FEDERAL TRADE COMMISSION v. EMP MEDIA INC EMP (2020)

ORDER DENYING MOTION TO SET ASIDE DEFAULT JUDGMENT

[ECF No. 33]

Defendant Shad Applegate, also known as Shad Cottelli, moves to set aside the default judgment that was entered against him. Cottelli contends that he was unaware that he had been sued, and that plaintiffs the Federal Trade Commission and the State of Nevada (collectively, the FTC) were not diligent in attempting to serve him with process. Thus, he contends, the court improperly approved an alternative service of process method, rendering the judgment void.

I. Legal Standards

Several legal principles are at issue here. First, a motion to set aside a judgment “must be made within a reasonable time.” Fed. R. Civ. P. 60(c)(1). “Reasonableness is a factual question judged on a case-by-case basis.” J & J Sports Prods., Inc. v. El Chamizal, LLC, No. 2:12-CV-01905-APG, 2015 WL 668889, at *1 (D. Nev. Feb. 17, 2015) (citing Ashford v. Steuart, 657 F.2d 1053, 1055 (9th Cir. 1981)).

Second, Cottelli moves for relief under Federal Rules of Civil Procedure 60(b)(4) and (6). Rule 60(b)(4) permits the court to set aside a judgment if it is void. Cottelli must show that this court lacked personal or subject matter jurisdiction or that entry of the judgment violates his due process rights. Rubicon Glob. Ventures, Inc. v. Chongquing Zongshen Grp., 575 F. App'x 710, 712 (9th Cir. 2014). Rule 60(b)(6) permits the court to set aside a judgment for “any other reason that justifies relief.” Relief under “Rule 60(b)(6) has been used sparingly as an equitable remedy to prevent manifest injustice. The rule is to be utilized only where extraordinary circumstances prevented a party from taking timely action to prevent or correct an erroneous judgment.” United States v. Alpine Land & Reservoir Co., 984 F.2d 1047, 1049 (9th Cir. 1993). “Rule 60(b)(6) is not a substitute for 60(b)(1).” Id. at 1050.

Finally, a motion to set aside a default and a default judgment must demonstrate good cause. Fed. R. Civ. P. 55(c) (default); see also, United States v. Signed Pers. Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (same standard for default judgment). To determine good cause, I “must consider three factors: (1) whether the party seeking to set aside the default engaged in culpable conduct that led to the default; (2) whether [he] had no meritorious defense; or (3) whether reopening the default judgment would prejudice the other party.” Signed Pers. Check, 615 F.3d at 1091 (quotations and citation omitted). This standard is disjunctive: a finding that any these factors is true is sufficient for me to refuse to set aside the judgment. Id. “[H]owever, judgment by default is a drastic step appropriate only in extreme circumstances; a case should, whenever possible, be decided on the merits.” Id. (internal quotes and citation omitted).

II. Analysis

The FTC investigated the defendants for their connection to a “revenge porn” website. Cottelli knew about the investigation and impending lawsuit and corresponded with his co-defendant, Aniello Infante, about potential defenses shortly before the complaint was filed. See ECF No. 12-5 at 4 (Infante Decl. ¶ 17) and 22 (Attachment H). For over a year, the FTC went to great lengths attempting to contact Cottelli about the investigation and to serve him with the lawsuit. The FTC tracked Cottelli through various email accounts he had used and hired investigators in Nevada, South Africa, and the United Kingdom.

Magistrate Judge Koppe reviewed the FTC's efforts to locate and serve Cottelli, and ultimately permitted the FTC to serve him through several different email addresses. ECF No. 16. Alternative service of process does not violate due process when it is “reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” Rio Props., Inc. v. Rio Int'l Interlink, 284 F.3d 1007, 1016 (9th Cir. 2002) (internal quotes and citation omitted). Determining the “particularities and necessities” of alternative service is left to the sound discretion of the district court. Id. Here, Magistrate Judge Koppe properly directed the FTC to serve Cottelli through the several email addresses that he had used in the recent past. Due process was satisfied.

The default judgment was entered against Cottelli on June 18, 2018. ECF No. 30. He learned of the judgment no later than September 2019. ECF Nos. 42 at 7:18-23. But he waited at least another six months before moving to set it aside in March 2020. Given the circumstances of this case, including Cottelli's prior knowledge of the FTC's investigation and impending lawsuit, this delay was not reasonable.

The FTC will be significantly prejudiced if I set aside the default judgment. To protect the privacy of the revenge porn victims, after judgment was entered, the FTC destroyed the evidence it would need at a trial. ECF No. 36 at 15. This would put the FTC at a severe disadvantage if the judgment was set aside and the case had to go to trial. Cottelli is an elusive, globe-trotting person, which both made it difficult to find and serve him with process and would make it difficult to conduct discovery and a trial (even if the FTC could serve him anew if prior service was deemed void). While entry of a default judgment is a drastic step, Signed Pers. Check, 615 F.3d at 1091, the unique circumstances of this case make it appropriate to keep in place the default judgment against Cottelli.

III. Conclusion

I THEREFORE ORDER that Cottelli's motion to set aside the default judgment (ECF No. 33) is DENIED.

ANDREW P. GORDON, UNITED STATES DISTRICT JUDGE