MODE Global LLC v. Smith

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
MODE GLOBAL LLC, 	§
§
Plaintiff, 	§
§
V. 	§ 	No. 3:24-cv-1675-K-BN
§
CASEY SMITH, 	§
§
Defendant. 	§
FINDINGS, CONCLUSIONS, AND RECOMMENDATION OF THE
UNITED STATES MAGISTRATE JUDGE
Plaintiff MODE Global LLC (“MODE”) filed this lawsuit seeking injunctive
relief and damages against its former employee, Defendant Casey Smith, alleging
claims that include breach of an employment agreement, fraud, and theft of trade
secrets. See Dkt. Nos. 1 & 6.
MODE obtained an extension of time to serve Smith. See Dkt. Nos. 8 & 9.
And, after MODE moved for a second extension of time to do so and for the
Court to authorize substitute service, see Dkt. No. 10, United States District Judge
Ed Kinkeade referred this lawsuit to the undersigned United States magistrate judge
for pretrial management under 28 U.S.C. § 636(b), see Dkt. No. 11.
The Court then extended MODE’s deadline to serve Smith to January 6, 2025.
See Dkt. No. 12. And, after MODE’s attempt at service by certified mail failed, it
moved the Court to authorize a substituted method of service due to Smith’s
“continued evasion of service” and “request[ed] that the Court permit it to serve Smith
by affixing a copy of the Summons and Complaint to the front door or gate of” her
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residence in Tennessee. Dkt. No. 16. The Court granted that request and extended
MODE’s deadline to serve Smith to February 5. See Dkt. No. 17.
A summons return was filed on January 28. See Dkt. No. 18. And, in response
to the Court’s April 23 order [Dkt. No. 19], MODE moved for entry of default and
default judgment on April 29. See Dkt. Nos. 20 & 21.
The Clerk of Court entered default the next day. See Dkt. No. 22.
And, for the reasons and to the extent set out below, the Court should grant
the motion for default judgment and then refer the issues of damages and injunctive
relief to the undersigned for further recommendation.
Legal Standards
When a defendant has “failed to plead or otherwise defend” an action, the Court
may enter a default judgment if the plaintiff establishes the following prerequisites:
(1) the defendant was served with the summons and complaint and default was
entered; (2) the defendant is not “a minor or incompetent person”; and (3) the
defendant is not in the military. FED R. CIV. P. 55(b)(2); see also 50 U.S.C. § 3931(a),
(b) (providing “[p]rotection [for] servicemembers against default judgments”).
In this circuit, there is a required three-step procedure to obtain a default
judgment: (1) default by the defendant; (2) entry of default by the Clerk of the Court;
and (3) entry of default judgment by the district court. See N.Y. Life Ins. Co. v. Brown,
84 F.3d 137, 141 (5th Cir. 1996) (defining “the terms regarding defaults”).
Even though the United States Court of Appeals for the Fifth Circuit favors
resolving 	cases 	on 	their 	merits 	rather 	than 	granting 	default 	judgments, 	this
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preference 	is 	“counterbalanced 	by 	considerations 	of 	social 	goals, 	justice, 	and
expediency, a weighing process [that] lies largely within the domain of the trial
court’s discretion.” Rogers v. Hartford Life & Accident Ins. Co., 167 F.3d 933, 936 (5th
Cir. 1999).
In consideration of these competing preferences, the Court takes a two-part
approach in determining whether to grant entry of default judgment. See Nishimatsu
Constr. Co. v. Hous. Nat’l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975) (requiring a
“sufficient basis in the pleadings for the judgment entered”); see also Lindsey v. Price
Corp., 161 F.3d 886, 893 (5th Cir. 1998) (stating “relevant factors” in determining
whether default judgment is appropriate).
First, the Court considers the following six non-exhaustive factors to decide
whether default judgment is appropriate: (1) “whether the default was caused by a
good faith mistake or excusable neglect”; (2) “whether there has been substantial
prejudice”; (3) “the harshness of a default judgment”; (4) whether there are “material
issues 	of 	fact”; 	(5) 	“whether 	the 	grounds 	for 	a 	default 	judgment 	are 	clearly
established”; and (6) whether the Court would be “obliged to set aside the default on
the defendant’s motion.” Lindsey, 161 F.3d at 893.
And default judgment may be appropriate where a defendant fails to follow
court orders. See McGrady v. D’Andrea Elec., Inc., 434 F.2d 1000, 1001 (5th Cir. 1970)
(upholding a default judgment due to a defendant’s “delay and failure to comply with
court rules”).
Next, the Court must assess the merits of the plaintiff’s claims and find a
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“sufficient basis in the pleadings for the judgment entered.” Nishimatsu, 515 F.2d at
1206; see also Escalante v. Lidge, 34 F.4th 486, 493 (5th Cir. 2022) (“[E]ven if a
defendant defaults, a court may still deny default judgment if the plaintiff has failed
to state a claim on which relief can be granted.” (citing Lewis v. Lynn, 236 F.3d 766,
767-68 (5th Cir. 2001) (per curiam))).
Under Federal Rule of Civil Procedure 8(a)(2), a pleading must “contain a short
and plain statement of the claim showing the pleader is entitled to relief.” F ED R. CIV.
P. 8(a)(2).
This requirement “give[s] the defendant fair notice of what the … claim is and
the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
By defaulting, the defendant is deemed to admit “the plaintiff’s well-pleaded
allegations of fact” and is not deemed to “admit allegations that are not well-pleaded
or to admit conclusions of law.” Nishimatsu, 515 F.2d at 1206.
The factual allegations, assumed to be true, need only “be enough to raise a
right to relief above the speculative level.” Twombly, 550 U.S. at 555. So detailed
allegations are not required, but “the pleading must present more than an unadorned,
the defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009).
“A default judgment … establishes the defendant’s liability. But it does not
establish the amount of damages.” United States v. Shipco Gen., Inc., 814 F.2d 1011,
1014 (5th Cir. 1987).
So, “in the context of a default judgment, unliquidated damages normally are
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not awarded without an evidentiary hearing … [except] where the amount claimed is
a liquidated sum or one capable of mathematical calculation.” See James v. Frame, 6
F.3d 307, 310 (5th Cir. 1993). A sum capable of mathematical calculation is one that
can be “computed with certainty by reference to the pleadings and supporting
documents alone.” Id. at 311. Thus, affidavits submitted to support a claim for
mathematically 	calculable 	damages 	“must 	be 	sufficiently 	detailed 	to 	establish
necessary facts.” United Artists Corp. v. Freeman, 605 F.2d 854, 857 (5th Cir. 1979).
Two other caveats also apply. “[A] ‘party is not entitled to a default judgment
as a matter of right, even where the defendant is technically in default.’ In fact,
‘[d]efault judgments are a drastic remedy, not favored by the Federal Rules and
resorted to by courts only in extreme situations.’” Lewis, 236 F.3d at 767 (citations
omitted).
And, 	before 	it 	may 	enter 	default 	judgment, 	“the 	district 	court 	has 	an
affirmative duty to look into its jurisdiction both over the subject matter and the
parties.” Sys. Pipe & Supply, Inc. v. M/V Viktor Kurnatovskiy, 242 F.3d 322, 324 (5th
Cir. 2001) (quoting Williams v. Life Savings & Loan, 802 F.2d 1200, 1203 (10th Cir.
1986)); see also Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583-84 (1999) (federal
courts have independent duty to examine their own subject matter jurisdiction).
Analysis
I. 	The Court has jurisdiction over the subject matter of this lawsuit and
the defaulting defendant.
Deciding the motion for default judgment “begins, as it must, by examining the
Court’s jurisdiction.” Wattiker v. Elsenbary Enters., Inc., No. 3:22-cv-940-B-BN, 2023
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WL 5167023, at *3 (N.D. Tex. May 19, 2023) (cleaned up; quoting Hammerschmidt v.
Garland, 54 F.4th 282, 287 (5th Cir. 2022)), rec. accepted, 2023 WL 5167019 (N.D.
Tex. June 13, 2023); accord Louisiana v. U.S. Dep’t of Energy, 90 F.4th 461, 466 (5th
Cir. 2024) (“Jurisdiction is always first.” (citation omitted)).
Through its complaint, MODE alleges that the Court possesses subject-matter
jurisdiction under both 28 U.S.C. §§ 1331 and 1332. See Dkt. No. 1, ¶ 7.
Starting with Section 1332 – which requires in part that each plaintiff’s
citizenship must be diverse from each defendant’s citizenship – the undersigned
cannot agree at least insofar as MODE has not properly alleged its own citizenship.
MODE alleges that it is “a Delaware limited liability company with its
principal place of business” in Texas,” Dkt. No. 1, ¶ 4, but an LLC is not a corporation,
and so the Court is not concerned with, for example, where the LLC’s nerve center
may be located, cf. 28 U.S.C. § 1332(c)(1); Hertz Corp. v. Friend, 559 U.S. 77, 92-93
(2010). Instead, “the citizenship of an LLC is determined by the citizenship of all of
its members.” Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1080 (5th Cir. 2008)
(cleaned up). And, so, “[t]he allegations of an LLC’s citizenship must include each
member’s identity and citizenship,” Phillips N. Am. LLC v. U.S. Auto. Ass’n, No. 3:25-
cv-1210-BN, 2025 WL 1828523, at *2 (N.D. Tex. July 2, 2025) (cleaned up).
But MODE also provides factual content to plausibly support its claim that
Smith violated a federal statute, the Defend Trade Secrets Act, 18 U.S.C. §§ 1832 and
1836(B)(3) (“DTSA”). And its assertion of a more than frivolous or insubstantial
violation of federal law means that the Court possess subject-matter jurisdiction
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under Section 1331. See, e.g., Copeland v. E*Trade Cap. Mgmt., L.L.C., No. 24-10658,
2025 WL 66732, at *2 (5th Cir. Jan. 10, 2025) (per curiam).
Section 	1331 	also 	serves 	as 	an 	“independent 	basis 	of 	subject 	matter
jurisdiction” that allows for supplemental jurisdiction under 28 U.S.C. § 1367 for
MODE’s purely state law claims. Atkins v. Propst, No. 22-10609, 2023 WL 2658852,
at *2 (5th Cir. Mar. 28, 2023) (per curiam) (citing Arena v. Graybar Elec. Co., Inc.,
669 F.3d 214 (5th Cir. 2012)).
MODE’s allegations further include that
Section 9 of Smith’s Employment Agreement with MODE designates
that any action arising thereunder may be brought in “any federal or
state court located within Dallas County, Texas” and further notes that
the parties “irrevocably waive … any objection that they may now or
hereafter have to the laying of venue” in Dallas County. In addition,
Smith’s Settlement Agreement with MODE provides that any actions
arising thereunder shall “be brought and heard in the United States
District Court for the Northern District of Texas” and contains a consent
to exclusive jurisdiction and venue of and in this Court.
Dkt. No. 1, ¶ 8.
MODE has therefore alleged that the Court has jurisdiction over Smith,
considering that “[p]ersonal jurisdiction [over a defendant], unlike subject matter
jurisdiction, is waivable.” S.E.C. v. Stanford Int’l Bank, Ltd., 112 F.4th 284, 294-95
(5th Cir. 2024) (citing Ins. Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456
U.S. 694, 702-03 (1982)). And such a waiver can occur “in a variety of ways,” including
by “expressly consent[ing] to personal jurisdiction in … a contract.” Id. at 295 (citing
Nat’l Equip. Rental, Ltd. v. Szukhent, 375 U.S. 311, 316 (1964)).
II. 	The procedural requirements for default judgment have been met.
MODE served Smith on January 15, 2025 through a substituted method
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authorized by the Court. See Dkt. Nos. 17 & 18. The Clerk entered default on April
30, 2025. See Dkt. No. 22. And attached to MODE’s motion requesting default
judgment is sufficient evidence reflecting that Smith is neither in the military service,
a minor, nor incompetent. See Dkt. No. 21-1, ¶¶ 8 & 9 & Ex. A-2.
III. 	The allegations support default judgment as to the claims asserted.
MODE alleges claims against Smith for breach of contract, fraud, and violation
of the DTSA and the Texas Uniform Trade Secrets Act, TEX. CIV . PRAC. & REM. CODE
§ 134A.001 (“TUTSA”), and MODE seeks injunctive relief and damages, see generally
Dkt. No. 1.
Starting with the trade secret claims,
[t]he 	DTSA 	provides 	that 	“[a]n 	owner 	of 	a 	trade 	secret 	that 	is
misappropriated may bring a civil action under this subsection if the
trade secret is related to a product or service used in, or intended for use
in, interstate or foreign commerce.” 18 U.S.C. § 1836(b)(1). Accordingly,
the elements of a DTSA claim are “(1) ownership of a trade secret that
(2) has been misappropriated and that (3) relates to a product or service
in interstate commerce.” Providence Title Co. v. Truly Title, Inc., 547 F.
Supp. 3d 585, 594 (E.D. Tex. 2021). The elements of a trade-secret
misappropriation claim under Texas law are similar. To recover for
trade-secret misappropriation, a plaintiff must show: (1) existence of a
trade secret; (2) breach of a confidential relationship or improper
discovery of a trade secret; (3) use of the trade secret; and (4) damages.
Tex. Integrated Conveyor Sys., Inc. v. Innovative Conveyor Concepts, Inc.,
300 S.W.3d 348, 366–67 (Tex. App. – Dallas 2009, pet. denied).
BarZ Adeventures Inc. v. Patrick, No. 4:20-CV-299, 2022 WL 4082464, at *3 (E.D.
Tex. Sept. 6, 2022).
MODE’s 	allegations, 	deemed 	admitted 	by 	Smith’s 	default, 	support 	the
elements of these claims, as MODE persuasively sets out in its motion:
MODE alleges that it owns certain trade secrets, including a “bid
document” which includes “all the lanes” bid on and “won or lost,” that
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provide it a competitive advantage. [ECF No. 1, ¶¶ 31, 56, 66]. MODE
took reasonable measures to keep this information secret and only
disclosed 	its 	confidential 	information 	and 	trade 	secrets 	to 	Smith
pursuant to her employment with MODE. [Id. ¶¶ 15-16]. Smith signed
the Employment Agreement, which states that this information is
confidential and was not to be used or disclosed without MODE’s
consent. [Id. ¶ 18]. Nonetheless, Smith used and disclosed MODE’s
trade secrets without its consent to solicit and steal one of MODE’s most
important customers. [Id. ¶¶ 28-31]. And … Smith’s conduct was willful
and malicious. [See id. ¶¶ 39].
Dkt. No. 21 at 15-16; accord BarZ Adeventures, 2022 WL 4082464, at *4.
A 	sufficient 	basis 	in 	the 	pleadings 	likewise 	exists 	to 	enter
judgment on [MODE’s] claim for breach of contract under Texas law. To
succeed on a breach-of-contract claim, a plaintiff must establish: (1)
formation of a valid contract; (2) performance by the plaintiff; (3) breach
by the defendant; and (4) damages sustained as a result of the breach.
USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 501 n.21 (Tex.
2018). Each element is met here.
Back-Up Sys. Maintenance, LLC v. Suarez, No. 4:21-CV-521-SDJ, 2022 WL 2119115,
at *5 (E.D. Tex. June 13, 2022).
MODE has attached a copy of the Employment Agreement to its
Complaint, which is a valid and enforceable contract. [ECF No. 1-1].
Therein, Smith agreed that to a non-disclosure provision [Id. § 2.5],
amended customer non-solicitation provision [Id. § 2.8.2], and return of
property provision [Id. § 2.7]. MODE performed under the Employment
Agreement by, among other things, providing Smith access to its
Confidential Information. [ECF No. 1, ¶¶ 12-16]. But Smith violated the
Employment Agreement’s provisions by retaining and using a bid
document 	containing 	MODE’s 	Confidential 	Information 	to 	solicit
business from MODE’s customer to her current employer, Lync, to
benefit her new employer and, ultimately, herself. [Id. ¶¶ 28-31, 37, 39,
41]. Further, Smith’s conduct was willful and malicious – for example,
in text messages from Smith describing her nefarious actions, Smith
included an “emoji” image of a face with a hand over its mouth,
indicating 	that 	she 	knew 	her 	retention 	of 	MODE’s 	Confidential
Information was flatly wrong. [Id. ¶ 30]. As a result, MODE has suffered
damages due to Smith’s breach. [Id. ¶ 39].
Dkt. No. 21 at 13; accord Back-Up Sys. Maintenance, 2022 WL 2119115, at *6.
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Turning last to MODE’s fraud claim, “[w]hen a plaintiff alleges a claim of
fraud, Rule 9(b) of the Federal Rules of Civil Procedure requires that the plaintiff
‘state with particularity the circumstances constituting [the] fraud.’” Wesdem, L.L.C.
v. Ill. Tool Works, Inc., 70 F.4th 285, 293 (5th Cir. 2023) (quoting FED . R. C IV. P. 9(b)).
“Rule 9(b) applies by its plain language to all averments of fraud, whether they
are part of a claim of fraud or not.” Elson v. Black, 56 F.4th 1002, 1008 (5th Cir. 2023)
(quoting Lone Star Ladies Inv. Club v. Schlotzsky’s, Inc., 238 F.3d 363, 368-69 (5th
Cir. 2001); citation omitted).
So, “‘[w]here averments of fraud are made in a claim in which fraud is not an
element,’ a court must ‘disregard averments of fraud not meeting Rule 9(b)’s standard
and then ask whether a claim has been stated.’” Id. (quoting Lone Star Ladies, 238
F.3d at 368). “The application of Rule 9(b) is thus fatal when a claim is premised
entirely upon a course of fraudulent conduct that is not sufficiently pled.” (citation
omitted).
“Rule 9(b), in turn, demands ‘the who, what, when, and where to be laid out
before access to the discovery process is granted.’ [And, so a plaintiff] must ‘specify
the statements contended to be fraudulent, identify the speaker, state when and
where the statements were made, and explain why the statements were fraudulent.’”
Elson, 56 F.4th at 1009 (cleaned up; quoting Williams v. WMX Tech., Inc., 112 F.3d
175, 178, 177 (5th Cir. 1997)).
And
[a] claim under Texas law requires that
(1) the defendant made a material misrepresentation; (2)
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the defendant knew at the time that the representation
was false or lacked knowledge of its truth; (3) the defendant
intended 	that 	the 	plaintiff 	should 	rely 	or 	act 	on 	the
misrepresentation; 	(4) 	the 	plaintiff 	relied 	on 	the
misrepresentation; and (5) the plaintiff’s reliance on the
misrepresentation caused injury.
Wesdem, 70 F.4th at 293 (quoting Int’l Bus. Machs. Corp. v. Lufkin Indus., LLC, 573
S.W.3d 224, 228 (Tex. 2019)).
MODE also alleges a sufficient claim of fraud, as it sets out in the default
motion:
Smith defrauded MODE by inducing MODE to execute a Settlement
Agreement – and pay Smith $40,000.00 – based on her representation
and warranties, which she knew to be false. Specifically, MODE and
Smith executed the Settlement Agreement on March 15, 2024. [ECF No.
1, ¶ 21]. Therein, Smith represented and warranted, among other
things, that as of the effective date of the Settlement Agreement she: (i)
had not directly or indirectly accepted business or competitively solicited
business from an explicitly identified customer; (ii) had not used or
disclosed MODE’s Confidential Information for her benefit or the benefit
of anyone outside of MODE; and (iii) had complied with the Employment
Agreement’s 	“return 	of 	property” 	provision. 	[Id. 	¶ 	22]. 	Smith’s
representations and warranties were material to MODE executing the
Settlement Agreement, and MODE relied on the accuracy of same when
executing the Settlement Agreement. [Id. ¶¶ 23, 46].
However, such representations and warranties were false; for
example, Smith knew that she remained in possession of a bid document
containing 	MODE’s 	Confidential 	Information, 	in 	violation 	of 	the
Employment Agreement’s “return of property” provision. [Id. ¶¶ 28-31,
47]. Indeed, Smith later bragged about her possession of this bid
document via a series of texts, and her intent to use same to solicit
MODE’s business on behalf of her new employer. [Id. ¶¶ 29-31]. Smith
made the representations and warranties with the intention that MODE
act on them, and, among other things, provide her with a Settlement
Payment in the amount of $40,000.00. [Id. ¶ 48]. And MODE, relying on
Smith’s 	representations 	and 	warranties, 	executed 	the 	Settlement
Agreement and paid Smith the Settlement Payment. [Id. ¶¶ 21-22, 48].
Smith’s fraudulent misrepresentations damaged MODE by, among
other things, inducing it to execute the Settlement Agreement and pay
Smith $40,000.00 thereunder. [Id. ¶¶ 22, 49].
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Dkt. No. 21 at 14-15.
IV. 	Consideration of other factors supports default judgment.
Default judgment is a harsh remedy, but, as set out above, the record supports
default judgment. There has not been substantial prejudice against MODE. There
are clearly established grounds for default, as set out above. And there is no
indication that the default was caused by good faith mistake or excusable neglect.
And, so, the Court would not necessarily feel obligated to set aside a default (should
a motion to do so be filed). See Lindsey, 161 F.3d at 893.
V. 	MODE is entitled to relief, but further proceedings may be necessary
to fashion that relief.
MODE concludes its motion by requesting a hearing to determine damages.
See Dkt. No. 21 at 14.
And courts routinely “defer a determination as the damages to be awarded
pending a future hearing.” E.g., Adams v. Chime Sols., Inc., No. 3:23-cv-1482-S, 2024
WL 4137263, at *7 (N.D. Tex. Aug. 14, 2024), rec. accepted, 2024 WL 4139646 (N.D.
Tex. Sept. 9, 2024); cf. Rolex Watch USA, Inc. v. Trujillo, No. 2:23-cv-101-Z-BR, 2023
WL 11795676, at *4 (N.D. Tex. Nov. 16, 2023) (Even where “[a] defendant’s default
concedes the truth of the well-pleaded allegations of the [c]omplaint,” a plaintiff still
must “marshal competent evidence in support of damages.” (cleaned up)).
And, so, if the Court adopts or accepts the undersigned’s recommendation that
the motion for default judgment be granted, the Court should then refer to the
undersigned 	for 	recommendation 	the 	issues 	of 	the 	exact 	amount 	of 	damages,
including reasonable and necessary attorneys’ fees and costs, and the exact scope of
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the permanent injunction that the Court should enter.
Recommendation
The Court should grant Plaintiff MODE Global LLC’s motion for default
judgment [Dkt. No. 20] and then refer the issues of damages and injunctive relief to
the undersigned for further recommendation.
A copy of these findings, conclusions, and recommendation shall be served on
all parties in the manner provided by law. Any party who objects to any part of these
findings, conclusions, and recommendation must file specific written objections
within 14 days after being served with a copy. See 28 U.S.C. § 636(b)(1); FED . R. CIV.
P. 72(b). In order to be specific, an objection must identify the specific finding or
recommendation to which objection is made, state the basis for the objection, and
specify the place in the magistrate judge’s findings, conclusions, and recommendation
where the disputed determination is found. An objection that merely incorporates by
reference or refers to the briefing before the magistrate judge is not specific. Failure
to file specific written objections will bar the aggrieved party from appealing the
factual findings and legal conclusions of the magistrate judge that are accepted or
adopted by the district court, except upon grounds of plain error. See Douglass v.
United Servs. Auto. Ass’n, 79 F.3d 1415, 1417 (5th Cir. 1996).
DATED: December 23, 2025
_________________________________________
DAVID L. HORAN
UNITED STATES MAGISTRATE JUDGE
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