Civil Procedure

Fact pattern

A is a video game designer who works for X, a corporation that develops and markets video games. The terms of A’s employment are memorialized in a written contract between A and X. On June 1, X is scheduled to release a new video game, titled Battle Zone. A is the principal designer of that game.

During the production of Battle Zone, A develops interpersonal conflicts with some of X’s executives. The conflicts begin with disagreements over the game’s design, but they soon become more personal. Indeed, the conflicts get so pronounced that on April 1, A abruptly resigns from X and goes to work for Z, X’s rival video game company. 

Despite A’s departure, X releases Battle Zone on June 1, as planned. However, on June 5, Z releases a new game called Combat Sector, with A as the principal designer. The two games share some similarities, mainly as to plot and visual design. Upon realizing the similarities, X and Z promptly accuse each other of copyright infringement. In addition, X accuses Z of improperly inducing A to breach his employment contract with X. 

X sues Z in the appropriate U.S. district court, alleging that Z infringed X’s copyrights in Battle Zone. Z answers the complaint and adds a counterclaim, alleging that X has infringed Z’s copyrights in Combat Sector. Both X’s and Z’s claims arise under a federal statute, the Copyright Act of 1976. Assume that the court has subject-matter and personal jurisdiction, and that venue is proper. 

After discovery, and feeling vulnerable, X decides that it does not wish to pursue the matter further. Accordingly, X files a motion to voluntarily dismiss its claim against Z. Z objects to the dismissal; Z wants the lawsuit to continue, because it feels that it has the upper hand at this point. The judge grants the motion to dismiss; the order of dismissal specifies that the dismissal is without prejudice. The judge also orders that Z’s counterclaim will proceed to trial as a stand-alone claim. (Assume that the court continues to have personal and subject-matter jurisdiction, and that venue remains proper.) The judge provides notice of the trial date to both X and Z, and both parties receive this notice. 

X believes that Z’s counterclaim should have been dismissed when X’s own claim was dismissed, and therefore X does not attend the trial. In open court, the judge takes notice of X’s failure to appear and orders the clerk of court to enter X’s default. On Z’s motion, the judge then schedules a damages hearing for 14 days later. The judge provides notice of this hearing to X, and X receives this notice. At the hearing, X appears and objects to the proceeding, while Z presents evidence as to damages. The court enters a default judgment for Z in the amount of $500,000. 

One month later, X sues Z in the same U.S. district court, claiming that Z intentionally interfered with the contractual relationship between X and A. Z immediately moves for summary judgment, arguing that X’s suit is barred by claim preclusion because X previously dismissed its copyright claim.

Questions

1. Was the court correct to order a trial on Z’s counterclaim? Explain.
2. Was the court correct to enter a default judgment against X? Explain.
3. Is X’s second lawsuit barred by claim preclusion, based on X’s dismissal of its copyright claim? Explain.