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Distinct Media Limited v. Shutov

United States District Court, N.D. California

March 10, 2017

DISTINCT MEDIA LIMITED, Plaintiff,
v.
LEV SHUTOV, Defendant.

          REQUEST FOR REASSIGNMENT AND REPORT AND RECOMMENDATION TO GRANT PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT RE: DKT. NO. 59

          NATHANAEL M. COUSINS United States Magistrate Judge

         In this Computer Fraud and Abuse Act case, plaintiff Distinct Media accuses Russian national Lev Shutov of illegally circumventing website advertisements to siphon proceeds from click-through advertisements. After ex parte discovery authorized by this Court, Distinct Media identified Lev Shutov as the beneficiary of the eBay and Yahoo accounts holding the rerouted advertising fees. Shutov has not appeared in this case, but the Court received correspondence from his lawyer in Russia objecting to this Court's jurisdiction. Distinct Media now moves for default judgment, seeking $3, 071, 524.27 in damages.

         After reviewing the motion, the Court concludes that jurisdiction over Shutov is proper, and recommends granting the motion for default judgment. The Court also recommends awarding $180, 524.27 in damages and denying Distinct Media's further damages request.

         I. BACKGROUND

         Plaintiff Distinct Media Limited is a private company that operates approximately eighty websites around the world, including approximately twenty websites in the United States. Dkt. No. 26 (Second Amended Complaint) at ¶ 1. Defendant Lev Shutov is a resident of Yoshkar-Ola, Russia. SAC at ¶ 2. Distinct Media believes other, unidentified defendants are involved in the alleged fraudulent activity, but has been unable to identify these individuals. SAC ¶ 3.

         Distinct Media displays advertisements on its websites and is paid a small fee each time an internet user clicks on an ad and is directed to the advertiser's website. SAC ¶ 5. In 2009, Distinct Media entered into a pay-per-click agreement with Yahoo! for advertising on Distinct Media's website. SAC ¶ 6. Under this agreement, Distinct Media may not use any artificial means to generate clicks. SAC ¶ 6.

         Distinct Media's internal databases, computer, computer programs, and computer networks are confidential and only authorized employees are permitted to access the systems. SAC ¶ 8. Beginning in 2009, Distinct Media contracted with a Russian company, CPS Labs, to design the Distinct Media systems. SAC ¶ 9. Shutov was one of approximately six engineers employed by CPS Labs hired for this project. SAC ¶ 9. Shutov was a lead software developer on the project and worked on the design of Distinct Media's systems from 2009 until April 2011. SAC ¶¶ 10-11. Shutov's wife, Irina Shutov, is currently employed at Distinct Media in Russia. SAC ¶ 12.

         In 2013, defendants caused a jquery.form.js file to be embedded in the server used by Distinct Media, and in 2014, the file was transferred to a server Distinct Media leases in the U.S. SAC ¶ 13. On November 19, 2014, Distinct Media discovered this file at a meeting with Yahoo. SAC ¶ 14. According to Yahoo, the Jquery file caused auto-clicking on the ads, which violates the Yahoo pay-per-click agreement. SAC ¶ 14.

         Distinct Media retained Deloitte Consulting to investigate and continued its own internal investigation. SAC ¶ 15. Distinct Media discovered the the JQuery file caused an Amazon or eBay advertisement to be superimposed on top of the Yahoo ad. SAC ¶ 16. When users clicked on the Amazon or eBay advertisements, Yahoo paid a pay-per-click fee, the user was briefly routed to a third party website, and then transferred to either Amazon or eBay websites. SAC ¶ 16.

         Distinct Media alleges that Shutov and others were involved in this re-routing. In addition, Shutov established various Amazon and eBay accounts to receive payments for the advertisement clicking. SAC ¶¶ 19-20. Shutov established online payment accounts through MTACC and eCoin.com. SAC ¶ 20. According to the MTACC account history, eBay paid Shutov more than $314, 000 from August 2013 to December 2014. SAC ¶ 21. In addition, Amazon paid more than $24, 000 to his MTACC account. SAC ¶ 23. Shutov's MTACC account was frozen in December 2015 with a balance of more than $155, 000. SAC ¶ 25.

         On July 16, 2015, Distinct Media sued Doe Defendants and sought expedited discovery to identify the defendants by issuing subpoenas to eBay and Amazon. The Court granted three of Distinct Media's requests for ex parte discovery. Dkt. Nos. 14, 17, 41. In the Second Amended Complaint, Distinct Media identified Shutov as the creator and beneficiary of the JQuery file and alleges that his conduct violates the Computer Fraud and Abuse Act 18 U.S.C. § 1030, California Penal Code § 502, and California Business and Professions Code § 17200. Dkt. No. 26. Shutov did not appear in this case. Ruslan Ivanov, Shutov's lawyer, wrote to the Court and stated an objection to this Court's exercise of jurisdiction over Shutov. Dkt. Nos. 33, 62. Distinct Media now moves for default judgment against Shutov.

         Distinct Media has consented to the jurisdiction of a magistrate judge. Dkt. No. 7. However, Shutov has not consented to the jurisdiction of a magistrate judge, so the Court writes this order as a report and recommendation. 28 U.S.C. § 636. The clerk will transfer this case to a district judge.

         II. LEGAL STANDARD

         Default may be entered against a party who fails to plead or otherwise defend an action and against whom a judgment for affirmative relief is sought. Fed.R.Civ.P. 55(a). After entry of default, the Court has discretion to grant default judgment on the merits of the case. Fed.R.Civ.P. 55(b); Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In deciding whether to grant default judgment, the Court considers the following factors: (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). The factual allegations of the complaint, except those concerning damages, are deemed admitted by the non-responding parties. Shanghai Automation Instrument, 194 F.Supp.2d at 995; see also Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977) (“[t]he 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”).

         III. DISCUSSION

         The Court first considers Shutov's objection to the jurisdiction of this Court. Then, the Court analyzes the merits of the complaint, the remaining Eitel factors, the injunctive relief, and the damages sought.

         A. Jurisdiction and Service of Process

         When presented with a motion for default judgment, the Court has “an affirmative duty to look into its jurisdiction over both the subject matter and the parties.” In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). Also, the Court may only enter default judgment against a minor or incompetent person if represented by a ...


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