Baronius Press Ltd v. Faithlife Corporation

• Court: District Court, W.D. Washington
• Decided: February 6, 2023
• Docket: 2:22-cv-01635
• Status: Unknown

Opinion

1 2 3 4

5 6 7 8 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 9 AT SEATTLE 10 11 BARONIUS PRESS LTD, CASE NO. 2:22-cv-01635-TL 12 Plaintiff(s), ORDER GRANTING v. DEFENDANT’S MOTION TO SET 13 FAITHLIFE CORPORATION, ASIDE DEFAULT 14 Defendant(s). 15 16 Plaintiff Baronius Press LTD brings federal copyright infringement claims, as well as 17 various state law tort and consumer protection claims, against Defendant Faithlife Corporation 18 (“Faithlife”). Dkt. No. 13. Faithlife failed to file a responsive pleading or appear in this case by 19 the response deadline, so default was entered by the Clerk. See Dkt. No. 22. This matter in now 20 before the Court on Defendant’s motion to set aside the entry of default1 (Dkt. No. 24), 21 22 1 Defendant filed this motion after Plaintiff applied for entry of default but at nearly the same time that default was entered by the Clerk. See Dkt. Nos. 17, 22, 24. Due to this timing, Defendant’s motion was prepared as “Defendant 23 Faithlife LLC’s Response to Plaintiff’s Application for Default and Motion and Proposed Order to Set Aside Default.” Dkt. No. 24 at 1. Because default was entered, Defendant’s opposition to the entry of default is moot, but 24 the Court will address its motion to vacate the default. 1 Plaintiff’s Motion for Default Judgment (Dkt. No. 35), and Defendant’s motion in response 2 seeking to stay proceedings related to the motion for default judgment (Dkt. No. 37). Having 3 reviewed the Parties’ briefing, the relevant record, and governing law, the Court GRANTS 4 Defendant’s motion to set aside the default (Dkt, No. 24) and VACATES the entry of default

5 against Defendant (Dkt. No. 22). The Court STRIKES the remaining motions as therefore moot. 6 I. BACKGROUND 7 Plaintiff initially filed its Complaint against Defendant on November 15, 2022 (Dkt. 8 No. 1), and then filed its First Amended Complaint (“FAC”) as a matter of course on 9 November 21, 2022 (Dkt. No. 13). Service of process was perfected on November 23, 2022. See 10 Dkt. No. 16. Defendant’s deadline to respond to the FAC was December 14, 2022. See Fed. R. 11 Civ. P. 12(a)(1)(A); see also Fed. R. Civ. P. 15(a)(1)(3). Defendant never filed a response to the 12 FAC. On December 15, 2022, Plaintiff applied for entry of default. Dkt. No. 17. The Clerk of the 13 Court then entered default against Defendant on December 21, 2022, per Rule 55(a). Dkt. 14 No. 22. That same day, Defendant filed the present motion to set aside the entry of default. Dkt.

15 No. 24. Defendant also requests 60 days to respond to the FAC if the motion is granted. Id. at 7. 16 II. LEGAL STANDARD 17 “As a general rule, default judgments are disfavored.” Westchester Fire Ins. Co. v. 18 Mendez, 585 F.3d 1183, 1189 (9th Cir. 2009). Except in “extreme circumstances,” a case should 19 be decided on the merits rather than by default. United States v. Signed Pers. Check No. 730 of 20 Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (citing Falk v. Allen, 739 F.2d 461, 463 21 (9th Cir. 1984)). “The Court's discretion is especially broad where it is entry of default rather 22 than default judgment that is being set aside.” Bergman v. Moto, No. C22-0161, 2022 WL 23 16574322, at *1 (W.D. Wash. Oct. 28, 2022) (citing Mendoza v. Wright Vineyard Mgmt., 783

24 F.2d 941, 945 (9th Cir. 1986)). See also O'Connor v. State of Nev., 27 F.3d 357, 364 (9th Cir. 1 1994) (same). While a Court “may set aside an entry of default for good cause” (Fed. R. Civ. 2 P. 55(c)), the defendant bears the burden of showing that relief from default is warranted. See 3 Franchise Holding II, LLC. v. Huntington Restaurants Grp., Inc., 375 F.3d 922 at 926 (9th 4 Cir. 2004).

5 III. DISCUSSION 6 To grant Defendant’s requested relief, the Court must determine that “good cause” exists 7 by considering three factors: (1) the defendant’s level of culpability in causing the default, (2) the 8 existence of a meritorious defense, and (3) the prejudice to plaintiff. E.g., Mesle, 615 F.3d 9 at 1091. While these factors are disjunctive, the Court may deny the motion if “any one of these 10 factors is true.” Id. The Parties contest each factor, so the Court will review each one in turn.2 11 A. Culpable Conduct 12 The Ninth Circuit has articulated the culpability standard in two ways. The first way 13 states that “a defendant’s conduct is culpable if he has received actual or constructive notice of 14 the filing of the action and intentionally failed to answer.” TCI Grp. Life Ins. Plan v. Knoebber,

15 244 F.3d 691, 697 (9th Cir. 2001) (emphasis in original) (quoting Alan Neuman Productions, 16 Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988)), overruled on other grounds by Egelhoff v. 17 Egelhoff ex rel. Breiner, 532 U.S. 141 (2001). In the second way, the Ninth Circuit does not use 18 the word intentionally, but the intention of the defendant still appears to be relevant. See 19 Meadows v. Dominican Republic, 817 F.2d 517, 521 (9th Cir. 1987) (defendant found culpable 20

21 2 As additional grounds for its requested relief, Defendant raises for the first time on Reply procedural defects in Plaintiff’s responsive briefing opposing the motion to set aside default. Dkt. No. 31 at 1–2. Plaintiff then filed notice 22 of intent to surreply (Dkt. No. 33) and its surreply brief (Dkt. No. 34) responding to Defendant’s procedural arguments. Because the Court grants Defendant’s requested relief on the merits, even considering Plaintiff’s allegedly deficient opposition briefing, the Court need not (and does not) consider the Parties’ arguments on these 23 procedural issues. The Court reminds both Parties that it expects them to adhere to all relevant rules in this Court going forward, including the Federal Rules of Civil Procedure, the Local Rules for this District, and Judge Lin’s 24 chambers procedures. 1 for intentionally declining service). Overall, the Ninth Circuit has typically held that for the 2 purposes of the good cause factors, a defendant’s conduct was culpable “where there is no 3 explanation of a default inconsistent with devious, deliberate, willful, or bad faith failure to 4 respond.” Mesle, 615 F.3d at 1092.

5 Defendant asserts that its conduct was not culpable as it did not receive actual or 6 constructive notice of the filing of the action and intentionally fail to answer. Dkt. No. 24 at 4. 7 For support, Defendant provides a declaration from Vikram Rajagopal, Faithlife’s current Chief 8 Executive Officer. Dkt. No. 25 ¶ 1. Mr. Rajagopal declares that upon investigation he determined 9 Faithlife’s “registered corporate agent for service,” National Registered Agents, received “the 10 Summons and Amended Complaint” on November 23, 2022, but he “was not aware of the 11 Complaint Documents, and the deadline to respond, until December 15, 2022.” Dkt. 12 No. 25 ¶¶ 2–3. This is sufficient to establish that Defendant had actual notice of the action. See 13 Fed. R. Civ. P. 4(h) (allowing for a corporation to be personally served via an “agent 14 authorized . . . to receive service of process”); see also In re Grand Jury Investigation, 966 F.3d

15 991, 1000 (9th Cir. 2020) (quoting Henderson v. United States, 517 U.S. 654, 672 (1996) for the 16 proposition that “the core function of service is to supply notice of the pendency of a legal 17 action”). Thus, this factor turns on the intentionality of Defendant’s failure to respond. 18 Despite admitting that Faithlife’s registered agent received notice on November 23, 19 Defendant argues that Mr. Rajagopal’s failure to act until December 15 was not sufficiently 20 willful, deliberate, or done in bad faith. Dkt. No. 24 at 4–5. The relevant facts show that National 21 Registered Agents sent the Complaint Documents to Faithlife’s headquarters in Bellingham, 22 WA, addressed to former CEO Robert D. Pritchett (who no longer works at the Bellingham 23 office), where they were received on November 28, 2022. Dkt. No. 25 ¶ 4(a)–(c); Dkt.

24 No. 32 ¶ 2. Defendant claims that the documents remained in the mail room until approximately 1 December 13, 2022, when Mr. Rajagopal’s assistant retrieved them; however, Mr. Rajagopal 2 apparently did not review the documents until December 15, 2022. Id. ¶¶ 3, 5. In his 3 supplemental declaration, Mr. Rajagopal admits that on November 23, 2022, National Registered 4 Agents also sent an email to the address they had on file for Mr. Pritchett, which carried the

5 subject line: “ATTENTION: CCEmail of SOP Process received in WASHINGTON 6 (OurTransmittal #542737471)” and included the “Service of Process Summary Transmittal 7 Form.” Dkt. No. 32 ¶ 4. But the Complaint Documents were not attached to the email. Id. ¶¶ 5–6. 8 Mr. Rajagopal further admits that Mr. Pritchett relayed the email to him on November 23, 2022. 9 Id ¶ 4. But Mr. Rajagopal states that he was unaware of the filing deadline until he saw the 10 physical copy of the FAC on December 15, 2022, because the email contained no attachment and 11 did not have information under the “Appearance/Answer Date” line of the provided transmittal 12 form. Id. ¶ 7–9. See also Dkt. No. 32-1. However weak Mr. Rajagopal’s reasons for the delay in 13 responding, nothing in the conduct of Defendant demands a finding of willfulness or bad faith. 14 C.f. Bateman v. United States Postal Serv., 231 F.3d 1220, 1223 (9th Cir. 2000) (applying the

15 “good faith” standard to set aside a final judgment under Rule 60(b)(1), yet finding no bad faith 16 conduct even though the judgment-party’s counsel knew of the summary judgment motion 17 deadline and left the country without responding or obtaining an extension); see also TCI Grp., 18 244 F.3d at 696 (explaining that the same factors apply under both Rule 60(b) and Rule 55(c)). 19 Also relevant to this Court’s determination of culpability is Defendant’s diligence upon 20 realizing its mistake. Within one week of Mr. Rajagopal reviewing the Complaint Documents, 21 Defendant engaged legal counsel to begin communicating with Plaintiff’s counsel (Dkt. 22 No. 26 ¶¶ 2–6), began preparing a response to Plaintiff’s motion for entry of default (id. ¶ 7), 23 noted appearance of counsel (Dkt. No. 21), and filed this motion. In fact, this motion to set aside

24 entry of default was filed on the same day that default was actually entered by the Clerk (see 1 Dkt. No. 22). Thus, it is hard for the Court to see how Defendant could have possibly gained any 2 advantage during this relatively slight delay. See Mesle, 615 F.3d at 1092 (quoting TCI Grp., 244 3 F.3d at 697). 4 Considering all the facts presented, Defendant’s conduct cannot be said to be devious,

5 deliberate, willful, or in bad faith. Thus, no culpable conduct is found.3 6 B. Meritorious Defenses 7 “All that is necessary to satisfy the ‘meritorious defense’ requirement is to allege 8 sufficient facts that, if true, would constitute a defense.” Mesle, 615 F.3d at 1094. Defendant’s 9 burden on this factor is “not extraordinarily heavy.” Id. (quoting TCI Grp., 244 F.3d at 700). 10 Defendant raises potential defenses to each claim in its motion. Dkt. 24 at 6. Defendant 11 also alleges facts that if proved would constitute a defense to Plaintiff’s claims. Id. Defendant 12 therefore meets its minimal burden on this factor. 13 C. Prejudice 14 To be prejudicial, the harm of setting aside default must be more than simply delaying

15 resolution of the case. TCI Grp., 244 F.3d at 701. To constitute sufficient prejudice, “the delay 16 must result in tangible harm such as loss of evidence, increased difficulties of discovery, or 17 greater opportunity for fraud or collusion.” Id. (quoting Thompson v. Am. Home Assur. Co., 95 18 F.3d 429, 433-34 (6th Cir. 1996)). Merely “being forced to litigate on the merits” is not 19 prejudicial. Id. 20 Plaintiff argues that any delay in judgment “would allow Defendant additional time to 21 move and hide assets.” Dkt. 27 at 12. Plaintiff bases this assertion on an assumption that public 22 embarrassment from this lawsuit might likely cause Defendant to lose business from its 23 3 However, the Court reminds both Parties again, but especially Defendant in this instance, that it expects them to 24 adhere to all future filing deadlines and applicable procedural rules. 1 consumers, thus motivating a “sophisticated company” to use relevant laws to protect its assets. 2 Id. Plaintiff fails to provide any concrete factual support to justify its concerns. They are nothing 3 more than mere speculation and cannot support a finding of prejudice. If Plaintiff is successful in 4 litigation, the Court will enter a judgment for whatever damages are appropriate under the facts

5 of the case, regardless of Defendant’s assets. 6 Further, the facts show that this dispute has been ongoing for several years, considering 7 the Parties discussed settlement at least twice in 2019-2020. Dkt. No. 13-8. Defendant has 8 indicated its intent to defend this dispute if a mutually agreeable settlement cannot be reached. 9 See Dkt. No. 28-1 (indicating Defendant’s intent to “to respond [to the motion for default before 10 default was entered] or otherwise respond to the Complaint, and to discuss prospects for 11 settlement”). Plaintiff has failed to show that the short delay between its moving for entry of 12 default (one day after Defendant’s response was due) and the filing of this Order has resulted in 13 any tangible harm besides having to actually litigate its claims. The Court therefore concludes 14 that setting aside the entry of default will not prejudice Plaintiff because the delay has not

15 hindered Plaintiff’s ability to pursue its claims, and the action is still in the early stages of 16 litigation. 17 IV. CONCLUSION 18 Guided by the Court’s strong preference for “deciding cases on the merits whenever 19 possible,” Mesle, 615 F.3d at 1091, the Court FINDS that each of the three “good cause” factors 20 weigh in favor of vacating the entry of default. The Court therefore GRANTS Defendant’s motion 21 (Dkt. No. 24) and VACATES the entry of default (Dkt. No. 22). 22 Because entry of default is a prerequisite to default judgment, Fed. R. Civ. P. 55, 23 Plaintiff’s motion for default judgment (Dkt. No. 35) and Defendant’s motion to stay

24 1 proceedings related to the motion for default judgment (Dkt. No. 37) are MOOT. The Court 2 ORDERS the Clerk to STRIKE both motions from its hearing calendar. 3 Finally, Defendant fails to provide any justification for its request for additional time to 4 respond to the FAC. Federal procedural rules dictate the amount of time a party has to respond to

5 pleadings, which the Court notes has already been significantly expanded because of 6 Defendant’s procedural failures. Consequently, the Court DENIES Defendant’s request for an 7 additional 60 days to respond to the FAC. The Court ORDERS Defendant to file an appropriate 8 response within fourteen (14) days of the date of this Order.4 9 Dated this 6th day of February 2023. 10 A 11 Tana Lin United States District Judge 12 13 14 15 16 17 18 19 20 21 22 23 4 Pursuant to Section II.G of Judge Lin’s Standing Order in all Civil Cases, the Parties may stipulate to extending 24 this deadline without having to seek the Court’s leave.