Automated Summary
Key Facts
Cornerstone Consulting Organization, LLC sued Exro Technologies Inc. for breach of contract and accounts stated, alleging unpaid invoices totaling $395,141.65. Exro was served on June 10, 2025, with the answer due on July 1, 2025, but failed to file. Cornerstone moved for default and judgment on August 6, 2025. Exro then filed a motion for leave to answer, claiming excusable neglect due to a mistaken belief the dispute was in arbitration. The court found Exro's conduct not culpable, granted leave to answer, and denied the default judgment as moot.
Transaction Type
Service Agreement for operational support services
Issues
- The court evaluated whether Exro's defenses, including claims it does not owe unpaid invoices, that Cornerstone's complaint lacks plausibility, and that Cornerstone breached its contractual duties, would change the outcome of the case if proven. These defenses were found to potentially affect the case's outcome, satisfying the 'meritorious defense' factor for setting aside a default.
- The court determined that the plaintiff's asserted prejudice (delay in recovering funds) was insufficient under Sixth Circuit standards, as no evidence of lost evidence, discovery complications, or fraud opportunities existed. The early stage of the case and lack of ongoing discovery further supported this conclusion.
- The court found no evidence Exro's mistaken belief about arbitration (due to in-house counsel's departure) constituted willful neglect or reckless disregard for judicial proceedings. Exro's good faith efforts despite 'carelessness' satisfied the culpability analysis under Rule 55(c).
Holdings
- The defendant's motion for leave to file an answer was granted, and the plaintiff's motion for default judgment was denied as moot. The defendant must file its answer within seven days of this order.
- The court found the defendant's asserted defenses (non-payment of invoices, breach of contract, and contractual duty violations) would change the case outcome if sustained, satisfying the 'meritorious defense' requirement to set aside the default.
- The court held that the plaintiff's claimed prejudice (delay in recovering funds) was insufficient under Rule 55(c), as no loss of evidence or discovery issues were shown, and the case was in its early stages.
- The court concluded that the plaintiff was entitled to an entry of default against the defendant under Federal Rule of Civil Procedure 55(a) but determined the default should be set aside under Rule 55(c) due to the defendant's meritorious defense, lack of prejudice to the plaintiff, and absence of culpable conduct.
Remedies
- Plaintiff's motion for entry of default and default judgment is denied as moot because the court determined that the entry of default should be set aside. (Doc. No. 6)
- Defendant's motion for leave to file an answer is granted, allowing Exro Technologies Inc. to file its answer within seven days of the date of this Memorandum Opinion and Order. (Doc. No. 8)
Legal Principles
The court applied Federal Rule of Civil Procedure 55(a) and 55(c) to determine the entry and subsequent setting aside of a default judgment. Rule 55(a) requires a clerk to enter a default when a party fails to plead or defend, while Rule 55(c) allows courts to set aside defaults for good cause. The analysis under Rule 55(c) considered three factors: (1) culpable conduct leading to the default, (2) presence of a meritorious defense, and (3) potential prejudice to the plaintiff. Exro's default was set aside due to its lack of culpable conduct, a meritorious defense, and insufficient prejudice to Cornerstone.
Precedent Name
- Hitachi Med. Sys. Am., Inc. v. Horizon Med. Grp.
- Thompson v. Am. Home Assur. Co.
- Waifersong, Ltd. v. Classic Music Vending
- Van Zeeland Oil Co. v. Lawrence Agency, Inc.
- Gillmann Servs., Inc. v. Transport One Logistics, LLC
- Shepard Claims Serv., Inc. v. William Darrab & Assocs.
- INVST Fin. Grp., Inc. v. Chem-Nuclear Sys., Inc.
- Bertbelsen v. Kane
- Booth v. Timothy Sammons, Inc.
Cited Statute
Federal Rules of Civil Procedure
Judge Name
Jeffrey J. Helmick
Passage Text
- I conclude there is no evidence that Exro's failure to file a timely answer was the result of "a willful failure," id., and, therefore, I conclude this factor weighs in favor of setting aside the entry of default as well.
- Because the case is in its early stages and discovery has not yet begun, Plaintiff will not be prejudiced by setting aside the Entry of Default.
- In its proposed answer, Exro asserts it does not owe Cornerstone for any unpaid invoices, that Cornerstone fails to state a plausible claim for relief, and that Cornerstone's claims are barred because Cornerstone breached its contractual duties. (Doc. No. 8-1 at 2-4). These defenses, "if sustained, would change the outcome" of this case.