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Maxlite, Inc. v. M&C Lighting Ltd.

United States District Court, Third Circuit

December 30, 2013

MAXLITE, INC., Plaintiff,
v.
M&C LIGHTING LTD F/N/A MODERN AND CLASSIC LIGHTING, LTD., D/B/A EXCEEDLITE, DENNIS SHIA, AND JOHN DOES 1-10, and XYZ CORP. 1-10, Defendants.

OPINION

KATHARINE S. HAYDEN, District Judge.

This matter comes before the Court by way of a Fed.R.Civ.P. 55(c) motion [D.E. 57], filed by defendants M&C Lighting Ltd. and Dennis Shia, to vacate the Clerk of the Court's January 7, 2013 entry of default. The motion will be granted and the default will be set aside.

I. Background

A) The Complaint

In July 2012, New Jersey corporate plaintiff MaxLite, Inc., filed a complaint [D.E. 1] against defendants for, among other things, breach of contract. MaxLite demanded both compensatory and injunctive relief.

According to the complaint, M&C and MaxLite entered into a vendor agreement pursuant to which M&C would manufacture certain lighting products for MaxLite. (Compl. ¶¶ 22-25.) The vendor agreement contained various provisions that imposed limits on M&C's conduct under the contract, including: a prohibition on selling exclusive "MaxLite Projects" to entities other than MaxLite, an understanding that MaxLite would retain control of relevant design/manufacturing know-how and intellectual property, a confidentiality agreement, a restriction on M&C's use of its relationship with MaxLite in M&C's self-promotion, and a concession by M&C to refrain from soliciting MaxLite employees. (Compl. ¶¶ 25-32.) As part of the relationship between the companies (which predated the vendor agreement), M&C was privy to the specifications of MaxLite's lamp products and technical accessories, which differed from those M&C had produced in the past. (Compl. ¶¶ 15-16, 24.) M&C also had occasional access to MaxLite's internal operations, business practices, and personnel, as well as "the identities of MaxLite's customers, pricing, and other information as a result of directly fulfilling orders placed with MaxLite." (Compl. ¶¶ 17-18.)

According to MaxLite, the relationship began to show signs of strain in the late 2000s. Although MaxLite's business was doing well, M&C experienced "significant financial problems" stemming from economic tumult and tightened purchasing budgets among its clients. As a result, M&C's fulfillment of MaxLite's orders suffered occasional delays, threatening to "cost MaxLite a substantial amount of money." (Compl. ¶¶ 39-40.) Having already invested significant time, cash, and resources into M&C's operations, MaxLite believed switching vendors to be an unacceptable course of action; instead, it assisted M&C financially, through both prepayment of invoices and cash advances. (Compl. ¶¶ 41-43.) But as M&C's problems persisted, MaxLite was eventually forced to "locate other manufacturers and reduce its overall dependence on M&C." (Compl. ¶ 50.)

And then: during its due diligence on other suppliers, MaxLite discovered "the truth about M&C." (Compl. ¶ 51.) According to MaxLite, it learned that another company, Bright Lighting, was "actually producing the orders on behalf of M&C." (Compl. ¶ 51.) And the factories MaxLite had seen during its trips to China were not M&C's, but were instead part of a "carefully constructed... charade." (Compl. ¶ 52.) "Despite all the trust and business MaxLite had given M&C, " MaxLite contended, "M&C had lied and defrauded MaxLite from the outset of the relationship." (Compl. ¶ 52.)

M&C's duplicity-its "nefarious plot" (Compl. ¶ 55)-allegedly extended to violations of the vendor agreement. For instance, M&C purportedly engaged in back-channel negotiations (through defendant Shia) in an attempt to woo a MaxLite employee, Brian Park. (Compl. ¶¶ 60-62.) And M&C allegedly created a new corporation, Exceedlite, through which it offered "MaxLite quality at a much lower price, " and whose products were "simply rebadged MaxLite products." (Compl. ¶¶ 63-66.)

B) Preliminary Injunction, Attorney Withdrawal, and M&C's Disappearance

In August 2012, before defendants answered the complaint, MaxLite filed a motion for a preliminary injunction [D.E. 13], seeking to restrain defendants' allegedly damaging misconduct. The motion requested injunctive relief that was substantially the same as what was demanded in the complaint. ( Compare Pl.'s Prelim. Inj. Proposed Order 1-2 [D.E. 13-1], with Compl. 30-31.). On September 21, 2012, defendants answered the complaint, with M&C asserting counterclaims against MaxLite. [D.E. 18, 19.]

In late October 2012, the Court scheduled oral argument on the proposed preliminary injunction for December 18, 2012. [D.E. 29.] But after extensive briefing and with less than one month before oral argument, counsel for defendants moved (unopposed) to withdraw from representation. [D.E. 43.] Counsel declared, "On or about November 20, 2012, Dennis Shia, on his own behalf and as president of M&C Lighting Ltd., notified me that [the firm] was discharged from representing Defendants in this matter." (Sekel Decl. ¶ 2 [D.E. 43-1].)

In response to this unforeseen development, then-Magistrate Judge Shwartz ordered that Shia and a representative of M&C appear in-person on November 30, 2012, the same day as a previously scheduled Fed.R.Civ.P. 16 conference. [D.E. 44; see also D.E. 23.] They failed to do so. Allowing former counsel to withdraw, Judge Shwartz ordered that by December 13, 2012, M&C would have to obtain new counsel and that Shia would have to do the same or notify the Court that he intended to represent himself. And Judge Shwartz:

FURTHER ORDERED if defendant M & C does not have new counsel enter an appearance on its behalf by December 13, 2012 at noon, and because the corporate defendant cannot proceed without counsel licensed to practice law before this Court, the plaintiff shall request at the December 18, 2012 hearing before Judge Hayden that its Answer and counterclaim be struck, its ...

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