UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
March 11, 2005
DIRECTV, INC., A CALIFORNIA CORPORATION, PLAINTIFF,
MICHAEL CARPENTER, DEFENDANT.
The opinion of the court was delivered by: Edward M. Chen United States Magistrate Judge
REPORT AND RECOMMENDATION RE PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT (Docket No. 32)
On December 3, 2004, Plaintiff DirecTV, Inc. ("DirecTV") moved for default judgment against Defendant Michael Carpenter. Because Mr. Carpenter has not consented to a magistrate judge, this matter will be reassigned to a district judge with the following report and recommendation.
I. FACTUAL & PROCEDURAL BACKGROUND
On November 24, 2003, DirecTV filed a complaint against Mr. Carpenter for violation of the Federal Communications Act of 1934, see 47 U.S.C. § 605; the Electronic Communications Privacy Act, see 18 U.S.C. §§ 2510-2521 (commonly referred to as the Wiretapping Act); and California common law. In its complaint, DirecTV alleged as follows: DirecTV is a direct broadcast satellite provider. See Compl. ¶ 1. Based on writs of seizure that were executed on various companies, DirecTV learned that Mr. Carpenter had purchased four "Pirate Access Devices," which are designed for the unauthorized interception of DirecTV's satellite programming. See id. ¶¶ 3, 4, 14 (alleging that Mr. Carpenter purchased an "Unlooper," a "Netsignia 210 Programmer," a "Loader," and a "Wafer Bootloader"). The complaint sought, inter alia, injunctive relief, statutory damages and/or compensatory and punitive damages, and reasonable attorneys' fees and costs.
DirecTV served the summons and complaint on Mr. Carpenter on March 21, 2004. See Declaration of Kimberly Colombo ¶ 3 & Ex. B. Because Mr. Carpenter failed to respond, the Clerk of this Court, upon DirecTV's request, entered Mr. Carpenter's default on July 23, 2004. See id. ¶ 4 & Ex. C. "The general rule of law is that upon default the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true." Televideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir.1987) (internal quotation marks omitted).
On December 3, 2004, DirecTV filed this motion for default judgment against Mr. Carpenter. Although, in its complaint, DirecTV alleged, inter alia, violations of 18 U.S.C. § 2520, 47 U.S.C. § 605(e)(4), and 47 U.S.C. § 605(a), its motion for default judgment sought relief based on §§ 2520 and 605(e)(4) only. The Court shall therefore limit its consideration of the request for default judgment to these two statutes.
A. Legal Standard
Under Federal Rule of Civil Procedure 55, a court may not enter a default judgment against an unrepresented minor, an incompetent person, or a person in military service. See Fed. R. Civ. P. 55(b)(2). Mr. Carpenter is not any of the aforementioned persons, see Colombo Decl. ¶ 8 & Ex. D, so the Court may proceed with its analysis.
The disposition of a motion for default judgment lies within the discretion of the court. See Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980) ("The district court's decision whether to enter a default judgment is a discretionary one.").
Factors which may be considered by courts in exercising discretion as to the entry of a default judgment include: (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.
Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).
B. 18 U.S.C. § 2520
Section 2520(a), which is part of the Wiretapping Act, provides in relevant part as follows:
"Except as provided in section 2511(2)(a)(ii), any person whose wire, oral, or electronic communication is intercepted, disclosed, or intentionally used in violation of this chapter may in a civil action recover from the person . . . which engaged in that violation such relief as may be appropriate." 18 U.S.C. § 2520(a). In another DirecTV case similar to the instant case, Judge Ware concluded that the Wiretapping Act applies to the piracy of satellite television based on the Ninth Circuit authority United States v. Lande, 968 F.2d 907 (9th Cir. 1992). See DirecTV, Inc. v. Hua, No. C-03-5353 (Docket No. 28). The Court agrees with Judge Ware that Lande is controlling and so concludes that DirecTV may seek relief here pursuant to the statute.
As noted above, upon entry of default, all allegations in a complaint, except for those relating to damages, are taken as true. Because default has been entered against Mr. Carpenter, the Court takes as true the allegation that Mr. Carpenter purchased four Pirate Access Devices and "intentionally intercepted, endeavored to intercept, or procured other persons to intercept or endeavor to intercept" DirecTV's satellite signal. Compl. ¶ 23. DirecTV has, therefore, established a valid claim under § 2520(a), a fact which weighs in favor of default judgment.
Consideration of the other Eitel factors also supports the Court's conclusion that default judgment is warranted. For example, there is a significant possibility of prejudice to DirecTV if default judgment is not granted since it will be without remedy. See Pepsico, Inc. v. Cal. Sec. Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002) ("If Plaintiffs' motion for default judgment is not granted, Plaintiffs will likely be without other recourse for recovery."). In addition, because Mr. Carpenter has not filed an answer to the complaint, there is little to suggest that there is a possibility of a dispute concerning material facts, and there is no evidence suggesting that the failure to respond to the complaint was the result of excusable neglect. The Court acknowledges that "[c]ases should be decided upon their merits whenever reasonably possible," Eitel, 782 F.2d at 1472, and that the monetary damages sought by DirecTV are not insubstantial. See Pepsico, 238 F. Supp. 2d at 1176 (stating "the court must consider the amount of money at stake in relation to the seriousness of Defendant's conduct"); see also Bd. of Trustees of the N. Cal. Sheet Metal Workers v. Peters, No. C-00-0395 VRW, 2000 U.S. Dist. LEXIS 19065 (N.D. Cal. Dec. 29, 2000) (holding that default judgment is favored where "[t]he amount at stake is minor in comparison to the potential loss . . . as a result of defendants' conduct."). However, on balance, the Court concludes that the Eitel factors weigh in favor of awarding default judgment.
Having concluded that a default judgment is warranted in the instant case, the Court now turns to the issue of damages. Damages for violations of § 2520(a) are provided for by § 2520(c)(2), which states that a court may assess as damages whichever is the greater of --(A) the sum of the actual damages suffered by the plaintiff and any profits made by the violator as a result of the violation; or (B) statutory damages as whichever is the greater of $100 a day for each day of violation or $10,000.
18 U.S.C. § 2520(c)(2); see also Dorris v. Absher, 179 F.3d 420, 430 (6th Cir. 1999) (discussing application of § 2520(c)(2)). In the instant case, DirecTV is limited to statutory damages in the amount of $10,000 as that was the only relief sought in its complaint in the event of a default.*fn1 See Compl. at 10; see also Fed. R. Civ. P. 54 (c) (noting that "[a] judgment by default shall not be different in kind or exceed in amount that prayed for in the [complaint]"). Once a court "elects to award damages under Section 2520, [it] is strictly curtailed regarding the amount of damages. . . .
[I]f the Court determines that damages are appropriate, the Court cannot award less than $10,000 regardless of how trivial the transgression might be." DirecTV, Inc. v. Decroce, 332 F. Supp. 2d. 715, 721 (D. N.J. 2004).
The question is whether courts have discretion to refuse to award any damages at all. Several courts have concluded that courts have such discretion under § 2520(c)(2) largely based on the use of the word "may" in the statute. See, e.g., DirecTV, Inc. v. Brown, 371 F.3d 814, 818 (11th Cir. 2004) (agreeing with the Fourth, Sixth, and Eight Circuits that the use of "may" in the statute means that an award of damages under section 2520(c)(2) is discretionary); Dorris, 179 F.3d at 429 (concluding that the plain language of the statute shows that district courts have the discretion to decline the imposition of damages); Reynolds v. Spears, 93 F.3d 428, 435 (8th Cir. 1996) (affirming the district court's determination that damages under the wiretapping statute are discretionary, as evidenced by use of the word "may"); Nalley v. Nalley, 53 F.3d 649, 652 (4th Cir. 1995) (holding that the language change "from the mandatory to the permissive verb form indicates that Congress intended to confer upon district courts the discretion to decline to award damages in applying § 2520(c)(2)").
On the other hand, in Rodgers v. Wood, 910 F.2d 444 (7th Cir. 1990), the Seventh Circuit found no such discretion. See id. at 448. According to the Seventh Circuit, once a violation of the statute was found, a court did not have the discretion to withhold an award of damages even if "damages would be inappropriate." Id.
The Court declines to follow Rodgers and finds the reasoning in the former cases more persuasive. The statute's use of "may" connotes a permissive rather than mandatory authority. Moreover, the relative severity of the minimum damages that must be awarded if damages are awarded at all ($10,000), some flexibility to consider relevant factors is warranted. As described by one court:
In exercising its discretion in deciding whether to award damages under 18 U.S.C. § 2520(c)(2), a district court should make an individualized assessment of each defendant. Factors that may be considered include whether the plaintiff suffered financial harm, the extent to which a violation occurred and unlawfully intercepted signals were disclosed, whether the defendant had a legitimate reason for his or her actions, whether the defendant profited from his or her acts, and whether an award of damages would serve a legitimate purpose.
DirecTV v. Guzzi, 308 F. Supp. 2d 788, 790 (E.D. Mich. 2004). Accordingly, this Court may, in its discretion, refuse to award any damages under § 2520(c)(2), even if there has been a violation of § 2520(a).
In exercising this discretion, the Court concludes that damages are not appropriate. DirecTV has not offered any concrete evidence about the financial harm it has suffered as a result of Mr. Carpenter's actions. Although it provides information about the value of its services with respect to high-end customers, there is no evidence demonstrating that Mr. Carpenter can be equated with a high-end customer. Similarly, DirecTV has not offered any evidence about the extent to which Mr. Carpenter intercepted DirecTV's signals. In addition, there is no indication that Mr. Carpenter profited commercially from his interception of DirecTV's signals -- i.e., there is no evidence of commercial gain because of the interception. While an award of damages serve a useful and legitimate purpose of deterrence, the Court notes that that purpose is met in part by an award of attorneys fees discussed below.
The Court further notes that DirecTV is not without other remedies. Notably, it alleged in its complaint but did not seek a default judgment under 47 U.S.C. § 605(a) which prescribes damages but affords the Court substantial flexibility in assessing statutory damages.*fn2 Under § 605(e)(3)(C)(i), the aggrieved party may recover for each violation of § 605(a) either: (1) actual damages suffered as a result of the violation and any profits made by the violator or (2) statutory damages of not less than $1,000 nor more than 10,000 for each violation of §605(a).*fn3 Courts have substantial discretion in awarding actual and statutory damages pursuant to § 605(e)(3)(C)(i). See Kingvision Pay-Per-View, Ltd. v. Scott E's Pub., Inc., 146 F. Supp. 2d 955, 958-59 (E.D. Wis. 2001) (finding that a court has great discretion in awarding statutory damages under § 605.); Decroce, 332 F. Supp. 2d at 721 (finding that § 605(e)(3)(C) gives the court considerable latitude in awarding fair damages according to the specific facts of the case).*fn4
Although courts have taken a variety of approaches in coming up with an appropriate sum for damages,*fn5 it is clear that the Court would have discretion to award damages less than $10,000 to DirecTV under § 605(a). Given the availability of a more flexible measure of damages, the Court concludes that the all or nothing approach of § 2520 is not necessary to serve the purpose of the legislation addressing Mr. Carpenter's conduct under the circumstances of this case. By choosing to forego § 605(a), DirecTV has assumed the risk that the Court might exercise its discretion not to award $10,000 in statutory damages under § 2520.
Accordingly, the Court recommends that default judgment is appropriate with respect to § 2520(a) but that no damages should be awarded for a violation of that statute.
Even though the Court recommends that no damages be awarded for a violation of § 2520(a), it recommends that DirecTV be awarded its reasonable attorney's fees. See 18 U.S.C. § 2520(b)(3) (providing that appropriate relief includes "a reasonable attorney's fee and other litigation costs reasonably incurred"). DirecTV has submitted the declaration of its counsel Kimberly R. Colombo to prove the fees it incurred. In her declaration, Ms. Colombo states that DirecTV's former counsel, Danner & Martyn, incurred attorney's fees in the amount of $302.10. See Colombo Decl. ¶ 11. She also states that the fees incurred for her law firm -- prior to the filing of the motion for default judgment -- amounted to $101.60. See id. Finally, she states that her billing rate is $235 per hour and that DirecTV has or will have incurred an additional $1,530 in fees during and after the filing of the motion for default judgment. See id. ¶ 12. Thus, the total amount of attorney's fees comes to $1,933.70 (i.e., $302.10 101.60 $1,530). The amount of time expended and the billing rate are reasonable given the work performed. Therefore, the Court recommends that attorney's fees in the amount of $1,933.70 be awarded.
C. 47 U.S.C. § 605(e)(4)
As noted above, in its motion for default judgment, DirecTV sought relief not only pursuant to § 2520(a), but also pursuant to 47 U.S.C. § 605(e)(4). Section 605(e)(4) prohibits any person from manufacturing, assembling, modifying, importing, exporting, selling, or distributing any device or equipment that primarily assists in the unauthorized decryption of satellite cable programming or direct-to-home satellite services. See 47 U.S.C. § 605(e)(4). The statute specifically provides that "the prohibited activity . . . as it applies to each such device shall be deemed a separate violation." Id. Any person aggrieved by a violation of § 605(e)(4) may bring a private civil action against the violator and seek damages under § 605(e)(3)(C).*fn6 See id. § 605(e)(3)(C).
As stated above, upon entry of default, all factual allegations in the complaint are taken as true, except for those relating to damages. In the instant case, DirecTV alleged in its complaint that:
(1) Mr. Carpenter purchased four Pirate Access Devices; (2) he programmed and reprogrammed DirecTV Access Cards and designed electronic systems for use in surreptitiously obtaining DirecTV Satellite Programming; and (3) he removed and inserted Pirate Access Devices and/or illegally programmed Access Cards into DirecTV Receivers and, by doing so, unlawfully assembled and/or modified devices to assist in the unauthorized decryption of Satellite Programming. See Compl. ¶¶ 14, 32.
Although the Court takes these allegations as true, it concludes that DirecTV has failed to state a claim for relief under § 605(e)(4). Courts have held that § 605(e)(4) targets upstream manufacturers and distributors, not ultimate consumers of pirating devices, and the mere purchase and use of Pirate Access Devices does not constitute a violation of the statute. The allegations of the complaint do not establish that Mr. Carpenter is an upstream manufacturer or distributor. See DirecTV, Inc. v. Albright, No. 03-4603, 2003 U.S. Dist. LEXIS 23811, at *7 (E.D. Pa. Dec. 9, 2003); DirecTV, Inc. v. McDougall, No. SA-03-CA-1165-XR, 2004 U.S. Dist. LEXIS 23013, at *9 (W.D. Tex. Nov. 12, 2004); see also DirecTV, Inc. v. Borich, No. 1:03-2146, 2004 U.S. Dist. LEXIS 18899, at *8-9 (S.D. W. Va. Sept. 17, 2004) (concluding that the act of removing and inserting Pirate Access Devices and/or inserting illegally programmed Access Cards into valid DIRECTV Receivers is not the type of assembly or modification prohibited by the statute).
Accordingly, the Court recommends that default judgment is not appropriate pursuant to § 605(e)(4). The second and third factors of the Eitel test, in particular, inform this recommendation.
For the foregoing reasons, the Court hereby recommends as follows:
(1) That DirecTV's motion for default judgment be GRANTED with respect to § 2520(a) and that DirecTV be awarded attorney's fees totaling $1,933.70 but no statutory damages; and
(2) That DirecTV's motion for default judgment be DENIED with respect to § 605(e)(4). Any party may serve and file specific written objections with the district judge to whom this case is reassigned to this recommendation within ten (10) days after being served with a copy. See 28 U.S.C. § 636(b)(1)(C); Fed. R. Civ. P. 72(b); Civ. L.R. 72-3. Failure to file objections within the specified time may waive the right to appeal the District Court's order.