Salazar v. 203 Lena Inc.

Background

Anyela Salazar, Anel Hernandez, Robert Enmanuel Emiliano, and Carolina Pichardo sued Dario Oleaga and 203 Lena Inc., doing business as Cocina Taller, under the Fair Labor Standards Act (FLSA) and the New York Labor Law (NYLL). The case was initially brought against Oleaga, 203 Lena, and Pedro Abel, but the amended complaint named only 203 Lena and Oleaga as defendants.

The defendants initially answered through counsel. Their counsel later withdrew, and the court ordered 203 Lena to obtain new counsel and instructed Oleaga to update his address if he chose to proceed without a lawyer. Neither complied. The court then entered default against the defendants after they failed to respond to additional orders and did not oppose the plaintiffs’ request for default judgment or attend the January 3, 2020 hearing.

After that hearing, the court granted the plaintiffs’ motion for default judgment in part as to liability and referred the case to Magistrate Judge Cott for an inquiry into damages. Before that inquiry occurred, Oleaga—represented by Lawrence Morrison, 203 Lena’s bankruptcy counsel—moved to set aside the entry of default and vacate the partial default judgment as to liability.

Legal standard

The court applied Federal Rule of Civil Procedure 55(c), which allows a court to set aside an entry of default for “good cause.” The court concluded that Rule 55(c), rather than the more demanding standard for setting aside a final judgment under Rule 60(b), applied because the court had decided liability but had not yet completed the damages inquiry.

The court considered three factors: whether Oleaga’s default was willful, whether he showed a meritorious defense, and whether setting aside the default would prejudice the plaintiffs. Defaults are generally disfavored, but the court evaluated these factors based on the circumstances of this case.

Court’s analysis

The court found Oleaga’s failure to participate was willful. He had been served, had initially been represented, and received—or was associated with counsel who received—multiple orders after the bankruptcy-related stay was lifted. He did not update his address, seek an extension, respond to the orders, oppose the order to show cause, or attend the hearing. The court rejected his explanation that he believed the bankruptcy case had stopped the entire lawsuit or that the FLSA case had been dismissed. The court also noted that an employee of 203 Lena appeared at the hearing, indicating that the defendants had notice that the case was proceeding.

The court also found that Oleaga had not shown a meritorious defense. He asserted that he was a manager, not an officer or shareholder of 203 Lena, and therefore had no liability. The court held that this assertion, without supporting evidence, was insufficient. Under the FLSA and NYLL, whether an employment relationship exists depends on the economic reality of the relationship, including the alleged employer’s power to hire and fire, control over work conditions and schedules, control over pay, and maintenance of employment records. Oleaga offered no evidence showing that he could establish a complete defense under that standard.

Finally, the court found that setting aside the default would prejudice the plaintiffs. The case had been pending for nearly four years, the defendants had not produced discovery, and Oleaga had been absent for more than three years. The court concluded that vacating the default would cause unreasonable delay, make discovery more difficult, and allow Oleaga to relitigate liability after the plaintiffs had proceeded to the damages stage.

Disposition

The court denied Oleaga’s motion to set aside the Clerk’s entry of default and the default judgment. The damages inquiry before Magistrate Judge Cott will proceed. The Clerk was also directed to terminate the motion and terminate Pedro Abel as a defendant because he was no longer a named defendant in the action.