Intellitech Corporation v. The Institute of Electrical and Electronics Engineers et al

UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Intellitech Corporation
v.
The Institute of Electrical and
Electronics Engineers, et al.
Case No. 16-cv-009-SM
REPORT AND RECOMMENDATION
The plaintiff, Intellitech Corporation, filed a Motion for
Entry of Default (Doc. No. 12) pursuant to Fed. R. Civ. P. 55(a)
against The Institute of Electrical and Electronics Engineers,
Incorporated (“IEEE”), Kathryn Bennett (“Bennett”), and Yvette
Ho Sang (“Ho Sang”) (hereafter collectively referred to as the
“defendants”). 	For the following reasons, the plaintiff’s
motion is DENIED.
DISCUSSION
The parties apparently agree that if the defendants were
properly served, 1 the deadline to answer or otherwise plead was
March 10, 2016. 	Rather than answer, the defendants explain that
Bennett and Ho Sang referred the served complaint to their
1 While the defendants have indicated they do not intend to contest service,
in the context of the issues presented here, the parties disagree whether the
defendants were properly served. For purposes of this Report and
Recommendation, the court assumes arguendo that the defendants were properly
served.
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employer, IEEE, who in turn believed it had not yet been
properly served and was awaiting proper service before
responding. (Doc. No. 12 at 5). On Friday, March 25, 2016, two
weeks after the answer deadline had passed, defendants retained
defense counsel to represent them in this matter. 	That same
day, defense counsel emailed the plaintiff’s counsel to request
an extension of time to answer and offered to accept service on
behalf of IEEE. 	Id. 	Having received no response on the next
business day, on Tuesday, March 29, 2016, defense counsel again
contacted the plaintiff’s counsel to reiterate his request. 	Id.
at 5-6. Rather than respond to defense counsel’s request, the
plaintiff’s counsel filed the instant motion for default later
that day. 	Id.
In response, the defendants filed an objection (Doc. No.
13), arguing that “good cause” exists under Fed. R. Civ. P.
55(c) to permit them to answer or otherwise plead. 	The
plaintiff then filed a motion to strike the defendants’
objection (Doc. No. 14), arguing that default must first enter
under Fed. R. Civ. P. 55(a) before the defendants may raise the
“good cause” excuse contained in Fed. R. Civ. P. 55(c). (Id. at
1-2).
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Thus, the threshold question is whether default must first
enter under Fed. R. Civ. P. 55(a) before the court may consider
“good cause” arguments under Fed. R. Civ. P. 55(c) and permit a
case to proceed on the merits. 	Case law, logic, and judicial
economy contradict the plaintiff’s position on this issue.
The court agrees with the defendants that “[c]ourts
routinely hear ‘good cause’ arguments before default is
entered,” agrees that adopting the plaintiff’s position would be
“an exercise in empty formalism” and would merely postpone
consideration of the “good cause” issue, and incorporates by
reference the law cited by defendants on the issue. (Doc. No. 15
at 1-2). 	See also Brown v. Wechsler, 135 F. Supp. 622, 624
(D.D.C. 1955) (“The Court will not go through formal entry of
default in a case where it is apparent that in the exercise of
its discretion the default will be set aside on motion.”);
United States ex. rel. Knight v. Reliant Hospice, Inc., 2011 WL
6130539 (D.S.C. 2011)(recommending denial of motion for entry of
default because it was likely that defendant would prevail in
showing good cause to set it aside). 	Rather than do an act
merely to undo the same, the court declines to enter default
against the defendants and will instead consider whether “good
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cause” exists to allow the defendants to appear and defend in
this case.
In analyzing “good cause” under Fed. R. Civ. P. 55(c), the
First Circuit Court of Appeals in Indigo America set forth a
list of nonexhaustive factors for courts to consider:
There is no mechanical formula for determining whether good
cause exists and courts may consider a host of relevant
factors. The three typically considered are (1) whether the
default was willful; (2) whether setting it aside would
prejudice the adversary; and (3) whether a meritorious
defense is presented. But that is not an exclusive list and
courts may consider other relevant factors, including “‘(4)
the nature of the defendant’s explanation for the default;
(5) the good faith of the parties; (6) the amount of money
involved; [and] (7) the timing of the motion (to set aside
the default).’” Ultimately, the burden of demonstrating
good cause lies with the party seeking to set aside the
default.
Indigo America, Inc. v. Big Impressions, LLC, 597 F.3d 1, 3 (1st
Cir. 2010) (citations omitted). 	A “good cause” determination
“lies within the sound discretion of the district court.” 	Coon
v. Grenier, 867 F.2d 73, 76 (1st Cir. 1989). 	The following from
the First Circuit’s Coon decision is particularly relevant to
the instant dispute:
[N]otwithstanding the deference due to this—as other—
discretionary decisions, a reviewing tribunal should
not stay its hand if the district court errs by
reading “good cause” too grudgingly. . . . Allowing an
entry of default to be set aside on a showing of
reasonable justification is in keeping both with the
philosophy that actions should ordinarily be resolved
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on their merits, and with the command of the Civil
Rules themselves. See Fed. R. Civ. P. 1 (rules “shall
be construed to secure the just ... determination of
every action”). These policy considerations, we
suggest, are at their zenith in the Rule 55(c) milieu.
Early in the case, as when a default has been entered
but no judgment proven, a liberal approach is least
likely to cause unfair prejudice to the nonmovant or
to discommode the court's calendar.
Id. at 76 (citations omitted) (emphasis added). 	See also KPS &
Associates, Inc. v. Designs by FMC, Inc., 318 F.3d 1, 12 (1st
Cir. 2003) (“countervailing considerations [to default] include
the goals of ‘resol(ving) cases on the merits,’ and avoiding
‘harsh or unfair result[s].’”) (citation omitted). 	Finally,
“‘Rule 55(c) determinations are case-specific’ and ‘must,
therefore, be made in a practical, commonsense manner, without
rigid adherence to, or undue reliance upon, a mechanical
formula.’” 	KPS & Associates, 318 F.3d at 12 (citing Gen.
Contracting & Trading v. Interpole, Inc., 899 F.2d 109, 112 (1st
Cir. 1990)).
Applying the Indigo America factors to this case--and
recognizing the preference to decide cases on the merits--the
court finds “good cause” to permit the defendants to answer and
defend in this case. 	Each factor is addressed below.
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A. 	WILLFULNESS
“Courts tend to view a default as ‘willful’ where it shows
contempt for the court's procedures or an effort to evade the
court's authority.” 	Lucerne Farms v. Baling Techs., Inc., 208
F.R.D. 463, 466 (D. Me. 2002) (citing Coon, 867 F.2d at 76). 	In
failing to timely answer, IEEE appears to have relied on its
registered agent’s rejection of service as improper, and Bennett
and Ho Sang appear to have relied on IEEE to obtain counsel to
represent them in this lawsuit. 	While this may have been
careless, it cannot be fairly characterized as showing willful
contempt for the court’s procedures or an effort to evade the
court’s authority. 	See Shepard Claims Serv. v. William Darrah &
Assoc., 796 F.2d 190 (6th Cir. 1986) (finding abuse of
discretion in district court’s denial of motion to set aside
default when defense counsel’s conduct was “careless and
inexcusable.”). 	Upon being retained, counsel for the defendants
immediately sought to rectify his clients’ inaction, and to put
this litigation on track, by seeking the assent of plantiff’s
counsel to extend the answer date and offering to accept service
on behalf of IEEE. 	On these facts, the court finds that the
defendants’ failure to timely answer was not willful.
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The plaintiff argues that the defendants willfully showed
contempt for the court’s authority by making a “strategic
litigation decision to default, under the assumption that they
had a personal jurisdiction defense and/or service of process
defense.” 	(Doc. No. 14-3, at 1). 	The court agrees with the
plaintiff that conduct can be deemed willful “when the default
involve[s] deliberate conduct, such as when a party knows of the
proceedings and could respond, but decides not to as part of a
deliberate strategy.” 	10 James Wm. Moore et al., Moore’s
Federal Practice, § 55.70[2][b], at 55-86 (3d ed. 2012). 	The
court disagrees, however, that the facts here support a finding
that the defendants failed to timely answer as part of a
deliberate strategy.
The plaintiff’s deliberate strategy argument is undercut by
the fact that it was the defendants’ counsel who twice reached
out to him to accept service and to establish a date to answer
or otherwise plead. 	Rather than making a strategic decision to
default, the record would support a finding that the defendants
actually desired to appear and litigate this case. 	In fact,
notwithstanding the plaintiff’s contention that defendants acted
strategically, on this record it is the plaintiff whose behavior
may best be described as strategic. 	Additionally, the
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plaintiff’s deliberate strategy argument is further undermined
by the fact that a defendant can challenge both service and
personal jurisdiction pursuant to Fed. R. Civ. P. 12(b). 	Thus,
it would be a dangerous and borderline absurd legal strategy to
forego filing a Rule 12(b) motion and instead suffer default—and
allow a binding monetary judgment to enter—in order to later
fight a motion to enforce judgment in another jurisdiction on
service or personal jurisdiction grounds.
B. PREJUDICE TO PLAINTIFF
Allowing the case to proceed on the merits would not
prejudice the plaintiff at this early phase of the case. 	As
recognized in Coon, any potential prejudice is mitigated when a
request to set aside a default occurs early in the case.
Defense counsel’s requests for assent to file an answer two (2)
weeks after the answer deadline, and his timely objection to the
plaintiff’s motion for default, certainly occurred early in the
case. 	In fact, while there is no factual basis to find
prejudice based on any delay caused by the failure to timely
answer, one could argue that this case would likely be further
along if the plaintiff had agreed to the defendants’ proposal to
extend the deadline to answer. 	Even if there can be some delay
attributed to the defendants’ behavior, “in the context of a
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Rule 55(c) motion, delay in and of itself does not constitute
prejudice.” 	KPS & Assocs. v. Designs by FMC, Inc., 318 F.3d 1,
15 (1st Cir. 2003). 	Thus, this factor weighs in the defendants’
favor.
C. MERITORIOUS DEFENSES
“Establishing the existence of a meritorious defense is not
a particularly arduous task. 	A party’s averments need only
plausibly suggest the existence of facts which, if proven at
trial, would constitute a cognizable defense.” 	Indigo America,
597 F.3d at 4 (citation omitted). 	The defendants claim they
have available defenses; the plaintiff disagrees. 	Especially at
such an early stage of litigation, these are disagreements that
ought to be resolved in the normal course, rather than in the
context of a motion for default.
D. 	EXPLANATION FOR DEFAULT AND GOOD FAITH OF THE PARTIES
In analyzing the defendants’ “explanation for default” and
the “good faith of the parties,” the court adopts the same
reasoning as provided on the question of whether the defendants’
conduct was “willful.”
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E. 	AMOUNT OF MONEY AT ISSUE
The amount of money involved in this litigation could be
substantial. 	“For each act of infringement, [17 U.S.C.] §
504(c) establishes an award range of $750 to $30,000 for non-
willful infringements, and a range of $750 to $150,000 for
willful infringements.” 	Sony BMG Music Entertainment v.
Tenenbaum, 660 F.3d 487 (1st Cir. 2011). 	Thus, this factor
weighs in defendants’ favor.
F. TIMING OF MOTION TO SET ASIDE DEFAULT
Because the defendants opposed the entry of default before
it was entered, the “timing of the motion to set aside default”
weighs in the defendants’ favor.
G. DECIDING CASES ON THE MERITS
Finally, while not an Indigo America factor, it is
consistent with the values outlined in Coon to allow the
defendants to appear and answer in this case as it is “in
keeping both with the philosophy that actions should ordinarily
be resolved on their merits, and with the command of the Civil
Rules themselves.” 	Coon, 867 F.2d at 76 (citation omitted).
This decision is also consistent with the First Circuit’s
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admonition in KPS & Associates to decide default questions in a
“‘practical, commonsense manner, without rigid adherence to, or
undue reliance upon, a mechanical formula.’” 	KPS & Assocs., 318
F.3d at 12 (citation omitted).
CONCLUSION
The manner in which this case has progressed to date is
both unfortunate and contrary to common practice in New
Hampshire. 	This case could have been placed on track to
progress in the normal course nearly two (2) months ago had the
plaintiff’s counsel simply assented to an extension to answer
and accepted defense counsel’s offer to accept service for IEEE.
Now, more than 218 pages later, the case comes to the same place
it could have been on March 25. 	To characterize this pleading
exchange as unnecessary is an understatement.
For all of the foregoing reasons, the court recommends that
the district judge issue the following order:
1. The Plaintiff’s Motion for Default (Doc. No. 12) is
DENIED.
2. The Plaintiff’s Motion to Strike (Doc. No 14) is DENIED.
3. The Plaintiff’s alternative motion to treat the Motion to
Strike as an objection to the defendants’ response to the
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motion to strike (Doc. No. 14) is GRANTED. 2 	Accordingly,
document number 14-3 should be docketed as a separate
entry in the case docket.
4. Good cause exists to allow the defendants to answer or
otherwise plead on or before fourteen (14) days from the
date of this order.
Any objections to this Report and Recommendation must be
filed within fourteen (14) days of receipt of this notice. 	See
Fed. R. Civ. P. 72(b)(2). 	Failure to file objections within the
specified time waives the right to appeal the district court’s
order. 	See Garayalde-Rijos v. Mun. of Carolina, 747 F.3d 15,
21-22 (1st Cir. 2014).
SO ORDERED.
/s/ Daniel J. Lynch
Daniel J. Lynch
United States Magistrate Judge
Date: May 19, 2016
cc: 	Todd A. Sullivan, Esq.
Jeffrey C. Spear, Esq.
2 The court grants this alternative form of relief despite the fact it
violates the local rule’s prohibition against making multiple requests for
relief in one motion. 	See LR 7.1(a)(1).
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