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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1 2 3 4 IN THE UNITED STATES DISTRICT COURT 5 FOR THE NORTHERN DISTRICT OF CALIFORNIA 6 7 8 GGH, INC., a California corporation, Plaintiff, 9 v. United States District Court For the Northern District of California 10 11 12 IGROW LLC, a California limited liability company, and DHARMINDER MANN, an individual, 13 Defendants. 14 15 16 I. ) ) ) ) ) ) ) ) ) ) ) ) ) ) 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 17 18 Default filed by Defendants IGROW LLC ("IGROW") and Dharminder Mann 19 ("Mann") (collectively, "Defendants"). 20 ("Opp'n"), 43 ("Reply"). 21 Motion by Plaintiff GGH, Inc. ("Plaintiff") for Entry of Default 22 Judgment against Defendants. 23 28, 37. 24 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' 25 26 27 28 II. BACKGROUND Plaintiff filed this action on April 28, 2010. ("Compl.") ECF No. 1 In its Complaint, Plaintiff alleged that its rights in 1 its registered service mark IGROWHYDRO were infringed by 2 Defendants. 3 sells hydroponic equipment online under the IGROWHYDRO mark using 4 the igrowhydro.com Internet domain name. 5 alleged that Defendants registered and used two Internet domain 6 names, igrow420.com and igrowoakland.com, in conjunction with the 7 sale of hydroponics products and services in Oakland, California. 8 Id. ¶ 4. 9 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 10 January 28, 2010. 11 the activities of Defendant IGROW," and in furtherance of these 12 activities, he registered the two above domain names. 13 Plaintiff alleged that the IGROW mark is confusingly similar to 14 Plaintiff's IGROWHYDRO mark. 15 Id. Id. Plaintiff's Complaint lists eight claims: (1) infringement of 16 a registered service mark under 15 U.S.C. § 1072; (2) false 17 designation of origin under 15 U.S.C. § 1125(a); (3) dilution under 18 15 U.S.C. § 1125(c); (4) cybersquatting in violation of 15 U.S.C. § 19 1125(d)(1); (5) unfair competition and trademark infringement under 20 California law; (6) trademark dilution under section 14247 21 California Business and Professions Code; (7) unfair competition 22 under section 17200 of California Business and Professions Code; 23 and (8) false advertising under section 17500 of California 24 Business and Professions Code. 25 Compl. ¶¶ 19-66. IGROW was served with the Complaint on August 25, 2010. 26 No. 12 ("Proof of Service on IGROW"). 27 additional time to serve Mann, which the Court granted. 28 13, 14. ECF Plaintiff filed a motion for ECF Nos. On September 8, 2010, Plaintiff filed Proof of Service of 2 1 the Complaint on Mann. ECF No. 15 ("Proof of Service on Mann"). 2 In this document, the process server alleges that Mann was served 3 on August 26, 2010, by substituted service on "Tony Alta, persin 4 [sic] in charge" at 70 Hegenberger Loop, Oakland, California, 5 94601. Id. Plaintiff moved for entry of default on IGROW and Mann on 6 7 September 27, 2010. ECF Nos. 17, 18. The Clerk of the Court 8 entered default against both Defendants on September 30, 2010. 9 No. 19. On December 31, 2010, Plaintiff filed its Motion for See Mot. for 10 United States District Court For the Northern District of California ECF Default Judgment, noticing a January 7, 2011 hearing. 11 Default J. 12 properly notice the hearing, and on January 3, 2011, Plaintiff 13 renoticed it for a February 11, 2011 hearing. The Court terminated this Motion for failure to ECF No. 27. 14 On February 10, 2011 -- the eve of the hearing date -- 15 Defendants filed a late Opposition, a motion to shorten time, and 16 the now-pending Motion to Set Aside the Default. 17 34. 18 continuing the February 11, 2011 hearing to March 4, 2011, and 19 deeming Defendants' Opposition to be filed timely. ECF Nos. 32, 33, The Court granted Defendants' motion to shorten time, ECF No. 35. 20 21 22 III. LEGAL STANDARD Under Federal Rule of Civil Procedure 55(c), a court "may set 23 aside an entry of default for good cause." In determining whether 24 good cause exists, a court considers (1) whether the party's 25 culpable conduct led to the default; (2) whether the party has a 26 meritorious defense; and (3) whether reopening the case would 27 prejudice the opposing party. 28 Knoebber, 244 F.3d 691, 696 (9th Cir. 2001). TCI Group Life Ins. Plan v. 3 Because these factors 1 are "disjunctive," a court is "free to deny the motion if any of 2 the three factors [is] true." 3 v. Hayhurst, 227 F.3d 1104 1108 (9th Cir. 2000). 4 discretion to set aside a default is "especially broad," Mendoza v. 5 Wight Vineyard Mgmt., 783 F.2d 941, 945 (9th Cir. 1986), as 6 "judgment by default is a drastic step appropriate only in extreme 7 circumstances; a case should, whenever possible, be decided on the 8 merits." Am. Ass'n of Naturopathic Physicians The court's Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984). 9 United States District Court For the Northern District of California 10 IV. DISCUSSION Defendants argue that all three factors favor setting aside 11 12 the default, alleging that their failure to respond to the 13 Complaint was due to excusable neglect and not due to their 14 culpable misconduct; that Plaintiff's claims "are significantly 15 flawed on their face;" and that Plaintiffs will suffer no prejudice 16 if the default is set aside. Mot. at 5. In alleging that their failure to respond to the Complaint and 17 18 the entry of default constitutes excusable neglect, Defendants 19 offer the following timeline. 20 Defendants' Motion, Mann claims that he is the founder of IGROW. 21 Mann Decl. ¶ 2.1 22 Plaintiff's attorney shortly after opening IGROW's Oakland store in 23 January 2010, and that he subsequently spoke with his business 24 counsel, Hussein Saffouri ("Saffouri"), who then contacted 25 Plaintiff's counsel. 26 the suit, he changed the name of the business from IGROW to WEGROW 27 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. 28 1 ECF No. 31. 4 1 In a declaration by Saffouri filed in support of Defendants' 2 Motion, ECF No. 36, Saffouri states that he contacted Plaintiff's 3 counsel by e-mail on or about June 6, 2010. 4 Saffouri claims that in subsequent telephone conversations with 5 Plaintiff's counsel, he advised Plaintiff of Defendants' plans to 6 cease the use of the IGROW name, replacing it with the name WEGROW 7 GARDEN SUPPLY, and suggested that Plaintiff dismiss the action. 8 Id. 9 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 10 Id. 11 was not sent a copy of Plaintiff's Motion when it was filed. 12 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. 13 14 15 16 17 18 19 20 Id. ¶ Id. ¶ 8. 21 In response, Plaintiff alleges: "Plaintiff consistently 22 notified Defendants that it intended to aggressively protect its 23 intellectual property rights and seek the maximum penalties under 24 the law through court action should the parties not reach a 25 mutually agreeable resolution." 26 supported by a declaration. 27 28 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 5 1 Loop -- the address that the documents were sent -- is a business 2 address, and the person served -- Tony Alta -- was not authorized 3 to receive or accept service of process on Mann's behalf. Id. 4 Defendants argue that they have meritorious defenses to 5 Plaintiff's Complaint, and that portions of Plaintiff's Complaint 6 "appear weak or defective" on its face. 7 Defendants allege that there is no evidence of IGROWHYDRO's 8 strength as a mark; of similarity between Plaintiff's IGROWHYDRO 9 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 10 -- a requirement for an action for dilution under 15 U.S.C. § 11 1125(c); and of damage to Plaintiff. 12 Plaintiff argues that its Complaint is meritorious, largely by 13 restating the allegations made in its Complaint. 14 Id. at 5-7. In response, Opp'n at 9-10. Finally, Defendants argue that Plaintiff will not be 15 prejudiced if the default is set aside. 16 argue: "Plaintiff did not attempt to serve its complaint for four 17 months. The case is now almost ten months old -- plaintiff's 18 doing." Id. at 9. 19 "sought to manipulate the legal process and take advantage of 20 Plaintiff by waiting to defend this action" until Defendants 21 received a favorable ruling from the U.S. Patent and Trademark 22 Office on their application for use of the mark WEGROW GARDEN 23 SUPPLY. 24 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 25 factors favor setting aside the default. The parties dispute the 26 facts leading up to the entry of default. As Defendants tell it, 27 counsel for Plaintiff and Defendants were engaged in settlement 28 discussions, and Plaintiff failed to serve its motions for entry of 6 1 default and default judgment on Defendants' counsel. 2 tells it, Defendant Mann evaded service and ignored the motions 3 filed. 4 declarations and Plaintiff's are not, the Court finds Defendants' 5 story to carry more weight. 6 As Plaintiff Because Defendants' allegations are supported with relevant Furthermore, while Plaintiff alleges that it served Mann 7 through substituted service, this service is defective. Rule 4(e) 8 of the Federal Rules of Civil Procedure permits a party to serve a 9 person through the law of the state where service is made. Section United States District Court For the Northern District of California 10 415.20(b) of California's Code of Civil Procedure authorizes 11 substituted service at a person's usual place of business, "[i]f a 12 copy of the summons and complaint cannot with reasonable diligence 13 be personally delivered to the person to be served." 14 seeking substituted service must file an affidavit of the process 15 server showing reasonable diligence in attempting personal service. 16 David S. Karton, a Law Corp. v. Dougherty, 171 Cal. App. 4th 133, 17 137 (Ct. App. 2009). 18 such, the Court finds that the first factor tips in favor of 19 setting aside the default. 20 The party No such affidavit has been filed here. As The Court also finds that Defendants have raised meritorious 21 defenses to the Complaint -- in particular, Defendants' defenses to 22 Plaintiff's dilution claim are meritorious, given the fact that 23 Plaintiff must establish its IGROWHYDRO mark is famous in order to 24 prevail. 25 Finally, there is no reason for the Court to conclude that 26 Plaintiff will be unduly prejudiced if the default is set aside. 27 While it is true that nearly one year has passed since Plaintiff 28 commenced this action, as Defendants point out, Plaintiff did not 7 1 serve Defendants with the Complaint until four months after it was 2 filed. 3 filed three months after the clerk entered default. 4 than half of the delay is attributable to Plaintiff. 5 Plaintiff would not have incurred the expense of filing a motion 6 for default judgment if Defendants had responded to the Complaint, 7 this alone is an insufficient reason to deny Defendants the 8 opportunity to defend the action and reach a decision on the 9 merits.2 Furthermore, Defendants' Motion for Default Judgment was Thus, more While United States District Court For the Northern District of California 10 11 V. CONCLUSION For the foregoing reasons, the Motion to Set Aside Default 12 13 filed by Defendants IGROW, LLC and Dharminder Mann is GRANTED. 14 Plaintiff GGH, Inc.'s Motion for Default Judgment is DENIED as 15 moot. 16 Plaintiff's Complaint within twenty-one (21) days of the date of 17 this Order; should Defendants fail to do so, the Court will enter 18 default judgment in Plaintiff's favor. Defendants must file their Answer or otherwise respond to 19 IT IS SO ORDERED. 20 21 Dated: April 11, 2011 22 23 UNITED STATES DISTRICT JUDGE 24 25 26 27 28 2 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. 8

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