Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-05946/USCOURTS-cand-3_07-cv-05946-2/pdf.json

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

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

CHANEL INC.,

Plaintiff,

 v.

SUSAN LYNNE PACINI,

Defendant. /

No. C 07-05946 CRB

ORDER GRANTING MOTION TO

SET ASIDE DEFAULT

Defendant Susan Pacini moves to set aside the default judgment entered by the Court

on February 26, 2008. Because Defendant has shown “good cause” for her failure to file a

timely answer to Plaintiff Chanel’s complaint, the motion is GRANTED. The hearing

scheduled for May 30, 2008 is VACATED; the parties are instructed to appear for a case

management conference on May 30, 2008 at 10:00a.m.

BACKGROUND

In the summer of 2007, a private investigator visited a tanning salon owned and

operated by Pacini and removed several purses offered for sale, along with other

merchandise. See Pacini Decl. ¶ 5. Concerned that the seizure might result in legal action,

Pacini hired Randall Knox to serve as legal counsel. Id. ¶ 6. Knox, who focuses his practice

exclusively upon criminal defense, contacted law enforcement agencies to determine whether

the investigator was affiliated with a pending criminal investigation, which apparently the

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investigator was not. See Knox Decl. ¶¶ 2, 4.

Pacini subsequently received and forwarded on to Knox a “cease and desist” letter

from Plaintiff Chanel. See id. ¶ 5. Knox contacted the attorney representing Chanel to

negotiate a resolution, but was unable to do so before Chanel filed a complaint on November

26, 2007 alleging violations of the federal trademark laws. The complaint alleged that Pacini

sold counterfeit Chanel handbags, wallets, and other goods through her tanning salons. See

Complaint ¶¶ 2, 19. 

Approximately two days after receiving a copy of the complaint on December 24,

Pacini transmitted a copy to Knox. See Knox Decl. ¶ 5. Knox discussed the complaint with

Pacini, and suggested that he would continue to try to resolve the matter. See id ¶ 7. 

Although Pacini was required to file an answer by January 14, 2008, see Federal Rule of

Civil Procedure 12(a)(1)(A)(i), Pacini failed to file a responsive pleading. On February 19,

2008, Chanel’s lawyer telephoned Knox to inform him that the date for a responsive pleading

had passed. See Lisi Decl. ¶ 5. The next day, Chanel’s lawyer left a message informing

Knox that Chanel intended to file a Request for Entry of Default against Pacini, but Knox

never responded. See id. 

According to Knox, he was busy in February and March with two criminal trials. See

Knox Decl. ¶¶ 8, 9. For that reason, he did not contact Pacini until early April, when he

called “to follow up on the case.” Id. ¶ 10. At that point, Knox informed Pacini that a

deadline had been missed and recommended that Pacini hire civil counsel. See id. ¶ 10;

Pacini Decl. ¶ 11. Within days, Pacini hired another lawyer to represent her in this

proceeding. See Pacini Decl. ¶ 11. New counsel filed an answer on April 7 and soon

thereafter filed this opposed motion to set aside the default. 

LEGAL STANDARD

Federal Rule of Civil Procedure 55(c) provides that a court may set aside an entry of

default “for good cause.” The “good cause” standard that governs vacating an entry of

default under Rule 55(c) is the same standard that governs vacating a default judgment under

Rule 60(b). See TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir. 2001). 

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The good cause analysis considers three factors: (1) whether the defendant’s culpable

conduct led to the default; (2) whether the defendant has a meritorious defense; and (3)

whether reopening the default judgment would prejudice the plaintiff. See id. Pacini bears

the burden of demonstrating that all three factors favor reopening the default judgment, and

the Court may deny the motion if she fails to bear her burden on any one factor. See

Franchise Holding II, LLC. v. Huntington Rests. Group, Inc., 375 F.3d 922, 926 (9th Cir.

2004). Because default judgments are usually disfavored, the Court must apply Rule 55

liberally, and any doubts must be resolved in favor of the motion to set aside entry of default. 

See Meadows v. Dominican Republic, 817 F.2d 517, 521 (9th Cir. 1987).

ANALYSIS

I. Culpability

The Ninth Circuit clarified the meaning of the “culpability” prong in TCI Group Life 

Ins. Plan v. Knoebber, 244 F.3d 691 (9th Cir. 2001). As in this case, the defendant in TCI

moved to set aside a default judgment based on her failure to file a responsive pleading. The

court set forth the governing standard – that “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” – but concluded that a failure to answer is not intentional unless done so willfully,

deliberately, or in bad faith. Id. at 697 (quotation omitted) (emphasis in original). Thus:

[n]eglectful failure to answer as to which the defendant offers a credible, good

faith explanation negating any intention to take advantage of the opposing

party, interfere with judicial decisionmaking, or otherwise manipulate the legal

process is not “intentional” under our default cases, and is therefore not

necessarily – although it certainly may be, once the equitable factors are

considered – culpable or inexcusable.

Id. at 697-98 (emphasis in original). 

Pacini has provided an explanation for her default inconsistent with a devious,

deliberate, willful or bad faith failure to respond: she reasonably believed that she had hired

counsel who was diligently responding to the complaint. Unfortunately, for assorted reasons,

the lawyer who assured Pacini that he would attempt to resolve the matter failed to either file

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an answer or tell Pacini to hire other counsel before an answer was due. Pacini herself bears

no blame, as she promptly hired new counsel and filed an answer when told of the situation. 

There is no evidence that Pacini intended to take advantage of Chanel or manipulate

the legal process. At worst, Pacini is guilty of placing too much faith in her attorney. While

“clients must be held accountable for the acts and omissions of their attorneys[,]” Pioneer

Inv. Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 396 (1993), an

attorney’s failure to timely file a pleading may be excusable under Rule 60(b)(1) – and

therefore good cause for setting aside an entry of default pursuant to Rule 55(c) – if certain

equitable factors favor the defendant. These equitable factors include: (1) the danger of

prejudice to the opposing party; (2) the length of the delay and its potential impact on the

proceedings; (3) the reason for the delay; and (4) whether the movant acted in good faith. Id.

at 395, cited in Bateman v. United States Postal Serv., 231 F.3d 1220, 1223-24 (9th Cir.

2000). 

The majority of the four Pioneer factors favor granting Pacini’s motion. First, for the

reasons set forth below in Part III, the prejudice to Chanel is minimal. Second, the twomonth delay between the entry of judgment and Pacini’s motion, while not insignificant,

would have a negligible impact on the judicial proceedings. No discovery has been

conducted, no trial or pre-trial dates have been set, and nothing – other than Chanel’s interest

in finality – would be upset by reopening the case. The third factor – reason for the delay –

surely favors Chanel, as Knox has failed to provide a sympathetic reason for his failure to file

an answer on Pacini’s behalf. But the fourth factor favors Pacini, because there is no

evidence that either she or Knox acted with anything less than good faith. Knox’s “errors

resulted from negligence and carelessness, not from deviousness or wilfullness.” Bateman,

231 F.3d at 1225. 

Because Pacini has proffered a credible explanation that negates any inference of bad

faith, and because the equities weigh in her favor, the Court finds that Pacini is not culpable

for the failure to file a timely answer.

///

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II. Meritorious Defense

 To satisfy the second prong of the good faith test, Pacini must present specific facts

that would constitute a defense. See Madsen v. Bumb, 419 F.2d 4, 6 (9th Cir. 1969). The

burden on a party seeking to vacate a default judgment is not extraordinarily heavy, see TCI,

244 F.3d at 700, but a mere denial without facts to support it is not enough to justify vacating

a default, see Franchise Holding II, LLC. v. Huntington Restaurants Group, Inc., 375 F.3d

922, 926 (9th Cir. 2004).

In a supplementary declaration, Pacini states that she bought the Chanel merchandise

in question at an open-air market in Galt, California where wholesalers of goods sell supplies

and merchandise to retailers. See Supp. Pacini Decl. ¶ 3. Pacini believed the merchandise

labeled “Chanel” was genuine, and the person who sold the purses told Pacini that they were

leftovers from a prior season’s design. See id. ¶ 4. There was nothing about the Chanel

products that suggested to Pacini that they were counterfeit. See id. ¶ 5. 

According to Pacini, these facts suffice to show that she may have a “first sale”

defense. Under the first sale doctrine, “the right of a producer to control distribution of its

trademarked product does not extend beyond the first sale of the product.” Sebastian Int’l,

Inc. v. Longs Drug Stores Corp. 53 F.3d 1073, 1074 (9th Cir. 1995). Hence, a distributor

who resells trademarked goods without change is not liable for trademark infringement. 

Much of Pacini’s evidence bears on her subjective belief that the purses were genuine. 

But Pacini’s intent is irrelevant to the first sale defense. See Coca-Cola Co. v. Overland,

Inc., 692 F.2d 1250, 1256 n.16 (1982). The issue is not whether Pacini believed the purses to

be genuine, but whether the purses were in fact genuine. While it is a close call, the Court

finds that the evidence proffered by Pacini satisfies Madsen’s requirement that specific facts

constituting a defense be presented. The fact that Pacini purchased the purses at a legitimate

open-air market from merchants who represented that the purses were genuine supports

Pacini’s position that the purses were not counterfeit. The Court makes no judgment as to

whether the evidence would be sufficient to prevail at trial or to successfully oppose a motion

for summary judgment; the Court simply finds that the facts set forth in Pacini’s declaration

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G:\CRBALL\2007\5946\Order Setting Aside Default.wpd 6

satisfy the burden imposed by Rule 55(c), and concludes that Pacini has a meritorious

defense.

III. Prejudice

The third prong to the good faith inquiry addresses whether reopening the default

judgment would prejudice the plaintiff. To be prejudicial, the setting aside of the judgment

must result in greater harm than simply delaying resolution of the case. TCI 244 F.3d at 701. 

Rather, “the standard is whether [plaintiff’s] ability to pursue his claim will be hindered.” 

See Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984). Chanel has not even attempted to

argue that setting aside the judgment would hinder its ability to pursue its trademark claims. 

Other than forcing Chanel to litigate its claims on the merits – which “cannot be considered

prejudicial for purposes of lifting a default judgment,” TCI, 244 F.3d at 701 – reopening the

judgment would have no ill effects. Accordingly, the Court finds that reopening the default

judgment would not prejudice Chanel.

CONCLUSION

Good cause to reopen the default judgment exists in this case because (1) the default

did not result from Pacini’s culpable conduct; (2) Pacini has a meritorious defense; and (3)

reopening the default judgment would not prejudice Chanel. Accordingly, the motion to set

aside the default is GRANTED.

IT IS SO ORDERED.

Dated: May 20, 2008 

CHARLES R. BREYER

UNITED STATES DISTRICT JUDGE

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