United States District Court, D. New Jersey
MEMORANDUM OPINION AND ORDER
DOUGLAS E. ARPERT, Magistrate Judge.
This matter comes before the Court on a Motion by Defendant Aureus Medical GMBH ("Aureus" or "Defendant") to set aside the default entered by the Clerk on May 11, 2015. See Dkt. No. 28. Plaintiff Replication Medical, Inc. ("RMI") opposes Aureus' Motion. See Dkt. No. 32. For the reasons set forth below, Aureus' Motion to set aside default is GRANTED.
RMI develops and markets hydrogel surgical implants which are designed to treat degenerative disc diseases (the "Implants"). Dkt. No. 32 at p. 3. RMI holds several patents for the Implants in the United States and elsewhere and markets the Implants under the trade names Gelstix ("Gelstix") and NucleoFix ("NucleoFix"). Id. While the Implants are not currently approved for sale in the United States, RMI claims that "they are the subject of on-going research, scholarly attention, and marketing efforts in the United States." Id. at p. 4. On May 15, 2013, RMI and Aureus entered into an agreement (the "Distribution Agreement") which granted Aureus a limited license to market the Implants under the trade name NucleoFix in Germany, Switzerland, Belgium and Austria. Id.
According to RMI, Aureus breached the Distribution Agreement by registering the NecleoFix trademark in Germany and by attempting to register the NucleoFix and GelStix as trademarks in the European Union. Id. at p. 5. In addition, RMI claims that Aureus "attempted to market the Implants outside the permissible territory, including in the United States." Id. As a result of Aureus' alleged breaches of the Distribution Agreement, RMI terminated the Distribution Agreement on February 14, 2015. Dkt. No. 32 at p. 5. RMI claims that "Aureus has taken significant steps aimed at creating the false impression that it is the owner and developer of the Implants and other RMI intellectual property" and "holds itself out to various markets around the world, including the United States, as the exclusive distributor of the Implants." Id.
On March 6, 2015, RMI filed a Complaint against Aureus and Dirk Kuyper (collectively "Defendants") asserting fourteen causes of action arising out of Defendants' alleged breach of the Distribution Agreement. See Dkt. No. 1. According to RMI, Aureus was served on April 16, 2015 by hand delivery of the Summons and Complaint to Aureus' Chief Executive Officer and President, Dirk Kemmstedt, in San Diego, California while Mr. Kemmstedt was attending an industry convention. Dkt. No. 32 at p. 6. Aureus' Answer was due on May 6, 2015. See Dkt. No. 7. Aureus failed to respond to the Complaint and on May 7, 2015, RMI requested that default be entered as to Aureus pursuant to Federal Rule of Civil Procedure 55(a). See Dkt. No. 15. On May 11, 2015, the Clerk entered default as to Aureus.
Aureus claims that shortly after being served, Mr. Kemmstedt contacted Mr. Kuyper, who "advised Mr. Kemmstedt that the Complaint had not been properly served and no response was needed by Aureus." Dkt. No. 28 at p. 2-3. According to Aureus, Mr. Kemmstedt was under the impression that Mr. Kuyper's attorney was present during their conversation, and that the comments allegedly made by Mr. Kuyper were based upon the advice of his attorney Id. at p. 3. Based on that reliance, Aureus claims that it believed no response to the Complaint was necessary at the time. Id. According to RMI, on May 13, 2015, Mr. Kemmstedt contacted RMI's Chief Executive Officer and President, Ann Prewitt and proposed a settlement. Dkt. No. 32 at p. 6. On May 14, 2015, RMI filed a Motion seeking a Preliminary Injunction which is currently pending before the Court. See Dkt. No. 21. Aureus asserts that it was not aware that default had been entered until it received a copy of RMI's Preliminary Injunction Motion in Germany by regular mail on May 19, 2015, at which point Aureus "immediately reached out to counsel in the United States to obtain clarification on the status of the litigation." Dkt. No. 28 at p. 3. According to Aureus, upon learning that default had been entered, it contacted RMI to request their consent to set aside the entry of default, which RMI denied. Id. at p. 3-4. Aureus filed the present Motion to vacate default on June 8, 2015. Id.
The entry of default and default judgment is governed by Federal Rule of Civil Procedure 55. The power to grant default judgment "has generally been considered an inherent power, ' governed not by rule or statute but by the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases." Hritz v. Woma Corp., 732 F.2d 1178, 1181 (3d Cir. 1984) (citations omitted). Because a default judgment prevents a plaintiff's claims from being decided on the merits, "this court does not favor entry of defaults or default judgments." United States v. $55, 518.05 in U.S. Currency, 728 F.2d 192, 194 (3d Cir. 1984). Accordingly, the Third Circuit has clarified that, while "the entry of a default judgment is left primarily to the discretion of the district court, " this "discretion is not without limits, " and cases should be "disposed of on the merits whenever practicable." Hritz, 732 F.2d at 1181 (citations omitted); see also $55, 518.05 in U.S. Currency, 728 F.2d at 194-95.
Pursuant to Rule 55(c), "[t]he court may set aside an entry of default for good cause." Fed.R.Civ.P. 55(c). In exercising its discretion to vacate the entry of default, the Court must consider three factors: "(1) whether the plaintiff will be prejudiced; (2) whether the defendant has a meritorious defense; and (3) whether the default was a result of the defendant's culpable conduct." Budget Blinds, Inc. v. White, 536 F.3d 244, 255 (3d Cir. 2008) (citing $55, 518.05 in U.S. Currency, 728 F.2d at 195).
Any doubts in this inquiry are "to be resolved in favor of the party moving to set aside the default judgment so that cases may be decided on their merits." Ford v. Consigned Debts & Collections, Inc., No. 09-3102, 2010 WL 2758182, at *2 (D.N.J. July 12, 2010) (citing $55, 518.05 in U.S. Currency, 728 F.2d at 194-95). "[M]atters involving large sums should not be determined by default judgment if it can reasonably be avoided, ' since the interests of justice are best served by a trial on the merits.'" Livingston Powdered Metal, Inc. v. N.L.R.B., 669 F.2d 133, 136-37 (3d Cir. 1982) (quoting Tozer v. Charles A. Krause Milling Co., 189 F.2d 242, 245 (3d Cir. 1951)).
A. Meritorious Defense
The Third Circuit "consider[s] the meritorious-defense factor the threshold issue....'" Nationwide Mut. Ins. Co. v. Starlight Ballroom Dance Club, Inc., 175 F.Appx. 519, 522 (3d Cir. 2006) (quoting Hritz, 732 F.2d at 1181). The defendant is required to "set forth with some specificity the grounds for his defense.'" Id. The court then "look[s] at the substance of that defense to determine whether it is meritorious." Id. (citation omitted). But the court "need not decide the legal issue' at this stage of review." Id. (quoting Emcasco Ins. Co. v. Sambrick, 834 F.2d 71, 74 (3d Cir. 1987)).
Here, Aureus argues that this Court lacks personal jurisdiction over it. Dkt. No. 28 at p. 7. The personal jurisdiction inquiry in New Jersey "is collapsed into a single step because the New Jersey long-arm statute permits the exercise of personal jurisdiction to the fullest limits of due process." IMO Indus., Inc. v. Kiekert AG, 155 F.3d 254, 259 (3d Cir. 1998) (citation omitted)."[T]he New Jersey Supreme Court has made it clear that New Jersey courts look to federal law for the interpretation of the limits on in personam jurisdiction." Id. The Due Process Clause allows in personam jurisdiction over nonresidents so long as the defendant "has certain minimum contacts with [the forum] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (internal quotation marks omitted)). To establish the existence of minimum contacts, "the plaintiff must show that the defendant has ...