GS Holistic, LLC v. SF Hookah Palace Inc.

[3] 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA [6] 7 GS HOLISTIC, LLC, Case No. 22-cv-07100-JSW [8] ORDER DENYING, WITHOUT 9 Plaintiff, PREJUDICE, PLAINTIFF’S RENEWED MOTION FOR DEFAULT FINAL 10 v. JUDGMENT AGAINST IZZAT ASFOUR 11 SF HOOKAH PALACE INC., et al., Re: Dkt. No. 26 [12] 13 Defendants. [14] 15 Now before the Court is the renewed motion for default judgment filed by Plaintiff GS 16 Holistic, LLC against Defendant Izzat Asfour. Having carefully considered Plaintiff’s papers, 17 relevant legal authority, and the record in this case, the Court HEREBY DENIES, WITHOUT 18 PREJUDICE, Plaintiff’s renewed motion.1 Plaintiff may renew its motion only if it can buttress 19 that motion with new, specific factual allegations that would support the conclusion that Mr. 20 Asfour should be held personally liable for the actions of the corporate defendant. 21 BACKGROUND 22 On March 22, 2024, the Court adopted, in part, a report and recommendation on Plaintiff’s 23 first motion for default judgment. Although it found that Plaintiff was entitled to default judgment 24 against the corporate defendant, the Court denied default judgment as to Mr. Asfour. (Order 25 Adopting, in Part, Report and Recommendation on Plaintiff’s Motion for Default Judgment [27] 1 Plaintiff cites several district court cases to support the motion but erroneously refers to the 1 (“Order on Report”) at 2:8-9.) The Court found Plaintiff’s allegations as to Mr. Asfour’s specific, 2 infringing conduct were legal conclusions without factual support. (Id. at 2:5-9.) 3 In its renewed motion, Plaintiff again seeks to hold Mr. Asfour liable for: (i) willful 4 trademark infringement in violation of 15 U.S.C. section 1114 ; (ii) trademark counterfeiting in 5 violation of 15 U.S.C. section 1116 (d); and (iii) willful trademark infringement (false designation 6 of origin) in violation of 15 U.S.C. section 1125 (a). To date, Mr. Asfour has not appeared in this 7 action. 8 ANALYSIS 9 A. Legal Standard on a Motion for Default Judgment. 10 To determine if the motion for default judgment should be granted, the Court considers the 11 following Eitel factors: 12 (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the complaint, (4) 13 the sum of money at stake in the action[,] (5) the possibility of a dispute concerning material facts[,] (6) whether the default was due 14 to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. [15] 16 Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986) (citation omitted). In analyzing these 17 factors, courts accept as true all “well-pleaded factual allegations” regarding liability, except those 18 concerning damages. Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992). 19 “However, necessary facts not contained in the pleadings, and claims which are legally 20 insufficient, are not established by default.” Id. “[A] defendant is not held to admit facts that are 21 not well-pleaded or to admit conclusions of law.” DIRECTV, Inc. v. Hoa Huynh, 503 F. 3d 847 , 22 854 (9th Cir. 2007) (internal quotation marks and citation omitted). 23 1. Jurisdiction and Service. 24 A court considering a motion for default judgment must confirm it has subject matter 25 jurisdiction over the case, personal jurisdiction over the parties, and that the defendant has been 26 adequately served. In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). The Court previously adopted 27 the Magistrate Judge’s analysis and conclusions that the Court has subject matter jurisdiction, 1 at 1:19-20.) 2 2. The Eitel Factors Weigh in Favor of Denying Default Judgment. 3 a. The Possibility of Prejudice to Plaintiff. 4 The first Eitel factor evaluates the possibility of prejudice to Plaintiff if the Court does not 5 grant default judgment. Courts ask whether a plaintiff will have an alternative remedy if 6 defendants have failed to appear or otherwise defend the action against them. Eitel, 782 F.2d, 7 1471. Here, Plaintiff argues that “[w]ithout the entry of default judgment, the Defendants will 8 have escaped liability simply by not showing up.” (Dkt. No. 26, Renewed Motion for Default 9 Judgment (“Mot.”), at 12:19-20.) Because Mr. Asfour has still not appeared, Plaintiff is unlikely 10 to obtain relief against him without entry of default judgment. This factor weighs in favor of 11 granting the motion. 12 b. The Merits of Plaintiff’s Substantive Claims and the Sufficiency of Its Complaint. [13] 14 The second and third Eitel factors evaluate the merits of Plaintiff’s substantive claim and 15 the sufficiency of its complaint. “Because the second and third factors are so closely related, the 16 Court examines them together.” Elec. Frontier Found. v. Glob. Equity Mgmt. (SA) Pty Ltd., 290 17 F. Supp. 3d 923, 941 (N.D. Cal. 2017). In analyzing these factors, a defendant is held to admit all 18 well-pleaded factual allegations, but not legal conclusions. DIRECTV, 503 F.3d at 854 . 19 In its renewed motion for default judgment against Mr. Asfour, Plaintiff fails to 20 demonstrate individual liability. Plaintiff now contends that Mr. Asfour is individually liable 21 because Mr. Asfour is the registered agent, sole shareholder, sole officer, and sole director of SF 22 Hookah Palace, Inc. The California Secretary of State Statement of Information Corporation lists 23 Mr. Asfour’s positions as the corporation’s “Chief Executive Officer, Secretary, Chief Financial 24 Officer.” (Mot., Ex. C at 2. )2 These two facts are the only new facts offered by Plaintiff in 25 support of its assertion that Mr. Asfour should be held individually liable and are not sufficient. 26 It is true that a “corporate officer or director is, in general, personally liable for all torts [27] 1 which he authorizes or directs or in which he participates, notwithstanding that he acted as an 2 agent of the corporation and not on his own behalf.” Facebook, Inc. v. Power Ventures, Inc., 844 3 F.3d 1058 , 1069 (9th Cir. 2016) (internal quotations and citation omitted). In this Circuit, 4 however, “personal liability on the part of corporate officers has typically involved instances 5 where the defendant was the ‘guiding spirit’ behind the wrongful conduct, or the ‘central figure’ in 6 the challenged corporate activity.” Id. at 1069 (quoting Davis v. Metro Prods., Inc., 885 F.2d 515 , 7 523 n.10 (9th Cir. 1989)) (internal quotation marks and ellipsis omitted). In Facebook, for 8 example, the Ninth Circuit held an individual defendant personally liable for tortious conduct 9 because he “controlled and directed” the relevant corporate actions, because he “admitted” that the 10 tortious conduct was his idea, and because it was “undisputed” that he was “the guiding spirit and 11 central figure” of the infringing actions. Id. In another case, the Ninth Circuit found individual 12 defendants personally liable where they personally formed a corporation that used an infringing 13 name and where one defendant misleadingly testified at a United States Air Force hearing under 14 the infringing name. Comm. for Idaho’s High Desert, Inc v. Yost, 92 F.3d 814 , 823 (9th Cir. 15 1996). 16 Here, Mr. Asfour’s status as corporate officer, even sole corporate officer, is not sufficient 17 to allege personal liability without more specific facts about Mr. Asfour’s conduct. “The fact that 18 [Mr. Asfour] is an owner, officer or managing agent of [SF Hookah Palace], standing alone, does 19 not make [him] liable for the wrongful conduct of the corporation because the case law requires 20 active, guiding participation.” Deckers Outdoor Corp. v. Fortune Dynamic, Inc., No. CV 15-769 21 PSG (SSX), 2015 WL 12731929 , at *9 (C.D. Cal. May 8, 2015) (granting motion to dismiss trade 22 dress infringement and other claims where the complaint’s “conclusory pleading [was] insufficient 23 to state a claim for relief.”). Plaintiff fails to explain how Mr. Asfour was “personally involved in 24 or directed any of the allegedly infringing acts or was otherwise a ‘guiding spirit’ or ‘central 25 figure’ in those acts.” 19 Tao Vega LLC v. Holo Ltd., No. C 19-5640 SBA, 2019 WL 8263434 , at 26 *4 (N.D. Cal. Dec. 18, 2019) (quoting Facebook, 844 F.3d at 1069); see also Partners for Health 27 & Home, L.P. v. Seung Wee Yang, No. CV 09-07849 RZ, 2011 WL 5387075 , at *4 (C.D. Cal. Oct. 1 trademark infringement, or who personally commits those acts, is personally liable for that 2 infringement” and that “[t]his is particularly true when a single individual is the corporation’s sole 3 shareholder, sole officer, and sole manager, and performs the infringing acts himself”) (emphasis 4 added). 5 Here, Plaintiff has not adequately alleged specific facts regarding Mr. Asfour’s direction 6 of, or participation in, the infringing conduct. Plaintiff’s argument that Mr. Asfour’s status as sole 7 corporate officer is sufficient to incur personal liability is not in line with the law in the Ninth 8 Circuit. Accordingly, the Court finds that the second and third Eitel factors weigh against granting 9 default judgment. 10 c. The Sum of Money at Stake in the Action. 11 The fourth Eitel factor evaluates the sum of money at stake in the action. Default 12 judgment may not be appropriate where a plaintiff requests a large damages award. See, e.g., Yelp 13 Inc. v. Catron, 70 F. Supp. 3d 1082, 1102 (N.D. Cal. 2014). Here, the damages Plaintiff seeks are 14 significant, but they are within the statutory range. Courts have discretion to grant awards 15 between $1,000 and $200,0000 for each trademark infringement, or up to $2,000,000 for willful 16 violations. 15 U.S.C. § 1117 (c). However, the damages a plaintiff seeks must be “tailored to the 17 specific misconduct” of each defendant. Bd. of Trs. of the Sheet Metal Workers Health Care Plan 18 of N. Cal. v. Superhall Mechanical, Inc., No. C-10-2212 EMC, 2011 WL 2600898 , at *2 (N.D. 19 Cal. June 30, 2011). “In determining the appropriate amount of statutory damages to award on 20 default judgment, courts in this district have considered whether the amount of damages requested 21 bears a plausible relationship to Plaintiff’s actual damages.” Yelp, 70 F.Supp. 3d at 1102 . 22 The damages sought here are not tied to any specific alleged misconduct by Mr. Asfour. 23 Plaintiff’s revised “Declaration as to Damages” states that the total sales for Stündenglass products 24 in 2022 was approximately $10,800,000, and that “based on the industry knowledge of 25 DECLARANT, if the market had not been impacted by the flood of inferior, mass-produced fake 26 Stündenglass products, Plaintiff’s 2022 sales would have been approximately $45,300,00.00.” 27 (Dkt. No. 26-2, Declaration as to Damages, ¶ 13.) Even if these alleged facts are taken at face 1 across the market. See GS Holistic, LLC v. Puff N Go Gift Shop LLC, No. 22-CV-07634-VKD, [2] 2023 WL 4146232 , at *5 (N.D. Cal. June 22, 2023), report and recommendation adopted, No. 223 CV-07634-EJD, 2023 WL 6933625 (N.D. Cal. Aug. 23, 2023) (“[GS Holistic] offers no 4 persuasive argument or authority that defendants appropriately may be held accountable for the 5 alleged trademark violations of other retailers in the marketplace.”). 6 d. The Likelihood of Dispute Over Material Facts. 7 The fifth Eitel factor evaluates the likelihood of a dispute between the parties regarding the 8 material facts of the case. Eitel, 782 F.2d at 1471–72. Courts ask, among other things, whether 9 the case turns on questions of law or questions of fact and whether there is any indication of a 10 future dispute between the parties regarding material facts. See, e.g., Elec. Frontier Found, 290 F. 11 Supp. 3d at 947. Here, it is unlikely that Mr. Asfour, even if he appeared, could contest the facts 12 that the single product purchased by Plaintiff’s investigator infringed Plaintiff’s trademark. 13 However, the allegations surrounding Mr. Asfour’s individual liability are the type of facts which, 14 if Mr. Asfour were to appear, could be contested. This factor is neutral. 15 e. Indication of Excusable Neglect. 16 The sixth Eitel factor considers if the defendant’s failure to respond is due to excusable 17 neglect. Eitel, 782 F.2d at 1471-72 . Here, Mr. Asfour appeared to be properly served via 18 substitute service and there is nothing to suggest his failure to respond is based on excusable 19 neglect. Mr. Asfour’s failure to reply at all therefore weighs in favor of default judgment. 20 f. The Policy Favoring Decisions on the Merits. 21 The seventh Eitel factor emphasizes the preference of the Federal Rules for deciding cases 22 on their merits. Fed.R.Civ.P. 55(b); see also Eitel, 782 F.2d 1470, 1472 (holding that “cases 23 should be decided on their merits whenever reasonably possible”). However, this preference is not 24 dispositive when, for example, the other Eitel factors weigh in favor of default judgment. See 25 PepsiCo, Inc. v. California Sec. Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002). Here, 26 however, only two of the other six Eitel factors weigh in favor of granting the motion: Mr. 27 Asfour’s lack of excusable neglect and the possibility of prejudice to Plaintiff. Crucially, Plaintiff ] claims and the sufficiency of the Complaint, weigh in favor of granting the motion. This factor 2 || therefore weighs against default judgment. 3 CONCLUSION 4 For the foregoing reasons, the Court DENIES, WITHOUT PREJUDICE, Plaintiff's 5 || Motion for Default Judgment against Defendant Izzat Asfour. Plaintiff may renew the motion as 6 || to Mr. Asfour within 30 days of this Order only if it can support that motion with specific facts 7 || supporting a conclusion that Mr. Asfour should be held individually liable for the actions of the 8 corporate defendant. 9 IT IS SO ORDERED. a | 10 |} Dated: June 28, 2024 ( | ¥ Nite 11 \ MI Lotus JEPFREY/S/ WHIT United Fpiss Distpet Judge if fo [13] «14 [17] Oo Z 18