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June 20, 1984

CUSTOM IMPORTS, INC., Plaintiff, against HANMEE TRADING CO., INC., JAE D. SONG, Defendants.

The opinion of the court was delivered by: COOPER


Plaintiff, a Nevada corporation and the owner of United States Copyright Registration Number VA 67-398 for a long-arm monkey puppet, instituted this action to recover damages for alleged breaches of several agreements by defendants, Hanmee Trading Co., Inc. ("Hanmee"), a New York corporation, and Mr. Jae D. Song, president and sole shareholder of Hanmee. The case was tried to the Court on November 7 and 8, 1983. We reserved dicision at the conclusion of the trial and now find defendants wholly liable for breaches of contract.


 The present dispute stems from a prior contest that the parties for considerable teme had amicably resolved. In November of 1982, Hanmee began importing a specific type of monkey puppet into the United States. The puppet was characterized by its fluffy exterior, its long arms and legs which had Velcro (an adhesive often used on cloth products) on hands and feet. The operator could wrap the puppet's arms around the neck and stick the hands together by using the Velcro; likewise, the legs wrapped around the operator's waist and the feet stuck together. The puppets had squeaking horns in the throat area enabling it to "talk."

 Hanmee's monkey puppets were impounded by the United States Customs Service when in November 1982 they arrived in the United States because another company, plaintiff herein, already owned a copyright in the product. Thereupon Hanmee instituted an action against plaintiff and the Customs Service under 28 U.S.C. §§ 1331 and 1338 to release the allegedly infringing puppets. (Joint Pre-Trial Order, PP5, 6, at 2-3) On November 24, 1982 (before trial) the parties entered into a settlement agreement (Ex. 1A) *fn1" which provided, in relevant part to immediately (1) execute a general release in favor of Customs Imports; (2) enter into a Copyright License Agreement between the parties; (3) execute a guaranty by defendant Song; and (4) stipulate to dismiss with prejudice all of Hanmee's claims against Custom Imports.

 On that same date, the Copyright License Agreement ("License Agreement") (Ex. 2) was executed. It provided, inter alia, that Hanmee: (1) acknowledged the validity of the copyright and agreed not to challenge its validity; (2) agreed to pay plaintiff a royalty of four dollars per dozen on infringing monkey puppets imported into the United States between September 1 and December 31, 1982; (3) advise plaintiff seven days in advance of the scheduled arrival of any infringing puppets imported by Hanmee; (4) immediately supply plaintiff with a copy of all shipping and United States Customs Service documents relating to the infringing puppets; (5) would make sworn, written reports confirming the number of infringing puppets imported as well as written statements that no other such puppets had been imported; (6) keep accurate records and allow Custom Imports' representatives to inspect its boks and records in order to verify accuracy; (7) was prohibited from importing infringing puppets into the United States after January 1, 1983; and (8) that Custom Imports would be entitled to recover all payments called for by the License Agreement as well as reasonable attorneys fees, costs and interest in the event of breach. *fn2"

 The Guaranty of Performance ("Guaranty") (Ex. 4) was executed by Mr. Song on November 24, 1982. It guaranteed the full and timely performance of Hanmee pursuant to the provisions of the License Agreement, including all payments due as well as attorneys fees and costs for breach of the agreement. Song further agreed to be sued by Custom Imports with or without joining Hanmee and without first or contemporaneously suing Hanmee or otherwise seeking to collect from the company.

 On an undated and unsigned paper sent by Hanmee to plaintiff sometime after December of 1982, i.e., after the contract deadline date for importation of infringing monkey puppets, Hanmee listed the quantities and dates of puppets imported during the contract period. (Ex. 15) The list showed a total of 6,839 dozen puppets for which $27,356.00 was paid in royalty payments. *fn3" The invoices for the sale of these puppets listed the model numbers as Hanmee style numbers 833M, 833 S. & M. 731, 731 S, 334, and 334S.Plaintiff and defendants dispute whether these numbers refer to a type or a size of puppet. After reviewing the Hanmee catalogues (Exs. 16, 17), we find that the three different numbers reflect different colors of the monkey puppet and these particular letters (i.e., "M," "SM," "S" or the lack of any letter following the number) reflect various sizes.

 In late January to early February 1983, plaintiff's president, Carl Bai, travelled to Seoul, Korea and learned through a representative of a large Korean export company that Hanmee was still importing the monkey puppets (Carl Bai Affidavit in Support of Preliminary Injunction). Thus, by letters dated December 10, 17 and 30, 1982, January 28, and March 18, 1983, plaintiff informed Hanmee that the latter was defaulting, particularly with regard to Hanmee's obligations to make and deliver written reports confirming the number of infringing puppets that had been imported, the failure of Hanmee to execute its general release in favor of Customs Imports, and the refusal of Hanmee to allow Customs Imports its right under the License Agreement to inspect Hanmee's books and records in connection with the importation of monkey puppets. (Exs. 6, 8, 10, 11, and 14); Joint Pre-Trial Order, P18, at 7).

 On March 25, 1983, Judge Weinfeld signed an order to show enjoining defendant from either disposing of the puppets in any way or the documents relating to the puppets; requiring defendants to impound all puppets imported after January 1, 1983 pending the outcome of this action; accounting for all monkey puppet imports since September 1, 1983; permitting plaintiff to inspect defendants' books and records concerning purchase, sale, importation, transfer or location of monkey puppets; permitting plaintiff to make copies of ducuments; and promoting discovery by ordering and deposition of defendant Song on a particular date and time. The order granting a preliminary injunction was filed on April 12, 1983 together with an oral opinion previously filed.

 Pursuant to Judge Weinfeld's order, plaintiff attempted to inspect the material documents. Plaintiff and defendants contest whether defendants did, in fact, show such documents to plaintiff. Based on the total trial record and the strong impression made on us by John E. Daniel, Esq., plaintiff's attorney and witness, we find that plaintiff was not given for examination all the relevant documents. Plaintiff then reviewed thousands of purchase orders and learned that there were more sales than imports accounted for. Mr. Song still refused to give plaintiff the key documents, whereupon plaintiff subpoenaed both Hanmee's bank, Marine Midland Bank, and a shipper Hanmee used in order to collect documents demonstrating the defendant's monkey puppet imports. The documents showed imports about which Hanmee had never informed plaintiff. Plaintiff confronted Hanmee with this information and finally Hanmee capitulated to giving plaintiff invoices and other pertinent shipping documents. (Tr. 7-8) The invoices listed descriptions such as "SM." or "LG. HG. MONKEY" (Exs. 19I, 20B) and "HUGGING MONKEY" (Exs. 21D, 21I, 21E, 22F, 23D, 24D) adjacent to one of six style numbers, i.e., 833M, 833 S. & M. 731, 731 S, 334, or 334S.

 Desirous of an explanation, plaintiff scheduled a deposition of Mr. Song. The date was adjourned twice, and on the date ultimately set (approximately August 26, 1983) (Tr. 111), Mr. Song did not appear. The parties then appeared before Magistrate Buchwald who directed the defendant to appear at the next scheduled deposition. Mr. Song appeared and explained that at least some of the imports arrived in Los Angeles before September 1, 1982 (the date on which defendants had to begin paying royalties to plaintiff) and then were sent to New York where they arrived on September 7. (Tr. 9-10) The explanation conflicted with the form prepared by Hanmee's customs broker, Mr. Simon Byun, who recorded "September 7, 1982" as the date of importation. (Ex. 33C)

 Mr. Song further explained that the products that were shipped were not infringing monkey puppets but rather were other non-infringing puppets. (Tr. 11, 27) He deposed that the order had been changed and that the invoices did not reflect that change since such an alteration would cause delays. (Tr. 11) Plaintiff requested documents supporting Mr. Song's explanation, but, with the exception of a one sheet inventory report from January 1983 given to plaintiff three days before the trial, they were not produced.

 On November 7, 1983, the first day scheduled for trial, plaintiff moved to dismiss defendants' affirmative defenses and counterclaims and to impose sanctions under Fed. R. Civ. P. 37 in connection with defendants' defense that the puppets imported were different from those covered in the License Agreement. We heard oral ...

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