Retail Service Systems, Inc. v. Carolina Bedding Direct, LLC et al

Filing 29

SCHEDULING CONFERENCE ORDER granting 18 Motion to Set Aside Default. Defendant Carolina BeddingDirect, LLC [NC]s 02/17/2014 motions to vacate the 02/20/2014 hearing onplaintiffs 11/21/2013 motion for default judgment is GRANTED to the following. P laintiffs counsel asked that the hearing on the 01/27/2014 motion for default judgment against defendant Mattress By Appointment, LLC (doc. 17) be combined with that as to the motion for default judgment against Carolina Bedding Direct, LLC [NC]. Accordingly, the hearing noticed for 02/20/2014 is CONTINUED. Signed by Magistrate Judge Mark R. Abel on 02/20/2014. (sr1)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
Retail Service Systems, Inc.,
Plaintiff

:

Carolina Bedding Direct, LLC, et al.,
Defendants

Civil Action 2:13-cv-00994

:

v.

:

Judge Smith

:

Magistrate Judge Abel

:

Scheduling Conference Order
On February 19, 2014, counsel for the parties participated in a scheduling conference with the Magistrate Judge. During the conference, counsel presented arguments
relating to the February 16, 2014 motion for expedited discovery (doc. 26) filed by plaintiff Retail Service Systems, Inc. (“RSS”) and the February 17, 2014 motions to set aside
entry of default, to vacate the motion for default judgment hearing date, and for leave to
move or plead to the complaint (doc. 27) and to continue the February 20, 2014 hearing
on plaintiff’s motion for default judgment and for expedited briefing of that motion
(doc. 28) filed by defendant Carolina Bedding Direct, LLC, a dissolved North Carolina
limited liability company (“Carolina Bedding Direct, LLC [NC]”).1
Allegations in the complaint. RSS brings this action asserting defendants
Carolina Bedding Direct, LLC, Mattress By Appointment, LLC, and Doe Defendants 1

1

As explained below, there are two entities with the name “Carolina Bedding
Direct, LLC”. One was formed in North Carolina and the other in Florida. The complaint discusses both entities.

through 50 violated Ohio's Uniform Trade Secrets Act, Ohio Revised Code §§ 1333.61 et
seq., and engaged in a civil conspiracy. Jurisdiction is alleged under 28 U.S.C. § 1332.
Background facts pleaded in the complaint. PMD and PMD Furniture Direct, Inc.
(collectively “PMD”) developed a unique, comprehensive marketing program for the
sale of bedding and furniture through small warehouses, using classified advertising,
detailed telephone and sales scripts, and specific marketing techniques and sales
approaches. Complaint, ¶ 11. In June 2013, PMD sold all its licenses, accounts receivable, judgments, and intellectual property (including trade secrets) to RSS. Id., ¶ 3
From early 2000 to April 2003, Darren Conrad was first an assistant to PMD’s
president and, later, a PMD dealer, manager, and dealer trainer. Id., ¶ 13. When he left
PMD in April 2003, Conrad signed a 3-year non-compete. Id., ¶ 15. Nonetheless, he
went into business in competition with PMD, using PMD’s confidential materials to
train his dealers. Id., ¶¶ 18-20.
In February 2004, PMD sued Conrad in the Franklin County Common Pleas
Court for breach of a license agreement and separation agreement. Id., ¶ 22. The Common Pleas Court issued a preliminary injunction and, later, a permanent injunction Id.,
¶¶ 23 and 32-34. The judge found that Conrad violated the non-compete and the Uniform Trade Secrets Act. Id., ¶¶ 32-23. The non-compete was extended an additional 15
months from the date of the January 2009 judgment. Id., ¶ 35. During the course of that
litigation and after, Conrad continued to operate his businesses in violation of the injunctions and final judgment. Id., ¶¶ 27 and 37.
2

Facts pleaded in the complaint about “Carolina Bedding Direct, LLC”. The
caption of the complaint names as a party defendant:
Carolina Bedding Direct, LLC
c/o Statutory Agent Nicholas Lyle
5275 Cleves Warsaw Pike
Cincinnati, Ohio 45238
The introduction section of the complaint states that Carolina Bedding Direct, LLC will
be referred to as “Carolina Bedding”. Complaint, ¶ 1. The second named defendant,
Mattress By Appointment, LLC, is referred to as “MBA”. Id. Carolina Bedding Direct,
LLC is alleged to be a limited liability company located in North Carolina that was
dissolved in October 2011.2 Complaint, ¶ 6. The complaint further alleges that “. . .
Carolina Bedding has filed as a Florida limited liability company . . . . Under all
scenarios, Carolina Bedding is a foreign corporation doing business in Ohio.” Id.
When alleging Carolina Bedding’s actionable conduct, the complaint uses the
present tense:
• “defendants Carolina Bedding and MBA–the Conrad Entities–operated by and
through Darren Conrad are using the trade secrets and materials derived from
proprietary information first obtained from PMD and now owned by RSS.”
Complaint, ¶ 4;
• “. . . Carolina Bedding Direct, LLC and Mattress By Appointment, LLC are
successors-in-interest and pass-through, wholly-owned entities of Darren
2

During the February 19 conference, defendants’ counsel stated that Carolina
Bedding Direct, LLC [NC] was created in October 2011 and dissolved in April 2012.
3

Conrad that continue in operation to this day in violation of the Franklin
County Common Pleas Court’s permanent injunction . . . .” Complaint, ¶ 36;
and
• “. . . defendant Carolina Bedding Direct, LLC and Mattress By Appointment, LLC, have obtained and continue to use PMD’s trade secrets . . .
.” Complaint, ¶ 37.
The complaint does also allege that Carolina Bedding Direct, LLC engaged in actionable
conduct in the past. Complaint, ¶¶ 36 (“operated in violation of the Court’s fifteen
month injunction from August 26, 2009 to November 26, 2010") and 37 (“have obtained
and continue to use PMD’s trade secrets”).
Default. Defendants argue that Carolina Bedding Direct, LLC [NC] had no obligation to respond to the complaint because the complaint did not give it fair notice that
it was a named defendant. Given the references in the body of the complaint to both a
North Carolina and a Florida “Carolina Bedding Direct, LLC,” I recognize that it is not
wholly unambiguous which entity is a named defendant, or, indeed, whether the complaint may intend to name both entities as one defendant. Be that as it may, that is not a
reason for Carolina Bedding Direct, LLC [NC] to fail to respond to the complaint. Its
agent for service of process in Ohio is named in the caption of the complaint; and the
complaint does allege that Carolina Bedding Direct, LLC [NC] engaged in actionable
conduct. Once served with process, Carolina Bedding Direct, LLC [NC] had a legal
obligation to respond to the complaint.
4

Doc. 26 (motion for expedited discovery). Plaintiff’s February 14, 2014 motion for
expedited discovery (doc. 26) is GRANTED to the following extent. Judge Smith has
noticed plaintiff’s November 21, 2013 motion for default judgment against defendant
Carolina Bedding Direct, LLC (doc. 10) for a hearing before me for proof of a prima facie
case of liability and to determine damages. Counsel did not enter an appearance for
Carolina Bedding Direct, LLC [NC] until February 14. Plaintiff is entitled to an expeditious disposition of its motion for default judgment. Judge Smith may or may not choose
to rule on defendants’ just filed motions to vacate entry of default before the hearing on
the motion for default judgment. Further, plaintiff is entitled to expedited discovery on
the issues of whether defendants have been properly served with summons and complaint and whether this Court has personal jurisdiction over them.
I have ordered that the parties may proceed with merits discovery. Because
defendants contest personal jurisdiction, merits discovery as to them must proceed
under Rule 45, Fed. R. Civ. P. Defendants’s counsel expressed concern that my permitting merits discovery may result in their clients exposing themselves to personal jurisdiction in the Southern District of Ohio. I recognize that if defendants serve merits discovery, they may be deemed to have waived their absence of personal jurisdiction defense.
The merits discovery I envision is relatively limited. Plaintiff has the right to take
such discovery necessary to prove its damages by the greater weight of the evidence.
Since much, if not all, of that information is in the hands of defendants or Darren Con5

rad, defendants are unlikely to need discovery from plaintiff. If they do, then taking
discovery because of my order that merits discovery may proceed should not undermine their personal jurisdiction defense since they are not initiating contact with this
jurisdiction and are participating in the discovery only because ordered to do so by the
court. I understand defendants’ position that they do not have minimum due process
contacts with Ohio and that they are presently before the court because default has been
entered against them and plaintiff has moved for default judgment. It is not my intent
that their participation in the discovery I have permitted should in any way subject
them to personal jurisdiction in Ohio.
Plaintiff’s counsel has served a Rule 45 subpoena on defendants, but defendants
have responded that the subpoenas did not comply with the procedural requirements
of the rule, are over broad, and seek irrelevant information. If plaintiff believes the subpoena is enforceable, it should promptly file a motion to compel. Any memorandum in
opposition must be filed within 14 days and any reply brief within 7 days. Once briefing
is underway, counsel should call my office (614.719.3370) to obtain a date and time for
oral argument on the motion.
If plaintiff determines that it is necessary to re-serve the subpoenas, counsel
should do so promptly. To expedite discovery, the parties are ORDERED to respond to
written discovery requests within 12 business days. Counsel should confer with an eye
to resolving any disputes. An objection to a particular discovery request or subset of a
request should not delay a response to the remaining discovery requests. So, for ex6

ample, if a party objects to a discovery request as over broad, that party must nonetheless promptly produce documents that fall within the scope of the request that are undeniably relevant.
Motions to vacate hearing date (docs. 27 and 28). Defendant Carolina Bedding
Direct, LLC [NC]’s February 17, 2014 motions to vacate the February 20 hearing on
plaintiff’s November 21, 2013 motion for default judgment is GRANTED to the following extent. Plaintiff’s counsel asked that the hearing on the January 27, 2014 motion for
default judgment against defendant Mattress By Appointment, LLC (doc. 17) be combined with that as to the motion for default judgment against Carolina Bedding Direct,
LLC [NC]. Accordingly, the hearing noticed for February 20 is CONTINUED. I am committed to promptly holding the hearing once expedited discovery related to the hearing
and the Rule 55 motions is completed. Further delay is not in the interests of the parties
or the public.
Counsel should confer and discuss what discovery each side believes it needs to
complete briefing on the Rule 55 motions to set aside entry of default and the hearing
on the motions for default judgment. Counsel should then submit a proposed schedule
for conducting that discovery, filing their briefs, and hold the hearing. If they have not
already done so, counsel should email me ([e-mail]) their
proposed scheduling order on or before February 28, 2014.

7

Counsel would like to meet with Judge Smith to discuss the schedule for disposition of the outstanding motions and the timing of the hearing on the motions for default
judgment. I have communicated that request to Judge Smith’s chambers.

s/Mark R. Abel
United States Magistrate Judge

8