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Sprint Solutions, Inc. v. Lafayette

United States District Court, W.D. Tennessee, Western Division

June 22, 2018

SPRINT SOLUTIONS, INC. and SPRINT COMMUNICATIONS COMPANY, L.P., Plaintiffs,
v.
IRVIN BRYAN LAFAYETTE, EDDIE D. DANLEY, EMANUEL LAFAYETTE, MARCUS S. HALL, JOHN DOES 1-2, and JANE DOES 1-20, Defendants.

          ORDER

          SAMUEL H. MAYS, JR. UNITED STATES DISTRICT COURT JUDGE

         Before the Court is Plaintiffs Sprint Solutions, Inc. and Sprint Communications Company L.P.'s (collectively, “Plaintiffs” or “Sprint”) unopposed September 12, 2017 Motion for Default Judgment and Permanent Injunction Against Defendants Irvin Bryan Lafayette, Eddie D. Danley, Emanuel Lamont Lafayette, and Marcus S. Hall (collectively, “Defendants”) (“the Motion”). (ECF No. 47.) Oral argument is unnecessary. Fed.R.Civ.P. 78(b).

         For the following reasons, the Motion is GRANTED in part and DENIED in part.

         I. Background

         Plaintiffs sell wireless phones under the brands Sprint, Boost Mobile, Virgin Mobile, payLo, and Assurance Wireless for use on Sprint's wireless network. (Compl., ECF No. 1 ¶ 1.) Plaintiff Sprint Communications Company, L.P. owns federal trademark registrations for the stylized Sprint® marks, which are depicted below:

         (IMAGE OMITTED) (Id. ¶ 30.)

         Plaintiff Sprint Solutions, Inc. has been assigned the right to use and enforce the Sprint® marks. (Id.) Plaintiffs have also been assigned the right to use and enforce the standard character and stylized Virgin Mobile, payLo, Assurance Wireless, and Boost Mobile trademarks, which are depicted below:

         (IMAGE OMITTED) (Id. ¶ 31.)

         Plaintiffs sell their phones for substantially less than their manufacture price. (Id. ¶ 22.) Plaintiffs earn revenue from the sale of Sprint's wireless service, which customers must use to transmit and receive calls, texts, and data on Sprint phones. (Id.) Plaintiffs offer reduced phone prices only if the phones are intended for use on the Sprint wireless network. (Id. ¶ 26.) In addition to subsidizing the phones, Plaintiffs offer customers the option of leasing the phones or purchasing them through installment payments. (Id. ¶ 23.) Those subsidies and investment programs are not offered by telecommunications carriers outside the United States. (Id.) Manufacturers that produce wireless phones for Plaintiffs install proprietary software to prevent the phones from being used outside the Sprint network. (Id. ¶ 26.)

         Sprint phones are also sold subject to certain terms and conditions, which restrict the resale and use of the phones. (Id. ¶ 24.) Those terms and conditions are set out in printed inserts that are included with the purchase of every Sprint phone. (Id.) Customers may manifest their agreement to these terms and conditions by signing a written contract, orally acknowledging their agreement over the phone, clicking appropriate buttons on a website, or, in the case of prepaid services, by purchasing a phone in a package conspicuously indicating that the purchase or use constitutes the customer's agreement. (Id. ¶ 25.)

         Plaintiffs recently discovered that, although large quantities of their phones are purchased throughout the United States, a significant number are not being used on the Sprint network. (Id. ¶ 34.)[1]

         Plaintiffs also recently discovered that Defendants acquired Sprint phones directly or indirectly through co-conspirators by illicit means, such as through unauthorized orders on existing Sprint accounts and diverting Sprint phones from their intended destinations. (Id.) Defendants then sold the phones for a substantial profit and shipped them directly overseas, where they can be used on other wireless carriers' networks, or shipped to other domestic traffickers, who add them to larger shipments headed overseas. (Id.)[2] Plaintiffs refer to this conduct as a “Handset Theft and Trafficking Scheme.” (Id. ¶ 1.)

         As part of the alleged scheme, Defendants call Sprint customer care and falsely identify themselves as Sprint employees who need access to a particular Sprint account for a legitimate purpose. (Id. ¶ 40.) If Defendants succeed in acquiring account access, they place another call to Sprint and represent themselves as the account holder or person authorized to access the account, place orders, and make changes. (Id. ¶ 41.) Defendants use this unauthorized access to receive upgrades for new Sprint phones, add lines of service, and place unauthorized orders for new mobile devices. (Id.) Any cost is charged to the legitimate customer's account, without the customer's knowledge or consent. (Id.) Defendants have the merchandise shipped to addresses in Memphis, Tennessee, to which they have access, and then resell the merchandise. (Id. ¶ 42.)

         The alleged scheme requires Defendants to call Sprint thousands of times to change account information and to steal equipment and services from Sprint and its customers. (Id. ¶ 45.)

         Between March 2015 - August 2015, Sprint's investigators observed Defendants and their co-conspirators obtain shipments and subsequently advertise devices matching the shipment descriptions. (See id. ¶¶ 45, 49, 50-52, 54.)

         Sprint filed a complaint against Defendants on September 10, 2015. (ECF No. 1.) The complaint asserts fourteen (14) counts: (1) unfair competition, (2) tortious interference with existing and prospective business relationships, (3) common law and statutory inducement of breach of contract (Tenn. Code Ann. § 47-50-109), (4) conspiracy to defraud, (5) unjust enrichment, (6) common law fraud and fraudulent misrepresentation, (7) trafficking in computer passwords (18 U.S.C. § 1030(a)(6)), (8) unauthorized access (18 U.S.C. § 1030(a)(5)(C)), (9) unauthorized access with intent to defraud (18 U.S.C. § 1030(a)(4)), (10) federal trademark infringement (15 U.S.C. § 1114)), (11) federal common law trademark infringement and false advertising (15 U.S.C. § 1125)), (12) contributory trademark infringement, (13) conversion, and (14) unfair and deceptive acts and practices (Tenn. Code Ann. §§ 47-18-101, et seq.). The complaint seeks compensatory, consequential, statutory, and special damages; attorneys' fees and costs, and permanent injunctive relief.

         Defendants have not responded to the complaint, and the deadline to do so has passed. Fed.R.Civ.P. 12(a)(1)(A). Defendants have not appeared.

         On Sprint's motion, the clerk of court filed an entry of default against Defendants Irvin Bryan Lafayette and Eddie D. Danley on November 10, 2015. (ECF Nos. 24-27.) On Sprint's motion, the clerk of court filed an entry of default against Defendant Emanuel Lamont Lafayette on April 29, 2016. (ECF Nos. 36-37.) On Sprint's motion, the clerk of court filed an entry of default against Defendant Marcus S. Hall on June 9, 2016. (ECF Nos. 40-41.)

         On September 12, 2017, Sprint moved for default judgment. (ECF No. 47.) Defendants have not filed a response to Sprint's motion for default judgment, and the deadline to do so has passed.

         II. Jurisdiction & Choice of Law

         A. Jurisdiction

         A court's default judgment is invalid unless it has subject-matter and personal jurisdiction. See, e.g., Citizens Bank v. Parnes, 376 Fed.Appx. 496, 501 (6th Cir. 2010) (citing Kroger Co. v. Malease Foods Corp., 437 F.3d 506, 510 (6th Cir. 2006)).

         The Court has subject-matter jurisdiction over Sprint's federal trademark infringement claims, 15 U.S.C. §§ 1114 and 1125, and Computer Fraud and Abuse Act (CFAA) claims, 18 U.S.C. § 1030. Under 28 U.S.C. §§ 1331, United States district courts have original jurisdiction “of all civil actions arising under the Constitution, laws, or treaties of the United States.” Sprint's federal trademark infringement claims and CFAA claims arise under the laws of the United States.

         The Court has supplemental jurisdiction over Sprint's state-law claims under 28 U.S.C. § 1367. Those claims derive from a “common nucleus of operative fact” with the federal-law claims. United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966); Soehnlen v. Fleet Owners Ins. Fund, 844 F.3d 576, 588 (6th Cir. 2016); see also 28 U.S.C. § 1367(a).

         “Due process requires proper service of process for a court to have jurisdiction to adjudicate the rights of the parties.” O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 353 (6th Cir. 2003). Plaintiff bears the burden of exercising due diligence to perfect service of process and to show that proper service has been made. See Byrd v. Stone, 94 F.3d 217, 219 (6th Cir. 1996).

         Default judgment is improper where service has not been effected. See, e.g., O.J. Distrib, 340 F.3d at 353 (“Due process requires proper service of process for a court to have jurisdiction to adjudicate the rights of the parties. Therefore, if service of process was not proper, the court must set aside an entry of default.” (citation omitted)).

         Summonses issued for Defendants Irvin Bryan Lafayette, Emanuel Lafayette, Eddie D. Danley, and Marcus S. Hall on September 10, 2015. (ECF Nos. 7-10.) The propriety of service must be evaluated separately for each Defendant. See O.J. Distrib., 340 F.3d at 353.

         1. Defendants Eddie D. Danley and Irvin Bryan Lafayette

         Affidavits of service were filed as to Defendants Eddie D. Danley and Irvin Bryan Lafayette on October 13, 2015. (ECF Nos. 11-12.) Those affidavits demonstrate that service was made by delivering a copy of the summons at each Defendant's dwelling or usual place of abode with someone of suitable age and discretion who resided there. (Id.) Service of process was proper for Defendants Eddie D. Danley and Irvin Bryan Lafayette.

         2. Defendant Emanuel Lafayette

         A summons was returned executed as to Defendant Emanuel Lafayette on March 25, 2016. (ECF No. 33.) The proof of service is blank. (Id. at 416.) The person who signed the summons is Eneka Lafayette. (Id. at 417.)

         Plaintiffs have failed to satisfy their burden to establish proper service on Defendant Emanuel Lafayette. Eneka Lafayette is not a party to this action. It is unclear whether Eneke Lafayette resided at Defendant Emanuel Lafayette's dwelling or usual place of abode. Service of process is improper under Federal Rule of Civil Procedure 4(e)(2). It is also improper under Federal Rule of Civil Procedure 4(e)(1) because it fails to satisfy Tennessee service laws.

         Tennessee Rule of Civil Procedure 4B “permits service on the secretary of state as the defendant's agent for service of process, whenever it is constitutionally permissible for the courts of the state to exercise personal jurisdiction over the defendant.” Thompson v. Ameriquest Mortg. Co., No. W2011-00501-COA-R3CV, 2011 WL 6016892, at *1 (Tenn. Ct. App. Dec. 5, 2011) (quoting Robert Banks, Jr. & June F. Entman, Tennessee Civil Procedure § 2-5(b), at 2-64 to -65 (3d ed. 2009)). Under Rule 4B, the plaintiff must deliver the original and a copy of the process, duly certified, to the Tennessee Secretary of State, who then sends it by registered or certified return receipt mail to the defendant. Tenn. R. Civ. P. 4B(2). Rule 4B provides:

Acceptance of such registered or certified mail by any member of the addressee's family, over the age of sixteen (16) years and residing in the same dwelling with him, shall constitute a sufficient delivery thereof to the addressee.

Tenn. R. Civ. P. 4B(5).

         Eneka Lafayette is unidentified. Without more, service of process was improper as to Defendant Emanuel Lafayette. Plaintiff's Motion against him is DENIED.

         3. Defendant Marcus S. Hall

         The original summons issued for Defendant Marcus S. Hall listed Hall's address as: 2765 Pickering Drive, Apt.3, Memphis, Tennessee 38115. (ECF No. 10.) A second summons issued for Defendant Hall on February 16, 2016. (ECF No. 31-1.) That summons listed the original Memphis address and added three addresses in Georgia. (Id.)

         On April 4, 2016, Sprint filed what appears to be a Notice of Service. (ECF No. 34.) It says that the Notice and summons were sent to Defendant Hall at one of the three Georgia addresses listed in the second summons. (Id.) The Notice is addressed to Defendant Hall from the Tennessee Secretary of State. (Id.) The filing also contains a scanned copy of the second summons and a letter addressed to Defendant Hall that has a stamp: “Return to Sender. Unclaimed.” (Id.)

         On May 16, 2016, Sprint filed a “Summons Returned Executed” as to Defendant Hall. (ECF No. 38.) The filing has a copy of the second summons and an Affidavit and Endorsement by an agent of the Tennessee Secretary of State. (Id.) The Affidavit states that a notice of service and summons were sent to Defendant Hall and addressed to a second Georgia address: 370 Northside Drive NW, Atlanta, GA, 30318. (Id.) The certified mail was allegedly returned undelivered, containing the notation: “Return to Sender. Unclaimed.” (Id.) Sprint filed this document twice. (See ECF No. 39.) The Affidavit does not state whether the Notice was sent to a specific apartment number. The second summons lists the second Georgia address with two separate apartments: Apt. 2303 and Apt. 2242. (Id. at 446.) It is unclear from the Affidavit whether the Notice and summons was delivered to either of those apartments. Sprint has not filed any notice or affidavit as to the Memphis address listed on the second summons.

         Sprint's attempts do not constitute proper service under Federal Rule of Civil Procedure 4(e)(2) or Tennessee law. See Fed. R. Civ. P. 4(e)(1).

         Tennessee Rule of Civil Procedure “4B(1), in effect, permits service on the secretary of state as the defendant's agent for service of process, whenever it is constitutionally permissible for the courts of the state to exercise personal jurisdiction over the defendant.” Thompson, 2011 WL 6016892, at *1 (quoting Tennessee Civil Procedure § 2-5(b), at 2-64 to - 65). Rule 4B(7) provides that, if a plaintiff attempts to make service on the secretary of state as the defendant's agent, and if the secretary of state receives notice that its registered or certified mail is undelivered, service may be complete if (1) the undelivered mail, (2) affidavit, and (3) a copy of the notice are part of the record. Tenn. R. Civ. P. 4B(7).

         None of Sprint's filings addressing Defendant Hall satisfies Rule 4B(7). The April 2016 filing does not include an affidavit. (See ECF No. 34.) The May 2016 filing does not state to which apartment, if any, the summons and notice were sent, and does not include the undelivered mail or a copy of the notice. (See ECF No. 38-39.) Service of process was improper as to Defendant Marcus S. Hall. Plaintiff's Motion against him is DENIED.

         B. Choice of Law

         Plaintiffs explicitly invoke Tennessee law. (See ECF No. 1; see also ECF No. 47-1.) Defendants have not challenged the application of Tennessee law. The Court will apply Tennessee substantive law. See GBJ Corp. v. E. Ohio Paving Co., 139 F.3d 1080, 1085 (6th Cir. 1998) (finding courts need not analyze choice-of-law questions sua sponte).

         III. Standard of Review

         Rule 55(b)(2) of the Federal Rules of Civil Procedure governs default judgments. See Fed.R.Civ.P. 55(b). “When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.” Fed.R.Civ.P. 55(a). Once the Court Clerk enters default, all well-pleaded allegations are deemed admitted, except those concerning damages. See Antoine v. Atlas Turner, Inc., 66 F.3d 105, 110-11 (6th Cir. 1995).

         As to damages, “[t]he allegations in the complaint . . . are not deemed true. The district court must instead conduct an inquiry in order to ascertain the amount of damages with reasonable certainty.” Vesligaj v. Peterson, 331 Fed.Appx. 351, 355 (6th Cir. 2009) (quoting Credit Lyonnais Sc. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999)); see also Fed.R.Civ.P. 55(b)(2). A court may reach a reasonable certainty on the correct amount of damages from the record without conducting a hearing. See Vesligaj, 331 Fed.Appx. at 355.

         A hearing under Rule 55(b)(2) is not necessary where there is sufficient evidence in the record to make a determination as to damages. See, e.g., id; Boards of Trustees of Ohio Laborers' Fringe Benefit Programs v. Akron Insulation & Supply, Inc., No. 2:15-CV-2864, 2017 WL 749202, at *3 (S.D. Ohio Feb. 27, 2017).

         IV. ...


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