Kersch v. FOXO Technologies Inc.

Background

Mitchell Kersch sued FOXO Technologies Inc. for alleged breach of a promissory note dated September 20, 2022. FOXO was served through its registered agent in Delaware but did not respond to the complaint by the deadline. On August 26, 2024, the Clerk entered a certificate of default against FOXO. A certificate of default records a party’s failure to defend; it is not itself a final default judgment.

FOXO later appeared through counsel and moved under Federal Rule of Civil Procedure 55(c) to set aside the certificate of default. It also moved under Rule 6(b)(2) for additional time to answer the complaint. FOXO’s current chief executive officer stated that the registered agent did not have FOXO’s correct contact information, so FOXO’s management did not receive the summons and complaint. FOXO learned of the lawsuit in mid-October 2024 and retained counsel in December 2024.

Legal standard

For an entry of default, Rule 55(c) permits the court to grant relief for “good cause.” Courts consider whether the default was willful, whether the defendant has a meritorious defense, and whether setting aside the default would prejudice the other party. Courts also generally prefer resolving disputes on their merits. This standard applies because no final default judgment had been entered.

Court’s reasoning

The court found that FOXO’s default was not willful. FOXO’s failure to update its registered agent’s contact information was negligent, but the court did not find bad faith or deliberate conduct.

The court also found that FOXO had shown a meritorious defense, meaning a potentially valid defense sufficient at this stage. More than 50.01% of the holders of the senior payment-in-kind notes approved an amendment. Under that amendment, the notes were to be exchanged for shares after shareholder approval, and all of the notes, including accrued and unpaid interest, were then to be canceled and satisfied in full. FOXO’s shareholders approved the conversion on January 17, 2025. The court concluded that Kersch’s note appeared to have been canceled and satisfied in full on January 21, 2025, so the lawsuit appeared to have become moot. The court did not finally decide mootness or the alleged breach; it treated the circumstances as a potentially valid defense to the default.

Finally, the court found that Kersch had not shown any prejudice from setting aside the certificate of default.

Ruling

Judge Henry J. Ricardo granted FOXO’s motion to set aside the Clerk’s Certificate of Default and also granted FOXO’s motion to extend its time to answer the complaint. FOXO was ordered to respond by February 18, 2025. The order did not enter a default judgment for Kersch, dismiss the case, or resolve the underlying contract dispute.