Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-00333/USCOURTS-azd-2_10-cv-00333-2/pdf.json

Nature of Suit Code: 196
Nature of Suit: Franchise
Cause of Action: 15:1125 Trademark Infringement (Lanham Act)

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The complaint erroneously names Defendant Amir Farooqui as Amir Hussain. See

Docs. 60 at 2, 77 at 1.

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

DLC DermaCare LLC, an Arizona

limited liability company, 

Plaintiff, 

vs.

Sixta Castillo, R.N., et al., 

Defendants. 

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No. CV-10-333-PHX-DGC

ORDER

DLC DermaCare LLC began franchising dermatology clinics in 2004. It brought

suit against numerous franchisees and their spouses in early 2010. Doc. 1. The complaint

asserts claims for breach of contract, breach of the implied covenant of good faith and fair

dealing, misappropriation of trade secrets, trademark and service mark infringement, unfair

competition, tortious interference with contract, and civil conspiracy. Id. at 21-30.

The Clerk has entered default against Defendants Susan Feng, Amir Hussain (Amir

Farooqui), Irum Hussain, David Minozzi, Ramen Verma, Juan Castillo-Plaza, Sixta Castillo,

and Michelle Barnes. Doc. 53. Defendants have filed a motion to set aside the entry of

default pursuant to Rule 55(c) of the Federal Rules of Civil Procedure. Doc. 60. The motion

is fully briefed. Docs. 77, 97. No party has requested oral argument. For reasons stated

below, the Court will grant the motion.1

A defendant’s default may be set aside under Rule 55(c) for “good cause.” The

Case 2:10-cv-00333-DGC Document 128 Filed 10/25/10 Page 1 of 3
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relevant analysis considers three factors: whether the defendant is culpable, whether he has

a meritorious defense, and whether setting aside default would prejudice the plaintiff. See

Franchise Holding II, LLC v. Huntington Rests. Group, Inc., 375 F.3d 922, 925-26 (9th Cir.

2004). The defendant bears the burden of showing that at least one of these factors favors

setting aside his default. Id. at 926.

“‘A defendant’s conduct is culpable if he has received actual or constructive notice

of the filing of the action and intentionally failed to answer.’” TCI Group Life Ins. Plan v.

Knoebber, 244 F.3d 691, 697 (9th Cir. 2001) (citation omitted). The defendant “must have

acted with bad faith, such as an ‘intention to take advantage of the opposing party, interfere

with judicial decision making, or otherwise manipulate the legal process.’” United States v.

Signed Personal Check No. 730 of Yubran S. Mesle (“Mesle”), 615 F.3d 1085, 1092 (9th Cir.

2010) (quoting TCI Group, 244 F.3d at 697). Defendants have shown that their failure to

timely answer the complaint was due in large part to complications and misunderstandings

in retaining local counsel. Docs. 60-1 through 60-8. Nothing about Defendants’ conduct

“suggests the bad faith necessary to find that [they] intentionally failed to answer[.]” Mesle,

615 F.3d at 1093.

“All that is necessary to satisfy the ‘meritorious defense’ requirement is to allege

sufficient facts that, if true, would constitute a defense[.]” Id. at 1094. Defendants have met

this “minimal” burden. Id. Defendants allege, among other things, that claims asserted by

Plaintiff are subject to arbitration under the express terms of the relevant franchise

agreements. Those allegations, when accepted as true, constitute a sufficient defense to

this lawsuit. See Doc. 1 ¶ 11 (admitting that the franchise agreements “allow the parties

[to] resolve any disputes through binding arbitration”); Doc. 59 (dismissing claims and

compelling arbitration).

Plaintiff claims that setting aside default will only delay the relief it seeks and permit

Defendants to continue to operate in bad faith. Doc. 77 at 5. To be prejudicial, however,

“the setting aside of [default] must result in greater harm than simply delaying resolution of

the case.” TCI Group, 244 F.3d at 701. Defendants note, correctly, that Plaintiff has not

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sought preliminary injunctive relief. Doc. 97 at 9-10; see Doc. 1 at 30-40. Nor has Plaintiff

shown that the setting aside of default will hinder its ability to pursue its claims. See TCI

Group, 244 F.3d at 701. Resolving the claims on the merits, whether through litigation in

this Court or by way of arbitration, will not result in unfair prejudice to Plaintiff.

Plaintiff asserts that there is a “strong possibility” Defendants may hide their assets

(Doc. 77 at 6), but presents no facts or argument in support of this assertion. Plaintiff’s

reliance on Franchise Holdings, 375 F.3d at 926, is therefore misplaced.

This Circuit’s “rules for determining when a default should be set aside are solicitous

towards movants,” especially where, as in this case, the “actions leading to the default were

taken without the benefit of legal representation.” Mesle, 615 F.3d at 1089. “‘Judgment by

default is a drastic step appropriate only in extreme circumstances; a case should, whenever

possible, be decided on the merits.’” Id. (citation omitted). Because extreme circumstances

do not exist in connection with the moving Defendants’ default, the Court will exercise its

discretion under Rule 55(c) and set their default aside. See Sandpiper Resorts Dev. Corp. v.

Global Realty Invs., LLC, No. CV 08-1360-PHX-MHM, 2010 WL 3190706, at *3 (D. Ariz.

Aug. 12, 2010); United States v. $35,017 in U.S. Currency, No. C 10-0995 RS, 2010 WL

3619794, at *5 (N.D. Cal. Sept. 9, 2010).

IT IS ORDERED:

1. The motion to set aside entry of default pursuant to Rule 55(c) filed by

Defendants Susan Feng, Amir Hussain (Amir Farooqui), Irum Hussain, David

Minozzi, Ramen Verma, Juan Castillo-Plaza, Sixta Castillo, and Michelle

Barnes (Doc. 60) is granted.

2. Defendants shall have until October 29, 2010 to answer or otherwise respond

to the complaint.

DATED this 25th day of October, 2010.

Case 2:10-cv-00333-DGC Document 128 Filed 10/25/10 Page 3 of 3