Case Information
UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION JANE ENVY, LLC, § No. 5:14-CV-83-DAE
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Plaintiff, §
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vs. §
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INFINITE CLASSIC INC. and BAEK §
H. KIM, §
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Defendants. §
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 February
7, 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, believing
that 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 no
intervening 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 was
representing 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 of
the 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 comprised of familiar symbols and
geometric shapes. (Mot., Dkt. # 18 ¶ 30.) Defendants further argue that to the
extent Plaintiff’s works are entitled to copyright protection, the protection is “thin”
because the works consist of familiar symbols and shapes that are not themselves
entitled to copyright protection. (Id. ¶ 43.) Such copyrights only protect against
“very close copying,” and Defendants argue that their products do not meet that
standard. (Id. ¶¶ 44–45.) Finally, Defendants argue that the similarities between
Defendants’ products and Plaintiff’s copyrights are limited to the elements of
Plaintiff’s copyrights that are not entitled to protection. (Id. ¶ 46.)
The Copyright Act protects “original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they
can be perceived, reproduced, or otherwise communicated, either directly or with
the aid of a machine or device.” 17 U.S.C. § 102(a). “To qualify for copyright
protection, a work must be original to the author” and must possess “at least some
minimal degree of creativity.” Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., Inc., 499
U.S. 340, 347 (1991). The copyright protection is limited to those aspects of the
work “that display the stamp of the author’s originality,” and does not extend to the
non-original elements of the work. Kepner-Tregoe, Inc. v. Leadership Software,
Inc., 12 F.3d 527, 533 (5th Cir. 1994).
Familiar symbols and designs are not copyrightable. 37 C.F.R.
§ 202.1(a). The Copyright Office has specified that such symbols and designs
include familiar religious symbols such as crosses, common representational
symbols such as hearts or stars, and geometric shapes. U.S. Copyright Office,
Compendium of U.S. Copyright Practices § 314.4(J) (3d ed. 2014) (draft). [2]
Here, the copyrights claimed by Plaintiff consist of jewelry that incorporates crosses in different forms, beads, and the infinity symbol. (Compl.,
Dkt. # 1 ¶ 18.) Given the form of the claimed works, the Court cannot find from
the current record that there is not “some possibility” that Plaintiff’s works are not
copyrightable or that the similarities in Defendants’ products are limited to those
portions of Plaintiff’s works that are not accorded copyright protection.
Defendants have thus presented a meritorious defense to Plaintiff’s infringement
claims.
Plaintiff’s argument that Defendants have not presented a meritorious defense because they have not provided definite factual allegations with supporting
record evidence is unpersuasive. Plaintiff cites Jenkens & Gilchrist v. Groia &
Co., 542 F.3d 114, 122 (5th Cir. 2008), for the proposition that a “motion to set
aside should provide definite factual allegations with supporting record evidence.”
(Resp. to Mot., Dkt. # 20 at 5.) In Jenkens, the Fifth Circuit found that the
defendant had presented a meritorious defense where she had provided “definite
factual allegations with supporting record evidence,” and referred to a 1969
decision in which the Fifth Circuit stated that a defendant must make “a clear and
specific showing . . . by [a] definite recitation of facts” that that the defendant has a
valid defense. Jenkens, 542 F.3d at 122 (alteration in original) (quoting Moldwood
Corp. v. Stutts, 410 F.2d 351, 352 (5th Cir. 1969)).
The Court first notes that both of these Fifth Circuit decisions dealt with a defendant seeking relief from a default judgment under Fed. R. Civ. P.
60(b), not relief from an entry of default under Fed. R. Civ. P. 55(c). Because “the
standard for setting aside a default decree is less rigorous than setting aside” a
default judgment, One Parcel of Real Prop., 763 F.2d at 183, and because a motion
to set aside an entry of default “is more readily granted than a motion to set aside a
default judgment,” In re Dierschke, 975 F.2d 181, 184 (5th Cir. 1992), it is not
clear that the need for “a specific showing by a definite recitation of facts” applies
when seeking to set aside an entry of default. [3]
The Court is further satisfied that here, Defendants have presented factual allegations that are sufficiently definite and supported by the record.
Defendants allege that “all of Plaintiff’s twelve allegedly infringed designs are
made up of uncopyrightable elements, primarily Christian religious crosses but
also including some common geometric shapes and other familiar symbols,” and
cite certain specific designs as examples of its allegations of patent invalidity and
noninfringement. (Mot., Dkt. # 18 ¶¶ 32, 45, 48.) Pictures of all of Plaintiff’s
claimed designs appear in the Plaintiff’s Complaint. (Compl., Dkt. # 1 ¶ 18.)
Because Defendants’ defense is based on the fact, supported in the record, that
Plaintiff’s claimed designs include familiar shapes and symbols, its showing here
is sufficient to present a meritorious defense.
D. Significant Financial Loss to Defendant
With regard to the fourth factor, there is not enough evidence to determine whether an entry of default would result in a significant financial loss to
Defendants. Plaintiff’s Motion for Default Judgment requests $288,000 in
statutory damages, (Dkt. # 6), and Magistrate Judge Primomo’s Memorandum and
Recommendation recommends that Plaintiff be awarded a default judgment of
$152,672.71 in statutory damages, costs, and attorneys’ fees. (Dkt. # 10 at 9.)
Defendants have submitted evidence that revenue from allegedly infringing sales
amounts to $37,809, of which $17,730.42 is profit. (Mot., Dkt. # 18-1, Ex. B, Ex.
E ¶ 5.) While the range of possible financial loss is certainly significant relative to
the amount of profit from allegedly infringing sales, Defendants have not
submitted any other financial information that might allow for a determination of
whether the damages that would be awarded to Plaintiff in a default judgment is
significant to Defendants’ business as a whole. [4] This factor thus weighs neither for
nor against setting aside the entry of default.
E. Action to Expeditiously Correct Default
With regard to the fifth factor, Defendants have acted expeditiously to correct the default. After Defendants discovered on September 3, 2014 that an
entry of default had been entered in the case, they sought new counsel and formally
retained present counsel on September 16, 2014. (Kim Decl., Dkt. # 18-1 ¶ 15.)
New counsel was not obtained sooner in part because Mr. Jeon first sought to
retain partners in Wong Fleming’s local office, who declined to take the case.
(Jeon Decl., Dkt. # 18-1 ¶ 13.) Before finalizing present counsel’s formal retainer,
Defendants filed a motion through local counsel to extend time to file objections to
the Magistrate’s Memorandum and Recommendation on September 15, 2014.
(Dkt. # 14.) Defendants filed their Objections and Motion to Set Aside Entry of
Default within the additional time granted by the Court. These facts are well
within those of Jenkens & Gilchrist v. Groia & Co., 542 F.3d 114 (5th Cir. 2008),
in which the court found that obtaining local counsel and filing for relief within a
month, in addition to defendant’s immediate search for local counsel, “cut in
favor” of granting the defendant relief from a default judgment. Id. at 122.
In sum, four of the five factors considered here weigh in favor of granting Defendants relief by setting aside the entry of default judgment. The
thousand dollars” “likely significant” to a solo practitioner dentist). It is also worth
noting that the Bureau of Labor Statistics’ inflation calculator puts the value of the
$250,000 found significant in the 1981 Seven Elves decision at nearly $650,000 in
2014.
Court therefore finds good cause to set aside the Clerk’s Entry of Default (Dkt.
# 5) under Fed. R. Civ. P. 55(c).
The Court recognizes that Plaintiff has incurred costs and attorney’s fees in responding to Defendants’ Motion to Set Aside Clerk’s Entry of Default
and their Objections to Magistrate’s Memorandum and Recommendation. Because
these expenses were made necessary by Defendants’ failure to timely respond to
this litigation, the Court orders that Defendants pay Plaintiff’s reasonable costs and
attorney’s fees incurred in responding to Defendants’ filings and appearing at the
December 22, 2014 hearing.
II. Magistrate Judge’s Memorandum and Recommendation in Favor of
Granting Default Judgment
Magistrate Judge Primomo issued a Memorandum and Recommendation on August 27, 2014 recommending that Plaintiff’s Motion for
Default Judgment be granted as to liability and granted in part as to damages.
(Dkt. # 10 at 1.) Because the Court has ruled that the entry of default should be set
aside, the Memorandum and Recommendation is vacated as moot, and Plaintiff’s
Motion for Default Judgment is denied.
_____________________________________D avid Alan EzraSenior U nited S tates D istict J udge
CONCLUSION
For the foregoing reasons, Defendants’ Motion to Set Aside Clerk’s Entry of Default (Dkt. # 18) is GRANTED , the Magistrate Judge’s Memorandum
and Recommendation (Dkt. # 10) is VACATED AS MOOT , and Plaintiff’s
Motion for Default Judgment (Dkt. # 6) is DENIED .
Defendants are ORDERED to pay Plaintiff’s reasonable costs and attorney’s fees incurred in responding to Defendant’s Motion to Set Aside Clerk’s
Entry of Default and Objections to Magistrate Judge’s Memorandum and
Recommendation.
IT IS SO ORDERED.
DATED : San Antonio, Texas, December 22, 2014.
[1] The Court notes that if the costs of pursuing a default judgment constituted prejudice to Plaintiff in the determination of whether to set aside an entry of default, this factor would inherently weigh against a finding of good cause under Fed. R. Civ. P. 55(c). Given the strong preference for trial on the merits, the Court does not believe that the Fifth Circuit intended to tip the scales against setting aside an entry of default in this manner. See One Parcel of Real Prop., 763 F.2d at 183; Lacy v. Sitel Corp, 227 F.3d at 293.
[2] The policies in the Compendium do not have the force of law, but may be referred to as persuasive authority representing the legal determinations of the Copyright Office. See Rogers v. Better Bus. Bureau of Metro. Houston, Inc., 887 F. Supp. 2d 722, 732 (S.D. Tex. 2012) (citing Clackamas Gastroenterology Assocs., P.C. v. Wells, 538 U.S. 440, 449 n.9 (2003) (noting that the EEOC’s Compliance Manual, while not controlling, “may constitute a ‘body of experience and informed judgment’ to which we may resort for guidance”)). The third edition of the Compendium, currently in draft form, is scheduled to be finalized and take effect “on or around December 15, 2014.” Public Draft of the Compendium of U.S. Copyright Office Practices, 79 Fed. Reg. 49343, 49344 (August 20, 2014).
[3] Indeed, the Fifth Circuit in Moldwood Corp. specifically tied this requirement to the context of obtaining relief from default judgment. Moldwood Corp., 410 F.2d at 352 (“It is universally recognized as an essential to the obtaining of relief from a default judgment entered with jurisdiction that there should appear in the motion a clear and specific statement showing, not by conclusion, but by definite recitation of facts, that an injustice has probably been done by the judgment . . . .” (emphasis added)).
[4] The Court further notes that the Fifth Circuit precedents cited by Defendants found the stated losses to be significant with respect to individuals, not a corporation. See Seven Elves, Inc. v. Eskenazi, 635 F.2d 396, 403 (5th Cir. 1981) (finding a $250,000 loss significant with respect to two individuals); In re OCA, Inc., 551 F.3d 359, 374 (5th Cir. 2008) (finding a loss of “several hundred