Opinion
6:23-CV-00066-ADA-JCM
09-13-2023
H-E-B, LP, Plaintiff, v. NINGBO KUER PLASTIC TECHNOLOGY CO., LTD., et al, Defendants.
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
JEFFREY C. MANSKE UNITED STATES MAGISTRATE JUDGE
TO: THE HONORABLE ALAN D ALBRIGHT UNITED STATES DISTRICT JUDGE
This Report and Recommendation is submitted to the Court pursuant to 28 U.S.C. § 636(b)(1)(C), FED. R. CIV. P. 72(b), and Rules 1(f) and 4(b) of Appendix C of the Local Rules of the United States District Court for the Western District of Texas, Local Rules for the Assignment of Duties to United States Magistrate Judges. Before the Court is Plaintiff's Motion for Entry of Default Judgment (ECF No. 21). For the following reasons, the Court recommends Plaintiff's Motion for Default Judgment be GRANTED IN PART AND DENIED IN PART.
I. BACKGROUND
Plaintiff filed this Motion for Default Judgment against Defendants Ningbo Kuer Plastic Technology Co., Ltd., Ningbo Kuer Kayak Co., Ltd., Ningbo Kuer Outdoor Products Co., Ltd., and Ningbo Huanhai Marine Supplies Co. Plaintiff sued Defendants on February 2, 2023, seeking monetary damages, attorneys' fee, and a permanent injunction requiring Defendants to comply with the parties' settlement agreement for Plaintiff's breach of contract claim. Pl.'s Compl. (ECF No. 1) at 26-27.
This proceeding concerns a settlement agreement in a patent and trade dress infringement case. Pl.'s Mot. at 2. Plaintiff owns a family of cooler patents that “claim various embodiments of a pressure release system for a vacuum cooler and improve the usability of the cooler.” Pl.'s Compl. at ¶ 28, 31. Plaintiff used these patents to develop its own line of coolers branded as KODI. Id. At ¶ 32. Plaintiff discovered coolers that it believed infringed on Plaintiff's patents around 2016. Pl.'s Mot. at 2. Plaintiff traced some of these coolers to Defendant and demanded that it cease and desist its infringing activity. Id. Plaintiff later sued Defendant for patent infringement, trade dress infringement, and other Texas business torts in 2020. Id.
The parties negotiated a settlement in late 2020 and Plaintiff dismissed its claims against Defendant pursuant to the agreement. Id. at 2; Pl.'s Compl at ¶ 41. Plaintiff later learned that Defendant was selling coolers in violation of the settlement agreement. Id. Plaintiff notified Defendant of its breach and, receiving no response, filed this lawsuit. Id.
Plaintiff requested issuance of summons on February 2, 2023. ECF No. 3. Summons was issued on February 3, 2023. ECF No. 5. Defendants submitted a waiver of service on February 21, 2023. ECF No. 6. Defendants' answer or response was due by May 22, 2023. Defendants have not appeared or otherwise defended the suit. Plaintiff filed a Motion for Clerk's Entry of Default against Defendants on May 23, 2023. ECF No. 19. The Clerk entered default for defendants on May 24, 2023. ECF No. 20. Plaintiffs then filed this Motion for Default Judgment on June 21, 2023. Pl.'s Mot. Defendants have not responded.
II. RELEVANT LAW
Default may be entered against a party when it fails to answer or otherwise defend a suit. FED. R. CIV. P. 55. The following three steps must be followed to obtain a default judgment: (1) default by the defendant; (2) entry of default by the Clerk; and (3) entry of default judgment by the court. N.Y. Life Ins. Co. v. Brown, 84 F.3d 137, 141 (5th Cir. 1996). To enter default judgment, courts typically determine whether default judgment is appropriate by considering the Lindsey v. Prive Corp., 161 F.3d 886 (5th Cir. 1998) factors and whether the pleadings have a sufficient basis for judgment. Nautilus Ins. Co. v. A Best American Roofing, LLC, EP-18-CV-320-PRM, 2019 WL 1473140, at *2 (W.D. Tex. Apr. 3, 2019) (citing Lindsey, 161 F.3d at 893 and Nishimatsu Constr. Co. v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975)); Yeti Coolers, LLC v. Zhejiang Zhuosheng Indus. & Trade Co., Ltd., 1:17-CV-821-RP, 2019 WL 2568748, at *2 (W.D. Tex. June 21, 2019).
Plaintiff's well-pleaded factual allegations are taken as true after default, and default functions as an admission of those allegations. Jackson v. FIE Corp., 302 F.3d 515, 524-25 (5th Cir. 2002). Failure to answer or otherwise defend is admission of liability but not agreement with proposed damages. Id. An evidentiary hearing is not necessary to determine damages if damages are liquidated or mathematically calculable. United Artists Corp. v. Freeman, 605 F.2d 854, 857 (5th Cir. 1979).
III. ANALYSIS
Plaintiff seeks liquidated damages under the settlement agreement, attorneys' fees, and a permanent injunction. Pl.'s Mot. at 11, 14, 15. The Court must determine first whether default judgment is appropriate, and second what relief, if any, should be awarded.
First, the Court must determine whether default judgment may be entered. To obtain default judgment, the following must occur: (1) default by the defendants; (2) entry of default by the Clerk; and (3) entry of default judgment by the court. N.Y. Life Ins. Co., 84 F.3d at 141. Defendants defaulted by failing to answer or otherwise defend this suit. FED. R. CIV. P. 55. Service was properly executed on Defendants, yet they have not appeared, answered, or otherwise defended this suit. ECF No. 6. The Court Clerk entered default against Defendants on May 24, 2023. ECF No. 20. Therefore, default judgment may be entered by the Court, and the Court must now determine whether default judgment is appropriate.
Under Lindsey, the Court must consider the following:
whether material issues of fact are at issue, whether there has been substantial prejudice, whether the grounds for default are clearly established, whether the default was caused by a good faith mistake or excusable neglect, the harshness of a default judgment, and whether the court would think itself obliged to set aside the default on the defendant's motion.Lindsey, 161 F.3d at 893. There are no issues of material fact as Defendants failed to respond to Plaintiff's allegations in any manner. Defendants do not face prejudice as they have admitted to the allegations through their default. Jackson, 302 F.3d at 524. Grounds for default are “clearly established” as Plaintiff properly served Defendants and Defendants have not defended the suit. Defendants have not claimed any good faith mistake or excusable neglect. Id. Defendants failed to respond though they had time to do so, mitigating the harshness of default judgment. Id. While default judgment is not a favored remedy of the courts, no good cause is apparent which would oblige the Court to set aside default judgment. Id.; Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir. 2001) (per curiam). Therefore, the Lindsey factors weigh in favor of default judgment.
A. Plaintiff has adequately established that Defendants have breached the settlement agreement.
Next, the Court must determine whether there is a sufficient basis in the pleadings for default judgment. Nishimatsu Const. Co., Ltd., 515 F.2d at 1206. Plaintiff seeks damages for breach of contract. Under Texas law, the elements of a breach of contract claim are: (1) the existence of a contract; (2) performance by plaintiff; (3) breach of contract by defendant; and (4) damages to plaintiff caused by the breach. Lewis v. Bank of Am., NA, 343 F.3d 540, 544-45 (5th Cir. 2003).
Here, Plaintiff alleges that the parties entered into a settlement agreement which is “valid and enforceable and supported by adequate mutual consideration.” ECF No. 10 at ¶ 156-57. Plaintiff further alleges that it has “performed each and every one of its material obligations.” Id. at ¶ 158. Plaintiff also alleges that Defendants breached the settlement agreement in a number of ways. Id. At ¶ 159-66. Finally, Plaintiff alleges that it “is suffering ongoing damages as a result of [Defendants'] material breaches of the Settlement Agreement.” Id. at 169. Plaintiff has, therefore, plead each of the elements of damages.
Plaintiffs' pleadings provide a sufficient basis for default judgment. Therefore, Plaintiffs established a sufficient basis in the pleadings for default judgment to be entered. Nishimatsu Const. Co., Ltd., 515 F.2d at 1206. Because the Lindsey factors weigh in favor of default judgment and the pleadings have a sufficient basis for default judgment to be entered, the Court may enter default judgment against Defendants.
B. Plaintiffs are entitled to relief.
Finally, the Court must determine what relief should be awarded to Plaintiff. The Court does not need to hold an evidentiary hearing on the issue of damages if damages are liquidated or mathematically calculable. United Artists Corp., 605 F.2d at 857. Plaintiff seeks liquidated damages, attorneys' fees, and a permanent injunction. Pl.'s Mot. at 14-16.
Plaintiff's liquidated damages are mathematically calculable. The parties agreed to liquidated damages of $20 per cooler sold in violation of the settlement agreement's terms. Ex. 7-15. Plaintiff submitted unrebutted proof that Defendants have imported 124,865 units in violation of the settlement agreement. ECF No. 14-7. $20 multiplied by 124, 865 yields $2,497,300 in liquidated damages.
Plaintiff also seeks an attorneys' fee award of $698,044. Pl.'s Mot. at 14. The settlement agreement provides that the prevailing party in a court action arising out of the performance of a party's obligations under the agreement shall be entitled to recover reasonable attorneys' fees and expenses incurred in connection with the suit. ECF No. 7-15 at § 9.2. A party that obtains a default judgment is considered a prevailing party. Ground Guys, LLC v. Henrisksen, No. 6:17-CV-00344-ADA, 2018 WL 7291379, at *2 (W.D. Tex. Oct. 2, 2018).
In determining the amount of a reasonable attorneys' fee, the court employes a two-step process referred to as the “lodestar” method. Tollett v. City of Kemah, 285 F.3d 357, 367-68 (5th Cir. 2002). First, the court determines the lodestar by multiplying the number of hours reasonably expended on the litigation by a reasonable hourly rate; and then, the Court considers whether the lodestar amount should be adjusted upward or downward. Singer v. City of Waco, 324 F.3d 813, 829 (5th Cir. 2003). An attorney's reasonable hourly rate should be “in line with those prevailing in the community for similar services by lawyers of reasonably comparable skill, experience and reputation.” Blum v. Stenson, 465 U.S. 886, 896 n. 11 (1984). A mere conclusory statement that a fee is reasonable is insufficient. Hensley v. Eckerhart, 461 U.S. 424, 440 (1983). The fee applicant should provide an affidavit of the attorney performing the work, information of rates actually billed and paid in similar suits, and affidavits of other attorneys practicing in the area to establish the prevailing market rate in the community. Paul v. Trans Union, LLC, No. 4:20-CV-00794-SDJ-CAN, 2021 WL 3503393, at *15 (E.D. Tex. July 21, 2021), R. & R. adopted sub nom. Kevin Paul v. Trans Union, LLC et al, No. 4:20-CV-794, 2021 WL 3487485 (E.D. Tex. Aug. 9, 2021).
Here, Plaintiff has provided an affidavit of Thomas Millikan, Plaintiff's attorney. ECF No. 21-1. Plaintiff has not included any information of rates actually billed and paid in similar suits or any evidence that would establish the prevailing market rate in the community. See Id. Instead, plaintiff's counsel merely made the conclusory statement that the amount requested is “both reasonable and necessary under the lodestar method.” Id. at 3. Accordingly, Plaintiff has failed to carry its burden and attorneys' fees should not be awarded at this time. Plaintiff can, however, file a supplemental motion requesting attorneys' fees connected to the default judgment explaining the work performed, information about rates actually billed and paid in similar suits, and evidence of the prevailing market rate in the Waco community.
Finally, Plaintiff seeks an order from this Court turning its preliminary injunction into a permanent one. Pl.'s Mot. at 15. The only additional finding the Court must make to issue a permanent injunction is actual success on the merits. BNSF Ry. Co. v. Am. Train Dispatchers Ass'n, No. Civ. A. 405-CV-152-Y, 2005 WL 1132983, at *8 (N.D. Tex. May 12, 2005). Should the Court adopt the undersigned's recommendation that default judgment be granted, a defendant's default constitutes actual success on the merits. T-Mobile USA Inc. v. Shazia & Noushad Corp., No. 3-08-CV-00341, 2009 WL 2003369, at *4 (N.D. Tex. July 10, 2009). Accordingly, the Court should issue a permanent injunction in this case.
IV. CONCLUSION
It is therefore RECOMMENDED Plaintiff's Motion for Default Judgment (ECF No. 21) be GRANTED IN PART AND DENIED IN PART. It is further RECOMMENDED that the proposed Final Default Judgment filed by Plaintiffs at ECF No. 21-10 be entered except for paragraph 5.
V. OBJECTIONS
The parties may wish to file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are made. The District Court need not consider frivolous, conclusive, or general objections. Battle v. U.S. Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987).
A party's failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen (14) days after the party is served with a copy of the Report shall bar that party from de novo review by the District Court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the District Court. 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415 (5th Cir. 1996) (en banc).