Gadre v. Hexanika, Inc.

Background

Makarand Gadre sued Hexanika, Inc., alleging violations of New York City’s Freelance Isn’t Free Act, breach of contract, and promissory estoppel. Gadre alleged that he worked for Hexanika as a consultant beginning in January 2015, was later assigned the role of Chief Technology Officer, and was not fully paid under the consulting agreement. He claimed that Hexanika owed him $125,000 in unpaid wages.

Hexanika was served through its registered agent but did not timely answer or make another response. The Clerk entered default. Gadre then moved for default judgment. Hexanika opposed the motion, and the court treated that opposition as a motion under Rule 55(c) of the Federal Rules of Civil Procedure to set aside the entry of default.

Court’s Analysis

Under Rule 55(c), an entry of default may be set aside for “good cause.” The court considered three factors: whether the default was willful, whether Hexanika had a potentially complete defense, and whether setting aside the default would prejudice Gadre. The court also considered the strong preference for resolving disputes on their merits.

The court found that Hexanika’s failure to maintain accurate information about its registered agent was negligent or careless, not an intentional attempt to avoid service. The court also found that the delay in hiring counsel was not egregious or deliberately undertaken in bad faith. The court therefore concluded that the default was not willful.

Hexanika identified two possible defenses: that Gadre failed to perform properly because he wrote defective code, and that he improperly used the company owner’s electronic signature on unspecified documents. The court rejected the first defense because unclean hands is an equitable defense unavailable in an action seeking money damages. It rejected the second because Hexanika offered only a conclusory assertion and did not explain which documents were allegedly false or how disregarding them would completely defeat Gadre’s claims. The court therefore found that Hexanika had not shown a meritorious defense.

The court also found no sufficient prejudice to Gadre. Gadre argued that delay might allow Hexanika to hide or transfer assets, but the court found no concrete reason to believe Hexanika was doing so. The court also found no reason to conclude that delay would cause evidentiary or discovery problems.

Disposition

The court stated that the absence of a meritorious defense made the issue a close call. Nevertheless, because Hexanika’s default was not willful, reopening the case would not prejudice Gadre, and courts generally prefer resolving disputes on their merits, the court found default judgment inappropriate at that time.

Judge J. Paul Oetken denied Gadre’s motion for default judgment, set aside the entry of default, directed the Clerk to close the motion, and ordered Hexanika through counsel to move, answer, or otherwise respond to the complaint within 21 days. The opinion did not decide the merits of Gadre’s underlying claims.