Berrocal v. Sheet Music Now, Inc.

Background

Marco Berrocal sued Sheet Music Now, Inc. The complaint alleged that Berrocal and Online Sheet Music, Inc. entered into a licensing and distribution agreement giving Online Sheet Music a non-exclusive right to use Berrocal’s sheet music, including five specific works. Sheet Music Now acquired those licenses from Online Sheet Music.

Berrocal notified Online Sheet Music on May 4, 2018, that he had not received required royalty payments since July 1, 2016. He received a $202.18 check from Sheet Music Now but did not receive the required royalty accounting or payment. Berrocal later gave notice of an opportunity to cure the alleged violations and then notified Online Sheet Music and Sheet Music Now that he considered the agreement terminated as of May 19, 2018. He alleged that Sheet Music Now continued to distribute, reproduce, and publicly display the works without authorization.

Berrocal asserted four claims: copyright infringement under 17 U.S.C. §§ 106, 504, and 505; breach of the licensing agreement; an injunction and seizure under 17 U.S.C. § 502 and related provisions; and an accounting.

Default and Motion to Set It Aside

Berrocal filed the complaint on May 31, 2019. Sheet Music Now did not respond or file a motion. On August 28, the clerk entered a Certificate of Default. The court later ordered Sheet Music Now to show why a default judgment should not be entered. Defense counsel then sought to adjourn a scheduled conference, stating that the firm had first been contacted and retained that day. Sheet Music Now subsequently moved to set aside the Certificate of Default, and Berrocal opposed the motion.

Federal Rule of Civil Procedure 55(c) allows a court to set aside an entry of default for “good cause.” The court considered three factors: whether the default was willful, whether setting it aside would prejudice Berrocal, and whether Sheet Music Now had a potentially valid defense. The court also noted the general preference for resolving cases on their merits rather than by default.

Willfulness

The court found that Sheet Music Now’s conduct was not willful. Sheet Music Now said it was unaware that the complaint had been filed because it had not been personally served, later became uncertain whether service was proper, and mistakenly believed that an answer was not required while its chief executive officer was trying to resolve the dispute with Berrocal.

Berrocal disputed that account. He asserted that Sheet Music Now had counsel when the complaint was served and that the company deliberately chose not to participate in the litigation to avoid litigation costs and pressure him to accept settlement terms.

The court concluded that Sheet Music Now provided at least three plausible reasons for failing to respond: uncertainty about whether a complaint had been filed, whether service was proper, and whether an answer was required during settlement discussions. The court resolved factual disputes about Sheet Music Now’s knowledge in its favor and determined that, under the company’s version of events, its conduct amounted at most to neglect rather than deliberate or extreme misconduct.

Prejudice

The court found that Berrocal would not be prejudiced if the Certificate of Default were set aside. Delay alone was not enough. Berrocal argued that Sheet Music Now continued displaying certain copyrighted works for sale and had not assured him that it deleted related files from its records. Sheet Music Now responded that it had removed the works at issue.

The court characterized the risk that Sheet Music Now might resume the alleged infringement as speculative. It also found that Berrocal could still seek payment, an injunction against present and future infringement, and an accounting after Sheet Music Now had an opportunity to respond and litigate the case.

Potentially Valid Defenses

The court found that Sheet Music Now presented potentially valid defenses. The company asserted that it paid the royalties before they were due or during the cure period; that Berrocal could not sue for copyright infringement based on royalties that accrued before termination of the non-exclusive license; that the licensing agreement was not properly terminated; and that Berrocal waived enforcement of the agreement.

At this stage, Sheet Music Now did not have to prove these defenses conclusively. It had to provide more than bare denials and identify facts that, if proven at trial, could completely defeat some or all of Berrocal’s claims. The court found that the asserted defenses met that standard. The court did not decide whether those defenses would ultimately succeed.

Ruling

The court granted Sheet Music Now’s motion. It vacated the Clerk’s Certificate of Default and ordered Sheet Music Now to file an answer to the complaint within 14 days of the Opinion and Order. The ruling reopened the case for litigation; it did not decide the merits of Berrocal’s copyright, contract, injunction, or accounting claims.