Faizi v. Temori

Background

Ahmad Mukhtar Faizi filed a verified shareholder derivative complaint seeking money damages and injunctive relief for himself and on behalf of nominal defendant Falafel Flame, Inc. The complaint named two Falafel Flame directors and several entities, including allegedly unauthorized Falafel Flame restaurants. The motion addressed the trademark-infringement claim under the Lanham Act, 15 U.S.C. § 1114, against Falafel Flame Hayward, Falafel Flame Sunnyvale, and Falafel Flame San Jose.

The court had previously granted a preliminary injunction focused on the allegedly unapproved establishments and the trademark claim. After those defendants failed to comply with the injunction, the court struck their answers, directed the Clerk to enter default as to those defendants and only as to the trademark claim, and allowed Faizi to seek default judgment. The defendants were still permitted to oppose the motion, and they did so.

Jurisdiction and Default-Judgment Standard

The court found federal-question jurisdiction because the claim arose under the Lanham Act. It also found personal jurisdiction and no problem with service of process because the defaulting defendants had made a general appearance and did not contest service or personal jurisdiction.

Under Federal Rule of Civil Procedure 55, a court may enter default judgment after a defendant fails to plead or otherwise defend. The court evaluated the seven factors identified in Eitel v. McCool, including prejudice, the merits and sufficiency of the claim, the amount at stake, possible factual disputes, excusable neglect, and the policy favoring decisions on the merits. The court treated the complaint’s factual allegations as true except those concerning damages.

Liability

The court found that six of the seven factors favored default judgment. The defendants did not seriously dispute that the complaint’s allegations, together with the court’s preliminary-injunction findings, supported liability for trademark infringement. The court also found that Falafel Flame would otherwise lack a practical avenue for recovery, that there was no meaningful possibility of resolving disputed material facts because the defendants had not participated sufficiently, and that the default did not appear to result from excusable neglect.

The court concluded that Falafel Flame was entitled to default judgment regarding liability on the Lanham Act trademark-infringement claim against Falafel Flame Hayward, Falafel Flame Sunnyvale, and Falafel Flame San Jose.

Requested Remedies

The court denied without prejudice the relief requested. Faizi sought an accounting and disgorgement of the defendants’ net profits, a permanent injunction, and the company’s reasonable attorneys’ fees and costs.

The court found the request for an accounting insufficiently supported. Faizi had not explained adequately why an accounting was appropriate, what information it would require, how it would be conducted, how an auditor would be selected, who would pay the costs, or what timetable would apply. The motion also did not specify the terms of the requested permanent injunction. Although Faizi later said he wanted the preliminary injunction converted into a permanent injunction, he also described injunctive relief as secondary and monetary relief as primary. The court said the requested relief needed to be clarified.

The court explained that a request for attorneys’ fees must be made by a separate motion complying with Civil Local Rule 54-5 and must address the standard for determining whether the case is “exceptional” under the Lanham Act.

Disposition

The court granted in part and denied in part the motion for default judgment brought on Falafel Flame’s behalf against the three named defaulting defendants concerning claim one, the Lanham Act trademark-infringement claim. Liability was resolved in Falafel Flame’s favor, while the requested remedies were denied without prejudice. The court permitted Faizi to file another motion addressing the requested relief by May 14, 2024, without revisiting liability.