Opinion
Case No. A1-03-75, Case No. A1-03-114, Docket Number: 29
December 19, 2003
MEMORANDUM AND ORDER GRANTING CYCLE HUTT'S MOTION TO SET ASIDE DEFAULT AND DENYING KTM'S MOTION FOR DEFAULT JUDGMENT
Summary : Plaintiff neglected to file an answer in the consolidated case and the Defendant sought the entry of default under Rule 55. After the entry of default, the Plaintiff sought to have the default set aside. The Court found that the conduct of the defaulting party was not culpable, that the defaulting party has a meritorious defense, and that the other party would not be prejudiced if the default were excused. In light of the Court's conclusion to set aside the entry of default, the Court denied the Defendant's motion for default judgment.
Before the Court is a Motion to Set Aside Default Judgment filed by Justin Bohn, Tammy, Bohn and Cycle Hutt, Inc., and a Motion for Default Judgment filed by KTM North America, Inc. For the reasons set forth below, the Court grants the motion to set aside default and denies the motion for default judgment.
I. BACKGROUND
On June 24, 2003, Cycle Hutt brought suit in this Court against KTM Sportsmotorcycle USA, Inc. alleging KTM breached their Dealership Agreement. On August 29, 2003, KTM North America, Inc. filed an action against Cycle Hutt in the United States District Court for the Northern District of Ohio, alleging claims against Cycle Hutt for violating anti-cybersquatting statutes, trademark and copyright infringement, unfair competition, misappropriation and unfair trade and business practices. On September 15, 2003, the Ohio District Court granted Cycle Hutt's Motion to Transfer Proceeding to the District of North Dakota, finding that the merits of that action could not properly be determined without also determining the merits of the action pending in this Court. On September 26, 2003, this Court consolidated the two cases finding that consolidation would provide the best use of judicial resources and necessitate only one trial if the case proceeded that far. Following the transfer and consolidation of the Ohio action, the parties participated in a settlement conference.
For clarity, Justin Bohn, Tammy Bohn and Cycle Hutt will be referred to collectively as "Cycle Hutt."
For clarity, KTM Sportsmotorcycle USA, Inc., and KTM North America, Inc., will be referred to as "KTM."
On December 4, 2003, KTM filed a motion for entry of default. KTM asserted that Cycle Hutt had failed to file an answer to the claims set forth in the complaint filed by KTM in the case originating in Ohio. That same day, December 4, 2003, the Clerk of Court entered default. On December 8, 2003, Cycle Hutt filed a motion to set aside default and KTM filed a motion for default judgment against Cycle Hutt.
II. DISCUSSION
Rule 55(c) of the Federal Rules of Civil Procedure provides: "For good cause shown the court may set aside an entry of default and, if a judgment by default has been entered, may likewise set it aside in accordance with Rule 60(b)." The Eighth Circuit has set forth the necessary showing for setting aside an entry of default. Johnson v. Dayton Elec. Mfg Co., 140 F.3d 781, 784 (8th Cir. 1998).
Rule 55(c) provides that the district court may set aside an entry of default "[f]or good cause shown," and may set aside a default judgment "in accordance with Rule 60(b)." Although the same factors are typically relevant in deciding whether to set aside entries of default and default judgment, "[m]ost decisions . . . hold that relief from a default judgment requires a stronger showing of excuse than relief from a mere default order." This is a sound distinction. There is a "judicial preference for adjudication on the merits," and it is likely that a party who promptly attacks an entry of default, rather than waiting for grant of a default judgment, was guilty of an oversight and wishes to defend the case of its merits. . . . Traditionally, in deciding issues of this kind, our court and others have looked at whether the conduct of the defaulting party was blameworthy or culpable, whether the defaulting party has a meritorious defense, and whether the other party would be prejudiced if the default were excused.140 F.3d 781, 783-84 (citations omitted).
A. CULPABILITY
In its motion to set aside default, Cycle Hutt attributes its failure to file a timely answer to miscommunication between Cycle Hutt's North Dakota counsel and Ohio counsel. Cycle Hutt contends that each of the counsel believed that the other counsel had prepared and served the answer. Cycle Hutt further asserts that it was a honest and good faith mistake. See Affidavit of Jonathan P. Sanstead at ¶¶ 6-7. KTM has not alleged that Cycle Hutt willfully or intentionally failed to file an answer.
As the Eighth Circuit opined in Johnson v. Dayton Elec. Mfg. Co., "`excusable neglect' includes `late filings caused by inadvertence, mistake or carelessness.'" 140 F.3d at 784 (quotingPioneer Inv. Servs. v. Brunswick Assoc. Ltd. Partnership, 507 U.S. 380 (1993)). Cycle Hutt has acknowledged its error and adequately explained why it occurred. The Court finds that Cycle Hutt's failure to timely file an answer was the result of miscommunications between Ohio and North Dakota counsel and was an inadvertent error. In addition, Cycle Hutt filed its motion to set aside the entry of default within two business days of the entry of default. Thus, the Court finds that the culpability factor weighs in favor of setting aside the entry of default.
B. MERITORIOUS DEFENSE
Cycle Hutt contends that it has several meritorious defenses to the claims raised by KTM. Cycle Hutt asserts that it did not register, traffic in, or use the "ktm" domain names with bad-faith intent to profit from the goodwill of the KTM mark. It also contends it acted only in good faith to promote, market and sell original KTM goods. Cycle Hutt asserts that because of a disclaimer on its web site, KTM cannot establish that there has been confusion in the marketplace. In addition, Cycle Hutt asserts that there is no evidence it infringed on KTM's copyrights because, according to Cycle Hutt, there is a question as to whether KTM has copyrighted any of its work. Finally, Cycle Hutt also asserts that the doctrines of equitable estoppel and laches apply to KTM's claims.
KTM responds by asserting that Cycle Hutt's use of the letters "ktm"in its domain name creates confusion in the marketplace as a matter of law. KTM cites to numerous decisions from both federal district and appellate courts to support its proposition that the use of a company's name in a domain name creates confusion in the marketplace. However, none of the cases cited are binding on this Court. KTM also asserts that Cycle Hutt's reliance on the doctrines on equitable estoppel and laches are misplaced. Finally, KTM asserts that Cycle Hutt cannot rely on the Dealership Agreement as a basis for its use of the KTM trademarks.
After reviewing each of the defenses asserted by Cycle Hutt, the Court finds that it has set forth meritorious defenses to KTM's claims. While the success of these defenses remains to be seen, the Court is not required to determine whether Cycle Hutt's alleged defenses will be successful. The Court need only determine whether a meritorious defense has been raised. Thus, the Court finds the "meritorious defense" factor weighs in favor of setting aside the entry of default.
C. PREJUDICE
Cycle Hutt asserts that KTM would not be prejudiced if the Court were to set aside the entry of default, nor has KTM alleged that it would suffer any prejudice. As the Eighth Circuit explained inJohnson, the "prejudice" at issue in a motion to set aside an entry of default, "may not be found from delay alone or from the fact that the defaulting party will be permitted to defend on the merits."Johnson, 140 F.3d at 785. The Court finds there would be no prejudice to KTM by setting aside the entry of default. As a result, the Court finds the "prejudice" factor also weighs in favor of setting aside the entry of default.
IV. CONCLUSION
For the foregoing reasons, the Court finds that the factors identified in Johnson v. Dayton Elec. Mgf Co. weigh in Cycle Hutt's favor. Accordingly, the Court GRANTS Cycle Hutt's Motion to Set Aside Default (Docket No. 27) and ORDERS that the entry of default be set aside. In light of the Court's conclusion to set aside the entry of default, the Court DENIES KTM's Motion for Default Judgment (Docket No. 26) as moot.