i play, Inc. v. D. Catton Enterprise, LLC

Filing 71

ORDER denying without prejudice 64 Plaintiff's Motion for Default Judgment as to Defendant D. Catton Enterprise, LLC. Signed by District Judge Martin Reidinger on 03/20/2014. (Pro se litigant served by US Mail.)(thh)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:12-cv-22-MR

i play. inc.,

)
)
Plaintiff,
)
)
vs.
)
)
)
D. CATTON ENTERPRISE, LLC, a
)
New York Limited Liability Company, )
)
Defendant.
)
_______________________________ )

ORDER

THIS MATTER is before the Court on the Plaintiff’s Motion for Default
Judgment. [Doc. 64]. For the reasons that follow, Plaintiff’s motion will be
denied without prejudice.
PROCEDURAL BACKGROUND
Plaintiff i play.inc., commenced this action against Defendant D.
Catton Enterprise, LLC (“DCE”), on February 3, 2012, by filing its
Complaint.

[Doc. 1]. In its original Compliant, Plaintiff asserted claims

against DCE for: a declaration of non-infringement of U.S. Patent No.
7,553,831 (Count 1); a declaration of invalidity of U.S. Patent No.
7,553,831 (Count 2); false patent marking (Count 3); a declaration of non-

infringement of trade dress or trademark rights (Count 4); a declaration of
non-infringement of copyright (Count 5); and, unfair and deceptive trade
practices (Count 6).

[Doc. 1].

The Complaint prayed for declaratory,

injunctive, and compensatory relief, as well as treble damages, costs, and
attorneys’ fees. [Id. at 11-12]. DCE responded, on July 9, 2012, by filing a
motion to dismiss for lack of personal jurisdiction, or alternatively, to
transfer this matter to the Eastern District of New York where DCE’s
headquarters are located. [Doc. 14]. In response to DCE’s motion, the
Plaintiff sought leave to take early discovery on the issue of in personam
jurisdiction prior to responding to DCE’s motion to dismiss. [Doc. 16]. The
Court granted the Plaintiff’s request for expedited jurisdictional discovery on
August 28, 2012. [Doc. 21].
The jurisdictional discovery permitted by the Court brought about less
than satisfactory compliance thereto by DCE and the imposition of
sanctions on it for its recalcitrance. [Doc. 46]. Further, the Court denied
DCE’s alternative motions to dismiss for lack of personal jurisdiction or to
change venue. [Id.]. Finally, the Court granted Plaintiff’s motion to amend
its Complaint. [Id.].
Plaintiff filed its Amended Complaint on April 1, 2013, [Doc. 47],
wherein it asserted the same claims as set forth in its original Complaint,
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added as a new Defendant Frederick Hart Co., Inc., d/b/a Compac
Industries, Inc. (“Hart”), added an additional claim for civil conspiracy
between the two Defendants, and amended the unfair and deceptive trade
practices claim to include allegations of the Defendants’ coordinated efforts
to harm Plaintiff. [Id.]. Like the original Complaint, the Amended Complaint
prays for declaratory, injunctive, and compensatory relief. Concerning the
civil conspiracy and unfair and deceptive trade practices claims, Plaintiff
seeks treble damages, costs, and attorneys’ fees against both Defendants,
jointly and severally. [Id. at 14-15].
Shortly after Plaintiff filed its Amended Complaint, the Court permitted
local counsel and pro hac vice counsel appearing for DCE to withdraw.
[Docs. 55; 61]. Simultaneously with the release of pro hac vice counsel for
DCE, the Court ordered DCE to obtain new counsel and answer Plaintiff’s
Amended Complaint by May 31, 2013. [Doc. 61]. Being a limited liability
company, DCE cannot appear in this proceeding without properly admitted
counsel. DCE failed both to obtain new counsel and to answer the
Amended Complaint. As a result, the Court directed the Clerk to enter
default against DCE on June 11, 2013. [Doc. 62]. The Clerk entered
default against DCE that day. [Doc. 63].

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On August 1, 2013, Plaintiff filed its Motion for Default Judgment as to
DCE only. [Doc. 64]. On August 16, 2013, the Court ordered Plaintiff to
show cause for its failure to perfect service of process on Hart. [Doc. 68].
Plaintiff responded to the Court’s show cause order with a Status Report
filed August 27, 2013. [Doc. 69]. In its Status Report, the Plaintiff indicated
its “failure to serve additional defendant [Hart] was intentional” citing as its
reasons:
i) the indication by defendant Catton Enterprises, through its
owner and president David Catton, that it would not respond to
the Amended Complaint or otherwise defend against Plaintiff's
claims; ii) the procedural complications and hurdles to obtaining
default judgment against one defendant while the action was
pending against another defendant; and iii) the lack of
evidence, upon investigation by counsel, of ongoing/further
action by Hart Industries to unfairly interfere with Plaintiff's
marketing of its products since the letter dated November 10,
2011 (Doc 1-3) was provided by Hart Industries' Vice President
to a buyer at Buy Buy Baby™, a major customer of Plaintiff.
[Doc. 69 at 1-2].

Additionally, Plaintiff stated, “Hart Industries is a proper

party but not a necessary party to defendant's action. Hart is a joint and
several tortfeasor with respect to Plaintiffs' allegations of unfair and
deceptive trade practices[.]” [Id. at 2].

On August 29, 2013, the Court

entered an order [Doc. 70] dismissing Hart from this matter without
prejudice based upon Plaintiff’s concession “that its action against Hart

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Industries, Inc. should be dismissed without prejudice for failure to timely
serve that Defendant.” [Doc. 69 at 2].
DISCUSSION
Federal Rule of Civil Procedure 55(b)(1) permits the Clerk, in limited
circumstances not present here, to enter a default judgment against a
party. “In all other cases, the party must apply to the court for a default
judgment.” Fed.R.Civ.P. 55(b)(2). A claimant is not entitled to a judgment
by default as a matter of right. “The dispositions of motions for entries of
defaults and default judgments … are left to the sound discretion of a
district court because it is in the best position to assess the individual
circumstances of a given case and to evaluate the credibility and good faith
of the parties.” Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir. 1993).
Further, the “court may conduct hearings or make referrals … when, to
enter or effectuate judgment” it needs to determine the amount of damages
or investigate any other matter. Fed.R.Civ.P. 55(b)(2)(B) & (D).
In this matter, Plaintiff’s Motion for Default Judgment is wanting in
several respects thus preventing the Court from entering default judgment
against DCE. First, with regard to the equitable relief it seeks, Plaintiff
would have the Court enjoin DCE from “further contacting any of Plaintiff's
customers with charges of infringement with reference to Plaintiff’s Green
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Sprouts Water Bottle Cap Adapter[.]” [Doc. 65 at 11]. Taking the Plaintiff’s
Amended Complaint allegations against the defaulted defendant as true,
Nishimatsu Const. Co. v. Houston Nat’l Bank, 515 F.2d 1200, 1206 (5th
Cir. 1975), however, indicates only that DCE provided one infringement
letter directly to Hart and Hart then emailed a copy of that letter to a buyer
at a major customer of Plaintiff. [Doc. 47 at 5]. In short, Plaintiff’s pleading
establishes only one bad act of DCE. This prior bad act of DCE, taken
together with Plaintiff’s concession regarding “the lack of evidence, upon
investigation by counsel, of ongoing/further action by Hart Industries to
unfairly interfere with Plaintiff's marketing of its products since the
[infringement] letter … was provided by Hart” [Doc. 69 at 2], indicates that
Plaintiff no longer suffers from an immediate or future irreparable injury.
Therefore, without any further showing by the Plaintiff, no injunction is
warranted in this matter. eBay Inc. v. MercExchange, LLC, 547 U.S. 388,
391 (2006) (injunctive relief is appropriate where the plaintiff risks suffering
irreparable harm and monetary remedies are inadequate).
Second, Plaintiff seeks in its Amended Complaint several declaratory
judgments by the Court regarding the validity of U.S. Patent Number
7,553,831, and whether Plaintiff’s products and marketing infringe upon
DCE’s intellectual property rights. See Counts 1 through 5 in the Amended
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Complaint.

[Doc. 47 at 8-11].

Plaintiff, however, has failed entirely to

allege any facts that would permit the Court to fashion any declaratory
judgment Plaintiff so desires.

The effect of DCE’s default is that the

specific facts pleaded by Plaintiff are deemed admitted. Nishimatsu, 515
F.2d at 1206. Without any specific factual allegations regarding Plaintiff’s
product, or the nature and basis of the asserted invalidity of DCE’s patent,
or any facts setting forth how Plaintiff’s product and marketing do not
infringe upon DCE’s intellectual property rights, the Court has no basis
upon which to declare anything about the patent at issue or the parties’
products. “This is rather like deleting the ingredients portion of a recipe and
telling the cook to proceed[.]” United States v. Booker, 543 U.S. 220, 307
(2005) (Scalia, J., dissenting). The Plaintiff’s Amended Complaint consists
almost entirely of legal conclusions and conclusory statements regarding
the patent and whether it was infringed. These are insufficient to obtain a
declaratory judgment by default.
Finally, with regard Plaintiff’s claims against DCE for civil conspiracy
and for unfair and deceptive trade practices, the Court is legally precluded
from entering default judgment against DCE under the current posture of
this case. The basis for the Court’s conclusion stems from the Supreme
Court’s decision in Frow v. De La Vega, 82 U.S. (15 Wall.) 552 (1872), and
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the fact that Hart’s dismissal from this action was without prejudice.
In Frow, the plaintiff brought suit against several land owners claiming
they had defrauded him in a land transaction regarding a particular tract.
Id., 82 U.S. (15 Wall.) at 553.

All defendants except Frow filed timely

answers. Default judgment was entered against Frow awarding plaintiff
title to the land and an injunction against Frow. Following a trial on the
merits, however, judgment was entered against the plaintiff and his action
was dismissed.

Frow appealed his default judgment and the Supreme

Court reversed. [Id.]. The Court began with this observation:
If the court in such a case as this can lawfully make a final
decree against one defendant separately, on the merits, while
the cause was proceeding undetermined against the others,
then this absurdity might follow: there might be one decree of
the court sustaining the charge of joint fraud committed by the
defendants; and another decree disaffirming the said charge,
and declaring it to be entirely unfounded, and dismissing the
complainant's bill. And such an incongruity, it seems, did
actually occur in this case. Such a state of things is unseemly
and absurd, as well as unauthorized by law.
82 U.S. (15 Wall.) at 554.

The Court held that the proper manner of

proceeding where joint liability is alleged and one (or more defendants) fail
to answer,
is simply to enter a default … against him, and proceed with the
cause upon the answers of the other defendants. The
defaulting defendant has merely lost his standing in court. He
will not be entitled to service of notices in the cause, nor to
appear in it in any way. He can adduce no evidence, he cannot
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be heard at the final hearing. But if the suit should be decided
against the complainant on the merits, the bill will be dismissed
as to all the defendants alike-the defaulter as well as the others.
If it be decided in the complainant's favor, he will then be
entitled to a final decree against all. But a final decree on the
merits against the defaulting defendant alone, pending the
continuance of the cause, would be incongruous and illegal.
[Id.].

In accord, United States, ex rel., Hudson v. Peerless Ins. Co., 374

F.2d 942 (4th Cir. 1967) (dismissal without prejudice of principal precludes
entry of default judgment against surety).
As alleged in the last two counts of the Amended Complaint,
Plaintiff’s claims against DCE and Hart are inextricably intertwined. [Doc.
47 at 5-8]. On the one hand, Plaintiff’s unfair and deceptive trade practices
and civil conspiracy claims against Hart are (were) dependent on there
being no infringement by Plaintiff of DCE’s patent or other intellectual
property. On the other hand, these same claims alleged by Plaintiff against
DCE are dependent upon Hart’s unlawful and deceptive act of publishing
DCE’s infringement letter to one of Plaintiff’s major customers. Plaintiff’s
claims against one conspirator are of necessity interwoven with the claims
against the coconspirator. This is confirmed by Plaintiff’s assertion that the
actions of DCE and Hart were a coordinated effort to harm Plaintiff for
which both should be held jointly and severally liable. [Doc. 47 at 12-15].
As such, the Plaintiff’s claims against the dismissed Defendant wand DCE
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are more interdependent than even those found in Hudson.1
Plaintiff thus has two options to remedy this potential “absurdity.” It
can dismiss Hart with prejudice by amended notice, or it can seek a
dismissal without prejudice as to DCE and start anew.
ORDER
Accordingly, IT IS, THEREFORE, ORDERED that the Plaintiff’s
Motion for Default Judgment [Doc. 64] as to Defendant D. Catton
Enterprise, LLC, is hereby DENIED WITHOUT PREJUDICE.
IT IS SO ORDERED.

Signed: March 20, 2014

1

This is in contrast with situations where the claims are not dependent or so closely connected. Cf.
Hurtado v. Indonesian Music, 1:12cv152 (WDNC)

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