Neal v. 18 Susan CT LLC

Background

A clerk’s certificate of default had been entered against 18 Susan CT LLC and Michael Fernandes. David Shaun Neal and Cathy Chan then asked the court to enter default judgment. Before that request was resolved, the defendants filed an answer and counterclaim after the deadline. The defendants’ response to the court’s order to show cause was styled as a cross-motion seeking permission to file the late answer, denial of the plaintiffs’ sanctions request, and sanctions against the plaintiffs.

Reasons for Vacating the Default

The court treated the request to file a late answer as closely similar to a request to set aside an entry of default under Federal Rule of Civil Procedure 55(c). The court considered whether the default was willful, whether setting it aside would prejudice the plaintiffs, and whether the defendants had presented a potentially meritorious defense.

The court found good cause to vacate the default and permit the late answer. It credited the defendants’ explanation that Fernandes, while proceeding without a lawyer, believed that an answer served in March for himself and the limited liability company was sufficient. After learning that it was not, he retained the Levin Law Group. The court also found that the defendants acted promptly after being notified of the order to show cause and that the plaintiffs had not shown prejudice sufficient to prevent vacatur. The court noted that delay alone did not establish prejudice.

The defendants identified possible defenses concerning the alleged contracts, including that the contracts were not attached to the complaint, that the claims might be subject to a statute-of-frauds defense, and that the parties had modified the alleged agreements. The court stated that whether a contract existed and whether later writings or conduct modified it were merits disputes better resolved after discovery, not at the pleading stage.

Sanctions and Disposition

The court denied without prejudice the defendants’ request to deny the plaintiffs’ sanctions request because the plaintiffs had not filed a sanctions motion on the court’s docket. The court considered the plaintiffs’ request to withdraw the defendants’ answer as moot because it accepted the late answer.

The court denied the defendants’ request for sanctions against the plaintiffs. It found no basis for sanctions based on the defendants’ allegation that the plaintiffs committed perjury concerning counsel and earlier, unrelated state-court cases. The court admonished all parties and counsel that further correspondence or motion practice containing personal attacks could lead to sanctions and reminded them of their duty of civility.

The plaintiffs’ motion for default judgment was DENIED without prejudice. The defendants’ cross-motion was GRANTED as to accepting the late answer and vacating the clerk’s entry of default, and DENIED as to imposing sanctions against the plaintiffs. The court accepted the May 14, 2025 Answer and Counterclaim as the operative pleading and deemed it filed. The plaintiffs were directed to answer or otherwise respond to the counterclaim by July 9, 2025. The clerk was directed to vacate the certificate of default and terminate the pending motions.