Breuer Elec. Mfg. Co. v. Toronado Systems of America, Inc.

• Decision Date: 16 August 1982
• Docket Number: No. 81-2511,81-2511
• Citation: 687 F.2d 182
• Parties: , 11 Fed. R. Evid. Serv. 1293 BREUER ELECTRIC MANUFACTURING CO., Plaintiff-Appellee, v. TORONADO SYSTEMS OF AMERICA, INC., and Michael Marshak a/k/a Michael Majchrzak, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 182

687 F.2d 182

217 U.S.P.Q. 24, 11 Fed. R. Evid. Serv. 1293

BREUER ELECTRIC MANUFACTURING CO., Plaintiff-Appellee, v. TORONADO SYSTEMS OF AMERICA, INC., and Michael Marshak a/k/a

Michael Majchrzak, Defendants-Appellants.

No. 81-2511.

United States Court of Appeals, Seventh Circuit.

Argued May 6, 1982.

Decided Aug. 16, 1982.

Richard B. Harty, Wheaton, Ill., for defendants-appellants.

Michael Piontek, Gary Juettner & Pyle, Chicago, Ill., for plaintiff-appellee.

Before WOOD and ESCHBACH, Circuit Judges, and LARSON, Senior District Judge. ^*

ESCHBACH, Circuit Judge.

The issues presented in this appeal from a default judgment are: whether the district court abused its discretion in declining to set aside the original entry of default; whether the district court abused its discretion in declining to grant relief from the default judgment; and whether the relief awarded was appropriate. We affirm.

Plaintiff Breuer Electric Manufacturing Company (Breuer) sells vacuum cleaners, other cleaning machinery and cleaning solutions under its "Tornado" trademark. The "Tornado" mark has been registered to and in use by Breuer for more than fifty years. The wholesale value of the Tornado brand products sold by Breuer during the period 1970 through 1980 exceeded $70,000,000, and an average of 140 persons have been employed in the production of these goods. Given Breuer's long, continuous use of the mark, its extensive sales of products bearing the mark and substantial promotional efforts, the mark is one of Breuer's most valuable assets. Individual defendant Michael Marshak is the president of corporate defendant Toronado Systems of America (TSA), which he founded in 1974. TSA sells car wash equipment, including automobile vacuum cleaners and cleaning solutions, under the names "Tornado" and "Toronado."

Seeking to persuade defendants to cease using the registered mark "Tornado" and the similar term "Toronado" in connection with defendants' business, Breuer engaged in settlement negotiations with TSA and Marshak for at least one year prior to filing suit. Failing to achieve what it desired by these means, Breuer ultimately filed suit in the district court on September 20, 1980, accusing defendants of trademark infringement and unfair competition and of violating analogous Illinois laws pertaining to deceptive trade practices.

Having been duly served on September 25, 1980, defendants were required by Rule 12(a), Fed.R.Civ.P., to file an answer or one of the responsive motions permitted under Rule 12 within 20 days after that date. However, although an appearance was filed on defendants' behalf on October 15, 1980, defendants still had failed to answer or otherwise respond to the complaint as of November 17, 1980, at which time plaintiff filed a "motion to show cause why default should not be entered for failure to answer." In addition to setting forth the grounds for entry of default, this motion applied for a default judgment granting injunctive and monetary relief. On November 21, 1980, the district judge considered the motion for default at a hearing in open court at which defendants were represented by counsel. At the close of this hearing the judge stated on the record that he was entering the motion for default; the judge then admonished defense counsel as follows:

If you want to ask leave to plead you are going to have to file something that sets forth the reasons for the delay because (relief from entry of default) is not just granted as a matter of course under the Federal rules.

The trial court held a second hearing on December 4, 1980 to give defendants an additional opportunity to respond to the entry of default. Immediately prior to this hearing, defendants filed an "answer to motion for default," and tendered to plaintiff's counsel a proposed answer to the complaint. During the hearing on December 4, 1980, the trial judge warned defense counsel that the papers defendants had filed as of that date did not appear to satisfy the requirements for setting aside a default. On January 14, 1981, having received nothing further from defendants, the trial court granted plaintiff's motion for default judgment as to liability. Defendants then took a premature appeal which was dismissed by this court for want of appellate jurisdiction in an unpublished order.

On May 18, 1981, the trial court held an evidentiary hearing to determine what relief, if any, was to be granted plaintiff. Defendants received advance notice and were represented by counsel at this hearing. Plaintiff waived monetary relief beyond one dollar in nominal damages and asked that defendants be ordered to cease further use of the terms "Tornado" and "Toronado" and destroy all infringing materials. Plaintiff called defendant Marshak as a witness and also called a Breuer officer who testified to the nature of Breuer's business and the likelihood that defendants' use of the terms in question engendered confusion in the marketplace for plaintiff's products. Defense counsel cross-examined plaintiff's witness but presented no other evidence. After the close of all the evidence, defendants submitted, rather incongruously, a "motion for a directed verdict." For the most part, this untimely and unorthodox motion merely makes conclusory assertions that plaintiff failed to prove the essential elements of its claims of trademark infringement and unfair competition; the motion addresses the question of appropriate relief only to the extent that it contends in a single sentence, without any elaboration, that irreparable harm was not established.

In a judgment order dated August 10, 1981, the trial court denied defendants' motion for directed verdict and granted the relief plaintiff requested. Plaintiffs were awarded one dollar in damages and defendants were ordered to:

1. cease using the names "Tornado" and "Toronado" in connection with the sale of vacuum cleaning equipment, auto washing machinery and cleaning solutions;

2. deliver-up for destruction any materials in their possession bearing the disputed names;

3. delete the disputed names from their buildings and vehicles; and,

4. acquire a different corporate name.

Although Rule 55(a), Fed.R.Civ.P. refers to entry of default by the clerk, it is well-established that a default also may be entered by the court. 6 Moore's Federal Practice P 55.03(1) at 55-31 (1976 ed.). We are satisfied that the trial judge's statements on the record in open court at the November 21, 1980 hearing constituted a proper entry of default. Thus, in order to have the entry of default set aside, it was incumbent upon defendants to show: good cause for their default, quick action to correct it and a meritorious defense to plaintiff's complaint. Chandler Leasing Corp. v. UCC, Inc., 91 F.R.D. 81 (N.D.Ill.1981) (Aspen, J.); United States v. Topeka Livestock Auction, Inc., 392 F.Supp. 944, 950-51 (N.D.Ind.1975) (Eschbach, C. J.). See generally 10 Wright & Miller, Federal Practice & Procedure § 2692 at 300 (1973 ed.).

Defendants' "good cause" showing was weak. They asserted as follows in their "answer" to the motion for default:

1. That the Principal Defendant is a Corporation, and that there are two (2) new shareholders (owners) of the said Corporation.

2. That said Parties were not aware of the issues involved in the instant cause until suit was instituted.

3. That a meeting relative to possible settlement was had of the said Parties, and a review was made of a "Proposed Settlement Agreement" submitted to Defendants by the Plaintiff herein.

4. That said Defendants were attempting to control and limit the expense of this litigation and therefore requested Counsel to delay the filing of Pleadings herein.

5. That the Plaintiff has not been prejudiced by the delay in this cause.

Regardless of the advent of two new shareholders, it is clear that the individual defendant, Marshak, and the corporate defendant, TSA, through its agent, Marshak, were "aware of the issues" long before this suit was filed, having been involved in the settlement talks. Defendants' argument that the trial court's consideration of the prior settlement negotiations violated Rule 408, Fed.R.Evid., is ridiculous. Rule 408 controls when evidence of settlement attempts is offered "to prove liability" (emphasis added), but it "does not require...