JNCO Holdings, LLC et al v. Guotai USA Co., Ltd. et al

Filing 86

ORDER DENYING THIRD PARTY PLAINTIFFS MOTION FOR DEFAULT JUDGMENT WITHOUT PREJUDICE 85 . Third Party Plaintiffs may refile their motion at the conclusion of the proceedings against Haim by Judge Otis D. Wright, II (lc)

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United States District Court
Central District of California

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JIANGSU GUOTAI LITIAN

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Case № 2:16-cv-06948-ODW (PLA)

GUOTAI USA, COMPANY, LTD.;
ENTERPRISES COMPANY, LTD;

ORDER DENYING MOTION FOR

Third Party Plaintiffs,

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DEFAULT JUDGMENT [85]

v.

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J&COMPANY, LLC; JACOB ABIKZER;

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MILO HAIM; and DOES 50–100,
Third Party Defendants.

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I.

INTRODUCTION

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This case involves a trademark licensing agreement. Before the Court is Third

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Party Plaintiffs Guotai USA Company Ltd. and Jiangsu Guotai Litian Enterprises

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Company’s motion for default judgment against Third Party Defendants J&Company

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Jeans, LLC and Jacob Abikzar. (ECF No. 85.) For the following reasons, the Court

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DENIES the motion.1

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After considering the moving papers, the Court deems the matter appropriate for decision without
oral argument. Fed. R. Civ. P. 78(b); C.D. Cal. L.R. 7-15.

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II.

FACTUAL BACKGROUND

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Plaintiffs in the underlying lawsuit, JNCO Holdings, LLC (“JNCO Holdings”)

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and JNCO, LLC (“JNCO”), are owners of the JNCO mark. (Third Party Compl.

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(“TPC”), Ex. 4 at 1, ECF No. 40.) This mark is best known for its association with a

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particular line of baggy jeans. (Id. ¶ 19.) Defendants in the underlying lawsuit (and

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Third Party Plaintiffs in this portion of the lawsuit), Guotai USA Company Ltd.

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(“Guotai USA”) and Jiangsu Guotai Litian Enterprises Company (“Litian”), are

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entities operating in the fashion industry.2 (Id. ¶¶ 1–2.) Defendant Isaac Cohen is the

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chief executive officer of Guotai USA. (Cohen Decl. ¶ 2.) Third Party Defendant

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Milo Haim is the managing member of JNCO Holdings and JNCO. (TPC ¶ 19.)

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Third Party Defendant Jacob Abikzer is the president of JNCO Holdings, JNCO, and

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J&Company Jeans, LLC (“J&Company”). (Id.) He is also Haim’s nephew. (Id.)

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J&Company is “engaged in the clothing business” and is a dba of JNCO Holdings and

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JNCO. (Id. ¶ 3.) Third Party Plaintiffs allege that JNCO Holdings, JNCO, Haim, and

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J&Company are part of a “single enterprise” and “always act for, and on behalf, of

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each other.” (Id. ¶ 5.) Third Party Plaintiffs further allege that JNCO Holdings,

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JNCO, and J&Company are not “viable businesses and have no ability to pay

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judgments entered against them.” (Id.)

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This case began when this enterprise failed to pay Litian for garments. (Id.

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¶ 13). By October 2013, the enterprise had racked up $582,586 in debt to Litian. (Id.)

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The enterprise had no money to pay Litian and entered into a licensing agreement with

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Litian for the JNCO marks as a means of eventually making good on its debt. (Id.

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¶ 19.) In discussions leading up to the licensing agreement, Haim and Abikzer told

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Isaac Cohen and Litian management that the enterprise had never sold its products to

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discount wholesalers or stores, that significant money and effort had been expended to

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promote the JNCO marks, and that the enterprise’s reputation in the marketplace was

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“impeccable.” (Id.)

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Guotai USA is a wholly-owned subsidiary of Litian. (Cohen Decl. ¶ 2, ECF No. 85-1.)

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At some point after signing the agreement, Third Party Plaintiffs discovered

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that the representations Haim and Abikzer made leading up to the agreement were

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false. (Id. ¶ 22.) For instance, JNCO-marked garments had been sold at discount

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stores such as TJ Maxx and Haim’s reputation in the fashion industry was such that

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buyers did not want to do business with purveyors of garments bearing the JNCO

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mark. (Id.) To date, Third Party Plaintiffs have expended millions of dollars in

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reliance on the agreement. (Id. ¶ 21.) These expenditures include, but are not limited

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to, the hiring of a sales force, various forms of promotion, and the lease of real

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property. (Id. ¶¶ 20, 26, Ex. 7.)

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However, the parties’ dealings did not end with the licensing agreement. (Id.

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¶ 24.) In August 2014, the enterprise sought an additional $211,500 in “merchandise”

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from Third Party Plaintiffs. (Id.) To induce Third Party Plaintiffs to extend them this

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credit, Haim and Abikzer personally represented to Isaac Cohen that “the invoice [for

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the garments] would be paid” even though they knew the enterprise could not pay the

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invoice amount. (Id. ¶¶ 57, 59.) Haim also signed a guarantee to this effect on

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August 28, 2014. (Id. ¶ 57.) To date, “no money has been paid” to Third Party

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Plaintiffs “on this invoice.”3 (Id.)

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Around the same time, Guotai USA agreed to “take over” the lease of a

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property on Rio Vista Avenue in Los Angeles (“the Rio Vista property”) from the

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enterprise in exchange for a $4,000 per month rental subsidy.

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J&Company made the first two $4,000 payments in July and August; however,

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thereafter, the enterprise tendered checks that were returned by Third Party Plaintiffs’

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bank for insufficient funds. (Id.) By the time Third Party Plaintiffs negotiated a new

(Id. at 26.)

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The enterprise also sought an additional $10,000 in “goods” on January 23, 2015. (TPC ¶ 64.)
Again, Haim and Abikzer personally represented to Isaac Cohen that “the invoice [for the garments]
would be paid” even though they knew the enterprise could not pay the invoice amount. (Id. ¶ 66.)
J&Company provided a check for the $10,000 but the check was returned by Third Party Plaintiff’s
bank for insufficient funds. (Id.)

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lease with the Rio Vista property’s landlord in August 2016, the enterprise owed

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$80,000 in missed monthly payments. (Id.)

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On April 5, 2016, Haim entered the Rio Vista property without Third Party

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Plaintiffs’ permission, and removed a computer server that contained “all” of the

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intellectual property licensed to Third Party Plaintiffs under the agreement. (Id. ¶ 27.)

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This server also contained Third Party Plaintiffs’ own intellectual property. (Id.)

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Third Party Plaintiffs have not been able to recover or duplicate the intellectual

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property that was on the server. (Id.)

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After stealing the server, Haim undertook additional activities to “sabotage” the

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licensing agreement. (Id. ¶ 29.) On June 21, 2016, Third Party Plaintiffs entered into

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an agreement with Kickfurther, a crowd-funding site. (Id.) After the resulting crowd-

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funding campaign raised $100,000, Haim contacted employees of Kickfurther and

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informed them that Third Party Plaintiffs did not have a license to use the JNCO

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marks. (Id.) As a result, Kickfurther “cancelled” the campaign and did not pay out

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the $100,000. (Id.) In addition, Haim caused the JNCO website to “go off-line”

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several times before permanently disconnecting it in April 2016. (Id.)

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Plaintiffs filed this lawsuit on September 15, 2016, alleging, among other

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things, that Defendants violated the licensing agreement and diluted the JNCO marks

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by creating a competing “J Crown” mark. (ECF No. 1.) Plaintiff’s Complaint makes

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no mention of the debts, bad checks, property issues, the missing server, or disruptions

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of the licensing agreement. (Id.) On October 31, 2016, Defendants filed an answer

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and Guotai USA and Litian filed a counterclaim. (ECF Nos. 38–39.) That same day,

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Guotai USA and Litian also filed a Third Party Complaint against Haim, Abikzer, and

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J&Company. (ECF No. 40.) The Third Party Complaint contains nineteen causes of

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action including breach of contract, intentional misrepresentation, negligent

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misrepresentation, trespass, conversion, violation of California Civil Code section

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1719(a) for passing checks without sufficient funds, and violation of California’s

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Unfair Competition Law (“UCL”).

Haim filed an answer to the Third Party

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Complaint on November 29, 2016, denying liability as to all nineteen causes of action.

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(ECF No. 55.)

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On March 13, 2017, the Clerk of Court entered default against J&Company and

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Abikzar at Third Party Plaintiffs’ request. (ECF Nos. 78–79.) On April 14, 2017,

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Third Party Plaintiffs filed the pending motion for default judgment. (ECF No. 85.)

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III.

LEGAL STANDARD

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Federal Rule of Civil Procedure 55(b) authorizes a district court to enter a

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default judgment following an entry of default by the clerk against a defendant that

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fails to respond to a complaint. A district court has discretion as to whether to enter a

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default judgment. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). Upon

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default, the defendant’s liability generally is conclusively established, and the well-

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pleaded factual allegations in the complaint are accepted as true. TeleVideo Sys., Inc.

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v. Heidenthal, 826 F.2d 915, 917–19 (9th Cir. 1987) (per curiam) (citing Geddes v.

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United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977)).

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In exercising its discretion, a court must consider several factors, including (1)

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the possibility of prejudice to plaintiff; (2) the merits of plaintiff’s substantive claim;

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(3) the sufficiency of the complaint; (4) the sum of money at stake; (5) the possibility

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of a dispute concerning material facts; (6) whether the defendant’s default was due to

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excusable neglect; and (7) the strong policy favoring decisions on the merits. Eitel v.

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McCool, 782 F.2d 1470, 1471–72 (9th Cir. 1986).

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IV.

DISCUSSION

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Since the Supreme Court’s decision in Frow v. De La Vega, 82 U.S. 552

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(1872), more than one hundred years ago, courts have consistently held that where “a

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complaint alleges [the] defendants are jointly liable and one of them defaults,

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judgment should not be entered against the defaulting defendant until the matter has

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been adjudicated with regard to all defendants.” Nielson v. Chang, 253 F.3d 520, 532

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(9th Cir. 2001); Societe d’Equipments Internationaux Nigeria, Ltd v. Dolarian

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Capital, Inc., No. 115CV01553DADSKO, 2016 WL 6868023, at *2 (E.D. Cal. Nov.

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21, 2016) (cumulating cases to show that Frow remains good law in the Ninth

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Circuit). This is because it would be “absurd” for a court to enter inconsistent

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judgments against two defendants that essentially engaged in the same course of

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conduct.

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CV1205453DMGJEMX, 2012 WL 12893781, at *2 (C.D. Cal. Nov. 29, 2012)

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(“[C]ourts find that it would be ‘incongruous and unfair’ to allow a plaintiff to prevail

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against defaulting defendants on a legal theory later rejected with respect to an

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answering defendant ‘in the same action.’” (quoting Garamendi v. Henin, 683 F.3d

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1069, 1082–83 (9th Cir. 2012))).

Frow, 82 U.S. at 554; Vaughn v. Wells Fargo Bank, N.A., No.

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While this common law rule was originally limited to jointly-liable co-

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defendants, in recent years, the Ninth Circuit has extended the rule to encompass

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“similarly situated” parties. Garamendi, 683 F.3d at 1082–83. A defaulting party is

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similarly situated to an answering party when the case against both parties rests on the

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“same legal theory.” Id.; see also Vaughn, 2012 WL 12893781, at *2 (finding parties

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to be similarly situated where causes of action were common to defaulting and

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answering defendants and all defendants were liable for the full amount of damages);

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Mason v. City of Lake Forest Park, No. C13-0676-JCC, 2014 WL 4093933, at *4

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(W.D. Wash. Aug. 18, 2014) (denying motion for default judgment where “three of

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the four” claims were alleged against “all defendants,” some of whom answered and

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some of whom did not); Societe d’Equipments, No. 115CV01553DADSKO, 2016 WL

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6868023, at *3 (E.D. Cal. Nov. 21, 2016) (finding that parties were “similarly

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situated” where “the claims, facts, and legal issues asserted in the complaint relative to

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each of the two defendants” were similar).

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This case has the potential to implicate the common law rule annunciated in

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Frow because Third Party Defendant Haim has answered the Third Party Complaint

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while Third Party Defendants J&Company and Abikzer have not. Application of the

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rule turns on whether J&Company and Abikzer are jointly liable together with Haim

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for the alleged wrongdoing, or alternatively, whether they are similarly situated, such

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that granting default at this stage would risk inconsistent judgments.

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A. Haim and J&Company

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The Third Party Complaint specifically alleges that Haim and J&Company

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were part of a single enterprise with JNCO Holdings and JNCO and that Haim is an

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alter ego of J&Company. (TPC ¶¶ 5, 9.) This means Haim and J&Company “always

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act for, and on behalf, of each other” and that they will generally be held jointly liable

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for each other’s conduct. See Mossimo Holdings LLC v. Haralambus, No. CV 14-

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05912 DDP JEMX, 2015 WL 476298, at *3 (C.D. Cal. Feb. 3, 2015) (suggesting that

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the members of a single enterprise are jointly liable for the enterprise’s conduct); see

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also Double Bogey, L.P. v. Enea, 794 F.3d 1047, 1051–52 (9th Cir. 2015) (indicating

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that a corporation and its alter ego are “jointly liable” for the corporation’s conduct

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(citing Mesler v. Bragg Mgmt. Co., 39 Cal. 3d 290, 301 (1985))). Even if Haim and

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J&Company were not jointly liable for each other’s conduct, it is clear that they are

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similarly situated; they are the only two parties named in all nineteen of the Third

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Party Complaint’s causes of action and the full measure of damages is sought against

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each of them. Vaughn, 2012 WL 12893781, at *2; Mason, 2014 WL 4093933, at *4.

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Accordingly, the Court will not enter a default judgment against J&Company at this

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time.

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J&Company at the conclusion of the proceedings against Haim. Garamendi, 683 F.3d

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at 1083 (noting that district courts should adjudicate defaults after adjudicating the

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case of answering defendants).

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B. Haim and Abikzer

Third Party Plaintiffs may refile a motion for default judgment against

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Haim and Abikzer also appear to be similarly situated. Abikzer is charged with

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five of the nineteen causes of action in the Third Party Complaint including causes of

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action for intentional misrepresentation, negligent misrepresentation, and violation of

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the UCL. (See TPC ¶¶ 48–74, 108–109.) Each of these causes of action is also

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alleged against Haim. (Id.)

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The same legal theory underlies the claims common to Haim and Abikzer—that

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they made certain misrepresentations to induce Third Party Plaintiffs to enter into the

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licensing agreement and provide them with garments. (See id. ¶¶ 49, 57, 64, 71.)

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Indeed, the Third Party Complaint makes no distinction between the actions of Haim

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and Abikzer. For instance, in count six relating to the misrepresentations allegedly

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made leading up to the licensing agreement, the Third Party Complaint notes only that

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“Mr. [Haim] and Mr. Abikzer made certain [r]epresentations . . . to Third Party

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Plaintiffs.” (Id. ¶ 49.)

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With this in mind, findings made during the ongoing proceeding against Haim

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about whether the misrepresentations were in fact made and the effect of those

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misrepresentations on Third Party Plaintiffs’ decision to enter the licensing agreement

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will undoubtedly affect Abikzer’s liability. See Mason, 2014 WL 4093933, at *3 (“It

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follows that if an action against the answering defendants is decided in their favor,

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then the action should be dismissed against both answering and defaulting

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defendants.” (emphasis added)). Accordingly, the Court will not enter a default

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judgment against Abikzer at this time. Third Party Plaintiffs may refile for default

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judgment against Abikzer at the conclusion of the proceedings against Haim.

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Garamendi, 683 F.3d at 1083.

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C. The Court Alternatively Denies the Motion for Improper Service

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Plaintiff served the Third Party Complaint on Abikzer, and by extension,

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J&Company at Abikzer’s other business, AGI LLC, 54 West 40th Street, New York,

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New York 10018. (ECF Nos. 74–75; Cohen Decl., Ex. 6.) However, the motion for

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default judgment’s proof of service indicates that it was served at 540 West 40th

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Street, New York, New York 10018. (ECF No. 85.) In short, the motion appears to

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have been served at the wrong address. Without proper service of the motion for

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default judgment, Third Party Defendants J&Company and Abikzer have not had a

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chance to respond and the Court’s entry of default judgment would be meaningless.

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See Fed. R. Civ. P. 5(d) (requiring proper service of motions); see also C.D. Cal. L.R.

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55-2 (requiring notice to defaulting party where movant is seeking unliquidated

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damages).

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V.

CONCLUSION

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For the foregoing reasons, the Court DENIES Third Party Plaintiffs’ motion for

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default judgment without prejudice. (ECF No. 85.) Third Party Plaintiffs may refile

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their motion at the conclusion of the proceedings against Haim.

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IT IS SO ORDERED.
May 3, 2017
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OTIS D. WRIGHT, II
UNITED STATES DISTRICT JUDGE

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