e.Digital Corporation v. Ivideon LLC et al, No. 3:2015cv00691 - Document 65 (N.D. Cal. 2016)
Court Description: ORDER GRANTING MOTION TO VACATE ENRTY OF DEFAULT by Judge Jon S. Tigar; denying as moot 48 Motion for Default Judgment; granting 54 Motion to Vacate. (wsn, COURT STAFF) (Filed on 9/12/2016)
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e.Digital Corporation v. Ivideon LLC et al Doc. 65 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 E.DIGITAL CORPORATION, Case No. 15-cv-00691-JST Plaintiff, 8 ORDER GRANTING MOTION TO VACATE ENRTY OF DEFAULT v. 9 10 IVIDEON LLC, et al., Re: ECF No. 54 Defendants. United States District Court Northern District of California 11 Before the Court is Defendants‘ Motion to Vacate Entry of Default. ECF No. 54. The 12 13 Court will grant the motion. 14 I. BACKGROUND 15 On February 13, 2015, Plaintiff e.Digital Corporation ( e.Digital ) filed a patent 16 infringement complaint against Defendants Ivideon LLC ( Ivideon ), Global Innovations, and 17 New Sight Devices Corp ( New Sight Devices ). ECF No. 1. e.Digital served the Complaint on 18 Ivideon LLC and Global Innovations on March 5, 2015. ECF Nos. 12, 17. On March 27, 2015, 19 New Sight Devices filed a waiver of the service of summons. ECF No. 18. 20 Because no defendant appeared to answer the Complaint, e.Digital filed motions for entry 21 of default against Ivideon, Global Innovations, and New Sight Devices on June 30, 2015 and July 22 1, 2015. ECF Nos. 26, 27, 28. On July 2, 2015, the Clerk entered default as to each Defendant. 23 ECF No. 29. 24 On September 29, 2015, e.Digital filed a motion for default judgment. ECF No. 34. The 25 Court subsequently ordered e.Digital to show cause why the case should not be stayed pending 26 inter partes review of the patents-in-suit. ECF No. 43. After receiving e.Digital‘s response to the 27 order to show cause, on March 22, 2016, the Court issued an order staying the case in part and 28 denying e.Digital‘s motion for default judgment without prejudice. ECF No. 45. The Court Dockets.Justia.com 1 concluded that Plaintiff has not provided the Court with sufficient information from which the 2 Court could grant Plaintiff‘s motion for default judgment regarding claims 22 and 23 of the ‘522 3 patent. Id. at 2. On June 10, 2016, e.Digital filed a second motion for default judgment. ECF No. 48. 4 5 Thirteen days later, on June 23, 2016, an attorney made an appearance for the first time for 6 Defendants Ivideon, Global Innovations, and New Sight Devices. ECF No. 52. The next day, 7 Defendants filed a motion to vacate entry of default, ECF No. 54, which motion this Court now 8 considers. 9 II. LEGAL STANDARD Pursuant to Federal Rule of Civil Procedure 55(c), [t]he court may set aside an entry of 10 United States District Court Northern District of California 11 default for good cause. [W]hile the same test applies for motions seeking relief from default 12 judgment under both Rule 55(c) and Rule 60(b), the test is more liberally applied in the Rule 55(c) 13 context, as where no judgment has been entered, there is no interest in the finality of the 14 judgment with which to contend. United States v. Signed Pers. Check No. 730 of Yubran S. 15 Mesle, 615 F.3d 1085, 1091 n.1 (9th Cir. 2010). In assessing whether to set aside a default for good cause, a court looks to whether (1) the 16 17 plaintiff would be prejudiced if the judgment is set aside, (2) [the] defendant has no meritorious 18 defense, or (3) the defendant‘s culpable conduct led to the default. In re Hammer, 940 F.2d 524, 19 525–26 (9th Cir. 1991)). The Ninth Circuit has consistently emphasized that judgment by default 20 is a drastic step appropriate only in extreme circumstances; a case should, whenever possible, be 21 decided on the merits. Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984). [W]here there has been 22 no merits decision, appropriate exercise of district court discretion under Rule 60(b) requires that 23 the finality interest should give way fairly readily, to further the competing interest in reaching the 24 merits of a dispute. TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir. 2001). 25 III. ANALYSIS 26 A. 27 “To be prejudicial, the setting aside of a judgment must result in greater harm than simply 28 Prejudice to Plaintiff delaying resolution of the case, as being forced to litigate on the merits is not considered 2 1 prejudice. TCI, 244 F.3d at 701. Examples of prejudice that courts have concluded weigh against 2 the setting aside of a default include tangible harm such as loss of evidence, increased difficulties 3 of discovery, or greater opportunity for fraud or collusion. Id. (quoting Thompson v. Am. Home 4 Assur. Co., 95 F.3d 429, 433–34 (6th Cir. 1996)). Because e.Digital has identified no such 5 prejudice that would result from the Court‘s setting aside default, this factor weights in favor of 6 granting Defendants‘ motion. See ECF No. 62 at 13–14 ( Vacatur of Defendants‘ defaults would 7 further prejudice e.Digital by further delaying any relief to which it is entitled. ).1 8 B. 9 A defendant seeking to vacate a default judgment must present specific facts that would Potentially Meritorious Defenses constitute a defense. TCI, 244 F.3d at 700. Still, the burden on a party seeking to vacate a 11 United States District Court Northern District of California 10 default judgment is not extraordinarily heavy. Id. At this stage, the Court need not determine 12 definitively whether any of Defendant‘s defenses would be successful. Rather, the Court asks 13 only whether some possibility exists that the outcome of the suit after a full trial would differ 14 from the result reached by the default. Hutchings v. Snell & Co., LLC, No. 09-cv-4680-JCS, 15 2010 WL 1980165, at *4 (N.D. Cal. Apr. 23, 2010) report and recommendation adopted sub nom. 16 Hutchins v. Snell & Co., LLC, No. 09-cv-04680-JSW, 2010 WL 1980162 (N.D. Cal. May 17, 17 2010) (citing Sokolsky v. Voss, No. 07-cv-00594, 2009 WL 2705741, at *3 (E.D. Cal. Aug. 25, 18 2009)). The Court finds that Defendants have raised a potentially successful invalidity defense. As 19 20 Defendants argue, claims 22 and 23 of U.S. Patent No. 8,311,522 ( the ‘522 patent )—the only 21 claims as to which litigation has not been stayed pending inter partes review—are dependent on 22 claim 17. ECF No. 54-1 at 6. On December 22, 2015, the United States Patent and Trademark 23 Office instituted an inter partes review of claim 17 of the ‘522 patent. See e.Digital Corporation 24 v. Dropcam, Inc., No. 14-cv-4922, ECF No. 83-13 at 17 (N.D. Cal.) (filed July 1, 2014). In so 25 e.Digital argues that it has expended substantial time and resources in researching and preparing its motions for default judgment, responding to related Court orders, and in responding to Defendants‘ pending motions. ECF No. 62 at 13. While this fact may be relevant to the Court‘s decision whether to order Defendants to reimburse e.Digital for attorneys‘ fees as a condition of vacating default, e.Digital cites no authority for the proposition that the expenditure of resources supports a finding of prejudice. 3 1 26 27 28 1 ruling, the administrative law judge concluded that there is a reasonable likelihood that Petitioner 2 would prevail in showing that claim 17 is unpatentable under 35 U.S.C. § 103 for obviousness. 3 Id. at 16–17. While this ruling does not necessarily mean that claim 17 of the ‘522 patent will be 4 found to be invalid for obviousness, let alone claims 22 and 23, the Court concludes that the 5 administrative law judge‘s decision supports a finding that some possibility exists that the 6 outcome of the suit after a full trial would differ from the result reached by the default. 7 Hutchings, 2010 WL 1980165, at *4. As a result, this factor weighs in favor of granting 8 Defendants‘ motion. 9 10 C. Defendant’s Culpable Conduct Finally, a defendant‘s conduct is culpable if he has received actual or constructive notice United States District Court Northern District of California 11 of the filing of the action and intentionally failed to answer. TCI, 244 F.3d at 697. However, the 12 Ninth Circuit has cautioned that the definition of intentional in this context differs from that 13 used in other areas of the law, such as tort law. Id. In the default context, the term intentionally‘ 14 means that a movant cannot be treated as culpable simply for having made a conscious choice not 15 to answer; rather, to treat a failure to answer as culpable, the movant must have acted with bad 16 faith, such as an intention to take advantage of the opposing party, interfere with judicial 17 decisionmaking, or otherwise manipulate the legal process.‘ Mesle, 615 F.3d at 1092 (quoting 18 TCI, 244 F.3d at 697). 19 Defendants assert that they are not culpable for the entry of default because they are 20 Russian nationals and residents unfamiliar with the American legal process or the implications of 21 a default.‘ ECF No. 54-1 at 5. Defendants contend that they participat[ed] in good faith 22 settlement negotiations [with Plaintiff] and, after Plaintiff stopped communicating, assumed no 23 further action was needed until further notice. Id. at 6. According to Defendants, [i]t was only 24 in May 2016, in consultation with corporate counsel on an unrelated matter, that Defendants were 25 apprised of the entry of default and the risk of an automatic judgment in favor of Plaintiiff. Id. 26 As soon as Defendants became aware of the problem, they immediately sought litigation counsel, 27 who then acted promptly on their behalf to remedy the default. Id. 28 e.Digital responds that Defendants had actual notice of the litigation, knew that they were 4 1 required to file an answer, and intentionally failed to do so. ECF No. 62 at 7. According to 2 e.Digital, Defendants‘ intentional failure to answer the Complaint is evidenced by the fact that 3 Defendants signed a waiver of service of summons, stating that Defendants understood that they 4 must file and serve an answer or a motion under Rule 12 within 60 days from [March 4, 5 2015] . . . ECF No. 18–20. Defendants do not contest that they signed waivers of service of 6 summons, ECF No. 63, but instead emphasize that [t]he fact that none of the individuals acting 7 on behalf of Defendants had any previous involvement in a U.S. lawsuit militates in favor of 8 finding a lack of culpable conduct, id. at 3. 9 The Court concludes that Defendants‘ had actual notice of the Complaint, but that their decision not to respond to the Complaint does not constitute culpable conduct because they appear 11 United States District Court Northern District of California 10 to have simply made a conscious choice not to answer. TCI, 244 F.3d at 697. e.Digital has not 12 presented the Court with any evidence that Defendants acted with bad faith, such as an intention 13 to take advantage of the opposing party, interfere with judicial decisionmaking, or otherwise 14 manipulate the legal process.‘ Mesle, 615 F.3d at 1092 (quoting TCI, 244 F.3d at 697). 15 16 Ultimately, because all three factors support vacating default, the Court grants Defendant‘s motion. 17 D. 18 To the extent the Court is inclined to vacate Defendants‘ defaults, e.Digital . . . requests 19 that any such order be conditioned upon Defendants reimbursing e.Digital for the time, fees and 20 expenses associated with seeking Defendants‘ defaults, filing motions for default judgment, 21 responding to the Court‘s orders related to same, and for responding to this motion. ECF No. 62 22 at 14. In total, e.Digital seeks approximately $75,000 in attorneys‘ fees. See ECF No. 62-1 ¶ 9. 23 Defendants do not oppose the request except as to the amount. ECF No. 63 at 4–5. 24 Conditions on Vacating Default [R]easonable conditions may be imposed in granting a motion to vacate a default 25 judgment. Nilsson, Robbins, Dalgarn, Berliner, Carson & Wurst v. Louisiana Hydrolec, 854 26 F.2d 1538, 1546 (9th Cir. 1988). The condition most commonly imposed is that the defendant 27 reimburse the plaintiff for costs incurred because of the default. Id. Here, the Court concludes 28 that requiring Defendants to pay e.Digital‘s attorneys‘ fees related to prosecuting this action in the 5 1 absence of Defendants is warranted, especially given that Defendants had actual notice of the 2 Complaint. Accordingly, the Court will order Defendants to pay e.Digital‘s attorneys‘ fees as a 3 condition of vacating default. However, because the Court concludes that a significant portion of 4 the time expended by e.Digital‘s counsel could have been avoided by filing a comprehensive 5 motion for default judgment in the first instance,2 the Court finds that Defendants should 6 reimburse e.Digital $25,000 in attorneys‘ fees, as a condition for vacating default. CONCLUSION 7 The Court grants Defendants‘ motion to vacate default on the condition that Defendants 8 9 pay e.Digital $25,000 in attorneys‘ fees. Should Defendants fail to reimburse e.Digital within 30 days from the date of filing of this order, e.Digital may file a renewed motion for the entry of 11 United States District Court Northern District of California 10 default judgment against Defendants. Because the Court has granted Defendants‘ motion to 12 vacate default, the Court denies e.Digital‘s Motion for Default Judgment, ECF No. 48, as moot. IT IS SO ORDERED. 13 14 Dated: September 9, 2016 ______________________________________ JON S. TIGAR United States District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 See ECF No. 34 (original motion for default judgment), ECF No. 41 (Order to Show Cause re: personal jurisdiction), and ECF No. 45 (Order denying motion for default judgment without prejudice). 6
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