United States District Court, D. Maryland
CATHERINE C. BLAKE, District Judge.
Plaintiff Therapearl, LLC ("Therapearl") filed this action against Rapid Aid Ltd. ("Rapid Aid"), asserting various claims related to business dealings and legal proceedings in Canada. Now pending before the court are (1) Therapearl's motion for entry of default against Rapid Aid;
(2) Rapid Aid's motion to dismiss Therapearl's complaint; and (3) Therapearl's motion to strike Rapid Aid's motion to dismiss. The court finds oral argument unnecessary to resolve the issues. See Local R. 105.6 (D. Md. 2011). For the reasons stated below, Therapearl's motion to enter default will be denied along with its motion to strike, and Rapid Aid's motion to dismiss will be granted.
This case concerns a dispute between Maryland-based Therapearl and Canada-based Rapid Aid, both of which make hot/cold therapy products. (Compl. ¶¶ 4-5, ECF No. 1.) These products consist of packs that can be heated or cooled to provide hot or cold temperature therapy. ( Id. ¶ 13.) Shoppers Drug Mart ("Shoppers"), a large drug store chain in Canada, began carrying Therapearl's "branded" products (i.e., products displaying the Therapearl brand name) around December 2010. ( Id. ¶¶ 10, 24.) Around March 2012, Therapearl entered into an agreement with Shoppers to provide it with an additional "private label" line of products made and supplied by Therapearl but bearing a different brand. ( Id. ¶¶ 25-30.) Rapid Aid, which had long been a Shoppers supplier, felt threatened by Therapearl's success in general and this private label contract in particular. ( Id. ¶¶ 31-32, 34.) On May 31, 2012, Rapid Aid filed suit against Therapearl in Canada ("the Canadian litigation"), asserting Therapearl's use of the words "patent pending" on its products in Canada was unlawful because Therapearl had no Canadian patent pending. (Def.'s Mot. to Dismiss Ex. A ¶ 1(a), ECF No. 14-2.) Therapearl alleges Rapid Aid filed the suit merely to "frustrate or terminate Therapearl's contract with Shoppers, " and this "sham lawsuit" was predicated on "objectively baseless claims" and "fabricated facts." ( Id. ¶¶ 34-35.) Sometime after the Canadian litigation commenced, Shoppers suspended its private label agreement with Therapearl. (Compl. ¶ 84.)
Despite the ongoing Canadian litigation, Therapearl filed suit in this court on September 23, 2013. The four-count complaint alleged Rapid Aid (1) requested an unlawfully overbroad injunction in the Canadian litigation and sought a declaratory judgment that Therapearl may make accurate patent-related representations regarding its products; (2) violated Section 2 of the Sherman Antitrust Act, 15 U.S.C. § 2; (3) tortiously interfered with Therapearl's contractual and/or business relationship with Shoppers; and (4) engaged in unfair competition in violation of Maryland common law. ( Id. ¶¶ 57-91.)
Therapearl did not serve the complaint on Rapid Aid, however, until December 9, 2013. (Pl.'s Mot. for Entry of Default 1, ECF No. 9.) Due to a misunderstanding of Rule 12 of the Federal Rules of Civil Procedure, Rapid Aid's Canadian counsel, Joseph Etigson, failed to arrange for Rapid Aid to file a responsive pleading within 21 days of service, by December 30, 2013. (Def.'s Opp. to Mot. for Entry of Default, Etigson Decl. ¶ 6, Jan. 24, 2014, ECF No. 18-1.) On January 10, 2014, Etigson sent an email to Therapearl's counsel explaining his understanding that a response was due 90 days from the date of service, and requesting Therapearl's position on the issue. ( Id. Ex. A, ECF No. 18-2.) Specifically, Etigson pointed to Federal Rule of Civil Procedure 12(a)(1)(A)(ii), and explained his view that under this subsection, any defendant served "outside any judicial district of the United States" was entitled to 90 days to respond to a complaint. (Def.'s Opp. to Mot. for Entry of Default Ex. A.) Later that evening, Therapearl's counsel replied that the "Federal Rule is quite clear that the deadline is 21 days, " and informed Etigson that Therapearl intended to move for an entry of default. ( Id. ) Therapearl did, in fact, move for an entry of default that same day. (ECF No. 9.) Rapid Aid then retained a U.S. firm to assist in the instant litigation. (Etigson Decl. ¶ 7, Jan. 24, 2014.) Now with the assistance of U.S. counsel, Rapid Aid filed a motion to dismiss on January 20, 2014, (ECF No. 14), and an opposition to the motion for default on January 27, 2014, (ECF No. 18). Therapearl moved to strike the motion to dismiss, (ECF No. 19), though it later responded to the motion, (ECF No. 24).
I. Motion to Enter Default Against Rapid Aid
Therapearl asks the court to enter default against Rapid Aid for its failure to timely file a responsive pleading, and Rapid Aid opposes that motion. "[O]pposition to a motion for a default judgment can be treated as a motion to set aside the entry of a default despite the absence of a formal Rule 55(c) motion" to set aside an entry of default. Meehan v. Snow, 652 F.2d 274, 276 (2d Cir. 1981). See also United States v. One Parcel of Real Prop., 763 F.2d 181, 183 (5th Cir. 1985); United Coin Meter Co., Inc. v. Seaboard Coastline RR., 705 F.2d 839, 844 (6th Cir. 1983). Here, where default has not been entered, but Rapid Aid concedes, appropriately, that it was late in responding to the complaint, the court will look to Rule 55(c) to assess Therapearl's motion.
Federal Rule of Civil Procedure 55(c) provides that a court may set aside an entry of default for good cause. Though the determination of whether good cause exists "lies largely within the discretion of the trial judge, " Payne ex rel. Estate of Calzada v. Brake, 439 F.3d 198, 204 (4th Cir. 2006) (citation omitted), there is "a strong preference that, as a general matter, defaults be avoided and that claims and defenses be disposed of on their merits, " Colleton Preparatory Acad., Inc. v. Hoover Universal, Inc., 616 F.3d 413, 417 (4th Cir. 2010). In Payne, the Fourth Circuit articulated six factors to aid district courts in making this determination: " whether the moving party has a meritorious defense,  whether it acts with reasonable promptness,  the personal responsibility of the defaulting party,  the prejudice to the party,  whether there is a history of dilatory action, and  the availability of sanctions less drastic." Payne, 439 F.3d at 204-05. "Any doubts about whether relief should be granted should be resolved in favor of setting aside the default so that the case may be heard on the merits." Tolson v. Hodge, 411 F.2d 123, 130 (4th Cir. 1969).
As to the first factor, "[a] meritorious defense requires a proffer of evidence which would permit a finding for the defaulting party...." Augusta Fiberglass Coatings, Inc. v. Fodor Contracting Corp., 843 F.2d 808, 812 (4th Cir. 1988). This "showing should underscore the potential injustice of allowing the case to be disposed of by default." 10A Wright, Miller & Kane, Federal Practice and Procedure § 2697 (Civil 3d 1998). Rapid Aid has raised several potentially meritorious defenses, including failure to state a claim. Rapid Aid has supported these defenses with evidence, including Etigson's declaration and various documents from the ongoing Canadian litigation. The first factor is therefore satisfied.
As to the second factor of whether Rapid Aid acted with reasonable promptness, Etigson asserts he first became aware on January 10, 2014, that the deadline to file a responsive pleading was 21 days following the date of service, rather than 90 days. (Etigson Decl. ¶ 6, Jan. 24, 2014.) Rapid Aid filed a motion to dismiss ten days later on January 20, (ECF No. 14), and filed its opposition to Therapearl's motion for entry of default on January 27, (ECF No. 18). Given the relative complexity of the issues in this case, Rapid Aid acted with reasonable promptness.
Therapearl focuses most on the third factor, Rapid Aid's personal responsibility. It argues Etigson's professed misunderstanding is suspect, and Rapid Aid's failure to immediately retain U.S. counsel reflected a tactic to increase its settlement demand from Therapearl. It is true, as Therapearl argues, Etigson should have shown the complaint to U.S. counsel immediately, and not relied on his own interpretation of Rule 12. But Etigson has conceded his error. (Etigson Decl. ¶¶ 6-7, Jan. 24, 2014.) The court credits Etigson's sworn assertion that he ...