Elohim EPF USA, Inc. v. 162 D & Y Corp. et al.

Filing 157

MEMORANDUM OPINION AND ORDER re: 133 FIRST MOTION to Set Aside Default filed by Bizmax NY, Inc., Li Beom Kim, Hye Kyung Han, Jin E An, Sing Sing Bell, Inc., M & S Music Studio, Inc. For the reasons stated above, the Defaulted Defendants' motion is GRANTED, and the certificates of default against the Defaulted Defendants, Dkt. Nos. 51, 53, 54, 55, 56, 58, are VACATED. The Defaulted Defendants are ORDERED to respond to Plaintiff's Second Amended Complaint within 14 days of this order. This resolves Dkt. No. 133. SO ORDERED. (Signed by Judge Alison J. Nathan on 6/4/2021) (vfr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

6/4/21

Elohim EPF USA, Inc.,
Plaintiff,
19-cv-2431 (AJN)
–v–
162 D & Y Corp., et al.,

MEMORANDUM
OPINION & ORDER

Defendants.

ALISON J. NATHAN, District Judge:
This copyright infringement action was initiated in March 2019. In November 2019, the
Clerk’s Office issued certificates of default against some of the defendants. Several months
later, some of those defendants appeared. On September 10, 2020, Defendants Sing Sing Bell,
Inc., d/b/a Christmas Karaoke; Jin E. An; M & S Music Studio, Inc., d/b/a Gagopa Karaoke; Hye
Kyung Han; Bizmax NY, Inc., d/b/a Wow Karaoke; and Li Beom Kim (collectively, the
“Defaulted Defendants”) moved to vacate the entry of default against them. Dkt. No. 133.
Plaintiff opposes the motion. For the reasons that follow, the motion to vacate entry of default is
GRANTED.
I.

Background
Plaintiff Elohim EPF USA, Inc. is the subpublisher for thousands of Korean musical

compositions. According to Elohim, it enjoys exclusive rights to administer those compositions
in the United States. The Defendants in this case, meanwhile, are all either “karaoke bars” or
individuals who own, manage, or work at those establishments. Elohim argues that none of the
Defendants have licensing agreements with Elohim but that they nonetheless display or
broadcast certain songs in their establishments. Elohim thus alleges that the Defendants are

liable for direct copyright infringement, contributory copyright infringement, vicarious copyright
infringement, and inducement of copyright infringement.
Elohim filed its original Complaint in March 2019. Dkt. No. 1. The Complaint has since
been amended twice. See Dkt. Nos. 71, 140. Some of the Defendants entered an appearance or
otherwise responded to the Complaint. Others did not, despite having been validly served. The
Defaulted Defendants fall into this latter group. In November 2019, Elohim requested
certificates of default against them, which the Clerk’s office issued. See Dkt. Nos. 51, 53, 54,
55, 56, 58.
On February 4, 2021—almost a year after the lawsuit was originally filed and three
months after the certificates of default were issued—counsel for the Defaulted Defendants
noticed an appearance. Dkt. No. 80. However, the Defaulted Defendants took no further action
until September 10, 2020, when they filed this motion, which requests that the Court set aside the
defaults that had been entered against them pursuant to Rule 55(c) of the Federal Rules of Civil
Procedure. Dkt. No. 133 (“Def. Br.”). The motion is fully briefed. See Dkt. Nos. 134 (“Pl.
Opp’n Br.”), 137 (“Reply”).
II.

Legal Standard
Under Rule 55(a) of the Federal Rules of Civil Procedure, “[w]hen a party against whom

a judgment for affirmative relief is sought has failed to plead or otherwise defend . . ., the clerk
must enter the party’s default.” After such default is entered, however, “[t]he court may set aside
an entry of default for good cause.” Fed. R. Civ. P. 55(c). The standard for vacating a default is
more lenient than that for a default judgment, but the “good cause” factors are the same for
both. See Meehan v. Snow, 652 F.2d 274, 276 (2d Cir. 1981); Enron Oil Corp. v. Diakuhara, 10
F.3d 90, 96 (2d Cir. 1993). To determine whether “good cause” exists, courts assess three

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criteria: “(1) the willfulness of default, (2) the existence of any meritorious defenses, and (3)
prejudice to the non-defaulting party.” Bricklayers & Allied Craftworkers Local 2, Albany, N.Y.
Pension Fund v. Moulton Masonry & Constr., LLC, 779 F.3d 182, 186 (2d Cir. 2015)
(quoting Guggenheim Capital, LLC v. Birnbaum, 722 F.3d 444, 455 (2d Cir. 2013)). The
Second Circuit has expressed a strong “preference for resolving disputes on the merits.” New
York v. Green, 420 F.3d 99, 104 (2d Cir. 2005) (quoting Powerserve Int’l, Inc. v. Lavi, 239 F.3d
508, 514 (2d Cir. 2001)).
III.

Discussion
The Court considers each “good cause” factor in turn below and concludes that, on

balance and in light of the “strong preference” in this Circuit for resolving cases on their merits,
these factors weigh in favor of vacating the defaults.
A. Prejudice
The Court considers the last “good cause” factor first, because “[p]rejudice to the
nondefaulting party is ‘the single most persuasive reason for denying a Rule 55(c) motion. . .
.’” Murray Eng’g, P.C. v. Windermere Properties LLC, No. 12-cv-52 (JPO), 2013 WL 1809637,
at *5 (S.D.N.Y. Apr. 30, 2013) (quoting Wright & Miller, Federal Practice and Procedure § 2699
(3d ed. 2010)). Delay, standing alone, does not establish prejudice for purposes of a request to
set aside an entry of default. Enron Oil, 10 F.3d at 98. “Rather, it must be shown that delay will
result in the loss of evidence, create increased difficulties of discovery, or provide greater
opportunity for fraud and collusion.” Davis v. Musler, 713 F.2d 907, 916 (2d Cir. 1983) (internal
quotation marks omitted).
Plaintiff’s only claim of prejudice is one of delay. It asserts that setting aside the defaults
“will prolong the Defaulted Defendants’ unauthorized uses of [Plaintiff’s] musical compositions

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and will result in further prejudice to [Plaintiff].” Pl. Opp’n Br. at 7. The only claim, that is, is
that the alleged infringement may continue for longer if the default is vacated since the case will
proceed to be resolved on the merits. But the mere possibility that delaying the resolution of this
case may defer Plaintiff’s ability to get the relief it seeks in this litigation is insufficient,
particularly in light of the strong policy reasons favoring resolving cases on the merits.
Accordingly, this factor weighs in favor of vacating the defaults.
B. Willfulness of Default
The next factor—willfulness of the default—also weighs in favor of vacating the
defaults. Willfulness in this context means more than mere negligence or carelessness; it refers
to conduct that is “egregious” and “not satisfactorily explained.” S.E.C. v. McNulty, 137 F.3d
732, 738 (2d Cir. 1998). An inference of willful default is warranted if a defendant “does not
deny that he received the complaint, the court’s orders, . . . or that he never answered the
complaint,” and “does not contend that his non-compliance was due to circumstances beyond his
control.” Guggenheim Capital, LLC, 722 F.3d at 455. “[D]efaults have been found willful
where, for example, an attorney failed, for unexplained reasons, to respond to a motion for
summary judgment, or failed, for flimsy reasons, to comply with scheduling orders. . .
.” McNulty, 137 F.3d at 738–39 (internal citations omitted). An attorney’s willful conduct is
imputed to the party he represents where the party “makes no showing that he has made any
attempt to monitor counsel’s handling of the lawsuit.” Id. at 740. So, for instance, when a party
does “not talk to his attorney for nearly a year, and . . . receive[s] no bills during that time to
indicate that any attention [i]s being given to his case,” it is appropriate to impute the attorney’s
willful default to the client. Id.

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The Defaulted Defendants concede that they were aware of this lawsuit, but they claim
that their failure to appear was the result of a misunderstanding. According to them, as early as
April 2019, the Defaulted Defendants met with “corporate counsel” for purposes of retaining
representation in this matter. Def. Br. at 7; see also Changene Song Affidavit, Dkt. No. 133 at
32, ¶¶ 5–9. Corporate counsel responded that their firm did not handle federal cases in New
York, but they indicated that they would refer the case to an outside law firm. Id. The
Defendants then reached an agreement with the referral law firm, but due to an alleged
miscommunication, the referral law firm misinterpreted corporate counsel’s assertion that they
would join the case by pro hac vice as an indication that the Defaulted Defendants would retain
corporate counsel to represent them in this matter instead of the referral law firm. Id. The
Defaulted Defendants claim that they did not notice this mistake until they were in default, and
that upon noticing, they retained their current counsel who then entered a notice of appearance.
Id.
Plaintiff raises the separate point that even if the defaults were not willful, their failure to
promptly move to vacate the default after discovering that no counsel had entered an appearance
nonetheless merits a finding of willfulness. Though the Defaulted Defendants’ counsel entered
an appearance on February 4, 2020, Dkt. No. 80, they did not move to vacate the default until
September 2020—over seven months later. Defaulted Defendants’ counsel explains that this
was due to several circumstances, including delays effected by the COVID-19 pandemic and the
death of a close mentor, which resulted in counsel having to take over some of his mentor’s
work. Reply at 2. He also points to language barriers, time zone issues, and logistical issues that
further interfered with his ability to respond in a timely fashion. Id. While at least some of those

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explanations provide reasonable justification for some delay, counsel does not explain why he
failed to notify the Court or request an extension.
The Defaulted Defendants’ behavior was at least negligent. Even accepting the fact of
the misunderstanding as true and drawing all inferences in the Defaulted Defendants’ favor, the
Defaulted Defendants do not explain why it took them nearly a year to find out that no one had
entered an appearance or why they were not made aware when they received no bills during this
time period that would indicate that attention was being given to the case. See McNulty, 137
F.3d at 740.
But the Court cannot conclude—in light of their explanations and resolving all doubts in
their favor—that their actions were willful. Corporate counsel assumed the referral law firm had
entered an appearance, while the referral law firm believed corporate counsel to be representing
the Defaulted Defendants. Having conferred with their attorneys, meanwhile, the Defaulted
Defendants assumed that an appearance had been entered in this matter—a serious mistake, but
not necessarily one that rises to the level of willfulness. And while the seven month delay in
moving to vacate the default was ultimately unwarranted, the Court is persuaded that a number
of the factors counsel identified—most notably the delays caused by the COVID-19 pandemic—
provide sufficient grounds to conclude that that delay was not willful. Thus, though it is a close
call, after resolving all doubts in the Defaulted Defendants’ favor the Court concludes that this
factor favors vacating the defaults.
C. Meritorious Defenses
Finally, the existence of potentially meritorious defenses also favors vacating the default.
In order to make a sufficient showing of a meritorious defense in connection with a motion to
vacate a default judgment, the defendant need not establish his defense conclusively, see,

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e.g., Davis v. Musler, 713 F.2d at 916, but he must present evidence of facts that, “if proven at
trial, would constitute a complete defense.” S.E.C. v. McNulty, 137 F.3d 732, 740 (2d Cir. 1998)
(citing Enron Oil Corp. v. Diakuhara, 10 F.3d at 98).
The Defaulted Defendants raise a number of defenses that they claim surpass this low
bar. See Def. Br. at 9–14. Most notably, they argue that due to the nature of the karaoke bars in
question—particularly their use of private viewing rooms—they will be able to challenge that the
karaoke bars engage in public performance or display for purposes of a copyright infringement
claim. This claim is potentially meritorious and is ultimately a question of fact. The nature of
the performances, that is, may persuade a reasonable factfinder that the performances are akin to
either “private movie-viewing rooms in a public establishment” or “movies presented in hotel
guests’ individual rooms,” which could potentially lead to different conclusions regarding
infringement. Lee v. Karaoke City, No. 18-CV-3895 (PAE), 2020 WL 5105176, at *8 (S.D.N.Y.
Aug. 31, 2020) (discussing cases). To decide that question requires a degree of fact-finding that
would be improper at this stage. See id. (“Discovery will presumably reveal and allow the
parties to examine with specificity the manner in which karaoke performances occur in
defendants’ establishments, permitting this issue to be resolved either on summary judgment or
at trial.”). At this juncture, the Court is persuaded that it is a potentially meritorious defense.
Thus, the Court need not reach the rest of the Defaulted Defendants’ arguments to conclude that
this factor favors vacating the defaults.
D. Balance of the factors
As already noted, there is a strong preference in this Circuit for resolving disputes on the
merits. Brien v. Kullman Indus., Inc., 71 F.3d 1073, 1077 (2d Cir. 1995). All three factors in
this case favor vacating the defaults. Though the Court ultimately concludes that the Defaulted

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Defendants’ defaults were not willful, a contrary conclusion would not alter the balance of the
factors, which would still weigh in favor of vacating the defaults. See Sea Hope Navigation Inc.
v. Novel Commodities SA, 978 F. Supp. 2d 333, 341 (S.D.N.Y. 2013) (collecting cases in which
vacatur was warranted in spite of willfulness of the default). The Court would also resolve any
doubt as to whether the defaults should be vacated in the Defaulted Defendants’ favor and vacate
the defaults nonetheless. See Enron Oil Corp., 10 F.3d at 96. The strong policy reasons that
disfavor default bolster the Court’s conclusion that vacatur of the defaults under Rule 55(c) is
proper here.
IV.

Conclusion
For the reasons stated above, the Defaulted Defendants’ motion is GRANTED, and the

certificates of default against the Defaulted Defendants, Dkt. Nos. 51, 53, 54, 55, 56, 58, are
VACATED. The Defaulted Defendants are ORDERED to respond to Plaintiff’s Second
Amended Complaint within 14 days of this order.
This resolves Dkt. No. 133.
SO ORDERED.
Dated: June 4, 2021
New York, New York
____________________________________
ALISON J. NATHAN
United States District Judge

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