Nifty Home Products Inc v. Ladynana US

• Court: Court of Appeals for the Third Circuit
• Decided: December 5, 2024
• Docket: 23-1332
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _____________

Nos. 23-1332, 23-2028 _____________

NIFTY HOME PRODUCTS INC

v.

LADYNANA US; ALL4UGOOD; CARB OMAR; COLLECTIONS ETC; DMYUSRO; FANJNUO; HESU-US; MIANSO; MOON AND SUN; XUXUAIXUAIAI; YUEERXING; CC GO STORE; CHEAPEST STORE; COMFORTABLE IMPROVEMENT DAILY LIFE STORE; HAPPY HOUSE LIFE STORE; HOMEI LIFE STORE; HOMYTOOL STORE; KITCHEN HOME SUPPLIES STORE; LIFE CAICAL STORE; MR. GOODS SHOP STORE; MUYOO LIFE STORE; OCEANHM STORE; SONIRY HOME STORE; YOUR HOMIE STORE; SHENZHEN RUIMIAOQIAN NETWORK TECHNOLOGY LTD; QUINGTIAN DIAOCHENG TRADING CO LTD; JINGDONG E COMMERCE (TRADE) HONG KONG CORP; DING; SHENZHENSHIMEIHUIDAWANGLUOKEJIYOUXIANGONGSI; XIAMEN SHI AIDEMAN XINXIKEJI YOUXIAN GONGSI; SHENZHEN XIAOYANZIFEI NETWORK TECHNOLOGY CO LTD; SHANGHAI LEIYUAN ENERGY TECHNOLOGY CO LTD; GADGETVLOT INC; SHENZHEN RONGXINER NETWORK TECHNOLOGY CO LTD; NAFXZY; YSZOOD; SHENZHEN LINGLANGXI NETWORK TECHNOLOGY CO LTD; YUEDONG; QUINTINA; FORTIOO; PEYSAITR; MIRUKU; BRANDSLC; SMILEOL; MAFANIKIO; PEANTOIA; HEOPBIRD; XMASTER; GYUUNYUU; DONEWELO; SHENZHEN WEITIAN INDUSTRIAL CO LTD; BROTTFOR; SHENZHEN DALI INDUSTRY CO LTD; LUXE DESIGNS LLC; HANG ZHOU DUI SHU DIAN ZI SHANG WU YOU XIAN GONGSI; CREATIVE ARROWY INC; VADUNSUZ; MERZAM; SHENZHENSHIMIQUSHANGMAOYOUXIANGONGSI; INETICIAM; RYKWURDE; BLIRIK; COMDAR

Shennzhen Ruimiaoqian Network Technology Co Ltd; Qingtian Diacheng Trading Co Ltd; Ding; Shenzhenshimeihuidawangluokejiyouxiangongsi; Xiamen Shi Aideman Xinxikeji Youxian Gongsi; Shenzhen Xioyanzifei Network Technology Co Ltd; Shanghai Leiyuan Energy Technology Co Inc; Shenzhen Rongxinger Network Technology Co Ltd; Shenzhen Linglanggxi Network Technology Co Ltd; Shenzhen Weitian Industrial Co Ltd; Shenzhen Dali Industry Co Ltd,

Appellants in 23-1332

Oudisen Intl Group Inc d/b/a Peysaitr; Itoya Topdrawer Corp d/b/a Ineticiam; Borini Commerce Inc d/b/a Mafanikio; Sound Brands LLC d/b/a Brandslc; Eliward Foryton Co Ltd d/b/a Brottfor; Five Leaf Pet Botanicals, Inc d/b/a Gyuunyuu; Fishbites Trading Post, LLC d/b/a Rykwurde; henzhenshimaerzhahamaoyiyouxiangongsi d/b/a Merzam HangZho; DingGeZhuangShiCaiLiaoYouXianGongSi d/b/a Peantoia; NanYangShiBaoXingMaoYiYouXianZeRenGongSi d/b/a Quintina; ShenZhenShiHaShiQiMaoYiYouXianGongSi d/b/a Vadunsuz; dong guan shi jing xing xi wei shang mao you xian gong si d/b/a Blirik; CBSCHitalk d/b/a Fortioo; Shen Zhen Shi De Bu Si Ke Ji You Xian Gong Si d/b/a Comdar; LI XIAN CHENG HUA PING SHANG MAO YOU XIAN GONG SI d/b/a Heopbird; DongGuanShiTaiYuanZiShangMaoYouXianGongSi d/b/a Miruku; ShenzhenYuehengchimaoyiYouxiangongsi d/b/a Yszodd; ShenZhenShiNaiFeiXunWangLuoKeJiYouXianGongSi d/b/a Nafxzy; ShenZhenXiangNingKeJiYouXianGongSi d/b/a Xmaster; shenzhenxiweikejiyouxiangongsi d/b/a Smileol; shanghaidiweikejiyouxiangongsi d/b/a Donewelo,

Appellants in 23-2028

2 _____________

On Appeal from the United States District Court for the Western District of Pennsylvania (D.C. Civil No. 2-22-cv-00994) District Judge: Honorable Arthur J. Schwab _____________

Submitted Pursuant to Third Circuit L.A.R. 34.1(a) September 13, 2024 _____________

Before: CHAGARES, Chief Judge, ROTH and RENDELL, Circuit Judges

(Filed: December 5, 2024)

____________

OPINION * ____________

CHAGARES, Chief Judge.

Nifty Home Products, Inc. (“Nifty”) filed a lawsuit against numerous defendants

alleging that they sold counterfeits of Nifty’s bacon grease product in violation of federal

copyright law. The District Court entered default judgments against the defendants.

Several of those defendants appealed, and we consolidated their appeals into two groups

(hereinafter “23-2028 defendants” and “23-1332 defendants”). For the following

reasons, we will vacate the default judgments entered against both groups of defendants

and remand for further proceedings.

* This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7, does not constitute binding precedent.

3 I.

We write primarily for the parties and recite only the facts essential to our

decision. Nifty filed a lawsuit in 2022 in the United States District Court for the Western

District of Pennsylvania alleging that the defendants, many of which are Chinese

manufacturers, willfully infringed and sold counterfeits of Nifty’s bacon grease product

online. Nifty alleged that each defendant profited from the sale of the infringing products

in a range of over $100,000 to over $2,000,000. Nifty also applied for a temporary

restraining order against the defendants, which the District Court granted. Nifty served

all of the defendants with the summons and complaint by email pursuant to the District

Court’s alternative service order.

On September 30, 2022, Nifty asked the Clerk of Court to enter default against the

23-2028 defendants. The Clerk entered default against those defendants on October 3,

2022. 1 On October 19, 2022, Nifty moved for default judgment and a permanent

injunction against the 23-2028 defendants, which the District Court granted the next day.

On March 6, 2023, counsel for the 23-2028 defendants moved to appear pro hac vice,

which the District Court granted. The 23-2028 defendants moved to vacate the default,

default judgment, and permanent injunction. Nifty opposed the motion and

simultaneously moved to stay the briefing schedule and to conduct jurisdictional

discovery. On May 5, 2023, the District Court issued a decision that denied the 23-2028

1 The Clerk’s entry of default listed those defendants in a document titled “Schedule A.” Defendant Mafanikio was not included in Schedule A. This appears to be a clerical error because the docket entry itself listed Mafanikio.

4 defendants’ motion and denied Nifty’s motion as moot.

Nifty’s lawsuit against the 23-1332 defendants proceeded on a similar, but not

identical, timeline. On October 12, 2022, Nifty requested the Clerk of Court to enter

default against the 23-1332 defendants. The Clerk of Court did so the following day.

Counsel for the 23-1332 defendants moved to appear pro hac vice on October 28, 2022,

which the District Court granted. On December 12, 2022, Nifty moved to amend the

District Court’s existing final default judgment and permanent injunction to include the

23-1332 defendants. The District Court granted this motion on the same day. On

December 30, 2022, the 23-1332 defendants moved to vacate the default, default

judgment, and permanent injunction. The District Court denied this motion on January

24, 2023. The defendants timely appealed.

II. 2

The 23-1332 and 23-2028 defendants raise different grounds for vacating the

District Court’s default judgments against them. We will consider them in turn.

A.

The 23-1332 defendants first contend that they lacked sufficient notice of Nifty’s

motion for default judgment. Federal Rule of Civil Procedure 55 provides that after the

clerk has entered default, if the plaintiff’s claim is not for a sum certain, the plaintiff

2 The District Court had jurisdiction under 28 U.S.C. § 1331. We have jurisdiction under 28 U.S.C. § 1291. We review for abuse of discretion both a district court’s entry of default judgment as well as its denial of a motion to set aside the entry of default or default judgment. PPG Indus. Inc v. Jiangsu Tie Mao Glass Co., 47 F.4th 156, 160 n.10 (3d Cir. 2022); United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 194–95 (3d Cir. 1984).

5 “must apply to the court for a default judgment.” Fed. R. Civ. P. 55(b)(2). The rule

further provides that “[i]f the party against whom a default judgment is sought has

appeared personally or by a representative, that party or its representative must be served

with written notice of the application at least 7 days before the hearing.” Id. The District

Court “may” conduct this hearing to determine, inter alia, damages or “investigate any

other matter.” Id.

Here, the 23-1332 defendants did not receive notice seven days prior to entry of

the default judgment, as the District Court entered the default judgment against the 23-

1332 defendants less than two hours after Nifty filed its motion. The 23-1332 defendants

contend that the default judgment should be vacated because they were not given seven

days’ notice of Nifty’s motion for default judgment. Nifty counters that Rule 55(b)(2)’s

seven-day notice requirement only applies to hearings and that the District Court acted

within its discretion by not conducting a hearing in granting the motion for default

judgment.

The 23-1332 defendants have the better of the argument. The parties do not

dispute that the 23-1332 defendants “appeared personally” before the District Court

under Rule 55(b)(2) when their counsel entered an appearance. The question is if the

appearance triggered the seven-day notice requirement. Nifty seizes on the phrase “at

least 7 days before the hearing” to argue that only a hearing triggers the seven-day notice

requirement. But nothing in the rule expressly limits the seven-day notice requirement to

the scheduling of a hearing, and that is not how courts have construed the rule. See, e.g.,

Bermudez v. Reid, 733 F.2d 18, 21 (2d Cir. 1984) (“[I]n civil cases, where a party fails to

6 respond, after notice the court is ordinarily justified in entering a judgment against the

defaulting party . . . .” (emphasis added)); 10A Charles Alan Wright & Arthur R. Miller,

Federal Practice & Procedure § 2687 (4th ed. 2024) (“Under Rule 55(b)(2), a party or a

party’s representative, who has appeared in an action but has failed to defend must be

given written notice of an application to the court for entry of a judgment by default.”

(footnote omitted)).

We emphasize that notice is not a mere formality; rather, it “protect[s] those

parties who, although delaying in a formal sense by failing to file pleadings . . . have

otherwise indicated to the moving party a clear purpose to defend the suit.” 10A Charles

Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 2687 (quoting H. F.

Livermore Corp. v. Aktiengesellschaft Gebruder Loepfe, 432 F.2d 689, 691 (D.C. Cir.

1970) (per curiam)). In this case, the notice that the 23-1332 defendants should have

received “would have informed them of the imminence of action against them as

defaulters and thus would have enabled them to take appropriate steps.” Hutton v.

Fisher, 359 F.2d 913, 915 (3d Cir. 1966). The District Court abused its discretion in

failing to follow Rule 55(b)(2). Thus, we will vacate the default judgment with respect to

the 23-1332 defendants. See Wilson v. Moore & Assocs., Inc., 564 F.2d 366, 369 (9th

Cir. 1977) (“The failure to provide 55(b)(2) notice, if the notice is required, is a serious

procedural irregularity that usually justifies setting aside a default judgment or reversing

for the failure to do so.”).

We also agree with the 23-1332 defendants that the District Court abused its

discretion by awarding Nifty $2 million in damages against each of them. A default

7 judgment does not establish the truth of a complaint’s allegations “relating to the amount

of damages.” PPG Indus. Inc v. Jiangsu Tie Mao Glass Co., 47 F.4th 156, 161 (3d Cir.

2022). Here, the District Court awarded Nifty $2 million against each of the 23-1332

defendants without analysis or explanation, despite the fact that the 23-1332 defendants

had no opportunity to contest these amounts and even though the complaint itself alleged

a range from over $100,000 to over $2 million in damages. See Transatlantic Marine

Claims Agency, Inc. v. Ace Shipping Corp., Div. of Ace Young Inc., 109 F.3d 105, 111

(2d Cir. 1997) (“While the District Court may not have been obligated to hold an

evidentiary hearing, it could not just accept [the plaintiff’s] statement of the damages.

This did not satisfy the court’s obligation to ensure that the damages were appropriate.”).

In the event the District Court reaches the question of damages on remand, it should

consider whether an evidentiary hearing may assist it in calculating damages. See KPS &

Assocs., Inc. v. Designs By FMC, Inc., 318 F.3d 1, 21 (1st Cir. 2003).

B.

The 23-2028 defendants contend that the default judgment should be set aside

because the District Court lacked personal jurisdiction. The District Court construed the

23-2028 defendants’ motion to vacate under both Federal Rule of Civil Procedure 55(c)

(entry of default) and Federal Rule of Civil Procedure 60(b)(1) (default judgment). The

standard under both rules is the same: “We require the district court to consider the

following factors in exercising its discretion in granting or denying a motion to set aside a

default under Rule 55(c) or a default judgment under Rule 60(b)(1): (1) whether the

plaintiff will be prejudiced; (2) whether the defendant has a meritorious defense; (3)

8 whether the default was the result of the defendant’s culpable conduct.” United States v.

$55,518.05 in U.S. Currency, 728 F.2d 192, 195 (3d Cir. 1984).

We start with the second factor, the “threshold question” in this analysis. Id. A

proffered defense that is not “facially unmeritorious” is “sufficient.” Emcasco Ins. Co. v.

Sambrick, 834 F.2d 71, 74 (3d Cir. 1987). The District Court, despite claiming that we

have “not yet considered specific jurisdiction arguments in the context of an online

infringement case,” concluded nonetheless that it had personal jurisdiction over the 23-

2028 defendants, reasoning that a single sale from each defendant into Pennsylvania (set

up by Nifty in each instance) sufficed to show that each defendant had purposively

availed itself of the forum state. Appendix (“App.”) 64–66. Applying the proper legal

standard, we think that the 23-2028 defendants have made at least a colorable argument

that these single transactions, standing alone, were insufficient to demonstrate purposeful

availment. See, e.g., Bros. & Sisters in Christ, LLC v. Zazzle, Inc., 42 F.4th 948, 953

(8th Cir. 2022); see also J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873, 888 (2011)

(Breyer, J., concurring); but see NBA Props., Inc. v. HANWAH, 46 F.4th 614, 624–25

(7th Cir. 2022) (holding that a single sale into an online marketplace was sufficient to

constitute purposeful availment). The potential merits of this defense are significant

because the defendants questioned the District Court’s own jurisdiction. See Budget

Blinds, Inc. v. White, 536 F.3d 244, 259 (3d Cir. 2008) (“If the rendering court did not

have personal jurisdiction, then the judgment was not merely erroneous; it never should

have been entered in the first place.”). Thus, the second factor weighs against default

9 The first factor also weighs against the grant of a default judgment. After the 23-

2028 defendants moved to vacate the default judgment, Nifty moved to stay briefing and

conduct jurisdictional discovery to respond to the 23-2028 defendants’ personal

jurisdiction arguments. Where, as here, the plaintiff requested more time to litigate the

case on the merits, the prejudice to the plaintiff in setting aside the default judgment is

minimal. See also App. 63 (District Court concluding that the “prejudice to Plaintiff”

factor is “somewhat neutral”).

The third factor, whether the 23-2028 defendants are culpable for the delay, does

not tilt the scales back in Nifty’s favor. The District Court observed that the 23-2028

defendants entered their first appearance months after it entered default judgment. We

need not determine whether the record establishes that the 23-2028 defendants’ inaction

was “willful[] or in bad faith” and thus culpable, however, because even if it were, this

factor alone would not outweigh the other two factors based on the circumstances of this

case. Chamberlain v. Giampapa, 210 F.3d 154, 164 (3d Cir. 2000). Because we favor

deciding a case on the merits, even close calls should be “resolved in favor of the party

moving to set aside the default judgment.” Budget Blinds, 536 F.3d at 258. Thus, we

will vacate the default judgment with respect to the 23-2028 defendants. 3

3 Nifty argues that the District Court also held that it had personal jurisdiction over some of the 23-2028 defendants under Fed. R. Civ. P. 4(k)(2). But the District Court’s decision merely stated the governing standard for personal jurisdiction under that rule; it did not apply the rule or make a finding under it.

10 III.

For the foregoing reasons, we will vacate the default judgments against the 23-

1332 and 23-2028 defendants and remand to the District Court for further proceedings

consistent with this opinion.