GS Holistic, LLC v. SF Hookah Palace Inc.

• Court: District Court, N.D. California
• Decided: December 19, 2023
• Docket: 4:22-cv-07100
• Status: Unknown

Opinion

1 UNITED STATES DISTRICT COURT 2 NORTHERN DISTRICT OF CALIFORNIA 3 4 GS HOLISTIC, LLC, Case No. 22-cv-07100-SVK

5 Plaintiff, ORDER FOR REASSIGNMENT TO A DISTRICT JUDGE 6 v. REPORT AND RECOMMENDATION 7 SF HOOKAH PALACE INC., et al., ON PLAINTIFF’S MOTION FOR DEFAULT JUDGMENT 8 Defendants. Re: Dkt. No. 21 9 On November 11, 2022, Plaintiff GS Holistic, LLC filed a complaint against Defendants 10 SF Hookah Palace, Inc. and Izzat Asfour, alleging that Defendants infringed Plaintiff’s 11 trademarks. Dkt. 1. The Clerk of Court issued a summons on December 9, 2022. Dkt. 7. 12 On February 9, 2023, Plaintiff filed a motion for extension of time to serve Defendants, which the 13 Court granted. Dkt. 11. 12. Plaintiff subsequently filed proofs of service indicating that 14 Defendant SF Hookah Palace was served on February 11, 2023, and Defendant Izzat Asfour was 15 served on February 24, 2023. Dkt. 13-15. 16 Neither of the Defendants filed a response to the Complaint by the applicable deadlines. 17 On April 17, 2023, Plaintiff requested entry of default, and the Clerk of Court entered default 18 against both Defendants on May 24, 2023. Dkt. 18, 10. After several months of inaction by 19 Plaintiff, the Court set a deadline of October 10, 2023 for Plaintiff to file a motion for default 20 judgment. Dkt. 20. 21 On September 26, 2023, Plaintiff filed a motion for default judgment against both 22 Defendants, which is now before the Court. Dkt. 21. Defendants have not appeared in this action 23 or opposed the motion for default judgment, and briefing is now closed. See Civ. L.R. 7-3. This 24 matter is suitable for determination without oral argument. Civ. L.R. Rule 7-1(b). 25 Although Plaintiff has consented to the jurisdiction of a magistrate judge (Dkt. 8), neither 26 of the Defendants has appeared or consented. Accordingly, the Court directs the Clerk of Court to 27 REASSIGN this case to a District Judge, with the following REPORT AND 1 RECOMMENDATION that Plaintiff’s renewed motion for default judgment be GRANTED IN 2 PART. 3 I. LEGAL STANDARD 4 After entry of default, a court may, in its discretion, enter default judgment. See Fed. R. 5 Civ. P. 55; Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). Before entering default 6 judgment, the Court must assess the adequacy of the service of process on the party against whom 7 default is requested. See Trustees of ILWU-PMA Pension Plan v. Coates, No. C-11-3998 EMC, 8 2013 WL 556800, at *4 (N.D. Cal. Feb. 12, 2013). The Court must also determine whether it has 9 subject matter jurisdiction over the action and personal jurisdiction over the defaulted defendant. 10 Id. at *3-4. 11 If these requirements are met, “[t]he district court’s decision whether to enter default 12 judgment is a discretionary one.” Aldabe, 616 F.2d at 1092. In making its determination a court 13 should consider: “(1) the possibility of prejudice to the plaintiff; (2) the merits of plaintiff’s 14 substantive claim; (3) the sufficiency of the complaint; (4) the sum of money at stake in the action; 15 (5) the possibility of dispute concerning material facts; (6) whether default was due to excusable 16 neglect; and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring 17 decisions on the merits.” Eitel v. McCool, 782 F.2d 1470, 1471–72 (9th Cir. 1986). Upon default, 18 “the factual allegations of the complaint, except those relating to the amount of damages, will be 19 taken as true.” TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917–18 (9th Cir. 1987) 20 II. DISCUSSION 21 A. Service and Jurisdiction 22 As discussed above, “[i]n deciding whether to grant or deny default judgment, the Court 23 must first assess the adequacy of the service of process on the party against whom default is 24 requested because, if service were improper, that may well explain the failure of a defendant to 25 appear in a lawsuit.” Folkmanis, Inc. v. Uptown Toys LLC, No. 18-cv-00955-EMC, 2018 WL 26 4361140, at *2 (N.D. Cal. Sep. 13, 2018) (internal quotation marks and citation omitted). 27 Plaintiff’s motion for default judgment states that Defendant Izzat Asfour was served by 1 Code of Civil Procedure (“CCP”) § 415.20. Dkt. 21 at 8. The motion also states that Defendant 2 SF Hookah Palace was served by service on its registered agent, Mr. Asfour, pursuant to 3 FRCP (h)(1)(A) and CCP § 415.20. 4 FRCP Rule 4(e)(1) permits service on an individual defendant by “following state law for 5 serving a summons in an action.” FRCP 4(h)(1)(A) is a similar provision allowing service of a 6 corporation pursuant to state law. The Court therefore looks to California law in evaluating the 7 sufficiency of service in this case. 8 CCP § 415.20(a) states that “[i]n lieu of personal delivery of a copy of the summons and 9 complaint to the person to be served,” a corporation may be served by “leaving a copy of the 10 summons and complaint during usual office hours in his or her office …. with the person who is 11 apparently in charge thereof, and by thereafter mailing a copy of the summons and complaint by 12 first-class mail, postage prepaid to the person to be served at the place where a copy of the 13 summons and complaint were left.” 14 CCP § 415.20(b) allows substitute service on an individual defendant only “[i]f a copy of 15 the summons and complaint cannot with reasonable diligence be personally delivered to the 16 person to be served.” In that situation, a summons may be served by leaving a copy of the 17 summons and complaint at the person’s usual place of abode or usual place of business in the 18 presence of a competent member of the household or a person apparently in charge of his or her 19 office and thereafter mailing a copy of the summons and complaint. 20 The proof of service filed by Plaintiff states that Mr. Asfour was served by substitute 21 service on an employee apparently in charge of Mr. Asfour’s place of business and thereafter 22 mailed. Dkt. 14. The proof of service includes a declaration of reasonable diligence showing 23 three unsuccessful attempts to serve Mr. Asfour personally. Dkt. 14 at PDF p. 4. The proof of 24 service on SF Hookah Palace states that Mr. Asfour as registered agent for the corporation was 25 served by leaving copies of the summons and complaint with a person apparently in charge of the 26 usual place of business and thereafter mailing copies of the documents. Dkt. 13, 15. 27 Based on this record, the Court concludes that service on both Defendants was proper. 1 includes under the federal Lanham Act. See Dkt. 1. 2 B. Eitel Factors 3 Having concluded that the threshold requirements of service and jurisdiction are met, the 4 Court next considers the Eitel factors and concludes that the majority of those factors weigh in 5 favor of entering default judgment against Defendants. The Court first considers whether 6 Plaintiff’s claims against Defendants are adequately pled and sufficient to find liability on the facts 7 alleged, which must be taken as true (second and third factors). Plaintiff seeks default judgment 8 on “two claims: trademark counterfeiting and infringement, and false designation of origin and 9 unfair competition.” Dkt. 21 at 9. 10 The elements of a claim for trademark infringement are: (1) the plaintiff has a protectable 11 ownership interest in a valid mark; and (2) the alleged infringer’s use of the mark is likely to cause 12 confusion, or to cause mistake, or to deceive consumers. Reno Air Racing Ass’n v. McCord, 452 13 F.3d 1126, 1134 (9th Cir. 2006); see also 15 U.S.C. § 1114(1). “Registration of a mark is prima 14 facie evidence of the validity of the mark, the registrant’s ownership of the mark, and the registrant’s exclusive right to use the mark in connection with the goods specified in the 15 registration [and] [w]hen proof of registration is uncontested, the ownership interest element of a 16 trademark infringement claim is met.” Pom Wonderful LLC v. Hubbard, 775 F.3d 1118, 1124 17 (9th Cir. 2014). Plaintiff meets the first element by alleging three registered marks. Dkt. 1 ¶ 11. 18 “Likelihood of confusion exists when consumers viewing the mark would probably assume 19 that the goods it represents are associated with the source of a different product identified by a 20 similar mark.” KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 408 F.3d 596, 608 (9th 21 Cir. 2005). Likelihood of confusion “generally rel[ies] on an eight-factor test ...: 1) the strength 22 of the mark; 2) proximity or relatedness of the goods; 3) the similarity of the marks; 4) evidence of 23 actual confusion; 5) the marketing channels used; 6) the degree of care customers are likely to 24 exercise in purchasing the goods; 7) the defendant's intent in selecting the mark; and 8) the 25 likelihood of expansion into other markets.” Id. But “[t]he factors should not be rigidly weighed; 26 ... [they] are intended to guide the court in assessing the basic question of likelihood of 27 confusion.” Dreamwerks Prod. Grp., Inc. v. SKG Studio, 142 F.3d 1127, 1129 (9th Cir. 1993). 1 Here, accepting the complaint’s factual allegations as true, a reasonably prudent consumer 2 would likely be confused as to the origin of the glass infuser sold by Defendants on October 5, 3 2022. See Dkt. 1 ¶ 30. The goods are closely related (i.e., Plaintiff sells infusers), and 4 Defendants’ intent to confuse can be inferred from their pricing the infuser at a similar price point 5 to Plaintiff’s. Moreover, Plaintiff alleges that Defendants used a counterfeit mark (see id. ¶¶ 25 et 6 seq.), and therefore “courts within the Ninth Circuit presume consumer confusion.” GS Holistic, 7 LLC v. Natts Smoke II, Inc., No. CV 22-06840 PSG (AGR), 2023 WL 5017994, at *4 (C.D. Cal. 8 July 12, 2023). However, the complaint plausibly alleges only one product offered for sale with 9 only one infringing mark on it. See Dkt. 1 ¶ 30 (alleging that Plaintiff’s investigator purchased a 10 glass infuser with “a Stündenglass Mark affixed to it”); id. ¶ 31 (alleging that inspection of the 11 purchased infuser had “an Infringing Mark affixed to it.”) Accordingly, Plaintiff meets the 12 confusion element, but as to only one of its three trademarks. Plaintiff also asserts a claim for false designation of origin. Dkt. 1. The elements of that 13 claim are: the defendant “(1) used in commerce (2) any word, false designation of origin, false or 14 misleading description, or representation of fact, which (3) is likely to cause confusion or mistake, 15 or to deceive, as to sponsorship, affiliation, or the origin of the goods or services in question.” 16 Luxul Tech. Inc. v. Nectarlux, LLC, 78 F. Supp. 3d 1156, 1170 (N.D. Cal. 2015); see 15 U.S.C. 17 § 1125(a); Freecycle Network, Inc. v. Oey, 505 F.3d 898, 902–04 (9th Cir. 2007). The elements of 18 false designation of origin are similar to trademark infringement. See Brookfield Commc'ns, Inc. 19 v. W. Coast. Ent. Corp., 174 F.3d 1036, 1046 nn.6 & 8 (9th Cir. 1999); Int’l Order of Job’s 20 Daughters v. Lindeburg & Co., 633 F.2d 912, 917 (9th Cir. 1980). Therefore, courts have treated 21 them as claims that rise and fall together. GS Holistic, LLC. v. MSA-Bossy Inc., No. 22-cv-07638- 22 JSC, 2021 WL 3604322, at *4 (N.D. Cal. May 22, 2023) (citing cases). Because Plaintiff’s claim 23 of trademark infringement is adequate for purposes of the second and third Eitel factors as to one 24 trademark, its claim for false designation of origin is also adequate. 25 Turning to the other Eitel factors, the Court concludes that declining to enter default 26 judgment against the defaulted Defendants would prejudice Plaintiff (first factor) because Plaintiff 27 has no other recourse against Defendants. Plaintiff asks the Court to award the not-insubstantial 1 sum of $150,000.00 in statutory damages and $1,249.49 costs, as well as a permanent injunction. 2 Dkt. 21-1. Although entry of default judgment may not be appropriate where a large sum of 3 money is at stake (fourth factor), here the damages sought are statutory and the amount is left to 4 the Court’s discretion. There is no indication that Defendants’ failure to respond is due to 5 excusable neglect, nor is there any indication of a dispute concerning material facts (fifth and sixth 6 factors). Although public policy strongly favors decisions on the merits (seventh factor), in light 7 of Defendants’ refusal to litigate, it does not appear that litigation of the merits will be possible in 8 this case. Accordingly, the Court RECOMMENDS GRANTING Plaintiff’s motion for entry of 9 default judgment. 10 III. RELIEF TO BE AWARDED 11 In the motion for default judgment, Plaintiff seeks statutory damages, costs, a permanent 12 injunction, and an order for the destruction of the infringing products. Dkt. 21 at 13-18. This is 13 generally consistent with the relief sought in the complaint. Dkt. 1 at Prayer for Relief. 14 Accordingly, Defendants are fairly on notice of their potential liability. FRCP 54(c); see also 15 In re Ferrell, 539 F.3d 1186, 1192-93 (9th Cir. 2008). 16 A. Statutory Damages 17 The Court may award statutory damages between $1,000.00 and $200,000.00 for each 18 trademark infringement involving use of a counterfeit mark, or up to $2,000,000.00 for willful 19 violations, “as the court considers just.” 15 U.S.C. § 1117(c). The Court has discretion to award 20 statutory damages between the minimum and maximum, so long as they are sufficient to deter 21 future trademark infringement. Playboy Enters., Inc. v. Baccarat Clothing Co., Inc., 692 F.2d 22 1272, 1274–75 (9th Cir. 1982); see also Dream Games of Ariz., Inc. v. PC Onsite, 561 F.3d 983, 23 992 (9th Cir. 2009) (explaining, in related context of copyright infringement, that “statutory damages further compensatory and punitive purposes”). “In determining the appropriate amount 24 of statutory damages to award on default judgment, courts in this district have considered whether 25 the amount of damages requested bears a plausible relationship to Plaintiff's actual damages.” 26 Yelp Inc. v. Catron, 70 F. Supp. 3d 1082, 1102 (N.D. Cal. 2014) (cleaned up). “While a plaintiff 27 1 is not entitled to a windfall.” Id. 2 Plaintiff seeks $150,000.00 in statutory damages: $50,000.00 for each of three marks. 3 Dkt. 21 at 16. But Plaintiff establishes only one sale, with one infringing mark, at the price of 4 $652.49. See Dkt. No. 1 ¶ 30. Plaintiff's evidence of actual damages amounts to two paragraphs 5 in its CEO’s declaration:

6 15. In 2020, Plaintiff’s total sales for its Stündenglass products were approximately $1,700,000.00 in the United States of America. In 2021, sales were 7 approximately $9,600,000.00. 8 16. Through research, GS HOLISTIC, LLC has determined that at least 3 out of 9 every 10 products sold is a counterfeit. Based on the industry knowledge of AFFIANT, if the market had not been impacted by the flood of inferior, mass-produced fake 10 Stündenglass products, GS HOLISTIC, LLC's 2021 sales would have been approximately $38,400,000.00. 11 Dkt. No. 21-4 ¶¶ 15–16. These bare-bones conclusions do not meet Plaintiff’s burden to 12 demonstrate actual damages above $652.49. See Geddes v. United Financial Group, 559 F.2d 13 557, 560 (9th Cir. 1977). Moreover, courts may consider deterrence, but must base a damages 14 award on the particular defendant’s violation. Here, Defendants should not be responsible for 15 other trademark violations by other retailers across the market. Plaintiff’s request is out of 16 proportion to its actual damages, as another court in this District concluded in a similar case 17 brought by Plaintiff. See MSA-Bossy, 2023 WL 3604322, at *5. Where a plaintiff cannot 18 reasonably estimate actual damages, and especially where it shows only a few sales related to the 19 counterfeit mark, courts are disinclined to award the maximum statutory damages at the risk of a 20 windfall. See id. (collecting cases). 21 Under the circumstances of this case, an award of $5,000.00 is just. See 15 U.S.C. 22 § 1117(c); see also GS Holistic, LLC v. Awalom, No. 23-cv-00748-TSH, 2023 WL 7458853, at *7 23 (N.D. Cal. Oct. 6, 2023); MSA-Bossy Inc., 2021 WL 3604322, at *6. This award is above the 24 statutory minimum, represents more than seven times the price of the only sale at issue, and serves 25 a deterrent purpose while avoiding a windfall. Accordingly, the Court RECOMMENDS an award 26 of $5,000.00 in statutory damages. 27 B. Costs 1 The Court “shall,” “subject to the principles of equity,” award “the costs of the action” to a 2 plaintiff who establishes a trademark violation. 15 U.S.C. § 1117(a). Plaintiff seeks $1,249.49 in 3 costs, comprised of the filing fee ($402.00), process server fee ($130.00), and “investigation fees” 4 ($717.49). Dkt. 21 at 16-17. 5 Filing and service of process expenses are reasonable and routinely awarded. See, e.g., 6 Facebook, Inc. v. Sahinturk, No. 20-CV-08153-JSC, 2022 WL 2239841, at *2 (N.D. Cal. June 17, 7 2022); 3M Co. v. G7 Env’t, LLC, No. CV 20-8892 PA-AFMX, 2021 WL 2935659, at *10 (C.D. 8 Cal. June 9, 2021). However, Plaintiff does not cite any authority for shifting the cost of presuit 9 investigation to Defendants. The plain language “the costs of the action,” 15 U.S.C. § 1117(a), is 10 limited to costs incurred after “the action”—the court case—has begun. See Taniguchi v. Kan 11 Pac. Saipan, Ltd., 566 U.S. 560, 573 (2012) (“Because taxable costs are limited by statute and are 12 modest in scope, we see no compelling reason to stretch the ordinary meaning of the cost items 13 Congress authorized [from oral interpretation to document translation].”); Kalitta Air L.L.C. v. 14 Cent. Tex. Airborne Sys. Inc., 741 F.3d 955, 958 (9th Cir. 2013) (applying Taniguchi); MSA- 15 Bossy, 2023 WL 3604322, at *6. 16 Accordingly, the Court RECOMMENDS an award of costs in the amount of $532.00. 17 C. Permanent Injunction 18 The Court may order permanent injunctive relief “to prevent the violation of any right of 19 the registrant of a mark.” 15 U.S.C. § 1116(a). A plaintiff must demonstrate: (1) that it has 20 suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are 21 inadequate to compensate for that injury; (3) that, considering the balance of hardships between 22 the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would 23 not be disserved by a permanent injunction. eBay, Inc. v. MercExchange, LLC, 547 U.S. 388, 391 24 (2006); see also Herb Reed Enters., LLC v. Fla. Entm't Mgmt., Inc., 736 F.3d 1239, 1249 (9th Cir. 25 2013) (“[A]ctual irreparable harm must be demonstrated to obtain a permanent injunction in a 26 trademark infringement action.”). A plaintiff is entitled to a rebuttable presumption of irreparable 27 harm upon a finding of trademark infringement. 15 U.S.C. § 1116(a). 1 (Dkt. No. 1 at 13-14; Dkt. No. 21-1) but the motion for default judgment does not specifically 2 address the elements that must be satisfied before injunctive relief is warranted. See Dkt. 21 at 17. 3 || Instead, Plaintiff simply directs the Court to review “the reasons explained in Plaintiff's 4 complaint.” Jd. As such, Plaintiff has not met its burden for obtaining a permanent injunction. 5 See Adidas Am., Inc. v. Skechers USA, Inc., 890 F.3d 747, 756-57, 759-61 (9th Cir. 2018). 6 || Moreover, the proposed permanent injunction seeks injunctive relief beyond that sought in the 7 Complaint insofar as would extend to “[a]ssisting, aiding or attempting to assist or aid any other g || person or entity in performing” any of the activities prohibited by the injunction. Compare Dkt. 1 g || at 13-14 with Dkt. 21-1 at 2. In addition, the proposed permanent injunction would apply to all 10 three Stiindenglass Marks (see Dkt. 21-1 at 1-2) even though, as discussed in Section II.B. above, 11 Plaintiff has only established infringement of one of the marks.

. 12 Accordingly, the Court RECOMMENDS that Plaintiffs request for a permanent E 13 injunction be denied. S 14 || IV. CONCLUSION 3 15 For the foregoing reasons, the Court RECOMMENDS that judgment be entered in favor 16 || Of Plaintiff and against Defendants. The Court further RECOMMENDS that Plaintiff be awarded 5 17 || & total of $5,000.00 in statutory damages and $532.00 in costs. 5 18 Any party may file objections to this report and recommendation with the District Judge 19 within 14 days after being served with a copy. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b); 20 Civ. L.R. 72-3. Failure to file an objection may waive the right to review of the issue in the 21 district court. SO ORDERED. 3 Dated: December 19, 2023 24 25 Sess vatl—_ SUSAN VAN KEULEN 26 United States Magistrate Judge 27 28