Clark v. New York City Housing Authority

Background

La’Shaun Clark, proceeding without a lawyer, brought a tort suit against the New York City Housing Authority, New York Insulation & Environmental Services (NYIES), JLC Environmental Consultants, Inc., and Rockmill Steel Products Corp. She alleged that she was injured after exposure to asbestos and silica quartz in her former apartment from 2004 through 2012. Clark alleged that NYIES was responsible for removing asbestos-containing floor tiles but failed to do so.

NYIES did not answer the amended complaint. After Clark served the amended complaint through the New York Secretary of State, the clerk entered default against NYIES on April 21, 2021. NYIES then appeared through counsel and moved under Rule 55(c) of the Federal Rules of Civil Procedure to set aside the entry of default. No default judgment had been entered, so the court applied the less demanding “good cause” standard for setting aside an entry of default.

Legal standard and analysis

The court considered three main factors: whether NYIES’s default was willful, whether setting it aside would prejudice Clark, and whether NYIES had presented a potentially complete defense. The court also considered the preference for resolving disputes on their merits and the rule that doubts should generally be resolved in favor of the party in default.

As to willfulness, the court found that NYIES had likely acted recklessly and may have known about the lawsuit before April 5, 2021. The court noted that NYIES had received or likely received papers mailed to its office and had not corrected what it said was an outdated address listed with the Secretary of State. The court nevertheless assumed, for purposes of the motion, that the default was willful and treated that factor as favoring Clark.

As to prejudice, Clark argued that setting aside the default would cause delay, impose additional litigation costs, and harm her because of her poor health. The court found these concerns insufficient because Clark did not provide concrete evidence that the delay would cause loss of evidence, greater difficulty in discovery, or an increased opportunity for fraud or collusion. This factor favored setting aside the default.

As to possible defenses, NYIES argued that Clark could not prove causation, that NYIES owed her no duty, that her claims were barred by issue preclusion or the statute of limitations, and that she failed to state a claim. The court did not decide whether these defenses would ultimately succeed. It found, however, that NYIES had met the low threshold required at this stage. In particular, NYIES presented arguments that some claims might be time-barred and that an earlier state-court dismissal of Clark’s claims as untimely might support an issue-preclusion defense.

Ruling and directives

Judge Gorenstein concluded that the factors other than possible willfulness strongly favored setting aside the entry of default. The court therefore vacated the default entered against NYIES. NYIES was ordered to respond to the amended complaint within 21 days of the decision.

The court also directed the remaining defendants to file responses to the amended complaint, including any cross-claims, within 14 days. The parties were directed to respond to any cross-claims within 21 days and to submit separate or joint proposed discovery schedules within 28 days. The ruling did not decide the merits of Clark’s claims or NYIES’s defenses.