Tile, Inc. v. Computron Systems International, Inc.

Filing 26

MEMORANDUM DECISION AND ORDER granting 19 Motion to Vacate 19 Notice of MOTION to Vacate the Default Judgment. Defendant's motion to vacate the default judgment is granted, subject to the satisfaction of the conditions set forth above. Vacatur is stayed pending satisfaction of those conditions, and until the Court rules that they have been satisfied, the judgment remains outstanding and enforceable. ( Ordered by Judge Brian M. Cogan on 8/28/2021 ) (Guzzi, Roseann)

Case 1:20-cv-02297-BMC Document 26 Filed 08/30/21 Page 1 of 7 PageID #: 212

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
---------------------------------------------------------- X
TILE, INC.,
:
: MEMORANDUM DECISION AND
Plaintiff,
: ORDER
:
- against : 20-cv-2297 (BMC)
:
:
COMPUTRON SYSTEMS
:
INTERNATIONAL,
:
:
Defendant.
:
:
---------------------------------------------------------- X
COGAN, District Judge.
This case is before the Court on defendant's motion to vacate the default judgment
entered against it. The threshold question raised by the motion is whether plaintiff properly
effected service on the foreign defendant. If it did not, then the ruling on the motion is not
discretionary; the judgment must be vacated. See RCC Ventures, LLC v. Brandtone Holdings
Ltd., 322 F.R.D. 442, 446 (S.D.N.Y. 2017). If service was proper, then the Court has discretion
as to whether to vacate the default judgment. That discretion is guided by a three-factor test: “(1)
whether the default was willful; (2) whether setting aside the default would prejudice the
adversary; and (3) whether a meritorious defense is presented.” Enron Oil Corp. v. Diakuhara, 10
F.3d 90, 96 (2d Cir. 1993); see also State St. Bank and Tr. Co. v. Inversiones Errazuriz Limitada,
374 F.3d 158, 166-67 (2d Cir. 2004) (“When a district court decides a motion to vacate a default
judgment pursuant to the provisions of Rule 60(b), the court's determination must be guided by
[the] three principal factors [mentioned above].”).

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Plaintiff served the Canadian corporate defendant by leaving the summons and complaint
with defendant's CEO at his office in Ontario. 1 Plaintiff argues that this was satisfactory because
Federal Rule of Civil Procedure 4(f)(1) permits service on an individual “by any internationally
agreed means of service that is reasonably calculated to give notice, such as those authorized by
the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents,” and
Rule 4(h)(2) permits service on a foreign business entity “in any manner prescribed by Rule 4(f)
for serving an individual, except personal delivery under (f)(2)(C)(i).” Plaintiff asserts that it has
satisfied both the Hague Convention and Ontario law for the service of process.
Defendant does not dispute that service was proper under the Hague Convention and
Ontario law, but argues that since Rule 4(h)(2) excludes delivery “by personal service”, service
was invalid.
There are two subsections of Rule 4 that are operative here. First, Rule 4(f), “Serving an
Individual in a Foreign Country,” states:
Unless federal law provides otherwise, an individual … may be served at a place
not within any judicial district of the United States:
(1) by any internationally agreed means of service that is reasonably calculated to
give notice, such as those authorized by the Hague Convention on the Service
Abroad of Judicial and Extrajudicial Documents;
(2) if there is no internationally agreed means, or if an international agreement
allows but does not specify other means, by a method that is reasonably calculated
to give notice:
(A) as prescribed by the foreign country's law for service in that country in an
action in its courts of general jurisdiction;
(B) as the foreign authority directs in response to a letter rogatory or letter of
request; or
1

The process server attempted to hand the summons and complaint to defendant's CEO, but he refused to take it, so
the process server dropped it at his feet. Defendant does not dispute that this was personal service.

2

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(C) unless prohibited by the foreign country's law, by:
(i) delivering a copy of the summons and of the complaint to the individual
personally; or
(ii) using any form of mail that the clerk addresses and sends to the individual and
that requires a signed receipt …
These provisions for serving an individual are incorporated by reference in Rule 4(h)(2), which
provides for service on foreign or domestic business entities:
Serving a Corporation, Partnership, or Association. Unless federal law provides
otherwise … a domestic or foreign corporation, or a partnership or other
unincorporated association that is subject to suit under a common name, must be
served …
(2) at a place not within any judicial district of the United States, in any manner
prescribed by Rule 4(f) for serving an individual, except personal delivery under
(f)(2)(C)(i).
Because Canada is a signatory to the Hague Convection, see Signify N. Am. Corp. v. Axis
Lighting Inc., No. 19-cv-5516, 2019 WL 4994288 (S.D.N.Y. Oct. 8, 2019), there are alternative
reasons why plaintiff’s service on defendant complied with the Hague Convention and Rule 4.
First, the Convention provides for service by “sending” judicial documents “by postal
channels, directly to persons abroad.” Hague Convention Article 10(a). That is not what
plaintiff did here. But the Hague Convention also allows a plaintiff to “effect service … through
competent persons of the State of Destination.” Id. at Article 10(c). This means that an
authorized person permitted to serve legal process in the foreign jurisdiction can effect service –
that process server is a “competent person[] of the State of Destination,” because the law of
Ontario grants that person authority to serve process. That is what plaintiff did. Service was
therefore effective under the Hague Convention pursuant to Federal Rule of Civil Procedure
4(f)(1).
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However, even if this reading of the Hague Convention together with Ontario law and
Rule 4(f) were incorrect, service would still be valid. We start with the proposition – selfevident from its text – that nothing in the Hague Convention prohibits methods of service beyond
those specified in Article 10 if acceptable to the host country. If personal service on a
corporation by a licensed process server was not included in Article 10(c) and therefore Rule
4(f)(1) were not available, that would direct us to Rule 4(f)(2)(A) – “if an international
agreement allows but does not specify other means” – under which service is permitted “as
prescribed by the foreign country’s law.” Again, since Ontario law allows personal service on an
officer of a corporation as a means of serving the corporation, the service was valid under Rule
4(f)(2)(A).
Where defendant goes astray is that neither of these theories of effective service requires
invocation of Rule 4(f)(2)(C), and therefore the exclusion of personal delivery under Rule 4(h)’s
incorporation of Rule 4(f)(2)(C)(ii) never comes into play. The three options in Rule 4(f)(2)(AC) are phrased in the disjunctive, and plaintiff can rely on subsection (A) for personal delivery,
since that is allowed in Ontario, without invoking subsection (C). Subsection (C), it seems to
me, is limited to situations where the Hague Convention does not apply or foreign law does not
permit personal service on a business entity. In that situation, Rule 4(h)(2) requires plaintiff to
find another means to effect service. 2 Service was therefore effective.

2

The cases relied on by defendant involved situations where there was no international agreement for service of
process and either there was no provision for personal service under local law or personal service was not made.
See Freedom Watch, Inc. v. Org. of the Petroleum Exporting Countries, 766 F.3d 74 (D.C. Cir. 2014) (OPEC);
Adam Techs. LLC v. Well Shin Tech. Co., No. 18-CV-10513, 2019 WL 3800236 (D.N.J. Aug. 13, 2019) (People’s
Republic of China); Bidonthecity.com LLC v. Halverston Holdings Ltd., No. 12-cv-9258, 2014 WL 1331046
(S.D.N.Y. Mar. 31, 2014) (Russia); ISPEC, Inc. v. Tex R.L. Indus., Inc., No. 12-cv-4339, 2014 WL 4162858
(D.N.J. Aug. 20, 2014) (Taiwan). The only exception is Trump Taj Mahal Assocs. v. Hotel Servs., Inc., 183 F.R.D.
173 (D.N.J. 1998), which I think was wrongly decided.

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Turning, then, to the discretionary factors under Rule 60(b), defendant first contends that
its default was not willful because its CEO thought that “a United States court did not have the
jurisdiction to issue a judgment against Computron.” According to his affidavit, he based that
belief upon the fact that defendant has no bank accounts or offices in the United States, and that
defendant had made only two sales of plaintiff’s products in the United States.
This subjective, unsupported belief does not remove defendant’s deliberate decision to
ignore the process of this Court from a characterization of willfulness. If every recipient of legal
process could disclaim the obligation to respond by asserting, “gee, I didn’t think I had to,” then
willfulness would have little meaning. Here, there is no indication that defendant's CEO is a
lawyer or received bad advice from either a Canadian or United States lawyer. The decision not
to appear was not an accident; it was a deliberate, reasoned decision, even if it was a poor
decision. The default was therefore willful.
In terms of a meritorious defense, I am skeptical that defendant has made the necessary
showing. This is a gray market goods case, where the issue is whether the products defendant
sold are materially different from the products sold within the United States. As is common in
these cases, plaintiff asserts that the warranty attached to the offending products is different than
the warranty it issues for U.S.-sold products, and thus the products are materially different.
Defendant’s affidavit asserts that the products it sold were “genuine.” However, although that
may not raise a genuine issue, I cannot make that determination without more evidence.
Finally, plaintiff points out that it would be prejudiced if the default was vacated because
defendant waited a year before seeking to vacate the default judgment, and plaintiff has no way
to ascertain whether defendant has rendered itself judgment proof or made collection more

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difficult. Defendant has not responded to this expressed concern with any assurances that it is
able to satisfy a judgment.
As noted above, the factors as applied in this case generally favor maintaining the
judgment and denying the motion to vacate. The only factor that even arguably weighs in
defendant’s favor is the possibility of a meritorious defense, and the Court is dubitante whether
defendant’s vague reference to selling “genuine” products would withstand summary judgment.
Nevertheless, considering the strong preference for decisions on the merits, see Cody v.
Mello, 59 F.3d 13, 15 (2d Cir. 1995), the Court is inclined to find a way to resolve the case other
than by default. It is well settled that in determining to exercise its discretion to vacate a default
judgment, a court may impose conditions sufficient to alleviate any prejudice that the plaintiff
may suffer. See Powerserve Inter., Inc. v. Lavi, 239 F.3d 508 (2d Cir. 2001). Here, the potential
prejudice that plaintiff has so far incurred can be alleviated by requiring defendant to reimburse
plaintiff for plaintiff’s reasonable costs and attorneys’ fees in having moved for a default
judgment and opposing the motion to vacate. In addition, to secure plaintiff against the
possibility of an uncollectible judgment, the Court will require defendant to post a judgment
bond.
As to the amount of the attorneys’ fees and bond, the parties are directed to attempt to
stipulate and report to the Court within 14 days. In attempting to resolve those issues, plaintiff
should bear in mind that although the Court imposed $1,000,000 in statutory damages in the
default judgment, that amount may not be appropriate if defendant makes a satisfactory showing
of an inability to pay that amount, or a minor number of acts of infringement, and the absence of
asset transfers without consideration during the period in question. The purpose of the bond is to
secure plaintiff; it is not to provide leverage in negotiating a settlement. Should the parties fail to

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stipulate to the amount of attorneys’ fees or bond, defendant may move the Court to fix those
amounts within 21 days of this Order. 3
Defendant's motion to vacate the default judgment is therefore granted, subject to the
satisfaction of the conditions set forth above. Vacatur is stayed pending satisfaction of those
conditions, and until the Court rules that they have been satisfied, the judgment remains
outstanding and enforceable.
SO ORDERED.

Digitally signed by
Brian M. Cogan
______________________________________
U.S.D.J.

Dated: Brooklyn, New York
August 28, 2021

3

The Court rejects defendant's claim that plaintiff committed a “fraud on the court” by asserting that defendant sold
the offending products on the internet when it did not. First, the allegation was not material to defendant’s liability.
Second, whether plaintiff had a good faith basis for that allegation may inform a Rule 11 motion, but defendant’s
decision not to respond to the complaint and dispute the allegation does not turn it into a “fraud on the court.” If
defendant meets the conditions to vacate the default, the vacatur will be without prejudice to defendant's right to
seek sanctions under Rule 11.

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