Abuladze v. Apple Commuter, Inc..

Background

The plaintiffs brought claims under the Fair Labor Standards Act and the New York Labor Law against multiple companies and individuals, including S&G Hotel Corp. a/k/a St. James Hotel, Apple Commuter Inc., and Biren J. Shah. The defendants’ motion to dismiss the second amended complaint was granted in part and denied in part, and only the New York Labor Law claims remained.

The clerk entered a certificate of default against S&G on March 6, 2024, after S&G had not appeared or answered. S&G later retained counsel, appeared in the case, and asked the court to vacate the certificate of default and extend its time to answer. The plaintiffs agreed not to seek a default judgment against S&G and consented to an extension of time.

Legal Standard

Under Federal Rule of Civil Procedure 55(c), a court may set aside a certificate of default for “good cause.” Courts consider whether the default was willful, whether the defendant has a potentially meritorious defense, and whether setting aside the default would prejudice the non-defaulting party. The standard is more lenient for setting aside a certificate of default than for vacating a default judgment. Defaults are generally disfavored because courts prefer resolving disputes on their merits.

Analysis

The court found that S&G’s failure to respond was not willful. S&G represented that it mistakenly believed the service papers related to an earlier lawsuit that had been settled. Although S&G did not explain why it failed to contact the plaintiffs’ counsel to confirm that belief, the court resolved doubts in S&G’s favor and accepted that S&G misunderstood its obligation to respond.

The court also found that S&G had shown a potentially meritorious defense. S&G asserted that it merely rented space to Apple and Shah and denied overseeing, supervising, directing, disciplining, or otherwise controlling the plaintiffs. The court explained that renting space alone would not necessarily defeat joint-employer status, but S&G’s rental argument combined with its denial of involvement could support a finding that it was not a joint employer. That was enough to satisfy the relatively low standard for showing a meritorious defense at this stage.

Finally, the court found no prejudice to the plaintiffs. The plaintiffs had agreed not to seek a default judgment, the case was still in its early stages, discovery had not begun, and only one week had passed between entry of the default certificate and S&G’s appearance.

Ruling

The court granted S&G’s motion to vacate the clerk’s certificate of default. It also granted S&G’s motion for an extension of time to answer the second amended complaint, effective as of the earlier date, and gave S&G until April 15, 2024, to answer. The ruling addressed S&G’s default and deadline; it did not decide the merits of the plaintiffs’ New York Labor Law claims.