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finding that the defendant's failure to respond to the complaint and failure to appear or participate in the lawsuit warranted default judgment
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No. 07-CV-114-LRR.
December 20, 2007
ORDER
I. INTRODUCTION
The matter before the court is Plaintiff Panda Investments, Inc.'s ("Panda") Application for Default Judgment ("Motion") (docket no. 9) and its Hearing Brief (docket no. 13), including the twenty-five attached exhibits (docket nos. 13-2 through 13-6).
II. PROCEDURAL AND FACTUAL BACKGROUND
On October 20, 2007, Panda filed a Complaint and Jury Demand ("Complaint") against Defendant Jabez Enterprises Limited ("Jabez"). Count I of the Complaint alleges Fraudulent Transfer, in violation of Iowa's Uniform Fraudulent Transfer Act ("UFTA"), Iowa Code chapter 684. Count II alleges Unfair Competition, in violation of 15 U.S.C. § 1125(a), or § 43(a) of the Lanham Act of 1946 ("Lanham Act"), 15 U.S.C. § 1501, et seq. Count III seeks Correction of the Trademark Register, pursuant to 15 U.S.C. § 1119. In the Complaint, Panda seeks damages and injunctive relief.
In the Complaint, Panda alleges the following:
7. Alpha International, Inc. ("Alpha") is a corporation organized under the laws of Iowa with its principal place of business in Cedar Rapids, Iowa.
8. Prior to October 5, 2007, Connie Ho Hung [("Ms. Hung")] was the President and owned 99.5% of the stock of Alpha.
9. On October 5, 2007, [Ms. Hung's] stock in Alpha was sold by the Bankruptcy Trustee in the case captioned [ In re Connie Hung, f/k/a Connie Keener, d/b/a Alpha International, Inc., d/b/a Cornerstone Cedar Rapids, LLC, d/b/a CR Omega, d/b/a Empire Toys (HK), Ltd., d/b/a Gearbox Toys (HK), Ltd., d/b/a Hadassah-Purium, LLC, d/b/a Hung Enterprises, LLC, d/b/a Jacob Wells, LLC, f/d/b/a The Gearbox Foundation, f/d/b/a Toys Update, Inc., f/d/b/a Closeouts Unlimited, Inc. f/d/b/a Toy Collector Club of America, Inc., No. 07-01377 (Bankr. N.D. Iowa 2007)].
10. As of October 5, 2007, Alpha is under new ownership. . . .
Alpha's grant of security interests in its trademarks
11. In 2006 and 2007, Alpha executed promissory notes including:
• Note # 12775516 originally dated 11/03/2006 for $282,250; and
• Note # 12866067 originally dated 06/06/2007 for $25,000.
12. In 2006, [Ms. Hung] executed promissory notes including:
• Note # 12664413 originally dated 03/27/2006 for $500,000; and
• Note # 12677919 originally dated 04/18/2006 for $1,611,981.13.
13. In connection with the execution of the [Promissory Notes], [Ms. Hung] executed Commercial Security Agreements and a Hypothecation Agreement granting the holder of the [Promissory Notes] a security interest in all of the assets of Alpha, including without limitation: accounts, inventory, equipment, general intangibles including intellectual property, and all other assets of Alpha. See Exhibit 1 [(docket no. 1, at Ex. 1)].
14. The trademarks on the schedule attached as Exhibit 2 [(docket no. 1, at Ex. 2)] are subject to the Commercial Security Agreements.
15. On July 11, 2007, each of the [Promissory Notes], [Commercial Security Agreements], and related loan documents were assigned to Panda.
16. Panda is the owner of the [Promissory Notes] and the Collateral Security Agreements.
17. Alpha is in default on each of the [Promissory Notes].
Jabez
18. [Ms. Hung] created and controls Jabez, a Hong Kong corporation.
19. [Ms. Hung] is an insider in Jabez.
20. [Ms. Hung] has installed family members and a close personal friend as the sole shareholders of Jabez.
21. Upon information and belief, Jabez has two directors: King Yui (the first cousin of [Ms. Hung]) and Edwin Hung (the son of [Ms. Hung]).
Alpha's alleged fraudulent transfer of trademarks to Jabez
22. On June 26, 2006, [Ms. Hung] executed the Trademark Assignment attached [to the Complaint] as Exhibit 3 [(docket no. 1-5, at Ex. 3)], purporting to assign Alpha's trademarks to Jabez.
23. On or about May 17, 2007, Alpha recorded the Trademark Assignment executed June 26, 2006. See Exhibit 4 [(docket no. 1-6, at Ex. 4)].
24. The transfer of Alpha's intellectual property was done without the knowledge or consent of the lender and secured party.
25. The transfer of Alpha's intellectual property was done without the approval of the Board of Directors of Alpha.
26. The transfer of the trademarks violates the loan agreements. No consent was sought from the bank, and the transfer was not reported to the bank at the time of the transfer of the trademarks.
27. The transfer was made without Alpha receiving reasonably equivalent value or other consideration.
28. Upon information and belief, it is alleged that, at the time of the transfer, Alpha was engaged in a business for which its assets were unreasonably small and Alpha intended to incur debts beyond its ability to pay.
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31. The transfer of Alpha's intellectual property was fraudulent as to [Panda], a secured party.
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34. Jabez has been making representations in the toy industry that it is the owner of Alpha's marks.
35. Attached [to the Complaint] as Exhibit 5 [(docket no. 1-7, at Ex. 5)] is a letter from Jabez [("Letter")] indicating that it is the owner of Alpha's marks. The [Letter], which was sent to manufacturers, sales representatives, and distributors, has misled them into believing that Jabez has "taken over" Empire Toys, which is a Hong Kong operating company owned by Alpha International. The [L]etter further misrepresents that Jabez owns the tooling and trademarks including Grand Champions, Gearbox Toys Collectibles, Big Wheel, Crocodile Mile and all sub-brands.
36. Each of the trademarks referred to in the [Letter] was included in the unauthorized Trademark Assignment executed by [Ms. Hung] on June 26, 2006.
37. Each of the trademarks referred to in the [Letter] are subject to Panda's Collateral Security Agreement.
38. Upon information and belief, Jabez has offered for sale products bearing the marks owned by Alpha.
The court will hereinafter collectively refer to the four promissory notes as "Promissory Notes."
Complaint (docket no. 1-2).
In doing these things, Panda alleges that (1) the transfer of Alpha's intellectual property was fraudulent as to Panda, a secured party, and Panda is entitled to avoidance of the transfer, pursuant to Iowa Code chapter 684; (2) Panda is entitled to injunctive relief pursuant to 15 U.S.C. § 1116, because Jabez's actions violate 15 U.S.C. § 1125(a); (3) because the purported assignment of trademarks was without Panda's consent, it should be voided, rescinded, or canceled, pursuant to 15 U.S.C. § 1119; and (4) the Director of the United States Patent and Trademark Office should be ordered to make an appropriate entry in the register to reflect that Alpha is the owner of the marks.
Jabez did not file an answer to Panda's Complaint or any other responsive pleading.
On November 16, 2007, the Clerk of Court for the United States District Court for the Northern District of Iowa entered default against Jabez pursuant to Federal Rule of Civil Procedure 55(a). Defendant has not responded in any way to the Clerk of Court's entry of default.
On November 17, 2007, Panda filed the instant Motion, pursuant to Federal Rule of Civil Procedure 55(b). In the Motion, Panda seeks entry of default judgment against Jabez as well as (1) a permanent injunction preventing Jabez from using any of Alpha's marks or any colorable imitation of Alpha's marks and (2) an order directing the director of the United States Patent and Trademark Office to correct the register to reflect that Alpha is the owner of the relevant marks. Jabez has not resisted the Motion, and the time for doing so has expired. See LR 7.1.e (providing fourteen days to resist a motion); LR 6.1 (providing an additional three days for electronic service).
On December 12, 2007, the court scheduled a hearing on the Motion. See Order (docket no. 10). On December 19, 2007, Panda filed the Hearing Brief and exhibits. In the Hearing Brief, Panda requests the following relief:
1. Rescission of the alleged fraudulent transfer of trademarks.
2. . . . [A]n order to the Director of the [United States Patent and Trademark Office] to make an appropriate entry in the register to reflect that [Alpha] is the owner of the marks.
3. An injunction to prevent Jabez from violating 15 U.S.C. § 1125.
Hearing Brief (docket no. 13), at 24.
On December 20, 2007, the court held the hearing. Panda was represented by attorneys Kevin H. Collins and Sarah J. Gayer. Jabez did not appear at the hearing.
The court finds the Motion fully submitted and ready for decision. It turns to consider the merits of the Motion.
III. LEGAL ANALYSIS A. Entry of Default
As an initial matter, the court notes that an entry of default is a prerequisite to a default judgment under Federal Rule of Civil Procedure 55. Fed.R.Civ.P. 55(a). By its terms, Rule 55 requires two steps before entry of a default judgment. Fed.R.Civ.P. 55. First, pursuant to Rule 55(a), the party seeking a default judgment must have the clerk enter the default by submitting the required proof that the opposing party has failed to plead or otherwise defend. Fed.R.Civ.P. 55(a). The clerk's record should contain a notation to that effect. Id. The default notation is an interlocutory action; it is not itself a judgment. See Johnson v. Dayton Elec. Mfg. Co., 140 F.3d 781, 783 (8th Cir. 1998) (considering motion to set aside an entry of default in an interlocutory appeal).As previously noted, the Clerk of Court for the United States District Court for the Northern District of Iowa filed an entry of default in this case on November 16, 2007 (docket no. 8). Thus, Panda has completed the first step in the process of obtaining a default judgment against Jabez. The court therefore will consider whether it is appropriate in this case to enter a default judgment against Jabez.
B. Default Judgment
The second and final step before entry of a default judgment requires a plaintiff to request or apply for a default judgment pursuant to Rule 55(b). Under that subsection, the moving party may seek entry of judgment on the default under either subsection (b)(1) or (b)(2). The judgment envisioned by Rule 55(b) is the final judgment in the case, not merely an interlocutory order designed to lead, after a hearing, to a final judgment. The judgment by default involves final judicial action and is a final judgment for all purposes as between the parties and those in privity with them. See, e.g., Henry v. Tri-Servs., Inc., 33 F.3d 931, 932 (8th Cir. 1994) (describing entry of default judgment in that case as following entry of default by clerk); Pinaud v. County of Suffolk, 52 F.3d 1139, 1152 n. 11 (2d Cir. 1995) (distinguishing between the first step, entry of default, and the second, entry of default judgment).
The entry of a default judgment is a matter in the trial court's discretion. Swink v. City of Pagedale, 810 F.2d 791, 792 (8th Cir. 1987). There is a strong public policy, supported by concepts of fundamental fairness, in favor of trial on the merits, see, e.g., Jackson v. Beech, 636 F.2d 831, 835 (D.C. Cir. 1980), particularly when the monetary damages sought are substantial, see, e.g., Swink, 810 F.2d at 792 n. 2 (citing 10 Charles A. Wright, Arthur R. Miller Mary K. Kane, Federal Practice and Procedure § 2693, at 482-85 (2d ed. 1983)). The Eighth Circuit Court of Appeals consistently adheres to the strong judicial policy against default judgments. Oberstar v. Fed. Deposit Ins. Corp., 987 F.2d 494, 503-04 (8th Cir. 1993) (citing Marshall v. Boyd, 658 F.2d 552, 554 (8th Cir. 1981), and noting that this judicial preference for adjudication on the merits "goes to the fundamental fairness of the adjudicatory process"); United States v. Harre, 983 F.2d 128, 130 (8th Cir. 1993) ("Default judgments are . . . not favored by the law."). The Eighth Circuit Court of Appeals also finds it inappropriate to grant default judgment for "a marginal failure to comply with the time requirements." Oberstar, 987 F.2d at 503; Harre, 983 F.2d at 129-30. Furthermore, entry of judgment by default is a drastic remedy which should be used only in extreme situations. See Everyday Learning Corp. v. Larson, 242 F.3d 815, 818 (8th Cir. 2001) (referring to default judgments and dismissals as "extreme sanctions"). In the final analysis, default judgments are not favored in the law, and the entry of such a judgment is appropriate only where there has been a clear record of delay or contumacious conduct. Harre, 983 F.2d at 130; Taylor v. City of Ballwin, Mo., 859 F.2d 1330, 1332 (8th Cir. 1988). Any doubts as to whether a party is in default should be decided in favor of the defaulting party. Wright et al., Federal Practice and Procedure § 2681, at 402-03.
In this case, Panda seek a default judgment against Jabez due to Jabez's failure to file an answer to the Complaint, and Jabez's failure to respond in any way to the Clerk of Court's November 16, 2007 entry of default. Jabez has not appeared or otherwise participated in this lawsuit since the Complaint was filed on October 20, 2007. This indicates to the court that Jabez does not desire to contest the action. The court has no doubt as to whether Jabez is in default. Therefore, the court finds this one of the rare occasions on which an entry of default judgment is appropriate.
The court does not consider Edwin Hung's pro se attempt to represent the corporation as an appearance by Jabez. See Order (docket no. 6) (denying the pro se motion to dismiss).
The court shall grant default judgment on Counts I, II and III of the Complaint.
C. Remedies
The court now turns to determine what relief shall be granted. See United States v. Di Mucci, 879 F.2d 1488, 1497 (7th Cir. 1989) (stating that "an evidentiary hearing may be required to establish what type of relief is necessary"). It incorporates by reference the information contained in the Hearing Brief and Panda's Exhibits 1 through 25 (docket nos. 13-2 through 13-6).
Panda has shown that the transfer of Alpha's intellectual property was fraudulent as to Panda, a secured party. Therefore, Panda has shown its entitlement to avoidance and rescission of the fraudulent transfer. See 15 U.S.C. § 1119 ("In any action involving a registered mark the court may determine the right to registration, order the cancellation of registrations, in whole or in part, restore canceled registrations, and otherwise rectify the register with respect to the registrations of any party to the action."); see also Iowa Code § 684.7(1) (explaining that the remedies of avoidance, attachment and an injunction are among the remedies available to creditors for fraudulent transfers). The court shall order that the Director of the Patent and Trademark Office "make appropriate entry upon the records of the Patent and Trademark Office" to reflect the rescission and restore the marks on Court Exhibit 1 to Alpha. 15 U.S.C. § 1119.
The court also finds that injunctive relief is an appropriate remedy, because it is the best remedy available to protect Panda from the risk of continuing irreparable harm. See 15 U.S.C. § 1116(a) (permitting injunctive relief to "prevent the violation of any right of the registrant of a mark registered in the Patent and Trademark Office or to prevent a violation of [ 15 U.S.C. §§ 1125(a), 1125(c) or 1125(d)]"); eBay Inc. v. MercExchange, LLC, 126 S. Ct. 1837, 1839 (2006) (setting forth a four-factor test that a plaintiff must meet when seeking a permanent injunction); Taylor Corp. v. Four Seasons Greetings, LLC, 403 F.3d 958, 967 (8th Cir. 2005) (setting forth three factors that court must examine before granting permanent injunctive relief). The court shall permanently enjoin Jabez.
IV. DISPOSITION
For the forgoing reasons, the court hereby ORDERS:
(1) Panda's Motion (docket no. 9) is GRANTED;
(2) Jabez is PERMANENTLY ENJOINED as follows: Jabez Enterprises Limited and its officers, agents, servants, employees, attorneys and those persons, firms, or corporations acting in concert and participation with it who receive actual notice of this order by personal service or otherwise, from use of any of the marks to be restored is enjoined from directly or indirectly from using any of the marks to be restored to Alpha International, Inc., identified on Court Exhibit 1, or any other colorable imitation of Alpha International Inc.'s mark in any advertisement, promotion, offer for sale, or sale of any goods bearing the mark such that confusion is likely;
(3) Pursuant to 15 U.S.C. § 1119, the Trademark Assignment from Alpha International, Inc. to Jabez Enterprises Limited, executed on June 27, 2006, and recorded with the Assignment Branch of the United States Patent and Trademark Office at Reel: 003544 Frames: 0270 through 0278 on May 17, 2007, and attached hereto as Court Exhibit 1, is voided, rescinded and cancelled;
(4) The Director of the United States Patent and Trademark Office is directed to rectify and make appropriate entry upon the records of the United States Patent and Trademark Office to reflect that the true and correct owner of the registrations identified in the attached Court Exhibit 1 is Alpha International, Inc.;
(5) The Clerk of Court is directed to provide to the Director of the United States Patent and Trademark Office a certified copy of this order; and
(6) The Clerk of Court is directed to send a copy of this order to Jabez Enterprises Limited by United States mail.
IT IS SO ORDERED.
Court Exhibit 1
Correspondence will be sent via US Mail when the fax attempt is unsuccessful. TRADEMARK ASSIGNMENT Electronic Version v1.1 Stylesheet Version v1.1 SUBMISSION TYPE: NEW ASSIGNMENT NATURE OF CONVEYANCE: ASSIGNS THE ENTIRE INTEREST AND THE GOODWILL CONVEYING PARTY DATA Name Formerly Execution Date Entity Type Alpha International, Inc. 06/27/2006 CORPORATION: IOWA RECEIVING PARTY DATA Name: Jabez Enterprises Limited Street Address: *** City: *** State/Country: HONG KONG Entity Type: CORPORATION: HONG KONG PROPERTY NUMBERS Total: 25 Property Type Number Word Mark Registration Number: 2017786 GC Registration Number: 2027095 Registration Number: 2312588 ANOTHER FINE QUALITY GEARBOX COLLECTIBLE Registration Number: 2319887 ANOTHER FINE QUALITY GEARBOX TOY Registration Number: 2049111 BIG WHEEL Serial Number: 78874218 Registration Number: 2858047 BIG WHEEL Serial Number: 78352022 BIG WHEEL KIDS Registration Number: 1521121 BOOMERANG BUMP Registration Number: 1638498 CROCODILE MILE Registration Number: 1479774 CROCODILE MILE Registration Number: 1491328 ENCHANTED KINGDOM Registration Number: 2110008 FEED 'N NUZZLE Serial Number: 78515588 FLOOR FLYER Registration Number: 2312106 GEARBOX Registration Number: 2541428 GEARBOX PEDAL CAR COMPANY Registration Number: 2583183 GEARBOX PEDAL CAR COMPANY CEDAR RAPIDS, IOWA Serial Number: 78724993 GEARBOX TOYS COLLECTIBLES CEDAR RAPIDS, IOWA Registration Number: 1706986 GRAND CHAMPIONS Serial Number: 78572376 HORSE COUNTRY Registration Number: 2175591 QUALITY ISN'T SOMETHING WE TOY AROUND WITH Registration Number: 3097303 THE MOST BEAUTIFUL HORSES IN THE WORLD Registration Number: 2714424 THE WORLD KNOWS NO BETTER QUALITY Registration Number: 2312580 WAVE JET Registration Number: 1474292 WET'N WACKY CORRESPONDENCE DATA Fax Number: (216)566-5800 Email: trademarks@thompsonhine.com Correspondent Name: Megan D. Dortenzo c/o Thompson Hine LLP Address Line 1: P.O. BOX 8801 Address Line 2: Trademarks Address Line 4: Dayton, OHIO 45401-8801 ATTORNEY DOCKET NUMBER: 071868.0003 DOMESTIC REPRESENTATIVE Name: Randy Nazette, Esq. Address Line 1: 100 First Street, S.W. Address Line 2: Suite 100 Address Line 4: Cedar Rapids, IOWA 52404-5798 NAME OF SUBMITTER: Megan D. Dortenzo Signature: /Megan D. Dortenzo/ Date: 05/17/2007 Total Attachments: 7 source=Alpha — Jabez Assignment#page1.tif source=Alpha — Jabez Assignment#page2.tif source=Alpha — Jabez Assignment#page3.tif source=Alpha — Jabez Assignment#page4.tif source=Alpha — Jabez Assignment#page5.tif source=Alpha — Jabez Assignment#page6.tif source=Alpha — Jabez Assignment#page7.tifTRADEMARK ASSIGNMENT
WHEREAS, Alpha International, Inc., an Iowa corporation (hereinafter "Assignor"), is the registered owner of certain trademarks shown on Schedule A attached hereto (collectively, "Trademarks").WHEREAS, Jabez Enterprises Limited, a Hong Kong corporation (hereinafter "Assignee"), is desirous of acquiring any and all rights that Assignor may have in and to the Trademarks and the application and registration therefor, together with the goodwill of the business in connection with which the Trademarks are used and which are symbolized by the Trademarks, along with the right to recover for damages and profits for past infringements thereof;
NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Assignor does hereby assign, sell and transfer unto Assignee, its successors and assigns, all of its right, title and interest in and to the Trademarks, and the applications and registrations therefor, together with the goodwill of the business symbolized by the Trademarks, along with the right to recover for damages and profits for past infringements thereof. Further, Assignee hereby accepts all of its right, title and interest in and to the Trademarks, and the application and registration therefor, together with the goodwill of the business symbolized by the Trademarks, along with the right to recover for damages and profits for past infringements thereof.
_______________________________________ Connie Hung, President Alpha International, Inc. (Seller) June 27, 2006 _______________________________________ (date)