Ignoring a business lawsuit does not make it go away, and the other side may obtain a judgment without ever proving its case at trial. When a business receives a summons and complaint, doing nothing can be one of the most consequential responses. The allegations may seem meritless. The amount demanded may appear exaggerated. An owner may believe the dispute will eventually resolve itself or that the plaintiff will not actually pursue the lawsuit. None of those assumptions stops the litigation from moving forward.
In New York, when a defendant fails to appear or respond, the plaintiff may seek a default judgment under the applicable rules. A default can fundamentally change the posture of the dispute because, instead of defending the lawsuit on the merits, the business may find itself trying to undo a judgment already entered against it.
Failing to Respond Can Put the Business in Default
A summons requires action within a specified period. The deadline depends on factors such as how the other side served the papers and the court where the case is pending. Once that deadline passes without an appearance or response, the plaintiff may begin seeking a default judgment.
That does not mean a plaintiff automatically receives everything requested simply because the defendant failed to answer. New York’s default-judgment procedure still imposes requirements on the plaintiff. Depending on the nature of the claim and damages sought, the plaintiff may need to submit proof to the clerk or court, and the court may require an assessment or other proof concerning damages. But the defendant’s failure to participate can place the plaintiff in a significantly different procedural position than if the defendant actively defends against the claims.
A Default Judgment Is Different From Simply Missing a Deadline
An important distinction exists between being in default and having a default judgment entered against the business. A business may miss its response deadline but discover the problem before a judgment has been entered. Depending on the circumstances, there may still be opportunities to address the default and participate in the case. Once a default judgment has been entered, however, the business may need affirmative court relief to reopen the litigation.
That distinction is one reason acting quickly matters. A problem that might have been manageable shortly after a missed deadline can become substantially more complicated once the plaintiff has obtained a judgment and begun enforcement efforts.
The Plaintiff May Obtain a Judgment Without a Trial on Liability
Ordinarily, a business defending a lawsuit can challenge the plaintiff’s allegations, conduct discovery, present defenses, assert counterclaims where appropriate, and require the plaintiff to establish its case. A default can jeopardize the defendant’s ability to litigate the case through that ordinary process.
Under New York’s Civil Practice Law and Rules (”CPLR”), a plaintiff may seek a judgment when the defendant has failed to appear or plead. Where damages are not a sum certain or readily calculable, the court may require an assessment, inquest, or other proof before determining the amount of the judgment.
For a business owner who believes the lawsuit is weak, this can be particularly frustrating. The company may have possessed defenses to the claims, documents contradicting the plaintiff’s allegations, or even substantial counterclaims. But failing to respond can shift the immediate battle away from those merits and toward whether the business can obtain relief from its default.
A Money Judgment Can Become an Enforcement Problem
A judgment is not simply a piece of paper stating that one party won. It can give the judgment creditor access to legal procedures designed to collect the amount owed. Depending on the circumstances and the assets involved, judgment enforcement can affect bank accounts and other property. New York law also provides mechanisms for restraining property in connection with judgment enforcement. New York Courts specifically warn that default judgments can lead to consequences such as frozen bank accounts and liens on property.
For a business, the practical consequences can extend beyond the lawsuit itself. An unexpected restraint involving an operating account, for example, can create immediate problems involving payroll, vendors, rent, and ordinary business expenses. By that point, the business may need to address both the underlying litigation and the consequences of enforcing the judgment.
The Amount of Damages May Still Need to Be Determined
A default does not necessarily mean that every damages figure alleged in the complaint is automatically awarded. New York’s default-judgment statute distinguishes between claims involving a sum certain or an amount that the plaintiff can make certain through calculation and matters requiring the court to determine damages. In appropriate cases, the court can assess the claim, take proof, or direct further proceedings on the amount to be awarded.
This distinction can be especially important in commercial cases involving alleged lost profits, consequential damages, disputed valuations, or other damages that are not easily calculated. Nevertheless, a business should not rely on a future damages proceeding as a substitute for responding to the lawsuit.
A Party May Vacate a Default Judgment in Appropriate Circumstances
A business that discovers a default judgment should not assume that it can do nothing. New York law provides mechanisms for seeking to vacate certain judgments, but the applicable grounds and requirements depend on the circumstances.
For example, the CPLR identifies grounds on which a court may relieve a party from a judgment, including excusable default and lack of jurisdiction. When a party seeks relief based on excusable default, New York courts generally require both a reasonable excuse for the default and a potentially meritorious defense. Recent New York appellate authority continues to apply that standard.
Improper service can present a different issue because valid service relates to whether the court obtained personal jurisdiction over the defendant. The facts surrounding service therefore deserve careful examination when a business first learns about a judgment it did not know existed.
Vacating a Default Is Not the Same as Winning the Lawsuit
Even when a party challenges a default judgment, vacating it generally does not resolve the underlying dispute in the business’s favor. Instead, successful vacatur ordinarily reopens the case so that the defendant can litigate the claims.
The business may therefore incur time and expense addressing a procedural problem before it can even reach the substantive dispute. It may need to explain why it failed to respond, establish grounds for vacatur, demonstrate a potentially meritorious defense where required, and seek relief from any enforcement activity that has already begun. That is often a far more difficult position than responding appropriately when the summons and complaint were first received.
Acting Quickly Preserves More Options
A business that has received legal papers should determine immediately what was served, when and how service occurred, and when a response is due. Litigation counsel should evaluate the complaint, preserve potentially relevant evidence, investigate applicable insurance coverage, and consider the business’s defenses and possible counterclaims.
If the response deadline has already passed, speed becomes even more important. The first question may be whether a default has occurred; the next may be whether the plaintiff has already sought or obtained a default judgment. If a judgment has been entered, counsel can evaluate the available grounds for seeking relief and whether any enforcement activity requires immediate attention. Ignoring a lawsuit allows the opposing party to move the case forward without the business actively protecting its interests. Responding promptly gives the business a better chance to focus on what actually happened rather than why it failed to appear.
Alisme Law represents businesses, owners, shareholders, and executives in commercial litigation throughout New York. If your business has received a summons and complaint, or has discovered that a default or default judgment may already exist, we can evaluate the procedural posture, potential defenses and counterclaims, and available options for moving forward.
Contact us to schedule a confidential case evaluation at 917-540-8432.
This article is for informational purposes only and does not constitute legal advice.