV-5349 (HG)
(MMH), 2025 WL 819867, at *1 (E.D.N.Y. Mar. 15, 2025) (citing Bricklayers & Allied Craftworkers
Loc. 2 v. Moulton Masonry & Constr., LLC, 779 F.3d 182, 187–90 (2d Cir. 2015)), report and
recommendation adopted, Mar. 31, 2025 ECF Order Adopting R. & R.
3 The New York state court action referenced in the amended complaint was brought by
Defendant FFG, through its lawyer, former Defendant Ershowsky and his firm, against Chazzy
Retail Services LLC and Charles Thomas Craton III (“State Court Defendants”). See State Court
Order, ECF 41, at ECF pp. 15–18; Am. Compl., Ex. C (“Demand Letter”), ECF 41, at ECF pp. 22–
23. Chazzy Retail Services LLC and Charles Thomas Craton III are not parties to the instant
action. However, Charles Thomas Craton III “is the owner of” Plaintiff Catnip Catlin
Investments, LLC. Am. Compl., ECF 41, ¶ 6.
4 As explained by the Honorable Timothy C. Batten, Sr., in his order granting the
Ershowsky Defendants’ motion to dismiss for lack of personal jurisdiction, which resulted in
the transfer of this case to this District, an MCA lender “‘offer[s] companies cash today in
exchange for a portion of those companies’ future accounts receivable.’” Order Granting Mot. to
Dismiss, ECF 35, at 2 (quoting Plymouth Venture Partners, II, L.P. v. GTR Source, LLC, 988 F.3d
634, 637 (2d Cir. 2021)). Judge Batten also provided additional context regarding the genesis of
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to purchase future accounts receivables, which are essentially disguised loans, largely in
order to try to avoid laws applicable to lenders.” Id. ¶ 17. Plaintiffs claim that Defendant
FFG operates out of New York because “numerous financial institutions have locations
in New York which Defendant[] garnish[es] to avoid coming into the courts of states
where their victims reside.” Id. ¶ 19. Through the New York state court action, Plaintiffs
claim that “Defendants have utilized ex parte seizure processes in the State of New York
to seize money from Plaintiffs in this action, who are entities that do not owe FFG any
money.” Id. ¶ 20. When the State Court Defendants, Chazzy Retail Services and Craton,
did not appear in the state court action, the state court issued a preliminary injunction
that directed Wells Fargo to freeze any “accounts titled to the Defendant, CHAZZY
RETAIL SERVICES LLC, with account numbers ending in 6511, 6431, and 2855, up to
the aggregate amount of $66,428.60, pending the resolution of this action or until further
Order of this Court[.]” State Court Order, ECF 41, at ECF p. 18. Plaintiffs claim that the
“account ending in 6431 is titled to Catnip Catlin Investments, LLC” and that the
“account ending in 2855 is titled to Craton Event Management, LLC[.]” Demand Letter,
ECF 41, at ECF p. 22. Plaintiffs allege that this seizure occurred “without notifying or
serving legal process on Plaintiffs.” Am. Compl., ECF 41, ¶ 21.
Plaintiffs further assert that they were not aware of the existence of the New
York state court action until their bank accounts were frozen. Am. Compl., ECF 41, ¶ 23.
this case. On May 22, 2023, Charles T. Craton III personally guaranteed an MCA agreement
between one of his companies, Chazzy Retail Services LLC, and Defendant FFG. Id. at 3. When
Chazzy Retail Services LLC allegedly defaulted on the lending agreement, Defendant FFG filed
suit in New York state court against the company and Craton. Id. Defendant FFG then moved
for a temporary restraining order seeking an injunction against Chazzy Retail Services and
Craton to retain their assets and requested that the court direct Wells Fargo to freeze certain
bank accounts. Id. As explained in footnote 3, supra, Charles T. Craton III is also the owner of
Plaintiff Catnip Catlin LLC. Am. Compl., ECF 41, ¶ 6.
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Plaintiffs then contacted Wells Fargo regarding the seizure of the accounts, and “were
provided with a copy of a document showing that FFG instigated the seizure of the
bank accounts.” Id. ¶ 24; see Am. Compl., Ex. B (“Wells Fargo Accounts”), ECF 41, at
ECF p. 20. Plaintiffs maintain they have never entered into an MCA agreement with
FFG. See generally Am. Compl. On September 25, 2023, Plaintiffs contacted Michael
Ershowsky, whose firm served as Defendant FFG’s counsel in the New York state
action, to demand the return of the seized funds. Id. ¶ 32; see also Demand Letter, ECF
41, at ECF pp. 22–23. At the time the demand letter was sent to Defendant Ershowsky,
Plaintiffs claim that they “had already incurred damages in excess of $43,972.” Am.
Compl., ECF 41, ¶ 33; see Demand Letter, ECF 41, at ECF pp. 22–23.5 Additionally,
“[s]ubsequent to sending the demand letter, Plaintiffs had additional funds deposited
into their seized bank accounts as a result of the normal processing of credit cards” and
“[a]s a result, further funds were seized by Defendants.” Id. ¶ 35. Plaintiffs allege that
“Defendants wrote back in response to the [d]emand [l]etter, refusing to release the
funds,” and that subsequent “attempts to have Defendants release the funds” went
unanswered. Am. Compl., ECF 41, ¶¶ 34, 36.
Plaintiffs then initiated this suit in the Northern District of Georgia, alleging
conversion, abusive litigation, punitive damages, negligence, and violations of
Georgia’s Bill of Rights. See generally Compl., ECF 1. Plaintiffs also sought a temporary
restraining order, a preliminary injunction, and attorney’s fees. See generally id. Prior to
5 As detailed in the demand letter, as of September 25, 2023, Wells Fargo had seized
$35,654.09 of funds in the 6431 account and $8,318.26 of funds in the 2855 account, totaling
$43,972.35 in frozen funds. Demand Letter, ECF 41, at ECF p. 22; cf. Mem. of Law in Supp. of
Default J. (“Mem.”), ECF 72-1, at 17 (stating that “FFG caused $51,657.37 to be frozen in
Plaintiffs’ bank accounts, which was later released during the pendency of” this litigation).
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the case being transferred to this District, the Honorable Timothy C. Batten, Sr., of the
Northern District of Georgia issued an order on December 11, 2023, directing the
attorneys to immediately inform Wells Fargo that it “should remove any freeze or hold
on the Subject Accounts.” Joint Order to Inform of Error, ECF 27, at 2. Plaintiffs’ frozen
funds in their Wells Fargo accounts were thereafter returned to them approximately “a
month into this case.” Default Hr’g, ECF 80, at 13:13; see also id. at 11:17–14:6; Joint
Order to Inform of Error, ECF 27 (joint order directing Defendants to inform Wells
Fargo of the error in the freezing of the accounts signed by Judge Batten following a
hearing).
II. Procedural History
As noted above, Plaintiffs filed their original complaint on November 14, 2023, in
the Northern District of Georgia. See Compl., ECF 1. On November 16, 2023, an
electronic summons was issued to Defendant Family Funding Group, LLC. Electronic
Summons Issued, ECF 11. Following the transfer of this matter to this District on May
31, 2024, Plaintiffs filed an amended complaint on July 10, 2024. See May 31, 2024
Transfer Order; Am. Compl., ECF 41. On October 15, 2024, summons to Defendant FFG
was issued again; it was returned executed on October 18, 2024, indicating that FFG was
served on October 16, 2024, rendering its answer due by November 6, 2024. Am.
Summons Executed, ECF 55; Summons Returned Executed, ECF 56. To date, Defendant
FFG has not answered or otherwise appeared in the case. See generally Docket.
Plaintiffs first requested a certificate of default on January 2, 2025, which was
denied by the Clerk of Court on January 3, 2025, because it did contain a certificate of
service and therefore did not comport with Local Rule 55.1. See Req. for Certificate of
Default, ECF 61; Jan. 3, 2025 ECF Denial. Plaintiffs then renewed the request for a
certificate of default on January 7, 2025, with the required certificate of service; the Clerk
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of Court granted the request on January 10, 2025. See Req. for Certificate of Default, ECF
62; Jan. 10, 2025 Clerk’s Entry of Default. On May 8, 2025, Plaintiffs filed a motion for
default judgment as to Defendant FFG.6 See Mot. for Default J. (“Mot.”), ECF 72. On
May 12, 2025, the Honorable Pamela K. Chen referred the default motion to the
undersigned Magistrate Judge. See May 12, 2025 ECF Order Referring Mot. On May 30,
2025, the undersigned scheduled a default motion hearing for June 24, 2025, noted that
Defendant FFG could participate in the conference, and directed Plaintiffs to
demonstrate that all documents filed in support of Plaintiffs’ motion for default
judgment had been properly served on Defendant FFG pursuant to Local Civil Rule
55.2(a)(3). See May 30, 2025 ECF Scheduling Order.
At the June 24, 2025 hearing, Defendant FFG did not appear. See June 24, 2025
ECF Min. Entry & Order; see generally Default Hr’g, ECF 80. At the hearing, the Court
took the motion for default judgment under advisement and directed Plaintiffs to
submit documentation in support of their application for reimbursement of costs. See id.
Plaintiffs submitted the requested receipts on July 11, 2025. See Robl Decl., ECF 81. For
the reasons set forth below, the Court respectfully recommends that the motion for
default judgment be denied.
6 On the same day, May 8, 2025, Plaintiffs filed a joint stipulation of dismissal with
prejudice as to the defendants who had appeared in the case, Defendants Ershowsky
Verstandig PLLC, Ershowsky, P.C., and Michael Ershowsky. See Stip. of Dismissal, ECF 71.
Following the joint stipulation of dismissal, Defendant Family Funding Group, LLC is the only
remaining Defendant.
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DISCUSSION
I. 	Legal Standards
Federal Rule of Civil Procedure 55 provides a “two-step process” for
obtaining a default judgment. Priestley v. Headminder, Inc., 647 F.3d 497, 504 (2d Cir.
2011). The plaintiff must first obtain an entry of default when a defendant “has
failed to plead or otherwise defend” in an action. Fed. R. Civ. P. 55(a). Second, after
the certificate of default is entered, and on the plaintiff’s application, the district
court may then enter a default judgment. Fed. R. Civ. P. 55(b); see also E.D.N.Y.
Local Civ. R. 55.2(b). A “plaintiff is not entitled to a default judgment as a matter of
right simply because a party is in default.” Finkel v. Universal Elec. Corp., 970 F.
Supp. 2d 108, 118 (E.D.N.Y. 2013). Rather, the decision to grant a motion for default
judgment is “left to the sound discretion of [the] district court because it is in the
best position to assess the individual circumstances of a given case and to evaluate
the credibility and good faith of the parties.”7 Enron Oil Corp. v. Diakuhara, 10 F.3d
90, 95 (2d Cir. 1993).
The district court must also determine whether the plaintiff’s “allegations
establish [the defendant’s] liability as a matter of law.” Finkel v. Romanowicz, 577
7 Plaintiffs must also establish compliance with the procedural requirements of E.D.N.Y.
Local Civil Rules 7.1, 55.1, and 55.2. Having carefully reviewed the filings in this case, the Court
finds that Plaintiffs’ motion papers substantially comport with these rules. Specifically,
Plaintiffs requested a certificate of default in accordance with Local Rule 55.1(a)(1), which was
mailed to Defendant at its last known address. See Req. for Certificate of Default, ECF 62;
Certificate of Service, ECF 62-3. Plaintiffs also demonstrated that Defendant has failed to defend
the action and that the pleadings were properly served, in accordance with Local Rule
55.1(a)(2). See Bowen Affirmation in Supp. of Req. for Certificate of Default (“Bowen
Affirmation”), ECF 62-1, ¶¶ 3–4; Certificate of Service, ECF 62-3. Plaintiffs have further
demonstrated that Defendant was not a minor and was not in the military during the relevant
time period. See Bowen Affirmation, ECF 62-1, ¶ 5. Finally, Plaintiffs have certified the mailing
of Plaintiffs’ default judgment motion and supporting documents to Defendant’s last known
business address in accordance with Local Rule 55.2(a)(3). See Certificate of Service, ECF 73.
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F.3d 79, 84 (2d Cir. 2009). In making this determination, the “court is required to
accept all of the [plaintiff’s] factual allegations as true and draw all reasonable
inferences in its favor.” Id. It is “the plaintiff’s burden to demonstrate that those
uncontroverted allegations, without more, establish the defendant’s liability on each
asserted cause of action.” Gunawan v. Sake Sushi Rest., 897 F. Supp. 2d 76, 83
(E.D.N.Y. 2012).
Moreover, while a default constitutes an admission of liability as to well-
pleaded allegations, a default is “not considered an admission of damages.”
Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992).
“The district court must instead conduct an inquiry in order to ascertain the amount
of damages with reasonable certainty.” Credit Lyonnais Sec. (USA), Inc. v. Alcantara,
183 F.3d 151, 155 (2d Cir. 1999). Here, too, the “[p]laintiff bears the burden of
presenting proof of damages, which may take the form of documentary evidence or
detailed affidavits.” J & J Sports Prods., Inc. v. Ahuachapan Corp., 422 F. Supp. 3d 652,
663 (E.D.N.Y. 2019) (citing CIT Bank, N.A. v. Dambra, No. 14-CV-3951 (SLT) (VMS),
2015 WL 7422348, at *5 (E.D.N.Y. Sept. 25, 2015); Action S.A. v. Marc Rich & Co., Inc.,
951 F.2d 504, 508 (2d Cir. 1991)); see also Tamarin v. Adam Caterers, Inc., 13 F.3d 51, 53–
54 (2d Cir. 1993) (explaining that courts can assess damages based on “‘detailed
affidavits and documentary evidence’” (quoting Fustok v. ContiCommodity Servs., Inc.,
873 F.2d 38, 40 (2d Cir. 1989))). In the default posture, the moving party is “entitled
to all reasonable inferences from the evidence offered.” Au Bon Pain Corp. v. Artect,
Inc., 653 F.2d 61, 65 (2d Cir. 1981).
II. Entry of Default
In determining whether a defendant’s conduct warrants entry of a default
judgment, courts apply the same factors applicable to a motion to set aside entry of
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default. See Enron Oil, 10 F.3d at 96 (noting that “the factors examined in deciding
whether to set aside a default or a default judgment are the same”). These factors
include “1) whether the defendant’s default was willful; 2) whether [the] defendant has
a meritorious defense to [the] plaintiff’s claims; and 3) the level of prejudice the
nondefaulting party would suffer as a result of the denial of the motion for default
judgment.” Mason Tenders Dist. Council v. Duce Constr. Corp. (“Duce Constr. Corp.”), No.
02-CV-9044 (LTS) (GWG), 2003 WL 1960584, at *2 (S.D.N.Y. Apr. 25, 2003); see also Enron
Oil, 10 F.3d at 96. “Other relevant equitable factors may also be considered, for instance,
whether the failure to follow a rule of procedure was a mistake made in good faith and
whether the entry of default would bring about a harsh or unfair result.” Enron Oil, 10
F.3d at 96. In this case, although some of the Enron Oil factors weigh in Plaintiffs’ favor,8
8 The Court weighs the willfulness and prejudice factors in favor of default judgment.
The record shows that while Plaintiffs were unsuccessful in serving Defendant while the suit
was pending in Georgia, Plaintiffs did promptly serve Defendant, a New York LLC, via the
New York Secretary of State once the case was transferred to New York. Compare Affs. of Non-
Service, ECF 22, with Summons Returned Executed, ECF 56; see Default Hr’g, ECF 80, at 4:13–21
(discussing service of Defendant FFG); Fed. R. Civ. P. 4(e)(1), (h)(1)(a); N.Y. Ltd. Liab. Co. L.
§ 303(a)(1); see also Gov't Emps. Ins. Co. v. Onyema, 790 F. Supp. 3d 147, 161 (E.D.N.Y. 2025)
(explaining that New York law permits service upon an LLC via the New York Secretary of
State). Additionally, Plaintiffs’ motion for default judgment was served upon Defendant to its
last known business address and the New York Secretary of State via mail. See Am. Certificate
of Service, ECF 73. The Court also sent a notice of the default motion hearing to Defendant’s last
known business addresses; the notice directed Defendant to attend but Defendant did not do so.
See Notice to Defendant, ECF 74; see also May 30, 2025 ECF Scheduling Order; June 24, 2025 ECF
Min. Entry & Order; see generally Default Hr’g, ECF 80. As demonstrated by the record,
Defendant has not appeared in this action, responded to the motion for default judgment, or
otherwise responded to the suit. In light of Defendant’s failure to respond, the Court weighs the
willfulness factor in favor of default. See Sola Franchise Corp. v. Solo Salon Studios Inc., No. 14-CV-
0946 (JS) (AKT), 2015 WL 1299259, at *6 (E.D.N.Y. Mar. 23, 2015). As to prejudice, the Court
finds that “there is no indication that requiring Plaintiffs to take further steps . . . would be
effective in eliciting a response from Defendant[ ].” Duce Constr. Corp., 2003 WL 1960584, at *3.
Also as to prejudice, the Court notes that Plaintiffs have represented that the frozen funds were
recovered during the course of this litigation but that Plaintiffs seek other damages, such as
consequential damages flowing from the alleged conversion of funds, as well as costs and fees
associated with this action. See Mem., ECF 72-1, at 16–17, 16 n.4; Default Hr’g, ECF 80, at 13:5–
14; see also Joint Order to Inform of Error, ECF 27; Robl Decl., ECF 81. Accordingly, this factor
also weighs in favor of default.
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the Court finds that entry of a default judgment is not warranted here because, as
explained below, Plaintiffs’ allegations fail to establish a claim under any of the bases
for liability Plaintiffs asserted in the amended complaint.
Whether Plaintiff has adequately established its asserted claims goes to the
second Enron Oil factor, “whether [the] defendant has a meritorious defense.” Duce
Constr. Corp., 2003 WL 1960584, at *2. “To satisfy the criterion of a ‘meritorious defense,’
the defense need not be ultimately persuasive at this stage.” Am. All. Ins. Co. v. Eagle Ins.
Co., 92 F.3d 57, 61 (2d Cir. 1996). Rather, “‘[a] defense is meritorious if it is good at law
so as to give the factfinder some determination to make.’” Id. (quoting Anilina Fabrique
de Colorants v. Aakash Chems. & Dyestuffs, Inc., 856 F.2d 873, 879 (7th Cir. 1988)). Where,
as here, Defendant has entirely failed to respond to the complaint or otherwise appear
in the case, courts are often “unable to make a determination [of] whether the defendant
has a meritorious defense.” Joseph v. HDMJ Rest., Inc., 970 F. Supp. 2d 131, 143 (E.D.N.Y.
2013).
Weighing the meritorious defense factor in favor of default presumes, however,
that the plaintiff has “demonstrate[d] that the allegations set forth in the complaint state
valid claims.” United States v. McDermott, No. 12-CV-4440 (DRH) (AKT), 2014 WL
1272566, at *4 (E.D.N.Y. Feb. 14, 2014), report and recommendation adopted, 2014 WL
917267 (E.D.N.Y. Mar. 10, 2014). This is because “a defendant’s default does no more
than concede the complaint’s factual allegations; it remains the plaintiff’s burden to
demonstrate that those uncontroverted allegations, without more, establish the
defendant’s liability on each asserted cause of action.” Said v. SBS Elecs., Inc., No. 08-CV-
3067 (RJD) (JO), 2010 WL 1265186, at *2 (E.D.N.Y. Feb. 24, 2010), report and
recommendation adopted as modified, 2010 WL 1287080 (E.D.N.Y. Mar. 31, 2010); see Frank
Brunkhorst Co. v. Castellini, No. 17-CV-2324 (AMD) (ST), 2018 WL 1377302, at *2
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(E.D.N.Y. Mar. 19, 2018) (explaining that a party moving for default judgment must
establish that “on the law it is entitled to the relief it seeks, given the facts as established
by the default” (quotation marks omitted)). Simply “because a party is in default, the
plaintiff is not entitled to a default judgment as a matter of right.” GuideOne Specialty
Mut. Ins. Co. v. Rock Community Church, Inc., 696 F. Supp. 2d 203, 208 (E.D.N.Y. 2010).
Framed another way, the Court cannot weigh this factor in Plaintiffs’ favor if the
allegations of the complaint are insufficient to plead Defendant’s liability in the first
place.
Turning first to Rule 8 of the Federal Rules of Civil Procedure, it requires that the
complaint allege “enough facts to state a claim to relief that is plausible on its face.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The Second Circuit has clarified that
“[t]his requires alleging ‘enough fact to raise a reasonable expectation that discovery
will reveal evidence’ to prove the claim.” Panther Partners Inc. v. Ikanos Commc'ns, Inc.,
347 F. App’x 617, 619 (2d Cir. 2009) (quoting Twombly, 550 U.S. at 556).
Additionally, where a complaint “sounds in fraud,” it is subject to the
heightened pleading requirements of Rule 9(b). Kalaj v. Kay, No. 21-CV-4395 (EK) (JRC),
2023 WL 4564795, at *11 (E.D.N.Y. July 17, 2023) (quotation marks omitted), appeal
dismissed, No. 23-1173-cv (2d Cir. Oct. 18, 2023). Under Rule 9(b), “[i]n all averments of
fraud or mistake, the circumstances constituting fraud or mistake shall be stated with
particularity.” Fed. R. Civ. P. 9(b). Importantly, “conclusory allegations that [the]
defendant’s conduct was fraudulent or deceptive are not enough.” Decker v. Massey-
Ferguson, Ltd., 681 F.2d 111, 114 (2d Cir. 1982). Rather, Rule 9(b) requires that a
complaint “(1) specify the statements that the plaintiff contends were fraudulent,
(2) identify the speaker, (3) state where and when the statements were made, and
(4) explain why the statements were fraudulent.” Mills v. Polar Molecular Corp., 12 F.3d
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1170, 1175 (2d Cir. 1993). Mere “[s]weeping references to the collective fraudulent
actions of multiple defendants will not satisfy the particularity requirements of Rule
9(b).” Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404 F.3d 566, 579–80 (2d Cir. 2005)
(quotation marks omitted). Whether a complaint sounds in fraud “‘requires a case-by-
case analysis.’” Kalaj, 2023 WL 4564795, at *11 (quoting Levy v. Young Adult Inst., Inc.,
103 F. Supp. 3d 426, 442 (S.D.N.Y. 2015)). In general, “a non-fraud claim will sound in
fraud if the claim arose out of events that the pleading describes in terms of fraud or the
pleading includes a claim based on fraud, and the non-fraud claim incorporates the
fraud allegations.” Levy, 103 F. Supp. 3d at 442 (quotation marks omitted).
For the reasons set forth below, the Court recommends denying default
judgment because, even taking Plaintiffs’ factual assertions as true, Plaintiffs have failed
to adequately state a valid cause of action against Defendant FFG.
III. Defendant’s Liability
A. Choice of Law
Plaintiffs allege four causes of action against Defendant FFG: conversion, abusive
litigation, negligence, and a due process violation under the Georgia Bill of Rights. See
Am. Compl., ECF 41, ¶¶ 38–74. Plaintiffs posit that Georgia law should apply to each of
these claims. See Mem., ECF 72-1, at 10–11. Accordingly, the Court must undertake a
choice of law analysis for each of Plaintiffs’ claims.
“A federal trial court sitting in diversity jurisdiction must apply the law of the
forum state to determine the choice-of-law.” Fieger v. Pitney Bowes Credit Corp., 251 F.3d
386, 393 (2d Cir. 2001) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 497
(1941)); see GlobalNet Financial.Com, Inc. v. Frank Crystal & Co., 449 F.3d 377, 382 (2d Cir.
2006). Here, the forum state is New York, as the action is venued in the United States
District Court for the Eastern District of New York. See GlobalNet Financial.Com, 449 F.3d
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at 382. As established by the New York Court of Appeals, “the first step in any case
presenting a potential choice of law issue is to determine whether there is an actual
conflict between the laws of the jurisdictions involved.” Id. (quoting In re Allstate Ins. Co.
(Stolarz), 81 N.Y.2d 219, 223 (1993)). The conflict of laws need not be outcome
determinative. See Fin. One Pub. Co. v. Lehman Bros. Special Fin., 414 F.3d 325, 331 (2d Cir.
2005). Rather, the inquiry looks to whether “the applicable law from each jurisdiction
provides different substantive rules” that are “relevant to the issue at hand” and “have
a significant possible effect on the outcome of the trial.” Id. (emphasis in original)
(quotation marks omitted). In the event there is an actual conflict of laws, the court is
then “required to apply choice-of-law principles and resolve which forum’s law
applies.” Chigirinskiy v. Panchenkova, No. 14-CV-4410 (JPO), 2015 WL 1454646, at *4
(S.D.N.Y. Mar. 31, 2015) (citing Fed. Ins. Co. v. Am. Home Assur. Co., 639 F.3d 557, 566 (2d
Cir. 2011)).
For tort claims, New York applies an “interest analysis.” GlobalNet Financial.Com,
449 F.3d at 384. Under this analysis, torts are divided into two categories: (1) conduct-
regulating torts, which involve claims concerning “appropriate standards of conduct”
and (2) loss-allocating torts, which have to do with “allocating losses that result from
admittedly tortious conduct.” Id. (internal quotation marks omitted). Notably, “‘[i]f
conflicting conduct-regulating laws are at issue, the law of the jurisdiction where the
tort occurred will generally apply because that jurisdiction has the greatest interest in
regulating behavior within its borders.’” Id. (quoting Cooney v. Osgood Mach., Inc., 595
N.Y.S.2d 919, 922 (1993)). For cases such as this one, “the locus of the tort tends to be
where the alleged victims resided, as that is the locus of their economic loss.” Grund v.
Delaware Charter Guarantee & Tr. Co., 788 F. Supp. 2d 226 (S.D.N.Y. 2011).
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As discussed below, the Court finds that there does not appear to be any
cognizable conflict between the laws of New York and Georgia with respect to
Plaintiffs’ conversion, negligence, and due process claims. Accordingly, New York law
is applied to those claims. However, as there is a conflict between the laws of Georgia
and New York with respect to Plaintiffs’ abusive litigation claim, the Court will apply
Georgia law to that allegation.
B. Conversion
Plaintiff alleges that Defendant FFG committed conversion with respect to the
Wells Fargo bank accounts that were frozen and seized as a result of the state court
case. See Am. Compl., ECF 41, ¶¶ 38–45. “Under New York law, conversion is ‘the
unauthorized assumption and exercise of the right of ownership over goods belonging
to another to the exclusion of the owner’s rights.’”9 City of Almaty v. Ablyazov, 278 F.
Supp. 3d 776, 801 (S.D.N.Y. 2017) (quoting Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d
400, 403–04 (2d Cir. 2006)); see also DeVito v. Neiman, 548 F. Supp. 3d 314, 317–18
(E.D.N.Y. 2021).
As set forth above, claims sounding in fraud are subject to the heightened
pleading standards of Federal Rule of Civil Procedure 9(b). As relevant here, Rule 9(b)
provides that “[i]n all averments of fraud or mistake, the circumstances constituting
fraud or mistake shall be stated with particularity.” Fed. R. Civ. P. 9(b). Notably,
9 Similarly, as Plaintiffs assert in their memorandum in support of their motion for
default, in Georgia conversion is the “‘unauthorized assumption and exercise of ownership over
personal property belonging to another, in hostility to his rights; an act of dominion over the
personal property of another inconsistent with his rights; or an unauthorized appropriation.’”
Mem., ECF 72-1, at 11 (quoting Trey Inman & Assocs., P.C. v. Bank of Am., N.A., 306 Ga. App. 451,
457 (2010)). Accordingly, there is no conflict between the “substantive rules” of the laws of New
York and Georgia such that there would be a “significant possible effect on the outcome of the
trial.” Fin. One Pub. Co. v. Lehman Bros. Special Fin., 414 F.3d 325, 331 (2d Cir. 2005). Thus, New
York law is applicable for the claim of conversion.
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“conclusory allegations that [the] defendant’s conduct was fraudulent or deceptive are
not enough.” Decker, 681 F.2d at 114. More specifically, as set forth above, Rule 9(b)
requires that a complaint “(1) specify the statements that the plaintiff contends were
fraudulent, (2) identify the speaker, (3) state where and when the statements were
made, and (4) explain why the statements were fraudulent.” Mills, 12 F.3d at 1175. A
complaint that simply makes “[s]weeping references to the collective fraudulent actions
of multiple defendants will not satisfy the particularity requirements of Rule 9(b).”
Aetna Cas. & Sur. Co., 404 F.3d at 579–80.
Here, Plaintiffs’ conversion claim rests on an allegation of fraudulent
misrepresentation and is “‘therefore subject to the pleading requirements of Rule 9(b).’”
Kalaj, 2023 WL 4564795, at *11 (quoting Daly v. Castro Llanes, 30 F. Supp. 2d 407, 414
(S.D.N.Y. 1998)). By asserting that “Defendants falsely represented to the New York
[state c]ourt that [Plaintiffs’] bank accounts belonged to a borrower” of Defendant, Am.
Compl., ECF 41, ¶ 22, Plaintiffs “premise their conversion claim on an intentional
misrepresentation,” Kalaj, 2023 WL 4564795, at *11; see also Mem., ECF 72-1, at 12
(asserting that Plaintiffs’ false-representation allegation, inter alia, “fulfill[s] the first
requirement of a conversion claim”). Accordingly, “‘the Plaintiffs brand the Defendants
as liars, not thieves’ — even if they do so without adequate factual content in support —
and Rule 9(b) applies.” Id. (quoting Schwartzco Enters. LLC v. TMH Mgmt., LLC, 60 F.
Supp. 3d 331, 352 (E.D.N.Y. 2014)); see also Superb Motors Inc. v. Deo, 776 F. Supp. 3d 21,
86 (E.D.N.Y. 2025) (“When an underlying act is alleged to be fraudulent, a claim of
conversion must be pled with specificity under Fed. R. Civ. P. 9(b).”), adhered to in part
on reconsideration, 2025 WL 2178194 (E.D.N.Y. Aug. 1, 2025).
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Taking Plaintiffs’ allegations as true in this default context, Plaintiffs’ amended
complaint fails to meet the particularity requirement of Rule 9(b).10 In the amended
complaint, Plaintiffs simply posit, in a conclusory fashion, that “Defendants” made false
representations to the New York state court without specifying, with particularity, the
speaker, or any facts from which to conclude that the misrepresentation was knowingly
and fraudulently made. Am. Compl., ECF 41, ¶ 22; see, e.g., Kalaj, 2023 WL 4564795, at
*10–11 (dismissing fraud claim that did not specify the speaker for failing to meet the
requirements of Rule 9(b)). It is unclear from the face of the amended complaint and the
accompanying exhibits which of the Defendants made the false allegation regarding the
bank accounts. See Am. Compl., ECF 41, ¶ 22 (“Defendants falsely represented to the
New York Court that [Plaintiffs’] bank accounts belonged to a borrower of FFG.”)
(emphasis added). Rule 9(b) is “not satisfied where the complaint vaguely attributes the
alleged fraudulent statements to defendants” without specificity. Mills, 12 F.3d at 1175
(quotation marks omitted). Therefore, Plaintiffs’ conversion claim fails to meet the
10 A similar result would likely be reached in the Eleventh Circuit. See, e.g., Al Rushaid
Petroleum Inv. Co. v. Siemens Energy Inc., 159 F.4th 887 (11th Cir. 2025) (upholding dismissal of
state law tortious interference claim that sounded in fraud in part because the Rule 9(b)
particularity standard was not met); Pop v. LuliFama.com LLC, 145 F.4th 1285 (11th Cir. 2025)
(collecting cases and finding state law unjust enrichment, civil theft, and negligent
misrepresentation claims that sound in fraud are subject to Rule 9(b)); Brandenstein v. Pennymac
Loan Servs., LLC, No. 1:17-CV-2712 (WSD), 2017 WL 5952269, at *3 (N.D. Ga. Dec. 1, 2017)
(noting that the plaintiff’s fraud-based claims, including fraudulent conversion, were subject to
Rule 9(b)’s heightened pleading requirements); Smith v. Suntrust Mort., Inc., No. 1:13-CV-3271-
RWS-LTW, 2014 WL 11975116, at *2 (N.D. Ga. June 30, 2014) (collecting cases and observing that
“[s]hotgun pleadings . . . frequently fail to specify which defendant is responsible for each act
alleged” and that such pleadings are “fatally defective” in the Eleventh Circuit).
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requirements of Rule 9(b) and does not adequately allege Defendant FFG’s liability as a
matter of law.11
C. Abusive Litigation
Plaintiffs further allege that Defendant FFG committed the tort of abusive
litigation. Under Georgia law, a person who takes “an active part in the initiation,
continuation, or procurement of civil proceedings against another,” with malice and
without substantial justification, “shall be liable for abusive litigation.” Ga. Code Ann.
§ 51-7-81; see El v. McGehee, No. 1:22-CV-5084-SEG-CCB, 2024 WL 3833818, at *11 (N.D.
Ga. July 24, 2024) (citing Owens v. Generali-U.S. Branch, 480 S.E.2d 863, 867 (Ga. Ct. App.
11 Even after evaluating Plaintiffs’ conversion claim under Georgia law without applying
the heightened pleading standard for a claim sounding in fraud, the conversion claim fares no
better. As Plaintiffs correctly assert in their motion, the Georgia Court of Appeals has observed
as follows: “‘In order to establish a claim for conversion, the complaining party must show
(1) title to the property or the right of possession, (2) actual possession in the other party,
(3) demand for return of the property, and (4) refusal by the other party to return the
property.’” Trey Inman & Assocs., 306 Ga. App. at 457 (quoting Internal Med. All. v. Budell, 290
Ga. App. 231, 239 (2008) (internal quotation marks omitted)). With respect to all of these
elements, no specific allegations of Defendant FFG’s actions are included in the amended
complaint. See generally Am. Compl., ECF 41. In addition, with regard to the third element, as
discussed above, although Plaintiffs sent a demand letter to former Defendant Michael
Ershowsky, there are no allegations from which to infer that any demand for the return of
property was made to Defendant FFG and that FFG refused to return the property in response.
By grouping all Defendants together in the pleading, it is impossible to discern whether
Defendant FFG or some other Defendant was responsible for the actions underlying the
conversion claim. Although the Court is cognizant that Plaintiffs’ amended complaint implies
that Defendant Ershowsky was acting as an agent for Defendant FFG in the underlying New
York state action, the amended complaint does not actually allege the nature of the relationship
between the original Defendants with any particularity, nor does it allege whether Defendant
Ershowsky was acting within the scope of any agency relationship that may have existed
between himself and Defendant FFG. See generally id. And even if it did, a principal is not
necessarily legally liable for all actions undertaken by their agent. See generally Ga. Code Ann.
§ 10-6-60 (“The principal shall be bound for the care, diligence, and fidelity of his agent in his
business, and hence he shall be bound for the neglect and fraud of his agent in the transaction of
such business.”); see, e.g., Fountainhead Dev. Corp. v. Dailey, 263 Ga. App. 677, 679 (2003) (“Under
the theory of apparent or ostensible agency, a claimant may subject an alleged principal to
liability by establishing: (1) that the alleged principal held out another as its agent; (2) that the
plaintiff justifiably relied on the care or skill of the alleged agent based upon the alleged
principal’s representation; and (3) that this justifiable reliance led to the injury.” (quotation
marks omitted)).
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1997)), report and recommendation adopted, 2024 WL 4251258 (N.D. Ga. Aug. 13, 2024).
Malice in this context is defined as “acting with ill will or for a wrongful purpose and
may be inferred in an action if the party initiated, continued, or procured civil
proceedings or process in a harassing manner or used process for a purpose other than
that of securing the proper adjudication of the claim upon which the proceedings are
based.” Ga. Code Ann. § 51-7-80(5).12
In support of this claim, Plaintiffs aver that Defendant FFG “has admitted that
neither of the Plaintiffs entered into an MCA agreement with [Defendant].” Mem., ECF
72-1, at 13; see Am. Compl., ECF 41, ¶¶ 25–26. Plaintiffs go on to claim that Defendant
“has also admitted that it falsely represented to the State Court that Plaintiffs’ bank
accounts belonged to a borrower of FFG.” Mem., ECF 72-1, at 13; see Am. Compl., ECF
41, ¶ 22. However, like Plaintiffs’ conversion claim, this claim sounds in fraud and
Plaintiffs have not pled their abusive litigation claim with particularity. In addition,
despite the claim in Plaintiffs’ memorandum of law that Defendant “has admitted that
it falsely represented to the State Court” that Plaintiffs’ bank accounts belonged to a
borrower of FFG, the amended complaint itself does not provide any particular facts to
support that assertion and does not allege, with specificity, who made this
misrepresentation or facts from which to infer that the misrepresentation was
knowingly made. See Mem., ECF 72-1, at 13. Rather, the amended complaint simply
asserts that “Defendants falsely represented to the New York Court that Defendants’
12 New York does not have an abusive litigation statute. Therefore, under New York
choice of law principles, “the applicable law from each jurisdiction provides different
substantive rules” that are “relevant to the issue at hand” and these rules “have a significant
possible effect on the outcome of the trial.” Fin. One Pub. Co, 414 F.3d at 331 (emphasis in
original) (quotation marks omitted). Accordingly, the Court applies Georgia law to this claim.
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bank accounts belonged to a borrower of FFG.” Am. Compl., ECF 41, ¶ 22. Once again,
Rule 9(b) is “not satisfied where the complaint vaguely attributes the alleged fraudulent
statements to defendants” without specificity. Mills, 12 F.3d at 1175 (internal quotation
marks omitted). Accordingly, Plaintiffs’ abusive litigation claim is not well pleaded.
In addition to the amended complaint’s deficiencies under Rule 9(b), Plaintiffs’
claim also fails because a claim of abusive litigation must be brought by a party in the
underlying action. As observed by the Georgia Court of Appeals: “[t]he plain language
of [Ga. Code Ann.] § 51-7-81 provides that a person who takes part in initiating,
continuing, or procuring an abusive civil action against another ‘shall be liable for
abusive litigation[.]’” Oldham v. Landrum, 363 Ga. App. 284, 287 (2022) (quoting Ga.
Code Ann. § 51-7-81). However, “[w]hile the statute does not specify to whom such
person is liable, the only reasonable interpretation is that the person is liable to the party
against whom the abusive litigation was initiated or continued.” Id. (citing Cox v. Barber,
275 Ga. 415, 416 (2002) (providing that “[t]he words of a statute should be given a
reasonable and sensible interpretation”)). Therefore, the statute “provides a right of
action for anyone who has had an abusive civil proceeding initiated, continued, or
procured against them.” Id. (emphasis added); see id. at 277–78 (denying the plaintiffs’
abusive litigation claim because they were not parties in the underlying action). Here,
Plaintiffs specifically allege that they were not parties to the underlying New York state
court action that they claim resulted in their bank accounts being frozen, and had no
knowledge of that case and no notice until their bank accounts were frozen. See Am.
Compl., ECF 41, ¶¶ 21–23; see also Oldham, 363 Ga. App. at 287 (“[T]here is no authority
allowing a non-party to a civil proceeding to assert an abusive litigation claim.”).
“Because the complaint does not allege that [Defendant] initiated, continued, or
procured civil proceedings against [Plaintiffs], [Plaintiffs] are not within the class of
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persons authorized to bring a claim under [Ga. Code Ann.] § 51-7-81 and have therefore
failed to state a claim for abusive litigation.” Id. at 277–78 (citing Fortson v. Hotard, 299
Ga. App. 800, 803 (2009)). Accordingly, Plaintiffs are unable to assert a claim of abusive
litigation against Defendant FFG under Georgia law.
D. 	Negligence
Plaintiffs also assert a claim of negligence against Defendant FFG. “In order to
establish a prima facie case of negligence under New York law, a claimant must show
that: (1) the defendant owed the plaintiff a cognizable duty of care; (2) the defendant
breached that duty; and (3) the plaintiff suffered damage as a proximate result of that
breach.”13 Stagl v. Delta Airlines, Inc., 52 F.3d 463, 467 (2d Cir. 1995). Additionally, “[t]o
carry the burden of proving a prima facie case, the plaintiff must generally show that the
defendant’s negligence was a substantial cause of the events which produced the
injury.” Derdiarian v. Felix Contracting Corp., 51 N.Y.2d 308, 315 (1980) (italics added).
Importantly, however, “‘[t]here is a longstanding New York rule’” which establishes
“‘that economic loss is not recoverable under a theory of negligence.’” Bibicheff v.
PayPal, Inc., No. 17-CV-4679 (DRH) (AYS), 2020 WL 2113373, at *4 (E.D.N.Y. May 4,
2020) (quoting Labajo v. Best Buy Stores, L.P., 478 F. Supp. 2d 523, 532 (S.D.N.Y. 2007)),
aff'd, 844 F. App’x 394 (2d Cir. 2021). “Thus, if a plaintiff does not allege ‘personal injury
or property damage’ and her allegations are ‘purely limited to economic loss . . . her
remedies are limited and she may not sue in negligence.’” Id. (quoting Labajo, 478 F.
13 For this claim, the Court once again applies New York rather than Georgia law
because there is no conflict between the laws of the two states. See Martin v. Ledbetter, 342 Ga.
App. 208, 211 (2017) (“It is axiomatic that, [t]o state a cause of action for negligence, a plaintiff
must establish the following essential elements: (1) a legal duty; (2) a breach of this duty; (3) an
injury; and (4) a causal connection between the breach and the injury.” (quotation marks
omitted)); Mem., ECF 72-1, at 14.
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Supp. 2d at 532). However, there is an exception if there exists “a special relationship
that requires the defendant to protect against the risk of harm to plaintiff.” 532 Madison
Ave. Gourmet Foods, Inc. v. Finlandia Ctr., Inc. (“532 Madison Ave.”), 96 N.Y.2d 280, 289
(2001). Courts apply the general economic loss rule “to prevent the recovery of damages
that are inappropriate because they actually lie in the nature of breach of contract as
opposed to tort.” Hydro Invs., Inc. v. Trafalgar Power Inc., 227 F.3d 8, 16 (2d Cir. 2000).14
Importantly, “‘[w]ithout a duty running directly to the injured person there can
be no liability in damages, however careless the conduct or foreseeable the harm. While
the Legislature can create a duty by statute, in most cases duty is defined by the courts,
as a matter of policy.’” Crews v. County of Nassau, 612 F. Supp. 2d 199, 205 (E.D.N.Y.
2009) (quoting Lauer v. City of New York, 95 N.Y.2d 95, 100 (2000) (internal citations
omitted)). New York courts have “warned, however, that ‘[f]ixing the orbit of duty may
be a difficult task. Despite often sympathetic facts in a particular case before them,
courts must be mindful of the precedential, and consequential, future effects of their
rulings, and limit the legal consequences of wrongs to a controllable degree.’” Id.
(quoting Lauer, 95 N.Y.2d at 100 (internal quotation marks omitted)).
Here, Plaintiffs assert that they had no relationship or agreement with Defendant
FFG, let alone one that would give rise to a duty owed by Defendant to Plaintiffs. More
14 Georgia has a similar economic loss rule. Under Georgia law, “a contracting party who
suffers purely economic losses must seek his remedy in contract and not in tort.” Gen. Elec. Co.
v. Lowe’s Home Ctrs., Inc., 279 Ga. 77, 78 (2005). Thus, “[u]nder the economic loss rule, a plaintiff
can recover in tort only those economic losses resulting from injury to his person or damage to
his property; a plaintiff cannot recover economic losses associated with injury to the person or
damage to the property of another.” Id. at 88. Additionally, like in New York, “the rule has no
application where the defendant breaches a duty imposed by law or arising from a special
relationship.” Johnson v. 3M, 563 F. Supp. 3d 1253, 1304 (N.D. Ga. 2021), opinion clarified sub nom.
Johnson v. 3M Co., No. 4:20-CV-8-AT, 2022 WL 23024438 (N.D. Ga. Apr. 29, 2022), and aff'd sub
nom. Johnson v. 3M Co., 55 F.4th 1304 (11th Cir. 2022).
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specifically, Plaintiffs state in their amended complaint that “[d]espite having its bank
account seized, Plaintiff Catlin had never entered into an MCA agreement, guaranty
agreement, or any other contract with FFG” and that “Plaintiff Catlin had no business
relationship of any type with FFG.” Am. Compl., ECF 41, ¶ 25. Similarly, the amended
complaint claims that “[d]espite having its bank account seized, Plaintiff Craton Event
Management had never entered into an MCA agreement, guaranty agreement, or any
other contract with FFG” and that “Plaintiff Craton Event Management had no business
relationship of any type with FFG.” Id. ¶ 26. Plaintiffs go on to assert in a conclusory
fashion that “Defendants owe a duty to Plaintiffs not to injure Plaintiffs, especially after
being informed that they had improperly seized funds of entities that had no
relationship with Defendants.” Id. ¶ 62. Yet a demand for the funds does not establish a
duty between Plaintiffs and Defendant and even if it did, as stated above, it is not clear
from the amended complaint that Plaintiffs ever made a demand directly to Defendant
FFG.15 Plaintiffs have therefore failed to establish “a special relationship that requires
the defendant to protect against the risk of harm to plaintiff.” 532 Madison Ave., 96
N.Y.2d at 289. Given the lack of sufficient allegations from which to infer a relationship
between Plaintiffs and Defendant FFG, Plaintiffs have failed to plausibly allege that
Defendant had a duty to Plaintiffs. Accordingly, Plaintiffs have failed to assert a valid
claim of negligence.
15 The only demand about which Plaintiffs allege any facts relates to a letter to Defendant
Ershowsky that is appended to and incorporated by reference into the amended complaint. See
generally Demand Letter, ECF 41, at ECF pp. 21–23. The “New York courts make abundantly
clear that an attorney does not owe a duty of care to an adversary” or, in this case, “one with
whom he is not in privity.” Crews v. County of Nassau, 612 F. Supp. 2d 199, 205–06 (E.D.N.Y.
2009).
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Moreover, once again, Plaintiffs claim of negligence sounds in fraud. Plaintiffs
allege that “Defendants violated [their] duty to not injure Plaintiffs by advising the
court in the New York Action of bank accounts to seize which were not their borrower
or guarantor[.]” Am. Compl., ECF 41, ¶ 63; see Mem., ECF 72-1, at 15. These allegations
fail to identify with specificity the speaker of the fraudulent representation regarding
the bank account numbers. Therefore, this Court cannot determine which of the
numerous Defendants named in this suit was responsible for naming Plaintiffs’ bank
accounts in the New York action, as discussed above. In summary, in the absence of
allegations that plausibly allege the existence of a duty between Plaintiffs and
Defendant and how Defendant, specifically, breached that duty, Plaintiffs’ negligence
claim is not plausibly pleaded.
E. 	Due Process
Finally, Plaintiffs assert a due process claim under the Georgia Bill of Rights.16 It
is a fundamental tenet that “[n]o person shall be deprived of life, liberty or property
without due process of law.” N.Y. Const., art. I, § 6. Due process requires “that notice be
‘reasonably calculated, under all the circumstances, to apprise’ the parties whose rights
are to be affected of the opportunity to appear and be heard.” In re Foreclosure of Tax
Liens, 942 N.Y.S.2d 442, 445 (2012) (quoting Mullane v. Cen. Hanover Bank & Tr. Co., 339
U.S. 306, 314 (1950)). However, “[d]ue [p]rocess does not apply to private actors, unless
‘there is such a close nexus between the State and the challenged action that seemingly
16 The relevant provision of the Georgia Constitution upon which Plaintiffs rest their
claim provides: “No person shall be deprived of life, liberty, or property except by due process
of law.” Ga. Const., Art. I, § 1, ¶ 1. The New York Constitution has an identical provision. See
N.Y. Const., art. I, § 6 (“No person shall be deprived of life, liberty or property without due
process of law.”). Thus, there is no conflict of laws, and the Court applies New York law to this
claim.
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private behavior may be fairly treated as that of the State itself.’”17 Episcopal Diocese of
Rochester v. Harnish, 851 N.Y.S.2d 57, 57 (Sup. Ct. Monroe County 2006) (quoting
Brentwood Acad. v. Tennessee Secondary Sch. Athletic Assoc., 531 U.S. 288, 295 (2001)), aff'd,
841 N.Y.S.2d 816 (2007), aff’d, 11 N.Y.3d 340 (2008).
Plaintiffs have not demonstrated that Defendant was a government actor such
that “seemingly private behavior may be fairly treated as that of the State itself.”
Episcopal Diocese of Rochester, 851 N.Y.S.2d at 57 (quoting Brentwood Academy, 531 U.S. at
295). Plaintiffs argue that Defendants have violated Plaintiffs’ rights under the Georgia
Constitution by “bringing a legal action to seize property of Plaintiffs — i.e., [the] New
York [state court] [a]ction — without serving any Plaintiff with summons or other
formal legal process to notify them of the New York Action or to provide them due
process in the form of the ability to respond, to have a hearing, or otherwise, before
deprivation of their property.” Am. Compl., ECF 41, ¶ 70. However, bringing a lawsuit
against another party does not make a party a state actor. Cf. Sykes v. Bank of Am., 723
F.3d 399, 406–07 (2d Cir. 2013) (finding that a bank that had restrained the plaintiff’s
account was not acting under the color of state law by complying with the state
agency’s restraining order) (“Bank of America . . . did no more than comply with the
17 In Georgia, the same is true. Due process applies “only to the actions of governmental
actors, and therefore they are of no avail to Plaintiff[s], who [are] suing a private entity.” El v.
McGehee, No. 1:22-CV-5084-SEG-CCB, 2024 WL 3833818, at *11 (N.D. Ga. July 24, 2024), report
and recommendation adopted, 2024 WL 4251258 (N.D. Ga. Aug. 13, 2024); see Reinertsen v. Porter,
242 Ga. 624, 627 (1978) (“The due process clauses of the United States and Georgia Constitutions
control only the action of states, not those of private individuals.”). Accordingly, “[w]henever a
suit is brought against private individuals on the basis that they have taken actions which have
allegedly violated the constitutional rights of another the question arises as to how the actions
of the private individual could be limited by the provisions of the Constitution.” Reinertsen, 242
Ga. at 627. Therefore, in order to prevail on such a claim, “[t]here must be a determination of
whether the private individual’s actions constitute governmental or ‘state’ action of a type
regulated by the appropriate constitutional provision which the aggrieved party alleges has
been violated.” Id.
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restraining notice issued by [the state agency] in the same way it would with a notice
from a private attorney on behalf of a private creditor.”); see also Smith v. Tkach, No. 17-
CV-0286 (GTS) (ML), 2019 WL 3975440, at *16 (N.D.N.Y. Aug. 22, 2019) (noting that the
state court “relied on the evidence before it when determining that [the p]laintiff should
be denied custody, and it is not the function of th[e] [district c]ourt to assess whether
that finding was right or wrong, but merely whether, under the totality of the
circumstances, it was so arbitrary as to constitute a constitutional violation” and finding
that the court “cannot say that the [] [d]efendants’ actions, to the extent they may have
contributed to the continuing denial of custody, were so arbitrary or egregious” to
establish a due process claim), aff'd, 844 F. App’x 414 (2d Cir. 2021).18 Even so, notably,
the underlying New York state court action was not brought against Plaintiffs and,
accordingly, there was no need to notify Plaintiffs of the action. While that action
ultimately resulted in the seizure of Plaintiffs’ bank account due to an error or
misrepresentation, Plaintiffs have failed to demonstrate that this resulted in a
cognizable due process violation. Therefore, Plaintiffs’ due process claim fails as a
matter of law.
CONCLUSION
For the foregoing reasons, the Court respectfully recommends denying Plaintiffs’
motion for default judgment.
18 In Georgia, a similar result would likely be reached. Cf. Bennett v. CitiMortgage, Inc.,
No. 1:14-CV-2752-RWS-JCF, 2014 WL 12861195, at *4 (N.D. Ga. Nov. 20, 2014) (collecting cases
finding that private banks were not government actors in foreclosure proceedings), report and
recommendation adopted, 2015 WL 13774548 (N.D. Ga. Jan. 7, 2015).
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This report and recommendation will be filed electronically and a copy sent by
mail to defaulting Defendant. As a courtesy, the Court also respectfully directs Plaintiffs
to provide a copy of this report and recommendation to Defendant forthwith and to file
proof of same by January 16, 2026. Objections to this report and recommendation must
be filed, with a courtesy copy sent to the Honorable Pamela K. Chen at 225 Cadman
Plaza East, Brooklyn, New York 11201, within fourteen (14) days of filing. See 28 U.S.C.
§ 636(b)(1); Fed. R. Civ. P. 72(b)(2); see also Fed. R. Civ. P. 6(a) (providing the method for
computing time). Failure to file objections within the specified time waives the right to
appeal both before the district court and appellate courts. See, e.g., Caidor v. Onondaga
County, 517 F.3d 601, 604 (2d Cir. 2008) (explaining that “failure to object timely to a . . .
report [and recommendation] operates as a waiver of any further judicial review of the
magistrate[ judge’s] decision” (quotation marks omitted)).
SO ORDERED.
Dated: Brooklyn, New York
January 9, 2026
_____________________________________
TARYN A. MERKL
UNITED STATES MAGISTRATE JUDGE
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