EDJX, Inc. v. 6x7 Networks, LLC

Background

EDJX’s First Amended Complaint asserted seven causes of action against 6X7 Networks, LLC; six of those claims were also asserted against Benjamin P.D. Cannon, identified in the opinion as 6X7 Network’s Chief Executive Officer. EDJX alleged that it was fraudulently induced to enter a contract under which 6X7 Networks would provide telecommunications services, and that 6X7 Networks later failed to provide the promised services.

Cannon was served on May 10, 2022, and 6X7 Networks was served on October 7, 2022. Neither defendant had appeared when EDJX requested entry of default. On February 27, 2023, the clerk entered defaults against both defendants. The defendants later moved to set aside what they called the “Clerk’s Entry of Default Judgment.” Because the clerk had not entered a default judgment, the court treated the filing as a motion to set aside the entries of default. EDJX opposed the motion, and the defendants did not file a reply.

Legal standard

Under Federal Rule of Civil Procedure 55(c), a court may set aside an entry of default for “good cause.” The court considered three factors: whether setting aside the default would prejudice EDJX, whether the defendants had a potentially valid defense, and whether the defendants’ culpable conduct caused the default. The court explained that this test is applied liberally because default judgment is a severe remedy intended for extreme circumstances.

Court’s analysis

First, EDJX asserted that it had been harmed by the defendants’ failure to participate in the case for more than a year. The court acknowledged that the delay was significant but found that EDJX had not identified any specific or tangible harm that would result from setting aside the defaults. This factor favored the defendants.

Second, the defendants relied on a declaration from their lawyer stating that Cannon was prepared to provide evidence that EDJX received the contracted-for services, expressed satisfaction with them, and terminated the services because of nonpayment. The defendants also stated that they were prepared to file a response to EDJX’s claims. The court found that these assertions were sufficient at this stage to identify a legally recognizable defense. This factor also favored the defendants.

Third, the court noted that the defendants had not explained why Cannon waited more than a year to participate or why 6X7 Networks waited several months. But the court found no evidence that the defendants acted in bad faith. Under the applicable standard, a defendant is not culpable merely for consciously failing to answer; culpability requires bad faith, such as an intent to take advantage of the plaintiff, interfere with judicial decision-making, or manipulate the legal process. This factor likewise favored the defendants.

Ruling

Judge Maxine Chesney granted the motion, set aside the defendants’ defaults, and directed the defendants to file responses to the First Amended Complaint no later than 21 days from the date of the order. The court also vacated the hearing scheduled for June 16, 2023.