Venegas-Hernandez v. Sonolux Records
| Decision Date | 07 June 2004 |
| Docket Number | No. 03-2015.,No. 03-2014.,03-2014.,03-2015. |
| Citation | 370 F.3d 183 |
| Parties | Maria VENEGAS-HERNANDEZ; Guillermo Venegas-Hernandez; Rafael Venegas-Hernandez; Yeramar Venegas-Velazques; Guillermo Venegas-Lloveras, Inc., Plaintiffs, Appellants/Cross-Appellees, v. SONOLUX RECORDS, Defendant, Appellee/Cross-Appellant, Sony; Sony Discos, Inc., Defendants. |
| Court | U.S. Court of Appeals — First Circuit |
Heath W. Hoglund, for appellants/cross-appellees.
David M. Rogero, on brief for appellee/cross-appellant.
Before TORRUELLA, Circuit Judge, JOHN R. GIBSON, Senior Circuit Judge,* and LYNCH, Circuit Judge.
This case raises several novel issues, including an important question of the meaning of the statutory damages provision of the Copyright Act, 17 U.S.C. § 504(c), and the question of whether Fed.R.Civ.P. 59(e) is ever available to alter or amend a default judgment entered under Fed.R.Civ.P. 55(b).
The heirs of a Puerto Rican popular songwriter sued two recording companies for copyright infringement of some of the songwriter's best-selling songs. One of those companies defaulted and ended up with a $1.6 million judgment against it. The judgment was based on statutory damages for sixteen albums that each included at least one of two infringed songs. Plaintiffs also sought actual damages and defendant's profits for a seventeenth album, but the court at the default judgment hearing found that such damages and profits were not proven. The defaulting defendant, Sonolux Records ("Sonolux"), a U.S. company, then moved promptly under Rule 55(c) to set aside the entry of default and the default judgment. Sonolux also moved under Rule 59(e), in the alternative, to amend the judgment to reduce the damages award.
Sonolux's attempt to remove the default and the entry at all of a default judgment was heard and rejected by a second judge. However, that judge granted Sonolux's Rule 59(e) motion to amend the amount of the judgment, and the statutory damages award for the copyright infringement was reduced from $1,600,000 to $200,000 on the ground that the larger amount was based on an incorrect reading of the statutory damages provision of the Copyright Act, 17 U.S.C. § 504(c).
After careful review, we affirm the denial of defendant's motion to set aside the entry of default and the default judgment and affirm the grant of defendant's Rule 59(e) motion. The entry of a default judgment stands, but we vacate the amount of that judgment and remand the amount determination to the district court for further proceedings consistent with this opinion.
Plaintiffs are the children of Guillermo Venegas-Lloveras, a noted composer, who inherited the copyright in 197 of his songs. They filed a copyright infringement suit against Sonolux in U.S. district court in September 2001. Sonolux had published recordings of two of the copyrighted songs, "Desde Que Te Marchaste" and "No Me Digan Cobarde,"1 on sixteen different albums by different artists. Sonolux had also used portions of "Desde Que Te Marchaste" in a seventeenth album called "Sentimientos." Plaintiffs had duly registered their copyright claims to both songs.
Sonolux failed to answer the complaint and a default was entered against it on January 24, 2002, under Fed.R.Civ.P. 55(a). Plaintiffs applied to the court for entry of a default judgment under Fed.R.Civ.P. 55(b)(2) and sent Sonolux notice of the damages hearing. Sonolux still did not appear to defend. Plaintiffs elected to seek statutory damages, rather than to try to prove actual damages and defendant's profits, for sixteen albums. They also sought actual damages for another album called "Sentimientos." Because Sonolux had not appeared, plaintiffs had no opportunity to obtain discovery and thus were disadvantaged in proving actual damages and defendant's profits as to each of the songs.
Plaintiffs represented to the district court that they were entitled to the measure of statutory damages multiplied by the number of albums containing the infringed songs. They did not provide citations, nor did they alert the judge that the statute had been interpreted differently by courts.
On February 3, 2003, the court found that plaintiffs had failed to prove actual damages or profits as to the album "Sentimientos," but, simply accepting plaintiffs' statement of the correct measure of damages, awarded plaintiffs $1.6 million in statutory damages for the infringement of the two songs on the other albums. The court concluded that "an award of $100,000 for each of 16 works, or a total of $1,600,000 represents a fair measure of damages in this case." This was based on "the willful nature of Defendant's conduct as well as the potential to discourage future infringement."2
After the default judgment issued on February 19, 2003, Sonolux appeared for the first time on March 6, 2003 and filed a motion under Rule 55(c) to set aside the default entry and default judgment, or, in the alternative, to amend the default judgment under Rule 59(e). In the Rule 59(e) motion, Sonolux argued, inter alia, that the district court had erred in its damages calculation by applying the statutory damages rate to the number of infringing albums (sixteen) rather than to the number of infringed songs (two). The district court, now a different judge, who was the first to address the question of the correct measure of damages, denied Sonolux's motion to set aside the default and default judgment but found the damages calculation to be a "manifest error of law" and granted the Rule 59(e) motion. The court reduced the damages award to $200,000 using the method of statutory damages calculation advanced by Sonolux. This appeal and cross-appeal ensued. Plaintiffs appeal the grant of Sonolux's Rule 59(e) motion to amend the default judgment and the finding that they did not prove defendant's profits on the album "Sentimientos." Sonolux cross-appeals the denial of its motion to set aside the default and default judgment.
Sonolux challenges the denial of its motion to set aside both the entry of default and the entry of a default judgment. Rule 55(c) sets up different standards for setting aside an entry of default under Rule 55(a) and setting aside a default judgment under Rule 55(b). We take up each in turn.
An entry of the default itself may be set aside "[f]or good cause," Fed.R.Civ.P. 55(c), a term that is liberally construed. United States v. $23,000 in United States Currency, 356 F.3d 157, 164 (1st Cir.2004). Among the factors that a court may consider are whether the default was willful and whether removal of the default would prejudice the plaintiff. Id. There is no precise formula for the "good cause" analysis. KPS & Assoc., Inc. v. Designs by FMC, Inc., 318 F.3d 1, 12 (1st Cir.2003). Our review of the denial of the motion to set aside the entry of default is for abuse of discretion; we review any factual findings underlying the denial for clear error. Id.
There was no abuse of discretion here. Having been properly served with a summons and a complaint, and later given notice of the damages hearing, defendant intentionally did not appear in the case until more than a year after the filing of the complaint and ten days after the default judgment was entered. Defendant was well aware of the ongoing litigation, and the district court was justified in discounting defendant's excuse. Sonolux claimed that it "never intended to default, reasonably understood that the claims of the Plaintiffs were being properly dealt with, and [was] mistaken in apparently failing to note the significance of the Plaintiffs' filing of a duplicative lawsuit." The court rejected those claims, noting that plaintiffs' suit was a major multi-million dollar copyright infringement action that could not have been easily ignored, that defendant was given proper notice of the suit, and that it was defendant's obligation to learn the specifics of the suit and keep informed of its progress. We believe that the district court did not abuse its discretion in reaching these conclusions. Defendant's decision not to appear also may have prejudiced plaintiffs' case by preventing them from obtaining sufficient evidence on which to prove actual damages and defendant's profits.
A default judgment may be set aside "in accordance with Rule 60(b)." Fed.R.Civ.P. 55(c). Although Sonolux's motion did not reference Rule 60(b), we understand its argument that the default judgment should be vacated entirely to rely essentially on the theory that its actions in failing to appear constituted "excusable neglect." That argument fits within the requirements of Rule 60(b)(1), which allows a court to relieve a party from a judgment on account of "mistake, inadvertence, surprise, or excusable neglect." The reason for a defendant's delay is a critical factor in the excusable neglect inquiry. See $23,000, 356 F.3d at 164.
Our review of the district court's denial of defendant's Rule 60(b) motion is also for abuse of discretion, id. at 165, and we find none here. For the same reasons that defendant cannot satisfy the more liberal "good cause" standard for setting aside the entry of default, defendant cannot show that its actions constituted "excusable neglect." Defendant has offered no adequate justification for its failure to respond in this case; its decision not to respond appears to have been willful. As a result, the decision that defendant does not deserve a new opportunity to litigate the entry of a default judgment is sound.
Plaintiffs challenge the grant of defendant's Rule 59(e) motion to amend a default judgment by reducing the damages amount. That challenge raises an issue that has not been addressed by either party or previously by this court.
It is by no means clear that a Rule 59(e) motion is even a valid mechanism for altering or amending a default...
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