City of New York v. Lopez

Background

The City of New York sued Robert G. Lopez under the federal Lanham Act for alleged trademark counterfeiting, false designation of origin, and unfair competition. The City also asserted New York-law claims for trademark infringement, trademark dilution, and trademark cancellation. The complaint alleged that Lopez operated a cannabis clothing store and sold items—including hats, hoodies, shirts, decals, and cannabis pouches—with marks allegedly resembling the City’s registered marks.

Lopez was personally served and received an extension to answer, but he missed the extended deadline. The Clerk then entered his default. The City moved for default judgment, and Lopez filed a motion to dismiss that the court treated as a motion to set aside the default. The court had previously issued a preliminary injunction stating that the complaint adequately pleaded several claims and that the City had a likelihood of success on the merits. That injunction restrained Lopez from using the relevant trademarks in connection with goods and services.

Standard for Setting Aside the Default

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 Lopez’s default was willful, whether he had a potentially meritorious defense, and whether setting aside the default would prejudice the City. The court also noted the legal preference for resolving disputes on their merits.

Before entering default judgment, a court must determine whether the complaint’s allegations establish the defendant’s liability as a matter of law. Well-pleaded allegations are generally treated as true after a default, but the court still assesses whether those allegations legally support liability.

Court’s Analysis

The court found that Lopez’s default was not willful. Lopez said that, after requesting an extension, he did not receive the order granting it. The court characterized the default as careless rather than intentional, considering Lopez’s self-represented status and the fact that he filed a motion soon afterward.

The court also found that Lopez had a potentially meritorious defense, even though his position was unlikely to succeed on the merits. Lopez argued that his products were not counterfeit because they were not identical or substantially indistinguishable from the City’s marks and included images of a marijuana leaf. The City acknowledged that whether the marks were counterfeit could be a close question. The court therefore concluded that Lopez’s defense was not plainly meritless as to every claim.

Finally, the court found no prejudice to the City. The City identified delay as its reason for opposing relief, but delay alone was insufficient. The court observed that the preliminary injunction already restrained Lopez from using the relevant trademarks and that only a short time had passed between the entry of default and Lopez’s motion to set it aside.

Rulings

Judge J. Paul Oetken granted Lopez’s motion to set aside the default. Because the default was set aside, the City’s motion for default judgment was denied. The court did not enter default judgment or resolve the parties’ underlying trademark claims in this opinion.

The City’s request for a conference about alleged violations of the preliminary injunction was granted. The City’s request that Lopez post a $100,000 bond as security for costs and attorney’s fees was denied without prejudice, with leave to renew the request at the conference. Lopez was ordered to file an answer within 21 days after the opinion and order.