Jane Envy, LLC v. Infinite Classic Inc.

JANE ENVY, LLC, Plaintiff, v. INFINITE CLASSIC INC. and BAEK H. KIM, Defendants.

No. 5:14-CV-83-DAE

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION

December 22, 2014

ORDER (1) GRANTING DEFENDANTS' MOTION TO SET ASIDE CLERK'S ENTRY OF DEFAULT, (2) VACATING MAGISTRATE JUDGE'S MEMORANDUM AND RECOMMENDATION AS MOOT, AND (3) DENYING PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT

Before the Court is a Motion for Default Judgment filed by Plaintiff Jane Envy, LLC ("Plaintiff") (Dkt. # 6). Also before the Court is a Motion to Set Aside Clerk's Entry of Default (Dkt. # 18) and Objections to Magistrate Judge's Memorandum and Recommendation (Dkt. # 16) filed by Defendants Infinite Classic Inc. and Baek H. Kim (collectively, "Defendants"). Plaintiff filed a Response in Opposition to Defendants' Motion to Set Aside Clerk's Entry of Default (Dkt. # 20) and a Response to Defendants' Objections to Memorandum and Recommendations (Dkt. # 21). The Court held a hearing on the Motions on December 22, 2014. At the hearing, Jason W. Whitney, Esq., represented Plaintiff,and Andrew S. Langsam, Esq., represented Defendants. Upon careful consideration of the arguments asserted at the hearing and in the supporting and opposing memoranda, the Court GRANTS Defendants' Motion to Set Aside Clerk's Entry of Default (Dkt. # 18), VACATES AS MOOT the Magistrate Judge's Memorandum and Recommendation (Dkt. # 21), and DENIES Plaintiff's Motion for Default Judgment (Dkt. # 6).

BACKGROUND

Plaintiff is a Texas limited liability company that designs and sells costume jewelry to wholesalers, distributors, and large retail chains. (Compl., Dkt. # 1 ¶¶ 2, 11.) Defendant Infinite Classic Inc. is a New York corporation that designs, imports, manufactures, and sells costume jewelry. (Kim Decl., Dkt. # 18-1 ¶ 3.) Defendant Baek H. Kim is the CEO and sole owner of Infinite Classic Inc. (Id. ¶ 2.)

On January 23, 2014, Plaintiff filed a Complaint alleging that products sold by Defendants infringed upon three copyright registrations and a pending copyright application held by Plaintiff. (Compl., Dkt. # 1 ¶¶ 20-51.) Counsel for Plaintiff communicated with Matthew Jeon, who was acting as counsel for Defendants, to request that Defendants waive service of summons, and Mr. Jeon agreed to do so. (Resp. to Mot., Dkt. # 20 at 2; id., Dkt # 20-1, Ex. B, Ex. C.) A waiver of summons form was sent by Plaintiff's counsel to Mr. Jeon on February7, 2014. (Id., Dkt. # 20-1, Ex. C). After counsel for Plaintiff wrote to Mr. Jeon on April 1 and April 8 inquiring about Defendants' failure to complete the waiver of summons and advising that Plaintiff would begin the process of seeking a default judgment absent return of the waiver, Mr. Jeon waived summons on behalf of Defendants on April 11, 2014. (Id., Dkt. # 20-1, Ex. D; Dkt. # 3.)

Defendants subsequently failed to answer, and Plaintiff requested that the Clerk of Court enter a Default. (Dkt. # 4.) The Clerk did so on May 19, 2014. (Dkt. # 5.) On July 11, 2014, Plaintiff moved for default judgment against Defendants. (Dkt. # 6.) This Court referred Plaintiff's Motion for Default Judgment to Magistrate Judge Primomo, who issued a Memorandum and Recommendation on the Motion on August 27, 2014. (Dkt. # 10.)

Defendants state that they failed to answer because they relied on the representations of Mr. Jeon, who had capably represented Defendants in the past, that he would be representing them in this case and had taken steps to obtain local counsel to assist in the defense. (Kim Decl., Dkt. # 18-1 ¶¶ 8-9.) In Mr. Jeon's Declaration, he states that after waiving summons on April 11, 2014, he contacted a partner in the law firm Wong Fleming, with whom Mr. Jeon shares office space, to request that a member of that firm's Texas office serve as local counsel in this matter. (Jeon Decl., Dkt. # 18-1 ¶ 8.) Mr. Jeon did not hear back regarding his request and did not follow up with the partner. (Id. ¶ 8-9.) Mr. Jeon, believingthat the matter was being handled by Wong Fleming, took no further action, and "only remembered about this case" when he was served with a copy of Judge Primomo's Memorandum and Recommendation on September 3, 2014. (Id. ¶¶ 10-12.)

Defendants, through local counsel, moved for an extension of time to file objections to the Magistrate Judge's Memorandum and Recommendation on September 15, 2014. (Dkt. # 14.) Present counsel for Defendants moved to appear pro hac vice on September 16, 2014. (Dkt. # 15.) On October 6, 2014, Defendants filed their Motion to Set Aside Entry of Default (Dkt. # 18) and Objections to Memorandum and Recommendation (Dkt. # 16).

DISCUSSION

I. Motion to Set Aside Entry of Default

A district court may set aside an entry of default for good cause. Fed. R. Civ. P. 55(c). The decision to set aside an entry of default is committed to the sound discretion of the district court. In re Dierschke, 975 F.2d 181, 183 (5th Cir. 1992). The determination of good cause is made in light of the principle that default judgments are disfavored as a matter of law. Id. ("[C]ourts universally favor trial on the merits." (internal quotation marks omitted)); United States v. One Parcel of Real Prop., 763 F.2d 181, 183 (5th Cir. 1985) (noting that "modern federal procedure favors trial on the merits"). As a result, "where there are nointervening equities any doubt should, as a general proposition, be resolved in favor of the movant to the end of securing a trial on the merits." In re OCA, Inc., 551 F.3d 359, 371 (5th Cir. 2008).

"Although a motion to set aside a default decree under Fed. R. Civ. P. 55(c) is somewhat analogous to a motion to set aside a judgment under Fed. R. Civ. P. 60(b), the standard for setting aside a default decree is less rigorous than setting aside a judgment for excusable neglect." One Parcel of Real Prop., 763 F.2d at 183. "In determining whether to set aside a default decree, the district court should consider whether the default was willful, whether setting it aside would prejudice the adversary, and whether a meritorious defense is presented." In re Chinese-Manufactured Drywall Prod. Liab. Litig., 753 F.3d 521, 544-45 (5th Cir. 2014) (quoting One Parcel of Real Prop., 763 F.2d at 183). These factors are not exclusive, and courts have also considered "whether there was significant financial loss to the defendant, and whether the defendant acted expeditiously to correct the default." Id. at 545 (quoting In re OCA, Inc., 551 F.3d at 369). The Court will discuss each of these factors in turn.

A. Willfulness

First, there is no indication that Defendants' failure to act was willful. Defendants relied on the representations of their counsel Mr. Jeon, who had competently represented Defendants in past matters, that Mr. Jeon wasrepresenting them in this case and had already taken steps to do so. (Kim Decl., Dkt # 18-1 ¶¶ 8-9.) Mr. Jeon, for his part, appears to have forgotten about the case following his inept attempt to secure local counsel. (Jeon Decl., Dkt. # 18-1 ¶ 10.) While Mr. Jeon's failure to diligently represent his clients is deplorable, there is no indication that Defendants intentionally failed to respond to this litigation.

Plaintiff argues that the Mr. Jeon's incorrect statement of the time period in which he learned of Plaintiff's claims raises "doubts about the veracity of the declarations as a whole" and thus cannot be used to show Defendants' lack of willfulness. (Resp. to Mot., Dkt. # 20 at 3.) Mr. Jeon states that he first learned of Plaintiff's suit in March 2014, while the parties' correspondence shows that he had communicated with Plaintiff's counsel about the suit two months earlier. (Jeon Decl., Dkt. # 18-1 ¶ 5; Resp. to Mot., Dkt. # 20, Ex. B.) The Court views this discrepancy as merely another indication of Mr. Jeon's lack of diligence; in any event, the misstatement of when he learned of the suit does not call into question Defendants' reliance on his statements that he was diligently representing them in it. Because Defendants' failure to respond was not willful, this factor weighs in favor of setting aside the entry of default.

B. Prejudice to Plaintiff

Second, there is no showing that setting aside the entry of default will prejudice Plaintiff. "There is no prejudice to the plaintiff where the setting aside ofthe default has done no harm to plaintiff except to require it to prove its case," or has resulted in "mere delay." Lacy v. Sitel Corp, 227 F.3d 290, 293 (5th Cir. 2000) (internal quotation marks omitted). To show prejudice, Plaintiff "must show that the delay will result in the loss of evidence, increased difficulties in discovery, or greater opportunities for fraud or collusion." Id.

Plaintiff argues that it has been prejudiced by the cost of seeking the entry of default and a default judgment and responding to Defendants' filings at issue here. (Resp. to Mot., Dkt. # 20 at 4-5.) Plaintiff cites no law to support the proposition that such costs are cognizable as prejudice in the determination of whether to set aside an entry of default, and the Court has found none.¹ Plaintiff's speculation that evidence may have been lost due to Defendants' delay in responding is likewise insufficient to support a finding of prejudice. Plaintiff has not shown it will be prejudiced by setting aside the entry of default, and this factor thus also weighs in favor of setting aside the entry of default.

C. Meritorious Defense

Third, the Court finds that Defendants have presented meritorious defenses to Plaintiff's claims. "In determining whether a meritorious defense exists, the underlying concern is . . . whether there is some possibility that the outcome of the suit after a full trial will be contrary to the result achieved by default." In re OCA, Inc., 551 F.3d 359, 373 (5th Cir. 2008) (alteration in original) (internal quotation marks omitted).

Defendants submit that Plaintiff's works are insufficiently original to warrant copyright protection because they are...