Trustees Of The New York City District Council Of Carpenters Pension Fund v…

Background

The Funds obtained a default judgment against Alite Flooring, LLC and Alite Floor LLC on June 14, 2022. The judgment was entered jointly and severally for $5,307,891.64, plus $6,502.42 in attorneys’ fees and costs. The amount reflected Alite’s alleged delinquent hourly benefit contributions. Alite Floor’s liability was based on its alleged status as Alite’s alter ego. The judgment also required Alite Floor to submit books and records for an audit.

Approximately two months after judgment, the defendants appeared through counsel and moved under Federal Rules of Civil Procedure 55(c) and 60(b) to vacate the certificates of default and the default judgment. Their motion included a proposed answer.

Reasons for Vacating the Default

The court applied the good-cause factors used for setting aside a default: whether the default was willful, whether the defendant has a potentially meritorious defense, and whether vacating the default would prejudice the non-defaulting party.

On willfulness, Michael Malgieri, who described himself as Alite’s sole owner, stated that Alite had experienced the deaths of a former co-owner and three senior employees. He also described a family tragedy and his brief hospitalization for COVID-19. Malgieri said that an accountant read the lawsuit to him over the phone, that he mistakenly believed it concerned an earlier settlement with the Union, and that he did not understand the document to be a separate lawsuit until approximately August 9, 2022. The Funds argued that these circumstances did not explain the companies’ failure to appear because Alite had continued doing business. The court nevertheless concluded that the defendants’ failure resulted from negligence and inattention, not an egregious or deliberate disregard of the litigation.

On potentially meritorious defenses, the defendants argued that the Funds had not shown that Alite was bound by a collective bargaining agreement covering 2017 through 2024. Malgieri stated that he could not locate such an agreement and did not remember signing one, and he noted that some agreements submitted by the Funds were unsigned. The defendants also identified alleged errors in the Funds’ audits, including the treatment of incentive pay, failures to credit payments, and problems with the estimated audit. Regarding Alite Floor, Malgieri stated that the two companies did not share an address, employees, customers, or projects, and that he was not an owner or manager of Alite Floor. The court found that these defenses and supporting documents were sufficient to favor vacating the default.

On prejudice, the Funds relied mainly on delay, frustration from the defendants’ failure to appear, and alleged withdrawals from Alite’s bank accounts. The court stated that delay alone was insufficient and noted that the defendants moved to vacate less than two months after judgment. The Funds also argued that Alite had closed a Chase account and withdrawn approximately $1.4 million during March 2022 to frustrate enforcement. Malgieri responded that Chase—not Alite—closed the account and that the withdrawals primarily paid creditors, including a $538,044.66 judgment. The court found that these explanations, considered with the bank records and with doubts resolved in the defendants’ favor, credibly supported the conclusion that vacating the default would not prejudice the Funds.

Ruling

Judge P. Castel granted the defendants’ motion to vacate the certificates of default and the entry of default judgment. The Clerk was directed to terminate the motion and amended motion and to reopen the case. The court also stated that vacating the default did not impair any remedy available to the Funds, including a possible fraudulent-conveyance claim. The order did not decide whether the Funds’ claims or the defendants’ defenses would ultimately prevail.