Sunrise Infotech v. Hometown Medical Supplies LLC

Background

Sunrise Infotech sued Hometown Medical Supplies LLC, Reliable Medical Supply LLC, a Minnesota limited liability company, Reliable Medical Supply LLC, a California limited liability company, Lalit Goel, and Marcus Sampson. The complaint asserted nine claims for fraud and breach of contract based on work Sunrise allegedly performed for the defendants.

According to the complaint, Sunrise provided administrative services beginning in November 2016. Sunrise alleged that Hometown did not fully pay its invoices and owed $66,045 by May 2022. Sunrise also alleged that Goel and Sampson later promised to pay the invoices and related loan payments but that no payment was made. Sunrise filed the action on December 13, 2024.

The docket showed that the defendants were served between December 16, 2024, and January 8, 2025, but no defendant timely responded. The Clerk entered default against all defendants on March 18, 2025. Sunrise then moved for default judgment, which would have allowed the court to enter judgment without a trial based on the defendants’ failure to respond. Goel and Sampson opposed that motion and moved to set aside the entry of default. The three entity defendants later joined that motion.

Legal standards

Under Federal Rule of Civil Procedure 55, a court may set aside an entry of default for “good cause.” The court considered whether the defendants engaged in culpable conduct that caused the default, whether they identified a potentially meritorious defense, and whether setting aside default would prejudice Sunrise. The court also applied the policy that cases should generally be decided on their merits rather than by default, except in extreme circumstances.

Individual defendants

The court found that Goel and Sampson’s conduct did not show an intentional effort to take advantage of Sunrise, interfere with the court’s decision-making, or manipulate the legal process. Although their explanations did not excuse their failure to respond, the court concluded that their conduct was not culpable for purposes of setting aside default.

The court also found that the individual defendants had identified potentially meritorious defenses. These included arguments about service on Goel, the absence of a contractual relationship with the individual defendants, personal liability, disputes about whether the contract was breached and by whom, the availability of information that Sunrise claimed had been withheld, and alleged deficiencies in the fraud claims. The court did not decide whether those defenses were ultimately true; it found only that the defendants had met the minimal burden required at this stage.

The court further found that Sunrise would not be prejudiced by setting aside default. The case was still in its early stages, and delay alone was not enough to show prejudice. The court therefore set aside the entry of default as to Goel and Sampson.

Entity defendants

The court said that Hometown, Reliable Minnesota, and Reliable California had provided little explanation for their failure to appear. Their joinder did not address why they allegedly lacked knowledge of the case until May 28, 2025, or counter Sunrise’s assertion that they had been properly served.

Nevertheless, the court exercised its discretion to set aside default as to the entity defendants. They had appeared before default judgment was entered, indicated that they intended to defend the case, and there was no indication that they intentionally chose not to defend. The court also found that the defendants’ potential liability was intertwined and that allowing all defendants to litigate the merits would promote effective resolution of the case.

Default judgment

The court denied Sunrise’s motion for default judgment. It had already found that the relevant factors generally favored setting aside default, including the possibility of defenses, potential factual disputes, and the absence of prejudicial delay. The amount at stake—more than $100,000—favored default judgment, but the court found that nearly all other factors either favored denial or were neutral. The court also emphasized the strong preference for decisions on the merits now that the defendants indicated they were prepared to defend the action.

Disposition

Judge Virginia Demarchi granted defendants’ motion to set aside default and denied Sunrise’s motion for default judgment. The order did not decide whether Sunrise would ultimately prevail on its fraud or breach-of-contract claims. All defendants were ordered to file a response to the complaint by July 31, 2025.