United States District Court, E.D. California
FINDINGS AND RECOMMENDATIONS GRANTING PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT (Doc. 20)
JENNIFER L. THURSTON, Magistrate Judge.
Plaintiff Century 21 Real Estate, LLC seeks the entry of default judgment against defendants Ramrom Enterprises, also known as Century 21 Vision Realty, and Rueben Zamudio, for unfair business practices and infringement of Century 21's registered trademarks. (Doc. 20.) Defendants have not opposed this motion. The Court found the matter suitable for decision without a hearing, and the matter was taken under submission pursuant to Local Rule 230(g). (Doc. 23.) For the following reasons, the Court recommends Plaintiff's motion for default judgment be GRANTED.
Plaintiff filed its complaint against Defendants on May 22, 2014, asserting it "has developed an expansive franchise system that provides its member offices with the marketing tools, resources, and know-how to operate an effective full-service real estate office (CENTURY 21® System')." (Doc. 1 at 3, ¶ 10.) In addition, Plaintiff alleges that the company "utilizes and relies on a family of trade and service marks that provide unmatched brand identity for the Century 21 System (CENTURY 21® Marks'), " which "are registered with the United States Patent and Trademark Office." ( Id. at ¶¶ 10-11.)
According to Plaintiff, Defendants entered into a franchise agreement with Plaintiff for a ten-year term commencing June 1, 2010. (Doc. 1 at 4, ¶ 16.) Under the agreement, Defendants agreed to pay 6% of the gross revenue as royalty fees and 2% of the gross revenue toward a National Advertising Fund. ( Id., ¶ 17.) Defendants agreed that upon termination of the agreement, "Ramron would immediately and permanently discontinue use of all CENTURY 21® Mark[s]." ( Id. at 5, ¶ 20.) ( Id. ) Plaintiff alleges that Defendants breached the franchise agreement, and Defendants are liable for trademark infringement; trademark counterfeiting; violating the Lanham Act, 15 U.S.C. § 1125; violating California Business and Professions Code § 14340; violating California Business and Professions Code § 17200; breach of contract; breach of guaranty; and breach of promissory notes. ( See generally Doc. 1 at 7-14.)
Defendants were served with the complaint, but failed to respond within the time prescribed by the Federal Rules of Civil Procedure. Upon application of Plaintiff, default was entered against Defendants on July 14, 2014. (Docs. 14-15.) In addition, Plaintiff sought to enjoin Defendants from continuing the unauthorized use of its recognized word and design trademarks in violation of the Lanham Act. (Doc. 7.) The Court granted Plaintiff's request on July 22, 2014. (Doc. 14.)
Plaintiff now seeks the entry of default judgment against Defendants. (Doc. 20.) Plaintiff seeks an award of $174, 323.80, and attorneys' fees and costs in the amount of $22, 340.89, for a total award of $196, 664.69. (Doc. 20-1 at 19.) In addition, Plaintiff seeks to permanently enjoin Defendants from any and all use of the Century 21® Marks, from advertising as a Century 21 franchisee, and "from doing anything which would indicate that Defendants, or any of them, are or ever were an authorized Century 21 franchisee." (Doc. 20-25 at 2; Doc. 20 at 2.)
II. Legal Standards Governing Entry of Default Judgment
The Federal Rules of Civil Procedure govern the entry of default judgment. After default is entered because "a party against whom a judgment for relief is sought has failed to plead or otherwise defend, " the party seeking relief may apply to the court for a default judgment. Fed.R.Civ.P. 55(a)-(b). Upon the entry of default, well-pleaded factual allegations regarding liability are taken as true, but allegations regarding the amount of damages must be proven. Pope v. United States, 323 U.S. 1, 22 (1944); see also Geddes v. United Financial Group, 559 F.2d 557, 560 (9th Cir. 1977). In addition, "necessary facts not contained in the pleadings, and claims which are legally insufficient, are not established by default." Cripps v. Life Ins. Co. of North Am., 980 F.2d 1261, 1267 (9th Cir. 1992) (citing Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978)).
Entry of default judgment is within the discretion of the Court. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). The entry of 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), accord Draper v. Coombs, 792 F.2d 915, 924-25 (9th Cir. 1986). The Ninth Circuit determined:
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). As a general rule, the issuance of default judgment is disfavored. Id. at 1472.
III. Plaintiff's Factual Allegations
The factual assertions of Plaintiff are taken as true because default has been entered against Defendant. See Pope, 323 U.S. at 22. Plaintiff alleges it is the exclusive licensee of several word and design marks registered with the United States Patent and Trademark Office, including Registration Nos. 1063488, 1085040, 2027670, and 1263774. (Doc. 1 at 3, ¶¶ 11-12.) Plaintiff uses these marks to provide "brand identity for the Century 21 System" of real estate brokerage franchisors. ( Id., ¶¶ 9-10.) As a result, the Century 21 marks are used "on goods, and in advertisements, education, training manuals, newsletters, global computer networks, radio programs, training services, awards, residential, commercial and mortgage brokerage services, relocation services, and the like." ( Id. at 3-4, ¶ 13.)
According to Plaintiff, Defendants entered into a franchise agreement with Plaintiff for a ten-year term commencing June 1, 2010. (Doc. 1 at 4, ¶ 16.) Under the agreement, Plaintiff agreed "to grant a non-exclusive license to Defendants to utilize the Century 21® Marks and the Century 21® System, " under which Defendants were given "the marketing tools, resources, and know-how to operate an effective full-service real estate office." ( Id. at 3-4, ¶¶ 10, 17.) In return, Defendants agreed to pay 6% of the gross revenue as royalty fees and 2% of the gross revenue toward a National Advertising Fund. ( Id. at 4, ¶ 17.) Defendants agreed that upon termination of the agreement, "Ramron would immediately and permanently discontinue use of all CENTURY 21® Mark[s]." ( Id. at 5, ¶ 20.) In addition, Defendants agreed that upon termination of the franchise agreement, they would:
immediately refrain from representing that they are or ever were affiliated with Plaintiff, take affirmative action to remove any use of the CENTURY 21® Marks in connection with their business, advise all current clients they are no longer associated with Plaintiff, immediately cause the telephone company and business phone publisher (i.e., Yellow Pages) to remove their listings as Plaintiff's franchisee, and immediately cause any web masters or website to remove the CENTURY 21® Marks from their webpages, as well as to cease using any URL that contains the CENTURY21® Marks.
( Id. ) The franchise agreement also contained a provision "permitting the recovery of attorneys' fees to any party prevailing in a legal proceeding in connection with the Agreement." ( Id., ¶ 21.)
Further, Plaintiff alleges Century 21 and Defendants "entered into two Account Balance Promissory Notes... in the principal amounts of $9, 927.15 and $10, 648.84, where by Plaintiff loaned the total amount of $20, 575.99 to Defendants." (Doc. 1 at 6, ¶ 24.) Defendants agreed "to repay the loans in twenty-three monthly installments of $544.00 commencing July 1, 2012 and a final balloon payment of $9, 919.29 on May 1, 2014." ( Id. ) Repayment of the principal balances could be accelerated upon termination of the franchise agreement. ( Id. )
Defendants breached the franchise agreement by failing "to pay amounts owed under the Agreement, including royalty fees, and [National Advertising Fund] fees." (Doc. 1 at 5, ¶ 22.) As a result, "Plaintiff exercised its right to terminate the Agreement" on November 1, 2013. ( Id. at 5, ¶ 23.) When the franchise agreement was terminated, the remaining principal balances on the promissory notes totaled $20, 225.75, plus interest. ( Id., ¶ 24.)
Plaintiff reports that Defendants were informed that as of November 1, 2013, they were to cease use of the Century 21® Marks "on anything that would identify them with Plaintiff, including but not limited to signs, advertising, letterhead, and listings." (Doc. 1 at 6, ¶ 27.) Despite this, Defendants continued using the marks "in outdoor signage at their business address, on business cards, in MLS listings, as well as on Defendants' website www.c21visionrealty.com... [and] in connection with numerous other websites and business listings/directories." ( Id., ¶ 28.) Plaintiff alleges Defendants have ignored Century 21's "repeated demands to cease and desist" use of the marks. ( Id. at 7, ¶ 29.)
IV. Discussion and Analysis
Applying the factors articulated by the Ninth Circuit in Eitel, the Court finds the factors weigh in favor of granting Plaintiff's motion for default judgment.
A. Prejudice to Plaintiff
The first factor considers whether the plaintiff would suffer prejudice if default judgment is not entered, and potential prejudice to the plaintiff weighs in favor of granting a default judgment. See Pepsico, Inc., 238 F.Supp.2d at 1177. Generally, where default has been entered against a defendant, a plaintiff has no other means by which to recover damages. Id .; Moroccanoil, Inc. v. Allstate Beauty Prods., 847 F.Supp.2d 1197, 1200-01 (C.D. Cal. 2012). Therefore, the Court finds Plaintiff would be prejudiced if default judgment is not granted.
B. Merits of Plaintiff's claims and the sufficiency of the complaint
Given the kinship of these factors, the Court considers the merits of Plaintiff's substantive claims and the sufficiency of the complaint together. See Premier Pool Mgmt. Corp. v. Lusk, 2012 U.S. Dist. LEXIS 63350, at *13 (E.D. Cal. May 4, 2012). The Ninth Circuit has suggested that, when combined, these factors require a plaintiff to "state a claim on which the plaintiff may recover." Pepsico, Inc., 238 F.Supp.2d at 1175. Notably a "defendant is not held to admit facts that are not well-pleaded or to admit conclusions of law." DIRECTV, Inc. v. Huynh, 503 F.3d 847, 854 (9th Cir.2007).
1. Choice of law
As an initial matter, the Court must determine which state's laws govern the claims related to a breach of contract, because the franchise agreement and guaranty contain provisions that the agreements are to "governed by the laws of the State of New Jersey" and "be interpreted in accordance with New ...