GCH, Inc., v. Igrow LLC et al

Filing 44

ORDER by Judge Samuel Conti denying 21 Motion for Default Judgment; granting 29 Motion to Set Aside Default (sclc1, COURT STAFF) (Filed on 4/11/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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GGH, INC., a California
corporation,
Plaintiff,

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v.

United States District Court

For the Northern District of California

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IGROW LLC, a California limited
liability company, and DHARMINDER
MANN, an individual,

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Defendants.
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I.

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Case No. 10-1832 SC
ORDER SETTING ASIDE DEFAULT
AND DENYING MOTION FOR
DEFAULT JUDGMENT

INTRODUCTION
Before the Court is a fully briefed Motion to Set Aside

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Default filed by Defendants IGROW LLC ("IGROW") and Dharminder Mann

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("Mann") (collectively, "Defendants").

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("Opp'n"), 43 ("Reply").

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Motion by Plaintiff GGH, Inc. ("Plaintiff") for Entry of Default

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Judgment against Defendants.

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28, 37.

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Motion and DENIES Plaintiff's Motion as moot.

ECF Nos. 29 ("Mot."), 40

Also before the Court is a fully briefed

ECF Nos. 21 ("Mot. for Default J."),

For the following reasons, the Court GRANTS Defendants'

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II.

BACKGROUND
Plaintiff filed this action on April 28, 2010.

("Compl.")

ECF No. 1

In its Complaint, Plaintiff alleged that its rights in

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its registered service mark IGROWHYDRO were infringed by

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Defendants.

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sells hydroponic equipment online under the IGROWHYDRO mark using

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the igrowhydro.com Internet domain name.

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alleged that Defendants registered and used two Internet domain

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names, igrow420.com and igrowoakland.com, in conjunction with the

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sale of hydroponics products and services in Oakland, California.

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Id. ¶ 4.

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store in Oakland, California under the name IGROW on or about

Id. ¶ 4.

Specifically, Plaintiff alleged that it

Id. ¶ 7, 8.

Plaintiff

Plaintiff also claimed that Defendants opened up a retail

Id. ¶ 13.

Plaintiff alleged that Mann "controls

United States District Court

For the Northern District of California

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January 28, 2010.

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the activities of Defendant IGROW," and in furtherance of these

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activities, he registered the two above domain names.

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Plaintiff alleged that the IGROW mark is confusingly similar to

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Plaintiff's IGROWHYDRO mark.

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Id.

Id.

Plaintiff's Complaint lists eight claims: (1) infringement of

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a registered service mark under 15 U.S.C. § 1072; (2) false

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designation of origin under 15 U.S.C. § 1125(a); (3) dilution under

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15 U.S.C. § 1125(c); (4) cybersquatting in violation of 15 U.S.C. §

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1125(d)(1); (5) unfair competition and trademark infringement under

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California law; (6) trademark dilution under section 14247

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California Business and Professions Code; (7) unfair competition

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under section 17200 of California Business and Professions Code;

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and (8) false advertising under section 17500 of California

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Business and Professions Code.

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Compl. ¶¶ 19-66.

IGROW was served with the Complaint on August 25, 2010.

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No. 12 ("Proof of Service on IGROW").

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additional time to serve Mann, which the Court granted.

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13, 14.

ECF

Plaintiff filed a motion for
ECF Nos.

On September 8, 2010, Plaintiff filed Proof of Service of

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the Complaint on Mann.

ECF No. 15 ("Proof of Service on Mann").

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In this document, the process server alleges that Mann was served

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on August 26, 2010, by substituted service on "Tony Alta, persin

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[sic] in charge" at 70 Hegenberger Loop, Oakland, California,

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94601.

Id.

Plaintiff moved for entry of default on IGROW and Mann on

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September 27, 2010.

ECF Nos. 17, 18.

The Clerk of the Court

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entered default against both Defendants on September 30, 2010.

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No. 19.

On December 31, 2010, Plaintiff filed its Motion for
See Mot. for

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United States District Court

For the Northern District of California

ECF

Default Judgment, noticing a January 7, 2011 hearing.

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Default J.

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properly notice the hearing, and on January 3, 2011, Plaintiff

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renoticed it for a February 11, 2011 hearing.

The Court terminated this Motion for failure to

ECF No. 27.

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On February 10, 2011 -- the eve of the hearing date --

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Defendants filed a late Opposition, a motion to shorten time, and

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the now-pending Motion to Set Aside the Default.

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34.

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continuing the February 11, 2011 hearing to March 4, 2011, and

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deeming Defendants' Opposition to be filed timely.

ECF Nos. 32, 33,

The Court granted Defendants' motion to shorten time,

ECF No. 35.

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III. LEGAL STANDARD
Under Federal Rule of Civil Procedure 55(c), a court "may set

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aside an entry of default for good cause."

In determining whether

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good cause exists, a court considers (1) whether the party's

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culpable conduct led to the default; (2) whether the party has a

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meritorious defense; and (3) whether reopening the case would

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prejudice the opposing party.

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Knoebber, 244 F.3d 691, 696 (9th Cir. 2001).

TCI Group Life Ins. Plan v.

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Because these factors

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are "disjunctive," a court is "free to deny the motion if any of

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the three factors [is] true."

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v. Hayhurst, 227 F.3d 1104 1108 (9th Cir. 2000).

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discretion to set aside a default is "especially broad," Mendoza v.

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Wight Vineyard Mgmt., 783 F.2d 941, 945 (9th Cir. 1986), as

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"judgment by default is a drastic step appropriate only in extreme

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circumstances; a case should, whenever possible, be decided on the

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merits."

Am. Ass'n of Naturopathic Physicians
The court's

Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984).

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United States District Court

For the Northern District of California

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IV.

DISCUSSION
Defendants argue that all three factors favor setting aside

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the default, alleging that their failure to respond to the

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Complaint was due to excusable neglect and not due to their

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culpable misconduct; that Plaintiff's claims "are significantly

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flawed on their face;" and that Plaintiffs will suffer no prejudice

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if the default is set aside.

Mot. at 5.

In alleging that their failure to respond to the Complaint and

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the entry of default constitutes excusable neglect, Defendants

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offer the following timeline.

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Defendants' Motion, Mann claims that he is the founder of IGROW.

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Mann Decl. ¶ 2.1

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Plaintiff's attorney shortly after opening IGROW's Oakland store in

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January 2010, and that he subsequently spoke with his business

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counsel, Hussein Saffouri ("Saffouri"), who then contacted

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Plaintiff's counsel.

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the suit, he changed the name of the business from IGROW to WEGROW

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GARDEN SUPPLY.

In a declaration filed in support of

Mann declares that he received a letter from

Id. ¶ 4.

Mann alleges that in response to

Id.

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ECF No. 31.
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In a declaration by Saffouri filed in support of Defendants'

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Motion, ECF No. 36, Saffouri states that he contacted Plaintiff's

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counsel by e-mail on or about June 6, 2010.

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Saffouri claims that in subsequent telephone conversations with

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Plaintiff's counsel, he advised Plaintiff of Defendants' plans to

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cease the use of the IGROW name, replacing it with the name WEGROW

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GARDEN SUPPLY, and suggested that Plaintiff dismiss the action.

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Id.

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discuss the matter with his client, and report back to Saffouri.

Saffouri Decl. ¶ 5.

Saffouri claims Plaintiff's counsel informed him that he would

Saffouri claims that he never received a response, and that he

United States District Court

For the Northern District of California

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Id.

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was not sent a copy of Plaintiff's Motion when it was filed.

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7.

Saffouri concludes:
I believe my clients' failure to respond to the
complaint or entry of default in a more timely
manner is excused by plaintiff's conduct.
I
assumed that plaintiff's counsel would direct
communications and serve documents on me after
I made it clear that I was representing them in
this matter, but they did not.
My client
assumed, erroneously, that I would be served
with communications by plaintiff's counsel, and
that I was therefore able to take action on
defendants' behalf.
Had plaintiff's counsel
communicated with me, as they should have, none
of this delay would have occurred.

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Id. ¶

Id. ¶ 8.

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In response, Plaintiff alleges: "Plaintiff consistently

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notified Defendants that it intended to aggressively protect its

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intellectual property rights and seek the maximum penalties under

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the law through court action should the parties not reach a

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mutually agreeable resolution."

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supported by a declaration.

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Id. at 3.

This allegation is not

Mann also alleges that he was never personally served with the
summons and complaint.

Id. ¶ 5.

Mann states that 70 Hegenberger

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Loop -- the address that the documents were sent -- is a business

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address, and the person served -- Tony Alta -- was not authorized

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to receive or accept service of process on Mann's behalf.

Id.

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Defendants argue that they have meritorious defenses to

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Plaintiff's Complaint, and that portions of Plaintiff's Complaint

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"appear weak or defective" on its face.

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Defendants allege that there is no evidence of IGROWHYDRO's

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strength as a mark; of similarity between Plaintiff's IGROWHYDRO

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mark and Defendants' IGROW mark; that the IGROWHYDRO mark is famous

Mot. at 5.

In particular,

United States District Court

For the Northern District of California

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-- a requirement for an action for dilution under 15 U.S.C. §

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1125(c); and of damage to Plaintiff.

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Plaintiff argues that its Complaint is meritorious, largely by

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restating the allegations made in its Complaint.

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Id. at 5-7.

In response,

Opp'n at 9-10.

Finally, Defendants argue that Plaintiff will not be

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prejudiced if the default is set aside.

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argue: "Plaintiff did not attempt to serve its complaint for four

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months.

The case is now almost ten months old -- plaintiff's

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doing."

Id. at 9.

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"sought to manipulate the legal process and take advantage of

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Plaintiff by waiting to defend this action" until Defendants

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received a favorable ruling from the U.S. Patent and Trademark

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Office on their application for use of the mark WEGROW GARDEN

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SUPPLY.

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Mot. at 8-9.

Defendants

In response, Plaintiff alleges that Defendants

Opp'n at 7.

In light of the above, the Court concludes that all three

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factors favor setting aside the default.

The parties dispute the

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facts leading up to the entry of default.

As Defendants tell it,

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counsel for Plaintiff and Defendants were engaged in settlement

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discussions, and Plaintiff failed to serve its motions for entry of

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default and default judgment on Defendants' counsel.

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tells it, Defendant Mann evaded service and ignored the motions

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filed.

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declarations and Plaintiff's are not, the Court finds Defendants'

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story to carry more weight.

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As Plaintiff

Because Defendants' allegations are supported with relevant

Furthermore, while Plaintiff alleges that it served Mann

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through substituted service, this service is defective.

Rule 4(e)

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of the Federal Rules of Civil Procedure permits a party to serve a

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person through the law of the state where service is made.

Section

United States District Court

For the Northern District of California

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415.20(b) of California's Code of Civil Procedure authorizes

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substituted service at a person's usual place of business, "[i]f a

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copy of the summons and complaint cannot with reasonable diligence

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be personally delivered to the person to be served."

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seeking substituted service must file an affidavit of the process

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server showing reasonable diligence in attempting personal service.

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David S. Karton, a Law Corp. v. Dougherty, 171 Cal. App. 4th 133,

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137 (Ct. App. 2009).

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such, the Court finds that the first factor tips in favor of

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setting aside the default.

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The party

No such affidavit has been filed here.

As

The Court also finds that Defendants have raised meritorious

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defenses to the Complaint -- in particular, Defendants' defenses to

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Plaintiff's dilution claim are meritorious, given the fact that

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Plaintiff must establish its IGROWHYDRO mark is famous in order to

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prevail.

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Finally, there is no reason for the Court to conclude that

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Plaintiff will be unduly prejudiced if the default is set aside.

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While it is true that nearly one year has passed since Plaintiff

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commenced this action, as Defendants point out, Plaintiff did not

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serve Defendants with the Complaint until four months after it was

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filed.

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filed three months after the clerk entered default.

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than half of the delay is attributable to Plaintiff.

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Plaintiff would not have incurred the expense of filing a motion

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for default judgment if Defendants had responded to the Complaint,

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this alone is an insufficient reason to deny Defendants the

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opportunity to defend the action and reach a decision on the

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merits.2

Furthermore, Defendants' Motion for Default Judgment was
Thus, more
While

United States District Court

For the Northern District of California

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V.

CONCLUSION
For the foregoing reasons, the Motion to Set Aside Default

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filed by Defendants IGROW, LLC and Dharminder Mann is GRANTED.

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Plaintiff GGH, Inc.'s Motion for Default Judgment is DENIED as

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moot.

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Plaintiff's Complaint within twenty-one (21) days of the date of

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this Order; should Defendants fail to do so, the Court will enter

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default judgment in Plaintiff's favor.

Defendants must file their Answer or otherwise respond to

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IT IS SO ORDERED.

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Dated: April 11, 2011

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UNITED STATES DISTRICT JUDGE

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In the final paragraphs of its Opposition, Plaintiff requests the
Court award it $43,281.61 in attorneys' fees and costs "incurred as
a direct result of this litigation." Opp'n at 11. This request is
DENIED as procedurally improper. To seek an award of attorneys'
fees and costs against Defendants, Plaintiff must file the
appropriate motion.
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