Jane Envy, LLC v. Best Imports & Wholesale, LLC

Filing 28

ORDER VACATING 14 Report and Recommendations, GRANTING 21 MOTION to Set Aside 12 Clerk's Entry of Default; DENYING 13 MOTION for Default Judgment. Signed by Judge David A. Ezra. (rf)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
JANE ENVY, LLC,

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Plaintiff,
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vs.
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BEST IMPORTS & WHOLESALE,
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LLC d/b/a VIVIDOVE, ROGER HUN §
KANG, and MO KYUNG LEE,
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Defendants.
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No. 5:14-CV-81-DAE

ORDER (1) GRANTING DEFENDANTS’ MOTION TO SET ASIDE CLERK’S
ENTRY OF DEFAULT, (2) VACATING MAGISTRATE JUDGE’S
MEMORANDUM AND RECOMMENDATION AS MOOT, AND (3)
DENYING PLAINTIFF’S MOTION FOR DEFAULT JUDGMENT
Before the Court is a Motion for Default Judgment filed by Plaintiff
Jane Envy, LLC (“Plaintiff”) (Dkt. # 13). Also before the Court is a Motion to Set
Aside Clerk’s Entry of Default (Dkt. # 21) and Objections to Magistrate Judge’s
Memorandum and Recommendation (Dkt. # 22) filed by Defendants Best Imports
& Wholesale, LLC d/b/a Vivdove, Roger Hung Kang, and Mo Kyung Lee
(collectively, “Defendants”). Plaintiff filed a Response in Opposition to
Defendants’ Motion to Set Aside Clerk’s Entry of Default (Dkt. # 25) and a
Response to Defendants’ Objections to Memorandum and Recommendations (Dkt.
# 26). The Court held a hearing on the Motions on December 22, 2014. At the
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hearing, Jason W. Whitney, Esq., represented Plaintiff, and Andrew S. Langsam,
Esq., represented Defendants. Upon careful consideration of the arguments
asserted at the hearing and in the supporting and opposing memoranda, the Court
GRANTS Defendants’ Motion to Set Aside Clerk’s Entry of Default (Dkt. # 21),
VACATES AS MOOT the Magistrate Judge’s Memorandum and
Recommendation (Dkt. # 14), and DENIES Plaintiff’s Motion for Default
Judgment (Dkt. # 13).
BACKGROUND
Plaintiff is a Texas limited liability company that designs and sells
costume jewelry to wholesalers, distributors, and large retail chains. (Compl., Dkt.
# 1 ¶¶ 2, 11.) Defendant Best Imports & Wholesale, LLC (“Best Imports”) is a
Georgia corporation that sells costume jewelry to wholesalers and retailers. (Kang
Decl., Dkt. # 21-1 ¶ 2.) Defendant Roger Hun Kang is the President and co-owner
of Best Imports. (Id.) Defendant Mo Kyung Lee is a co-owner of Best Imports
and its registered agent for service of process. (Id. ¶¶ 2, 7.)
On January 23, 2014, Plaintiff filed a Complaint alleging that products
sold by Defendants infringed upon five copyright registrations and a pending
copyright application held by Plaintiff. (Compl., Dkt. # 1 ¶¶ 23–79.) Defendants
were served with process on February 23, 2014. (Dkt. ## 6–8.) Infinite Classic
Inc. (“Infinite”), the defendant in a substantially similar complaint filed by
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Plaintiff, is a supplier for Defendant Best Imports, and specifically supplied the
allegedly infringing works sold by Defendants. (Kang Decl., Dkt. # 21-1 ¶ 5.)
Upon receiving service, Defendants spoke to Infinite CEO Baek H. Kim, who
stated that Infinite had ultimate responsibility for any liability and had retained
counsel that would represent both Infinite and Defendants. (Id. ¶ 8.) On March
11, 2014, Defendant Kang received an email from Matthew Jeon, who was acting
as counsel for Infinite, confirming that he would accept service on behalf of
Defendants and advising that the time to respond to Plaintiff’s Complaint had been
extended. (Id. ¶ 9; Mot. Ex. C, Dkt. # 21-3.)
Defendants subsequently failed to answer, and Plaintiff requested that
the Clerk of Court enter a Default. (Dkt. # 11.) The Clerk did so on May 20,
2014. (Dkt. # 12.) On July 17, 2014, Plaintiff moved for default judgment against
Defendants. (Dkt. # 13.) This Court referred Plaintiff’s Motion for Default
Judgment to Magistrate Judge Primomo, who issued a Memorandum and
Recommendation on the Motion on August 27, 2014. (Dkt. # 14.)
Defendants state that they failed to answer because they relied upon
the representations of Infinite and Infinite’s counsel, Mr. Jeon, that Mr. Jeon would
be representing them in this case and had taken steps to do so by securing an
extension of time to file a response. (Kang Decl., Dkt. # 21-1 ¶¶ 8–9.) Defendants
learned that no action had been taken on their behalf and an entry of default had
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been entered in the case when they were served with the Magistrate Judge’s
Memorandum and Recommendation on September 2, 2014. (Id. ¶ 12.)
Defendants immediately contacted Infinite CEO Baek H. Kim, who was similarly
dismayed that Mr. Jeon had taken no action in the case, and after unsuccessfully
attempting to contact Mr. Jeon, sought independent counsel on September 5, 2014.
(Id. ¶¶ 13–15.) Present counsel was officially retained on September 11, 2014.
(Id. ¶ 16.)
Defendants moved for an extension of time to file objections to the
Magistrate Judge’s Memorandum and Recommendation on September 15, 2014.
(Dkt. # 14.) Present counsel for Defendants moved to appear pro hac vice on
September 16, 2014. (Dkt. # 18.) On October 6, 2014, Defendants filed their
Motion to Set Aside Clerk’s Entry of Default (Dkt. # 21) and Objections to
Memorandum and Recommendation (Dkt. # 22).
DISCUSSION
I.

Motion to Set Aside Entry of Default
A district court may set aside an entry of default for good cause. Fed.

R. Civ. P. 55(c). The decision to set aside an entry of default is committed to the
sound discretion of the district court. In re Dierschke, 975 F.2d 181, 183 (5th Cir.
1992). The determination of good cause is made in light of the principle that
default judgments are disfavored as a matter of law. Id. (“[C]ourts universally
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favor trial on the merits.” (internal quotation marks omitted)); United States v. One
Parcel of Real Prop., 763 F.2d 181, 183 (5th Cir. 1985) (noting that “modern
federal procedure favors trial on the merits”). As a result, “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 on the merits.” In re OCA, Inc.,
551 F.3d 359, 371 (5th Cir. 2008).
“Although a motion to set aside a default decree under Fed. R. Civ. P.
55(c) is somewhat analogous to a motion to set aside a judgment under Fed. R.
Civ. P. 60(b), the standard for setting aside a default decree is less rigorous than
setting aside a judgment for excusable neglect.” One Parcel of Real Prop., 763
F.2d at 183. “In determining whether to set aside a default decree, the district
court should consider whether the default was willful, whether setting it aside
would prejudice the adversary, and whether a meritorious defense is presented.” In
re Chinese-Manufactured Drywall Prod. Liab. Litig., 753 F.3d 521, 544–45 (5th
Cir. 2014) (quoting One Parcel of Real Prop., 763 F.2d at 183). These factors are
not exclusive, and courts have also considered “whether there was significant
financial loss to the defendant, and whether the defendant acted expeditiously to
correct the default.” Id. at 545 (quoting In re OCA, Inc., 551 F.3d at 369). The
Court will discuss each of these factors in turn.

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A.

Willfulness
First, there is no indication that Defendants’ failure to act was willful.

Defendants relied on the representations of Infinite and Infinite’s counsel, Mr.
Jeon, that Mr. Jeon was representing them in this case and had already taken steps
to do so. (Kang Decl., Dkt. # 21-1 ¶¶ 8–9.) As detailed in this Court’s Order in
Plaintiff’s case against Infinite, Case No. 5:14-cv-83-DAE, Mr. Jeon appears to
have forgotten about the case altogether. While Defendants’ trust in Infinite and
Mr. Jeon proved to be misplaced, there is no indication that Defendants
intentionally failed to respond to this litigation. Because Defendants’ failure to
respond was not willful, this factor weighs in favor of setting aside the entry of
default.
B.

Prejudice to Plaintiff
Second, there is no showing that setting aside the entry of default will

prejudice Plaintiff. “There is no prejudice to the plaintiff where the setting aside of
the default has done no harm to plaintiff except to require it to prove its case,” or
has resulted in “mere delay.” Lacy v. Sitel Corp, 227 F.3d 290, 293 (5th Cir.
2000) (internal quotation marks omitted). To show prejudice, Plaintiff “must show
that the delay will result in the loss of evidence, increased difficulties in discovery,
or greater opportunities for fraud or collusion.” Id.

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Plaintiff argues that it has been prejudiced by the cost of seeking the
entry of default and a default judgment and responding to Defendants’ filings at
issue here. (Resp. to Mot., Dkt. # 25 at 3–4.) Plaintiff cites no law to support the
proposition that such costs are cognizable as prejudice in the determination of
whether to set aside an entry of default, and the Court has found none.1 Plaintiff’s
speculation that evidence may have been lost due to Defendants’ delay in
responding is likewise insufficient to support a finding of prejudice. Plaintiff has
not shown it will be prejudiced by setting aside the entry of default, and this factor
thus also weighs in favor of setting aside the entry of default.
C.

Meritorious Defense
Third, the Court finds that Defendants have presented meritorious

defenses to Plaintiff’s claims. “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 will be contrary to the result achieved by
default.” In re OCA, Inc., 551 F.3d 359, 373 (5th Cir. 2008) (alteration in original)
(internal quotation marks omitted).

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The Court notes that if the costs of pursuing a default judgment constituted
prejudice to Plaintiff in the determination of whether to set aside an entry of
default, this factor would inherently weigh against a finding of good cause under
Fed. R. Civ. P. 55(c). Given the strong preference for trial on the merits, the Court
does not believe that the Fifth Circuit intended to tip the scales against setting aside
an entry of default in this manner. See One Parcel of Real Prop., 763 F.2d at 183;
Lacy v. Sitel Corp, 227 F.3d at 293.
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Defendants submit that Plaintiff’s works are insufficiently original to
warrant copyright protection because they are comprised of familiar symbols and
geometric shapes. (Mot., Dkt. # 21 ¶ 30.) Defendants further argue that to the
extent Plaintiff’s works are entitled to copyright protection, the protection is “thin”
because the works consist of familiar symbols and shapes that are not themselves
entitled to copyright protection. (Id. ¶ 43.) Such copyrights only protect against
“very close copying,” and Defendants argue that their products do not meet that
standard. (Id. ¶¶ 44–45.) Finally, Defendants argue that the similarities between
Defendants’ products and Plaintiff’s copyrights are limited to the elements of
Plaintiff’s copyrights that are not entitled to protection. (Id. ¶ 46.)
The Copyright Act protects “original works of authorship fixed in any
tangible medium of expression, now known or later developed, from which they
can be perceived, reproduced, or otherwise communicated, either directly or with
the aid of a machine or device.” 17 U.S.C. § 102(a). “To qualify for copyright
protection, a work must be original to the author” and must possess “at least some
minimal degree of creativity.” Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., Inc., 499
U.S. 340, 347 (1991). The copyright protection is limited to those aspects of the
work “that display the stamp of the author’s originality,” and does not extend to the
non-original elements of the work. Kepner-Tregoe, Inc. v. Leadership Software,
Inc., 12 F.3d 527, 533 (5th Cir. 1994).
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Familiar symbols and designs are not copyrightable. 37 C.F.R.
§ 202.1(a). The Copyright Office has specified that such symbols and designs
include familiar religious symbols such as crosses, common representational
symbols such as hearts or stars, and geometric shapes. U.S. Copyright Office,
Compendium of U.S. Copyright Practices § 314.4(J) (3d ed. 2014) (draft).2
Here, the copyrights claimed by Plaintiff consist of jewelry that
incorporates crosses in different forms, beads, and the infinity symbol. (Compl.,
Dkt. # 1 ¶ 21.) Given the form of the claimed works, the Court cannot find from
the current record that there is not “some possibility” that Plaintiff’s works are not
copyrightable or that the similarities in Defendants’ products are limited to those
portions of Plaintiff’s works that are not accorded copyright protection.
Defendants have thus presented a meritorious defense to Plaintiff’s infringement
claims.
Plaintiff’s argument that Defendants have not presented a meritorious
defense because they have not provided definite factual allegations with supporting
2

The policies in the Compendium do not have the force of law, but may be
referred to as persuasive authority representing the legal determinations of the
Copyright Office. See Rogers v. Better Bus. Bureau of Metro. Houston, Inc., 887
F. Supp. 2d 722, 732 (S.D. Tex. 2012) (citing Clackamas Gastroenterology
Assocs., P.C. v. Wells, 538 U.S. 440, 449 n.9 (2003) (noting that the EEOC’s
Compliance Manual, while not controlling, “may constitute a ‘body of experience
and informed judgment’ to which we may resort for guidance”)). The third edition
of the Compendium, currently in draft form, is scheduled to be finalized and take
effect “on or around December 15, 2014.” Public Draft of the Compendium of
U.S. Copyright Office Practices, 79 Fed. Reg. 49343, 49344 (August 20, 2014).
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record evidence is unpersuasive. Plaintiff cites Jenkens & Gilchrist v. Groia &
Co., 542 F.3d 114, 122 (5th Cir. 2008), for the proposition that a “motion to set
aside should provide definite factual allegations with supporting record evidence.”
(Resp. to Mot., Dkt. # 20 at 5.) In Jenkens, the Fifth Circuit found that the
defendant had presented a meritorious defense where she had provided “definite
factual allegations with supporting record evidence,” and referred to a 1969
decision in which the Fifth Circuit stated that a defendant must make “a clear and
specific showing . . . by [a] definite recitation of facts” that that the defendant has a
valid defense. Jenkens, 542 F.3d at 122 (alteration in original) (quoting Moldwood
Corp. v. Stutts, 410 F.2d 351, 352 (5th Cir. 1969)).
The Court first notes that both of these Fifth Circuit decisions dealt
with a defendant seeking relief from a default judgment under Fed. R. Civ. P.
60(b), not relief from an entry of default under Fed. R. Civ. P. 55(c). Because “the
standard for setting aside a default decree is less rigorous than setting aside” a
default judgment, One Parcel of Real Prop., 763 F.2d at 183, and because a motion
to set aside an entry of default “is more readily granted than a motion to set aside a
default judgment,” In re Dierschke, 975 F.2d 181, 184 (5th Cir. 1992), it is not

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clear that the need for “a specific showing by a definite recitation of facts” applies
when seeking to set aside an entry of default.3
The Court is further satisfied that here, Defendants have presented
factual allegations that are sufficiently definite and supported by the record.
Defendants allege that “all of Plaintiff’s twenty-four allegedly infringed designs
are made up of uncopyrightable elements, primarily Christian religious crosses but
also including some common geometric shapes and other familiar symbols,” and
cite certain specific designs as examples of its allegations of patent invalidity and
noninfringement. (Mot., Dkt. # 21 ¶¶ 32, 34, 45, 48.) Pictures of all of Plaintiff’s
claimed designs appear in the Plaintiff’s Complaint. (Compl., Dkt. # 1 ¶ 21.)
Because Defendants’ defenses are based on the fact, supported in the record, that
Plaintiff’s claimed designs include familiar shapes and symbols, its showing here
is sufficient to present a meritorious defense.
D.

Significant Financial Loss to Defendant
With regard to the fourth factor, there is not enough evidence to

determine whether an entry of default would result in a significant financial loss to

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Indeed, the Fifth Circuit in Moldwood Corp. specifically tied this requirement to
the context of obtaining relief from default judgment. Moldwood Corp., 410 F.2d
at 352 (“It is universally recognized as an essential to the obtaining of relief from a
default judgment entered with jurisdiction that there should appear in the motion a
clear and specific statement showing, not by conclusion, but by definite recitation
of facts, that an injustice has probably been done by the judgment . . . .” (emphasis
added)).
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Defendants. Plaintiff’s Motion for Default Judgment requests $576,000 in
statutory damages, (Dkt. # 13), and Magistrate Judge Primomo’s Memorandum
and Recommendation recommends that Plaintiff be awarded a default judgment of
$295,787.25 in statutory damages, costs, and attorneys’ fees. (Dkt. # 14 at 10.)
Defendants have submitted evidence that revenue from allegedly infringing sales
amounts to $3,613.63, of which $1,213.88 is profit. (Kang Decl., Dkt. # 21-1 ¶ 6,
Mot. Ex. L, Dkt. # 21-12.) While the range of possible financial loss is certainly
significant relative to the amount of profit from allegedly infringing sales,
Defendants have not submitted any other financial information that might allow for
a determination of whether the damages that would be awarded to Plaintiff in a
default judgment is significant to Defendants’ business as a whole. 4 This factor
thus weighs neither for nor against setting aside the entry of default.
E.

Action to Expeditiously Correct Default
With regard to the fifth factor, Defendants have acted expeditiously to

correct the default. After Defendants discovered on September 2, 2014 that an
entry of default had been entered in the case, they first attempted to contact Mr.

4

The Court further notes that the Fifth Circuit precedent cited by Defendants found
the stated losses to be significant with respect to individuals, not a corporation.
See Seven Elves, Inc. v. Eskenazi, 635 F.2d 396, 403 (5th Cir. 1981) (finding a
$250,000 loss significant with respect to two individuals). It is also worth noting
that the Bureau of Labor Statistics’ inflation calculator puts the value of the
$250,000 found significant in the 1981 Seven Elves decision at nearly $650,000 in
2014.
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Jeon before contacting present counsel on September 5, 2014. (Kang Decl., Dkt.
# 21-1 ¶¶ 14–15.) Present counsel was formally retained on September 11, 2014.
(Id. ¶ 16.) Defendants filed a motion to extend time to file objections to the
Magistrate’s Memorandum and Recommendation on September 15, 2014, (Dkt.
# 14), and filed their Objections and Motion to Set Aside Entry of Default within
the additional time granted by the Court. These facts are well within those of
Jenkens & Gilchrist v. Groia & Co., 542 F.3d 114 (5th Cir. 2008), in which the
court found that obtaining local counsel and filing for relief within a month, in
addition to defendant’s immediate search for local counsel, “cut in favor” of
granting the defendant relief from a default judgment. Id. at 122.
In sum, four of the five factors considered here weigh in favor of
granting Defendants relief by setting aside the entry of default judgment. The
Court therefore finds good cause to set aside the Clerk’s Entry of Default (Dkt.
# 12) under Fed. R. Civ. P. 55(c).
The Court recognizes that Plaintiff has incurred costs and attorney’s
fees in responding to Defendants’ Motion to Set Aside Clerk’s Entry of Default
and their Objections to Magistrate’s Memorandum and Recommendation. Because
these expenses were made necessary by Defendants’ failure to timely respond to
this litigation, the Court orders that Defendants pay Plaintiff’s reasonable costs and

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attorney’s fees incurred in responding to Defendants’ filings and appearing at the
December 22, 2014 hearing.
II.

Magistrate Judge’s Memorandum and Recommendation in Favor of
Granting Default Judgment
Magistrate Judge Primomo issued a Memorandum and

Recommendation on August 27, 2014 recommending that Plaintiff’s Motion for
Default Judgment be granted as to liability and granted in part as to damages.
(Dkt. # 14 at 1.) Because the Court has ruled that the entry of default should be set
aside, the Memorandum and Recommendation is vacated as moot, and Plaintiff’s
Motion for Default Judgment is denied.
CONCLUSION
For the foregoing reasons, Defendants’ Motion to Set Aside Clerk’s
Entry of Default (Dkt. # 21) is GRANTED, the Magistrate Judge’s Memorandum
and Recommendation (Dkt. # 14) is VACATED AS MOOT, and Plaintiff’s
Motion for Default Judgment (Dkt. # 13) is DENIED.
Defendants are ORDERED to pay Plaintiff’s reasonable costs and
attorney’s fees incurred in responding to Defendant’s Motion to Set Aside Clerk’s
Entry of Default and Objections to Magistrate Judge’s Memorandum and
Recommendation.

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IT IS SO ORDERED.
DATED: San Antonio, Texas, December 22, 2014.

_____________________________________
David Alan Ezra
Senior United States Distict Judge

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