Crossfit, Inc. v. Paleoethics Inc. ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 CROSSFIT, INC., Case No.: 18-CV-2903-CAB-BLM 12 Plaintiff, ORDER GRANTING MOTION TO 13 v. SET ASIDE DEFAULT 14 FITNESS TRADE sp. z o.o., and FITNESS TRADE sp. z o.o. sp. k., [Doc. No. 59] 15 Defendants. 16 17 This matter is before the Court on a motion to set aside the default and to dismiss for 18 lack of personal jurisdiction filed by Defendants Fitness Trade sp. z o.o. and Fitness Trade 19 sp. z o.o. sp. k. (together, the “Fitness Trade Defendants”). The motion is fully briefed, 20 and the Court deems it suitable for submission without oral argument. As discussed below, 21 the motion to set aside the default is granted. 22 I. Background 23 Plaintiff CrossFit, Inc. filed this lawsuit on December 28, 2018, naming an Ontario, 24 Canada, corporation called Paleoethics, Inc. as the only defendant. The original complaint 25 asserts claims for breach of contract and breach of the covenant of good faith and fair 26 dealing, trademark infringement, and unfair competition. Paleoethics answered the 27 complaint and filed a counterclaim, but its counsel subsequently withdrew without a 28 1 replacement, eventually resulting in the entry of default judgment. [Doc. No. 44.] 2 Meanwhile, on June 5, 2019, Crossfit filed the operative first amended complaint (“FAC”), 3 which added another Canadian company, a United Kingdom company, and a Polish 4 company, along with the Fitness Trade Defendants, which are a Polish limited liability 5 company, and a Polish limited partnership, respectively.1 [Doc. No. 26.] The FAC made 6 few unique factual allegations against these new defendants. Instead, the FAC simply 7 defined all of the defendants together as “Paleoethics” based on a conclusory allegation 8 that they were acting “as a joint venture, a partnership, and/or alter egos of one another.” 9 [Id. at ¶ 15.] 10 After receiving several lengthy extensions from the Court, Crossfit contends that it 11 finally served the summons and FAC on the Fitness Trade Defendants via the Hague 12 Convention on April 24, 2020 [Doc. No. 57], at which time much of the world, including 13 Poland, was locked down due to the COVID-19 pandemic. [Doc. No. 59-2.] According 14 to a declaration from the Fitness Trade Defendants’ chief executive officer, no one received 15 the Fitness Trade Defendants’ mail during the lockdown, and he only discovered this 16 lawsuit as a result of an internet search in June 2020. [Id.] 17 On July 21, 2020, the Clerk of Court entered the default of the Fitness Trade 18 Defendants. [Doc. No. 58.] Nine days later, on July 30, 2020, the Fitness Trade 19 Defendants filed the instant motion to set aside the default and to dismiss the claims against 20 them for lack of personal jurisdiction. [Doc. No. 59.] Crossfit opposed the motion and 21 filed a separate motion for jurisdictional discovery. [Doc. No. 62.] Both motions are now 22 fully briefed. 23 II. Motion to Set Aside Default 24 Federal Rule of Civil Procedure 55(c) provides that a “court may set aside an entry 25 of default for good cause.” Fed. R. Civ. P. 55(c). “A court has broad discretion to set 26 27 1 According to the FAC, Fitness Trade sp. z o.o. is a Polish limited liability company, and Fitness Trade 28 1 aside an entry of default,” and “[t]he standard for setting aside an entry of default is less 2 rigorous than the standard for setting aside a default judgment.” Woodruff v. Mason 3 McDuffie Mortg. Corp., No. 19-CV-04300-WHO, 2020 WL 4260740, at *2 (N.D. Cal. 4 July 24, 2020) (citations omitted). “Where timely relief is sought from a default and the 5 movant has a meritorious defense, doubt, if any, should be resolved in favor of the motion 6 to set aside the default so that cases may be decided on their merits.” Mendoza v. Wight 7 Vineyard Mgmt., 783 F.2d 941, 945–46 (9th Cir. 1986) (internal quotation marks, brackets, 8 ellipses and citation omitted). Thus, the “rules for determining when a default should be 9 set aside are solicitous towards movants.” United States v. Signed Pers. Check No. 730 of 10 Yubran S. Mesle, 615 F.3d 1085, 1089 (9th Cir. 2010) (hereinafter, “Mesle”). 11 Determining if good cause exists requires the court consider three factors: (1) 12 whether [the defendant] engaged in culpable conduct that led to the default; (2) whether 13 [the defendant] had a meritorious defense; or (3) whether reopening the default would 14 prejudice [the plaintiff].” Franchise Holding II, LLC v. Huntington Rests. Grp., Inc., 375 15 F.3d 922, 925-926 (9th Cir. 2004) (citation omitted). The defendant bears the burden of 16 establishing good cause for setting aside the default, and a district court is free to deny the 17 motion if any of the three factors favor denial. See id. at 926. 18 As for the first consideration, if a defendant has received actual or constructive 19 notice of the filing of the action and intentionally failed to answer, its conduct is culpable. 20 Franchise Holding II, 375 F.3d at 926. “[I]n this context the term ‘intentionally’ means 21 that a movant cannot be treated as culpable simply for having made a conscious choice not 22 to answer; rather, to treat a failure to answer as culpable, the movant must have acted with 23 bad faith, such as an intention to take advantage of the opposing party, interfere with 24 judicial decisionmaking, or otherwise manipulate the legal process.” Mesle, 615 F.3d at 25 1092. 26 Here, Defendants were served with the summons and FAC, if at all, in Poland in the 27 middle of an unprecedented global pandemic that resulted in much of the world, including 28 Poland, to restrict the movements of their citizens. The Fitness Trade Defendants have 1 submitted a declaration that as a result of these movement restrictions, they never actually 2 received the FAC and summons, regardless of whether it was properly served pursuant to 3 the Hague Convention. [Doc. No. 59-2.] In its opposition, Crossfit engages in a lengthy 4 effort to discredit this declaration primarily on the grounds that the Fitness Trade 5 Defendants may have been aware of this lawsuit since 2019. Regardless of the Fitness 6 Trade Defendants’ awareness of the existence of this lawsuit, they had no obligation to 7 respond until they were properly served. Further, any nominal delays between when the 8 Fitness Trade Defendants’ discovery in June 2020 that service was effected on them and 9 their appearance in this case is hardly evidence of intentional delay considering that they 10 are Polish entities who needed to obtain California counsel, all while the global pandemic 11 continues. Accordingly, the Fitness Trade Entities did not engage in culpable conduct that 12 led to the default. 13 As for the second consideration, to justify setting aside default, a defendant must 14 present the court with specific facts that would constitute a defense. Franchise Holding II, 15 375 F.3d at 926. Here, based on the briefing currently before the Court, the Fitness Trade 16 Defendants’ motion demonstrates that they have a meritorious defense of lack of personal 17 jurisdiction.2 Accordingly, this factor is satisfied. 18 Finally, “[t]o be prejudicial, the setting aside of a judgment must result in greater 19 harm than simply delaying resolution of the case. Rather, the standard is whether plaintiff's 20 ability to pursue his claim will be hindered.” SMSW Enterprises LLC v. Halberd Corp., 21 No. CV 13-1412 BRO (SPX), 2013 WL 12138732, at *4 (C.D. Cal. June 21, 2013) 22 (quoting TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691, 701 (9th Cir. 2001)). Here, 23 setting aside a default that was entered just nine days before the motion to set it aside was 24 25 26 2 Crossfit claims that the motion to dismiss for lack of personal jurisdiction is premature and that it did not provide a complete opposition to that aspect of the Fitness Trade Defendants’ motion. Accordingly, 27 the Court is allowing additional briefing before definitively ruling on the merits of the Fitness Trade Defendants’ personal jurisdiction argument. However, based on the record currently before the Court, 28 1 || filed will have no impact on Crossfit’s ability to pursue its claims against the Fitness Trade 2 || Defendants. 3 In sum, the Fitness Trade Defendants did not act intentionally in failing to respond 4 ||to the FAC, they have demonstrated that they have a meritorious defense, and Crossfit will 5 be prejudiced if the default is set aside. Accordingly, good cause exists to set aside the 6 || defaults that were entered against the Fitness Trade Defendants. 7 iI. Conclusion 8 For the reasons set forth above, it is hereby ORDERED that the motion to set aside 9 || the default is GRANTED, and the entry of default [Doc. No. 58] against the Fitness Trade 10 Defendants is VACATED. Although the Court is unpersuaded by the arguments in favor 11 personal jurisdiction that Crossfit made in its opposition to the instant motion, before 12 ruling on that defense, the Court will allow the Fitness Trade Defendants to re-file a discrete 13 motion to dismiss for lack of personal jurisdiction, and for Crossfit to oppose that motion. 14 || Accordingly, the Fitness Trade Defendants shall file a motion to dismiss for lack of 15 ||personal jurisdiction by September 11, 2020. Crossfit shall file its opposition by 16 September 25, 2020, and the Fitness Trade Defendants may file their reply by October 2, 17 2020. The Court will then take the motion under submission and issue a ruling in due 18 || course. 19 It is SO ORDERED. 20 Dated: September 2, 2020 € ZL 21 Hon. Cathy Ann Bencivengo 22 United States District Judge 23 24 25 26 27 28 3 The Court will rule on Crossfit’s motion for discovery [Doc. No. 62] in conjunction with the Fitness Trade Defendants’ motion to dismiss.