Opinion
22-cv-07628-NC
03-18-2024
GS HOLISTIC, LLC, Plaintiff, v. XOTIC SMOKES INC, et al., Defendants.
ORDER REQUESTING REASSIGNMENT TO A DISTRICT COURT JUDGE; REPORT AND RECOMMENDATION ON MOTION FOR DEFAULT JUDGMENT
RE: ECF 48
NATHANAEL M. COUSINS, United States Magistrate Judge
Plaintiff GS Holistic moves for default judgment against defendants Xotic Smokes, Murad and Hashem Alhamdani, and Entesar Dargan (collectively “Xotic”). GS alleges Xotic sells counterfeit glass infusers bearing its trademark. Though Hashem made one appearance in this matter, Xotic has otherwise not appeared or participated in this litigation. Though generally unimpressed with GS's complaint, this Court concludes Xotic's non-participation still warrants default judgment. Accordingly, this Court recommends granting default judgment, awarding joint and several modified statutory damages and full costs, and denying GS's requests for injunctive and equitable relief.
I. BACKGROUND
A. Factual History
This Court accepts the following facts as true for the purposes of GS's motion. GS markets and sells glass infusers and accessories with its “well-known trademark ‘Stundenglass.'” ECF 1 (“Compl.”) ¶ 8. It owns three federally registered trademarks: (1) the standard character mark “Stundenglass;” (2) the “design plus words mark ‘S' and its logo;” and (3) the standard character mark “Stundenglass.” Id. ¶ 11. These exclusive trademarks appear on GS products and packaging and in advertising. Id. ¶ 15.
GS sells its products to authorized stores, including stores in California. Id. ¶ 20. Its products are priced at the high-end of the market. See id. ¶ 21.
Xotic displays and sells counterfeit, low-grade products with “identical, or nearly identical, versions of the ‘Stundenglass Marks.'” See id. ¶¶ 22-23, 25-28, 36-39. Xotic sells products with GS trademarks in store and online. Id. ¶¶ 40-41. On October 11, 2022, a GS investigator purchased a counterfeit glass infuser “with a Stundenglass Mark” for $552.94. Id. ¶¶ 29-31. GS never consented to Xotic selling its products or products bearing its trademarks. Id. ¶ 33. Sale of these inferior products creates customer confusion, harms GS's reputation and goodwill, and wrongly diverts sales away from GS and to Xotic. See id. ¶¶ 35-39, 42-45.
Defendants Murad Alhamdani, Hashem Alhamdani, and Entesar Dargan, Xotic's owners, willfully authorized, directed and/or participated in these sales. Id. ¶¶ 32-34, 43.
B. Procedural History
GS filed its complaint on December 3, 2022. ECF 1. Between then and August 2023, GS eventually served all defendants. See ECF 11, 14, 19, 21, 24, 37. The Clerk entered default along the way. See ECF 26, 28, 43. GS's final service of the complaint and the Clerk's last entry of default was directed at Hashem Alhamdani. See ECF 37, 43. Hashem, after service and before the Clerk entered default on him, appeared at a hearing on GS's first motion for default judgment. See ECF 40. He did not appear again.
GS initially moved for default judgment in August 2023, prompting Hashem's appearance. See ECF 33. GS later struck that motion and refiled it on December 27, 2023. ECF 45, 46, 48. GS served all defendants with its motion for default judgment. ECF 49. Defendants did not appear at this Court's hearing on the motion. ECF 52. GS voluntarily dismissed a fifth defendant, Mulham Alhamdani, from this case after this Court questioned whether personal jurisdiction was proper over Mulham. See ECF 53, 54.
II. LEGAL STANDARD
Following a defendant's default, courts have discretion to enter default judgment. Fed.R.Civ.P. 55(b); Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). Before doing so, courts must ensure they have subject matter and personal jurisdiction and that the plaintiff adequately served the defendant. See In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). Courts then turn to the Eitel factors to decide whether to grant default judgment: (1) the merits of the plaintiff's substantive claim; (2) the sufficiency of the complaint; (3) the sum of money at stake in the action; (4) the possibility of prejudice to the plaintiff; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect; and (7) the strong policy favoring decisions on the merits. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Courts consider these factors in combination when appropriate. See Dr. JKL Ltd. v. HPC IT Educ. Ctr., 749 F.Supp.2d 1038, 1048 (N.D. Cal. 2010) (“Under an Eitel analysis, the merits of plaintiff's substantive claims and the sufficiency of the complaint are often analyzed together.”). Factual allegations in the complaint, except those concerning damages, are deemed admitted by the non-responding parties. HICA Educ. Loan Corp. v. Warne, No. 11-cv-04287-LHK, 2012 WL 1156402, at *1 (N.D. Cal. Apr. 6, 2012) (citing Fair Hous. of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002)).
III. DISCUSSION
By the least impressive of margins, this Court recommends granting default judgment. This Court finds jurisdiction appropriate and service adequate, and concludes the Eitel factors tip in favor of granting default judgment against Xotic. Accordingly, this Court recommends granting GS's motion for default judgment, awarding joint and several modified statutory damages and costs, and denying GS's requests for injunctive and equitable relief.
C. Jurisdiction
1. Subject Matter Jurisdiction
GS brings trademark infringement claims under the Lanham Act, 15 U.S.C. § 1051 et seq. District courts have subject matter jurisdiction over all civil actions arising under the laws of the United States. 28 U.S.C. § 1331. Moreover, federal courts have exclusive jurisdiction over trademark litigation. 15 U.S.C. § 1121. Accordingly, this Court has subject matter jurisdiction over GS's claims.
2. Personal Jurisdiction
Courts must also have personal jurisdiction, either general or specific, over defendants to enter a default judgment. See In re Tuli, 172 F.3d at 712. Corporations are subject to general personal jurisdiction “at home,” including in their state of incorporation and principal place of business. Daimler AG v. Bauman, 571 U.S. 117, 137 (2014) (citing Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 924, (2011)). Xotic is incorporated and has its principal place of business in California, so this Court has personal jurisdiction over it. See ECF 25-1. Individuals are subject to general personal jurisdiction where they are domiciled. Goodyear, 564 U.S. at 924. GS claims defendants Murad and Hashem Alhamdani and Entesar Dargan are domiciled in California, and served them there. Compl. ¶ 3; ECF 21, 24, 41. Thus, this Court has personal jurisdiction over the individual defendants. See Goodyear, 564 U.S. at 924.
D. Adequacy of Service
Before ruling on a default judgment, courts must first ensure service was adequate. Pension Plan for Pension Trust Fund for Operating Eng'rs v. J&J Equip., Inc., No. 18-cv-07419-KAW, 2019 WL 5088781, at *3 (N.D. Cal. Aug. 8, 2019) (citing Bank of the West v. RMA Lumber Inc., No. 07-cv-6469-JSW, 2008 WL 247650, at *2 (N.D. Cal. June 17, 2008)). GS and this Court labored to ensure adequate service. GS served Xotic by substituted service in accordance with California law. See ECF 14; Fed R. Civ. P. 4(h)(1)(A). GS served the rest of the defendants via personal service. See ECF 19, 21, 24, 41. Though only Hashem appeared in this action, his appearance indicates GS's efforts put him and likely the other defendants on notice of this action. Therefore, this Court finds service adequate.
E. The Eitel Factors Weigh in Favor of Default Judgment
Finding jurisdiction proper and service adequate, this Court proceeds to the Eitel factors. See Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). This Court finds the Eitel factors weigh in favor of granting default judgment.
1. Merits of Plaintiff's Claim and Sufficiency of the Complaint
The first and second Eitel factors consider the merits of the plaintiff's substantive claim and the sufficiency of the complaint. In analyzing these factors, courts accept as true “all well-pleaded allegations regarding liability.” HICA Educ. Loan Corp, 2012 WL 1156402, at *2. Here, these factors weigh against default judgment.
GS claims Xotic markets and sells counterfeit products, driving its profits while siphoning away GS's hard-earned returns. See Complaint ¶¶ 25-42. Its basis? One sale of a counterfeit product bearing a single GS trademark. See id. ¶ 30. GS works to remedy this in its default judgment motion, providing photos appearing to show two GS products on Xotic's shelves. See MDJ, Ex. 5 at 2. But GS's complaint, upon which this factor rests, lacks any such support. See generally Compl.
Instead, GS's complaint makes sweeping, conclusory statements about sales of its product nationally as well as at Xotic's stores. See Compl. ¶¶ 22, 24. Though GS's specific allegation about one product suffices to state a claim for trademark infringement, GS does not otherwise support its claims about the extent of Xotic's operations or GS's harm. Accordingly, these factors weigh against default judgment.
2. Sum of Money at Stake
Courts next examine the amount of money at issue. “When the money at stake in the litigation is substantial or unreasonable, default judgment is discouraged.” Board of Trs. v. Core Concrete Const., Inc., No. 11-cv-02532-LB, 2012 WL 380304, at *4 (N.D. Cal. Jan. 17, 2012) (citations omitted). However, when “the sum of money at stake is tailored to the specific misconduct of the defendant, default judgment may be appropriate.” Id. (citations omitted).
GS seeks $150,000 in statutory damages and $1,782.34 in costs. MDJ 19-22. That amount might typically caution against default judgment, as least as to this factor. Fortunately or unfortunately for GS, this Court's recommendation below to reduce statutory damages nullifies that concern. With reasonable costs and a modified statutory damages award, this factor weighs in favor of default judgment.
3. Possibility of Prejudice to Plaintiff
Courts also weigh the possibility of prejudice. Courts grant default judgment where plaintiffs are left without an alternative remedy because defendants have failed to appear or otherwise defend the action against them. See, e.g., Dr. JKL Ltd., 749 F.Supp.2d at 1049-50; Pepsico, Inc. v. Cal. Sec. Cans, 238 F.Supp.2d 1172, 1177 (C.D. Cal. 2002).
Except for one appearance by Hashem, Xotic failed to defend this action. Without default judgment, GS will likely have no recourse available. Because such a loss would prejudice GS, this factor weighs in favor of default judgment.
4. Dispute of Material Facts and Excusable Neglect
Courts must also consider the likelihood of dispute concerning material facts, as well as whether a defendant's failure to respond owed to excusable neglect. Eitel, 782 F.2d at 1471-72. In addition to serving Xotic with the complaint, GS provided other service and notice in this matter. See ECF 37, 49. Despite this, Xotic did not respond or defend itself. Moreover, once the Clerk entered default on Xotic, this Court accepts GS's allegations as true. See HICA Educ. Loan Corp, 2012 WL 1156402, at *2. Thus, there are no disputed material facts, and this factor weighs in favor of default judgment.
These same failures to engage with this matter show Xotic's default was not due to excusable neglect. Unsurprisingly, that factor also favors default judgment.
5. Policy Favoring Decisions on the Merits
Finally, Eitel cautions that “cases should be decided upon their merits whenever reasonably possible.” Eitel, 782 F.2d at 1472. However, Xotic's non-participation renders a decision on the merits impossible. See Heifetz v. Breed Props., No. 16-cv-1490-CRB, 2017 WL 713303, at *4 (N.D. Cal. Feb. 23, 2017).
Taken together, despite the weaknesses in GS's complaint, the Court finds default judgment appropriate and recommends granting GS's motion for default judgment.
F. Relief Recommended
Of GS's requests, this Court recommends awarding modified statutory damages, denying injunctive and equitable relief, and awarding costs in full.
1. Statutory Damages
GS seeks $150,000 in statutory damages based on its three trademarks. Courts may award statutory damages between $1,000 and $200,000 for each trademark infringement, or up to $2,000,000 for willful violations. 15 U.S.C. § 1117(c). Courts have discretion to award between the minimum and maximum amounts, so long as the award sufficiently deters future trademark infringement. Playboy Enters., Inc. v. Baccarat Clothing Co., 692 F.2d 1272, 1274-75 (9th Cir. 1982). “In determining the appropriate amount of statutory damages to award on default judgment, courts in this district have considered whether the amount of damages requested bears a plausible relationship to Plaintiff's actual damages.” Yelp Inc. v. Catron, 70 F.Supp.3d 1082, 1102 (N.D. Cal. 2014) (cleaned up). “While a plaintiff in a trademark or copyright infringement suit is entitled to damages that will serve as a deterrent, it is not entitled to a windfall.” Id.
Several courts in this District have recently weighed whether GS deserved statutory damages in essentially identical cases asking for identical damages. The results have not been good for GS. See GS Holistic, LLC v. MSA-Bossy Inc., No. 22-CV-07638-JSC, 2023 WL 3604322, at *6 (N.D. Cal. May 22, 2023) (ask: $150,000; award: $5,000); GS Holistic, LLC v. Puff N Go Gift Shop LLC, No. 22-CV-07634-VKD, 2023 WL 4146232, at *5 (N.D. Cal. June 22, 2023) (ask: $150,000; award: $0); GS Holistic, LLC v. Ashes Plus Nine, No. 22-CV-07101-LJC, 2023 WL 5993055, at *6 (N.D. Cal. Aug. 25, 2023) (ask: $150,000; award: $0); GS Holistic, LLC v. SF Hookah Palace Inc., No. 22-CV-07100-SVK, 2023 WL 8811821, at *5 (N.D. Cal. Dec. 19, 2023) (ask: $150,000; award: $5,000).
Because these courts have already thoroughly explained the insufficiency of GS's non-specific damages affidavits discussing vague national sales trends unrelated to any particular defendant, this Court will not waste its ink. See, e.g., MSA-Bossy, 2023 WL 3604322 at *5 (finding: (1) “bare-bones conclusions do not meet Plaintiff's burden to demonstrate actual damages above [single-sale price];” (2) “Defendants should not be responsible for other trademark violations by other retailers across the market;” and (3) “Plaintiff's request is out of all proportion to its actual damages.”). With GS on notice of these glaring deficiencies and seemingly apathetic to the corresponding reductions in its awards, this Court deduces GS must find those awards appropriate.
Though tempted to follow Puff N Go and Ashes Plus Nine and award GS no statutory damages, this Court has already said above that GS stated a claim for trademark infringement, however uninspiringly. Though GS seeks damages for three trademarks, it alleges the item its investigator purchased only had one. See Compl. ¶ 30 (“Specifically, GS's investigator purchased a glass infuser with a Stundenglass Mark affixed to it . . . .”). Accordingly, to satisfy the required deterrent effect, this Court recommends a total award of $5,000 for the one trademark present on the item purchased by GS's investigator. See Playboy, 692 F.2d at 1274-75.
2. Injunctive and Equitable Relief
GS seeks a permanent injunction and equitable relief in the form of delivery of all infringing products from Xotic to GS for destruction. This Court does not recommend awarding either.
In trademark litigation, courts “have power to grant injunctions, according to the principles of equity and upon such terms as the court may deem reasonable, to prevent the violation of any right of the registrant of a mark[.]” 15 U.S.C. § 1116(a). “According to well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).
Though GS offers more in this motion for default judgment than in other litigation in this district, this Court does not find a permanent injunction warranted. Compare MDJ at 23-26 with Puff N Go, 2023 WL 4146232 at *7 (“GS offered no argument or analysis in its motion for default judgment to support such relief.”) GS still overreaches. “[T]he proposed injunction purports to enjoin activities with respect to all three Stundenglass Marks, when GS has alleged only one sale and infringement of one mark[.]” See PuffN Go, 2023 WL 4146232 at *7. Additionally, GS seek to enjoin activities related to “the counterfeit Stundenglass product identified in the complaint and any other unauthorized Stundenglass product, counterfeit, copy or colorful imitation thereof.” MDJ at 26. GS's proposed injunction is too broad and vague relative to its complaint. See Puff N Go, 2023 WL 4146232 at *7 (finding proposed injunction “impermissibly vague”). Accordingly, this Court recommends denying GS's request for a permanent injunction.
For these same reasons, and because GS provides far less on this point in its motion, this Court also recommends denying its request for equitable relief.
3. Litigation Costs
Unlike its demand for statutory damages and other relief, this Court finds GS's costs reasonable, proportional, and sufficiently supported. Plaintiffs in trademark litigation may recover their costs. See 15 U.S.C. § 1117. GS seeks $1,782.34 in costs. MDJ at 22. This Court recommends awarding those costs in full.
IV. CONCLUSION
This Court recommends granting GS's motion for default judgment against Xotic Smokes, Murad Alhamdani, Hashem Alhamdani, and Entesar Dargan, awarding joint and several statutory damages of $5,000 and costs of $1,782.34, and denying GS's requests for injunctive and equitable relief.
Because not all parties have consented to magistrate judge jurisdiction, the Clerk of Court is asked to reassign this case to a District Judge. GS is ordered to serve this order on Xotic Smokes, Murad Alhamdani, Hashem Alhamdani, and Entesar Dargan. Any party may object to this order within 14 days of being served under Fed.R.Civ.P. 72(b).
IT IS SO ORDERED.