Hassan v. Classic Food Inc., 1:20-cv-07549

Plaintiff Rabey A. Hassan sued Classic Food Inc. and Emile Akleh under the FLSA and parallel state law for unpaid wages, overtime, penalties, and liquidated damages.
Defendants were served on Sept. 17, 2020, failed to answer by Oct. 8, 2020; the Clerk entered a certificate of default on Nov. 6, 2020.
Plaintiff moved for default judgment on Jan. 29, 2021; the Court later ordered Defendants to show cause why default judgment should not be entered.
On May 7, 2021, Defendants’ counsel appeared and moved to vacate the certificate of default; Defendants then participated in preparing a case management plan and discovery.
Akleh submitted an affidavit asserting efforts to resolve the dispute, a miscommunication and attorney nonreceipt of the complaint (attorney office closed during COVID), subsequent hospitalization and recovery-related issues, and that Hassan worked no more than eight hours/day and was paid via salary and tips (and asked for altered paystubs to qualify for Medicaid).
The Court applied the three-factor vacatur test (willfulness, meritorious defense, prejudice) and granted the motion to vacate the certificate of default; Clerk ordered to vacate ECF No. 19 and Defendants to file a proposed answer by Dec. 7, 2021.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the default was willful	Defendants knowingly failed to appear	Default reflected negligence due to settlement efforts, attorney miscommunication/office closure, and Akleh's hospitalization	Not willful; conduct was negligent but not egregious; counsel later appeared and acted diligently
Whether vacatur would prejudice Hassan	Delay and costs from preparing default motion	No loss of evidence; plaintiff has been participating in discovery	No substantial prejudice; delay alone insufficient
Whether Defendants have a meritorious defense	Default forecloses defenses; plaintiff disputes alleged defenses	Allegation that Hassan worked ≤8 hrs/day, was paid via salary and tips, and requested altered paystubs	Allegations suffice as a meritorious defense (enough to give a factfinder a determination)
Whether the certificate of default should be vacated	Vacatur not warranted given initial failure to answer	Vacatur is warranted under the three-factor test; case should proceed on the merits	Certificate of default vacated; Clerk to rescind ECF No. 19 and Defendants to file proposed answer by deadline

New York v. Green, 420 F.3d 99 (2d Cir. 2005) (articulates three-factor test for vacating defaults and directs doubts be resolved for the movant)
Am. Alliance Ins. Co. v. Eagle Ins. Co., 92 F.3d 57 (2d Cir. 1996) (strong public policy favors deciding cases on the merits)
Bricklayers & Allied Craftworkers Local 2 v. Moulton Masonry & Const., LLC, 779 F.3d 182 (2d Cir. 2015) (willfulness requires egregious, unjustified conduct beyond mere negligence)
Enron Oil Corp. v. Diakuhara, 10 F.3d 90 (2d Cir. 1993) (delay alone does not establish prejudice for vacatur analysis)
Davis v. Musler, 713 F.2d 907 (2d Cir. 1983) (prejudice requires loss of evidence, increased discovery difficulty, or greater opportunity for fraud)
Sea Hope Navigation Inc. v. Novel Commodities SA, 978 F. Supp. 2d 333 (S.D.N.Y. 2013) (a meritorious defense need only contain a "hint" that, if proven, would defeat the claim)
Addison v. Reitman Blacktop, Inc., 272 F.R.D. 72 (E.D.N.Y. 2010) (payment in full can constitute a meritorious defense)