Strulowitz v. Flavor Boutique 796 Inc.

Background

Jason Strulowitz sued Flavor Boutique 796 Inc. and Flavor Boutique 522 Inc. under the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL). He alleged that he worked 127 hours over about two weeks in July 2018 without compensation and that Defendants failed to pay minimum wages, overtime wages, and spread-of-hours wages or provide required wage notices and statements.

Defendants disputed Strulowitz’s description of the relationship. They argued that Strulowitz and others had agreed to enter a partnership with Michael Friedlander to open a food-service establishment, and that Strulowitz was present at Defendants’ businesses to observe their operations and promote that partnership. Defendants argued that Strulowitz was never their employee.

Strulowitz filed affidavits stating that Defendants were served on October 17, 2018, making their answers due November 7, 2018. After Defendants did not respond, the Clerk entered defaults against both companies on January 8, 2019. Defendants’ counsel later appeared and moved to vacate the defaults.

Legal Standard

Under Rule 55(c) of the Federal Rules of Civil Procedure, a court may set aside an entry of default for good cause. Courts consider three factors: whether the default was willful, whether the defendant has a potentially meritorious defense, and whether setting aside the default would prejudice the other party. The court explained that these factors are applied generously because courts strongly prefer resolving disputes on their merits, and doubts generally are resolved in favor of the party in default.

Analysis

Willfulness. The court found that Defendants gave a satisfactory explanation for their delay. Michael Friedlander stated that he had not received a copy of the complaint and that the people identified in the service affidavits were not employees of either Defendant. Although Friedlander may have known by October 19, 2018, that the case had been filed, he said he believed Defendants would be served later and that he would then hire counsel. The court said Defendants’ conduct may have been negligent or careless, but it did not rise to the level of willfulness. The court noted that this was a close question.

Meritorious defense. The court held that Defendants met the low threshold for showing a potentially meritorious defense. Their affidavit and supporting correspondence provided evidence that Strulowitz may not have been Defendants’ employee and instead may have been working to promote a partnership with Friedlander. If proven at trial, the court said, the defense that Strulowitz was not Defendants’ employee for purposes of the FLSA and NYLL would completely defeat his claims because those statutes protect covered employees. The court did not consider Defendants’ other proposed defenses at that stage.

Prejudice. Strulowitz did not argue that setting aside the default would prejudice him, and the court found no basis for such a finding. The court explained that delay alone is not enough to establish prejudice; there must be a showing such as lost evidence, more difficult discovery, or a greater opportunity for fraud or collusion.

Other Requests and Disposition

The court concluded that all three factors favored setting aside the default. It therefore granted Defendants’ motion to vacate the default entered against them and ordered them to respond to Strulowitz’s complaint within 14 days. The court also ordered the parties to appear by videoconference for an initial pretrial conference.

Strulowitz requested attorneys’ fees and costs if Defendants prevailed on the motion. The court denied that request. Strulowitz also asked to file an exhibit with redactions based on confidential information and settlement-related communications. The court granted that redaction request, finding the proposed redactions sufficiently narrow. The court noted that Defendants’ references to Rules 11 and 12 were not properly presented as motions and therefore did not consider those additional requests.