Chen v. Mah., 457 P.3d 796

Background

Chen sued Mah and his corporation for breach of an oral compensation agreement and related claims after alleging underpayments and withholding of accounting; complaint asserted 12 counts and sought accounting and damages.
Defendants were served October 8, 2012; plaintiff requested and obtained entry of default October 31, 2012; defendants did not answer until after entry of default and filed a motion to set aside the entry in June 2013.
The circuit court applied the three‑prong test (prejudice, meritorious defense, excusable neglect), found no prejudice but concluded defendants failed to show a meritorious defense as to liability and failed to show excusable neglect, and denied the motion to set aside; defendants were permitted to answer as to damages only.
The court entered default judgment on breach of contract and unjust enrichment (damages $406,392.89) and later, after a bench trial on remaining counts, awarded the same damages on fraud and misrepresentation; defendants’ late expert and witness disclosures were excluded.
The ICA affirmed; on certiorari the Hawai‘i Supreme Court affirmed the denial of the motion to set aside (no abuse of discretion) but announced prospectively that HRCP Rule 55(c) motions to set aside an entry of default are governed solely by the rule’s plain‑language “good cause” standard and need not meet the three‑prong Rule 60(b) test.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the circuit court abused its discretion in denying the HRCP Rule 55(c) motion to set aside entry of default	Chen: defendants failed the meritorious‑defense and excusable‑neglect prongs; denial proper	Mah: communications with plaintiff’s counsel lulled him into inaction; accounting shows overpayment (meritorious defense)	Denial affirmed: defendants failed to show meritorious defense as to liability and failed to show non‑excusable neglect; failure on prong 3 was dispositive
Whether HRCP Rule 55(c) requires satisfaction of HRCP Rule 60(b)’s three‑prong test	Chen/ICA: precedent required applying the three‑prong test to 55(c) motions	Defendants: plain text of 55(c) requires only "good cause"; 60(b) applies only to default judgments	Held prospectively: 55(c) governed by "good cause" alone; prior precedent requiring 60(b) factors was followed here but overruled going forward (prospective application)
Whether the circuit court abused discretion by excluding defendants’ evidence and expert and by entering damages on default	Chen: defendants missed deadlines; discovery/expert disclosures noncompliant; default limits contest of liability and court may control proof on damages	Defendants: exclusion prevented presentation of meritorious defenses and offsets (overpayments)	Affirmed: trial court acted within discretion to exclude untimely expert/witnesses; default entitles plaintiff to have well‑pleaded allegations taken as true and defendant may contest only damages
Whether findings suggesting a fiduciary/employer‑employee relationship or piercing corporate veil require reversal	Chen: any apparent errors were not the basis for damages; Mah liable for his own misrepresentations	Defendants: court created new law, misapplied employer/employee law to independent contractor relationship, improperly pierced veil	Held: any such errors were harmless to outcome; Mah was liable based on his personal representations/agency; no relief warranted

Key Cases Cited

BDM, Inc. v. Sageco, Inc., 57 Haw. 73, 549 P.2d 1147 (per curiam) (articulated three‑prong test for setting aside default)
Cty. of Haw. v. Ala Loop Homeowners, [citation="123 Hawai'i 391, 235 P.3d 1103"] (2010) (defaults disfavored; BDM cited)
Enos v. Pac. Transfer & Warehouse, Inc., [citation="80 Hawai'i 345, 910 P.2d 116"] (1996) (ignorance of law or rules not excusable neglect)
Dela Cruz v. Quemado, [citation="141 Hawai'i 338, 409 P.3d 742"] (2018) (procedures for default and proof hearings; remedies on damages)
Kahale v. City & Cty. of Honolulu, [citation="104 Hawai'i 341, 90 P.3d 233"] (2004) (prospective application of new rules to avoid unfair prejudice)
Franchise Holding II, LLC v. Huntington Rests. Grp., Inc., 375 F.3d 922 (9th Cir. 2004) (federal interpretation that Rule 55(c) good‑cause standard often mirrors Rule 60(b))
In re Blaisdell, [citation="125 Hawai'i 44, 252 P.3d 63"] (2011) (involuntary dismissal as last resort; guidance on "good cause")
Shasteen, Inc. v. Hilton Hawaiian Village Joint Venture, [citation="79 Hawai'i 103, 899 P.2d 386"] (1995) (preference for resolving cases on the merits; setting aside dismissals)