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From Antitrust Law Daily, April 25, 2017

Default judgment vacated in false advertising case against Hong Kong company

By Peter Reap, J.D., LL.M.

The federal district court in Miami erred in failing to set aside a default judgment against CollectA International Limited (CollectA) in a case brought by competing toy figurine manufacturer Safari Programs for false advertising under the Lanham Act, and unfair competition under the Florida common law, the U.S. Court of Appeals in Atlanta has decided. CollectA’s failure to respond to the suit was excusable neglect. In addition, the district court erred in entering final judgment against CollectA without affording it an opportunity to be heard on the issues of damages and injunctive relief. Thus, both the denial of CollectA’s Rule 60(b) motion and the final default judgment were vacated and the case remanded for further proceedings (Safari Programs, Inc. v. CollectA International Limited, April 25, 2017, per curiam).

The underlying suit. Safari initiated this lawsuit in January 2015 against its direct competitor CollectA and Quercia, Inc., d/b/a IQON ("IQON"), the exclusive distributor of CollectA’s products in the United States. Safari claimed that "CollectA/IQON" made the following false or misleading advertisements to the public: (1) that CollectA had been manufacturing toy animal figurines for over 30 years, despite not existing prior to 2010; (2) that it was a European brand, despite manufacturing its specialty toys in Hong Kong or China; and (3) that it was the "#1 requested brand worldwide." On June 2, 2015, the district court dismissed IQON from the action for Safari’s failure to effect timely service.

The clerk entered default against CollectA on August 25, 2015. That same day, the court sua sponte ordered Safari to file a motion for final default judgment against CollectA no later than September 4, 2015. On September 3, 2015, Safari moved for entry of final default judgment against CollectA.

On September 9, 2015, the district court received a letter from Ken Leung on behalf of CollectA sent overnight from Hong Kong. In the letter, Leung stated that CollectA had received the notice of clerk’s default on September 8, 2015. Leung wrote that CollectA was "astonished" by the notice because Safari had filed an identical case against CollectA in June 2015 in the same district. In CollectA’s view, the second case had superseded the first case and the clerk’s default in the first case "should be invalid" as a result. Leung directed the court’s attention to the civil cover sheet for the second case, which designated the origin of the case as "Reinstated or Reopened."

On September 17, 2015, the district court granted Safari’s motion for final default judgment and, without notice, struck Leung’s letter because a corporation must be represented by counsel and cannot appear pro se. The next day, and without holding a hearing on damages, the court entered a final default judgment against CollectA in the amount of $5,909,686.36, an amount composed of $5,875,026.36 in compensatory damages, $1,300 in court costs, and $33,360 in attorney fees. The court also entered a permanent injunction prohibiting CollectA from making the three false advertisements alleged in the complaint.

On October 21, 2015, CollectA, represented by local counsel, filed a timely notice of appeal from the final default judgment. That appeal was docketed in this Court as No. 15-14799.

Safari’s second suit. As Leung’s September 9 letter to the district court noted, Safari filed a second, identical complaint in the Southern District of Florida against both CollectA and IQON (the second case) in June 2015, two days after the district court dismissed IQON from the instant proceeding before Judge Ursula Ungaro.

On June 18, 2015, Judge Marcia Cooke, the district judge in the second case, entered an order expediting service. In response, Safari again took steps to serve both defendants. But once Judge Ungaro entered default judgment against CollectA in the first case, Safari filed a notice voluntarily dismissing CollectA as a defendant in the second case. In August 2016, Judge Cooke dismissed Safari’s second case for failure to perfect service on IQON. Soon after dismissal of the second case, Safari filed a third lawsuit against IQON on August 22, 2016, which was now pending before a third judge, the court noted.

CollectA’s motion for relief from the final default judgment. CollectA moved for relief from the judgment under Rule 60(b), Fed. R. Civ. P. CollectA contended that the judgment should be reopened under either (b)(1) or (b)(6) because Safari’s filing of a duplicative lawsuit against CollectA in June 2015 was confusing and led CollectA to believe that Safari had abandoned the first case and intended to proceed with the second. CollectA also maintained that it had meritorious defenses.

District court’s denial of CollectA’s Rule 60(b) motion. On February 2, 2016, the district court denied CollectA’s motion for relief from the default judgment. Acknowledging that Safari’s "actions were confusing," the district court nevertheless found that they were not confusing enough to provide a good reason for CollectA’s failure to respond. The court denied CollectA’s request for relief under Rule 60(b)(1) and, for largely the same reasons, found that relief was not warranted under Rule 60(b)(6). CollectA timely appealed that order, which was docketed in this Court as No. 16-10919. The two appeals—Nos. 15-14799 & 16-10919—were consolidated.

Motion for relief from final default judgment. Rule 60(b) lists a number of grounds for relief from a final judgment, including, as relevant here, "mistake, inadvertence, surprise, or excusable neglect," Fed. R. Civ. P. 60(b)(1), and "any other reason that justifies relief," the court observed. Fed. R. Civ. P. 60(b)(6).

At bottom, the determination of what constitutes excusable neglect is an equitable one, taking into account the totality of the circumstances surrounding the party’s omission, the court explained. Here, the district court abused its discretion by failing to consider all relevant factors and by failing to properly evaluate the factors that it did consider, the appellate court determined. The district court relied on CollectA’s reasons for the delay and the length of the delay to the exclusion of all other factors. Specifically, the district court concluded that CollectA’s negligence was not excusable because it had failed to comply with Rule 12, and had waited over four months after service to respond.

Finding no "good reason" to excuse the four-month delay, the district court did not address other factors that were relevant to the analysis, including the prejudice to Safari, whether CollectA acted in good faith, the effects on the interests of efficient judicial administration apart from the length of the delay, whether CollectA had meritorious defenses to the complaint, the amount of money involved, and the possibility of inconsistent and unfair results in the event that IQON prevails on the same claims against it in the separate litigation, the appellate court explained.

As the district court pointed out, the complaint in the first case had not been dismissed and the case had not been closed, so CollectA’s failure to timely respond to the first complaint plainly was negligent. Nevertheless, it was not negligence based upon a misunderstanding of a procedural rule, and even negligence within the party’s control may in some circumstances be excusable, the court opined.

The problem with the district court’s reliance on the length of delay in this case was that court’s statement that CollectA did not file anything with the court until October 21, 2015, was not correct. While it was true that October 21 was the date of the first counseled filing, CollectA first notified the court of its confusion through Leung’s letter on September 9, one day after the clerk entered default and more than one week before the court entered the default judgment. So, in fact, CollectA’s first filing was about a month and a half earlier than the court recognized.

For these reasons, the district court failed to consider all factors relevant to the excusable neglect analysis and did not properly evaluate the factors on which it explicitly relied.

Damages and injunctive relief. CollectA argued that the district court abused its discretion when, without holding a hearing or allowing CollectA the opportunity to defend itself, the court determined damages and granted injunctive relief. The Eleventh Circuit agreed.

Here, an evidentiary hearing on damages was necessary. Damages for false advertising under the Lanham Act are neither liquidated nor capable of objectively ascertainable mathematical calculation. Because an evidentiary hearing was required, the district court abused its discretion by entering the final default judgment before holding a hearing to determine damages and injunctive relief.

The cases are Nos. 15-14799 and 16-10919.

Attorneys: Tom J. Manos (Manos Alwine & Kubiliun, PL) for Safari Programs, Inc. d/b/a Safari Ltd. Scott Allan Cole (Cole Scott & Kissane, PA) for CollectA International Ltd.

Companies: Safari Programs, Inc. d/b/a Safari Ltd.; CollectA International Ltd.; Quercia, Inc. d/b/a IQON

MainStory: TopStory Advertising AlabamaNews FloridaNews GeorgiaNews

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