Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_07-cv-02425/USCOURTS-azd-2_07-cv-02425-0/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1114 Trademark Infringement

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

PepsiCo, Inc., a North Carolina

corporation; and The Concentrate

Manufacturing Company of Ireland, also

trading as Seven-Up International, a

corporation, 

Plaintiffs, 

vs.

Los Potros Distribution Center, LLC, a

limited liability company; and Santos

Hernandez, an individual, 

Defendants.

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No. CV-07-2425-PHX-DGC

ORDER AND DEFAULT JUDGMENT

Plaintiffs have filed a motion for default judgment and a motion for contempt order.

Dkt. ##18, 19. No response has been filed. The Court will grant the motion for default

judgment and deny the motion for contempt order.

I. Background.

PepsiCo, Inc. and its wholly-owned subsidiary, The Concentrate Manufacturing

Company of Ireland (“CMCI”), commenced this action on November 30, 2007, by filing a

complaint against Los Potros Distribution Center, LLC (“Los Potros”) and Santos

Hernandez, the alleged owner of Los Potros. Plaintiffs allege that Defendants made

unauthorized sales within the United States of soft drinks manufactured in Mexico and

Case 2:07-cv-02425-DGC Document 20 Filed 04/07/08 Page 1 of 7
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bearing the PEPSI and MANANITA SOL trademarks owned by Plaintiffs (“Mexican

product”). Plaintiffs further allege that the unauthorized sales of the Mexican product

violated the terms of a settlement agreement between PepsiCo and Hernandez in PepsiCo,

Inc. v. Loza, CV-06-607-PHX-MHM (D. Ariz. Aug. 8, 2006), as well as the final judgment

in that case. The complaint asserts claims for trademark infringement, unfair competition,

and breach of contract. The complaint also requests a contempt order based on Defendants’

alleged violation of the final judgment in Loza. Dkt. #1.

Defendants were served with process on December 11, 2007. Dkt. ##8-9. Defendants

have not answered or otherwise responded to the complaint as required by the Federal Rules

of Civil Procedure. The Clerk has entered Defendants’ default pursuant to Rule 55(a).

Dkt. #11.

II. The Motion for Default Judgment.

Plaintiffs request default judgment on the trademark infringement, unfair competition,

and breach of contract claims. Plaintiffs seek liquidated damages in the amount of $60,000

and an award of attorneys’ fees and costs. Plaintiffs further seek a judgment enjoining

Defendants from importing, marketing, distributing, or selling the Mexican product within

the United States. Dkt. ##18, 18-5. 

Once a party’s default has been entered, the district court has discretion to grant

default judgment against that party. See Fed. R. Civ. P. 55(b)(2); Aldabe v. Aldabe, 616 F.2d

1089, 1092 (9th Cir. 1980). Factors the court may consider in deciding whether to grant

default judgment include (1) the possibility of prejudice to the plaintiff, (2) the merits of the

claim, (3) the sufficiency of the complaint, (4) the amount of money at stake, (5) the

possibility of a dispute concerning material facts, (6) whether default was due to excusable

neglect, and (7) the policy favoring a decision on the merits. See Eitel v. McCool, 782 F.2d

1470, 1471-72 (9th Cir. 1986). In applying the Eitel factors, “the factual allegations of the

complaint, except those relating to the amount of damages, will be taken as true.” Geddes

v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977); see Fed. R. Civ. P. 8(d).

/ / /

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A. Possible Prejudice to Plaintiff.

The first Eitel factor weighs in favor of granting Plaintiffs’ motion because Plaintiffs

will be prejudiced if default judgment is not entered. Plaintiffs served process on Defendants

more than three months ago. Dkt. #3. Defendants have not answered the complaint or

otherwise appeared in this action. “If Plaintiffs’ motion for default judgment is not granted,

Plaintiffs will likely be without other recourse for recovery.” PepsiCo, Inc. v. Cal. Security

Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002).

Moreover, given the Court’s finding below that Plaintiffs have stated valid trademark

infringement and unfair competition claims against Defendants, Plaintiffs “undeniably would

be prejudiced absent the entry of permanent injunctive relief [by] default judgment.”

PepsiCo, Inc. v. Distribuidora La Matagalpa, Inc., 510 F. Supp. 2d 1110, 1116 (S.D. Fla.

2007). “The continued sale of the Mexican product by [Defendants] results in irreparable

injury to [Plaintiffs] because such sales are likely to create confusion and dissatisfaction

among retailers and customers to the detriment of [Plaintiffs’] domestic goodwill.” PepsiCo,

Inc. v. Nostalgia Prods. Corp., 18 U.S.P.Q.2d 1404, 1407 (N.D. Ill. 1990); see PepsiCo, Inc.

v. Reyes, 70 F. Supp. 2d 1057, 1060 (C.D. Cal. 1999).

B. The Merits of Plaintiffs’ Claims and the Sufficiency of the Complaint.

The second and third Eitel factors favor a default judgment where the complaint

sufficiently states a claim for relief under the liberal pleading standards of Rule 8. See Cal.

Security Cans, 238 F. Supp. 2d at 1175; Danning v. Lavine, 572 F.2d 1386, 1388-89 (9th Cir.

1978)). In this case, Plaintiffs seek default judgment on the following claims: (1) trademark

infringement in violation of Section 32 of the Lanham Act, 15 U.S.C. § 1114, (2) unfair

competition in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), (3) unfair

competition under Arizona common law, and (4) breach of contract. Dkt. ##1, 18.

The complaint sets forth the identity of Plaintiffs’ federally registered trademarks and

describes Plaintiffs’ continuous use of the marks in commerce. Dkt. #1 ¶¶ 9-20. The

complaint alleges that Defendants have used Plaintiffs’ marks in connection with the sale of

the materially different Mexican product within the United States. Id. ¶¶ 21-25. The

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complaint further alleges that Defendants’ unauthorized use of Plaintiffs’ marks is likely to

cause consumer confusion and damage the goodwill in the marks. Id. ¶¶ 41-43. These

allegations are sufficient to state trademark infringement and unfair competition claims. See

15 U.S.C. §§ 1114(1)(a), 1125(a)(1) (federal trademark infringement and unfair

competition); Fairway Constructors, Inc. v. Ahern, 970 P.2d 954, 956 (Ariz. Ct. App. 1998)

(common law unfair competition); Nostalgia Prods., 18 U.S.P.Q.2d at 1407 (“[T]here are

material differences between domestic PEPSI products and the Mexican products. As a

result, there is a likelihood of confusion and deception concerning the nature and origins of

the goods. . . . Nostalgia’s acts constitute trademark infringement and unfair competition.”);

see also Reyes, 70 F. Supp. 2d at 1059-60; Distribuidora La Matagalpa, 510 F. Supp. 2d at

1115; Cal. Security Cans, 238 F. Supp. 2d at 1175-76; PepsiCo, Inc. v. Productos

Nicaraguenses Corp., No. 06-21305-CIV-GOLD, 2006 WL 3940591, at *1-2 (S.D. Fla.

Dec. 22, 2006).

Plaintiffs have submitted a copy of the settlement agreement in the Loza case in

support of their motion for default judgment. Dkt. #18-3. The agreement contains a choiceof-law provision stating that Arizona law governs the agreement. Id. at 5, ¶ 16. To state a

breach of contract claim under Arizona law, “the complaint must allege an agreement, the

right to seek relief, and breach by the defendant.” Commercial Cornice & Millwork, Inc. v.

Camel Constr. Servs. Corp., 739 P.2d 1351, 1355 (Ariz. Ct. App. 1987); see Best W. Int’l,

Inc. v. Patel, 523 F. Supp. 2d 979, 988 (D. Ariz. 2007) (citing Graham v. Asbury, 540 P.2d

656, 657 (Ariz. 1975)).

Plaintiffs’ complaint alleges that to resolve the claims asserted by PepsiCo in the Loza

action, Hernandez agreed in the settlement agreement not sell or distribute in the United

States soft drinks manufactured in Mexico bearing the PEPSI or MANZANITA SOL marks.

Dkt. #1 ¶¶ 30, 32. The complaint further alleges that Hernandez has breached the settlement

agreement by selling the Mexican product in the United States. Id. ¶ 21. Count five of the

complaint specifically alleges that Hernandez is bound by the terms of the settlement

agreement, that he has breached the agreement, and that his breach has irreparably damaged

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PepsiCo. Id. ¶¶ 54-56. Given the Court’s acceptance of these allegations as true, see

Geddes, 559 F.2d at 560, the Court finds that PepsiCo has sufficiently stated a valid breach

of contract claim against Hernandez.

In summary, the Court concludes that Plaintiffs have sufficiently stated claims for

trademark infringement, unfair competition, and breach of contract. The second and third

Eitel factors favor a default judgment.

C. The Amount of Money at Stake. 

Under the fourth Eitel factor, the court considers the amount of money at stake in

relation to the seriousness of the defendant’s conduct. See Cal. Security Cans, 238 F. Supp.

2d at 1176. Plaintiffs seek $60,000 in liquidated damages, as well as attorneys’ fees and

costs, based on Hernandez’s breach of the settlement agreement. Dkt. #18 at 11; see Dkt.

##1 ¶ 33, 18-3 ¶ 7. Given the willfulness of Hernandez’s conduct (see Dkt. #1 ¶ 44), and the

difficulty of proving actual damages in this case, the Court finds that the $60,000 in

liquidated damages is reasonable. See Best W. Int’l, Inc. v. Oasis Invs., L.P., 398 F. Supp.

2d 1075, 1081 (D. Ariz. 2005) (finding a liquidated damages clause enforceable where the

defendant did not contest the reasonableness of the amount and it would be very difficult for

the plaintiff to accurately estimate the damages caused by the defendant’s infringing

conduct); Bd. of Trs. of Cal. Metal Trades v. Pitchometer Propeller, No. C-97-2661-VRW,

1997 WL 7979222, at *1 (N.D. Cal. Dec. 15, 1997) (amount of money at stake was

reasonable where it was contractually justified). The Court further finds that Plaintiffs are

entitled to an award of reasonable attorneys’ fees and costs.

D. Possible Dispute Concerning Material Facts.

Given the sufficiency of the complaint and Defendants’ default, “no genuine dispute

of material facts would preclude granting Plaintiffs’ motion.” Cal. Security Cans, 238 F.

Supp. 2d at 1177; see Geddes, 559 F.2d at 560.

E. Whether Default Was Due to Excusable Neglect.

Defendants were properly served with the summons and complaint pursuant to Rule 4

of the Federal Rules of Civil Procedure. Dkt. ##8-9. It therefore is “unlikely that

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[Defendants’] failure to answer and the resulting default was the result of excusable neglect.”

Gemmel v. Systemhouse, Inc., No. CIV 04-187-TUC-CKJ, 2008 WL 65604, at *5 (D. Ariz.

Jan. 3, 2008).

F. The Policy Favoring a Decision on the Merits.

“Cases should be decided upon their merits whenever reasonably possible.” Eitel, 782

F.2d at 1472. But the mere existence of Rule 55(b) “indicates that this preference, standing

alone, is not dispositive.” Cal. Security Cans, 238 F. Supp. at 1177 (citation omitted).

Moreover, Defendants’ failure to answer or otherwise respond to the complaint “makes a

decision on the merits impractical, if not impossible.” Id. The Court therefore is not

precluded from entering default judgment against Defendants. See id.; Gemmel, 2008 WL

65604 at *5. 

G. Conclusion.

Having reviewed Plaintiffs’ motion and supporting documents, and having considered

the Eitel factors as a whole, the Court concludes that the entry of default judgment is

appropriate. The Court accordingly will grant Plaintiffs’ motion.

III. The Motion for Contempt Order.

Plaintiffs request the undersigned Judge to hold Defendants in contempt for violating

a final judgment entered by another judge. See Dkt. #18, CV-06-607-PHX-MHM.

Plaintiffs’ request will be denied.

IT IS ORDERED:

1. Plaintiffs’ motion for contempt order (Dkt. #19) is denied.

2. Plaintiffs’ motion for default judgment (Dkt. #18) is granted.

3. Default judgment is entered in favor of Plaintiffs and against Defendants on

counts two through five of the complaint.

4. Plaintiff PepsiCo, Inc. is awarded $60,000.00 in liquidated damages on the

breach of contract claim asserted against Defendant Santos Hernandez in count

five of the complaint.

5. Defendants Santos Hernandez and Los Potros Distribution Center, LLC, their

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officers, agents, servants, employees, and successors and assigns are

permanently enjoined from the importation into and the dealing, marketing,

sale, or distribution in the United States of soft drinks manufactured or bottled

in Mexico and bearing PepsiCo’s PEPSI marks or CMCI’s MANZANITA

SOL marks.

6. Plaintiffs may file a motion for attorneys’ fees in accordance with Local Rule

of Civil Procedure 54.2.

DATED this 4th day of April, 2008.

Case 2:07-cv-02425-DGC Document 20 Filed 04/07/08 Page 7 of 7