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RSI Video Technologies, Inc. v. Vacant Property Security, LLC

United States District Court, N.D. Illinois, Eastern Division

March 10, 2014

RSI VIDEO TECHNOLOGIES, INC., Plaintiff,
v.
VACANT PROPERTY SECURITY, LLC VACANT PROPERTY SECURITY LIMITED, VPS GROUP INC., and QUATRO ELECTRONICS LIMITED, Defendants.

MEMORANDUM OPINION AND ORDER

JAMES F. HOLDERMAN, District Judge.

On May 6, 2013, Plaintiff RSI Video Technologies, Inc. ("RSI") filed a four count "Original Complaint for Patent Infringement" (Dkt. No. 1) ("Complaint" or "Compl.") in the Southern District of Texas against Defendants Vacant Property Security, LLC, Vacant Property Security Limited, VPS Group Inc., and Quatro Electronics Limited (collectively "Defendants"). RSI has alleged Defendants infringed several of RSI's patents concerning security systems. (Compl. ¶ 2.) This case was transferred to this court on October 4, 2013, (Dkt. No. 26), received October 10, 2013 (Dkt. No. 27), and assigned to this court on October 28, 2013 (Dkt. No. 30).

Before the court is "Plaintiff's Motion for Default Judgment and Entry of Default" (Dkt. No. 42) ("MDJ"). RSI seeks an order entering a default judgment against defendant VPS Group, Inc. for failure to respond or defend itself against this lawsuit. (MJD at 4.) In opposition (Dkt. No. 52) ("Opp'n), the three named defendants other than VPS Group, Inc. (the "Existing Defendants") respond that VPS Group, Inc. is not a legal entity. (Opp'n at 2-4.) The Existing Defendants, however, admit that the phrase "VPS Group" is "a short-hand phrase used by VPS Holdings Ltd. to identify a set of affiliated and related companies." ( Id. at 4-5.)

For the reasons stated in this order, the court denies RSI's motion for default judgment, and because of the Existing Defendants' admission that the term "VPS Group" was used to "identify a set of affiliated and related companies", the Existing Defendants are ordered to file in this court's record by no later than March 17, 2014 at 5:00 p.m. CDT a list of all entities affiliated in any way to the Existing Defendants to which the Complaint's subject matter pertains.

BACKGROUND

On June 17, 2013, prior to this case being transferred to this court, RSI requested waiver of service of process from opposing counsel. (MDJ, at Ex. B.) Opposing counsel signed and returned the waivers for each of the Defendants named in this case, including VPS Group, Inc. ( Id. ) On August 16, 2013, Existing Defendants Vacant Property Security LLC, Vacant Property Security Limited, and Quatro Electronics Limited filed an Answer (Dkt. No. 14) (the "Answer") and a Motion to Transfer Venue to this court. (Dkt. No. 15.) VPS Group, Inc. was not included in the Answer or the Motion to Transfer Venue. ( Id. )

In response, RSI asked the court to "enter default and render a default judgment", because "VPS Group, Inc. did not file a responsive pleading or otherwise defend the suit within 60 days" of receiving the service waiver. (MDJ at 3 (citing FED. R. Civ. P. 4(d)(3)).) RSI justifies this step by arguing that "an entity called VPS Group has held itself out as a legal entity in several ways." ( Id. at 3-4.) To support this claim, RSI notes that counsel "agreed to waive service on behalf of VPS Group, Inc.", the VPS website "refers to a VPS Group'", and during settlement negotiations Mark Silver, CEO of VPS Holdings Limited, which is not an Existing Defendant, presented a business card, "which represented VPS Group' as a corporate entity with the words VPS Group' at the top of the card." ( Id. (citing Exs. B-D).)

Existing Defendants respond that "VPS Group Inc. does not exist" and that "[i]t never has." (Opp'n at 1.) According to Existing Defendants, there is "no way to collect damages or enforce a judgment against a non-existent entity." ( Id. ) Existing Defendants claim that "counsel for VPS agreed to accept a Waiver of Service for all named defendants" "[i]n a gesture of cooperation, and in an effort to permit the litigation to proceed efficiently". ( Id. at 2.) Existing Defendants then cite a litany of instances where they disclosed to RSI that VPS Group Inc. did not exist. ( Id. at 2-3.)

Existing Defendants respond to RSI's evidence that VPS Group "held itself out as a legal entity" as follows. Because waiving service and receiving Mr. Silver's business card occurred after the Complaint was filed, RSI must have included VPS Group, Inc. in the Complaint "based solely upon their unreasonable interpretation of" VPS's website. ( Id. at 3.) RSI then notes that the title "Inc." is not even employed in the United Kingdom and that a "routine query into the incorporation records in the United Kingdom" shows that "VPS Group Inc. does not exist." ( Id. )

Existing Defendants also argue that default judgment runs counter to Seventh Circuit precedent "in this hotly contested matter", because the Seventh Circuit favors "trial on the merits" "over default judgments". ( Id. at 5 (citing Ellingsworth v. Chrysler, 665 F.2d 180, 185 (7th Cir. 1981); Isby v. Clark, 100 F.3d 502, 504 (7th Cir. 1996)).) Finally, Existing Defendants argue that the Federal Rules of Civil Procedure permit this court to relieve them from any default judgment. ( Id. at 5-6 (citing Fed.R.Civ.P. 55(c), 60(b)).) According to Existing Defendants, this relief is appropriate where any default was the product of mistake or inadvertence, the parties did not engage in abuse or cause any prejudice, and where non-frivolous confusion occurred with no showing of bad faith or gross neglect. ( Id. )

In Reply (Dkt. No. 55), RSI asserts that Existing Defendants admit that "VPS Group" is "a short-hand phrase used by VPS Holdings Ltd. to identify a set of related companies." (Opp'n at 4-5.) As a matter of law, RSI argues that the patent infringement statute (35 U.S.C. § 271) entitles it to relief from whoever may be involved in the alleged infringement-whether that be VPS Group directly or a set of affiliated and related companies. (Reply at 3.) Here, according to RSI, since service was confirmed and waived, the Federal Rules mandated that VPS Group answer. ( Id. at 4.) This would have provided RSI the opportunity to conduct discovery on VPS Group to investigate whoever among its affiliates and related companies is engaging in infringement. ( Id. ) Without such discovery, or Existing Defendants identifying the set of VPS Group companies involved, RSI, and this court, are left to guess what actual entities within "VPS Group" are proper defendants. ( Id. at 5.)

LEGAL STANDARD

A court may enter default and render a default judgment against a party who has failed to file a responsive pleading or otherwise defend against suit. See Fed.R.Civ.P. 55(a), (b)(2). However, under Fed.R.Civ.P. 55(c), a court "may set aside an entry of default for good cause", and under Fed.R.Civ.P. 60(b) "it may set aside a default judgment". In the instant action, this court is only concerned with Rule 55(c), because the court has not entered a final default judgment for RSI. See Merrill Lynch Mortgage Corp. v. Narayan, 908 F.2d 246, 252 (7th Cir. 1990).

The Seventh Circuit has held that a "district court's eventual [Rule 55(c)] decision" deserves "great deference", Swaim v. Moltan Co., 73 F.3d 711, 722 (7th Cir. 1996), and therefore such a determination will only be reversed for abuse of discretion, Sun v. Bd. of Trs. of the Univ. of Ill., 473 F.3d 799, 810 (7th Cir. 2007). These procedures bring "to bear the district court's fact finding function and unique knowledge of the case and ...


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