BMW of North America, LLC et al v. Dinodirect Corp et al

Filing 100

ORDER GRANTING DEFENDANTS' MOTION TO VACATE DEFAULT JUDGMENT by Judge William Alsup [granting 85 Motion to Vacate]. (whasec, COURT STAFF) (Filed on 11/30/2012)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 11 For the Northern District of California United States District Court 10 12 BMW OF NORTH AMERICA, LLC, ROLLSROYCE MOTOR CARS, NA, LLC, ROLLSROYCE MOTOR CARS LIMITED, and BAYERISCHE MOTOREN WERKE AG, Plaintiffs, 13 14 15 16 17 No. C 11-04598 WHA v. DINODIRECT CORP.; DINODIRECT CHINA LTD., B2CFORCE INTERNATIONAL CORP., and JIANFENG FENG, an individual, ORDER GRANTING DEFENDANTS’ MOTION TO VACATE DEFAULT JUDGMENT Defendants. / 18 19 INTRODUCTION 20 In this trademark-infringement action, defendants move to vacate default judgment. 21 For the following reasons, the motion is GRANTED. 22 STATEMENT 23 Plaintiffs design, manufacture, and distribute motor vehicles, automotive parts, and 24 lifestyle items. Plaintiffs own exclusive rights under the Trademark Act to various marks that 25 are used in connection with the sale and distribution of their products (First Amd. Compl. ¶ 22). 26 Defendants DinoDirect Corp., a Delaware corporation (DinoDirect), DinoDirect China 27 Ltd., a Hong Kong limited liability company (DinoDirect China), B2CForce International Corp., 28 a California corporation, and JianFeng Feng, CEO of DinoDirect China, are allegedly affiliated, 1 with B2CForce and DinoDirect allegedly operating, and DinoDirect China 2 fulfilling orders placed through the website. Defendants allegedly advertised and sold 3 counterfeit BMW and Rolls-Royce products through the website, as well as through a related 4 wholesale center (id. at ¶¶ 10, 27, 31). 5 In September 2011, plaintiffs commenced this trademark-infringement action bearing plaintiffs’ trademarks that were sold from defendants’ website and wholesale page. 8 All defendants were served. Between February and April 2012, defendants failed to appear in 9 three rounds of court-ordered telephonic alternative dispute resolution, alleging date and time 10 issues and other technical problems (Dkt. No. 63). Consequently, the Clerk granted default as 11 For the Northern District of California seeking injunctive relief and $13.5 million in statutory damages for counterfeit products 7 United States District Court 6 to all defendants (Dkt. Nos. 44, 54). 12 Shortly thereafter, DinoDirect China sent a letter to the Clerk and plaintiffs’ attorneys, 13 disputing claims made in plaintiffs’ complaint (Dkt. No. 59). Plaintiffs then moved for default 14 judgment against all defendants. Jenney Zheng, Mr. Feng’s secretary, emailed the Clerk several 15 times enquiring what the next steps in the legal process involved, responding to plaintiffs’ 16 complaint, and requesting to move the action to a Chinese court or that it be reconciled 17 out of court (Dkt. Nos. 60, 63). On June 19, the undersigned judge issued a notice informing 18 defendants that their emails were not an acceptable form of communication, did not count as 19 an appearance, and should cease immediately (Dkt. No. 70). Defendants were also informed 20 that if they failed to appear via counsel at the hearing scheduled for June 20, default judgment 21 would likely be granted against them (ibid.). Defendants were offered the opportunity to appear 22 via counsel in order to procure a short extension so that they could move to set aside plaintiffs’ 23 motion for default judgment (ibid.). Defendants, however, failed to appear. Instead, defendants 24 DinoDirect China and Feng sent two identical emails to the Clerk on June 19 stating that they 25 would be unable to attend the scheduled hearing on the next day, asking for a lawyer assignment, 26 and disputing some of the plaintiffs’ claims asserted in the complaint (Dkt. Nos. 68, 69). 27 28 The June 27 order granted plaintiffs’ motion for default judgment, permanent injunction, and statutory damages in the amount of $1.5 million as a result of their “willful advertisement 2 1 and sale of counterfeit BMW products,” of which defendants were deemed jointly and severally 2 liable (Dkt. No. 74). Four months after judgment was ordered, defendants now move to vacate 3 the default judgment pursuant to FRCP 60(b) on the grounds that their failure to obtain counsel 4 and appear before the Court amounted to excusable neglect. 5 6 ANALYSIS Default judgments are disfavored, and cases should be decided on their merits whenever 7 reasonably possible. Pena v. Seguros La Comercial, S.A., 770 F.2d 811, 814 (9th Cir. 1985). 8 Pursuant to FRCP 55(c), a district court may set aside the entry of default upon a showing of 9 good cause. Once default judgment has been entered, relief is governed by FRCP 60(b). Where a defendant seeks relief under FRCP 60(b)(1) based upon “excusable neglect,” a district 11 For the Northern District of California United States District Court 10 court applies the same three factors governing the inquiry into “good cause” under FRCP 55(c). 12 United States v. Signed Personal Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091 13 (9th Cir. 2010). Those factors, which are referred to as the “Falk factors” are: (1) whether 14 the defendant’s culpable conduct led to the default; (2) whether the defendant has a meritorious 15 defense; and (3) whether reopening the default judgment would prejudice the plaintiff. 16 TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir. 2001) (citing Falk v. Allen, 17 739 F.2d 461, 463 (9th Cir. 1984)). The determination of what conduct constitutes “excusable 18 neglect” under FRCP 60(b)(1) “is at bottom an equitable one, taking account of all relevant 19 circumstances surrounding the party’s omissions.” Brandt v. American Bankers Ins. Co. of 20 Florida, 653 F.3d 1108, 1111 (9th Cir. 2011). 21 1. WHETHER THE DEFENDANTS’ CULPABLE CONDUCT LED TO THE DEFAULT. 22 A defendant’s conduct is culpable where there is no explanation of the default 23 inconsistent with a devious, deliberate, willful, or bad faith failure to respond. TCI Group, 24 244 F.3d at 698. Neglectful failure to answer as to which the defendant offers a credible, good 25 faith explanation negating any intention to take advantage of the opposing party, interfere with 26 judicial decision-making, or otherwise manipulate the legal process is not “intentional,” and is 27 therefore not necessarily culpable or inexcusable. Id. at 697–698. 28 3 1 Defendants argue that because its decision-makers are Chinese and reside in China, “they 2 failed to understand that their informal efforts to resolve the dispute without the assistance of 3 legal counsel did not relieve them from the obligation to file formal documents with the Court” 4 (Br. 2). Although defendants had prior, albeit limited, experience with United States law and 5 were advised that they should consult an attorney here in order to submit formal pleadings 6 and appear (Dkt. No. 70), this order does not find that their failure to do so was in bad faith. 7 The cases cited by plaintiffs in which courts have denied motions to vacate default cite Employee Painters’ Trust v. Ethan Enters., 480 F.3d 993 (9th Cir. 2006), in support of their 10 argument that failing to secure counsel despite clear notice of the need to so qualifies as culpable 11 For the Northern District of California judgments based on a defendant’s culpable conduct are distinguishable. For example, plaintiffs 9 United States District Court 8 conduct. In Employee Painters’ Trust, the corporate defendant was initially represented by 12 counsel who later withdrew. Id. at 996. Here, defendants were never represented by counsel. 13 Unlike the defendants in Richmark Corp. v. Timber Falling Consultant, Inc., 937 F.2d 1444 14 (9th Cir. 1991), defendants did not demonstrate their familiarity with United States courts 15 by retaining local counsel in other matters during the period of delay in this current action. 16 Accordingly, this order finds that while defendants failure to obtain counsel and formally appear 17 was certainly neglectful, it was not necessarily “culpable” as defined by our court of appeals. 18 2. 19 Defendants dispute various allegations deemed “admitted” by their defaults, including: WHETHER DEFENDANTS HAVE A MERITORIOUS DEFENSE. 20 (1) that they willfully infringed plaintiffs’ trademarks; (2) that defendants B2CForce and 21 DinoDirect were involved with operating the website; and (3) that defendant 22 Feng “personally directed the infringing activities” (Br. 23–24). “A defendant seeking to vacate a default judgment must present specific facts that would 23 24 constitute a defense. But the burden on a party seeking to vacate a default judgment is not 25 extraordinarily heavy.” See TCI Group, 244 F.3d at 700. To satisfy the “meritorious defense” 26 requirement, defendants must “allege sufficient facts, that, if true, would constitute a defense.” 27 Ibid. 28 4 1 Defendants dispute liability on plaintiffs’ Lanham Act and related California state law 2 claims. Pursuant to the Lanham Act, any person who shall, without the consent of the registrant, 3 “use in commerce any reproduction, counterfeit, copy or colorable imitation of a registered mark 4 in connection with the sale, offering for sale, distribution, or advertising of any goods . . . shall 5 be liable in a civil action by the registrant for the remedies hereinafter provided.” 16 U.S.C. 6 1114. The foundation of defendants’ non-direct infringement argument is that DinoDirect China 7 did not own any of the goods sold through, did not sell goods, did not provide the 8 content or product information on the website for goods offered for sale, did not place the 9 infringing marks on any products, and did not advertise for any products bearing the infringing trademarks. DinoDirect China argues that it merely operated the internet platform on which 11 For the Northern District of California United States District Court 10 other companies sold products by processing payments for purchases and providing warehouse, 12 packing, and shipping services from some of the sellers (Br. 7, 9). 13 Liability under the Lanham Act may also be premised on a theory of contributory 14 infringement if defendants continued to supply their services to other companies who they knew 15 or had reason to know were engaging in trademark infringement. Inwood Labs., Inc. v. Ives 16 Labs., Inc., 456 U.S. 844, 854 (1982). Based on the pleadings, there are substantial questions 17 of fact as to whether or not defendants continued to distribute the offending products after they 18 became aware of the infringing activity. Defendants allege that immediately after plaintiffs 19 notified DinoDirect China of the alleged infringement, the company removed the infringing 20 products from and took steps to block unauthorized “BMW” products from 21 being sold through the website (Br. 3–4). These facts, if true, may provide defendants with a 22 meritorious defense or mitigation. 23 Furthermore, defendants seek to vacate the $1.5 million damages award on the ground 24 that their conduct was not willful. In response, plaintiffs argue that the $1.5 million damages 25 award is “well within the appropriate statutory damages range” for non-willful infringement 26 (Opp. 16–17). Plaintiffs’ argument, however, is irrelevant because defendants seek to vacate a 27 default judgment expressly based on a finding of willful infringement. 28 5 1 3. WHETHER REOPENING THE DEFAULT JUDGMENT WOULD PREJUDICE PLAINTIFFS. 2 “To be prejudicial, the setting aside of a judgment must result in greater harm than 3 simply delaying resolution of the case. Rather, ‘the standard is whether plaintiff’s ability to 4 pursue his claim will be hindered.’” TGI Group, 244 F.3d at 701 (citing Falk, 739 F.2d at 463). 5 To be considered prejudicial, “the delay must result in tangible harm such as loss of evidence, 6 increased difficulties, or greater opportunity for fraud or collusion.” Ibid. 7 Plaintiffs argue that they will be prejudiced if the default judgment is vacated as a result 8 of evidence destruction because defendants “off shelved” the offending products (removed 9 them from the website) and returned infringing items to the originating companies (Br. 10–11). 10 the granting of default judgment. Plaintiffs provide no explanation as to why a delay resulting For the Northern District of California United States District Court This argument is not persuasive. These actions occurred in October 2011, eight months prior to 11 12 from vacating the default judgment would cause further harm beyond that which has already 13 occurred. 14 CONCLUSION 15 For the above stated reasons, the Court is provisionally inclined to grant defendants’ 16 motion to vacate default judgment subject to THREE MANDATORY CONDITIONS: (1) all 17 defendants affirmatively submit to the full jurisdiction of this Court; (2) foreign defendants 18 DinoDirect China Ltd. and Mr. Jianfeng Feng attend depositions in Oahu, Hawaii and produce 19 all responsive documents to a narrow and reasonable set of document requests (up to ten); and 20 (3) the previous two conditions occur before JANUARY 31, 2013. Both parties shall file a joint 21 status report by JANUARY 31, 2013, AT NOON. 22 23 IT IS SO ORDERED. 24 25 Dated: November 30, 2012. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 26 27 28 6

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