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Perfect Fit Industries Inc. v. ACME Quilting Co.

decided: March 5, 1982.

PERFECT FIT INDUSTRIES, INC., PLAINTIFF-APPELLEE,
v.
ACME QUILTING CO., INC., DEFENDANT-APPELLANT.



Appeal from an order of the United States District Court for the Southern District of New York, Constance Baker Motley, Judge, imposing a $5000 per day contingent fine upon civil contemnor. Affirmed.

Before Feinberg, Chief Judge, Kearse, Circuit Judge, and Metzner, District Judge.*fn*

Author: Kearse

This case returns to us following our remand of so much of an order of civil contempt entered on June 24, 1980, in the United States District Court for the Southern District of New York, Constance Baker Motley, Judge ("June 24 Order"), as imposed on defendant-appellant Acme Quilting Co., Inc. ("Acme"), a contingent $5000 per day fine on account of its contempt of injunctive orders of that court. We remanded for clarification by the district court of the purpose and basis of the fine in order that we might rule on Acme's contention that the amount of the fine was arbitrary and capricious. In light of the district court's clarification, we conclude that the court properly imposed the contingent fine in order to compel Acme to comply with the court's injunctive orders and that the amount of the fine was not so high as to constitute an abuse of the court's discretion. Accordingly, we affirm so much of the June 24 Order as has not already been affirmed.

BACKGROUND

The history of this action is described in detail in two prior opinions of this Court, 618 F.2d 950 (2d Cir., 1980) and 646 F.2d 800 (2d Cir., 1981), familiarity with which is assumed. A summary of the prior proceedings will suffice here.

In April 1977, plaintiff-appellee Perfect Fit Industries, Inc. ("Perfect Fit"), instituted suit against Acme contending that Acme had wrongfully appropriated Perfect Fit's trade dress in designing inserts called "J-boards," which are used by both firms in the marketing of mattress covers. After a bench trial, the district court concluded that Perfect Fit's J-board was "distinctive and memorable," that Acme's J-board was "very similar" to it, and that Acme had "deliberately copied" Perfect Fit's J-board. The district court concluded, however, that Perfect Fit had not proven all the elements necessary to recover under either federal or state law. 484 F. Supp. 643. Perfect Fit appealed, and we reversed in part, holding that Perfect Fit had shown a sufficient likelihood of consumer confusion that, under New York law, it was entitled to injunctive relief. We remanded for entry of an injunctive order prohibiting Acme from using the misappropriated trade dress. 618 F.2d at 955.

On remand, after a hearing and written submissions from the parties, the district court issued an order dated May 19, 1980 ("May 19 Order"), requiring Acme to cease using the offending J-boards immediately and directing Acme to deliver to Perfect Fit's counsel by June 3, 1980, all of the offending J-boards and related materials, and to send, by the same date, recall letters to Acme's customers. Acme failed to take any steps to comply with the May 19 Order by June 23, and on June 24 the court held Acme in civil contempt. The court's June 24 Order directed Acme to surrender its stock of the offending J-boards and mail the recall letters by June 27, and to surrender J-boards received pursuant to the recall by July 28. In addition, the court imposed a contingent fine of $5000 for each day, subsequent to these new deadlines, that Acme continued its noncompliance with the court's injunctive orders.

Acme appealed from both the injunctive and the contempt orders. We affirmed the injunction and affirmed so much of the June 24 Order as held Acme in contempt. 646 F.2d at 810. However, we remanded the June 24 Order insofar as it imposed the contingent fine, and directed the district court to explain the basis and purpose of the fine, so that we could adequately review Acme's contention that the amount was arbitrary. Id. We retained jurisdiction to review the fine following the district court's explication.

The District Court's Basis for the Fine

On remand, the district court, after hearing from the parties, filed an opinion dated October 20, 1981, explaining its purpose in imposing the contingent fine, its view of the need for a fine of significant size, and the factors it had considered in determining the appropriate amount of the fine. The court stated that the purpose of the fine was to compel Acme to obey the injunctive orders of the court:

The intent of this court in imposing a contingent fine of $5,000 per day in the Order of June 24, 1980, was to coerce the defendant into compliance with the Order of May 19, 1980 as revised by the Order of June 24, 1980. This court found that defendant had willfully failed to even inform itself of the provisions of the final injunctive order which it knew had been entered. A more brazen contempt of court would be difficult to come by.

Although the intent of the Order of June 24, 1980 was, in part, to prevent additional future damage to plaintiff by inducing compliance with the Order of May 19, 1980, there was no intention to compensate plaintiff for any damage it had suffered to that date.

At 3. Observing that prior to the June 24 Order Acme had taken no steps toward compliance with the May 19 Order and had offered no valid excuse for its noncompliance, id. at 4, the court concluded that Acme's noncompliance had been "deliberate," id. at 6, and "willful," id. at 7. Judging that compliance with the court's injunctive orders was necessary to avert future harm to Perfect Fit, id. at 5, and future disrespect for the orders of the court, id. at 4-5, the court concluded that "compliance with the (injunctive) orders could be achieved only through economic sanction," id. at 4.

In determining the amount of the fine to be collected in the event that Acme continued, past the new deadlines, to disobey the court's orders, the court stated that it had considered a number of factors. These included the magnitude of the harm threatened to Perfect Fit in the event of Acme's continued noncompliance, id. at 4-5; the fact that Acme is a business enterprise presumably motivated by economic considerations, id. at 6; the need to impose a fine sizeable enough to "make it economically unwise for defendant to continue to ignore the provisions of the previous court orders," id.; and the seriousness of the burden on Acme, id. at 7. In assessing the magnitude of future harm to Perfect Fit, the court noted, inter alia, that in the first year after Acme's misappropriation of Perfect Fit's trade dress Acme had sold some four million mattress pads, and it inferred from Acme's sales and its market position that Acme had sufficient market power to inflict great damage. In assessing the burden on Acme, the court noted that its June 24 Order had given Acme time in which to purge itself of its prior contempt with no fine, id. at 2, 7; had imposed the fine only prospectively and contingently, to be collected only if the new schedule were not met, id. at 7; and had provided that the fine was to continue only so long as Acme failed to comply, id. In addition, the court noted that Acme was a sizeable company with pre-1980 sales exceeding $20 million per ...


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