Full opinion text
OPINION ROBERT L. CARTER, District Judge. This litigation concerns the propriety of a default judgment issued against defendants on November 30, 2001, for $140 million. Defendants filed a motion to vacate the default on December 19, 2001, asserting that the default was not willful, along with some nine allegedly meritorious counterclaim defenses and a contention that the vacatur of the default judgment would not prejudice the plaintiff. On February 4, 2002, the court filed an opinion, with which familiarity is assumed, 230 F.Supp.2d 313, dismissing two of the claimed counterclaim defenses and referring the issues of willfulness of the default, the meritoriousness of the seven remaining counterclaim defenses and whether vacatur would cause prejudice to plaintiff to Magistrate Judge Frank Maas for further inquiry. On August 15, 2002, the magistrate judge filed his Report and Recommendation (“R & R”) in which he found (at 12-20) that defendants had not willfully defaulted, that their counterclaim defenses lacked merit (id. at 20-39), and that to vacate the default judgment would prejudice plaintiff (id. at 39-43). Defendants filed timely objections to the R & R on September 13, 2002, having been granted by stipulation and order an enlargement of time to file objections beyond the normal ten day deadline. Defendants pursuant to the legal reasons set forth below, (a) object to these portions of the Magistrate [sic] Report, (b) they maintain that the evidence adduced at the Hearing shows the existence of a meritorious defense or counterclaim in this case, (c) they maintain that the evidence adduced at the Hearing shows that there would not be an impermissible level of prejudice to the Plaintiff if the default judgment were vacated and (d) they respectfully request that Judge Carter determine, as a matter of law, that they have satisfied their burden, under FRCP 60(b), of showing the existence of a meritorious defense or counterclaim, and that vacatur of the default judgment would not result in an impermissible level of prejudice to the Plaintiff herein. (Defs.’ Obj. at 3^4.) Defendants also objected to pages 20-29 of the R & R that they “have not shown the existence of a meritorious defense” and to pages 39^43 of the R & R that they have not shown that plaintiff would not be prejudiced if the motion to vacate the default judgment was granted. (Id.) Plaintiff in its response to defendants’ objections contended that except for their objection to the finding on the defense of the implied obligation of good faith and fair dealing, the objections to the remaining lack of meritorious defense and prejudice to plaintiff findings are not sufficiently specific and should be disregarded by the court. (Pl.’s Reply Mem. at 23-24.) In reply defendants repeat in summary their prior arguments. Neither side contests the R & R finding on the question of willfulness. The court has reviewed: (1) the transcripts of April 3, 2002, in which the dates and contour of the forthcoming hearing before the magistrate judge was agreed to; (2) the May 23 and May 24, 2002 transcripts of the hearing itself; (3) all the exhibits introduced at the hearing, the R & R, the defendants’ objections and letter reply to plaintiffs response, and plaintiffs response to defendants’ objections. The depositions of Messers. Foncillas or Trujillo, two lawyers in the Gibson, Dunn & Crutcher firm (“Gibson Dunn”) were not read, but their testimony has no relevance to the issues under present consideration since at best it would concern the question of willfulness to which neither side objects or the reason Gibson Dunn refused to represent defendants in this proceeding, matters irrelevant to the issues presently under court consideration. Accordingly, review of the materials set forth above sufficed as to the merits of the counterclaim defenses and the issue of prejudice to meet the de novo review requirements of Rule 72(b), F.R. Civ. P. See United States v. Raddatz, 447 U.S. 667, 674, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980). Initial Proceedings in the District Court On April 16, 2001, plaintiff filed suit against defendants in this court seeking to recover in excess of 100 million dollars owed pursuant to two credit agreements executed in 1994 and 1996 respectively. (Compl.l 1.) Defendants filed no answer, but for several months the parties engaged in settlement discussions. In late June, 2001, the parties entered a stipulation extending the time to answer, in which defendants acknowledged service of process and the personal jurisdiction of the court. The stipulated extended time to answer passed, but the effort to reach an agreeable solution continued. On September 28, 2001, plaintiff, however, filed a motion for default judgment. The deadline for defendants to file responsive pleading to the motion passed with no word from defendants. On November 30, 2001, the court granted plaintiffs motion and entered default judgment for roughly 140 million dollars against defendants. Present counsel for defendants, early in December, 2001, advised the court that he now represented defendants, and against the court’s advice that the proper response was a motion to vacate the default judgment filed an order to show cause. The court refused to accept that pleading and finally on December 19, 2001, defendants filed a motion to vacate the default judgment. Defendants contended that the case is within the purview of F.R. Civ. P. 60(b), which provides that a default judgment may be set aside for reason of “mistake, inadvertence, surprise, or excusable neglect.” In assessing the existence of excusable neglect, the court must determine: “(1) whether the default was willful; (2) whether the defendant has a meritorious defense; and (3) the level of prejudice that may occur to the non defaulting party if relief is granted.” Am. Alliance Ins. Co., Ltd. v. Eagle Ins. Co., 92 F.3d 57, 59 (2d Cir.1996) (quoting Davis v. Musler, 713 F.2d 907, 915 (2d Cir.1983)). Defendants contended that their default was not willful but was based on a good faith belief that Gibson Dunn, the firm that had handled their legal affairs in the United States for some 25 years would represent them in this litigation. They asserted that the plaintiffs case should be dismissed on the grounds of forum non conve-niens, and in addition alleged the following eight counterclaim defenses as part of their meritorious defense showing: (1) that plaintiff has impermissibly interfered with defendants’ property prior to court judgment on the merits of their dispute (Defs.’ Mem. at 107-11); (2) that plaintiff has engaged in activity constituting a breach of its implied duty of good faith and fair dealing under the credit and guaranty agreements (id. at 112); (3) that plaintiff has engaged in knowing, intentional and/or tortious interference with defendants’ contractual relations, business operations and prospective economic advantage (id. at 113-16); (4) that plaintiff made fraudulent and/or negligent misrepresentations regarding their rights under the credit and guaranty agreements (id. at 116-17); (5) that plaintiff has breached its fiduciary duty required under the credit and guaranty agreements (id. at 118-20); (6) that plaintiffs case is defective in that it violates the conditions for bringing suit set forth in the credit and guaranty agreements (id. at 75); (7) that the default judgment is defective because it contains a declaratory ruling that restricts the assets of a non party to this lawsuit (Defs.’ Reply Mem. at 5-9); and (8) that the default judgment is also defective in awarding damages against four defendants who are not guarantors under either the 1994 or 1996 credit agreements and against two defendants who are not guarantors under the 1996 credit agreement (id. at 10). In its February 4, 2002 opinion at *4-8, the court dismissed defendants’ forum non conveniens claim and the first counterclaim defense, i.e., that plaintiff has imper-missibly interfered with defendants’ property prior to a court judgment. See State Street Bank and Trust Co. v. Inversiones Errazuriz Limitada, 230 F.Supp.2d 313 (S.D.N.Y.2002) (Carter, J.). The issue of willfulness, the seven remaining counterclaim defenses, and the question of the prejudice to plaintiff if the motion to vacate the default judgment was granted were referred to Magistrate Judge Frank Maas for further inquiry. Magistrate Judge Maas was to decide “whether the defendants possess a substantial meritorious defense, or whether the claims made in defendants’ papers ... are just ‘spurious.’ ” Id. at 323 (citing Ferraro v. Kuznetz, 131 F.R.D. 414, 420 (S.D.N.Y.1990) (Patterson, J.)). Referral of these issues to Magistrate Judge Maas was to afford defendants the opportunity to present the compelling evidence they claimed to possess showing that the default was not willful, the lack of prejudice to plaintiff if defendants prevail, and the viability of their seven counterclaim defenses establishing their meritorious defense, thus making it appropriate for the court to vacate the default judgment. Defendants were ordered to confine their evidentiary submissions concerning the merits of their defenses to the seven counterclaim defenses specified in the court’s opinion. “The purpose of [the hearing before Magistrate Judge Maas] is not to give defendants an opportunity to comb the case law for still more legal defenses to interpose in this case — the time for that endeavor has passed.” Id. at 324 n. 16. In summary the court stated “defendants have not, as yet, presented sufficient evidence on the issues of willfulness, meritorious defense, and prejudice to justify vacating the default judgment. What they have done is raise a number of questions that warrant further briefing and factual inquiry. Accordingly, the court refers them to Magistrate Judge Frank Maas for report and recommendation.” Id. at 324. Proceedings Before The Magistrate Judge Magistrate Judge Maas held a conference on April 3, 2002, with the parties and Mitchell A. Karlan and Richard J. Davis, attorneys from the Gibson Dunn firm. At the conference, the deposition of each of the attorneys of Gibson Dunn whom the parties wanted to depose was agreed to, and agreement was reached as well for the production of all documents from the firm deemed relevant by the parties. The parties agreed to submit supplemental responses to various interrogatories to satisfy the other side that the information given was full and complete. A forthcoming evidentiary hearing was set at which point Magistrate Judge Maas inquired: “the sum of what I am.going to hear is what will be set forth in your supplemental responses to the interrogatory and anything else you may garner from the three depositions that are to be taken and the Reilly deposition that was already taken, correct?” Mr. M. Wolk: “I mean, that sounds fair to me and that’s what I’ll try to do.” The court: “So Mr. Moodhe and I can both be comfortable that when and if there is a hearing, none of your clients will be coming in and testifying about something that either hasn’t been testified to previously by Gibson Dunn lawyers or hasn’t been set forth in your interrogatory response as to the relevant issue of what promises or commitments were made.” Mr. M. Wolk: “That is fine.” The court: “O.K. I assume that works for you, Mr. Moodhe.” Mr. Moodhe: “Yes, your Honor, it does.” (Tr. at 36-37.) A two day evidentiary hearing was held on May 23-24, 2002. At the hearing was Senator Francisco Javier Errazuriz — Ta-layera, head of the family having a controlling interest in Inversiones Errazuriz Li-mitada (“Inverraz”) as well as in all the other defendants, Conor D. Reilly, a partner in Gibson Dunn, Jorge Sims, chairman of the Board of Inverraz, Francisco Javier Errazuriz-Ovalle, the Senator’s son and general manager of Inverraz and Blake T. Franklin, a partner in Gibson Dunn who had handled or overseen the handling of various legal activities for the Senator and his many business operations for roughly 25 years. Thereafter the parties filed their briefs. After review of the testimony adduced at the hearing and the parties’ extensive briefing, Magistrate Judge Maas on August 15, 2002, filed his R & R holding that defendants’ motion to vacate the default should be denied. He made detailed and specific findings of fact and conclusions of law as to each issue submitted to him for inquiry. He concluded, after a thorough review of the facts and circumstances surrounding defendants’ 25 year relationship with Gibson Dunn, that defendants’ delay in responding to the instant action could not “be characterized as ‘wilful,’ ” and that therefore defendants “had met their burden with respect to this first element of the showing necessary to vacate the default judgment.” (R & R at 20.) Magistrate Judge Maas concluded that each of defendants’ seven counterclaim defenses submitted to him for further inquiry (breach of obligation of good faith and fair dealing, tortious interference, fraudulent and/or negligent misrepresentations, breach of fiduciary duty under the credit and guaranty agreements, institution of suit violates conditions in the agreements for bringing suit, default judgment defective in restricting assets of a company not involved in the case, and default judgment defective in awarding damages against defendants not guarantors and therefore that defendants had failed to establish a meritorious defense) (R & R at 20-39) lacked merit. Although that alone required that the motion to vacate the default judgment be denied, see, e.g., Sony Corp. v. Elm State Electronics, Inc., 800 F.2d 317 (2d. Cir.1986); National Union Fire Ins. Co. v. Allard, No. 87 Civ. 5368, 1989 WL 71168, at *1 (S.D.N.Y.1989) (Stanton, J.), because the issue of prejudice had also been referred to him, he undertook to decide that question as well. The magistrate judge at defendants’ request had, prior to the evidentiary hearing, required plaintiff to detail in an interrogatory answer how it would be prejudiced if the default judgment were to be vacated. Plaintiff identified “a lengthy series of allegedly improper transactions involving Cosayach and its subsidiaries” (R & R at 40) to show that it would be prejudiced by vacatur of the default judgment. (See Defs.’ Exh. O.) At the evidentiary hearing Sims had agreed that each of the transactions had occurred after Inverraz had defaulted on its loan payments. (Tr. at 232.) Sims’ testimony that the transactions did not violate the credit agreement notwithstanding (id. at 228), Magistrate Judge Maas concluded that each of the post-default transactions violated the terms of the credit agreements (R & R at 40) since he found that Cosayach was a restricted subsidiary and could not be sold while Inverraz was in default, but that defendants “continue to ignore the plain language of their agreements, as well as the negative covenants designed to .protect State Street’s investment, there obviously is a substantial risk that such impermissible transactions will continue in the future if the default judgment is vacated”. (R & R at 43.) He concluded that defendants had not met their burden of showing a lack of prejudice. (Id.) Defendants’ Objections and Plaintiffs Response Defendants maintain that they have established “at least three meritorious defenses or counterclaims which, if established at trial, would be a complete defense and/or offset to plaintiffs claims: (a) conduct by the Plaintiff which ... would constitute a breach of Plaintiffs implied obligation of good faith and fair dealing in the performance and/or enforcement of the subject loan and guaranty contracts entered into by the parties [this is a complete defense to Plaintiffs claims], (b) conduct by Plaintiff which ... would constitute a tortious interference with the Chilean Defendants’ contractual relations, business expectancies and prospective economic advantage in Chile [this is a complete, related counterclaim to the Plaintiffs claims] and (c) conduct by the Plaintiff which ... would constitute a failure to fulfill a required condition precedent to the institution of this lawsuit in this Court [this is a complete defense to Plaintiffs claims].” (Defs.’ Obj. at 4.) The first objection as more fully articulated appears to be a counterclaim defense not heretofore argued before the magistrate judge or the district court to the effect that plaintiff had violated its implied covenant of good faith and fair dealing in seeking to extract from defendants collateral and other economic benefits as the price for its agreeing to approve a deal with SQM pursuant to which defendants would receive $140 million, $87 million of which would go to plaintiff and reduce defendants’ indebtedness to plaintiff. (Id. at 11-40.) The second objection is a repetition of their failed argument before the magistrate judge that they had a meritorious counterclaim defense to the effect that plaintiff had been guilty of tortious interference with Inverraz’s negotiations for the sale of the nitrate and iodine assets of Cosayach to SQM. The third objection was also a contention rejected by the magistrate judge to the effect that the suit is defective in that plaintiff failed to fulfill a required condition precedent prior to instituting this litigation. For the substance of these two objections, the court is referred “to their prior submissions” before the district court and the magistrate judge. (Id.) In these prior submissions defendants contend that plaintiff engaged in tortious interference with defendants’ attempt to make a deal with SQM for the sale of the assets of Cosayach for $140 million, $87 million of which plaintiff would receive in partial payment of defendants’ debt to plaintiff, and that in not allowing that deal to be consummated plaintiff violated its obligation of good faith and fair dealing. The failure to fulfill a prerequisite for institution of the lawsuit is based on a condition in the participation agreement between State Street and the participants for instituting a ■ lawsuit against them, in which defendants were not parties. In addition, defendants object to pages 20-29 of the R & R holding that they have not established a meritorious counterclaim defense and to pages 39-43 of the R & R that they have not shown a lack of prejudice warranting vacatur of the default judgment. (Id. at 3-4.) Plaintiff filed a response to defendants’ objections to the R & R on October 4, 2002. Plaintiff challenged every argument of defendants, contending that none of the seven counterclaim defenses had merit and that plaintiff would be prejudiced if the default judgment was vacated. (Pl.’s Reply Mem. at 7-14.) Plaintiff relies on the evidentiary hearing before the magistrate judge and New York law, citing Astor Holdings, Inc. v. Roski, No. 01 Civ.1905, 2002 WL 72936, at *19 (S.D.N.Y. Jan. 17 2002) (Lynch, J.) to support its contention that defendants’ tortious interference contention cannot constitute a meritorious defense and should be rejected. (PL’s Reply Mem. at 14-17.) Plaintiff also asserts that defendants, in now arguing that plaintiff violated its contractual duty of good faith and fair dealings in demanding collateral before it would give consent to defendants’ concluding negotiations with a third party for the sale of the assets of Cosayach, have stated a new defense not raised previously before the district court or the magistrate judge. They contend that defendants cannot raise anything other than what the district court referred to the magistrate judge, and that in any event the contention lacks merit and should be dismissed. (Id. at 17-21.) In its final argument, plaintiff contends that defendants’ objections are not sufficiently specific to warrant de novo review by the district court, and that absent a finding of clear error the R & R should be adopted as the opinion and judgment of the court. (Id. at 21-24.) In a reply filed on October 7, 2002, defendants for the most part reiterate in summary form their original arguments. (See Defs.’ Lt. Reply.) DETERMINATION In arguing for the first time that plaintiff has violated its implied covenant of good faith and fair dealing in not consenting to defendants consummating a $140 million deal without first receiving new collateral, defendants have rephrased their good faith and fair dealing counterclaim defense into a seemingly hybrid tor-tious interference violation of the implied covenant of good faith and fair dealing counterclaim defense. This defense could be dismissed summarily since defendants did not raise this as one of their meritorious counterclaim defenses either before the district court or the magistrate judge. As indicated ante, they were specifically limited to fuller exploration of only those counterclaim defenses raised in the district court which had been referred to the magistrate judge for further inquiry pursuant to Rule 55(c), F.R. Civ. P. Defendants’ tortious interference objection does not seem to comply sufficiently with the specifications of Rule 72(b) since filing prior submissions before the district court and the magistrate cannot qualify as the required specific objections to the R & R. Camardo v. General Motors Hourly-Rate Employees Pension Plan, 806 F.Supp. 380, 381-82 (W.D.N.Y.1992) (stating that it is “improper ... to attempt to relitigate the entire content of the hearing before the Magistrate Judge by submitting papers to a district court which are nothing more than a rehashing of the same arguments and positions taken in the original papers submitted to the Magistrate Judge”); Barratt v. Joie, No. 96 Civ. 0324, 2002 WL 335014, at *1 (S.D.N.Y. March 4, 2002) (Swain, J.) (“[w] hen a party ... simply reiterates his original arguments, the Court reviews the Report and Recommendation only for clear error”) (citing Camardo, 806 F.Supp. at 382.). Defendants’ objection to pages 29-39 of the R & R to the effect that they have not made out a meritorious defense and/or counterclaim and to pages 39-43 of the R & R to the effect that they have not shown that plaintiff would be subject to an impermissible level of prejudice (Defs.’ Obj. at 3-4) constitute generalized objections which do not require de novo review. Greene v. WCI Holdings Corp., 956 F.Supp. 509, 517 (S.D.N.Y.1997) (Edelstein, J.); see also Vargas v. Keane, No. 93 Civ. 7852,1994 WL 693885, at *1 (S.D.N.Y. Dec. 12,1994) (Mukasey, J.). However, the court has reviewed this matter de novo because dispositions on procedural grounds are generally not favored, and in view of the sum of money at stake, a study of the record and the law by both the magistrate judge and the court should provide double assurance that the final disposition is a fair one. The tortious interference defense, for example, as originally stated, was that plaintiff had caused Inverraz to fail in negotiating with SQM for the sale of the assets of Cosayach for $140 million by giving SQM notice of this litigation and requiring it not to come to an agreement in the negotiations without their consent. The evidence shows, however, that SQM was advised of litigation against Inverraz, filed on March 26, 2001, in New York state court by Bank of New York’s (“Bony”) Chilean lawyer shortly thereafter. The state court litigation is totally unrelated to this case. (Tr. at 50, 221; PL Exh. 1.) After learning on March 26, 2001, of the Bony litigation, at the next meeting of SQM and Inverraz SQM announced that it would not conclude the Cosayach negotiations without the “written permission of those who had started the lawsuit.” (Id. at 189-90, 223.) This case was not instituted until April 16, 2001, and a copy of the complaint was subsequently forwarded to SQM. In ¶¶ 42-44 of the complaint, plaintiff alleges that the proposed sale of the assets of Cosayach to SQM would violate both the 1994 and 1996 credit agreements because under the terms of those agreements, while in default in payments of the loan, Inverraz could not sell its own assets or those of certain of its subsidiaries termed “restricted subsidiaries.” By letters of April 24 and 26, 2001, Inverraz promised plaintiffs counsel that it would not sell any of Cosayach’s assets to SQM without plaintiffs prior consent. (Tr. at 56; PL Exh. 2.) Negotiations among defendants SQM and the lenders continued, but on October 5, 2001, SQM advised Inverraz that it would not close the deal. (Tr. at 36, 67; PL Exh. 6.) In its letter terminating further negotiations SQM refers to both “internal and external” difficulties as cause for its action. (Pl.Exh. 6.) Under New York law, which is controlling, a viable tortious interference with a prospective contract claim must establish a business relation with a third party, defendants’ interference with that relationship, which interference was for the sole purpose of harm to plaintiff or that improper, dishonest, or unfair means were used, and that injury to the business relationship occurred. See Astor Holdings, Inc., 2002 WL 72936, at * 19 (citing Nadel v. Play-by-Play Toys & Novelties Inc., 208 F.3d 368, 382 (2d Cir.2000) (citations omitted)). At the time of the SQM negotiations Cosayach was a Restricted Subsidiary, defined to include any Chilean company of which Inverraz directly or indirectly owned 75 percent of the voting stock or held a 75 percent financial interest. (Defs.’ Exh. G and K, § 10B). Jorge Sims, chair of the Inverraz Board, conceded that Cosayach was a restricted subsidiary (Tr. at 202, 234), and Inverraz was unquestionably in default at the time of the attempted sale. (Id. at 232.) Plaintiff had every right to insist that Cosayach assets not be sold without its permission, and its insistence that defendants adhere to their bargain cannot support a tortious interference claim, since it was an understandable attempt by plaintiff to protect its considerable financial investment. Defendants’ allegation that SQM chose not to proceed without the consent of the American lenders because, after receipt of threats from Bony and plaintiff, it did not want to jeopardize its relationships with American financial institutions (id. at 57), and the Senator’s testimony that the deal fell through because Bony and plaintiff unreasonably withheld consent (id. at 66) is belied by the record. Moreover, even if it were true, plaintiff could not be guilty of tortious interference with the contract negotiations because under the circumstances such action would have been motivated by protection of plaintiff, not harm to Inverraz. Defendants’ new hybrid “implied covenant of good faith and fair dealing and tortious interference” claim is without merit as well. This claim, a variation of the one just discussed, seems to be that plaintiff acted with a bad faith purpose because it sought as a price for giving consent to the sale of Cosayach’s assets to SQM for $140 million, $87 million of which would be applied to the $140 million owed plaintiff to extract from Inverraz additional collateral and other economic benefits to which it was not entitled, thereby violating its implied covenant of good faith and fair dealing. By withholding its consent under such circumstances, plaintiff is alleged to have “frustrated the Chilean defendants’ reasonable contractual expectations that: (a) their assets could be sold to pay their debt to the plaintiff and (b) the plaintiff would facilitate, not prevent, the sale of assets for this purpose.” (Defs.’ Obj. at 11, emphasis and caps removed). Thus, the argument concludes plaintiffs bad faith refusal deprived defendants of $140 million to pay plaintiff and other senior creditors, causing damages which constitute a complete defense to plaintiffs claims. (Id. at 12.) Defendants cite a long series of New York and federal case law, Restatement of Contracts, other treatises and a Harvard Law Review article (see id. at 19-40), discussing the implied covenant of good faith and fair dealing. Unfortunately, the cited legal authority is totally inapposite. The implied covenant of good faith and fair dealing applies to the performance and execution of an existing contract. Neither party may act to deny the other the fruits of the contract. Bank of New York v. Sasson, 786 F.Supp. 349, 353 (S.D.N.Y.1992) (Mukasey, J.). This implied covenant does not require a party to act against his own self interest even though the other party’s interest may be incidentally adversely affected by the party’s action. M/A—COM Sec. Corp. v. Galesi, 904 F.2d 134, 136 (2d Cir.1990) (per curiam); Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Pub. Co., 30 N.Y.2d 34, 46, 330 N.Y.S.2d 329, 281 N.E.2d 142 (1972). The plaintiff had the right to withhold its consent to the sale of Cosayach’s assets because under the terms of the agreements it was a restricted subsidiary which Inverraz could not sell while in default on payment of the loan. As we have seen, Cosayach was a restricted subsidiary and Inverraz was in default. There was no explicit language in the loan agreements or guaranty that the parties may not unreasonably withhold its consent, leaving it free to withhold consent for any reason and “no-implied obligation to act in good faith exists to limit the choice.” Teachers Ins. and Annuity Ass’n of Am. v. Wometco Enters., Inc., 833 F.Supp. 344, 349 (S.D.N.Y.1993) (Sprizzo, J.) (holding that a party’s insistence that, before it will consent to refinancing proposal, the other party must agree to new terms was not a breach of good faith). Nor does the covenant apply to settlement negotiations, extensions, or modifications of the existing contract. See Sasson, 786 F.Supp. at 354; Village on Canon v. Bankers Trust Co., 920 F.Supp. 520, 535 (S.D.N.Y.1996) (Koeltl, J.). Thus, this counterclaim defense cannot survive. Defendants seem confused as to the status of the case before the magistrate judge. They place great reliance on Davis v. Musler, 713 F.2d 907, 916 (2d Cir.1983), Keegel v. Key West & Caribbean Trading Co., 627 F.2d 372, 374 (D.C.Cir.1980) and cognate cases in which further fact finding was needed before the motion for default judgment could be upheld. In Keegel, the court indeed stated that defendants’ allegations as to a meritorious defense were sufficient if they contained “even a hint of a suggestion” which if proved at trial would be a complete defense. Unfortunately for defendants this case has moved beyond the status of Davis, Keegel and the others relied on. In none of those cases had there been any fact finding. Defendants had not been permitted to present any evidentiary proof in support of their contentions that they had a meritorious defense. Indeed, in Davis, the Second Circuit faulted the district judge for not using Rule 55(c) to allow further exploration of the meritorious defense claim. Defendants’ argument would have been on point if the motion to vacate the default judgment had been denied while the matter was initially before the district court without defendants being given the opportunity to provide some evidence that they had a meritorious defense. The referral to Magistrate Judge Maas was for the purpose of allowing defendants to provide evidence' that the default had not been willful, that they had a meritorious defense, and a lack of prejudice to plaintiff if the default judgment was not vacated. KeegeVs “hint of a suggestion of a meritorious defense” is no longer applicable. Defendants no longer write on a blank page. The page is filled with testimony of the principal defendants concerning their activities relevant to the loan agreements and guaranties undertaken. Defendants cannot now articulate a meritorious defense or even as a “hint of a suggestion” of such when the evidentiary record makes clear what is articulated or hinted has no merit. Although defendants must supply more than a hint of a suggestion that a meritorious defense exists, even at this stage of the proceedings they are not required to make a showing of such a defense with the finality necessary in a trial on the merits. Davis v. Musler, 713 F.2d at 916 (“a defendant seeking to vacate a default judgment need not conclusively establish the validity of the defense(s) asserted”) (internal citations omitted). When, as here, defendants have been given the opportunity to show that a viable defense exists, they are required to provide some credible indication that if the default judgment is vacated, defendants will be able at trial to establish with finality a meritorious defense which has a reasonable chance of carrying the day. This the defendants have been unable to do. They keep repeating or rephrasing the claims asserted at the outset before the district court and reiterated before the magistrate judge. The assertions are now empty cant either without support in the record or at war with the evidence thus far adduced. Since defendants have the burden of proof, their failure, when given the opportunity, to establish even the rudimentary elements of a meritorious defense is fatal. Defendants claim they have not had the opportunity to secure evidence from plaintiffs. Yet, when on April 3, 2002, preparation for the evidentiary hearing was being discussed, defendants requested only some supplemental responses from plaintiff to their interrogatories which they stated would suffice. At the April 3 conference it was clear that the magistrate judge would have ordered plaintiff to provide any evidence reasonably sought. A claim now that they did not have the opportunity to secure needed evidence to flesh out a meritorious defense will not suffice. Moreover, the court’s instructions in referring the case to Magistrate Judge Maas are clear: “the factual record regarding defendants’ seven remaining counterclaims is simply too incomplete for the court to conclude one way or the other whether they constitute meritorious defenses... .After defendants have been given an opportunity to flesh out the factual foundation for each counterclaim, Magistrate Judge Maas will decide” the nature of the defense. State Street Bank and Trust Co., at 323. There could be no misunderstanding from that language that the purpose of the reference to the magistrate judge was to provide defendants with a forum before which they could show a sufficient evidentiary basis for setting this matter down for trial on the merits. It now seems evident that defendants have failed to present proof even minimally sufficient to show the existence of a meritorious defense because they have no meritorious defense. The Senator, his son, and Sims insist on misstating the terms of the agreements, and defendants’ counsel repeats these misstatements in asserting that valid counterclaims and defenses exist, but the constant repetition of untruths cannot remove their falsity. As to the other counterclaim defenses: (1) fraudulent and negligent misrepresentations, (2) good faith and fair dealing, (3) fiduciary duty owed under the Credit and Guaranty Agreements, (4) lack of standing by plaintiff to institute this litigation without fulfilling condition precedent, (5) improper restriction in default judgment, (6) improper guarantors as defendants and (7) the issue of prejudice to plaintiff, Magistrate Judge Maas has carefully and thoroughly measured all of these issues against the evidence adduced at the May 23-24 hearing before him, made findings of fact and conclusions of law and, having considered the applicable legal principles, concluded in each instance that defendants had not met their burden of stating a meritorious counterclaim defense and that plaintiff would be subject to an impermissible level of prejudice if the default judgment was vacated. The court finds his determinations to be correct both on the facts and the law. For the reasons articulated in the R & R, the court incorporates the findings of fact and conclusions of law of the magistrate judge on those issues in the opinion and judgment of the court. The court also adopts the uncontested R & R of the magistrate judge that the default was not willful. In sum, it is the opinion and judgment of the court that while the default was not willful, defendants have failed to establish a meritorious defense or that plaintiff would not be prejudiced if the default judgment is vacated. Accordingly, defendants’ motion to vacate the default judgment is denied. IT IS SO ORDERED. REPORT AND RECOMMENDATION TO THE HONORABLE ROBERT L. CARTER MAAS, United States Magistrate Judge. I. Introduction In this action, Plaintiff State Street Bank and Trust Company (“State Street”) seeks extensive damages as a consequence of the Defendants’ default under Credit and Guaranty Agreements entered into in 1994 and 1996. On November 16, 2001, the Court (Carter, J.) granted State Street’s motion for a default judgment, and on November 30, 2001, the Clerk of the Court entered a default judgment in the total amount of approximately $140 million. On December 19, 2001, the Defendants filed a motion to vacate the default judgment which, in turn, led to the referral of certain issues to me for further inquiry. Following a two-day evidentiary hearing and a review of the parties’ extensive briefing, I have concluded that the Defendants’ motion should be denied and so recommend. II. Factual Background A. The Underlying Transactions Although the agreements between State Street and the Defendants have been described as “long and complicated,” (Tr. 136-37), the basic transactions giving rise to this suit are straightforward. In brief, State Street supplied a Chilean entity known as Inversiones Errazuriz Limitada (“Inverraz”) with two credit facilities: $50 million under a 1994 Credit Agreement and $65 million (in two -tranches) under a 1996 Credit Agreement. (Compl.lffl 16, 23). To induce State Street to enter into this financing, various Inverraz subsidiaries signed Guaranty Agreements in 1994 and 1996. More specifically, Commercial e Inmobiliaria Unimarc S.A., Pesquera Na-cional S.A., Cidef S.A., Salmones Unimarc S.A., and Industria Forestal Nacional S.A. signed the 1994 Guaranty Agreement (“1994 Guaranty”). (Defs.’ Ex. I). Each of the 1994 Guarantors, as well as Compa-ñía de Salitre y Yodo Primera Región S.A. (“Cosayach”) and Cidef Argentina S.A., signed the 1996 Guaranty Agreement (“1996 Guaranty”). (Id. Ex. F). None of the Defendants has made any payments to State Street with respect to Inverraz’s indebtedness since 1999. (Tr. 44-45, 343). To determine whether the Defendants’ motion to vacate the default judgment has merit, one must understand certain details of both the loan documents and the interactions among the parties. Accordingly, I will turn to each of these issues in turn. B. Loan Documentation 1. Credit Agreements Both loans to Inverraz were memorialized by Credit Agreements which, insofar as relevant here, are substantially similar in form. Both Credit Agreements required Inverraz to repay the loans in semiannual installments and provided that the failure to make timely payments constituted an Event of Default. (Defs.’ Exs. G ¶ 7A, K ¶ 7A). State Street was entitled to accelerate Inverraz’s indebtedness when an Event of Default occurred, in which case all of the interest and principal then outstanding, together with a “Make Whole Amount” would become immediately due and payable. (Id.). The Credit Agreements both required as a condition of closing that certain Inverraz affiliates guarantee the loans through an “Affiliate Guaranty.” (Id. ¶ 31). The 1994 Guaranty and the 1996 Guaranty are those Affiliate Guaranties. The 1994 Credit Agreement defines the Guarantors required to sign the Affiliate Guaranty as the five companies that signed the 1994 Guaranty. (Defs.’ Ex. G ¶ 10B). The 1996 Credit Agreement contains a considerably more complicated provision which defines the term “Guarantors” to include as of the first Closing Date, the Original Guarantors and, on any date thereafter, the Original Guarantors and any other Eligible Subsidiary which shall have become a Guarantor pursuant to paragraph 5L, provided that a Guarantor shall cease to be a Guarantor upon its release from its obligations under the Affiliate Guaranty in accordance with paragraph 20 thereof. (Defs.’ Ex. K ¶ 10B). Pursuant to Paragraph 5L of the 1996 Credit Agreement (and Paragraph 20 of the Guaranties), certain entities that had previously served as Guarantors of the 1996 loans might be released from further liability on any one of a number of predetermined Liability Calculation Dates. (Defs.’ Exs. F ¶20, I ¶ 20, K ¶ 5L). 2. Guaranties Under the terms of both Guaranties, the Guarantors each unconditionally agreed to pay a share of Inverráz’s indebtedness which was referred to as its “Attributable Liability.” (Defs.’ Exs. F ¶3, I ¶3). Moreover, because the Guaranties guaranteed both payment and performance, not merely collectibility, State Street was not required to attempt to collect the outstanding loan balances from Inverraz before proceeding against the Guarantors in the event of a default. (Id.). The Guaranties further provided that if, for any reason, a Guarantor fails to pay its Attributable Liability (the Guarantor in each case being referred to as the “Bankrupt Guarantor”), then the Attributable Liability of each non-Bankrupt Guarantor for the Guaranteed Obligations shall be increased by its pro rata [share of the Bankrupt Guarantor’s Attributable Liability]. (Id. Defs. Exs. F ¶ 4, I ¶ 4). Thus, to the extent that any Guarantor proved unwilling or unable to honor its Guaranty, the liability of the remaining Guarantors under that Guaranty would be proportionally increased. One key difference between the 1994 and 1996 Guaranties relates to the term “Guarantor.” Although neither Guaranty contained a definition of the term, both provided that any undefined terms “shall have the respective meanings given therefor in the [applicable] Credit Agreement.” (Defs.’ Exs. F ¶ 1, I ¶ 1). The 1994 Credit Agreement, in turn, defined the term Guarantor by listing the five companies that had signed the 1994 Guaranty. (Defs.’ Ex. I ¶ 10B). The 1996 Credit Agreement defined the “Original Guarantors” as the seven entities that signed the 1996 Guaranty. With respect to the “Eligible Subsidiaries” that might subsequently become Guarantors, Paragraph 5L(a) of the 1996 Credit Agreement provided, insofar as relevant, as follows: On each Liability Calculation Date each Eligible Subsidiary which shall be a Material Subsidiary as of such date (each, an “Eligible Material Subsidiary”) and, in the event that the percentage of Consolidated Total Assets held by such Eligible Material Subsidiaries on such Liability Calculation Date shall be less than 90 %, each other additional Eligible Subsidiary whose Total Assets, together with the Total Assets of such other additional Eligible Subsidiaries and such Eligible Material Subsidiaries, equals or exceeds 90 % of Consolidated Total Assets on such date shall become, effective as of such Liability Calculation Date, ... a Guarantor under the Affiliate Guaranty on such Liability Calculation Date. The determination of which additional Eligible Subsidiaries shall become or continue to be Guarantors shall be made on the basis of the percentage of Consolidated Total Assets ... beginning with the additional Eligible Subsidiary with the largest such percentage and continuing until the percentage of Consolidated Total Assets held by all of the Guarantors on such Liability Calculation Date equals or exceeds 90 %. (Defs.’ Ex. K ¶ 5L(a)). The term “Material Subsidiary” was defined in the 1996 Credit Agreement to include any Eligible Subsidiaries which held at least 5 % of the Consolidated Total Assets of all of the Eligible Subsidiaries. {See id. ¶ 10B). As a consequence of these provisions, after the first Liability Calculation Date, the Guarantors under the 1996 Credit Agreement included every Eligible Material Subsidiary of Inverraz. If those Eligible Material Subsidiaries did not collectively own 90 % of the Consolidated Total Assets of all of the Eligible Subsidiaries of Inverraz, then other Eligible Subsidiaries had to be added to the list of Guarantors— starting with the largest Eligible Subsidiary - until the 90 % threshold was met. (Id.). 3. Negative Covenants In addition to requiring that there be Guarantors of the Inverraz indebtedness, State Street protected its financial investment through a series of restrictive covenants in the Credit Agreements. (Defs.’ Exs. G ¶ 6, K ¶ 6). Among other limitations, Inverraz agreed that it would sell its own assets and those of certain “Restricted Subsidiaries” only under limited circumstances and only if it was not, and would not thereby become, in default of its obligations under the loans. (Defs.’ Exs. G ¶ 6(C)(4)(iv), (v), K ¶ 6(0(4)07), (v)). The Credit Agreements defined the term “Restricted Subsidiary” to include “each of the Guarantors” and any other entity in certain countries, including Chile, of which Inverraz, either directly or indirectly through other Restricted Subsidiaries, owned 75 % or more of the voting stock or held a 75 % financial interest. (Defs. Exs. G ¶ 10B, K ¶ 10B). Although the guarantors did not sign the Credit Agreements, in each Guaranty they agreed to be bound by the terms of the relevant Credit Agreement. (Defs.’ Exs. F, I ¶ 10). 4. Participation Agreements At the time of both loan transactions, State Street entered into agreements with other lenders, known as participants, pursuant to which it sold its entire interest in the loans, but nevertheless remained responsible for their servicing and collection. (Defs.’ Ex. N ¶ 4). Among other duties, State Street was specifically charged with making demands upon Inverraz and its Guarantors and enforcing the participants’ rights. {Id. ¶¶ 4(a), CD). State Street further agreed in each Participation Agreement that it would “not exercise any ... rights or powers [it] may have ... in respect of the Loan ... except at and in accordance with the written instruction of’ participants owning more than 50 % of the participation interests. {Id. ¶¶ 4(j), 17). The Participation Agreements provided, however, that “[a]ll of the understandings and agreements contained in this Agreement are solely for the benefit of the [State Street] and the Participants and there are no other parties (including [In-verraz] ) that are intended to be benefitted in any way or relieved of any obligations to [State Street] or any of the Participants.” (Id. ¶ 18). D. Inverraz’s Default Inverraz made the payments required by the Credit Agreements through 1998. Beginning in 1999, however, Inverraz failed to make four consecutive semiannual installment payments. (Tr. 230-31). Initially, State Street agreed to defer the 1999 payments in exchange for a higher interest rate. (Id. at 44). Thereafter, on January 22, 2001, following Inverraz’s continued failure to make its scheduled payments in 2000, (id. at 231), State Street accelerated Inverraz’s entire indebtedness and demanded immediate repayment of all sums then due. (Id. at 44). Despite this demand, neither Inverraz nor any of its Guarantors has repaid any portion of In-verraz’s substantial outstanding indebtedness since the notice of acceleration was sent. (Id. at 343). III. Procedural History Following Inverraz’s default, State Street commenced this action by the filing of its complaint on April 16, 2001. (Docket No. 1). On June 27, 2001, the Court “so ordered” a stipulation pursuant to which the Defendants acknowledged personal jurisdiction and service; in return, State Street extended the Defendants’ time to answer or move until June 19, 2001. (Docket No. 4). The stipulation extending time is somewhat unusual in two respects: first, rather than appearing by counsel, the Defendants signed the stipulation themselves through their corporate officers (Tr. 117-18, 303-04); second, the date by which the stipulation required the Defendants to respond had already passed when it was filed (id. at 22). Notwithstanding the extension of time that they were afforded, over the next three months the Defendants neither answered nor moved with respect to the complaint. On September 27, 2001, State Street moved for the entry of a default judgment. In an affidavit submitted in connection with this motion by one of its vice-presidents, State Street represented that the Defendants owed more than $55 million under the 1994 Credit Agreement and more than $78 million under the 1996 Credit Agreement, with interest under both Agreements continuing to accrue at the rate of more than $20,000 per day. (Affidavit of Fred Epstein, sworn to on Sept. 21, 2001, ¶¶ 41, 47). The Defendants were served with State Street’s motion papers in the manner prescribed in the stipulation extending their time to answer, but submitted no opposition papers. By order dated November 20, 2001, the Court granted State Street’s motion. (Docket No. 13). Thereafter, on November 30, 2001, the Clerk of Court signed a default judgment which was entered on the Court’s docket on December 4, 2001. (Docket No. 14). The default judgment awards the following relief: (a) under the 1994 Credit Agreement and Guaranty, judgment in the amount of $57,283,874.86, together with prejudgment interest from November 1, 2001, at the rate of $20,011.63 per day, against defendants Inverraz, Supermercados Unimarc S.A., Pesquera National S.A., Unimarc Abastecimientos S.A., Cidef SA., Salmones Unimarc S.A., Industria Forestal Nacional S.A., Forestal Regional SA., and Corporación De Inversiones Y Desarrollo Financiero Cidef S.A., jointly and severally; (b) under the 1996 Credit Agreement and Guaranty, judgment in the amount of $79,180,000.12, together with prejudgment interest from November 1, 2001, at the rate of $21,599.47 per day, against defendants Inverraz, Supermercados Unimarc S.A., Pesquera National S.A., Unimarc Abastecimientos S.A., Cidef S.A., Salmones Unimarc S.A., Cidef Argentina S.A., Corporación De Inver-siones Y Desarrollo Financiero Cidef S.A., and Sociedad Contractural Minera Compañía De Salitre Y Yodo Primera Region, jointly and severally; and (c) an order directing that the named defendants “may not sell or transfer assets of Compañía de Salitre y Yodo de Chile S.A., without plaintiffs prior consent.” (Id.). On November 8, 2001, the Law Office of Michael B. Wolk, P.C., served a notice of appearance in this action on behalf of all of the Defendants which apparently was not filed with the Clerk of the Court until December 15, 2001. (Docket No. 15). Thereafter, on December 19, 2001, Mr. Wolk moved, pursuant to Fed.R.Civ.P. 60(b), to vacate the default judgment. Rule 60(b) provides that a court may relieve a party from a final judgment for several reasons, including “mistake, inadvertence, surprise, or excusable neglect.” To determine whether a default judgment resulted from excusable neglect, courts generally consider “(1) whether the default was willful, (2) whether defendant has a meritorious defense; and (3) the level of prejudice that may occur to the non-defaulting party if relief is granted.” Am. Alliance Ins. Co. v. Eagle Ins. Co., 92 F.3d 57, 59 (2d Cir.1996)(quoting Davis, v. Musler, 713 F.2d 907, 915 (2d Cir.1983)). The burden of showing that vacatur is justified rests with the moving party. Sony Corp. v. Elm State Elec., 800 F.2d 317, 320 (2d Cir.1986). In their motion papers, the Defendants alleged that their long time United States counsel, Gibson, Dunn, & Crutcher (“Gibson, Dunn”), had unexpectedly abandoned them shortly after the filing of State Street’s motion for a default judgment. (Defs.’ Mem. 92-93). The Defendants further contended that they had eight potentially meritorious defenses or counterclaims that they wished to assert. (Id. at 75-120; Defs.’ Reply Mem. 5-12). On February 4, 2002, Your Honor issued an Opinion which indicated that the Defendants would likely be able to sustain their burden of showing that the default was not willful if they were able to establish that it was caused by their “good faith (if erroneous) expectation that Gibson, Dunn would continue to represent their interests in litigation against plaintiff’ and “their attendant inability to find new [ ] representation.” State Street v. Inversiones Errazuriz Limitada, 230 F.Supp.2d 313, 317 (S.D.N.Y.2002). Because the Defendants had not yet proffered sufficient evidence to establish that this was so, the wilfulness of the default was referred to me for further inquiry. Id. at *318.1 also was directed to consider (a) whether there was a factual basis for certain of the Defendants’ proposed counterclaims, and (b) whether State Street would suffer any unfair prejudice if the default judgment were vacated. Id. at 323. Pursuant to the reference, I authorized certain limited discovery requested by the parties and then held an evidentiary hearing on May 23 and 24, 2002. At the hearing, the Defendants called four witnesses: Jorge Sims, the Chief Executive Officer and President of Inverraz; Senator Francisco Javier Errazuriz (the “Senator”), a member of the Chilean legislature, whose family controls the Inverraz group of companies; the Senator’s son, Francisco Javier Errazuriz-Ovalle (“Francisco”), who is the General Manager of Inverraz; and Nelson Contador, a Chilean attorney who serves as outside counsel for the Inverraz group of companies. State Street’s only witnesses were Conor D. Reilly and Blake Franklin, both of whom are partners at Gibson, Dunn. My findings of fact and conclusions of law, based upon the testimony of these witnesses and the relevant exhibits, are set forth below. IV. Findings of Fact and Conclusions of Law A. Wilfulness The relationship between Gibson, Dunn and Inverraz dates back to 1983, when the Senator arrived at Blake Franklin’s office to seek assistance in the structuring of transactions to export fruit from Chile to the United States. (Id. at 8, 351). Over the next two decades, Franklin and his colleagues at Gibson, Dunn handled a variety of legal work for Inverraz in the United States. Among other assignments, Gibson, Dunn served as counsel to the Defendants in connection with both the 1994 and 1996 loans. (Id. at 8). When State Street accelerated the In-verraz debt, the Defendants naturally looked to Franklin and his firm for help. In late 2000, the Senator and Franklin met with representatives of State Street in New York City to discuss the possibility of restructuring Inverraz’s obligations. (Tr. 10-11, 353-54). During these discussions, the Senator agreed that he would sell certain of Inverraz’s assets in an effort to repay its past due debt. (Id. at 10-11). Over the next few months, Inverraz unsuccessfully attempted to close several such transactions. (Id. at 36, 293). The parties’ efforts to work out the loans continued even after this suit was filed in April 2001. Indeed, it appears that the parties were operating under an informal standstill agreement, pursuant to which State Street agreed not to pursue its remedies under the Credit Agreements and Guaranties in this lawsuit without giving the Defendants at least one week’s advance notice. (Id. at 127). The notion that the parties were proceeding cooperatively during this period is underscored by the stipulation extending the Defendants’ time to respond to the Complaint. As noted earlier, the stipulation was submitted to the Court for its approval even though the date by which the Defendants were to respond had already expired. Indeed, the principal purpose that the stipulation appears to have served was not to set a date for the Defendants to answer or move, but, rather, to secure an acknowledgment that service was effective and establish a means by which subsequent papers could be served upon the Defendants’ designated agent in the United States. As the Senator explained, the Defendants did not wish to serve an answer for fear that it would derail their ongoing discussions with State Street regarding a workout of the Inverraz loans. (Id. at 109). On July 20, 2001, State Street’s counsel sent a letter to Reilly which signaled the end of the litigation timeout and warned that both State Street and another Inver-raz creditor, the Bank of New York (“BONY”), might seek the entry of default judgments against the Defendants as early as the following week. Despite that notice, the two sides continued to engage in workout discussions. (Id. at 149). As a result, by early August, they appeared to have reached an agreement in principle, pursuant to which Inverraz would sell Co-sayach’s iodine and nitrates business to a competitor, Sociedad Química y Minera de Chile S.A. (“SQM”), and use a portion of the sale proceeds to repay State Street approximately $85 million plus $2 million in legal fees. (Tr. 59; Pl.’s Ex. 4). At or about the same time, the two sides were also discussing a possible sale of Inverraz’s supermarket subsidiary to raise further funds for repayment of the loans. (Pl.’s Ex. 9). Despite these discussions, the possibility that State Street might seek a default judgment always loomed. To make matters worse, whether Gibson, Dunn would represent the Defendants in this action was a matter within the purview of the firm’s litigators, not lawyers, such as Franklin, who had a continuing business relationship with Inverraz and the Senator. As Reilly cautioned Jose Dulanto, Inverraz’s in-house counsel, in a May 1, 2001, letter, Gibson, Dunn was unwilling to consider undertaking that assignment until “after [its] outstanding invoices have been paid.” (PL’s Ex. 8). There is a sharp dispute between the Senator and his former attorneys as to whether Gibson, Dunn was reluctant to enter the litigation fray because Inverraz was in arrears, because it knew of no potentially meritorious defense, or both. (Tr. 24, 116, 357-58). There is also a dispute as to whether Gibson, Dunn ever unequivocally told representatives of In-verraz that its litigators were unwilling to represent the Defendants in connection with this suit. (Id. at 116-19, 188). State Street points to the fact that Gibson, Dunn was unwilling to sign the stipulation extending Inverraz’s time to respond to the complaint as evidence that Gibson, Dunn’s position had been effectively communicated. The central issue, however, is not what Gibson, Dunn communicated, but whether the Defendants’ inaction went beyond “gross negligence” and amounted to a wilful default. See Am. Alliance, 92 F.3d at 61. As Your Honor recognized, this inquiry must focus, first, on whether the Defendants had a “good faith (if erroneous) expectation that Gibson, Dunn would continue to represent their interests in litigation ...” State Street, at 317. In that regard, Sims testified without contradiction that there is no distinction in Chile between corporate attorneys and litigators. (Tr. 218)(“Normally the same lawyers handle both things.”). If so, it appears reasonable for the Defendants to have assumed that their interests were being adequately protected by Gibson, Dunn throughout the lengthy period that the parties and their counsel were attempting to renegotiate the terms of the Inverraz loans. Although hindsight suggests that the Defendants would have been wise to begin seeking other counsel during this period, a good faith belief that an action will settle constitutes a reasonable basis for failing to interpose an answer. See Gonzalez v. City of New York, 104 F.Supp.2d 193, 196 (S.D.N.Y.2000)(Scheindlin, J)(“defendant’s counsel held the reasonable belief that the action would be settled, thereby obviating the need for a formal response”); Whitman v. United States Lines, 88 F.R.D. 528, 530 (E.D.Tex.1980)(defendants’ failure to answer the complaint because of good faith belief that case would be resolved by ongoing settlement negotiations constitutes “gross negligence,” but nonetheless “excusable neglect”). By September 21, 2001, when the motion for a default judgment was filed, the situation clearly had