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Case 1:16-cv-00654-CMH-TCB Document 29 Filed 12/29/16 Page 1 of 10 PageID# 170

IN THE UNITED STATES DISTRICT COURT


FOR THE EASTERN DISTRICT OF VIRGINIA
- Alexandria Division

JOHN BOAL PHOTOGRAPHY, LLC

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)
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versus
HANNOVER HOUSE, INC. and
ERIC PARKINSON

Case No. 1:16-cv-00654-CMH/TCB

DEFENDANTS REPLY MEMORANDUM TO OPPOSITION


TO SET ASIDE ENTRY OF DEFAULT
Defendants Hannover House, Inc. and its CEO, Eric Parkinson, on December 15, 2016
filed their Motion to Set Aside the Default on the 2-Count Complaint in this matter (Dkt. ##1726). Now they submit their Reply Memorandum to the Opposition filed by Plaintiff John Boal
Photography, LLC (Photography LLC) (Dkt. #28).
On September 29, 2016, the Clerk issued an Entry of Default (Dkt. #11) in this matter.
After a flurry of filings, this Court, in its November 21, 2016 Order, directed that defendants
have until December 15, 2016 to file an appropriate responsive pleading (Dkt. #17).
Defendants Hannover House, Inc. and Eric Parkinson met this deadline when they filed on
December 15th their Answer, the Motion to Set Aside the Entry of Default, and their Rule
12(b)(6) Motion to Dismiss.
Photography LLC has since filed its Opposition Memorandum. This Reply
Memorandum follows.

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1. Introduction and Summary of Reply Argument.


Fourth Circuit case law reflects a strong preference that, as a general matter, defaults be
avoided and that claims and defenses be disposed of on their merits. See, e.g., Tazco, Inc. v.
Director, Office of Workers Comp. Program, U.S. Dep't of Labor, Consolidated Masonry &
Fireproofing, 895 F.2d 949, 950 (4th Cir. 1990) ("Generally a default should be set aside where the
moving party acts with reasonable promptness and alleges a meritorious defense"); Consolidated
Masonry & Fireproofing, 383 F.2d 249 (4th Cir. 1967) (same); Saurikit, LLC v. cydia.com, No.
1:11cv0888 JCC/JFA, 2011 WL 5843638 (E.D. Va. Nov. 21, 2011) (Anderson, J.).
In their earlier Motion and Memorandum, Hannover House/Parkinson addressed the six
Rule 55(c) factors set forth in in Payne ex rel. Estate of Calzada v. Brake, 439 F.3d 198 (4th Cir.
2006), argued that they had responded to the Courts Order with reasonable promptness, and
identified meritorious defenses. For the given reasons, the Entry of Default should be set aside.
In its opposition arguments, Photography LLC (1) contends that there was no reasonable
promptness, (2) complains that Hannover Houses Wyoming incorporation was somehow a
dark secret intentionally hidden from the business world, (3) misapplies Arkansas law in its quest
to impose personal liability on CEO Eric Parkinson, and (4) seeks to debunk Hannover
House/Parkinsons legal defenses to the Copyright Infringement claim.
Hannover House/Parkinson reply to these opposition arguments, and in doing so draw
from their earlier-filed Motion and Supporting Memorandum to Set Aside the Entry of Default
(Dkt. ## 19-20), and also from their Rule 12(b)(6) Motion to Dismiss and the associated
Supporting Memorandum (Dkt. ## 24-25).

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2. Reasonable Promptness--Courts December 15, 2016 Deadline Met.


Defendants complied with the Courts Order and met the given deadline. This should
qualify as reasonable promptness. This Court, in its November 21, 2016 Order, directed that
defendants have until December 15, 2016 to file an appropriate responsive pleading.
Defendants Hannover House, Inc. and Eric Parkinson met this deadline when they filed on
December 15th their Answer, the Motion to Set Aside the Entry of Default, and their Rule
12(b)(6) Motion to Dismiss.
Photography LLC suggests now that a June 2016 Blog entry negates this compliance.
It does not.
Sometime in June 2016, Hannover House, Inc. must have learned of the Photography
LLC lawsuit. This was well before service of process; the Court Docket shows service three
weeks later on July 19, 2016. Eric Parkinson acknowledges in his Affidavit (Ex. 2 to the
December 15th Memorandum) that the service papers got to him even though the process was
flawed in some respects; Hannover House, Inc. and Parkinson make no issue of this. Hannover
House, Inc. routinely discloses to its investors via its HannoverHouseMovies Blog on an array of
developments. The June 29, 2016 Blog posting under General Update on HHSE Corporate
Matters, included as Item 6(c) under Legal Issues a 3-line note identifying a vendor lawsuit.
In hindsight, Defendants should have been more diligent. They fumbled their early
responses in this case. But at this point, the critical Order and date are the Courts November
21st Order and the December 15th deadline. Hannover House, Inc. and Eric Parkinson recovered
in time to fully comply within the Courts deadline. To now withdraw that safe harbor would be
to reverse the Courts own November 21st Order and would also be fundamentally unfair.

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3. The Meritorious Defenses to the Complaint.


While Photography LLC disagrees with the positions taken by Hannover House, Inc. and
CEO Eric Parkinson in their pleadings and Answer, the primary issue for the Court is whether
Defendants have alleged a meritorious defense or claim. A meritorious defense requires a
proffer of evidence which would permit a finding for the defaulting party or which would
establish a valid counterclaim. The underlying concern is . . . whether there is some possibility
that the outcome . . . after a full trial will be contrary to the result achieved by the default.
Saurikit, LLC v. cydia.com, citing Augusta Fiberglass Coatings, Inc. v. Fodor Contracting
Corp., 843 F.2d 808, 812 (4th Cir. 1988).
Hannover House, Inc. has acknowledged the $1000 owed for the photography services
identified in Photography LLCs August 2015 invoice (see FIGURE 1 in the December 15th
Memorandum and Ex. 1 attached to that Memorandum). On the Count 2 claims where
Photography LLC alleges that it is due statutory damages of more than $2 million, Hannover
House aggressively denies the claim and asserts its defenses. CEO Eric Parkinson denies all
individual liability, and as further protection, adopts Hannover House, Inc.s substantive
defenses.
a. Hannover House, Inc.No Secret that it is and has been
a Wyoming Corporation since 2009.
The Complaint in this matter identifies the wrong corporate entity. Notwithstanding
Photography LLCs dark secret protestations, unless and until the Complaint is amended to
correctly identify Hannover House, Inc., the claims are deficient.
The Complaint at 5 alleges Upon information and belief, Hannover House, Inc. . . . is
an Arkansas corporation . . . . Photography LLC was apparently working on bad and
incomplete information, and it possessed a misguided belief. In fact, Hannover House, Inc. is,
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and has been since 2009, a publicly-traded Wyoming corporation. Confirmation of this
incorporation was provided in Ex. 4 to the Hannover House/Parkinson original Memorandum.
After the Hannover House, Inc. truth was brought forward in Defendants December 15th
Memorandum in Support, Photography LLC shifted to its dark secret argument. This
argument fares no better. As a straightforward factual point, Hannover House, Inc.s Wyoming
incorporation is readily accessible publicly available information. As shown in FIGURE 1
below, the specifics of Hannover House, Inc.s existence, including the state of incorporation, is
and has been for several years accessible via the Internet.
FIGURE 1
SECs EDGAR Database Identifies Hannover House, Inc.
as a Wyoming Corporation

The Hannover House, Inc. website (upper left) (www.hannoverhouse.com) in the taskbar
at the top of the home page lists among the options Investors, a common identifier of a
publicly-traded company. The #1 storehouse of information on publicly traded companies is the
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EDGAR database of company filings accessed from the U.S. Securities and Exchange
Commissions website (upper right) (sec.gov/edgar/searchedgar/companysearch.html).
Page 1 of the first Hannover House, Inc. filing identifies Wyoming as the state of incorporation
(sec.gov/Archives/edgar/data/106980/000147124215000085/hhse10q09302016.htm). A basic
3-step search confirms the Wyoming incorporation.
Photography LLCs arguments of bad faith concealment (Opposition Memo. at 6),
extraordinary lengths to appear as an Arkansas incorporated entity (Opposition Memo. at 7),
and that Defendants improperly misrepresent of their claim that Hannover House is not the
same corporation . . . (Opposition Memo. at 3) have no traction. Before the Court considers any
legal argument, it should appreciate that the foundational facts recited by Photography LLC are
just plain wrong.
Photography LLC has sued the wrong entity and is not excused from having to sue the
right corporate entity. Hannover House, Inc. has not waived this core requirement, but has
offered to make this an easier task by accepting through its counsel service of a properly
amended Complaint.
b. Misapplied Arkansas Corporate LawNo Individual Liability.
Eric Parkinson, as Hannover Houses CEO, has no personal liability for the corporations
acts as alleged in either Count 1 or Count 2 of the Complaint. Photography LLC misapplies
Arkansas corporate law to construct its argument.
A basic tenet of corporate law is that the corporate entity shields the officers, directors,
and shareholders from personal liability. See, e.g., 114 Am. Jur. Proof of Facts 3d 403
(Originally published in 2010) (. . . a corporation is regarded as a separate legal entity, separate
and distinct from its stockholders, officers, and directors, with separate and distinct liabilities and

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obligations). Exceptions to this protection, referred to as piercing the corporate veil, are
typically statutory. For example, Arkansas law holds individuals who masquerade as
corporations individually liable. Photography LLC cites A.C.A 4-27-204, which provides:
All persons purporting to act as or on behalf of a corporation, knowing there
was no incorporation under this chapter, are jointly and severally liable for all
liabilities created while so acting.
But Photography LLCs reliance on this statute is misplaced. The section does not
require that the incorporation be in Arkansas, and hence the section has no application to CEO
Eric Parkinson because Hannover House, Inc. at all relevant times is and was incorporated.
Indeed, Arkansas is bound under Article IV, Section 1 of the U.S. Constitution,1 the full faith
and credit clause, to recognize incorporations under the laws of other states. That the
incorporation is in Wyoming and not Arkansas does not expose Parkinson to the sanctions of this
Arkansas Code section.
Arkansas law does provide that foreign corporations that fail to register with the state are
subject to various reprimands, including fines. See A.C.A. 4-27-1502. But the reprimands in
this Code section apply to the corporate entity, and do not reach the corporate officers and
directors. The statute explicitly provides in subpart (e) [t]he failure of a foreign corporation to
obtain a certificate of authority does not impair the validity of its corporate acts or prevent it
from defending any proceeding in this state. Under Arkansas law (and most probably the law
of every other state) the failure to register does not pierce the corporate veil provided by

The U.S .Constitution, Article IV, Section 1 reads:


Full Faith and Credit shall be given in each State to the public Acts, Records, and
judicial Proceedings of every other State. And the Congress may by general Laws
prescribe the Manner in which such Acts, Records, and Proceedings shall be
proved, and the Effect thereof.
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incorporation in another statecertainly the relevant Arkansas statute imposes no such severe
sanction on Eric Parkinson.
The 102-year old case identified by Photography LLC, American Hardwood Lumber Co.
v. T.J. Ellis & Co., 115 Ark. 524 (1914), concerns service of process on a corporate agent as
adequate service on the corporation. The case has no bearing on individual liability under the
Arkansas Business Corporation Act of 1987 (which replaced the repealed Wingo Act, the 1965
Arkansas corporate statute), the statute from which Plaintiff cites.
c. Defenses to Count 2, the Copyright Infringement Claim.
Photography LLCs Count 2 alleges violations of the U.S. Copyright Act and seeks
statutory damages under the Act. As Defendants explained in their Rule 12(b)(6) Supporting
Memorandum, the Complaint fails to allege a requisite element for a claim of Copyright
Infringement. See Rule 12(b)(6) Memorandum in Support at 3-4. The Complaint does not
allege that Photography LLC is the copyright owner. The Opposition Memorandum asserts that
the copyrights are registered to John Boal, the sole member of Photography LLC. There is no
allegation in the Complaint of transfer or assignment of the copyright registrations. This failing
is fatal to the Count 2 claim as now stated.
Also, the Opposition Memorandum does not rebut the defense that the images at issue are
works-for-hire under the Copyright Act, which means that Hannover House, Inc., not
Photography LLC, has the legitimate claim to the copyrights. Defendants Memorandum in
Support spotlights Photography LLCs invoice that identifies the work assignment, delivery
instruction and agreed payment, which together support the work-for-hire defense (see FIGURE
1, Memorandum in Support at 2 and Ex. 1 to the Memorandum.)

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An additional defense not yet pleaded but likely to be soon added as facts emerge is that
Photography LLC granted Hannover House, Inc. an implied license to post the images at issue.
If the agreement for the photography services and delivery of the images does not include the
magic words suggested by Photography LLC, the agreement terms recited in the August 2015
Invoice minimally support a finding of an implied license for Hannover House, Inc. to use the
images. This finding would entirely defeat Count 2.
In sum, Hannover House, Inc. and Eric Parkinson have strong defenses to Photography
LLCs $2 million claim spun from a $1000 services engagement.
4. Conclusion
For the reasons given by Defendants Hannover House, Inc. and Eric Parkinson in their
December 15th Motion to Set Aside and the Supporting Memorandum, and the reasons argued
above, the Court should grant Defendants Motion to Set Aside the Entry of Default and deny the
Motion for Entry of Judgment.
Respectfully submitted,
HANNOVER HOUSE, INC.
ERIC PARKINSON
By Counsel

____/ss/ James S. Kurz_______________


James S. Kurz (VSB #16610)
Daniel D. Mauler (VSB #73190)
REDMON PEYTON & BRASWELL LLP
510 King Street, Suite 301
Alexandria, VA 22314
Ph: (703) 684-2000
Fax: (703) 684-5109
JKurz@RPB-law.com
dmauler@rpb-law.com
Counsel for Defendants
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CERTIFICATE OF ELECTRONIC SERVICE


I hereby certify that on December 29, 2016, I served the foregoing Reply Memorandum
by ECF (electronic case filing) upon the following counsel of record:
Christina Sirois (VSB No. 84454)
Dan Backer (VSB No. 78256)
DB Capital Strategies, PLLC
203 South Union Street, Suite 300
Alexandria, VA 22314T

____/ss/ James S. Kurz____________


James S. Kurz (VSB #16610)
Daniel D. Mauler (VSB #73190)
REDMON PEYTON & BRASWELL LLP
510 King Street, Suite 301
Alexandria, VA 22314
Ph: (703) 684-2000
Fax: (703) 684-5109
JKurz@RPB-law.com
dmauler@rpb-law.com
Counsel for Defendants

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