United States District Court, D. Kansas
THOMAS E. PEREZ, SECRETARY OF LABOR, U.S. DEPARTMENT OF LABOR, Plaintiff,
CHANDULAL DHANANI, d/b/a SH HOSPITALITY LLC and individually, and NIRAJ DHANANI, individually, Defendants.
MEMORANDUM & ORDER
K. GARY SEBELIUS, Magistrate Judge.
This matter comes before the court upon Plaintiff's Motion for Default Judgment (ECF No. 28) and Defendant's Motion to Set Aside Motion for Default Judgment and Motion to set aside Clerk's Entry of Default (ECF No. 32). For the reasons explained below, defendant's motion is granted.
On January 9, 2013, plaintiff filed a complaint for violations of the Fair Labor Standards Act (FLSA) of 1938. It seeks "to recover unpaid minimum wages and overtime compensation owing for Defendants' employees, together with an equal additional amount as liquidated damages, pursuant to section 16(c) of the Act." Defendant, Mr. Chandulal Dhanani is a partial owner of SH Hospitality, a limited liability company organized in Arizona and at the time the complaint was filed, registered to do business in Kansas. It operates two hotels in Wichita, Kansas. Mr. Dhanani sets the payroll policies for SH Hospitality, and allegedly has failed to pay employees minimum wage or overtime at the rates required by the FLSA.
Plaintiff states that it investigated Mr. Dhanani and made him aware of his obligations under the FLSA in 2009, but claims that he has not complied. Plaintiff further alleges that Mr. Dhanani's continued violations show he is willfully violating the FLSA, and that the Act allows for a judgment permanently enjoining wage withholding, granting unpaid wages and overtime compensation to all current and former employees, and an equal liquidated damages judgment.
After the complaint was filed plaintiff spent the next sixteen months or so attempting to serve the defendants. It requested waiver of service, but was denied. The U.S. Marshals attempted delivery several times,  and finally plaintiff hired private process servers. It had to file three extensions of time before it finally achieved personal service on Mr. Chandulal Dhanani through a private process server. It never achieved service on defendant Niraj Dhanani and agreed to dismiss him from the action. On August 5, 2014, plaintiff moved for a clerk's entry of default against Mr. Chandulal Dhanani,  which was granted on August 6, 2014.
On August 18, 2014, plaintiff moved for default judgment. On September 10, 2014, attorney Forrest T. Rhodes, Jr. filed an entry of appearance on Mr. Dhanani's behalf,  and subsequently filed motions to set aside the motion for default and the clerk's entry of default. Mr. Dhanani's attorney has since been allowed to withdraw, due to a disagreement that terminated their lawyer-client relationship. Currently, Mr. Dhanani appears pro se. 
II. Defendant's motion to set aside default
Whether to set aside an entry of default is within the discretion of the trial court. Fed.R.Civ.P. 55(c) allows the district court to set aside the entry of a default for good cause. The good cause standard is something less than the excusable neglect showing which must be made for relief from judgment under rule 60(b). "Courts have generally applied three criteria to a determination of good cause' for setting aside an entry of default: (1) whether the default was the result of culpable conduct of the defendant (i.e. willful); (2) whether the plaintiff would be prejudiced if the default should be set aside; and (3) whether the defendant has presented a meritorious defense to plaintiff's claim." Additionally the court should consider "the policy that defaults are disfavored because the law encourages decisions on the merits" and "must balance the interests of the [party against whom default is sought] in the adjudication of the case on the merits, against the interest of the public and the court in the orderly and timely administration of justice." In close cases, doubts should be resolved in favor of deciding the case on the merits. The Tenth Circuit provides that:
[D]efault judgment must normally be viewed as available only when the adversary process has been halted because of an essentially unresponsive party. In that instance, the diligent party must be protected lest he be faced with interminable delay and continued uncertainty as to his rights. The default judgment remedy serves as such a protection... a workable system of justice requires that litigants not be free to appear at their pleasure.
A. Mr. Dhanani's culpability for the default
First, the court considers the defendant's culpability for the default. Conduct is culpable if it is wilful or without excuse. Wilful conduct alone is sufficient to deny the motion to set aside default. The court should consider whether the defendant was trying to stall litigation or was purposefully disregarding the authority of the court. "A defendant's knowledge of the lawsuit and his post-service actions play a role in measuring the willfulness of a defendant's default." "When a party has actual or constructive notice of a lawsuit, yet completely fails to answer or otherwise communicate with the Court, defendant's failure is willful and demonstrates complete disregard for the authority of the Court."
As a preliminary matter, Mr. Dhanani claims that he was not culpable for the default in this case, because he was never served. Fed.R.Civ.P. 4(e) allows for service by:
(1) following state law for serving a summons in an action brought in courts of general jurisdiction in the state where the district court is ...