Sprint Solutions, Inc. v. Lafayette, 2:15-cv-2595-SHM-cgc

SPRINT SOLUTIONS, INC. and SPRINT COMMUNICATIONSCOMPANY, L.P., Plaintiffs, v. IRVIN BRYAN LAFAYETTE, EDDIE D. DANLEY, EMANUEL LAFAYETTE,MARCUS S. HALL, JOHN DOES 1-2, and JANE DOES 1-20, Defendants.

No. 2:15-cv-2595-SHM-cgc

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TENNESSEE WESTERN DIVISION

June 22, 2018

ORDER

Before the Court is Plaintiffs Sprint Solutions, Inc. and Sprint Communications Company L.P.'s (collectively, "Plaintiffs" or "Sprint") unopposed September 12, 2017 Motion for Default Judgment and Permanent Injunction Against Defendants Irvin Bryan Lafayette, Eddie D. Danley, Emanuel Lamont Lafayette, and Marcus S. Hall (collectively, "Defendants") ("the Motion"). (ECF No. 47.) Oral argument is unnecessary. Fed. R. Civ. P. 78(b).

For the following reasons, the Motion is GRANTED in part and DENIED in part.

I. Background

Plaintiffs sell wireless phones under the brands Sprint, Boost Mobile, Virgin Mobile, payLo, and Assurance Wireless for use on Sprint's wireless network. (Compl., ECF No. 1 ¶ 1.) Plaintiff Sprint Communications Company, L.P. owns federal trademark registrations for the stylized Sprint® marks, which are depicted below:

Image materials not available for display.

(Id. ¶ 30.)

Plaintiff Sprint Solutions, Inc. has been assigned the right to use and enforce the Sprint® marks. (Id.) Plaintiffs have also been assigned the right to use and enforce the standard character and stylized Virgin Mobile, payLo, Assurance Wireless, and Boost Mobile trademarks, which are depicted below:

Image materials not available for display.

(Id. ¶ 31.)

Plaintiffs sell their phones for substantially less than their manufacture price. (Id. ¶ 22.) Plaintiffs earn revenue from the sale of Sprint's wireless service, which customersmust use to transmit and receive calls, texts, and data on Sprint phones. (Id.) Plaintiffs offer reduced phone prices only if the phones are intended for use on the Sprint wireless network. (Id. ¶ 26.) In addition to subsidizing the phones, Plaintiffs offer customers the option of leasing the phones or purchasing them through installment payments. (Id. ¶ 23.) Those subsidies and investment programs are not offered by telecommunications carriers outside the United States. (Id.) Manufacturers that produce wireless phones for Plaintiffs install proprietary software to prevent the phones from being used outside the Sprint network. (Id. ¶ 26.)

Sprint phones are also sold subject to certain terms and conditions, which restrict the resale and use of the phones. (Id. ¶ 24.) Those terms and conditions are set out in printed inserts that are included with the purchase of every Sprint phone. (Id.) Customers may manifest their agreement to these terms and conditions by signing a written contract, orally acknowledging their agreement over the phone, clicking appropriate buttons on a website, or, in the case of prepaid services, by purchasing a phone in a package conspicuously indicating that the purchase or use constitutes the customer's agreement. (Id. ¶ 25.)

Plaintiffs recently discovered that, although large quantities of their phones are purchased throughout the United States, a significant number are not being used on the Sprint network. (Id. ¶ 34.)¹

Plaintiffs also recently discovered that Defendants acquired Sprint phones directly or indirectly through co-conspirators by illicit means, such as through unauthorized orders on existing Sprint accounts and diverting Sprint phones from their intended destinations. (Id.) Defendants then sold the phones for a substantial profit and shipped them directly overseas, where they can be used on other wireless carriers' networks, or shipped to other domestic traffickers, who add them to larger shipments headed overseas. (Id.)² Plaintiffs refer to this conduct as a "Handset Theft and Trafficking Scheme." (Id. ¶ 1.)

As part of the alleged scheme, Defendants call Sprint customer care and falsely identify themselves as Sprint employees who need access to a particular Sprint account for a legitimate purpose. (Id. ¶ 40.) If Defendants succeed in acquiring account access, they place another call to Sprint and represent themselves as the account holder or person authorized to access the account, place orders, and make changes. (Id. ¶41.) Defendants use this unauthorized access to receive upgrades for new Sprint phones, add lines of service, and place unauthorized orders for new mobile devices. (Id.) Any cost is charged to the legitimate customer's account, without the customer's knowledge or consent. (Id.) Defendants have the merchandise shipped to addresses in Memphis, Tennessee, to which they have access, and then resell the merchandise. (Id. ¶ 42.)

The alleged scheme requires Defendants to call Sprint thousands of times to change account information and to steal equipment and services from Sprint and its customers. (Id. ¶ 45.)

Between March 2015 - August 2015, Sprint's investigators observed Defendants and their co-conspirators obtain shipments and subsequently advertise devices matching the shipment descriptions. (See id. ¶¶ 45, 49, 50-52, 54.)

Sprint filed a complaint against Defendants on September 10, 2015. (ECF No. 1.) The complaint asserts fourteen (14) counts: (1) unfair competition, (2) tortious interference with existing and prospective business relationships, (3) common law and statutory inducement of breach of contract (Tenn. Code Ann. § 47-50-109), (4) conspiracy to defraud, (5) unjust enrichment, (6) common law fraud and fraudulent misrepresentation, (7)trafficking in computer passwords (18 U.S.C. § 1030(a)(6)), (8) unauthorized access (18 U.S.C. § 1030(a)(5)(C)), (9) unauthorized access with intent to defraud (18 U.S.C. § 1030(a)(4)), (10) federal trademark infringement (15 U.S.C. § 1114)), (11) federal common law trademark infringement and false advertising (15 U.S.C. § 1125)), (12) contributory trademark infringement, (13) conversion, and (14) unfair and deceptive acts and practices (Tenn. Code Ann. §§ 47-18-101, et seq.). The complaint seeks compensatory, consequential, statutory, and special damages; attorneys' fees and costs, and permanent injunctive relief.

Defendants have not responded to the complaint, and the deadline to do so has passed. Fed. R. Civ. P. 12(a)(1)(A). Defendants have not appeared.

On Sprint's motion, the clerk of court filed an entry of default against Defendants Irvin Bryan Lafayette and Eddie D. Danley on November 10, 2015. (ECF Nos. 24-27.) On Sprint's motion, the clerk of court filed an entry of default against Defendant Emanuel Lamont Lafayette on April 29, 2016. (ECF Nos. 36-37.) On Sprint's motion, the clerk of court filed an entry of default against Defendant Marcus S. Hall on June 9, 2016. (ECF Nos. 40-41.)

On September 12, 2017, Sprint moved for default judgment. (ECF No. 47.) Defendants have not filed a response to Sprint's motion for default judgment, and the deadline to do so has passed.

II. Jurisdiction & Choice of Law

A. Jurisdiction

A court's default judgment is invalid unless it has subject-matter and personal jurisdiction. See, e.g., Citizens Bank v. Parnes, 376 F. App'x 496, 501 (6th Cir. 2010) (citing Kroger Co. v. Malease Foods Corp., 437 F.3d 506, 510 (6th Cir. 2006)).

The Court has subject-matter jurisdiction over Sprint's federal trademark infringement claims, 15 U.S.C. §§ 1114 and 1125, and Computer Fraud and Abuse Act (CFAA) claims, 18 U.S.C. § 1030. Under 28 U.S.C. §§ 1331, United States district courts have original jurisdiction "of all civil actions arising under the Constitution, laws, or treaties of the United States." Sprint's federal trademark infringement claims and CFAA claims arise under the laws of the United States.

The Court has supplemental jurisdiction over Sprint's state-law claims under 28 U.S.C. § 1367. Those claims derive from a "common nucleus of operative fact" with the federal-lawclaims. United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966); Soehnlen v. Fleet Owners Ins. Fund, 844 F.3d 576, 588 (6th Cir. 2016); see also 28 U.S.C. § 1367(a).

"Due process requires proper service of process for a court to have jurisdiction to adjudicate the rights of the parties." O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 353 (6th Cir. 2003). Plaintiff bears the burden of exercising due diligence to perfect service of process and to show that proper service has been made. See Byrd v. Stone, 94 F.3d 217, 219 (6th Cir. 1996).

Default judgment is improper where service has not been effected. See, e.g., O.J. Distrib, 340 F.3d at 353 ("Due process requires proper service of process for a court to have jurisdiction to adjudicate the rights of the parties. Therefore, if service of process was not proper, the court must set aside an entry of default." (citation omitted)).

Summonses issued for Defendants Irvin Bryan Lafayette, Emanuel Lafayette, Eddie D. Danley, and Marcus S. Hall on September 10, 2015. (ECF Nos. 7-10.) The propriety of service must be evaluated separately for each Defendant. See O.J. Distrib., 340 F.3d at 353.

1. Defendants Eddie D. Danley and Irvin Bryan Lafayette

Affidavits of service were filed as to Defendants Eddie D. Danley and Irvin Bryan Lafayette on October 13, 2015. (ECF Nos. 11-12.) Those affidavits demonstrate that service was made by delivering a copy of the summons at each Defendant's dwelling or usual place of abode with someone of suitable age and discretion who resided there. (Id.) Service of process was proper for Defendants Eddie D. Danley and Irvin Bryan Lafayette.

2. Defendant Emanuel Lafayette

A summons was returned executed as to Defendant Emanuel Lafayette on March 25, 2016. (ECF No. 33.) The proof of service is blank. (Id. at 416.) The person who signed the summons is Eneka Lafayette. (Id. at 417.)

Plaintiffs have failed to satisfy their burden to establish proper service on Defendant Emanuel Lafayette. Eneka Lafayette is not a party to this action. It is unclear whether Eneke Lafayette resided at Defendant Emanuel Lafayette's dwelling or...