Broadcast Music, Inc. et al v. MP Restaurants, Inc. et al

Filing 29

ORDER signed by Judge Kimberly J. Mueller on 12/12/2013 ORDERING 16 Motion to Set Aside is GRANTED; and defendants shall file their responsive pleading within seven days of the service of this order. (Waggoner, D)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT COURT OF CALIFORNIA

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BROADCAST MUSIC, INC.; EMI VIRGIN
SONGS, INC.; LOUD MOUSE MUSIC; EMI
BLACKWOOD MUSIC, INC.; JONES
FALLS MUSIC; WARNER-TAMERLANE
PUBLISHING CORP.; UNIVERSAL –
SONGS OF POLYGRAM INTERNATIONAL,
INC.; FUEL PUBLISHING INC. d/b/a
PENER PIG PUBLISHING; ROADIEODIE
MUSIC; SONY/ATV SONGS LLC,

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Plaintiffs,
vs.

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2:13-cv-00420-KJM-DAD

MP RESTAURANTS, INC. d/b/a SIENNA
RESTAURANT; MARK E. PLATT and
KAROLINE T. PLATT, each individually,

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Defendants.

ORDER

______________________________________/

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This matter is before the court on the motion to set aside the clerk’s entry of

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default by defendants MP Restaurants, Inc. d/b/a Sienna Restaurant, Mark E. Platt, and

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Karoline T. Platt (ECF 16), which the court decided without a hearing. For the reasons below,

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the court GRANTS defendants’ motion.

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I.

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ALLEGED FACTS AND PROCEDURAL BACKGROUND
Plaintiffs filed a complaint against defendants for six counts of copyright

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infringement on March 1, 2013. (See Compl., ECF 1.) Individual defendants Mark E. Platt and

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Karoline T. Platt own defendant MP Restaurants, Inc., which operates and controls Sienna

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Restaurant in El Dorado Hills, CA. (Id. ¶¶ 14–20.) Defendants allegedly infringed plaintiffs’

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copyrights to several songs when a band performed these songs without plaintiffs’

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authorization in the individual defendants’ restaurant. (Id. ¶¶ 3–14; 22–28.)

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Defendant Mark Platt, unrepresented by counsel, spoke with plaintiffs’ counsel
on March 21, 2013 about the instant suit but took no further action. (Decl. of Karen S. Frank

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¶ 4, ECF 21.) Having received no response to the complaint, plaintiffs filed for entry of default

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against defendants on June 11, 2013 (Frank Decl. ¶ 5; see ECF 6), which the clerk entered on

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June 12, 2013 (ECF 7). Shortly thereafter, on June 19, 2013, defendants retained counsel and

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began settlement negotiations. (Decl. of Alden J. Parker ¶ 3, ECF 16-2; Frank Decl. ¶ 7.)

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Plaintiffs initially stated they would not oppose a motion to set aside the default. (Parker Decl.

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¶¶ 3–4.) The parties continued settlement negotiations until the end of August 2013. (Parker

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Decl. ¶ 3; Frank Decl. ¶¶ 7–10.) Defendants sought a stipulation on September 13, 2013 from

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plaintiffs to set aside the default, which plaintiffs refused. (Parker Decl. ¶ 3; Frank Decl. ¶ 11.)

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While no declaration attests to this, the parties agree in their briefs that defendants informed

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plaintiffs on September 16, 2013 that defendants would file a motion to set aside the default.

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(ECF 20 at 3; ECF 24 at 4.) Plaintiffs sent defendants an email on September 18, 2013 stating

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that if defendants did not file a motion to set aside the default by close of business September

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20, 2013, then plaintiffs would proceed with a motion for default judgment. (Frank Decl. ¶ 12.)

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On September 27, 2013, plaintiffs filed a motion for default judgment. (Frank Decl. ¶ 14; ECF

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15.)

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That same day, defendants filed the instant motion to set aside the clerk’s entry

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of default. (ECF 16.) On October 21, 2013, plaintiffs filed an opposition (ECF 20), and

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defendants replied on November 8, 2013 (ECF 24).

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II.

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STANDARD
Under Rule 55(c), “[t]he court may set aside an entry of default for good cause.”

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FED. R. CIV. P. 55(c). To determine whether good cause exists, the court considers three

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factors: (1) whether defendants engaged in culpable conduct that led to default, (2) whether

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defendants had a meritorious defense, or (3) whether reopening the default judgment would

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prejudice plaintiff. Franchise Holding II, LLC v. Huntington Rests. Grp., Inc., 375 F.3d 922,

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925–26 (9th Cir. 2004). These factors apply to motions to set aside default under Rule 55(c)

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and motions to set aside default judgment under Rule 60(b); however, the test is “more liberally

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applied” in the Rule 55(c) context. United States v. Signed Personal Check No. 730 of Yubran

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S. Mesle, 615 F.3d 1085, 1091 n.1 (9th Cir. 2010) (hereinafter, “Mesle”); see also Brady v.

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United States, 211 F.3d 499, 504 (9th Cir. 2000) (finding district court’s discretion is

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“especially broad” when setting aside entry of default, rather than default judgment). The good

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cause test is disjunctive, such that a court may deny a movant’s request to set aside default if

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any one of the factors is present. Id. at 1091; Franchise Holding II, 375 F.3d at 926.

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At the same time, the Ninth Circuit’s distaste for default judgments cannot be

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overstated; courts are directed to be “solicitous towards movants” and deny a motion to set

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aside default only where “extreme circumstances” exist. Mesle, 615 F.3d at 1091–92; see also

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Westchester Fire Ins. Co. v. Mendez, 585 F.3d 1183, 1189 (9th Cir. 2009) (“As a general rule,

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default judgments are disfavored; cases should be decided upon their merits whenever

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reasonably possible.”); Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984) (“[J]udgment by

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default is a drastic step appropriate only in extreme circumstances; a case should, whenever

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possible, be decided on the merits.”).

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III.

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ANALYSIS
Defendants argue that their actions were not culpable, that they have a

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meritorious defense against copyright infringement, and that setting aside the default would not

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prejudice plaintiff. Plaintiffs argue defendants fail to meet their burden to show any of the

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factors favor setting aside the default. The court examines the three Franchise Holding II

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factors in turn and concludes that although defendants did not move as promptly as they could

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have, they have met their burden to set aside the default.

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A.

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Culpability
Defendants argue their conduct is not culpable because they are small business

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owners who have never been sued in the past, are unsophisticated in legal matters, and were

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simply unaware of their responsibility to file responsive pleadings. (ECF 16-1 at 5.) Further,

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defendants contend that after retaining counsel the parties began settlement negotiations and

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that defendants believed plaintiffs were willing to stipulate to set aside the default if the

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negotiations were unfruitful. (Id.) Plaintiffs argue that the culpability standard contained in

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Franchise Holding II, 375 F.3d 922, controls this case, and that under this standard defendants

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are culpable. (ECF 20 at 4.)

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A defendant’s conduct is considered culpable if he has received actual or

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constructive notice of the action and intentionally failed to answer. TCI Grp. Life Ins. Plan v.

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Knoebber, 244 F.3d 691, 697 (9th Cir. 2001). “Neglectful failure to answer as to which the

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defendant offers a credible, good faith explanation negating any intention to take advantage of

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the opposing party, interfere with judicial decision-making, or otherwise manipulate the legal

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process is not ‘intentional’ under [Ninth Circuit] default cases.” Id.; accord Mesle, 615 F.3d at

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1092. Instead, a finding of intentional failure will exist only where “there is no explanation of

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the default inconsistent with a devious, deliberate, willful, or bad faith failure to respond.” Id.

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at 699.

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The court finds defendants’ conduct is not culpable under the controlling Mesle

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culpability standard because their failure to answer was not intentional. First, the Mesle

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culpability standard, not the Franchise Holding II culpability standard, is the relevant one. The

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Franchise Holding II culpability standard, which does not include the intentionality of a

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defendant’s failure to respond, “is not the ordinary standard for Rule 55(c) and 60(b) motions.”

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Mesle, 615 F.3d at 1093. “[I]n fact, [the Ninth Circuit] ha[s] never applied [the Franchise

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Holding II culpability standard] to deny relief in the context of such motions except when the

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moving party is a legally sophisticated entity or individual.” Id. (citing Franchise Holding II,

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375 F.3d at 924).

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Second, defendants attest that individual defendants Mark and Karoline Platt,

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the owners of defendant MP Restaurants, Inc., are not sophisticated in legal matters and were

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not represented by counsel until after receiving the notice of entry of default. (ECF 16-1 at 4;

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Decl. of Mark E. Platt (“M. Platt Decl.”), ECF 16-3 ¶ 3; Decl. of Karoline T. Platt (“K. Platt

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Decl.”), ECF 16-4 ¶ 3.) Defendants assert they do not have general or regular counsel and did

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not retain counsel until after the clerk entered a default. (M. Platt Decl. ¶ 3; K. Platt Decl. ¶ 3.)

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Further, as to the intervening months between the entry of default and the motion to set aside

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the default, defendants and plaintiffs agree settlement negotiations were underway for a

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majority of the time. (See ECF 16-1 at 4; Parker Decl. ¶ 3; ECF 20 at 3; Frank Decl. ¶¶ 8–11.)

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Although plaintiffs contend that defendants filed this motion both after the parties agreed-upon

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deadline and after plaintiffs’ filing of a motion for default judgment (ECF 20 at 3; Frank Decl.

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¶ 12), this tardiness does not render defendants’ failure to respond intentional.

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Because defendants provide a good faith explanation for the fact they did not
file responsive pleadings, the court finds defendants did not act culpably.
B.

Meritorious Defense

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Defendants argue they have a meritorious defense because they did not directly

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or contributorily infringe, did not induce anyone else to infringe, and are not vicariously liable

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for any alleged infringement. Defendants aver the alleged infringement was done by a local

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band unaffiliated with defendants, that defendants did not entice or induce the band to play any

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particular songs, and that defendants had no knowledge of or control over the alleged

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infringement. (ECF 16-1 at 6.) Finally, defendants assert they cannot be vicariously liable

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because they had no right to supervise the alleged infringing conduct and have never declined

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to exercise the right to stop any alleged infringement. (Id.) Defendants provide declarations to

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support the specific claims in their motion to set aside the default. (M. Platt Decl. ¶ 5; K. Platt

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Decl. ¶ 5.)

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In opposition, plaintiffs argue defendants have no meritorious defense because

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they are vicarious infringers. (ECF 20 at 5.) Defendants owned and operated the restaurant

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and are therefore liable for any unlicensed public performances occurring there, plaintiffs

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contend, because defendants exercised requisite control over and derived financial benefit from

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the performances. (Id.)

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A defendant seeking to vacate a default must provide specific facts that would

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constitute a defense, but the burden is not “extraordinarily heavy.” TCI Grp., 244 F.3d at 700.

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The question of whether defendants’ factual allegations are true is not at issue at this juncture.

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Mesle, 615 F.3d at 1094. To prevail on the “meritorious defense” factor, “a [plaintiff] need

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only demonstrate law or facts showing that a sufficient defense is assertable.” J & J Sports

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Prod., Inc. v. Benitez, No. 1:11-cv-01875 AWI DLB, 2012 WL 6088300, at *4 (E.D. Cal.

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Dec. 6, 2012) (citing TCI Grp., 244 F.3d at 700). A defense is meritorious if “there is some

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possibility that the outcome of the suit after a full trial will be contrary to the result achieved by

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the default.” Haw. Carpenters’ Trust Funds v. Stone, 794 F.2d 508, 513 (9th Cir. 1986).

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In copyright law, “[o]ne . . . infringes vicariously by profiting from direct

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infringement while declining to exercise a right to stop or limit it.” Metro-Goldwyn-Mayer

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Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 930 (2005). For vicarious infringement, “[l]ack of

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knowledge of the infringement is irrelevant.” Adobe Sys. Inc. v. Canus Prods., Inc., 173

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F. Supp. 2d 1044, 1048–49 (C.D. Cal. 2001) (citing Shapiro, Bernstein & Co. v. H.L. Green

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Co., 316 F.2d 304, 307 (2d Cir. 1963)); see also Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d

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1146, 1172–73 (9th Cir. 2007) (knowledge listed as an element of contributory infringement

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but not vicarious infringement).

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The court finds defendants have asserted a meritorious defense to the claim of

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vicarious copyright infringement for two reasons. First, defendants argue in their motion that

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they “had no right to supervise the alleged infringing conduct of that band and have never

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declined to exercise the right to stop any alleged infringement” (ECF 16-1 at 6) and support this

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assertion with declarations by individual defendants Mark and Karoline Platt (M. Platt Decl.

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¶ 5; K. Platt Decl. ¶ 5). Second, the proposed answer contains a number of affirmative
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defenses, including fair use. (Parker Decl. Ex. B, ECF 16-2.) It is possible defendants may

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prevail on a fair use theory. Cf. Kelly v. Arriba Soft Corp., 336 F.3d 811, 821 (9th Cir. 2003)

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(thumbnail reproduction of photographs in search engine constituted fair use in part because the

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thumbnails did not harm the market for the original photographs). Here, if the defendants’

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argument they lacked the right to supervise or their defense of fair use is proven true, then

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“there is some possibility that the outcome . . . will be contrary to the result achieved by the

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default.” Haw. Carpenters’ Trust Funds, 794 F.2d at 513. Defendants have met their burden

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to show that a sufficient defense is assertable. See Butner v. Neustadter, 324 F.2d 783, 786 (9th

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Cir. 1963) (finding affidavits asserting the defendant “had a good and meritorious defense to

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the action” sufficient).

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Defendants prevail on the meritorious defense factor.
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Prejudice to Plaintiff
Defendants argue plaintiffs will not be prejudiced by the court’s setting aside the

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default because plaintiffs never indicated how they would be prejudiced and had previously

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been willing not to oppose a motion to set aside. (ECF 16-1 at 7.) Plaintiffs argue they

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incurred costs of moving for default judgment that they would otherwise not have incurred had

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defendants communicated with them or not waited to file the motion to set aside default until

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September 27, 2013. (ECF 20 at 7.)

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Prejudice exists where plaintiffs’ “ability to pursue [their] case will be

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hindered.” See TCI Grp., 244 F.3d at 701 (quoting Falk, 739 F.2d at 463). A delay “must

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result in tangible harm such as a loss of evidence, increased difficulties of discovery, or greater

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opportunity for fraud or collusion” for the setting aside of default to be prejudicial to the

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plaintiff. Id. (citing Thomspon v. Am. Home Assur., 95 F.3d 429, 433–34 (6th Cir. 1996).

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Here, plaintiffs would be inconvenienced if this court sets aside the default, but

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there is nothing to suggest plaintiffs’ ability to pursue their case will be hindered. The parties

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agree in their briefs that defendants informed plaintiffs on September 16, 2013, that defendants

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would file a motion to set aside the default (ECF 20 at 3; ECF 24 at 4); plaintiffs thus cannot

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claim complete surprise in the face of defendants’ current motion. The policy favoring
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judgment on the merits outweighs any cost to plaintiffs incurred in filing their motion for

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default judgment.

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Plaintiffs will not be prejudiced if this court sets aside the default.
IV.

CONCLUSION

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For the foregoing reasons, the court orders:

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Defendants’ motion to set aside the default (ECF 16) is GRANTED; and

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Defendants shall file their responsive pleading within seven days of the

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service of this order.
IT IS SO ORDERED.
Dated: December 12, 2013.

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UNITED STATES DISTRICT JUDGE

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