Baez v. RCO Restoration Corp.

Background

Richard Baez sued RCO Restoration Corp., William Morocho, and Darwin Doe under the Fair Labor Standards Act and New York Labor Law, alleging wage violations. The court later dismissed Morocho and Doe without prejudice for failure to prosecute, then reopened the case against them. After amended summonses and the complaint were served, the defendants did not appear or respond. The Clerk entered a default against all defendants.

The court later entered a default judgment against RCO and Morocho as to liability. After a damages review by Magistrate Judge James L. Cott, the court adopted a recommendation awarding Baez $61,287.50 and the Clerk entered a default judgment. RCO then moved to vacate its default and requested an extension of time to answer or otherwise respond. The opinion states that Morocho filed nothing and that the parties’ papers did not discuss him.

Legal Standard

The court explained that relief from a final default judgment is generally considered under Rule 60(b) of the Federal Rules of Civil Procedure, while an entry of default is generally addressed under Rule 55(c). Because a damages review had already occurred and a default judgment had been entered, the court treated Rule 60(b) as the appropriate avenue for relief. The court nevertheless applied the same three factors used for both types of relief: whether the default was willful, whether setting it aside would prejudice the opposing party, and whether the defendant presented a potentially valid defense.

Court’s Analysis

The court found that RCO’s default was not willful. RCO’s current owner, Rayza Pena Espinosa, stated that he purchased RCO in June 2021 without information about the lawsuit or the default and learned of the case only after the company’s bank froze approximately $61,000 in assets on December 15, 2021. Espinosa immediately retained counsel. After Baez’s counsel declined to consent to vacating the default, RCO filed its motion on December 29, 2021. The court recognized that service through the New York Secretary of State could be proper, but stated that actual notice and the defendant’s conduct after learning of the lawsuit were important to determining willfulness.

The court also found no sufficient prejudice to Baez. Baez argued that the delay could cause lost evidence, create opportunities for fraud or collusion, and make it harder for RCO to pay. The court concluded that these arguments were speculative. It noted that RCO had submitted time and pay records and that Baez would generally be in the position he would have occupied if RCO had answered on time, although the case would proceed after a delay.

Finally, the court found that RCO had presented a meritorious defense, meaning evidence that, if proven, could provide a complete defense to the claims. RCO denied Baez’s allegations and submitted time and pay records that appeared to show different pay amounts and fewer hours than Baez alleged. Espinosa also stated that the records showed Baez worked only 32- or 40-hour weeks and was not an employee until 2019, which could undermine claims for earlier periods. The court acknowledged that the handwritten records were not entirely clear but concluded that they were enough to satisfy the low threshold for showing a potentially valid defense.

Disposition

Judge Vernon S. Broderick granted RCO’s motion to vacate its default. The court also granted RCO’s motion for an enlargement of time to answer or otherwise respond to the complaint. RCO was directed to answer, move, or otherwise respond within 14 days of the order. The opinion does not state a separate disposition of Morocho’s status in this order.