Usens, Inc. v. Chongqing Junma New Energy Automobile Co., Ltd.

— 1 — — 2 — 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION — 6 — 7 USENS, INC., Case No. 19-cv-00315-BLF 8 Plaintiff, ORDER GRANTING IN PART 9 v. RENEWED MOTION FOR DEFAULT JUDGMENT 10 CHONGQING JUNMA NEW ENERGY AUTOMOBILE CO., LTD., et al., [Re: ECF No. 69] — 11 — Defendants. — 12 — 13 Before the Court is a renewed motion for default judgment in this action alleging 14 misappropriation of Plaintiff’s trade secrets. See ECF No. 69 (“Mot.”). Remaining defendants 15 Chongqing Junma New Energy Automobile Co. Ltd. (“Junma”), Chongqing ZhongGan WeiShi 16 Electronics Technology Co. Ltd. (“ZhongGan”), Chongqing Bruder Science & Technology Co. 17 Ltd. (“Bruder”), Xiaofei Wu, and Anyu Cheng (“Defendants”) have not appeared in this action. 18 The Court previously found this matter suitable for decision without oral argument pursuant to 19 Civ. L.R. 7-1(b). See ECF No. 71. For the reasons stated below, the motion is GRANTED IN 20 PART. 21 I. BACKGROUND 22 Plaintiff filed this action on January 18, 2019, against Junma, ZhongGan, Bruder, Wu, 23 Cheng, Chi Shi, and six other engineers who allegedly left uSens to work at ZhongGan. See 24 generally Compl. Plaintiff voluntarily dismissed the six other defendant engineers without 25 prejudice in January 2020. ECF No. 25. Defendant Shi executed a waiver of service and appeared 26 through counsel. ECF No. 8. The Court approved service on the other remaining defendants by e27 mail and mail after China’s Central Authority could not locate them for service through the Hague 1 them on June 7, 2021. ECF No. 52. On June 28, 2021, Plaintiff notified the Court that it had 2 settled its claims against Defendant Shi and was dismissing those claims, leaving only the 3 defaulting defendants. ECF No. 60. The Court approved the dismissal of the claims against Shi 4 and requested that Plaintiff file a motion for default judgment against the remaining defendants. 5 ECF Nos. 61, 63. Plaintiff filed a motion for default judgment on July 30, 2021, which the Court 6 denied without prejudice on August 17, 2021 because Plaintiff did not submit sufficient 7 information to “prove-up” the damages it sought. ECF No. 67. The Court permitted Plaintiff to 8 file a renewed motion with additional evidence of damages. Id. That motion is now before the 9 Court. 10 II. LEGAL STANDARD 11 Following an entry of default, Federal Rule of Civil Procedure 55(b)(2) permits a court to 12 enter default judgment against a defendant who has failed to plead or otherwise defend. See Fed. 13 R. Civ. P. 55(a), (b)(2). “The district court’s decision whether to enter a default judgment is a 14 discretionary one.” Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In exercising its 15 discretion to enter default judgment, a court must first find that it has jurisdiction over the action 16 and defendant, and that the party against whom default judgment is requested was adequately 17 served. See In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999); Disney Enters., Inc. v. Vuong Tran, No. 18 12-5030 SC, 2013 WL 1832563 , at *1 (N.D. Cal. May 1, 2013). A district court then considers 19 seven factors set forth by the Ninth Circuit in Eitel v. McCool, 782 F.2d 1470 , 1471–72 (9th Cir. 20 1986). 21 Upon default, all factual allegations in the complaint are taken as true, except those relating 22 to damages. See TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915 , 917–18 (9th Cir. 1987). 23 Federal Rule of Civil Procedure 54(c) provides that “[a] default judgment must not differ in kind 24 from, or exceed in amount, what is demanded in the pleadings.” Fed. R. Civ. P. 54(c). “The 25 purpose of this rule is to ensure that a defendant is put on notice of the damages being sought 26 against it so that he may make a calculated decision as to whether or not it is in his best interest to 27 answer.” Alameda Cty. Elec. v. Banister Elec., Inc., No. C 11-04126 LB, 2012 WL 3042696 , 1 also Bd. of Tr. of the Sheet Metal Workers Local 104 Health Care Plan v. Total Air Balance Co., 2 No. 08-2038 SC, 2009 WL 1704677 , at *3–5 (N.D. Cal. June 17, 2009)). Therefore, a plaintiff 3 seeking money damages must “prove-up” the damages. Orange Cty. Elec. Indus. v. Moore Elec. 4 Contracting, Inc., No. 11-CV-00942-LHK, 2012 WL 4120348 , at *3 (N.D. Cal. Sept. 18, 2012). 5 To do so, “a plaintiff is generally required to provide admissible evidence (including witness 6 testimony) supporting damage calculations.” Id. (citing Cannon v. City of Petaluma, No. C 117 0651 PJH, 2011 WL 3267714 , at *2 (N.D. Cal. July 29, 2011)). 8 III. DISCUSSION 9 A. Service and Jurisdiction 10 As to service, the Court granted Plaintiff’s motion for permission to effect service of 11 process on Defendants by alternative means—in this case, email and mail directed at physical 12 addresses. ECF No. 26. Plaintiff filed a proof of service as to those Defendants. ECF No. 27. A 13 sworn proof of service constitutes “prima facie evidence of valid service which can be overcome 14 only by strong and convincing evidence.” G&G Closed Cir. Events, LLC v. Macias, 2021 WL 15 2037955, at *2 (N.D. Cal. May 21, 2021) (quoting Securities & Exchg. Comm’n v. Internet Solns. 16 for Business, Inc., 509 F.3d 1161, 1166 (9th Cir. 2007)). The Court concludes service was proper 17 based on Plaintiff’s sworn proofs of service. 18 The Court also concludes that it has subject matter jurisdiction over this matter because 19 Plaintiff asserts a federal claim for misappropriation of trade secrets under 18 U.S.C. § 1836 . The 20 Court thus has federal question jurisdiction and may exercise supplemental jurisdiction over the 21 pendant state law claims. See 28 U.S.C. §§ 1331 , 1367. The Court further concludes that, taking 22 Plaintiff’s well-pled factual allegations in the Complaint as true, it has personal jurisdiction over 23 the Defendants because they have aimed their intentional wrongdoings at, and have harmed, 24 California through their alleged misappropriation of Plaintiff’s trade secrets. Compl., ECF No. 1, 25 ¶ 17. 26 B. Eitel Factors 27 The Court finds that the Eitel factors also support entering a default judgment. Those 1 claim; (3) the sufficiency of the complaint; (4) the sum of money at stake in the action; (5) the 2 possibility of a dispute concerning material facts; (6) whether the default was due to excusable 3 neglect; and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring 4 decisions on the merits.” Eitel, 782 F.2d at 1471–72. 5 Several factors support a default judgment. On the first Eitel factor, the Court finds that 6 Plaintiff would be prejudiced without a default judgment against the Defendants. Although 7 Plaintiff has voluntarily dismissed a number of unserved defendants and settled with another 8 defendant, see ECF Nos. 25, 61, Plaintiff has likely not obtained the full extent of its request for 9 damages through those dismissals and a settlement. The second and third factors support a default 10 judgment. Although only one other defendant actually appeared in this action, he and Plaintiff 11 litigated the case through discovery and a pretrial conference to the eve of trial before settling. 12 This leads the Court to conclude that Plaintiff’s claims have at least some merit and that its 13 complaint was sufficiently pled. The sixth factor also supports a default judgment; Plaintiff 14 properly served Defendants pursuant to an order of this Court and there is no indication that 15 Defendants’ failure to appear and otherwise defend the action is due to excusable neglect. 16 The fifth factor is neutral. Because Defendants have not appeared, the possibility of a 17 dispute concerning material facts as to those Defendants is not known. 18 The fourth and seventh factors weigh against entering default judgment. On the fourth 19 factor, the amount of money that Plaintiff seeks is a significant sum, amounting to the equivalent 20 of over $12.3 million. See Mot. at 3–4. The Court finds the request sufficiently “proven-up” for 21 present purposes below, but this factor still weighs against entering a default judgment and will 22 result in a reduction in the amount of exemplary damages awarded. The seventh factor—the 23 strong policy underlying decisions on the merits—also weighs against default judgment, as 24 always. 25 On balance, the Court finds that the Eitel factors favor entry of a default judgment here. 26 Although the amount of money sought in this motion is significant, most of the other Eitel factors 27 favor a default judgment. The Court will now consider whether Plaintiff’s full monetary request 1 IV. RELIEF TO BE AWARDED 2 In the Prayer for Relief in its Complaint, Plaintiff requests injunctive relief, compensatory 3 damages “according to the proof,” punitive and exemplary damages, prejudgment interest, 4 attorney’s fees and costs of suit, and such other and further relief as the Court deems proper. 5 Compl. ¶ 114(a)-(g). In its motion, Plaintiff seeks ¥25,000,000 in compensatory damages; 6 ¥3,207,534.25 in prejudgment interest (plus ¥4,794.52 per day from October 31, 2021 to the entry 7 of judgment); and ¥50,000,000 in exemplary damages. Mot. at 3. In support of the request in its 8 Motion, Plaintiff provides a declaration from Yue Fei, the Chief Executive Officer of uSens, as the 9 basis for its damages calculations. ECF No. 69-1 (“Fei Decl.”). The Court considers each 10 component of Plaintiff’s damages request. 11 A. Compensatory Damages 12 Plaintiff requests ¥25,000,000 in compensatory damages. Mot. at 4. In support, Plaintiff 13 provides statements in and evidence attached to the Fei Declaration. According to the Fei 14 Declaration, Plaintiff suffered lost licensing revenue pursuant to a contract between Plaintiff, 15 Jumma, and ZhongGan. Fei. Decl. ¶ 3. Instead of paying for the license to the technology, 16 Plaintiff alleges that ZhongGan and the other Defendants stole the technology. Id. The contract, 17 attached to the Fei Declaration as Exhibit A, provided for the following payments to Plaintiff: 18 • ¥1,000,000 in Nonrecurring Engineering; 19 • The purchase of at least 100,000 units of Plaintiff’s hand gesture control systems in 20 2018 and 2019; and 21 • The purchase of at least 200,000 units of Plaintiff’s hand gesture control systems in 22 2020. — 23 — Id. ¶ 4 (citing Fei Decl. Ex. A). Mr. Fei declares that the hand gesture control systems at issue sell 24 for approximately ¥630, with a profit margin of ¥80. Id. ¶ 5. “Most of the margin”—about ¥75— 25 comes from the software. Id. Attached to the Fei Declaration as Exhibit B is a contract for the 26 same hand gesture control systems with a different automobile manufacturer, which agreed to 27 license the software for ¥75.47 per unit. Id. The remaining ~¥5 is gross margin on the hardware. 1 contract, plus the ¥1,000,000 for Nonrecurring Engineering, Plaintiff calculates compensatory 2 damages in the amount of ¥25,000,000.1 3 The Court finds that the sworn statements in the Fei Declaration and the evidence attached 4 thereto are sufficient to “prove-up” Plaintiff’s claimed compensatory damages for the purposes of 5 this default judgment motion. The testimony and exhibits are evidence that could be admitted at 6 trial and are thus appropriate for consideration. Orange Cty. Elec. Indus., 2012 WL 4120348 , at 7 *3. 8 B. Prejudgment Interest 9 Plaintiff further requests prejudgment interest on the ¥25,000,000 at a rate of 7% per year. 10 See Mot. at 3. “An award of pre-judgment interest in a case under federal law is left to the sound 11 discretion of the trial court.” Twin City Sportserv., Inc. v. Charles O. Finley & Co., 676 F.2d 12 1291, 1310 (9th Cir. 1982). “Awards of pre-judgment interest are governed by considerations of 13 fairness and are awarded where it is necessary to make the wronged party whole.” United States 14 v. Cal. State Bd. of Equalization, 650 F.2d 1127, 1132 (9th Cir. 1981). Under California law, the 15 prejudgment interest rate is set at 7 percent except in cases involving a contract entered into in 16 1986 or later, in which case the prejudgment interest rate is set at 10% per year after the breach. 17 Cal. Const. art. XV, § 1; Cal. Civ. Code § 3289 . 18 The Court finds an award of prejudgment interest is warranted at the 7% per year rate that 19 Plaintiff requests. The Court, however, disagrees with Plaintiff that the prejudgment interest 20 should start accruing from January 1, 2020. Fei Decl. ¶ 8. Defendants contracted to purchase 21 200,000 units of the hand gesture control system in 2020. Thus, the full extent of the damages did 22 not occur until the end of 2020, when Defendants failed to make the purchases obligated by the 23 contract. Accordingly, the Court will apply the 7% interest per year to the ¥25,000,000 in 24 compensatory damages beginning on January 1, 2021. Applying this percentage through the date — 25 — 26 1 Plaintiff says that it is foregoing a request for damages related to Defendants’ alleged sale of the 27 stolen trade secrets to a different Chinese company. Mr. Fei says the witness for that damage has 1 of this Order results in prejudgment interest of ¥1,932,191.78. 2 C. Exemplary Damages 3 Plaintiff further requests exemplary damages for willful and malicious misappropriation of 4 trade secrets. Mot. at 3 (citing Compl. ¶¶ 105, 112). Both the federal and California statutes allow 5 for but do not mandate an award of exemplary damages in an amount no more than 2 times the 6 compensatory damages awarded in the case of willful and malicious misappropriation. See 18 7 U.S.C. § 1836 (b)(3)(C); Cal. Civ. Code § 3426.3 (c). The Court finds that Plaintiff has adequately 8 pled that Defendants’ misappropriation was willful and malicious. Compl. ¶¶ 105, 112. Plaintiff 9 has alleged that instead of abiding by the licensing agreement between the parties, Defendants 10 stole the trade secrets at issue, used them without payment, and sold them to a different company. 11 This adequately pleads willful and malicious appropriation. DiscoverOrg Data, LLC v. Bitnine 12 Global, Inc., 2020 WL 6562333 , at *10 (N.D. Cal. Nov. 9, 2020) (exemplary damages adequately 13 pled). The Court will, however, reduce the award of exemplary damages to the equivalent of 14 US$1 million. 15 V. FORM OF THE RELIEF 16 Plaintiff requests that the Court issue judgment in RMB (¥), Chinese currency, because the 17 judgment will likely have to be enforced in China. Mot. at 3 n.2. Plaintiff does not provide any 18 authority allowing the Court to issue a judgment in a foreign currency. 19 “Courts in the United States ordinarily give judgment on causes of action arising in another 20 state, or denominated in a foreign currency, in United States dollars, but they are not precluded 21 from giving judgment in the currency in which the obligation is denominated or the loss was 22 incurred.” Restatement (Third) of the Foreign Relations Law of the United States § 823(1) (1987). 23 Despite this general principle, federal courts are “sharply divided over the appropriateness of 24 awarding damages in foreign currencies.” Compare Reliastar Life Ins. Co. v. IOA RE, Inc., 303 25 F.3d 874, 882 (8th Cir. 2002) (quoting and citing the Restatement provision cited above), with 26 Sainz Gonzalez v. Banco de Santander-Puerto Rico, 932 F.2d 999 , 1003 n.8 (1st Cir. 1991) (“[I]t 27 is a settled principle of Anglo-American law that judgments for money damages must be rendered 1 in foreign currency. See, e.g., Cont’l Transfert Technique Ltd. v. Fed. Gov’t of Nigeria, 932 F. 2 Supp. 2d 153, 15758 (D.D.C. 2013), aff'd, 603 F. App’x 1 (D.C. Cir. 2015) (“Conversion of such 3 foreign currency amounts in dollars at judgment is the norm rather than the exception.”); Elite 4 || Entm’t, Inc. v. Khela Bros. Entm’t Inc., 396 F. Supp. 2d 680, 694 (E.D. Va. 2005) (“[C]ourts . . . 5 agree that entering judgment in foreign currency is strongly disfavored.”). 6 The question then becomes how to convert the judgment the Court will issue into United 7 States dollars. The Supreme Court has set forth two rules respecting the date that should be used 8 || to determine the applicable exchange rate. Under the “breach day rule,” the applicable exchange 9 || rate is the one that was in effect the defendants breached their obligations to plaintiff. See Linkley 10 Invs. v. Jamgotchian, 2014 WL 12665812 , at *4 (C.D. Cal. Apr. 16, 2014) (citing Hicks v. 11 Guinness, 269 U.S. 71 (1925)). Under the “judgment day rule,” the applicable exchange rate is 12 || the rate on the date the court enters judgment. Jd. The Court will apply the “judgment day rule” 5 13 || because Defendants’ contractual obligation was “performable in a foreign country in the money of 14 || that country.” Jd. (citing Shaw, Savill, Albion & Co. v. The Fredericksburg, 189 F.2d 952, 955 (2d 3 15 Cir. 1951)). The contract was consummated between Defendants, all Chinese entities, and a 16 || Plaintiff's China-affiliate company, and called for payment in RMB. Applying the judgment day 3 17 rule, the exchange rate from ¥ to US$ is 1¥ = US$0.16. Thus, the compensatory damages and 18 || prejudgment interest of ¥26,932,191.78 equals US$4,238,553.33. 19 || VI. ORDER 20 For the foregoing reasons, IT IS HEREBY ORDERED that Plaintiff's motion for default 21 || judgment is GRANTED IN PART. The Court AWARDS Plaintiff: ¥25,000,000 in compensatory 22 || damages and ¥1,932,191.78 in total prejudgment interest since January 1, 2021, plus 23 US$1,000,000 in exemplary damages. Judgment will issue in equivalent United States Dollars on 24 the date of this Order: $5,238,553.33. — 25 — 26 || Dated: February 10, 2022 han hen Lh omer) BETH LABSON FREEMAN 28 United States District Judge