Gunnells v. Teutul

Background

Scott Gunnells, a photographer, alleged copyright infringement based on defendants’ use of headshots he took of Michael Teutul. According to the complaint, the photographs were used without permission in Michael Teutul’s merchandise and on the television show “American Chopper.” The court had previously entered default judgment against Joseph Teutul, Paul Teutul, and Orange County Choppers, Inc. The remaining defendants, Discovery, Inc. and Pilgrim Media Group, LLC, had settled with Gunnells.

The defaulting defendants moved under Federal Rule of Civil Procedure 60(b) to vacate, meaning set aside, the default judgment. They attributed their failure to appear to the alleged misconduct of Thomas Vasti III, whom they said had agreed to represent them. Vasti submitted a declaration stating that he had never agreed to represent them and that he had told Joan Kay that he would not do so unless he received payment for an earlier representation and a new retainer.

Legal standard

The court explained that deciding whether to vacate a default judgment is within the district court’s discretion. It considered three factors: whether the defendants’ default was willful, whether they presented a meritorious defense, and whether vacating the judgment would prejudice Gunnells.

Willfulness

A default is willful when the party’s conduct is egregious rather than merely negligent or careless. The defendants submitted sworn statements and communications supporting their account that they believed Vasti was representing them. Vasti gave a conflicting account and denied being retained. Because the evidence conflicted, the court stated that it would need an evidentiary hearing to determine with reasonable certainty whether the defendants’ conduct was willful. The court did not hold that hearing because the other two factors resolved the motion.

Meritorious defense

A party seeking to vacate a default judgment does not have to prove a defense conclusively. It must present facts that, if proven at trial, would provide a complete defense. The defendants identified several possible defenses, including that two of them were not involved in the alleged infringement and that Gunnells consented to the photographs’ use. The court focused on the statute-of-limitations defense.

The court stated that copyright-infringement claims are subject to a three-year limitations period running from discovery of the infringing activity. Gunnells claimed that he discovered all instances of infringement on or after October 2017. The defendants argued that this was implausible because Gunnells allegedly took the photographs ten years earlier for Michael Teutul’s use in selling goods. The court concluded that, if the defendants’ version were proven at trial, the statute of limitations could completely defeat Gunnells’s claims. This factor therefore weighed in favor of vacating the judgment.

Prejudice

The court held that delay alone does not establish prejudice. A party must show something more, such as loss of evidence, increased difficulty in discovery, interference with recovery, or a greater opportunity for fraud or collusion. Gunnells argued that he would be prejudiced by the time and expense of litigating the case. The court found that much of that time and expense resulted from Gunnells’s own delays, including the five-month period between his amended complaint and renewed motion for default judgment.

The court also found no prejudice from the three-month delay between entry of the default judgment and the motion to vacate. It stated that the costs of moving for and enforcing the second default judgment could be reimbursed. The prejudice factor therefore strongly favored vacatur.

Ruling

The court held that vacating the default judgment was warranted even though it could not determine whether the default was willful without an evidentiary hearing. Judge Jed S. Rakoff granted the motion to vacate the default judgment. To minimize prejudice, the court ordered the defendants to reimburse Gunnells for the costs of moving for and enforcing the second default judgment, subject to an accounting and any challenges to those costs. The court denied Gunnells’s request for Rule 11 sanctions, finding that the defendants’ request to vacate the judgment was not objectively unreasonable.