MetroPCS et al v. Othman et al

Filing 38

MEMORANDUM OPINION AND ORDER: The Court finds it appropriate to GRANT Defendants' Motion to Set Aside Default. (Doc. 35 ). Thus, the Court DIRECTS the Clerk of Court to LIFT the entries of default entered on 4/29/2016 (Doc. 22 ); 5/12/2016 (Do c. 24 ); and 5/13/2016 (Doc. 26 ). The entry of default entered against Abed (Doc. 13 ) remains in place. Because the case will proceed on the merits against five of the six Defendants, the Court DENIES Plaintiff's Motion for Default Judgment (Doc. 28 ) without prejudice pending final judgment on the merits as to the Defendants. For the same reason, the Court DENIES without prejudice Plaintiff's Motion for a Permanent Injunction (Doc. 28 ). (Ordered by Judge Jane J. Boyle on 1/13/2017) (sss)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
METROPCS, a brand of T-Mobile
USA, Inc., a Delaware Corporation,
Plaintiff,
v.
PC-WIZ CORP, ET AL.,
Defendants.

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CIVIL ACTION NO. 3:16-CV-0442-B

MEMORANDUM OPINION & ORDER
Before the Court are: (1) Defendants’ FRCP 55(c) Motion to Set Aside Default (Doc. 35)
[hereinafter Defs.’ Mot. to Set Aside] and (2) Plaintiff’s Motion for Default Final Judgment and
Permanent Injunction (Doc. 28) [hereinafter Mot. for Default J.] For the following reasons the Court
GRANTS Defendants’ Motion (Doc. 35), and DENIES without prejudice Plaintiff’s Motion (Doc.
28).
I.
BACKGROUND
Plaintiff T-Mobile USA, Inc. (T-Mobile), a Delaware corporation, for itself and its MetroPCS
brand (collectively MetroPCS or Plaintiff) brought the above-captioned lawsuit against Defendants
PC-Wiz Corp. (PC-Wiz); Adham Othman a/k/a Adham Adhamhamid Othman a/k/a Adham Jacob
Othman a/k/a Adham Abdelhamid Othman a/k/a Adham D. Otham (Adham); Louai Othman a/k/a
Louai Abdelhamied Othman (Louai); Omar Othman a/k/a Omar Abdelhamed Othman a/k/a
Omanabdelh Othman (Omar); Abdelhamid Abdallah Othman a/k/a Abdelhamid Othman a/k/a/

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Tamam Abdallah Othman, Sr. a/k/a Abdelhamid Abdallah Hamid a/k/a Abdelhamid Abdul
Abdallah-Othman, Sr. a/k/a Abdel Hamid Othman a/k/a Abdelhamid Abdallah Hamid A., Sr. a/k/a
Abdelhamid Abdul Othman Abdallah a/k/a Abdelhamid Abdul A. Othman a/k/a Abdel Hamid A.
Othman (Abdelhamid); and Abdalgader Othman a/k/a Abed Othman (Abed).
This case involves the resale of MetroPCS wireless handsets (Handsets) by five individuals
and one corporation. Doc. 1, Compl. ¶ 1. As part of T-Mobile’s business model, it purchases
MetroPCS Handsets from manufacturers at a higher cost than what they eventually charge their
customers. Id. ¶ 24. T-Mobile can afford to do this because the reduced-cost MetroPCS Handsets
only work on the MetroPCS wireless network; so in order to use a reduced-cost MetroPCS Handset,
a customer must also pay for the MetroPCS wireless service. Id. Customers of other
telecommunications carriers must pay full price for the Handsets. Id.
Plaintiff alleges that Defendants took advantage of T-Mobile’s business model by acquiring
MetroPCS Handsets at the reduced cost and selling them for a profit to be shipped overseas where
they can be used on foreign carriers’ networks. Id. ¶ 33. In order to enable the Handsets’ use on other
carriers’ networks, Plaintiff alleges that Defendants wrongfully “unlock” or hack the software
restricting access to other wireless carriers. Id.
From these allegations, Plaintiff brings a multitude of claims including unfair competition,
tortious interference with business and contractual relations, unjust enrichment, fraud, conspiracy
to commit fraud and fraudulent misrepresentation, violations of the Computer Fraud and Abuse Act,
violations of the Lanham Act, and conversion. Id. ¶¶ 56–194.
Plaintiff served all six Defendants, and their answers were due between March 31, 2016 and
May 13, 2016. None of the Defendants filed an answer or any responsive pleading, so Plaintiff
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requested the Clerk to issue a Clerk’s Default as to each Defendant. Docs. 12, 19, 20, 21, 23, 25,
Request for Clerk to issue Clerk’s Default. The Clerk then entered Default as to each Defendant by
May 2016. Docs. 13, 22, 24, 26, Clerks Entry of Default. Plaintiff filed its Motion for Default
Judgment against all Defendants. Doc. 28, Mot. for Default J.
After Plaintiff filed its Motion for Default Judgment, five of the six Defendants—PC-Wiz,
Adham, Louai, Omar, and Abdelhamid—filed an Answer. Doc. 30, Defs.’ Answer. These five
Defendants then filed a Motion to Set Aside Default (Doc. 35), and Plaintiff filed a Response (Doc.
37). The remaining Defendant, Abed, has yet to appear in the action. The Motions are ripe, so the
Court will first address Defendants’ Motion to Set Aside Default before turning to Plaintiff’s Motion
for Default Judgment.
II.
ANALYSIS
A.

Motion to Set Aside Clerk’s Entry of Default
1.

Legal Standard

Under Rule 55(c) of the Federal Rules of Civil Procedure, a court “may set aside an entry of
default for good cause.” Fed. R. Civ. P. 55(c). Good cause “is not susceptible of precise definition,
and no fixed, rigid standard can anticipate all of the situations that may occasion the failure of a
party to answer a complaint timely.” In re Dierschke, 975 F.2d 181, 183 (5th Cir. 1992).
To determine whether a defendant has shown good cause for a Rule 55(c) motion, a court
should consider the following factors: (1) whether the default was willful; (2) whether the plaintiff
would be prejudiced; and (3) whether the defendant presents a meritorious defense. Id. The court
is not required to consider all of these factors, and other factors may be considered as well. CJC

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Holdings, Inc. v. Wright & Lato, Inc., 979 F.2d 60, 64 (5th Cir. 1992). These factors are not exclusive;
instead, they are to be regarded as a means to identify good cause. Dierschke, 975 F.2d at 184.
The Court favors resolving actions on the merits and therefore will resolve any doubts in
favor of Defendants. See Lacy v. Sitel Corp., 227 F.3d 290, 292 (5th Cir. 2000) (observing that
“federal courts should not be agnostic with respect to the entry of default judgments which are
‘generally disfavored in the law’”) (internal citation omitted); Gen. Tel. Corp. v. Gen. Tel. Answering
Serv., 277 F.2d 919, 921 (5th Cir. 1960) (“where there are no intervening equities any doubt should,
as a general proposition, be resolved in favor of the movant to the end of securing a trial upon the
merits”).
2.

Application
i.

Willfulness

First, in determining whether a default is willful, the court considers whether there has been
excusable neglect. CJC Holdings, 979 F.2d at 64. Excusable neglect is an “‘elastic concept’ and is not
limited strictly to omissions caused by circumstances beyond the control of the movant.” Coleman
v. Bank of New York Mellon, 3:12-cv-4783-M-BH, 2015 WL 5437661, at *2 (N.D. Tex. Aug. 14,
2015) (quoting Pioneer Inv. Servs. Co. V. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 392 (1993)).
The term extends to “simple, faultless omissions to act and, more commonly, omissions caused by
carelessness.” Pioneer, 507 U.S. at 388. Excusable neglect has been found to include late filings due
to “mistake, inadvertence or carelessness and not to bad faith.” Mattress Giant Corp. v. Motor Advert.
& Design Inc., No. 3:07-cv-1728-D, 2008 WL 898772, at *2 (N.D. Tex. Mar. 31, 2008). On the
other hand, an “‘intentional failure’ to respond to litigation” is not excusable neglect. See In re OCA,
Inc., 551 F.3d 359, 370 n.32 (5th Cir. 2008) (quoting Lacy, 227 F.3d at 292).
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Defendants argue that their failure to timely respond is a result of miscommunication among
themselves, confusion about deadlines, and reliance on one Defendant to coordinate with counsel.1
Regarding miscommunication, Defendants state:
With three brothers, their father, and a cousin living at 4 separate addresses, as well
as two fully independent corporations operating in the same industry by men related
but not working for the benefit of the other corporation, the confusion and repeated
miscommunication between Plaintiff[s], counsel for movants, and [D]efendants is
unsurprising.
Doc. 36, Defs.’ Mot. to Set Aside 6. On top of living at separate addresses, Defendants further blame
their miscommunication on Plaintiff effecting service on different days because it caused Defendants
to have different deadlines for filing a response. Id. at 7. Multiple deadlines evidently created too
many moving parts to effectively secure counsel and respond to Plaintiff’s Complaint on time. See
id. Defendants also criticize Plaintiff’s efforts to contact Defendants as “slapdash” and haphazard. Id.
at 6–7.
Besides miscommunication, Defendants also contend that they mistakenly relied on both
Adham and counsel to timely respond. Id. at 7. Adham allegedly took charge of Defendants’
participation because he obtained counsel and assured his father and brothers that things were
“taken care of.” Id.2 Even though Adham evidently obtained counsel for Defendants, counsel failed
to coordinate a timely response “[d]ue to a clerical error within the firm.” Id. It is unclear, though,

1

While Defendants devote a section of their Motion arguing that their actions amounted to excusable
neglect, the section is simply a compilation of rules; Defendants fail to make any assertion as to their specific
behavior. See Doc. 35, Defs.’ Mot. to Set Aside 10–11. This deficiency is not fatal, however, as Defendants
make assertions elsewhere in their Motion that the Court construes as arguments for excusable neglect.
2

In Defendants’ attached Affidavits, only Louai mentions Adham’s statement, and Louai asserts that
immediately after he was served, Adham told the family that he was taking care of the suit. Doc. 36, Louai
Aff. ¶¶ 15, 16. Louai notes, however, that after the Clerk made entries of default, he took the position of
leadership in the case. Id. ¶ 16.
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when specifically Adham obtained counsel.3 Louai notes in his Affidavit that after the Clerk entered
default as to each Defendant in May 2016, he “immediately took action” by meeting with counsel
because he realized the “misunderstanding” Adham said was “taken care of” had not been resolved.
Doc. 36, Louai Aff. ¶¶ 15, 16.
In response, Plaintiff rejects Defendants’ characterization of their failure to answer as an
“innocent mistake.” Doc. 37, Pls.’ Resp. 2. Plaintiff argues that Defendants’ actions were not a result
of excusable neglect, but rather the result of a mistaken presumption that ignoring the case would
force MetroPCS to abandon the suit. Id. Plaintiff specifically refutes Defendants’ points about
miscommunication and wrongfully relying on counsel because Defendants were required to educate
themselves on litigation obligations and timely file a response, with or without counsel. Id. at 10.
The Court concludes that this factor weighs in favor of lifting the entries of default against
Louai, Omar, Abdelhamid, and PC-Wiz Corp,4 but it weighs slightly against lifting the entry of
default as to Adham. The Fifth Circuit addressed excusable neglect where three defendants, all in
the same family, were sued, and two defendants relied on the third when he assured them that he
was working with the lawyers and had their interests protected. Scott v. Carpanzano, 556 F. App’x
288, 295 (5th Cir. 2014). The Fifth Circuit found that reliance on the third defendant’s

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Defendants’ Motion does not state when counsel was obtained, but it appears that it was sometime after
Adham was served in March 2016 and before June 2016 when counsel reached out to Plaintiff to instigate
settlement negotiations. Doc. 36, Defs.’ Mot. to Set Aside 7. This matters to the extent that counsel’s error
caused Defendants’ failure to answer before the deadlines in March 2016 and May 2016. Any delay caused
by counsel following those deadlines does not factor into the Court’s willfulness analysis. As an aside, the
Court sees the contention that Defendants’ counsel “[m]istakenly believed settlement negotiations to be
sufficient to prevent final default” as problematic. Id. It appears that counsel had full knowledge that default
could be entered against his clients by June, but Defendants did not file an answer until September.
4
While PC-Wiz Corp. is not mentioned specifically in Defendants’ Motion, the Court is treating it similarly
to Louai, Omar, and Abdelhamid because they are the three individuals officially associated with the
organization. Doc. 35, Defs.’ Mot. to Set Aside 2–3.
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representation amounted to excusable neglect rather than willful behavior when the third defendant
failed to answer the plaintiff’s complaint. Id. Similarly, it appears that Adham assured his brothers
and father that everything was “taken care of,” and at least Louai relied on that statement. As the
defendants in Scott were negligent, rather than willful in responding, it appears that Louai, and
possibly Omar and Abdelhamid were simply negligent in this case as well.
Besides misplaced reliance, it appears that there is evidence of miscommunication and
evidence of counsel’s mistake. Because the Court has not entered default judgment against
Defendants and is only considering lifting the clerk’s entry of default, the Fifth Circuit’s preference
for a trial on the merits factors heavily into the Court’s analysis. Therefore, the miscommunications
and counsel’s potential role in the default favors lifting the default as to all Defendants. While
Adham exhibited some behavior that could be construed as more than excusable neglect—seeing
as he evidently had full knowledge of the suit upon being served, took responsibility for the suit, and
failed to answer—the Court will continue to consider Adham in its analysis with the understanding
that miscommunication and counsel error could have played into his failure to respond.5
ii.

Prejudice to Plaintiff

With respect to the second factor in determining good cause, the Court finds that the
prejudice to Plaintiff weighs in favor of setting aside the default as to all Defendants. Defendants
argue that Plaintiff will not suffer any prejudice; rather, Defendants, themselves, will suffer prejudice
by not being able to defend the claims. Doc. 35, Defs.’ Mot. to Set Aside 11. Prejudice to defendants
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Even if the Court did find Adham to have acted willfully, judges within the Northern District of Texas
“have set aside an entry of default where other factors weighed in favor of the defendant and, on balance, the
defendant otherwise met the good cause standard” even when the defendant had acted wilfully. See Alfarouqi
v. Tri-Speed Inv., Inc., 3:12-CV-3836-L, 2013 WL 5314436, at *4 (N.D. Tex. Sept. 23, 2013); In re Dierschke,
975 F.2d at 184–85.
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is not the focus of the inquiry, but Defendants do argue that the only prejudice to Plaintiff is the
requirement to now prove its case. Id. at 11. Defendants also point out the size of Plaintiff’s
organization and state that it has access to “a bevy of attorneys to pursue legal matters on its behalf.”
Id. at 12. Plaintiff argues that it is prejudiced by Defendants’ absence because no discovery has been
conducted, it has suffered financial loss from litigating the case to obtain a default judgment, and the
evidence and witnesses have dissipated in the intervening period. Doc. 37, Pls.’ Resp. 13.
While the delay is unfortunate, prejudice to the plaintiff must involve more than the mere
possibility of prejudice from delay inherent in every case. Hibernia Nat’l Bank v. Administracion Cent.
Sociedad Anonima, 776 F.2d 1277, 1280 (5th Cir. 1985). Requiring a plaintiff to litigate the merits
of the claim is insufficient prejudice to allow a default to stand. See United States v. One Parcel of Real
Property, 763 F.2d 181, 183 (5th Cir. 1985). Thus, because it appears to the Court that the only
harm Plaintiff has suffered is having to wait to litigate the merits of the claim, this factor weighs in
favor of lifting the entries of default as to all Defendants.
iii.

Defendants’ Meritorious Defense

Third, the Court turns to whether Defendants have asserted a meritorious defense. To
succeed in setting aside the default, Defendant must establish that it has a fair probability of success
on the merits of its defense. Fed. Sav. & Loan Ins. Corp. v. Kroenke, 858 F.2d 1067, 1069 (5th Cir.
1998). A defendant must make “a clear and specific statement showing, not by conclusion, but by
definite recitation of facts . . . that there was a valid defense” to the claims. Moldwood Corp. v. Strutts,
410 F.2d 351, 352 (5th Cir. 1969). In determining whether a meritorious defense exists, the
underlying concern is “whether there is some possibility that the outcome of the suit after a full trial

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will be contrary to the result achieved by the default.” In re OCA, Inc., 551 F.3d at 373 (citation and
internal quotation marks omitted).
Defendants do not argue that there is any specific meritorious defense that would apply in
their favor; rather they state they have “been unfairly treated as one nefarious group engaged in
conspiracy when their sworn affidavits and other attached evidence shows that to be untrue.” Doc.
35, Defs.’ Mot. to Set Aside. 12. It appears their only defense is a total denial of Plaintiff’s claims
against them. Louai, specifically, denies any involvement in selling MetroPCS items.6 Adham, Omar,
and Abdelhamid, on the other hand, assert what appears to be a knowledge-based defense as they
claim they had no idea their actions were wrong or broke any rules.7 Adham, Omar, and Abdelhamid
also deny several of Plaintiff’s specific allegations, including the allegation that they opened, altered,
tampered with the original packaging in which the phones come, or “unlocked” any of them. Doc.
35, Defs.’ Mot to Set Aside 5–6. PC-Wiz, as a corporation, is not discussed.
Plaintiff argues that Defendants’ arguments are merely a conclusory statements about
available meritorious defenses, which is insufficient as a matter of law. Doc. 37, Pls.’ Resp. 12.
Plaintiff points out that Defendants admit to being principals of PC-Wiz at all times relevant to this
lawsuit and trafficking MetroPCS Handsets in bulk. Id. This suggests, according to Plaintiff, that the
outcome of the lawsuit will not change, even with the application of whatever defense Defendants
6

According to Defendants, “[u]ntil the present lawsuit was well underway, L[ouai] lived in blissful ignorance
of the specific products sold,” and he “did not have any knowledge of or involvement in any defendants’
involvement with MetroPCS products, did not encourage or contribute to such involvement, and has never
benefitted financially or otherwise from said involvement.” Doc. 35, Defs.’ Mot. to Set Aside 4.
7
As to Omar, Defendants claim that “[u]ntil being sued by Plaintiff, O[mar] had been working hard to build
what he believed was a legitimate, wholly legal enterprise with increasing success.” Doc. 35, Defs.’ Mot. to
Set Aside 5. As to Adham, he “was shocked and dismayed to learn that re-selling MetroPCS handsets was
problematic or against any rules.” Id. As to Abdelhamid, he “absolutely and reasonably believed the resale
of all products they purchased to be legal and in keeping with activities common to thousands of legitimate
US businesses.” Id.
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have in mind.
Because the Court is operating under the Fifth Circuit’s flexible standard for setting aside a
clerk’s entry of default,8 it concludes that this factor weighs in favor of setting aside the default.
Louai’s assertion that he had no knowledge, involvement, or benefit from PC-Wiz’s alleged activity
with MetroPCS products would, if true, likely change the outcome of the suit with regard to Louai.
Furthermore, resolving doubt in favor of Defendants, the Court also finds that the other Defendants’
rejection of some of Plaintiff’ key allegations, including its rejection that they opened the packages
in which the phones came, could amount to a different possible outcome in the case on the merits.
Because Loaui, Abdelhamid, and Omar’s asserted defenses have the possibility to change the
outcome of the case, the Court also finds that this factor weighs in favor of setting aside the default
as to PC-Wiz as well.
While this is a close case, the Fifth Circuit has adopted a strong policy favoring trying cases
on the merits. See Lacy, 227 F.3d at 292. Therefore, keeping the Fifth Circuit's policy in mind,
Defendants have met their burden of showing that the entry of default should be set aside with
regard to all Defendants. Because Abed has yet to appear in the case, the entry of default against him
will remain in place.
B.

Motion for Default Judgment and Permanent Injunction
Today, the Court has considered five of the six Defendants’ Motion to Set Aside Default

Judgment. As to those Defendants, the Court has concluded that all five of their entries of default
can be set aside. The last Defendant, Abed, has yet to appear in this suit. Therefore the entry of

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See Lacy, 227 F.3d at 292.
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default against Abed remains and Plaintiff’s Motion for Default Judgment is considered with regard
to only Abed.
Pursuant to Federal Rule of Civil Procedure 55, a court may enter a default judgment against
a party who has not filed a responsive pleading or otherwise defended a civil action. Fed. R. Civ. P.
55(b)(2). However, federal courts have discretion to grant or deny motions for default judgment.
Mason v. Lister, 562 F.2d 343, 345 (5th Cir. 1977). Thus, while a defendant may technically be in
default, a party is not entitled to a default judgment as a matter of right. Ganther v. Ingle, 75 F.3d
207, 212 (5th Cir. 1996). For example, when default is entered against one defendant in a multidefendant case, a court may prefer to withhold granting a default judgment until a decision on the
merits against the remaining defendants has been entered. Essex Ins. Co. v. Clark, 3:09-cv-1196-B
(citing Raleigh Cycle Co. of Am. v. Edward Risha, No. H-84-522, 1987 WL 11889, at *1 (S.D. Tex.
May 27, 1987)). This is especially true where, as here, a default judgment against one of multiple
defendants could result in inconsistent or illogical judgments. Id.
Because Abed is only one of six Defendants in this action and because Plaintiff does not
separate its claims with regard to each defendant, the Court finds an entry of default judgment is not
warranted at this time. The Court will delay entering default judgment against Abed until a decision
on the merits has been entered with regard to the remaining Defendants. As such, the Court
DENIES Plaintiff’s Motion without prejudice pending final judgment on the merits as to the
Defendants. Furthermore, because the Court is delaying the entry of default judgment, the Court also
DENIES without prejudice Plaintiff’s Motion for a Permanent Injunction.

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IV.
CONCLUSION
For the reasons stated above, the Court finds it appropriate to GRANT Defendants’ Motion
to Set Aside Default. (Doc. 35). Thus, the Court DIRECTS the Clerk of Court to LIFT the entries
of default entered on April 29, 2016 (Doc. 22); May 12, 2016 (Doc. 24); and May 13, 2016 (Doc.
26). The entry of default entered against Abed (Doc. 13) remains in place. Because the case will
proceed on the merits against five of the six Defendants, the Court DENIES Plaintiff’s Motion for
Default Judgment (Doc. 28) without prejudice pending final judgment on the merits as to the
Defendants. For the same reason, the Court DENIES without prejudice Plaintiff’s Motion for a
Permanent Injunction (Doc. 28).

SO ORDERED.
SIGNED: January 13, 2017.

_________________________________
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE

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