Phoenix Fashion, Inc. v. Saadia Group LLC

Background

Phoenix Fashion, Inc. sued Saadia Group LLC; New York & Company Stores, Inc.; Fashion to Figure Ecomm LLC; Lord & Taylor Ecomm LLC; and Yakoub N. Saadia for breach of contract and intentional misrepresentation. The defendants did not timely answer or otherwise respond, so the Clerk entered certificates of default against them on November 30, 2023.

The parties later stipulated to set aside those certificates, and the defendants agreed to answer by February 23, 2024. The defendants missed that deadline. Phoenix Fashion again sought certificates of default, which the Clerk entered on March 5, 2024. The defendants filed their answer later that day and then formally moved under Federal Rule of Civil Procedure 55(c) to set aside the new certificates. Phoenix Fashion separately moved for default judgment.

Legal standard

Because no final default judgment had been entered, the court applied Rule 55(c)’s “good cause” standard for setting aside an entry of default. The court considered whether the failure was willful, whether the defendants had a potentially complete defense, and whether setting aside the defaults would prejudice Phoenix Fashion. The court also considered equitable factors, including the preference for resolving disputes on their merits rather than by default.

Court’s analysis

The court found that the defendants’ failure to meet the February 23 deadline was not willful. Their attorney stated that she had prepared the answer before the deadline but failed to file it because of confusion and law-office error. The court characterized this as carelessness, not deliberate or egregious conduct.

The court found that the defendants had not shown a meritorious defense. The defendants had waived personal-jurisdiction defenses in their earlier stipulation. Their general objection that the complaint was vague did not identify a complete defense, and their argument about a reference to a four-year period did not establish a defense because that period reflected the statute of limitations. Their challenges to damages and prejudgment interest also did not constitute complete defenses, although defendants could still dispute damages.

The court nevertheless found that Phoenix Fashion had not established legally cognizable prejudice. Phoenix Fashion argued that a state-court injunction obtained by a secured creditor could allow the creditor to seize most or all of the defendants’ assets, potentially affecting Phoenix Fashion’s recovery. The court held that this concern was unsupported speculation. It also noted that delay alone is insufficient prejudice and that setting aside the defaults would not prevent the case from being resolved on an accelerated schedule.

Disposition

Balancing the factors, the court concluded that the defendants had shown good cause. The court granted the defendants’ motion to set aside the entries of default and denied as moot Phoenix Fashion’s motion for default judgment. The Clerk was directed to set aside the certificates of default and close the two motions. The court also scheduled a telephonic status conference for April 15, 2024, to address how the case could proceed promptly on the merits.