iLife Technologies Inc v ActiveCare Inc et al

Filing 30

Memorandum Opinion and Order denying 11 Defendant's Motion for Default Judgment, granting 26 Motion to Set Aside the Clerk's Entry of Default filed by SafeGuardian Inc. (Ordered by Judge Barbara M.G. Lynn on 5/10/2013) (aaa)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
ILIFE TECHNOLOGIES, INC.,
Plaintiff,
v.
ACTIVECARE, INC. and
SAFEGUARDIAN, INC.,
Defendants.

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No. 3:12-CV-5161

MEMORANDUM OPINION AND ORDER
Before the Court is the Motion for Default Judgment against Defendant SafeGuardian, Inc.
(“SafeGuardian”), filed by Plaintiff iLife Technologies, Inc. (“iLife”) [Docket Entry #12], and the
Motion to Set Aside Clerk’s Entry of Default, filed by SafeGuardian [Docket Entry #26]. The
Motion for Default Judgment is DENIED, and the Motion to Set Aside is GRANTED.
iLife served SafeGuardian with a copy of the Summons and Complaint through its
registered agent, Eastbiz.com, on January 30, 2013. SafeGuardian failed to answer or otherwise
respond within twenty-one days, as required by Fed. R. Civ. P. 12(a)(1). Accordingly, on
February 22, 2013, iLife requested that the Clerk issue an Entry of Default, which it did on
February 25, 2013. The next day, iLife moved for a default judgment. On March 6, 2013, two
weeks after the Rule 12 deadline and eight days after iLife moved for default judgment,
SafeGuardian answered the Complaint. On April 24, 2013, in response to a Court order,
SafeGuardian responded to iLife’s Motion for Default Judgment, and moved the Court to set aside
the Clerk’s Entry of Default.
Rule 55 of the Federal Rules of Civil Procedure authorizes courts to set aside an entry of
default judgment “for good cause.” Fed. R. Civ. P. 55(c). In determining what constitutes good
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cause, courts should consider, among other things, (1) whether the default was willful or the result
of excusable neglect, (2) whether a meritorious defense is presented, and (3) whether setting aside
the default would prejudice the adversary. Matter of Dierschke, 975 F.2d 181, 183 (5th Cir. 1992).
This list is not exclusive; “[o]ther factors may be considered, such as whether the party acted
expeditiously to correct the default.” Effjohn Intern. Cruise Holdings, Inc. v. A&L Sales, Inc., 346
F.3d 552, 563 (5th Cir. 2003). In exercising their discretion, courts are to recall that our judicial
system “universally favor[s] trial on the merits.” Matter of Dierschke, 975 F.2d at 183 (citations
omitted).
SafeGuardian claims that its failure to file a timely response to the Complaint resulted from
a misunderstanding that its codefendant and business partner, ActiveCare, Inc. (“ActiveCare”),
would respond on behalf of both entities. ActiveCare, it appears, supplies the allegedly infringing
products and services; SafeGuardian allegedly acts as ActiveCare’s “sales conduit.” Def.’s Mot. 3.
SafeGuardian claims that in light of this relationship, it contacted ActiveCare upon receiving the
Complaint, and understood from their communications that ActiveCare would retain counsel to
defend both entities. Allegedly, it was not until the Clerk’s Entry of Default, on February 25, that
SafeGuardian, ActiveCare, or ActiveCare’s counsel, the law firm of Bell Nunnally & Martin LLP
(“BN&M”), became aware that SafeGuardian lacked representation. Within nine days,
SafeGuardian retained BN&M and filed an Answer.
These circumstances reveal that SafeGuardian’s failure was excusable. iLife relies heavily
on Judge McBryde’s opinion in Flexible Innovations Ltd. v. IdeaMax, No. 4:12-CV-856-A, 2013
WL 1291766 (N.D. Tex. Mar. 29, 2013), to support its argument that SafeGuardian willfully
refused to timely respond. But there, Judge McBryde found the defaulting defendant’s excuses
“nonsensical, inconsistent, and contradictory,” and ultimately gave them no credence. Id. at *4.
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Here, in contrast, SafeGuardian’s excuse is plausible, consistent, and supported by affidavits from
SafeGuardian and ActiveCare. Although ActiveCare has not acknowledged responsibility for the
misunderstanding, the Court can nonetheless conclude that SafeGuardian’s failure was excusable,
if not altogether reasonable. Moreover, after recognizing its failure, SafeGuardian acted promptly
to enter an appearance and answer the Complaint.
SafeGuardian has also asserted defenses which, if proven, would affect the outcome of the
litigation in its favor. More is not necessary to establish good cause. See Azzopardi v. Ocean
Drilling & Exploration Co., 742 F.2d 890, 895 (5th Cir. 1984) (affirming trial court’s decision to
set aside a default judgment—a more rigorous standard than setting aside a clerk’s entry of
default—where the neglect was excusable and the defaulting party had raised defenses that could
change the outcome of the trial); Owens-Illinois, Inc. v. T & N Ltd., 191 F.R.D. 522, 526 (E.D.
Tex. 2000) (To establish good cause, a defaulting party “need not prove that it will likely succeed
on the merits; rather, it need only establish that the evidence submitted, if proven at trial, would
constitute a defense.”). Although SafeGuardian’s affirmative defenses and counterclaims provide
little detail, its Motion contains a number of potentially meritorious defenses, including arguments
that (1) as a mere sales conduit for the accused products, SafeGuardian could not have infringed
the asserted method claims, and (2) the accused product does not “sense or process static
accelerative phenomena,” a limitation on a number of the asserted independent claims. Def.’s Mot.
17. These defenses could significantly affect the success of iLife’s infringement claims, if proven,
and support a finding of good cause.
Finally, iLife has identified no prejudice other than the cost associated with pursuing the
default. Accordingly, and because default is a “drastic remedy” used only in “extreme situations,”
Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir. 2001), the Court concludes that these circumstances
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constitute good cause to SET ASIDE the Clerk’s Entry of Default and DENY Defendant’s Motion
for Default Judgment. Nevertheless, the Court is mindful of the fact that SafeGuardian’s neglect
caused iLife to waste resources, and therefore conditions its decision upon SafeGuardian paying
iLife $3,500, which the Court finds to be a reasonable and necessary sum associated with the
default. If SafeGuardian has not submitted said payment to iLife by May 24, 2013, the Court will
reinstate the Clerk’s Entry of Default, and reconsider the Motion for Default Judgment. The Court
deems SafeGuardian’s Answer, Affirmative Defenses, and Counterclaims to be filed as of March
6, 2013.
SO ORDERED.
May 10, 2013.

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BARBARA M. G. LYNN
UNITED STATES DISTRICT JUDGE
NORTHERN DISTRICT OF TEXAS

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