RageOn Seeks Relief from Atari's $1.1m Default Judgment, While Its Seized Bank Funds Sit With U.S. Marshal

BIG PICTURE

Rageon.com markets itself as the “world’s largest all-over print online retailer” giving “freedom of creation to the masses.” Rageon.com enables “artists from around the globe” to “create and sell any design that comes to mind with no investment other than time.”

Atari sued and obtained a large default judgment against RageOn, Inc. for facilitating the sale of counterfeit products bearing Atari IP on RageOn’s platform. After the U.S. Marshal seized money in RageOn’s bank account (getting RageOn’s attention), RageOn filed an ex parte motion to set aside the default judgment. The court denied the motion, but agreed to give RageOn a chance, on a regularly noticed motion schedule, to make a full argument as to why the judgment should be set aside. Meanwhile, RageOn cannot access any of the money seized by the U.S. Marshal, allegedly causing it all kinds of financial distress (e.g., not being able to make payroll).

COMPLAINT

On December 20, 2019, Atari sued RageOn for “facilitating the sale of substantial quantities of counterfeit goods” bearing Atari’s IP and taking a 25% commission from the sellers.

Atari provides several visual examples in its complaint:

It’s a garden variety counterfeit complaint, with nine different claims, but they all just boil down to: (1) copyright infringement; and (2) trademark infringement.

ENTRY OF DEFAULT AND JUDGMENT AGAINST RAGEON

On December 27, 2019, RageOn received service of process through its registered agent, but did not answer or otherwise respond to the complaint or otherwise participate in the litigation. Between December 30 and January 9, RageOn’s CEO, Mike Krilivsky, emailed his attorney Betty Tufariello numerous times asking for an update but Tufariello did not respond.

On January 16, 2020, Tufariello finally responded stating that “Atari and I are in discussion. I have 21 days. And he is aware of my traveling” and told Krilivsky that she was going to file a stipulation to extend RageOn’s deadline to respond to the complaint. However, Tufariello did not file any stipulation or respond to the complaint by the deadline.

On January 23, 2020, Krilivsky spoke to Atari’s counsel on the phone and by email, explaining that RageOn was being represented by Tufariello, who purportedly received a two-week extension to respond to the complaint from a person named Daniel Sahad. But when Atari’s counsel explained that no one by the name of Daniel Sahad worked at their law firm and that Atari was “about to proceed with default judgment against RageOn because its attorney did not file anything,” RageOn ceased communications and failed to respond. In a footnote, the court observes, of Daniel Sahad, that “there does not appear to be a member of the California bar with that name.”

On January 30, 2020, the clerk entered default pursuant to F.R.Civ.P. 55(a), for RageOn’s failure to file a responsive pleading or otherwise defend the action.

On February 3, 2020, Krilivsky again emailed Atari’s counsel requesting to have a phone call, but counsel declined, as the court observes, presumably due to ethical duties not to communicate with represented opposing parties. Then Krilivsky contacted an “attorney friend” who told him that default had been entered.

On February 10, 2020, Krilivsky followed up with Tufariello who, that same day, filed a motion to withdraw as counsel for RageOn in another matter citing failure to pay, “irreconcilable differences regarding litigation strategy” and “certain conflicts of interest that have recently come up in the present matter, as well as in two other matters, in which I also represent Defendant,” including one matter that “named Intellectulaw and me personally as Defendant’s co-defendants, as a result of my representaiton of Defendant in that matter.”

On February 12, 2020, Tufariello nevertheless texted Krilivsky “that the only pressing deadlines involved non-Atari matters and that ‘the deadlines imposed by Court are being met.” This was not true.

On March 13, 2020, Krilivsky spoke with Tufariello who failed to inform him about the entry of default or her failure to answer the complaint. Krilivsky received no additional case updates which he assumed was because of COVID-19 related court closures.

On April 2, 2020, the court granted Atari’s application for default judgment, in part. The court found the direct copyright and trademark claims sufficient and ignored the other seven claims. The court enjoined RageOn from infringing Atari’s copyrights and trademarks, but declined to award Atari the maximum relief of 4.75 million. Instead, the court exercised its “broad discretion in determining the amount of statutory damages to be awarded,” did some ballpark math about how many infringing products RageOn probably sold and how much profit it probably made, and arrived at a damages figure of $800,000 in Lanham Act damages — but nothing for copyright damages and no attorney’s fees. However, the court also permitted Atari to file a supplemental brief to address these issues, which Atari did.

On April 14, 2020, the court issued a supplemental order regarding Atari’s motion for default judgment. Initially, Atari had failed to establish that its copyrights were registered prior to the first infringement (a necessary prerequisite to obtain statutory damages and attorney’s fees under the Copyright Act). Needless to say, Atari fixed this issue and then sought the maximum statutory damages under the Copyright Act of $150,000 per instance of willful infringement. Again, the court exercised its discretion and declined to award the maximum amount. Instead, the court again did some ballpark math about RageOn’s likely business model and profits and awarded “$60,000 per copyright, twice the maximum for non-willful infringement.” This amounted to $300,000 in copyright damages, to which the court added attorney fees of $25,600, and the original Lanham Act award of $800,000, for a grand total of $1,125,600, plus the injunction.

On April 15, 2020, the court entered judgment.

WRIT OF EXECUTION ISSUED

On June 23, after identifying RageOn’s bank account, Atari requested an order from the court to issue a Writ of Execution and for appointment of a process server to actually serve the Writ on RageOn. The next day, the court issued the Writ and granted Atari’s request. Atari successfully levied on RageOn’s bank account.

On June 29, 2020, Krilivsky learned that approximately $882,000 in his Bank of America account had been seized by a U.S. Marshal. This helped clarify for Krilivsky that the situation was quite dire, causing him to hire new counsel and file an application for relief.

EX PARTE APPLICATION FOR RELIEF AND ORDER

On July 6, 2020, RageOn filed an emergency ex parte application to set aside the judgment and prevent Atari from enforcing the judgment. In opposition, Atari argued that RageOn provided “no plausible explanation why it failed to retain new counsel to represent it in this case after its separation with Ms. Tufariello, or otherwise defend the case.”

On July 10, the Court denied RageOn’s ex parte motion, but granted its request to prohibit Atari from taking further steps to enforce the default judgment or to enforce the Writ of Execution pending decision on a noticed motion. The levied bank funds are now sitting with the U.S. Marshal and the parties have until August to file additional briefs for the court to consider, on a regularly noticed motion schedule, whether to set aside the default judgment.

Needless to say, this is quite awful for RageOn, because it cannot access those substantial funds unless and until the court decides to set aside the default judgment. Of course, that is what happens when you ignore lawsuits and/or hire incompetent counsel to represent you.

[Thanks to Docket Navigator for access to the docket and pleadings in this case.]