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Ulyssix Technologies, Inc. v. Orbital Network Engineering, Inc.

United States District Court, Fourth Circuit

August 9, 2013

ULYSSIX TECHNOLOGIES, INC., Plaintiff,
v.
ORBITAL NETWORK ENGINEERING, INC., Defendant.

REPORT AND RECOMMENDATION

TIMOTHY J. SULLIVAN, Magistrate Judge.

This Report and Recommendation addresses the Motion to Dismiss Amended Counterclaim With Prejudice and for the Entry of a Default Judgment Including a Damage Award, and a Permanent Injunction ("Motion, " ECF No. 199) filed by Plaintiff Ulyssix Technologies, Inc. ("Ulyssix"). Defendant Orbital Network Engineering, Inc. ("ONE") has not filed a response, and the time for doing so has passed. See Loc. R. 105.2.a. On April 16, 2013, in accordance with 28 U.S.C. § 636 and Local Rule 301, Judge Hollander referred this case to me to review Plaintiff's Motion and to make recommendations concerning damages. ECF No. 200. Having reviewed the filings, I find that a hearing is not necessary. See Loc. R. 105.6. For the reasons stated herein, I recommend that, following the time to object to this Report and Recommendation, Plaintiff's Motion by GRANTED IN PART and DENIED IN PART.

I. FACTUAL AND PROCEDURAL HISTORY

In July 2010, Ulyssix brought this action against ONE and Wyle Laboratories, Inc. ("Wyle") alleging that ONE breached the terms of a license agreement by sublicensing Ulyssix's intellectual property to Wyle. ECF No. 1. Ulyssix subsequently filed an Amended Complaint, which alleged various theories of recovery against both defendants, but ultimately reached a settlement agreement with Wyle. See ECF No. 56 (Amended Complaint) & 195 (Order granting Wyle's Motion to Enforce the settlement agreement). After the Court granted counsel's motion to withdraw from representing ONE, Ulyssix moved for the dismissal of ONE's Second Amended Counterclaim with prejudice, and for the Clerk to enter default against ONE, as it was no longer represented by counsel. ECF No. 86. The Court granted Ulyssix's motion in part, dismissing ONE's counterclaim without prejudice and entering default against ONE as to all counts in Ulyssix's Amended Complaint. ECF Nos. 102 & 103. As such, the only remaining claims are those Ulyssix has asserted against ONE. Ulyssix now moves that the Court grant default judgment in its favor against ONE as to all counts in the Amended Complaint, award damages in the amount of $420, 000.00, dismiss ONE's counterclaim with prejudice, issue a permanent injunction against ONE, and refund a security deposit paid to the Clerk of Court to secure a preliminary injunction. ECF No. 199.

II. DISCUSSION

A. Default Judgment

Rule 55(b) of the Federal Rules of Civil Procedure governs default judgments. Rule 55(b)(1) provides that the clerk may enter a default judgment if the plaintiff's claim is "for a sum certain or a sum that can be made certain by computation." A plaintiff's assertion of a sum in a complaint does not make the sum "certain" unless the plaintiff claims liquidated damages; otherwise, the complaint must be supported by affidavit or documentary evidence. See Medunic v. Lederer, 64 F.R.D. 403, 405 n.7 (E.D. Pa. 1974) (concluding that clerk could not enter default judgment where damages were not liquidated), rev'd on other grounds, 533 F.2d 891 (3d Cir. 1976).

If the sum is not certain or ascertainable through computation, Rule 55(b)(2) provides:

[T]he party must apply to the court for a default judgment.... The court may conduct hearings or make referrals-preserving any federal statutory right to a jury trial-when, to enter or effectuate judgment, it needs to:
(A) conduct an accounting;
(B) determine the amount of damages;
(C) establish the truth of any allegation by evidence; or
(D) investigate any other matter.
As the Court noted in Disney Enters. v. Delane, 446 F.Supp.2d 402, 405 (D. Md. 2006):
The United States Court of Appeals for the Fourth Circuit has a "strong policy that cases be decided on the merits." United States v. Shaffer Equip. Co., 11 F.3d 450, 453 (4th Cir. 1993). However, default judgment is available when the "adversary process has been halted because of an essentially unresponsive party." S.E.C. v. Lawbaugh, 359 F.Supp.2d 418, 421 (D. Md. 2005).

Id.

In determining whether to award a default judgment, the Court will take as true the wellpleaded factual allegations in the complaint, other than those pertaining to damages. Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir. 2001) ("The defendant, by his default, admits the plaintiff's well-pleaded allegations of fact, is concluded on those facts by the judgment, and is barred from contesting on appeal the facts thus established.'") (internal quotations omitted); see Fed.R.Civ.P. 8(b)(6); Agora Fin., LLC v. Samler, No. WDQ-09-1200, 2010 WL 2899036, at *2-3 (D. Md. June 17, 2010) (quoting Ryan, 253 F.3d at 780-81); 10A Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Fed. Prac. & Proc. § 2688 (3d ed. 1998). However, "[a] defendant's default does not in itself warrant the court in entering a default judgment. There must be a sufficient basis in the pleadings for the judgment entered." DIRECTV, Inc. v. Pernites, 200 Fed.App'x 257, 258 (4th Cir. 2006). This is because "the party making the request is not entitled to a default judgment as of right, even when defendant is technically in default and that fact has been noted under Rule 55(a)." Wright & Miller, supra, § 2685. Rather, "the district judge is required to exercise sound judicial discretion in determining whether the judgment should be entered, " and the Court may "refuse to enter a default judgment." Id. Accordingly, the Court must "consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law." Id. § 2688; see Ryan, 253 F.3d at 780 ("The defendant is not held... to admit conclusions of law.... [A] default is not treated as an absolute confession by the defendant of his liability and of the plaintiff's right to recover.") (internal quotations omitted); see also Lawbaugh, 359 F.Supp.2d at 422 (D. Md. 2005) (concluding that "Plaintiff's pleadings, taken as true, establish all of the alleged violations").

Ulyssix filed its Complaint (ECF No. 1) against ONE on July 30, 2010, and its Amended Complaint (ECF No. 56) on April 4, 2011. ONE filed its Answer to the Complaint on October 22, 2010, along with a Counterclaim against Ulyssix. ECF No. 32. After Ulyssix filed its Amended Complaint, ONE filed an Amended Answer and Counterclaim on March 3, 2011. ECF NO. 46. On August 25, 2011, the Court granted ONE's counsel's Motion to Withdraw. ECF No. 84. Recognizing that a corporation may only appear in federal courts through licensed counsel, the Court stated that it would not dismiss ONE's claims or enter default against ONE until on or after September 24, 2011, effectively providing ONE with thirty days to retain replacement counsel. Id. On September 28, 2011, the Court issued an Order (ECF No. 87) permitting ONE's President, David Lung, to submit a letter on or before October 11, 2011 regarding ONE's intentions of obtaining replacement counsel. Subsequently, the Court permitted ONE until November 10, 2011 to obtain counsel, and indicated that it would "hold sub curia Ulyssix's motion to dismiss ONE's amended counterclaim and for entry of default against ONE (ECF 86) until at least that date." ECF No. 98. On November 15, 2011, the Court granted Ulyssix's Motion for Default and dismissed ONE's counterclaim, without prejudice. ECF No. 102. The Court entered default against ONE for all claims asserted in Ulyssix's Amended Complaint. Id.

On December 20, 2011, an attorney entered his appearance on behalf of ONE (ECF No. 111), but on January 25, 2012 filed a motion to withdraw his appearance (ECF No. 123). The Court granted ONE's counsel's motion (ECF No. 130) and ONE has since failed to obtain replacement counsel.

Because ONE has failed to defend itself for more than one year, all of Ulyssix's factual allegations in the Amended Complaint not pertaining to damages are deemed admitted. Fed.R.Civ.P. 8(b)(6); Ryan, 253 F.3d at 780; Rhino Associates, L.P. v. Berg Mfg. & Sales Corp., 531 F.Supp.2d 652 (M.D. Pa. 2007). It is within the Court's discretion to grant default judgment when a defendant is unresponsive. See Park Corp. v. Lexington Ins. Co., 812 F.2d 894, 896 (4th Cir. 1987) (upholding a default judgment when the defendant lost its summons and did not respond within the proper period); Disney Enters., 446 F.Supp.2d at 405-06 (holding that entry of default judgment was proper because defendant had been properly served with complaint and did not respond, even after plaintiffs tried repeatedly to contact him); see also Lawbaugh, 359 F.Supp.2d at 422 (concluding that default judgment was appropriate because defendant was "unresponsive for more than a year" after denial of his motion to dismiss, even though he was properly served with plaintiff's motions for entry of default and default judgment). Thus, the Court should grant default judgment on the counts of Ulyssix's Amended Complaint against ONE if Ulyssix has established ONE's liability.

1. Count I - Breach of Contract

Count I of the Amended Complaint alleges that ONE is liable for breach of contract. ECF No. 56 ¶¶ 52-71. A breach of contract is "a failure without legal excuse to perform any promise which forms the whole or part of a contract." In re Ashby Enters., Ltd., 250 B.R. 69, 72 (Bankr. D. Md. 2000) (quoting Conn. Pizza, Inc. v. Bell Atl.-Wash., D. C., Inc., 193 B.R. 217, 225 (Bankr. D. Md. 1996) (quoting Weiss v. Sheet Metal Fabricators, Inc., 206 Md. 195, 110 A.2d 671, 675 (Md. 1955)) (quotation marks omitted)). A contract exists where there is "mutual assent (offer and acceptance), an agreement definite in its terms, and sufficient consideration." CTI/DC, Inc. v. Selective Ins. Co. of Am., 392 F.3d 114, 123 (4th Cir. 2004).

Ulyssix alleges that it entered into a license agreement ("the License") with ONE that "granted ONE an exclusive limited license to use the design and technology of Ulyssix's PCI-2070 [the "Licensed Products"] to manufacture and sell cards for the telemetry receivers within the United States." ECF No. 56 ¶ 16. The License prohibited ONE from "causing or permitting reverse engineering, disassembly or decompilation of the Licensed Products, disclosing the Licensed Products to any third party, assigning the License, [and] distributing or transferring all or any part of the Licensed Products to any third party." Id. ¶ 18. Ulyssix alleges that "ONE sold Wyle all rights to a product incorporating Ulyssix's technology in direct violation of the License." Id. ¶ 29. The License grants Ulyssix the right to audit ONE's records to confirm its compliance with the terms of the License, and provides that a failure by ONE to grant such an audit constitutes a material breach of the License. Id. ¶ 19. Ulyssix has provided an unsigned copy of the License (ECF No. 1-1). This Court accepts as true that Ulyssix and ONE made the promises described in the Amended Complaint and set forth in the License. Ryan, 253 F.3d at 780. Thus, based on Ulyssix's allegations, it is clear that the parties mutually assented to the License, which had definite terms and sufficient consideration, such that a contract existed. See ECF No. 1-1; see also CTI/DC, Inc., 392 F.3d at 123.

Ulyssix states that ONE violated the License by: (1) refusing to grant Ulyssix an audit upon Ulyssix's request (ECF No. 56 ¶ 57); (2) reverse-engineering the Licensed Products and manufacturing and marketing a derivative product as ONE's own (ECF No. 56 ¶ 63); and (3) by disclosing and selling to Wyle a license to market the derivative product (ECF No. 56 ¶ 64). Ulyssix alleges that ONE's violations of the License amount to a breach of contract. Based on Ulyssix's well-pleaded factual allegations, ONE is liable to Ulyssix for breach of contract, and the Court should grant Ulyssix's motion for default judgment with respect to Count I.

2. Count II - Maryland Uniform Trade Secrets Act

Count II of the Amended Complaint alleges that ONE is liable for violating the Maryland Uniform Trade Secrets Act ("MUTSA"), Md. Code, Com. Law §§ 11-1201 to 1209. ECF No. 56 ¶¶ 72-82. The statute provides relief in response to the misappropriation of trade secrets. Md. Code, Com. Law 11-1202(a); see LeJeune v. Coin Acceptors, Inc., 381 Md. 288, 315 (2004). The MUTSA defines the term "trade secret" as information that

(1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain ...

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