Delve Health, LLC v. Graham

Background

Delve Health filed a petition asking the court to require Perry Graham to arbitrate disputes under their contract in Hennepin County, Minnesota, and to stop pursuing an arbitration that Graham had started in California. Delve alleged that Graham had violated the contract by working with a competitor and that he had caused Delve legal fees and other costs by starting the California arbitration.

Graham did not respond by the January 4, 2022 deadline. The Clerk entered default against him on February 2, 2022. Delve then moved for a default judgment seeking orders concerning the location and conduct of arbitration, damages, legal fees, and other relief. On June 28, 2022, Graham filed an answer and counterclaims, and he opposed Delve’s motion.

Court’s analysis

A default judgment is a judgment entered when a party fails to defend. The court explained that such judgments are generally disfavored because courts prefer deciding disputes on their merits. A court may set aside a Clerk’s entry of default when there is good cause. Relevant considerations include whether the delay was blameworthy, whether the responding party has a potentially meritorious defense, and whether setting aside the default would prejudice the other party.

The court found that Graham’s delay was not a model of proper conduct, but the record did not show that it was intentional or contumacious. Graham had retained counsel, appeared in the case, filed an answer and counterclaims, and demonstrated a desire to defend the case. The court also found that his argument under the Minnesota Termination of Sales Representatives Act could provide a potentially meritorious defense. Graham argued that the statute allowed him to choose court litigation instead of arbitration over his objection. The court did not decide whether that defense would ultimately succeed or whether Delve could compel arbitration.

The court further found no legally sufficient prejudice to Delve. The record did not show that evidence would be lost, discovery would be impaired, or fraud or collusion would result. The additional expense of litigating the case on its merits was not enough, and the costs Delve sought to recover were part of its underlying claims.

Disposition

The court found good cause to set aside the default. It ordered that the Clerk’s entry of default against Graham be set aside and that Delve’s motion for default judgment be denied as moot. The court also canceled the scheduled August 11, 2022 hearing. The order did not decide the parties’ contract claims, counterclaims, or the ultimate question whether the dispute must be arbitrated.