Zweig v. Yosi Inc

Background

Yosi, Inc. hired David Zweig as its chief strategy officer in September 2016. Their employment agreement stated that Zweig’s primary business office and normal place of work was in Piedmont, California. It provided for a base salary of $140,000 per year, plus sales commissions and expenses, and called for a severance payment equal to two months of base salary if Zweig ended the agreement for “good reason.” Zweig resigned in August 2017, stating that Yosi had not paid him for nine months.

Zweig filed this action in the Northern District of California. After several unsuccessful attempts to serve Yosi’s CEO, process servers served Yosi director Jonathan Feistmann with the summons and complaint in December 2017. Yosi did not answer or otherwise appear. The clerk entered default, and Zweig later amended his complaint and obtained another entry of default after serving the amended complaint on Feistmann.

In June 2018, Magistrate Judge Maria-Elena James recommended granting Zweig’s motion for default judgment in part. She recommended awards for unpaid wages, severance, liquidated damages, prejudgment interest, and court costs, but not attorney’s fees or unreimbursed expenses. Judge Alsup adopted the recommendation in full and entered a default judgment for $172,977.36 on July 5, 2018.

Yosi never appeared in the federal case or appealed the judgment. Its counsel contacted Zweig shortly after judgment was entered, and Yosi later appeared in a New York proceeding involving enforcement of the judgment. Yosi filed its motion in this case 363 days after entry of the default judgment.

Yosi’s Motion

Yosi moved under Rules 55 and 60 to set aside the entry of default and the default judgment. It argued that it had not been properly served, that it lacked sufficient legal sophistication to appear without counsel, and that it had defenses involving personal jurisdiction, subject-matter jurisdiction, arbitration, Zweig’s alleged breach of contract, and the amount owed.

Court’s Analysis

Rule 60(b)(1) permits relief from a final judgment for reasons including mistake, inadvertence, surprise, or excusable neglect. Rule 60(c)(1) requires a motion under that provision to be filed within a reasonable time and, for this type of reason, no more than one year after entry of the judgment.

Judge Alsup held that Yosi did not file its motion within a reasonable time. Yosi knew about the lawsuit from the outset, when its CEO emailed Zweig’s attorney acknowledging the filing. Yosi also received formal or informal notice of multiple developments, including motions, court orders, and the default-judgment proceedings. The court found that waiting 363 days after entry of judgment was unreasonable.

The court separately held that Yosi did not establish excusable neglect. Yosi’s failure to respond was deliberate rather than negligent. The court rejected Yosi’s argument that it could rely on its lack of legal sophistication, noting that Yosi had consulted a lawyer but still waited eleven months to appear.

The court also rejected Yosi’s service argument. It held that serving a corporation’s director constituted proper service under the cited federal and New York service rules and that service was not required to be made only on the CEO. The court found that Zweig had identified Feistmann as a Yosi director before directing process servers to serve him.

Judge Alsup stated that the delay under Rule 60(c) and the lack of excusable neglect under Rule 60(b) were each independently dispositive. The court therefore did not need to decide whether Yosi had a meritorious defense to the default judgment. The court nevertheless briefly rejected Yosi’s personal-jurisdiction argument, concluding that Yosi’s installation of Zweig as its California representative and authorization for him to advance its business interests in California were sufficient to establish specific jurisdiction. It also stated that subject-matter jurisdiction was properly based on diversity jurisdiction and that the amount in controversy exceeded the statutory minimum. Regarding arbitration, the court stated that the arbitration clause was a contractual matter that did not eliminate personal jurisdiction and that Yosi’s failure to appear and seek arbitration could arguably constitute waiver or estoppel.

Disposition

The court denied Yosi’s motion to set aside the entry of default and default judgment.