Lights Out Holdings, LLC v. Lights Out Apparel, LLC et al

Filing 33

ORDER (1) granting Defendants' #19 Motion to Set Aside Entry of Default and denying Plaintiff's #11 Motion for Default Judgment as Moot. Signed by Judge John A. Houston on 7/21/2017. (fth)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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LIGHTS OUT HOLDINGS, LLC, a
California limited liability company

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ORDER (1) GRANTING
DEFENDANTS’ MOTION TO SET
ASIDE ENTRY OF DEFAULT [DOC.
NO. 19] ; AND
(2) DENYING PLAINTIFF’S
MOTION FOR DEFAULT
JUDGMENT AS MOOT [DOC. NO.
11]

Plaintiff,

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Case No.: 16cv2195-JAH

v.
LIGHTS OUT APPAREL, LLC, a
Maryland limited liability company;
JACOB LAWSON, individuals d/b/a
LIGHTS OUT BILLIARDS APPAREL
Defendants.

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INTRODUCTION

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Pending before the Court is Defendant Lights Out Apparel LLC (“Lights Out

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Apparel”) and Defendant Jacob Lawson’s (“Lawson”) (collectively, “Defendants”) motion

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to set aside entry of default and Plaintiff Lights Out Holding LLC’s (“Plaintiff”) motion

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for default judgment. See Doc. Nos. 11, 19. After a thorough review of the parties’

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submissions and for the reasons set forth below, the Court GRANTS Defendants’ motion
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to set aside entry of default and DENIES Plaintiff’s motion for default judgment as

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MOOT.

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BACKGROUND

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Plaintiff filed the instant complaint on August 30, 2016. See Doc. No. 1. Plaintiff

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alleges seven causes of action for violations of: (1) Trademark Infringement, 15 U.S.C. §

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1114; (2) Federal Trademark Dilution, 15 U.S.C. § 1125(c); (3) Unfair Competition and

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False Designation of Origin, 15 U.S.C. § 1125(a); (4) Common Law Trademark

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Infringement; (5) California Trademark Dilution, Cal. Bus. & Prof. § 14247; (6) Unfair

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Competition, Cal. Bus. & Prof. § 17200; and (7) Violation of the Federal Anti-

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Cybersquatting Consumer Protection Act, 15 U.S.C. § 1125(d). Id. Plaintiff claims

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Defendants willfully infringed Plaintiff’s LIGHTS OUT mark by using the mark in

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connection with their own athletic apparel and related goods business in the State of

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Maryland under the names Lights Out Apparel and Lights Out Billiards Apparel. Id.

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Plaintiff alleges Defendants sell the aforementioned branded athletic clothing in Maryland

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as well as online, including to consumers within this district. Id. Plaintiff seeks damages

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and an injunction in connection with Defendants’ manufacture, distribution, and sale of

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apparel and related accessories with the allegedly infringing mark. Id.

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On August 30, 2016, Defendants were served with the summons and the complaint.

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See Doc. No. 3. On October 11, 2016, in accordance with Rule 55 of the Federal Rules of

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Civil Procedure, Plaintiff moved for an entry of default against Defendant Lights Out

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Apparel LLC and Defendant Jacob Lawson. See Doc. No. 9. Plaintiff petitioned for an

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award of statutory damages, reasonable attorneys’ fees and costs, and a permanent

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injunction, prohibiting Defendants’ use, or any other colorable variation of, Plaintiff’s

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LIGHTS OUT mark. See Doc. No. 11. On October 12, 2016, the Clerk of court entered

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default as to Defendant Jacob Lawson. See Doc. No. 12.

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Plaintiff filed the pending motion for default judgment against Defendant Lights Out

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Apparel LLC and Defendant Jacob Lawson on November 14, 2016. See Doc. No. 11.

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Defendants’ filed a motion to set aside the entry of default on December 15, 2016. See Doc.
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No. 19. On January 31, 2017, the Court took the motions under submission without oral

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argument. See Doc. No. 28. On February 3, 2017, the parties filed a joint motion to suspend

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all proceedings pending settlement negotiations. The motion was granted on February 6,

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2017. See Doc. Nos. 29, 30. Plaintiff filed a status report on April 5, 2017, declaring a

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dissolution of settlement negotiations with Defendants. See Doc. No. 32.

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DISCUSSION
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Federal Rules of Civil Procedure 55(c) provides that a court “may set aside an

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Legal Standard

entry of default for good cause.” The district court has the discretion to determine

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whether a party demonstrates “good cause.” Madsen v. Bumb, 419 F.2d 4, 5 (9th Cir.

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1969). “A court's discretion is especially broad where, as here, it is entry of default that is

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being set aside, rather than a default judgment. Mendoza v. Wight Vineyard Mngmt., 783

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F.3d 941, 945 (9th Cir. 1986) (citing Meehan v. Snow, 652 F.2d 274, 276 (2d Cir. 1981)).

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In evaluating whether a party has demonstrated good cause, a district court may consider

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the following factors, any of which is sufficient reason to grant the motion: (1) whether

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the plaintiff would be prejudiced by the setting aside of the default; (2) whether the

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defendant has a meritorious defense; and (3) the defendant’s culpability in the default.

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TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir. 2001). The Party

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seeking to vacate the entry of default bears the burden of demonstrating that these factors

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favor doing so. See TCI Grp. 244 F.3d at 679.

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There is a strong preference for deciding cases on their merits, and therefore any

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doubts should be resolved in favor of setting aside the default. See Direct Mail Specialists

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v. Eclat Computerized Techs., 840 F.2d 685, 690 (9th Cir. 1988).

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2.

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A. Prejudice

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Analysis

Defendants argue that Plaintiff will not be prejudiced by setting aside the entry of

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default because any delay incurred resolving the case on its merits would be nominal and

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does not impair Plaintiff’s ability to pursue its claim. See Doc. No. 19.
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Plaintiff contends that setting aside the default will result in substantial additional

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expenses, including potential expenses for discovery, summary judgment, and trial

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preparation. See Doc. No. 23. Furthermore, Plaintiff claims that given Defendants’

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alleged misconduct, there is a risk of fraudulent misrepresentations concerning

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Defendants’ sales and profits. See Doc. No. 23. Plaintiff points to Defendants’ failure to

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remove all mention of the alleged infringing mark from Defendants’ social media, online

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store, and merchandise, despite agreeing to do so after receiving Plaintiff’s cease and

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desist letter. See Doc. No. 11. Plaintiff also asserts that given Defendants’ past conduct,

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Defendants’ “could and likely would” resurface in the market online with the allegedly

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infringing mark, exposing consumers to the likelihood of confusion and increasing

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Plaintiff’s harm. See Doc. No. 23.

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The standard for prejudice requires more than a delay in the resolution of the case;

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“rather, the standard is whether [Plaintiff's] ability to pursue his claim will be hindered.”

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TCI Grp., 244 F.3d at 701. For a delay to be prejudicial, it must “result in tangible harm

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such as loss of evidence, increased difficulties of discovery, or greater opportunity for

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fraud or collusions.” Id. Being forced to litigate on the merits cannot be considered

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prejudicial because the plaintiff would have had to litigate on the merits of the case had

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there been no default. Id. The fact that the Plaintiff may be denied a quick victory is not

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sufficient to deny relief from entry of default. Bateman v. U.S. Postal Serv., 231 F.3d

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1220, 1225 (9th Cir. 2000).

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The Court finds that Plaintiff’s ability to pursue its claim will not be hindered and

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no prejudice to Plaintiff will result by setting aside the entry of default. Here, Plaintiff has

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not demonstrated that any tangible harm would result in vacating the entry of default and

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incurring additional expenses in attorney’s fees or other potential expenses tied to

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litigation does not prejudice Plaintiff as those expenses would have occurred had the case

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been litigated on the merits. See TCI Group, 244 F.3d at 701 (noting that costs associated

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with litigating a case on the merits cannot be considered prejudicial for the purpose of

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vacating an entry of default.) Assuming, arguendo, that Plaintiff will suffer some
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prejudice from the delay if Defendants continue their allegedly infringing use of the

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mark, delay in and of itself, does not overcome the strong policy in favor of deciding a

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case on its merits. See TCI Group, 244 F.3d at 700 (citing Falk v. Allen, 739 F.2d 461,

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463 (9th Cir. 1984)). Accordingly, the Court finds that Plaintiff’s ability to pursue its

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claim will not be hindered and no prejudice to Plaintiff will result by setting aside the

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entry of default.

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B. Meritorious Defense

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Defendants argue that they have not profited from their use of the LIGHTS OUT

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mark. In addition, Defendants posit that the damages allegedly suffered by Plaintiff are

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dubious because they are necessarily limited in scope due to Defendants’ location in the

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opposite end of the country. See Doc. No. 19. Plaintiff argues that the Defendants have

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not alleged facts sufficient to defend Plaintiff’s allegations. Plaintiff also argues that their

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mark has been registered with the U.S. Patent and Trademark Office’s Principal Register

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since 2004, which is prima facie evidence that the mark is inherently descriptive. See

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Doc. No. 23.

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“A defendant seeking to vacate a default judgment must present specific facts that

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would constitute a defense. But the burden on a party seeking to vacate a default

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judgment is not extraordinarily heavy.” TCI Grp., 244 F.3d at 700 (citations omitted). All

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that is necessary to satisfy the “meritorious defense” requirement is to allege sufficient

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facts that, if true, would constitute a defense: “the question whether the factual allegation

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[i]s true” is not to be determined by the court when it decides the motion to set aside the

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default. Id. Rather, that question “would be the subject of the later litigation.” Id. There is

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a strong preference for deciding cases on their merits, thus whenever “timely relief is

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sought… and the movant has a meritorious defense,” a court must resolve any doubt in

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favor of setting aside the default. Mendoza, 783. F.2d at 945-46.

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Although the burden of establishing a meritorious defense is not a high one, the

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Court does not at present possess enough information regarding the merits of Defendants’

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defenses. This second factor does not weigh strongly in either direction. Plaintiff
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correctly observes that the Motion to Vacate does not present any defenses, however, the

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Court still has discretion to set aside default and decide the case on the merits. See Brandt

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v. Am. Bankers Ins. Co. of Florida, 653 F.3d 1108, 1112 (9th Cir. 2011); see also Direct

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Mail, 840 F.2d at 690.

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C. Culpability

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Defendants assert they are not culpable in the default because they abandoned the

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trademark application(s) related to LIGHTS OUT after receiving a cease and desist letter

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from Plaintiff prior to being served with the complaint. See Doc. No. 19. Defendants also

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contend that the default was the result of a mistaken belief that Defendants’ counsel was

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acting in the best interest of the Defendants during ongoing settlement discussions with

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Plaintiff. See Doc. No. 19.

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Defendants assert their counsel was responsible for maintaining regular

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correspondence with Plaintiff between September to October in an effort to reach a

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settlement, as well as complying with any obligations and court deadlines, including

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filing a timely response to Plaintiff’s complaint. Id. However, in November, Defendant

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Lawson asserts that he learned that counsel did not file a timely response to Plaintiff’s

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complaint.

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Plaintiff argues that after Defendants retained counsel and agreed to abandon their

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trademark applications, simultaneously removing all references to Plaintiff’s mark on

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apparel, Defendants failed to honor their representations and continued to use the

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LIGHTS OUT mark. See Doc. No. 23. Plaintiff asserts that Defendants attempted to

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evade detection of their infringing activities by changing their website address to

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www.LOApparel.com, while continuing to market items with the LIGHTS OUT mark.

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See Doc. No. 23. Plaintiff also notes that Defendants waited until December 15, 2016,

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more than one month after the first entry of default to vacate the entry. See Doc. No. 23.

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The Ninth Circuit has “typically held that a defendant's conduct was culpable for

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purposes of the [good cause] factors where there is no explanation of the default

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inconsistent with a devious, deliberate, willful, or bad faith failure to respond.” TCI Grp.,
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244 F.3d at 698. Thus, “a defendant's conduct is culpable if he has received actual or

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constructive notice of the filing of the action and intentionally failed to answer.” Id. at

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697 (emphasis in original) (quoting Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388,

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1392 (9th Cir. 1988)). In this context, “intentionally” means that “a movant cannot be

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treated as culpable simply for having made a conscious choice not to answer; rather, to

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treat a failure to answer as culpable, the movant must have acted with bad faith, such as

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an ‘intention to take advantage of the opposing party, interfere with judicial decision-

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making, or otherwise manipulate the legal process.’ ” U.S. v. Signed Pers. Check No. 730

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of Yubran S. Mesle, 615 F.3d 1085, 1092–93 (9th Cir. 2010) (quoting TCI, 244 F.3d at

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697). Further, in analyzing culpability, the Court may consider a defendant's exigent

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personal matters, his mental state, and his lack of familiarity with legal matters. TCI Grp.,

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244 F.3d at 699.

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Here, Defendants do not demonstrate sufficient culpable conduct. The Court turns

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to the Defendants behavior to ascertain good faith. Namely, Defendants demonstrate

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good faith through their retention of counsel, who maintained regular correspondence

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with Plaintiff’s counsel during the ongoing settlement discussions. Although Defendants

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had actual notice of the filing of the action, the record lacks indicia that Defendants acted

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in bad faith. As to Plaintiff’s argument that Defendants delay in filing the instant motion

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(nearly a month after the first entry was entered) demonstrates culpable conduct, the

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Court finds no harm in this short delay. The entry of default against Lawson was entered

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in October 12, 2016. See Doc. No. 10. The proposed order granting default judgment

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against Defendants was served on November, 22, 2016. See Doc. No. 15. Defendants

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filed a motion to set aside the default on December 15, 2016. See Doc. No. 19. The Court

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accepts Defendants’ claim that they believed their counsel would act in their best interest,

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including filing a timely response to Plaintiff’s complaint. The Court finds there was no

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intentional failure to respond.

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Accordingly, the Court finds Defendants’ lacked devious, deliberate, willful, or
bad faith failure necessary to find culpable conduct.
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CONCLUSION AND ORDER
For the foregoing reasons, IT IS HEREBY ORDERED that:
1. Defendant’s motion to set aside entry of default judgment (Doc. No. 19) is
GRANTED; and

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2. Petitioner’s motion for default judgment (Doc. No. 11) as MOOT.

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IT IS SO ORDERED.

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DATED: July 21, 2017
_________________________________
JOHN A. HOUSTON
United States District Judge

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