Morales v. Fourth Ave. Bagel Boy, Inc.

RAMON MORALES andTONY A. GERGES, Plaintiffs, v. FOURTH AVENUE BAGEL BOY, INC. d/b/a STEVE'S BAGELS andSTEVEN NATALE, Defendants.

18 Civ. 3734 (DLI) (VMS)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

February 12, 2021

REPORT AND RECOMMENDATION

Vera M. Scanlon, United States Magistrate Judge:

Plaintiffs Ramon Morales and Tony A. Gerges ("Plaintiffs") commenced this action against Defendants Fourth Avenue Bagel Boy, Inc. ("Corporate Defendant") and Steven Natale ("Individual Defendant") (together, "Defendants") seeking to hold Defendants jointly and severally liable to Plaintiffs for damages arising from violations of the Fair Labor Standards Act ("FLSA") and the New York Labor Law ("NYLL"). See ECF No. 1. Plaintiffs allege that Corporate Defendant and Individual Defendant, together, were "employers" of Plaintiffs and are responsible for Plaintiffs' unpaid wages. See id. After more than three months of Defendants failing to respond or participate in this action, attorney Anthony Albert Caronna, Esq. filed a notice of appearance on behalf of Defendants and filed an answer to Plaintiffs' complaint generally denying Plaintiffs' allegations. See ECF Nos. 17, 18.

On June 11, 2019, Mr. Caronna filed a motion to withdraw as attorney, stating that he had been discharged by Defendants. See ECF No. 27. This Court held a hearing and granted Mr. Caronna's motion to withdraw. See ECF No. 28. Defendants were given 30 days' leave to retain new counsel. See id. This Court advised that, if Defendants did not retain counsel, Individual Defendant may proceed pro se. See id. This Court warned Defendants that Corporate Defendant may only participate in this action if represented by an attorney. See Dkt. Order 7/23/2019. No counsel having appeared, Plaintiffs were given leave to request a certificate of default against Corporate Defendant. See id. The Clerk of the Court entered a default against Corporate Defendant. See ECF No. 30.

Despite delays in the case caused by health issues of Individual Defendant and his family, see, e.g., Dkt. Re-Scheduling Order 5/18/2020, Individual Defendant is actively litigating this action. Individual Defendant has appeared for status conferences and is currently engaged in discovery. See, e.g., Dkt. Entry 7/16/2020; Dkt. Entry 9/16/2020; Dkt. Entry 11/4/2020; Dkt. Entry 1/4/2021. On the other hand, Mr. Caronna was not replaced, and Corporate Defendant has not participated in this action.

Plaintiffs moved for a default judgment against Corporate Defendant. See ECF No. 44. The motion is before this Court on referral from the Honorable Dora L. Irizarry. See Dkt. Entry 7/27/2020.

For the reasons stated below, this Court respectfully recommends that the motion for default judgment be denied without prejudice to renew upon the resolution of the merits of this case against Individual Defendant.

I. ANALYSIS

Courts have often postponed default judgment motion practice where, although one or more defendants have defaulted, other defendants continued litigating. This approach is taken to avoid inconsistent judgments or waste of judicial resources in needing to recalculate damages.

For example, under Frow v. De La Vega, 82 U.S. 552 (1872), the court held that a decision on a default judgment motion in a multi-defendant case in which defendants werealleged to be jointly liable should be postponed until the case against the non-defaulting party concludes. See Lemache v. Tunnel Taxi Mgmt., LLC, 354 F. Supp. 3d 149, 152 (E.D.N.Y. 2019) (citing Frow, 82 U.S. at 554); Int'l Gemmological Inst., Inc. v. Rafaeil, No. 05 Civ. 2395 (JGK) (JCF), 2005 WL 3880222, at *2 (Aug. 17, 2005), R&R adopted, 2006 WL 739822 (S.D.N.Y. Mar. 21, 2006) ("Frow has been interpreted to prohibit entry of a default judgment against one of several defendants where the theory of recovery is joint liability, such that no one defendant may be liable unless all defendants are liable"). Frow requires that, "if the litigating party loses, the default judgment [] be entered against the non-appearing party, and if the litigating party wins, the default judgment motion [] be denied." Lemache, 354 F. Supp. 3d at 152. The purpose of the postponing decision on the default judgment is to avoid the risk of inconsistent results: the defaulting party being held liable on default while the non-defaulting party ultimately being found not liable at the conclusion of the case. See id. The risk of inconsistent results is high where claims are premised on joint liability because joint liability "requires all defendants to be liable for any one of them to be liable," such that it is "impossible for one defendant to be liable unless all other defendants are also liable."¹ Id. at 152, 153; Int'l Controls Corp. v. Vesco, 535 F.2d 742, 746 n.4 (2d Cir. 1976) ("Frow controls in situations where the liability of one defendant necessarily depends upon the liability of the others.").

In RSM Prod. Corp. v. Fridman, 643 F. Supp. 3d 382 (S.D.N.Y. 2009), Frow was extended in a joint and several liability case to avoid inconsistent results. The plaintiffs sued eight defendants asserting claims of tortious interference with contract, tortious interference with prospective business advantage, and civil conspiracy to commit tortious interference arising out of an alleged oil and natural gas exploration contract. See Fridman, 643 F. Supp. 3d at 389-90. Appearing defendants moved to dismiss while the plaintiffs applied for a default judgment against two non-appearing defendants. See id. The court granted the appearing defendants' motion to dismiss, and the court found that the plaintiffs failed to plead sufficient factual allegations to support any legally cognizable claim. See generally id. Upon concluding that the plaintiffs' complaint should be dismissed as against the appearing defendants without leave to replead, the court recognized that the plaintiffs' allegations against non-appearing defendants suffered from the same defects. The court held that entering default judgment against non-appearing defendants "would be inappropriate." See id. at 415. Indeed, in refraining from granting default judgment against non-appearing defendants and by allowing non-appearing defendants to benefit from arguments and proof raised by appearing defendants, the court avoided the type of inconsistent results admonished against in Frow.

In the present case, this Court similarly finds that it is appropriate to postpone decision on Plaintiff's motion against Corporate Defendant. Determining Plaintiffs' motion for default judgment at this stage of the litigation would pose a risk of inconsistent results. As an example, Corporate Defendant may be held liable under the FLSA based on Plaintiffs' allegations of enterprise liability, while Individual Defendant may not be held liable under the FLSA because the evidence does not establish FLSA coverage. Here, Plaintiffs allege a theory of joint and several liability on the basis that Corporate Defendant and Individual Defendant were jointemployers of Plaintiffs. In order to qualify for protections under the FLSA, Plaintiffs must demonstrate that they were "engaged in commerce or in the production of goods for commerce" or that Defendants were "enterprises engaged in commerce" during the relevant period. See 29 U.S.C. §§ 206(a), 207(a); Mahoney v. Amekk Corp., No. 14 Civ. 4131 (ENV) (VMS), 2016 WL 6585810, at *6 (Sept. 30, 2016), R&R adopted, 2016 WL 6601445 (E.D.N.Y. Nov. 7, 2016) (setting forth the standard). To be "engaged in commerce," employees must perform work "involving or related to the movement of persons or things (whether tangibles or intangibles[] and including information and intelligence) among the several States or between any State and any place outside thereof." 29 C.F.R. § 779.103. The FLSA defines an "enterprise engaged in commerce" as having "employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person" and having an "annual gross volume of sales made or business done . . . not less than $500,000." 29 U.S.C. § 203(s)(1)(A).² Here, Plaintiffs allege in their complaint that they were engaged in commerce, that Defendants were an enterprise engaged in commerce, that Defendants performed through unified operation or common control for a common business purpose, that the enterprise had an annual gross volume of sales in an amount not less than $500,000.00, and that employees handled, sold or otherwise worked on goods or materials that have been moved in or produced for commerce. See ECF No. 1 ¶¶ 48-52. On default, it is an open question whether such conclusory allegations would be sufficient to establish Plaintiffs' entitlement to protections under the FLSA. See, e.g.,Jiao v. Shang Shang Qian Inc., No. 18 Civ. 5624 (ARR) (VMS), 2020 WL 6370148, at *9 (Aug. 11, 2020) (recommending denial of default judgment motion where the complaint contained only conclusory statements about interstate commerce), R&R adopted, 2020 WL 5105063 (E.D.N.Y. Aug. 31, 2020); Payamps v. M & M Convenience Deli & Grocery Corp., No. 16 Civ. 4895 (LDH) (SJB), 2018 WL 3742696, at *5 (E.D.N.Y. May 18, 2018) (finding that "bare bones allegation[s]" about plaintiffs' activities were insufficient to establish that plaintiffs were "engaged in commerce"). Because only "well pleaded" allegations of the complaint are deemed admitted as to liability on default, the Court need not be limited to the face of the complaint when assessing the validity of Plaintiffs' factual allegations. Cf. Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981) (noting that a court has discretion, even after default is determined, "to require proof of necessary facts and need not agree that the alleged facts constitute a valid cause of action"); Bermudez v. Reid, 733 F.2d 18, 21 (2d Cir. 1984) ("[T]he court has considerable latitude in deciding whether to require plaintiff to produce evidence in support of...