Magistrate Judge Gabriel Gorenstein
Schlatter and his co-plaintiffs were directors with Oralabs Holding Corp., which merged into China Precision Steel Inc. (CPS). The 2012 case Zhang v. Schlatter—asserting claims respecting plaintiffs’ conduct as Oralabs directors—was dismissed in March 2013. Their action against CPS sought indemnification for expenses incurred in defending Zhang and in prosecuting their case against CPS. Default judgment was entered against CPS on June 20. CPS sought vacatur on the ground that due to “inadvertent error” it did not receive notice of plaintiffs’ lawsuit until their June 28 default judgment motion was served. The court found the three factors in Enron Oil v. Diakuhara strongly favored vacatur, and that the insufficient response by plaintiffs’ attorney—violating Local Civil Rule 7.1(b) for failing to recite legal authority or discuss factors the court must consider in deciding whether to vacate an entry of default—was itself sufficient to grant vacatur. Additionally, plaintiffs submitted nothing countering CPS’s putative defense that its bylaws make clear that indemnification of current or former directors was neither mandatory nor absolute, but rather contingent upon the individual’s alleged conduct and subject to board review and consideration.
