Lin v. Grand Sichuan 74 st Inc.

Background

Former employees of two Grand Sichuan restaurants sued the restaurants’ alleged owners and operators, asserting violations of the Fair Labor Standards Act, New York Labor Law, and other claims. After some defendants settled, the plaintiffs sought default judgment against the remaining defendants. The court granted default judgment on most claims in July 2019, later adopted a damages recommendation, entered final judgment for the plaintiffs in February 2021, and closed the case.

Three defendants—Yong Shu Li, Yong Li Li, and Li Jiang—later moved to vacate the default judgments, arguing that service problems had prevented them from receiving notice of the case and the default-judgment proceedings. In September 2021, the court vacated the judgments against those three defendants and dismissed Yong Shu Li from the case. The court also identified possible service problems involving Guang Jun Li and Cheng Chen and directed the plaintiffs to explain why their default judgments should not be vacated and why the final judgment should not be vacated.

Service on Guang Jun Li and Cheng Chen

The court concluded that Guang Jun Li and Cheng Chen had never been properly served with the Second Amended Complaint, which was the first complaint naming them as defendants. The plaintiffs had attempted service by leaving papers at residences and mailing them, but the court had repeatedly found that the required diligence for that method of service had not been shown. The court had also ordered the plaintiffs to serve the complaint and summons again and file proof of service.

The plaintiffs did not provide proof that they had served the complaint and summons after those orders. Instead, the documents they filed in April 2019 showed service of the notice of motion for default judgment. The court had apparently relied on those documents when it previously granted default judgment, mistakenly treating them as proof that the complaint and summons had been served.

The plaintiffs argued that service in December 2016 had been proper because the process server could not find Guang Jun Li’s workplace and because Cheng Chen might have received notice through service on a company at a former workplace. The court rejected those arguments. It stated that actual notice does not cure defective service and found no basis to conclude that Cheng Chen received proper service merely because another defendant had been served at the same address.

Because proper service is required for the court to exercise personal jurisdiction, the court held that the default judgments against Guang Jun Li and Cheng Chen were void from the beginning. It therefore vacated those default judgments under Federal Rule of Civil Procedure 60(b)(4).

Opportunity to serve again

The court stated that it could dismiss the claims against Guang Jun Li and Cheng Chen because the plaintiffs had repeatedly failed to complete service and comply with court orders. However, because the court itself had mistakenly granted default judgment based on an assumption that service was complete, and because dismissal could raise statute-of-limitations concerns, it gave the plaintiffs one final opportunity. The plaintiffs must serve both defendants with the complaint and summons in compliance with Federal Rule of Civil Procedure 4 within 30 days. If they do not, the claims against those defendants will be dismissed without prejudice.

Vacating the final judgment against all defendants

The court also vacated its February 11, 2021 order entering final judgment against all defendants. When that judgment was entered, no defendants were actively litigating. By the time of this order, however, Li Jiang and Yong Li Li had appeared and indicated that they intended to defend the claims on the merits.

The court relied on Federal Rule of Civil Procedure 54(b) and the principle associated with Frow v. De La Vega. Those rules and principles address when a court should enter final judgment against some defendants while claims involving other defendants remain unresolved. The court found a risk of inconsistent judgments and damages awards if final judgment remained in place against the defaulting defendants before the claims involving the appearing defendants were resolved.

The court emphasized that the earlier order granting default judgment remained valid as to the liability of the four remaining non-appearing defendants: Grand Sichuan 74 St. Inc., Grand Sichuan 75 St. Inc., Grand Sichuan NY Inc., and Guang Li Li. But final judgment, including the determination of damages, must wait until the litigation involving Li Jiang and Yong Li Li is resolved.

Disposition

The court vacated the default judgments against Guang Jun Li and Cheng Chen; ordered the plaintiffs to serve them within 30 days or face dismissal without prejudice; and directed the Clerk of Court to vacate the entry of final judgment as to all defendants. Judge Ronnie Abrams did not decide the underlying wage claims in this order.