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Select Comfort Corporation v. Lateral Monopoly LLC

November 16, 2011

SELECT COMFORT CORPORATION, PLAINTIFF,
v.
LATERAL MONOPOLY LLC, DEFENDANT.



The opinion of the court was delivered by: Gregory G. Hollows United States Magistrate Judge

FINDINGS AND RECOMMENDATIONS

Before the court is plaintiff's motion for default judgment.*fn1 The motion was previously submitted on the record without oral argument. Upon review of the documents in support of the motion, and good cause appearing therefor, THE COURT FINDS AS FOLLOWS:

BACKGROUND*fn2

Plaintiff Select Comfort Corporation ("Select Comfort") designs, manufactures, and markets air bed products, which are available nationwide through Select Comfort's retail stores in major shopping malls, its national direct marketing operations, and its websites.

(Complaint, Dkt. No. 1 ["Compl."] ¶¶ 7, 13.) According to Select Comfort, the Sleep Number beds use uniquely designed air chambers to provide a gentle cushion of support which can be adjusted to an individual's preference, comfort, and firmness. (Compl. ¶ 7.) Select Comfort is the owner of United States Trademark Registrations for its trademarks Sleep Number®, What's Your Sleep Number?®, and Select Comfort®. (Compl. ¶¶ 9-10; Declaration of Andrew S. Hansen, Dkt. No. 21-2 ["Hansen Decl."] ¶¶ 2-3, Exs. A, B.) These registrations have all achieved incontestable status, and the trademarks have been used by Select Comfort in United States commerce in connection with numerous sleep and bed/furniture-related products and services for many years. (Compl. ¶¶ 8, 11.) Select Comfort markets its Sleep Number® beds and related goods in the United States through extensive advertising in the media, including newspapers, magazines, direct mailings, and television commercials and infomercials. (Compl. ¶ 14.) Select Comfort alleges that it has developed substantial goodwill and national recognition among U.S. consumers in Select Comfort's Sleep Number® and Select Comfort® marks as a source of high-quality products and services, and that these trademarks have become two of the most widely recognized and famous trademarks in the United States bedding industry. (Compl. ¶¶ 16-17.)

Recently, after several years of operating one of its retail stores on the first floor of the Roseville Galleria, Select Comfort leased a different space on the second floor of the mall. (Compl. ¶ 18.) After Select Comfort moved, defendant Lateral Monopoly LLC dba Sleep Alternatives ("Lateral Monopoly") leased the space adjacent to Select Comfort's old location, commenced operations under the name Sleep Alternatives, and began selling adjustable air beds made by Comfortaire, a Select Comfort competitor. (Compl. ¶ 19.) Select Comfort alleges that to the ordinary consumer, the Comfortaire beds sold by Lateral Monopoly are substantially similar to the Sleep Number® beds sold by Select Comfort, and the general appearance of the Sleep Alternatives store is substantially similar to that of Select Comfort's store. (Compl. ¶ 21.)

According to Select Comfort, Lateral Monopoly engages in unauthorized and deceptive uses of Select Comfort's trademarks, sales materials, and brochures in connection with the sale and promotion of its products. (Compl. ¶ 22, 27.) For example, Lateral Monopoly has misrepresented to consumers that it sells Sleep Number® beds. (Compl. ¶ 23.) On other occasions, Lateral Monopoly failed to correct and capitalized on consumer confusion when consumers mistakenly believed they were purchasing Sleep Number® or Select Comfort® products from Lateral Monopoly. (Compl. ¶ 24.) Additionally, Lateral Monopoly and its employees have used and shown consumers copies of Select Comfort's copyright-protected sales and pricing literature, which depicts Select Comfort's protected trademarks and trade dress, in the course of attempting to sell beds made by entities other than Select Comfort. (Compl. ¶ 25.) Furthermore, Lateral Monopoly utilized additional imitations or combinations of Select Comfort's Sleep Number® and Select Comfort® trademarks, such as the terms "number bed," "comfort number," and others. (Compl. ¶ 26.) Select Comfort alleges that Lateral Monopoly began using the above-mentioned trademarks long after Select Comfort began using the marks. (Compl. ¶ 28.)

Select Comfort contends that, because the products Lateral Monopoly sells in connection with their unauthorized use of Select Comfort's trademarks are highly related to Select Comfort's products, it is likely to deceive consumers as to the origin of Lateral Monopoly's products and the purported relationship or affiliation between Lateral Monopoly and Select Comfort. (Compl. ¶¶ 29-30.) By using the trademarks, Lateral Monopoly also unfairly receives the benefit of goodwill in Select Comfort's trademarks, dilutes the distinctive quality of the trademarks, and removes from Select Comfort the ability to control the nature and quality of the products provided under those trademarks. (Compl. ¶¶ 31-37.)

Finally, Select Comfort claims that Lateral Monopoly presents consumers with other false, deceptive, or misleading information through its retail store, including that Comfortaire was the "original air bed company" and that Comfortaire beds "are rated by consumers independently as being the number one rated mattress overall" by citing to an unreliable ratings website. (Compl. ¶¶ 38-42.)

On June 1, 2011, Select Comfort filed the instant action against Lateral Monopoly and its managers, defendants Christopher Kelso and David Stephens, containing causes of action for: (1) federal trademark infringement; (2) federal unfair competition; (3) federal dilution of trademark; (4) federal false advertising; (5) California unfair competition; (6) California false advertising; (7) California trademark infringement; (8) California dilution of trademark; and (9) unjust enrichment. (Dkt. No. 1.)*fn3 A declaration of service filed with the court demonstrates that Lateral Monopoly was properly served with process on June 20, 2011 by leaving the complaint with the general manager of Lateral Monopoly's registered agent for service of process. (Dkt. No. 13; Hansen Decl. ¶ 4.)

When Lateral Monopoly failed to respond to the complaint within the required time, Select Comfort filed a request for entry of default on August 12, 2011, and served a copy of the request on Lateral Monopoly via mail. (Dkt. No. 15.) On August 15, 2011, the clerk entered Lateral Monopoly's default. (Dkt. No. 16.) Subsequently, on October 11, 2011, Select Comfort voluntarily dismissed all claims against defendants Kelso and Stephens. (Dkt. No. 20.) That same day, the instant motion for default judgment against Lateral Monopoly was filed and served on Lateral Monopoly via mail. (Dkt. No. 21.) The motion requests judgment on all claims and seeks injunctive relief, costs, and attorneys' fees. No response to the motion has been filed. DISCUSSION

Pursuant to Fed. R. Civ. P. 55, default may be entered against a party against whom a judgment for affirmative relief is sought who fails to plead or otherwise defend against the action. See Fed. R. Civ. P. 55(a). However, "[a] defendant's default does not automatically entitle the plaintiff to a court-ordered judgment." PepsiCo, Inc. v. Cal. Sec. Cans., 238 F. Supp. 2d 1172, 1174 (C.D. Cal. 2002) (citing Draper v. Coombs, 792 F.2d 915, 924-25 (9th Cir. 1986)); see Fed. R. Civ. P. 55(b) (governing the entry of default judgments). Instead, the decision to grant or deny an application for default judgment lies within the district court's sound discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In making this determination, the court may consider the following factors:

(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). Default judgments are ordinarily disfavored. Id. at 1472.

As a general rule, once default is entered, well-pleaded factual allegations in the operative complaint are taken as true, except for those allegations relating to damages. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (per curiam) (citing Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977) (per curiam)); see also Fair Housing of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002). Although well-pleaded allegations in the complaint are admitted by a defendant's failure to respond, "necessary facts not contained in the pleadings, and claims which are legally insufficient, are not established by default." Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992) (citing Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978)); accord DIRECTV, Inc. v. Huynh, 503 F.3d 847, 854 (9th Cir. 2007) ("[A] defendant is not held to admit facts that are not well-pleaded or to admit conclusions of law" (citation and quotation marks omitted); Abney v. Alameida, 334 F. Supp. 2d 1221, 1235 (S.D. Cal. 2004) ("[A] default judgment may not be entered on a legally insufficient claim."). A party's default conclusively establishes that party's liability, although it does not establish the amount of damages. Geddes, 559 F.2d at 560.

A. Appropriateness of the Entry of Default Judgment Under the Eitel Factors

1. Factor One: Possibility of Prejudice to Plaintiff

The first factor set forth by the Ninth Circuit in Eitel considers whether the plaintiff would suffer prejudice if default judgment is not entered, and whether such potential prejudice to the plaintiff militates in favor of granting a default judgment. See PepsiCo, Inc., 238 F. Supp. 2d at 1177. Here, Select Comfort would potentially face prejudice if the court did not enter a default judgment because Select Comfort would be without another recourse to enjoin the challenged conduct. See Levi Strauss & Co. v. Toyo Enterprise Co., Ltd., 665 F. Supp. 2d 1084, 1095 (finding that continued infringement and dilution would prejudice plaintiff if default judgment were denied). Accordingly, the first Eitel factor favors the entry of default judgment.

2. Factors Two and Three: The Merits of Plaintiff's Substantive Claims and the Sufficiency of the Complaint

The court considers the merits of Select Comfort's substantive claims and the sufficiency of the complaint together because of the relatedness of the two inquiries. In particular, the court must consider whether the allegations in the complaint are sufficient to state a claim that supports the relief ...


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